HATO REY PARTNERSHIP

9 Months Ended

Sep. 30, 2011

Noncontrolling Interest [Abstract]

Noncontrolling Interest Disclosure [Text Block]

9.      HATO REY PARTNERSHIP

PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership. Presidential and PDL, Inc. have an aggregate 60% general and limited partner interest in the Hato Rey Partnership.  The Company exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business.  Accordingly, prior to the adoption of the liquidation basis of accounting, the Company consolidated the Hato Rey Partnership in the accompanying consolidated financial statements.

The Hato Rey Partnership owns and operates the Hato Rey Center, an office building with 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico.  The Company agreed to lend up to $2,750,000 to the Hato Rey Partnership to pay for the cost of improvements to the building and fund any negative cash flows from the operation of the property.  The loan, which was advanced from time to time as funds were needed, bears interest at the rate of 13% per annum, with interest and principal to be paid out of the first positive cash flow from the property or upon a refinancing of the first mortgage on the property.  At December 31, 2010, the Company had advanced $2,670,000 of the loan to the Hato Rey Partnership.  The $2,670,000 loan and accrued interest in the amount of $1,175,281 were eliminated in consolidation at December 31, 2010.

The first mortgage loan on the Hato Rey Center property is due on May 11, 2028 and, since May 11, 2008, provided for an interest rate on the loan of 9.38% per annum (of which 2% per annum is deferred until maturity) and all cash flow from the property, after payment of all operating expenses, to be applied to pay down the outstanding principal balance of the loan.  There has been no net cash flow available to pay down the mortgage balance.  At December 31, 2010, the outstanding principal balance of the first mortgage loan was $14,578,454 and the deferred interest was $912,389.

As a result of increased vacancies at the building in 2011, the net operating income from the property is not sufficient to pay the monthly installments due on the first mortgage loan on the property and the expenses of operating the property. Accordingly, although the first mortgage loan was not in default at December 31, 2010, the holder of the loan, at the request of the Company, agreed to appoint a special servicer to review the operation of the property and the status of the first mortgage loan and to consider a request by the owner for a modification of the loan. In April, 2011, the owner defaulted under the loan and the owner and the mortgagee have executed a standstill agreement applicable to the default, which standstill agreement has been extended on a month to month basis. There can be no assurance that the standstill agreement will continue to be extended or that the Company will be able to obtain a satisfactory modification of the first mortgage loan, and it is possible that the holder of the first mortgage will foreclose on the mortgage, which is nonrecourse other than customary carve out guarantees.

Prior to the adoption of the liquidation basis of accounting, the Company followed the guidance of ASC 810-10-65 which required amounts attributable to noncontrolling interests to be reported separately.  For the nine months ended September 30, 2010, the Hato Rey Partnership had a loss of $553,496 and the consolidated statement of operations reflects the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $221,398.  The consolidated balance sheet at December 31, 2010 reflects a cumulative loss attributable to the noncontrolling interest of $608,481.

As a result of the default on the first mortgage loan in April, 2011, the uncertainty of the outcome of a possible modification of the first mortgage loan and/or the possible foreclosure by the holder of the first mortgage loan, at January 1, 2011 and September 30, 2011 the Company has estimated the fair value of its 60% ownership interest in the Hato Rey Partnership at zero. In addition, the outstanding $2,670,000 loan due from the partnership to the Company and the $1,175,281 accrued interest thereon, were given a fair value of zero. These fair value estimates may change as circumstances evolve with the holder of the first mortgage loan.