SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to

Commission file number 0-12138     

New England Realty Associates Limited Partnership

(Exact name of registrant as specified in its charter)

Massachusetts	04-2619298
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
39 Brighton Avenue, Allston, Massachusetts	02134
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (617) 783-0039

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check ý whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No ý

INDEX

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004 (audited)
	Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2005 and March 31, 2004
	Unaudited Consolidated Statement of Changes in Partners’ Capital for the Three Months Ended March 31, 2005 and March 31, 2004
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and March 31, 2004
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURES

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NEW ENGLAND REALTY ASSOCIATES, L.P.

PART 1 – FINANCIAL INFORMATION

Item 1.  Financial Statements

The accompanying unaudited consolidated balance sheets, statements of income, changes in partners’ capital, and cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are in the opinion of management, necessary for a fair presentation for the interim periods.

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in New England Realty Associates L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

The results of operations for the three month period ended March 31, 2005 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2005		December 31, 2004
	(Unaudited)		(Audited)
ASSETS
Rental Properties	$	104,987,084	$	105,884,559
Rental Properties Held for Sale	—		406,805
Cash and Cash Equivalents	12,487,887		9,862,810
Rents Receivable	496,597		586,983
Real Estate Tax Escrows	704,319		736,608
Prepaid Expenses and Other Assets	2,524,674		2,625,798
Investment in Partnerships	14,444,064		10,233.188
Financing and Leasing Fees	631,092		640,542
Total Assets	$	136,275,717	$	130,977,293
LIABILITIES AND PARTNERS’ CAPITAL
Mortgage Notes Payable	$	116,133,627	$	115,615,800
Accounts Payable and Accrued Expenses	1,439,096		1,505,390
Advance Rental Payments and Security Deposits	3,264,439		3,386,547
Total Liabilities	120,837,162		120,507,737
Commitments and Contingent Liabilities (Note 9)
Partners’ Capital 173,252 units outstanding in 2005 and 2004	15,438,555		10,469,556
Total Liabilities and Partners’ Capital	$	136,275,717	$	130,977,293

See notes to consolidated financial statements.

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
	(Unaudited)
	2005			2004
Revenue
Rental income	$	7,797,298		$	7,642,718
Laundry and sundry income	116,112			81,450
	7,913,410			7,724,168
Expenses
Administrative	339,791			326,391
Depreciation and amortization	1,519,491			1,463,624
Interest	1,937,475			1,974,775
Management fees	315,708			314,154
Operating	1,411,457			1,079,888
Renting	102,852			104,399
Repairs and maintenance	1,014,471			1,060,565
Taxes and insurance	904,150			872,191
	7,545,395			7,195,987
Income Before Other Income and Discontinued Operations	368,015			528,181
Other Income (Loss)
Interest income	38,327			70,167
Loss from investment in joint ventures	(41,624		)	(32,030		)
	(3,297		)	38,137
Income from Continuing Operations	$	364,718		$	566,318
Discontinued Operations
Income from discontinued operations	3,501			16,301
Gain on sale of real estate from discontinued operations	5,811,584			—
	5,815,085			16,301
Net Income	$	6,179,803		$	582,619
Income per Unit
Income before discontinued operations	$	2.10		$	3.27
Income from discontinued operations	33.56			.09
Net Income per Unit	$	35.66		$	3.36
Weighted Average Number of Units Outstanding	173,252			173,252

See notes to consolidated financial statements.

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

(UNAUDITED)

	Limited						General Partnership
	Class A			Class B						Total
Balance, January 1, 2004	$	10,846,650		$	2,579,532		$	135,795		$	13,561,977
Distribution to Partners	(913,662		)	(216,995		)	(11,420		)	(1,142,077		)
Net Income	466,095			110,698			5,826			582,619
Balance, March 31, 2004	$	10,399,083		$	2,473,235		$	130,201		$	13,002,519
Units authorized and Issued, net of 6,973 Treasury Units at March 31, 2004	138,602			32,918			1,732			173,252
Balance, January 1, 2005	$	8,372,714		$	1,991,972		$	104,870		$	10,469,556
Distribution to Partners	(968,643		)	(230,053		)	(12,108		)	(1,210,804		)
Net Income	4,943,842			1,174,163			61,798			6,179,803
Balance, March 31, 2005	$	12,347,913		$	2,936,082		$	154,560		$	15,438,555
Units authorized and Issued, net of 6,973 Treasury Units at March 31, 2005	138,602			32,918			1,732			173,252

See notes to consolidated financial statements

5

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	(Unaudited)
	2005			2004
Cash Flows from Operating Activities
Net income	$	6,179,804		$	582,619
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,538,396			1,474,388
Loss from investments in joint venture	41,624			32,030
(Gain) on sale of rental properties	(5,811,584		)	—
Change in operating assets and liabilities
Decrease in rents receivable	90,386			15,126
(Increase) in financing and leasing fees	(29,855		)	—
(Increase) in accounts payable and accrued expense	(66,294		)	(271,658		)
(Increase) Decrease in real estate tax escrow	32,289			(70,581		)
Decrease in prepaid expenses and other assets	96,776			24,329
(Increase) in advance rental payments and security deposits	(122,108		)	143,103
Total Adjustments	(4,230,370		)	1,346,737
Net cash provided by operating activities	1,949,434			1,929,356
Cash Flows Used in Investing Activities
(Investment in) joint venture	(4,252,500		)	—
Purchase and improvement of rental properties	(554,360		)	(1,482,015		)
Net proceeds from the sale of rental properties	6,175,481			—
Net cash provided by (used in) investing activities	1,368,621			(1,482,015		)
Cash Flows Used in Financing Activities
Proceeds of mortgage notes payable	2,000,000			—
Principal payments of mortgage notes payable	(1,482,173		)	(176,345		)
Distributions to partners	(1,210,803		)	(1,142,077		)
Net cash (used in) financing activities	(692,978		)	(1,318,422		)
Net Increase (Decrease) in Cash and Cash Equivalents	2,625,077			(871,081		)
Cash and Cash Equivalents, at beginning of period	9,862,810			24,362,328
Cash and Cash Equivalents, at end of period	$	12,487,887		$	23,491,247

See notes to consolidated financial statements.

6

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005

NOTE 1.    SIGNIFICANT ACCOUNTING POLICIES

Line of Business:    New England Realty Associates Limited Partnership (“NERA” or the “Partnership”) was organized in Massachusetts during 1977. NERA and its subsidiaries own and operate various residential apartment buildings, condominium units and commercial properties located in Massachusetts and New Hampshire. NERA has also made investments in other real estate partnerships and has participated in other real estate-related activities, primarily located in Massachusetts. In connection with the mortgages referred to in Note 5, a substantial number of NERA’s properties are owned by separate subsidiaries without any change in the historical cost basis.

Principles of Consolidation:    The consolidated financial statements include the accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiary except for three limited liability companies (the “Investment Properties”) in which the Partnership has a 50% ownership interest. The consolidated group is referred to as the “Partnerships.” Minority interests are not recorded, since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the above-mentioned limited liability companies using the equity method of consolidation. (See Note 14 for information on the Investment Properties).

Accounting Estimates:    The preparation of the financial statements, in conformity with accounting principles generally accepted in the United State of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates.

Revenue Recognition:    Rental income from residential and commercial properties is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. Certain leases of the commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease.

Rental Properties:    Rental properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in income. Fully depreciated assets are removed from the accounts.  Rental properties are depreciated on a straight-line basis over their estimated useful lives.

In the event that facts and circumstances indicate that the carrying value of a rental property may be impaired, an analysis of recoverability is prepared. The estimated future undiscounted cash flows are compared to the assets carrying value to determine if a write-down to fair value is required.

Financing and Leasing Fees:    Financing fees are capitalized and amortized, using the interest method, over the life of the related mortgages. Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease.  Unamortized balances are expensed when the corresponding fee is no longer applicable.

Income Taxes:    The financial statements have been prepared under the basis that NERA and its subsidiaries are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes has been recorded.

Cash Equivalents:    The Partnership considers cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less.

Segment Reporting:    Operating segments are revenue-producing components of the Partnership for which separate financial information is produced internally for management. Under the definition, NERA operated, for all periods presented, as one segment.

Comprehensive Income:    Comprehensive income is defined as changes in partners’ equity, exclusive of transactions with owners (such as capital contributions and dividends). NERA did not have any comprehensive income items in 2005 or 2004 other than net income as reported.

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Income Per Unit:    Net income per unit has been calculated based upon the weighted average number of units outstanding during each year presented. The Partnership has no dilutive units and, therefore, basic net income is the same as diluted net income per unit (see Note 7).

Concentration of Credit Risks and Financial Instruments:    The Partnerships’ properties are located in New England, and the Partnerships are subject to the general economic risks related thereto.  No single tenant accounted for more than 5% of the Partnerships’ revenues in 2005 or 2004.  The Partnerships make their temporary cash investments with high-credit-quality financial institutions.  At March 31, 2005, substantially all of the Partnerships’ cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 1.33% to 2.65%.  At March 31, 2005 and December 31, 2004 approximately $11,000,000 and $9,000,000 of cash and cash equivalents exceeded federally insured amounts.

Advertising Expense:    Advertising is expensed as incurred. Advertising expense was $46,515 and $57,881 for the three months ended March 31, 2005 and 2004, respectively.

Discontinued Operations and Rental Property Held for Sale: When assets are identified by management as held for sale, the Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.  If, in management’s opinion, the net sales price of the assets which have been identified as held for sale is less than the net book of the assets, a valuation allowance is established.  Properties identified as held for sale and/or sold are presented in discontinued operations for all periods presented.

If circumstances arise that previously were considered unlikely and, as a result, the Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used.  A property that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would had been recognized that the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

Interest Capitalized:  The Company follows the policy of capitalizing interest as a component of the cost of rental property when the time of construction exceeds one year.  During the year ended December 31, 2004, the Company capitalized interest of approximately $125,000.

Reclassifications:  Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.

NOTE 2.    RENTAL PROPERTIES

As of March 31, 2005, the Partnership and its Subsidiary Partnerships owned 2,377 residential apartment units in 22 residential and mixed-use complexes (collectively, the “Apartment Complexes”).  The Partnership also owns 24 condominium units in two residential condominium complexes, all of which are leased to residential tenants (collectively referred to as the “Condominium Units”).  The Apartment Complexes and Condominium Units are located primarily in the greater metropolitan Boston, Massachusetts area.

Additionally, as of March 31, 2005, the Subsidiary Partnerships owned commercial shopping centers in Framingham, Massachusetts and mixed-use properties in Boston, Brockton and Newton, Massachusetts.  These properties are referred to collectively as the “Commercial Properties.”

In March 2005, the Partnership sold the Middlesex Apartments to an entity wholly owned by the majority shareholder of the General Partner.  The selling price was $6,500,000 which resulted in a capital gain for the Partnership of approximately $5,800,000 and an increase in the Partnership’s cash reserves by approximately $4,800,000 after payment of the existing $1,300,000 mortgage, prepayment penalties and other selling expenses. The buyer is selling the property as condominium units. An entity 31% owned by the majority shareholder of the General Partner and 5% owned by the President of the management company is the sales agent and will receive a variable commission of 3% to 5% on each sale.  Although the buyer is assuming the costs and economic risks of converting and selling the condominium units, if the net gains from the sale of these units exceed $500,000, the excess will be split equally between the buyer and the Partnership.

In September 2004, the Partnership completed the construction of twenty residential units at the Westgate Apartments in Woburn, Massachusetts. The total cost of these twenty units was approximately $5,100,000 and is included in buildings and improvements above. In January 2005, the Partnership obtained a $2,000,000 mortgage on this property.

8

Rental properties consist of the following:

	March 31, 2005		December 31, 2004		Useful Life
Land, improvements and parking lots	$	23,168,229	$	23,168,229	10-31 years
Buildings and improvements	105,730,918		105,631,294		15-31 years
Kitchen cabinets	3,564,584		3,371,139		5-10 years
Carpets	3,048,449		2,895,045		5-10 years
Air conditioning	739,443		737,030		7-10 years
Laundry equipment	191,425		185,254		5-7 years
Elevators	606,532		560,838		20 years
Swimming pools	142,429		142,429		10 years
Equipment	1,527,685		1,504,555		5-7 years
Motor vehicles	126,483		126,483		5 years
Fences	246,016		244,869		5-10 years
Furniture and fixtures	4,317,430		4,236,547		5-7 years
Smoke alarms	120,423		116,496		5-7 years
Construction in progress	0		17,692
	143,530,046		142,937,900
Less accumulated depreciation	38,542,962		37,053,341
	$	104,987,084	$	105,884,559

Additionally, as of March 31, 2005, the Partnership owned a 50% ownership interest in five residential and condominium complexes (the Investment Properties) with a total of 562 units.  See Note 14 to the consolidated financial statements for additional information on these investments.

NOTE 3.    RELATED PARTY TRANSACTIONS

The Partnerships’ properties are managed by an entity that is owned by the majority shareholder of the General Partner. The management fee is equal to 4% of rental revenue and laundry income. Total fees paid were $318,350 and $318,461 for the three months ended March 31, 2005 and 2004, respectively.

The Partnership Agreement permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants and contractors) to NERA. In the three months ended March 31, 2005 and 2004, approximately $194,000 and $864,000 respectively, was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvements. Of the 2005 expenses referred to above, approximately $102,000 consisted of repairs and maintenance and $33,000 of administrative expense; approximately $53,000 of construction, architectural services and supervision of capital projects was capitalized in rental properties and approximately $6,000 for rental commissions.  Of the 2004 expenses referred to above, approximately $52,000 consisted of repairs and maintenance and $41,000 of administrative expense; approximately $771,000 of construction, architectural services and supervision of capital projects was capitalized in rental properties. Additionally in each of the quarters ended March 31, 2005 and 2004, the Partnership paid to the management company $20,000 for in-house accounting services. Included in accounts payable and accrued expenses at March 31, 2005 and December 31, 2004 is $201,203 and $147,195, respectively, due to the management company. The Partnership Agreement entitles the General Partner or the management company to receive certain commissions upon the sale of Partnership property only to the extent that total commissions do not exceed 3%. No commissions were paid during the year ended December 31, 2004 and through March 31, 2005.

Additionally, the Management Company received fees of approximately $142,000 from the Investment Properties of which approximately $60,000 was the management fee and $67,000 for construction, construction supervision and architectural fees and $15,000 for other services.

On January 1, 2004, NERA’S employees were transferred to the management company’s payroll.  The Partnership and Investment Properties reimbursed the management company for the payroll and related expenses of the employees directly employed by the NERA properties.  Total reimbursement was approximately $549,000 for the three months ended March 31, 2005.

9

In 1996, prior to becoming an employee and President of the management company, the current President performed asset management consulting services to the Partnership. This individual continues to perform this service and to receive an asset management fee from the Partnership, receiving $12,500 for the three months ended March 31, 2004 and $50,000 for the year ended December 31, 2004.

The Partnership has invested in five limited liability companies to purchase five residential apartment complexes (the “Investment Properties”).  The Partnership owns 50% of each entity and the majority shareholder of the General Partner owns 47½% and the President of Hamilton owns 2½% respectively.  See Note 14 for a description of the properties and their operations.

The Partnership owns 5 condominiums in a 42-unit condominium building managed by an entity wholly owned by the 25% shareholder and President of the General Partner.  That entity will receive annual management fees from the five units of approximately $1,500, and Hamilton will reduce its management fees to approximately 2%, so that the total management fee will not exceed the 4% allowed by the Partnership’s Partnership Agreement.

In March 2005, the Partnership sold Middlesex Apartments to the majority shareholder of the General Partner.  See Note 2 for the description of the transaction.

NOTE 4.    OTHER ASSETS

Included in prepaid expenses and other assets at March 31, 2005 and December 31, 2004 is approximately $453,000 and $536,000, respectively, held in escrow to fund future capital improvements.

Financing and leasing fees of $631,092 and $640,542 are net of accumulated amortization of $386,224 and $371,604 at March 31, 2005 and December 31, 2004, respectively.

NOTE 5.    MORTGAGE NOTES PAYABLE

At March 31, 2005 and December 31, 2004, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2.  At March 31, 2005, the fixed interest rates on these loans ranged from 4.84% to 8.46%, payable in monthly installments aggregating approximately $704,000, including interest, to various dates through 2016.  The majority of the mortgages are subject to prepayment penalties.  At March 31, 2005, the weighted average interest rate on the above mortgages was 5.89%.  The effective rate of approximately 7.0% includes the amortization expense of deferred financing costs.  See Note 12 for fair value information.

The Partnerships have pledged tenant leases as additional collateral for certain of these loans.  

Approximate annual maturities at March 31, 2005 are as follows:

2006- current maturities	$	728,000
2007	2,582,000
2008	1,093,000
2009	5,712,000
2010	11,497,000
Thereafter	94,522,000
	$	116,134,000

In January 2005, the Partnership obtained a mortgage on the Courtyard at Westgate for $2,000,000 which was added to cash reserves at an interest rate of 5.25%.  The loan requires interest-only payments through December 2014, when the entire balance is due.

On December 1, 2004, the Partnership refinanced the Dean Street Associates, LLC with outstanding balances totaling approximately $5,237,000 with an interest rate of 7.08% that would mature in 2008.  The new mortgage is $5,650,000 with an interest rate of 5.13% and requires interest-only payments until December 2007 and interest and principal payments amounting to $30,781 monthly through November 2014. The remaining balance of approximately $5,025,000 becomes due in December 2014. The Partnership recorded a loss on the early extinguishment of debt of approximately $411,000 because of prepayment penalties of $387,000 and the write-off of deferred financing fees of approximately $24,000.

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NOTE 6.    ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

The lease agreements require the majority of tenants to maintain a one-month advance rental payment plus security deposits.  Amounts received for prepaid rents of approximately $1,957,000 are included in cash and cash equivalents and security deposits of approximately $1,117,000 are included with other assets.

NOTE 7.    PARTNERS’ CAPITAL

The Partnership has two classes of Limited Partners (Class A and B) and one category of General Partner.  Under the terms of the Partnership Agreement, Class B Units and General Partnership Units must represent 19% and 1%, respectively, of the total units outstanding.  All classes have equal profit sharing and distribution rights, in proportion to their ownership interests.

In February 2005, the Partnership approved a quarterly distribution of $7.00 per unit ($.70 per receipt) payable on March 31, 2005.

In 2004, the Partnership paid a quarterly distribution $6.60 per unit ($.66 per receipt) on March 31, 2004, and June 30, 2004.  On September 30, 2004 and December 31, 2004, the Partnership paid a quarterly distribution of  $7.00 per unit ($0.70 per receipt) for a total distribution of $27.20 for 2004.

The Partnership has entered into a deposit agreement with an agent to facilitate public trading of limited partners’ interests in Class A units.  Under the terms of this agreement, the holders of Class A units have the right to exchange each Class A unit for 10 depositary receipts.  The following is information per depositary receipt:

	Three months ended March 31,
	2005		2004
Income per Depositary Receipt before Discontinued Operations	$	.21	$	.33
Income from Discontinued Operations
Net Income per Depositary Receipt after Discontinued Operations	3.35		.01
Distributions per Depositary Receipt	$	3.56	$	.34

NOTE 8.    TREASURY UNITS

Treasury units at March 31, 2005 are as follows:

Class A	5,681
Class B	1,228
General Partnership	64
	6,973

NOTE 9.    COMMITMENTS AND CONTINGENCIES

From time to time, the Partnerships are involved in various ordinary routine litigation incidental to their business. The Partnership either has insurance coverage or has provided for any uninsured claims which, in the aggregate, are not significant. The Partnerships are not involved in any material pending legal proceedings.

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NOTE 10.    RENTAL INCOME

During the three months ended March 31, 2005, approximately 93% of rental income was related to residential apartments and condominium units with leases of one year or less.  The remaining 7% was related to commercial properties, which have minimum future rental income on noncancellable operating leases as follows:

	Commercial Property Leases
2006	$	1,629,000
2007	1,572,000
2008	1,495,000
2009	1,448,000
2010	1,121,000
Thereafter	4,625,000
	$	11,890,000

The aggregate minimum future rental income does not include contingent rentals that may be received under various leases in connection with percentage rents, common area charges and real estate taxes. Aggregate contingent rentals from continuing operations were approximately $100,000 for the three months ended March 31, 2005 and $364,000 for the year ended December 31, 2004, respectively.

Rents receivable are net of allowances for doubtful accounts of $342,562 and $276,046 at March 31, 2005 and December 31, 2004, respectively. Included in rents receivable is approximately $402,000 resulting from recognizing rental income from non-cancelable commercial leases with future rental increases on a straight-line basis.  The majority of this amount is for a long-term lease with Staples at Staples Plaza in Framingham, Massachusetts.

NOTE 11.    CASH FLOW INFORMATION

During the three months ended March 31, 2005 and 2004, cash paid for interest was $1,947,076 and $1,977,740 respectively. The 2004 amount is net of capitalization of construction period interest of approximately $40,000 for the construction of Courtyard at Westgate in Woburn, MA.

Non-cash investing and financing activities were as follows:

	Year Ended December 31, 2004
	Investing Activities			Financing Activities		Total
New Mortgage Debt	$		—	$	5,650,000	$	5,650,000
Non-cash investing and financing:
Mortgage debt paid from refinancings	—			5,236,782		5,236,782
Total non-cash investing and financing activity	—			5,236,782		5,236,782
Cash received (used) before other transaction expenses	$	—		$	413,218	$	413,218

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NOTE 12.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Partnership in estimating the fair value of its financial instruments:

•For cash and cash equivalents, other assets, investment in partnerships, accounts payable, advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.

•For mortgage notes payable: fair value is generally based on estimated future cash flows, which are discounted using the quoted market rate from an independent source for similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.

	Carrying Amount		Estimated Fair Value
Mortgage Notes Payable
At March 31, 2005	$	116,133,627	$	121,844,092
At December 31, 2004	$	115,615,800	$	122,123,808

Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2005 and December 31, 2004.  Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2004 and current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 13.    TAXABLE INCOME AND TAX BASIS

Taxable income reportable by the Partnership and includable in its partner’s tax returns is different than financial statement income because of accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances.  Taxable income is approximately $150,000 greater than statement income for the quarter ended March 31, 2005 and approximately $1,400,000 less than statement income for the year ended December 31, 2004.  The cumulative tax basis of the Partnership’s real estate at March 31, 2005 is approximately $25,000 less than the statement basis. The depreciation rules that generated substantial deductions in 2004 and 2003 expired in 2004, accordingly taxable income in future years is expected to increase.

NOTE 14—INVESTMENT IN PARTNERSHIPS

Since November 2001, the Partnership has invested in five limited partnerships, each of which has invested primarily in residential apartment complexes.  The Partnership has a 50% ownership interest in each investment.  The other investors are Harold Brown and the President of the management company, who have a 47.5% and 2.5% ownership interest respectively.  A description of each investment is as follows:

On March 7, 2005, the Partnership invested $2,000,000 for a 50% ownership interest in a building comprising 49 apartments, one commercial space and a 50-car surface parking lot located in Boston, Massachusetts. The purchase price was $14,300,000, and a $10,750,000 30-month mortgage with a floating interest rate of 2% over the 30 day Libor Index (4.85% at March 7, 2005) was obtained to finance this acquisition.  The Partnership plans to operate the building and initiate development of the parking lot. The plan may also include disposition of selected units, as condominiums in order to reduce the above mentioned mortgage.  Any profits from the condominium sales will be taxed at ordinary rates.  Mr. Brown has guaranteed 25% of this mortgage until such time as $2,687,500 of principal has been paid.  The Partnership and the other investor have, in turn agreed to indemnify Mr. Brown for their proportional share of any losses incurred by this guarantee.  This investment is referred to as Essex Street.

On March 2, 2005, the Partnership invested $2,300,000 for a 50% ownership interest in a 176-unit apartment complex with an additional small commercial building located in Quincy, Massachusetts. The purchase price was $23,750,000, and a $19,200,000 30-month mortgage with a floating interest rate of 2% over the 30 day Libor Index (4.85% at March 2, 2005) was obtained to finance this acquisition.  The Partnership plans to sell the majority of units as condominiums and retain 40 to 50 units for long-term investment.  The proceeds from the condominium sales will primarily be used to reduce the above-mentioned mortgage.  It is estimated that it will take longer than one year to sell these units. Harold Brown has guaranteed 30% of this mortgage until such time as $5,760,000 of principal has been paid.  The Partnership and other investor have, in turn agreed to indemnify Mr. Brown their proportionate share of any losses incurred by this guarantee.  As of May 10, 2005, one unit has been sold, 11 units have a signed purchase and sales agreement, and 30 units have reservation agreements.  Gains from the sales of units (currently estimated to average $60,000 per condominium) will be taxed at ordinary income rates.  This investment is referred to as 1025 Hamilton.

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In September 2004, the Partnership invested approximately $5,075,000 for a 50% ownership interest in a 42-unit apartment complex located in Lexington, Massachusetts. The purchase price was $10,100,000.  In October 2004, the Partnership obtained a mortgage on the property in the amount of $8,025,000 and returned $3,775,000 to the Partnership.  This investment is referred to as Hamilton Minuteman.

In August 2004, the Partnership invested $8,000,000 for a 50% ownership interest in a 280-unit apartment complex located in Watertown, Massachusetts.  The total purchase price was $56,000,000.  This investment is referred to as Hamilton Place.

In November 2001, the Partnership formed a limited liability company to purchase a 40-unit apartment building in Cambridge, Massachusetts. This property has a 12-year mortgage, which is amortized on a 30-year schedule, with a final payment of approximately $6,000,000 in 2014. The Partnership is a 50% owner in this investment and is referred to as Franklin Street.

Hamilton Place is planning to sell, over time, three buildings with a total of 136 units as condominiums commencing in January 2005.  Hamilton Minuteman may also, from time to time, sell units.   Minuteman is not being marketed at this time.  The majority of the proceeds from these sales will be used to reduce their mortgages.  Commencing in 2005, these mortgages require minimum principal payments (“Curtailment Payments”) and additional investment by the Partnership will be required if the proceeds from sales cannot provide for these payments. As of May 10, 2005, 25 units have been sold and an additional 10 units are under contract at Hamilton Place. An entity partially owned by the majority shareholder of the General Partner and the President of the management company, 31% and 5% respectively, is the sales agent and will receive a variable commission on each sale of 3% to 5%.  Approximately $162,500 of commissions was paid through March 31, 2005.

As required by the lender for the 2004 acquisitions, the Treasurer of the General Partner has provided a limited repayment guarantee equal to twenty percent (20%) of the outstanding balance, reducing to zero percent (0%) upon the completion of the Curtailment Payments.  In the event that he is obligated to make payments to the lender as a result of this guaranty, the Partnership and other investors have, in turn, agreed to indemnify him for their proportionate share of any such payments.

On February 10, 2005, Hamilton Place, Watertown, MA obtained a new 10 year mortgage on the three buildings to be retained for $16,825,000, payable as to interest-only at 5.18% for 3 years and amortizing on a 30 year schedule for the remaining 7 years when the balance is due.  The net proceeds after funding escrow accounts and closing costs on the new mortgage was approximately $16,700,000, which was used to reduce the existing mortgage. Hamilton Place paid an approximate $400,000 penalty to obtain the new financing.

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Summary financial information for the three months ended March 31, 2005 (unaudited)

	Franklin Street			Hamilton Place			Hamilton Place		Hamilton Minuteman			Essex 81			1025 Hamilton			Total
							(for sale units)
Acquisition Date	November 2001			August 2004			August 2004		September 2004			March 2005			March 2005
Property assets – net	$	10,251,215		$	28,559,752		$	22,961,365	$	9,876,859		$	14,183,969		$	23,720,084		$	109,553,244
Mortgages payable	7,900,292			16,825,000			19,411,658		7,717,360			10,750,000			19,200,000			81,804,310
Total Equity	2,285,112			14,588,602			1,177,148		2,207,340			3,975,651			4,654,274			28,888,127
NERA - 50% equity	1,142,556			7,294,301			588,574		1,103,670			1,987,826			2,327,137			14,444,064
Summary income statement:
Rental income	246,328			586,231			421,163		152,734			72,941			183,696			1,663,093
Operating expenses	54,142			368,448			217,461		59,969			15,864			77,003			792,887
Management fees	9,289			23,618			7,079		6,145			4,372			6,352			56,855
Interest expense	137,421			223,436			237,275		91,797			36,934			78,900			805,763
Depreciation & amortization	89,205			356,095			205,085		130,167			40,120			72,167			892,839
Miscellaneous expense	—			404,881			—		—			—			—			404,881
Gain on sale of condominiums	—			—			1,272,885		—			—			—			1,272,885
Net profit (loss)	(43,729		)	(856,247		)	1,027,148		(135,344		)	(24,349		)	(50,726		)	(83,247		)
NERA - 50%	$	(21,865	)	$	(428,124	)	$	513,574	$	(67,672	)	$	(12,175	)	$	(25,363	)	$	(41,624	)
Total units/ condominiums	40			144			136		42			49			176			587
Units to be retained	40			144			0		42			49			48			323
Units to be sold	0			0			136		0			0			128			264
Units sold through March 31, 2005	0			0			25		0			0			0			25
Balance of unsold units	0			0			111		0			0			128			239
Unsold units with deposits for future sale as of May 10, 2005	0			0			10		0			0			41			51

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NOTE 15.    NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 153, Accounting for Non-monetary Transactions

In December 2004, the FASB issued SFAS No. 153, “Accounting for Non-monetary Transactions” (“SFAS 153”).  SFAS 153 requires non-monetary exchanges to be accounted for at fair value, recognizing any gain or loss, if the transactions meet a commercial-substance criterion and fair value is determinable.  SFAS No. 153 is effective for non-monetary transactions occurring in fiscal years beginning after June 15, 2005.  The Company believes that the implementation of this standard will not have a material effect on the Company’s consolidated financial position or results of operations.

The Partnership adopted the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standard 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-lived Assets” on January 1, 2002. FAS 144 supersedes FAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The primary objectives of FAS 144 are to develop one accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale, and to address significant implementation issues regarding impairment of long-lived assets held for use. FAS 144 requires separate presentation of discontinued operations for an operating property sold or considered held for sale for years beginning on January 1, 2002. In accordance with FAS 144, the Partnership classifies real estate assets as held for sale in the period in which all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The Partnership’s adoption of FAS 144 resulted in: (i) the net operating results of properties held for sale at December 31, 2004 and sold during 2002 being presented as income from discontinued operations for all periods presented and (ii) the gain on the sale of operating properties sold, net of sale costs, being presented as income from discontinued operations for the year 2002. Implementation of FAS 144 will impact how information is classified on the income statement but will have no effect on net income (see Note 17).

EIFT 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in Determining Whether to Report Discontinued Operations

At its September 2004 meeting, the Task Force reached the following conclusions:

•A reassessment period is necessary in evaluating whether a disposal meets the criteria for discounted operations reporting; the reassessment period should include the point at which the component initially meets the criteria to be classified as held for sale through one year after the component’s disposal date.  However, the Task Force concluded that the reassessment will be required only when significant changes in events or circumstances make it likely that the criteria in paragraph 42 of SFAS 144 will, or will no longer, be met after the disposal date.

•There is a presumption that the continued sale of a commodity in an active market should be considered a migration of customers.

•For the purpose of determining whether operations and cash flows are eliminated, the determination will be limited to evaluating gross cash inflows (revenues) and outflows (costs) versus evaluating other operating measures such as gross profit or net income.

•The retention of risks associated with the ongoing operations of the disposed component or the ability to obtain benefits associated with the ongoing operations of the disposed component should be considered in evaluating whether the entity has the ability to influence the operating and/or financial policies of the disposed component.

As a result, factors (b) and (c) were eliminated from paragraph 9 of the draft abstract.

The Task Force affirmed the consensus as previously exposed with the following modifications/clarifications:

•The period for assessing whether a component has met the criteria for discontinued operations could extend beyond one year if events or circumstances beyond an entity’s control extend the period required to eliminate direct cash flows of the disposed component or eliminate significant continuing involvement in the ongoing operations of the disposed component provided that the entity (1) takes actions necessary to respond to those situations, and (2) expects to eliminate the direct cash flows and the significant continuing involvement.  The extension of the assessment period is only for determining whether a component has met the criteria for discontinued operations, and is not an extension of the assessment period for the held-for-sale classification of the component.

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In January 2003, the FASB issued FIN 46, which provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE are to be included in an entity’s consolidated financial statements. A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. In December 2003, the FASB reissued FIN 46 with certain modifications and clarifications. Application of this guidance was effective for interests in certain VIEs commonly referred to as special-purpose entities (SPEs) as of December 31, 2003. Application for all other types of entities is required for periods ending after March 15, 2004, unless previously applied. The Partnership does not believe that the application of FIN 46, if required, will have a material impact on its financial position, results of operations, or liquidity.

NOTE 16.    DISCONTINUED OPERATIONS and SALES of REAL ESTATE

The following tables summarize income from discontinued operations and the related realized gain on sale of rental property for the three months ended March 31, 2005 and 2004.

	Three Months Ended March 31
	2005		2004
Total Revenues	$	78,256	$	103,094
Operating and other expenses	55,849		76,140
Depreciation and amortization	18,906		10,653
	74,755		86,793
Income from discontinued operations	$	3,501	$	16,301

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Item 2 — MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction with the financial statements and notes thereof appearing elsewhere in this Report.  This Report, on Form 10-Q, contains forward-looking statements within the meaning of the securities law.  Actual results or developments could differ materially from those projected in such statements as a result of certain factors set forth in the section below entitled “Factors That May Affect Future Results” and elsewhere in this Report.

While the national economy has largely recovered from the recession of the late 1990s and early 2000s, Massachusetts’ local economy continues to lag behind. Job growth remains sluggish. Vacancy rates for downtown office space are approximately 20%, and similar vacancy rates are seen in suburban areas. In the face of these economic realities, the Partnership has kept its residential vacancy rate below the 5% local industry average. However, doing so has required incentives such as lower rent, and payment of rental commissions. Additionally, new housing product in the residential market and low mortgage interest rates that attracted first-time home buyers resulted in higher turnover in the portfolio and, in turn, higher turnover expenses and unit renovation costs. Finally, with a rise in utility rates, and in abnormally cold winter and higher than expected snowfall, increases in operating expenses outpaced any modest increases, in rental revenue that the Partnership’s properties may have experienced.

The Partnership expects similar conditions to prevail in 2005. Revenue is expected to remain flat while increases in operating expenses are expected to be muted. Competition continues to be strong; there has been no change in fundamental conditions that would shift the burden of paying rental commissions from the Partnership to the tenants or mitigate high tenant turnover. As a result, the Partnership’s future earning may be negatively impacted. Lastly, tax reform allowed the Partnership to accelerate depreciation on improvements and acquisitions over the past few years. The tax incentives expired in 2004, and, as such, we expect income taxable to partners to increase for 2005.

The Partnership has retained The Hamilton Company (“Hamilton”) to manage and administer the Partnership’s properties.  Hamilton is a full-service real estate management company, which has legal, construction, maintenance, architectural, accounting and administrative departments.  The Partnership’s properties represent approximately 40% of the total properties and 70% of the residential properties managed by Hamilton.  Substantially all of the other properties managed by Hamilton are owned - wholly or partially, directly or indirectly - by Harold Brown.  The Partnership’s Second Amended and Restated Contract of Limited Partnership (the “Partnership Agreement”) expressly provides that the general partner may employ a management company to manage the properties, and that such management company may be paid a fee of 4% of rental receipts for administrative and management services (the “Management Fee”).  The Partnership annually pays Hamilton the full Management Fee, in monthly installments.

Harold Brown, his brother Ronald Brown and the President of Hamilton, Carl Valeri, collectively own approximately 19.9% of the depositary receipts representing the Partnership Class A Units (including depositary receipts held by trusts for the benefit of such persons’ family members).  Harold Brown also owns 75% of the Partnership’s Class B Units, 75% of the capital stock of NewReal,

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Inc. (“NewReal”), the Partnership’s sole general partner, and all of the outstanding stock of Hamilton.  Ronald Brown also owns 25% of the Partnership’s Class B Units and 25% of NewReal’s capital stock.  In addition, Ronald Brown is the President and director of NewReal and Harold Brown is NewReal’s Treasurer and also a director.  Three of NewReal’s other directors, Thomas Raffoul, Conrad DiGregorio, and Edward Sarkisian, also own immaterial amounts of the Partnership’s Class A Units.

Beyond the Management Fee, the Partnership Agreement further provides for the employment of outside professionals to provide services to the Partnership and allows NewReal to charge the Partnership for the cost of employing professionals to assist with the administration of the Partnership’s properties.  In addition to the Management Fee, from time to time the Partnership pays Hamilton for repairs and maintenance services, legal services, construction services and accounting services.  The costs charged by Hamilton for these services are at the same hourly rate charged to all entities managed by Hamilton, and management believes such rates are competitive in the marketplace.

Hamilton accounted for approximately 8% and 5% of the repair and maintenance expense paid for by the Partnership in the three months ended March 31, 2005 and the year ended December 31, 2004, respectively.  Of the funds paid to Hamilton for this purpose, the great majority was to cover the cost of services provided by the Hamilton maintenance department, including plumbing, electrical, carpentry services, and snow removal.   However, several of the larger Partnership properties have their own maintenance staff.  Further, those properties that do not have their own maintenance staff but are located more than a reasonable distance from Hamilton’s headquarters in Allston, Massachusetts are generally serviced by local, independent companies.

Hamilton’s legal department handles most of the Partnership’s eviction and collection matters.  Additionally, it prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions.  Overall, Hamilton provided approximately 82% of the legal services paid for by the Partnership during the three months ended March 31, 2005 and approximately 81% for the year ended December 31, 2004.

R. Brown Partners, which is owned by Ronald Brown, manages 5 condominium units located in Brookline, Massachusetts.  That entity will receive annual management fees from the five units of approximately $1,500, and Hamilton will reduce its management fees to approximately 2%, so that the total management fee will not exceed the 4% allowed by the Partnership’s Partnership Agreement.

The Partnership requires that three bids be obtained for construction contracts in excess of $5,000.  Hamilton may be one of the three bidders on a particular project and may be awarded the contract if its bid and its ability to successfully complete the project are deemed appropriate.  For contracts that are not awarded to Hamilton, Hamilton charges the Partnership a construction supervision fee equal to 5% of the contract amount.  Hamilton’s architectural department also provides services to the Partnership on an as-needed basis.  In 2005, Hamilton charged the Partnership approximately $53,000 in construction and architectural services.  In 2004, Hamilton provided construction and architectural services paid for by the Partnership totaling $3,781,000 including approximately $3,500,000 for the construction of 20 additional residential units at Westgate Apartments in Woburn, Massachusetts.

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Prior to 1991, the Partnership employed an outside, unaffiliated company to perform its bookkeeping and accounting functions.  Since that time, such services have been provided by Hamilton’s accounting staff, which consists of approximately ten people.  Hamilton currently charges the Partnership $80,000 ($20,000 per quarter) per year for bookkeeping and accounting services.

For more information on related party transactions, see Note 3 to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements, in accordance with accounting principles generally accepted in the United States of America, requires the Partnership to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.  The Partnership regularly and continually evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties and its investments in and advances to joint ventures.  The Partnership bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances.  However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment.  The Partnership’s critical accounting policies are those which require assumptions to be made about such matters that are highly uncertain.  Different estimates could have a material effect on the Partnership’s financial results.  Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.  See Note 1 to the Consolidated Financial Statements, Principles of Consolidation.

Revenue Recognition: Revenues from rental property are recognized when due from tenants.  Residential leases are generally for terms of one year and commercial leases are generally for five to ten years, with renewal options at increased rents.  Significant commercial leases with stepped increases over the term of the lease are recorded on the straight-line basis.

Real Estate and Depreciation: Real estate assets are stated at the lower of cost or fair value, less accumulated depreciation.  Costs related to the acquisition, development, construction and improvement of properties are capitalized, including interest, internal wages and benefits, real estate taxes and insurance.  Capitalization usually begins with commencement of development activity and ends when the property is ready for leasing.  Replacements and improvements— such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting and kitchen/bath replacements and renovations — are capitalized and depreciated over their estimated useful lives as follows:

•Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets.  In assessing estimated useful lives, the Partnership makes assumptions based on historical experience acquired from both within and outside the Partnership.  These assumptions have a direct impact on the Partnership’s net income.

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•Ordinary repairs and maintenance, such as unit cleaning and painting and appliance repairs, are expensed.

If there is an event or change in circumstances that indicates an impairment in the value of a property, the Partnership’s policy is to assess the impairment by making a comparison of the current and projected operating cash flows of the property over its remaining useful life, on an undiscounted basis, to the carrying amount of the property.  If the carrying value is in excess of the estimated projected operating cash flows of the property, the Partnership would recognize an impairment loss equivalent to the amount required to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized an impairment loss since 1995.

Rental Property Held for Sale and Discontinued Operations:  When assets are identified by management as held for sale, the Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.  If, in management’s opinion, the net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established.  Properties identified as held for sale and/or sold are presented in discontinued operations for all periods presented.

Investments in Partnerships:  The Partnership accounts for its 50% owned Investment Properties under the equity method of accounting, as it exercises significant influence over, but does not control these entities.  These investments are recorded initially at cost, as Investments in Partnerships, and subsequently adjusted for equity in earnings, cash contributions and distributions.  Under the equity method of accounting, our net equity is reflected on the consolidated balance sheets, and our share of net income or loss from the Partnership is included on the consolidated statements of income.

With respect to investments in and advances to the Investment Properties, the Partnership looks to the underlying properties to assess performance and the recoverability of carrying amounts for those investments in a manner similar to direct investments in real estate properties.  An impairment charge is recorded if the carrying value of the investment exceeds its fair value.

Legal Contingencies: The Partnership is subject to various legal proceedings and claims that arise, from time to time, in the ordinary course of business.  These matters are frequently covered by insurance.  If it is determined that a loss is likely to occur, the estimated amount of the loss is recorded in the financial statements.  Both the amount of the loss and the point at which its occurrence is considered likely can be difficult to determine.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2005 to the three months ended March 31, 2004 (as adjusted for discontinued operations)

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The Partnership and its Subsidiary Partnerships earned income before other income and discontinued operations of $368,015 during the three months ended March 31, 2005 compared to $528,181 for the three months ended March 31, 2004, a decrease of $160,166 (30%).

The rental activity is summarized as follows:

	Occupancy Date
	May 9, 2005		February 25, 2005		May 3, 2004
Residential
Units	2,377		2,382		2,400
Vacancies	32		37		72
Vacancy rate	1.4	%	1.6	%	3.0	%
Commercial
Total square feet	85,275		85,275		85,275
Vacancy	0		0		0
Vacancy rate	0	%	0	%	0	%

	Rental Income (in thousands) Three Months Ended March
	2005						2004
	Total Operations			Continuing Operations			Total Operations			Continuing Operations
Total rents	$	7,875		$	7,797		$	7,746		$	7,643
Residential percentage	93		%	93		%	93		%	93		%
Commercial percentage	7		%	7		%	7		%	7		%
Contingent rentals	$	99		$	99		$	136		$	136

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Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

	March 31, 2005			March 31, 2004			Dollar Change			Percent Change
Revenues:
Rental income	$	7,797,298		$	7,642,718		154,580			2	%
Laundry and sundry income	116,112			81,450			34,662			43	%
	7,913,410			7,724,168			189,242			2.4	%
Expenses:
Administrative	339,791			326,391			13,400			4	%
Depreciation and amortization	1,519,491			1,463,624			55,867			4	%
Interest	1,937,475			1,974,775			(37,300		)	-2	%
Management fees	315,708			314,154			1,554			1	%
Operating	1,411,457			1,079,888			331,569			31	%
Renting	102,852			104,399			(1,547		)	-1	%
Repairs and maintenance	1,014,471			1,060,565			(46,094		)	-4	%
Taxes and insurance	904,150			872,191			31,959			4	%
	7,545,395			7,195,987			349,408			5	%
Income Before Other Income and Discontinued Operations	368,015			528,181			(160,166		)	-30	%
Other Income (Loss)
Interest income	38,327			70,167			(31,840		)	-45	%
(Loss) from investment in joint ventures	(41,624		)	(32,030		)	(9,594		)	-29	%
	(3,297		)	38,138			(41,434		)	-129	%
Income from Continuing Operations	$	364,718		$	566,317		$	(201,600	)	-36	%
Discontinued Operations
Income from discontinued operations	3,501			16,301			(12,800		)	79	%
Gain on sale of real estate from discontinued operations	5,811,584			—			5,811,584			100	%
	5,815,085			16,301			5,798,784			356	%
Net Income	$	6,179,803		$	582,619		$	5,597,184		961	%

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The following is a comparative schedule for the three months ended March 31, 2005 and three months ended March 31, 2004 of the changes in revenue from rental operations excluding the 2004 acquisitions.

	Total Partnership 2005		Less Acquired Properties			Same Properties in 2005		Same Properties in 2004*		Dollar Change			Percent Change
Revenues
Rental income	$	7,797,298	$	84,349		$	7,712,949	$	7,642,718	$	70,231		0.9	%
Laundry and sundry income	116,112		—			116,112		81,450		34,662			42.6	%
	7,913,410		$	84,349.00		7,829,061		7,724,168		104,893			1.4	%
Expenses
Administrative	339,791		—			339,791		326,391		13,400			4.1	%
Depreciation and amortization	1,519,491		60,778			1,458,713		1,463,624		(4,911		)	-0.3	%
Interest	1,937,475		25,667			1,911,808		1,974,775		(62,967		)	-3.2	%
Management fees	315,708		3,316			312,392		314,154		(1,762		)	-0.6	%
Operating	1,411,457		7,225			1,404,232		1,079,888		324,344			30.0	%
Renting	102,852		404			102,448		104,399		(1,951		)	-1.9	%
Repairs and maintenance	1,014,471		1,345			1,013,126		1,060,565		(47,439		)	-4.5	%
Taxes and insurance	904,150		10,029			894,121		872,191		21,930			2.5	%
	7,545,395		108,764			7,436,631		7,195,987		240,644			3.3	%
Income Before Other Income	368,015		(24,415		)	392,430		528,181		(135,751		)	-25.7	%

* Discontinued operations are excluded in the quarter-to-quarter comparison

Rental income from continuing operations for the three months ended March 31, 2005 was approximately $7,797,000 compared to approximately $7,643,000 for the three months ended March 31, 2004, an increase of approximately $155,000 (2%). This increase was due to rental revenue of approximately $84,000 from the newly completed units at Courtyard at Westgate as well as increases in rental revenue of approximately $27,000 at 62 Boylston Street and an increase of approximately $20,000 at School Street. There were insignificant changes at other properties.

Total expenses from continuing operations for the three months ended March 31, 2005 were approximately $7,545,000 compared to approximately $7,196,000 for the three months ended March 31, 2004, an increase of approximately $349,000 (5%). The most significant increase was in operating expenses with an increase of approximately $332,000 (31%).  The cost for snow removal increased approximately $200,000, more than double the previous year, due to the snowy winter of 2005, and utility costs also increased approximately $70,000 due to the cold winter.   Taxes and insurance increased approximately $32,000 (4%) due to increases in real estate taxes.  In addition, the operating expenses of the newly completed units at Courtyard at Westgate account for approximately $109,000 of this increase.

These increases are offset by decreases in repairs and maintenance expenses of approximately $47,000 (4%) due to significant repairs done at many of the Partnership properties in the first quarter of 2004.

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At March 31, 2005, the Partnership has a 50% ownership interest in five different Investment Properties.  See Note 14 for summary of financial information of these investment properties. The details are as follows:

Franklin Street, Cambridge, Massachusetts

The Partnership invested in a 40-unit property in 2001.  The Partnership’s share of loss on this investment for the three months ended March 31, 2005 was $21,865 compared to $32,030 for the three months ended March 31, 2004, a decrease of $10,165.  There are 0 units vacant at May 10, 2005.

Hamilton Place, Watertown, Massachusetts

The Partnership invested in 280 units in six buildings in August 2004.  The Partnership plans to sell 136 units located in three buildings as condominiums.  At March 31, 2005, the Partnership has sold 25 units.  The Partnership’s share of income for the three months ended March 31, 2005 is $85,451, which includes the gain on the sale of 25 units of approximately $1,273,000.  There were 16 units vacant at May 10, 2005.  Operating expenses include approximately $400,000 of expenses on the early extinguishment on the refinancing of the three buildings to be retained.

Hamilton Minuteman, Lexington, Massachusetts

The Partnership invested in a 42-unit residential complex in September 2004.  The Partnership may market this property as condominiums in the future however it is not being marketed at this time.  The Partnership’s share of loss on this investment is $67,672 for the three months ended March 31, 2005.  There are 0 units vacant at May 10, 2005.

Essex 81, Boston, Massachusetts

The Partnership invested in this property in March 2005.  The property consists of 49 residential units, one commercial space, and a 50 car surface parking lot.  The Partnership’s share of loss on this investment is $12,175 for the three months ended March 31, 2005.  There are 8 units vacant at May 10, 2005.

1025 Hamilton, Quincy, Massachusetts

The Partnership invested in a 176-unit property in March 2005.  The Partnership plans to sell 128 units as condominiums.  As of May 10, 2005, one unit has been sold, 11 have signed purchase and sales agreements and 30 units have been reserved. The Partnership’s share of loss on this investment is $25,363 for the three months ended March 31, 2005.  There are 11 units vacant at May 10, 2005.

On March 22, 2005, the Partnership sold the Middlesex Apartments located in Newton, Massachusetts.  The selling price was $6,500,000.  The operating profit for the three months ended March 31, 2005 of $3,501 and the gain of $5,811,584, net of mortgage prepayment penalties of approximately $382,000 and selling expenses, are included in income from discontinued operations. See Note 2 to the Consolidated Financial Statements.

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Interest income was approximately $38,000 for the three months ended March 31, 2005, compared to approximately $70,000 for the three months ended March 31, 2004, a decrease of $32,000 (45%).  This decrease is primarily due to a decrease in the cash available for investment.

As a result of the changes discussed above, net income for the three months ended March 31, 2005 was $6,179,803 compared to $582,619 for the three months ended March 31, 2004, an increase of $5,597,184.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership’s principal source of cash during 2005 and 2004 was the sale of properties, collection of rents, and the refinancing of Partnership properties.

The majority of cash and cash equivalents of $12,487,887 at March 31, 2005 and $9,682,810 at December 31, 2004 were held in interest bearing accounts at creditworthy financial institutions.

The increase of $2,625,077 for the three months ended March 31, 2005 is summarized as follows:

	Three Months Ended March
	2005			2004
Cash provided by operating activities	$	1,949,434		$	1,929,356
Cash provided by (used in) investing activities	1,368,621			(1,482,015		)
Cash provided by (used in) other financing activities	517,827			(176,345		)
Dividends paid	(1,210,803		)	(1,142,077		)
Net increase (decrease) in cash and cash equivalents	$	2,625,077		$	(871,081	)

The cash provided by operating activities is primarily due to the net operating income plus depreciation expense.  The increase in cash provided by investing activities is due to the sale of a rental property in March 2005.  The increase in cash provided by financing activities is due to the refinancing of a Partnership property in January 2005.

As discussed previously, the Partnership invested approximately $4,253,000 for a 50% ownership interest in two partnerships during the three months ended March 31, 2005. This brings the Partnership’s investments to five Investment Properties.  See Note 14 to the Consolidated Financial Statements for a discussion of the Investment Properties and the related operations on these investments.

During the three months ended March 31, 2005, the Partnership and its Subsidiary Partnerships completed improvements to certain of the properties at a total cost of approximately $554,000.  These improvements were funded from cash reserves as well as escrow accounts established in connection with the financing or refinancing of the applicable Properties.  These sources have been adequate to

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fully fund improvements.  The most significant improvements were made at Westgate Woburn, Westside Colonial, School Street, 62 Boylston and Olde English at a cost of approximately $119,000, $51,000, $41,000, $36,000, and $35,000, respectively.

The Partnership paid a quarterly distribution of $7.00 per unit ($0.70 per depositary receipts) on March 31, 2005 for a total distribution of $1,210,804. Management anticipates that similar quarterly distributions will be made during 2005.

During the year ended December 2004, the Partnership completed the construction of 20 residential units at Courtyard at Westgate in Woburn, Massachusetts for a total cost of approximately $5,100,000.  In January 2005, the Partnership obtained a $2,000,000 mortgage on the property with 5.25% interest only payments, maturing in December 2014.

In addition to the improvements made to date in 2005, the Partnership and its Subsidiary Partnerships plan to invest approximately $1,750,000 in capital improvements during the balance of 2005, the majority of which will be spent at 1144 Commonwealth Avenue, Westside Colonial, and 62 Boylston Street.  These improvements will be funded from escrow accounts established in connection with the refinancing of applicable properties, as well as from the Partnership’s cash.

The Partnership anticipates that cash from operations and interest-bearing investments will be sufficient to fund its current operations and to finance current improvements to its properties.  The Partnership’s net income and cash flow may fluctuate dramatically from year to year as a result of the sale of properties, mortgage financings, unanticipated increases in expenses, or the loss of significant tenants.

Off-Balance Sheet Arrangements- Joint Venture Indebtedness

As of March 31, 2005, the Partnership had a 50% ownership in five joint ventures, all of which have mortgage indebtedness. We do not have control of these partnerships and, therefore, we account for them using the equity method of consolidation. At March 31, 2005, our proportionate share of the non-recourse debt related to these investments was equal to approximately $40,902,000. See Note 14 to the consolidated financial statements.

Factors That May Affect Future Results

Certain information contained herein includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the “Act”).  Forward-looking statements in this report, or which management may make orally or in written form from time to time, reflect management’s good faith beliefs when those statements are made, and are based on information currently available to management.  Caution should be exercised in interpreting and relying on such forward looking statements, the realization of which may be impacted by known and unknown risks and uncertainties, events that may occur subsequent to the forward-looking statements, and other factors which may be beyond the Partnership’s control and which can materially affect the Partnership’s actual results, performance or achievements for 2005 and beyond.

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Should one or more of the risks or uncertainties mentioned below materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.  We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise.  Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Along with risks detailed from time to time in the Partnership’s filings with the Securities and Exchange Commission, some factors that could cause the Partnership’s actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include but are not limited to the following:

The Partnership depends on the real estate markets where its properties are located, primarily in Eastern Massachusetts and these markets may be adversely affected by local economic market conditions, which are beyond the Partnership’s control.

The Partnership is subject to the general economic risks affecting the real estate industry, such as dependence on tenant’s financial condition, the need to enter into new leases or renew leases on terms favorable to tenants in order to generate rental revenues and our ability to collect rents from our tenants.  The Partnership is also impacted by changing economic conditions making alternative housing arrangements more or less attractive to the Partnership’s tenants, such as the interest rates on single-family home mortgages and the availability and purchase price of single-family homes in the Greater Boston metropolitan area.

The Partnership is subject to significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs, which are generally not reduced when circumstances cause a reduction in revenues from a property.

The Partnership is subject to increases in heating and utility costs that my arise as a result of economic and market conditions and fluctuations in seasonal weather conditions.

Civil disturbances, earthquakes and other natural disasters may result in uninsured or underinsured losses.

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

Financing or refinancing of Partnership properties may not be available to the extent necessary or desirable, or may not be available on favorable terms.

The Partnership properties face competition from similar properties in the same market.  This competition may affect the Partnership’s ability to attract and retain tenants and may reduce the rents that can be charged.

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Given the nature of the real estate business, the Partnership is subject to potential environmental liabilities.  These include environmental contamination in the soil at the Partnership’s or neighboring real estate, whether caused by the Partnership, previous owners of the subject property or neighbors of the subject property, and the presence of hazardous materials in the Partnership’s buildings, such as asbestos, mold and radon gas.  Management is not aware of any material environmental liabilities at this time.

Insurance coverage for and relating to commercial properties is increasingly costly and difficult to obtain.  In addition, insurance carriers have excluded certain specific items from standard insurance policies, which have resulted in increased risk exposure for the Partnership.  These include insurance coverage for acts of terrorism and war, and coverage for mold and other environmental conditions.  Coverage for these items is either unavailable, or prohibitively expensive.

Market interest rates could adversely affect the market prices for Class A Partnership Units and Depositary Receipts as well as performance and cash flow.

Changes in the tax laws and regulations may affect the income taxable to owners of the Partnership.  These changes may affect the after-tax value of future distributions.

The Partnership may fail to identify, acquire, construct or develop additional properties; may develop or acquire properties that do not produce a desired or expected yield on invested capital; may be unable to sell poorly performing or otherwise undesirable properties; or may fail to effectively integrate acquisitions of properties or portfolios of properties.

Risks associated with the use of debt to fund acquisitions and developments.

Competition for acquisitions may result in increased prices for properties.

The sale of condominium units may not generate enough net proceeds to pay the minimum curtailment payments required at Hamilton Place and Hamilton Minuteman.  The Partnership may be required to fund any deficiencies,

Any weakness identified in the Partnership’s internal controls as part of the evaluation being undertaken by the Company and its independent public accountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on the Company’s business.

Ongoing compliance with Sarbanes-Oxley Act of 2002 may require additional personnel or system changes.

The foregoing factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures made by the Partnership prior to the date hereof or the effectiveness of said Act.  The Partnership expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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The residential real estate market in the Greater Boston area has softened and the Partnership anticipates the climate will remain the same in the foreseeable future.  This may result in increases in vacancy rates and or/a reduction in rents. The Partnership believes its present cash reserves as well as anticipated rental revenue will be sufficient to fund its current operations, finance current planned improvements to its properties and continue dividend payments in the foreseeable future.

Since the Partnership’s long-term goals include the acquisition of additional properties, a portion of the proceeds from the refinancing and sale of properties is reserved for this purpose.  The Partnership will consider refinancing existing properties if the Partnership’s cash reserves are insufficient to repay existing mortgages or if the Partnership needs additional funds for future acquisitions.

Item 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2005, the Partnership and its subsidiary Partnerships collectively have approximately $116,100,000 in long-term debt, all of which have fixed interest rates.  Accordingly, the fair value of these debt instruments is affected by changes in market interest rates.  For information regarding the fair value and maturity dates of these debt obligations, see Notes 5 and 12 to the Consolidated Financial Statements.

For additional disclosures about market risk, see “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future Results.”

Item 4—CONTROLS AND PROCEDURES

Our principal executive officer and principal financial officer have within 90 days of the filing date of this quarterly report, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934, as amended) and have determined that such disclosure controls and procedures are adequate.  There have been no significant changes in internal controls or in other factors that could significantly affect our internal controls since the date of evaluation.  We do not believe any significant deficiencies or material weaknesses exist in our internal controls.  Accordingly, no corrective actions have been taken. We continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time, make changes aimed at enhancing their effectiveness and to ensure our systems evolve with our business.

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PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

None.

Item 2.    Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

(a)   See the exhibit index below.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:    May 16, 2005
	NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
	By:	NEWREAL, INC.,
		its General Partner*
	By:	/s/  Ronald Brown
		Ronald Brown, President

* Functional equivalent of Chief Executive Officer
and Chief Accounting Officer

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
(31.1)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald Brown, Principal Executive Officer of the Partnership (President and a Director of NewReal, Inc., sole General Partner of the Partnership)
(31.2)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Harold Brown, Principal Financial Officer of the Partnership (Treasurer and a Director of NewReal, Inc., sole General Partner of the Partnership)
(32.1)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Ronald Brown, Principal Executive Officer of the Partnership (President and a Director of NewReal, Inc., sole General Partner of the Partnership).
(32.2)	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Harold Brown, Principal Financial Officer of the Partnership (Treasurer and a Director of NewReal, Inc., sole General Partner of the Partnership).

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