11. Mortgages Payable

Mortgages payable consisted of the following:

	September 30,		December 31,
	2011		2010

Note payable in monthly installments of $44,550 plus interest at 150 basis points over LIBOR (1.73% and 1.76% at September 30, 2011 and December 31, 2010, respectively). A final balloon payment in the amount of $22,318,478 is due on July 14, 2013 unless extended for a two year period at the option of the Company	$	23,283,728	$	23,666,828

Note payable in monthly installments of $153,838 including interest at 6.90% per annum, with the final monthly payment due January 2020; collateralized by related real estate and tenants’ leases		11,674,735		12,433,134

Note payable in monthly installments of $91,675 including interest at 6.27% per annum, with the final monthly payment due July 2026; collateralized by related real estate and tenants’ leases		10,606,347		10,924,291

Note payable in monthly installments of $128,205 including interest at 11.20% per annum, with a final monthly payment due November 2018; collateralized by related real estate and tenants’ leases		9,173,789		9,605,696

Note payable in monthly installments of $99,598 including interest at 6.63% per annum, with the final monthly payment due February 2017; collateralized by related real estate and tenants’ leases		5,426,472		6,036,060

Note payable in monthly installments of $57,403 including interest at 8.50% per annum, with the final monthly payment due February 2023; collateralized by related real estate and tenant lease		5,541,662		5,781,587

Note payable in monthly installments of $25,631 including interest at 7.50% per annum, with the final monthly payment due May 2022; collateralized by related real estate and tenant lease. Loan released August 2011		-		2,354,450

Note payable in monthly installments of $12,453 including interest at 6.85% per annum. Paid March 31, 2011		-		724,734

Total	$	65,706,733	$	71,526,780

The Company paid off a note payable in the amount of $704,374 on March 31, 2011.

The Company entered into a release agreement in August 2011 for the mortgage loan which was previously secured by a mortgage on the leasehold interest in the former Borders store in Lawrence, Kansas amounting to approximately $2.3 million. While the lender had a leasehold mortgage on the property, the Company owned the fee interest in the property. The underlying ground lease was in default subsequent to Borders rejecting the lease and the lender did not cure the underlying default under the ground lease. The release agreement provided for the extinguishment of all liabilities due to the lender under the loan. The gain on extinguishment of $2.4 million has been reflected during the third quarter of 2011.

The Company has five mortgaged properties that were leased to Borders that serve as collateral for five non-recourse loans, including four mortgages that are cross-defaulted and cross-collateralized (the “Crossed Loans”). As of the date of this filing, and directly or indirectly because of the Chapter 11 bankruptcy filing of Borders in February 2011, the Company is in default on the five mortgage loans.

The first defaulted loan had a principal amount outstanding of approximately $5.6 million as of September 30, 2011, and is secured by the Borders corporate headquarters in Ann Arbor, Michigan, with 330,322 square feet of GLA. The property represented approximately $769,000 of annualized base rent as of September 30, 2011. To date, Borders has continued to pay its monthly rent for the property. However, because the Borders bankruptcy constituted an event of default under the applicable loan agreement, the lender notified the Company that it is in default and that our obligations under the loan have been accelerated and that default interest is owing. As a result of the Borders liquidation program, the Company would not expect to have sufficient cash flow from the property to continue to pay any of the debt service on the loan and may elect not to pay the debt service.

The four defaulted Crossed Loans had an aggregate principal amount outstanding of approximately $9.2 million as of September 30, 2011, and are secured by the Borders stores in Oklahoma City, Oklahoma, Columbia, Maryland, Germantown, Maryland, and one of the Borders stores in Omaha, Nebraska. In April 2011, Borders vacated the Oklahoma City, Oklahoma store of 24,641 square feet and rejected the lease and stopped making rental payments. In September 2011, Borders vacated the Omaha, Nebraska store of 24,641 square feet and the Germantown, Maryland store of 25,503 square feet and rejected the leases and stopped making rental payments. In September 2011, Borders assigned the lease for the Columbia, Maryland store of 28,000 square feet to Books-A-Million, Inc. While the Chapter 11 bankruptcy filing of Borders is not a direct event of default under the four Crossed Loans, as a result of the Oklahoma City, Oklahoma closure and lease rejection, the Company did not pay $36,410 in monthly debt service for the loan associated with that location, which was due for the months of May through September 2011. In addition, while Borders continued to occupy and pay the monthly rent for the other three locations, due to rental reductions negotiated during the bankruptcy process and approved by the lender, the Company did not have sufficient cash flow to pay $91,198 in monthly debt service due July 1, 2011 for the additional three properties and $91,795 due August 1 and September 1, 2011. The lender has declared all four Crossed Loans in default and accelerated the Company’s obligations thereunder. As a result of the Borders liquidation program, the Company would not expect to have sufficient cash flow from the properties to continue to pay any of the debt service on the loan and may elect not to pay the debt service.

The Company is in active discussions with the lenders for all five non-recourse loans regarding an appropriate course of action. The Company can provide no assurance that its negotiations with the lenders will result in favorable outcomes to it. Failure to restructure these mortgage obligations could result in foreclosure actions and the loss of the mortgaged properties. As of September 30, 2011, the net book value plus accumulated depreciation of the five mortgaged properties was approximately $18.4 million, after impairments of $3.2 million taken in the third quarter of 2011, and the aggregate balances on the non-recourse loans amounted to approximately $14.7 million. Annualized base rents as of September 30, 2011, for the five mortgaged properties, of which only one is currently occupied by Borders and paying rent and one which is occupied by Books-A-Million, was approximately $1.2 million, or 3.7% of the Company’s annualized base rent as of September 30, 2011.

Future scheduled annual maturities of mortgages payable for years ending September 30, excluding the effect of mortgage defaults, are as follows: 2012 - $4,567,986; 2013 - $26,733,417; 2014 - $4,258,449; 2015 - $4,545,350; 2016 - $4,851,618 and $20,749,913 thereafter. The weighted average interest rate at September 30, 2011 and December 31, 2010 was 6.40% and 5.63%, respectively.