UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2006

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 1-13762

RECKSON OPERATING PARTNERSHIP, L. P.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (212) 594-2700

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o Nox.

Indicate by a check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x .

Indicate by check mark 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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 24, 2007 of SL Green Realty Corp., the indirect parent of the Registrant, are incorporated by reference into Part III.

As of March 30, 2007, no common units of limited partnership of the Registrant were held by non-affiliates of the Registrant.  There is no established trading market for such units.

Table of Contents

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PART I

ITEM 1.               BUSINESS

General

Reckson Operating Partnership, L.P. (the “Operating Partnership”) commenced operations on June 2, 1995.  As of December 31, 2006, Reckson Associates Realty Corp. (the “Company”), which served as the sole general partner of the Operating Partnership, was a fully-integrated, self-administered and self-managed real estate investment trust (“REIT”).  The Operating Partnership and the Company were formed for the purpose of continuing the commercial real estate business of Reckson Associates, the predecessor of the Operating Partnership, their affiliated partnerships and other entities (“Reckson”).  Unless the context requires otherwise, the terms “Company,” “we,” “us,” “our” and similar terms include Reckson Associates Realty Corp., Reckson Operating Partnership, L. P. and its wholly-owned subsidiaries.  At December 31, 2006 we owned 100 properties (inclusive of thirty office properties owned through joint ventures) in the New York City tri-state area (the “Tri-State Area”) central business district (“CBD”) and suburban markets, encompassing approximately 20.2 million rentable square feet, all of which were managed by us.  The properties included 17 Class A CBD office properties encompassing approximately 7.3 million rentable square feet.  The CBD office properties consisted of six properties located in New York City, nine properties located in Stamford, CT and two properties located in White Plains, NY.  The CBD office properties comprised 55.0% of our net operating income (property operating revenues less property operating expenses) for the three months ended December 31, 2006.  These properties also included 75 Class A suburban office properties encompassing approximately 12.0 million rentable square feet.   Additionally, the properties included eight flex properties encompassing approximately 863,000 rentable square feet.

We also owned certain land parcels throughout our markets in the Tri-State Area which we held for current and future development (the “Development Parcels”). At December 31, 2006 our inventory of Development Parcels aggregated  approximately 309 acres of land in 11 separate parcels on which we can, based on estimates at December 31, 2006, develop approximately 3.1 million square feet of office space and in which we had invested approximately $128.5 million.

As of December 31, 2006, we had invested approximately $55.2 million in loans and REIT-qualified joint ventures with Reckson Strategic Venture Partners, LLC (“RSVP”), a real estate venture capital fund created in 1997 as a research and development vehicle for us to invest in alternative real estate sectors outside our core office focus (see “Recent Developments-Other Investing Activities” for further discussion).

Reckson Associates Realty Corp. as of December 31, 2006 controlled the Operating Partnership as the sole general partner and, owned approximately 97.7% of the Operating Partnership’s outstanding common units of limited partnership interest (“OP Units”).

Until January 25, 2007, our principal executive offices were located at 625 Reckson Plaza, Uniondale, New York 11556 and our telephone number at that location was (516) 506-6900. Our principal executive offices are now located at 420 Lexington Avenue, New York, New York, 10170 and our telephone number at this location is (212) 594-2700.  At December 31, 2006, we had approximately 300 employees. In connection with the SL Green Merger our website was discontinued. SLGreen is in process of creating a separate area on its website for our company.

We file annual, quarterly, and current reports with the Securities and Exchange Commission (the “sec”).  We regularly file proxy statements and other documents with the SEC.  The public may read and copy these reports and any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 (Hours of operation 10:00am to 3:00pm). Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference

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Room. We are an electronic filer and the SEC maintains a website that contains reports, proxy and information regarding issuers that are filed electronically and can be accessed for free over the Internet at www.sec.gov.

Recent Developments

Acquisitions, Dispositions and Investing Activities

On August 18, 2005, we entered into (i) an underwriting agreement relating to the public offering in Australia of approximately A$263.0 million (approximately $202.0 million) of units (“LPT Units”) in a newly-formed Reckson-sponsored Australian listed property trust, Reckson New York Property Trust (“Reckson LPT”), a newly-formed listed property trust which is traded on the Australian Stock Exchange and (ii) contribution and sale agreements pursuant to which, among other things, we agreed to transfer 25 of our properties for an aggregate purchase price of approximately $563.0 million and containing an aggregate of 3.4 million square feet, in three separate tranches, to the Reckson Australian Operating Company LLC (“RAOC JV” or “Australian JV”) in exchange for a 25% interest in the Australian JV and approximately $502.0 million in cash (inclusive of proceeds from mortgage debt to be assumed by the Australian JV).  On September 21, 2005, Reckson LPT completed its public offering and the closing of the first of three tranches (“Tranche I”) of this transaction.

In connection with the Tranche I closing, the Australian JV acquired from us 17 of our suburban office properties containing approximately 2.0 million square feet for approximately $367.0 million (including the assumption of approximately $196.1 million in mortgage debt which had been incurred by us in August 2005).  In return, we received a 25% interest in the Australian JV and approximately $128.1 million in cash resulting in an aggregate gain of approximately $103.6 million. As discussed below relating to certain guarantees we have made, approximately $18 million of the aggregate gain has been deferred to future periods pursuant to Financial Accounting Standards Board (“FASB”) Statement No. 66 to coincide with the release of the guarantees.  As a result, gains on sales of real estate reported in 2005, related to theTranche I closing was approximately $86.1 million.  Approximately $22.0 million of the cash received was used to repay certain of our secured mortgage indebtedness on September 30, 2005 and approximately $105.7 million of the cash received was used to establish an escrow account with a qualified intermediary for a future exchange of real property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (“Code”) (a “Section 1031 Exchange”).  A Section 1031 Exchange allows for the deferral of taxes related to the gain attributable to the sale of property if a qualified replacement property is identified within 45 days and such qualified replacement property is acquired within 180 days from the initial sale.  On October 7, 2005 we acquired a qualified replacement property for purposes of this Section 1031 Exchange and thereby deferred a portion of the tax gain from the Tranche I sale.

In connection with the foregoing, on September 21, 2005, Reckson Australia Holdings LLC (“Reckson Holdings”), a wholly-owned subsidiary of the Operating Partnership as of December 31, 2006, and Reckson Australia LPT Corporation (“LPT REIT”), a U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered into the Amended and Restated Limited Liability Company Agreement governing the Australian JV (the “Operating Agreement”).  Pursuant to the Operating Agreement, LPT REIT holds a 75% interest in, and acts as the managing member for, the Australian JV, and Reckson Holdings holds a 25% non-managing member interest therein.  The Operating Agreement provides that, if at any time additional capital contributions are made to the Australian JV, Reckson Holdings will have a right to make additional capital contributions up to an amount necessary to maintain its 25% interest therein on the same terms and conditions as such other capital contributions.

As the managing member of the RAOC JV, LPT REIT has the sole responsibility for managing its business and affairs on a day-to-day basis, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the Australian JV, a disposition of all or substantially all of its assets, or the liquidation or dissolution of the Australian JV.  Such major decisions required the prior written consent of a majority of the non-managing members. As a result of the foregoing, we, as of December 31, 2006, were accounting for our 25% non-managing member interest in the Australian JV under the equity method of accounting.

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On January 6, 2006, Reckson LPT completed the second Tranche of this transaction (“Tranche II”) whereby the Australian JV acquired three of our suburban office properties: 6800 and 6900 Jericho Turnpike, Syosset, NY and 710 Bridgeport Avenue, Shelton, CT, (the “Tranche II Properties”) aggregating approximately 761,000 square feet for approximately $84.6 million, including the assignment of approximately $20.1 million of mortgage debt and approximately $64.5 million in cash.  As a result, gains on sales of real estate related to Tranche II was approximately $35.4 million.  Approximately $25.1 million of sales proceeds was used to establish an escrow account for the purpose of a future Section 1031 Exchange.  During May 2006 we terminated the Section 1031 Exchange and received the sales proceeds previously held by the qualified intermediary, including accrued interest. Such proceeds were used to repay outstanding borrowings under our credit facility.  The balance of the cash proceeds, received at the time of the sale was used to fund our development activities and for general corporate purposes.  For federal income tax purposes we recognized a tax gain of approximately $26.7 million.

The Tranche III closing (“Tranche III”), consisting of five of our suburban office properties valued at approximately $111.8 million, closed on October 6, 2006.  The “Tranche III Properties” aggregated approximately 623,000 square feet and consisted of:  520 Broadhollow Road, 50 Marcus Avenue, 1660 Walt Whitman Road, all of which are located in Melville, NY, 580 White Plains Road, Tarrytown, NY and 300 Executive Park Drive, West Orange, NJ (collectively, the “Tranche III Properties”).  Proceeds from the Tranche III closing included the assignment of approximately $63.3 million of mortgage debt, additional equity in the Australian JV of approximately $18.3 million and cash of approximately $30.2 million.  Net cash proceeds received were used to repay outstanding borrowings under our credit facility and for general corporate purposes.

Our Service Companies provided asset management, property management, leasing, construction and other services to the RAOC JV.   Affiliates of ours were entitled to transaction fees and ongoing fees for providing services to the Australian JV.  During 2006, in connection with the Tranche II and Tranche III closings we earned approximately $1.9 million in transaction related fees. During 2005, in connection with the Tranche I closing we earned approximately $3.6 million in such fees. In addition, we earned approximately $4.1 million and $966,000 of service related fees for the years ended December 31, 2006 and 2005, respectively. Such amounts were included in investment income and other on our consolidated statements of income. In addition, we also formed Reckson Australia Management Limited (“RAML”), a wholly owned subsidiary as of December 31, 2006, that managed Reckson LPT and served as its “Responsible Entity.” The Responsible Entity is managed by a six member board that includes three independent directors domiciled in Australia and three of the Company’s executive officers.

In connection with the mortgage indebtedness securing nine of the Tranche I properties, which were transferred to the Australian JV on September 21, 2005, and three of the Tranche III properties which were transferred to the Australian JV on October 6, 2006, we guaranteed to the lender certain customary non-recourse carve-outs, as well as certain obligations relating to the potential termination of a number of leases at four of these properties. As of December 31, 2006, we had also guaranteed to the lender certain capital requirements related to these properties.

In accordance with FASB Statement No. 144, the assets and liabilities of the properties transferred and to be transferred, excluding the option properties, to the RAOC JV are classified as held for sale on our consolidated balance sheets, for all periods presented.  Our interest in the RAOC JV and related interests and contacts was sold to the Buyer in the Asset Sale discussed below.

On March 7, 2006, we sold our 354,000 square foot office building in Orlando, Florida for aggregate consideration of approximately $70.0 million which resulted in a gain of approximately $9.0 million.  Such gain is reflected as a component of discontinued operations on our consolidated statements of income.  This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition.  Net proceeds from the sale were used to establish an escrow

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account with a qualified intermediary for a future Section 1031 Exchange.  During May 2006 we terminated the Section 1031 Exchange and received the sales proceeds previously held by the qualified intermediary, including accrued interest. Such proceeds were used to repay outstanding borrowings under our credit facility.   For federal income tax purposes we recognized a tax gain of approximately $5.2 million.

On March 31, 2006, we sold a 161,000 square foot office building located in Westchester County for $35.3 million.  Sales proceeds received were used for the repayment of the mortgage note encumbering the property located at 1350 Avenue of the Americas in New York, NY.  This non-core real estate holding was acquired in December 2005 as part of a 14 office property portfolio acquisition.

On March 31, 2006, a group of institutional investors led by JPMorgan Investment Management, our joint venture partner with respect to the property located at One Court Square, Long Island City, NY and the property located at 919 Third Avenue, NY, purchased our option to acquire the existing minority partners’ 40% partnership interest in the Omni Property for net proceeds of approximately $9.0 million.  Such proceeds have been included in investment income and other on our consolidated statements of income.  In connection with this transaction, the original minority partner repaid to us approximately $22.1 million representing amounts due under a note receivable which was secured by their interest in the Omni Property.  Such aggregate proceeds to us of approximately $31.2 million were used for the repayment of the mortgage note encumbering the property located at 1350 Avenue of the Americas in New York, NY.

Merger with SL Green Realty Corp.

On January 25, 2007, SL Green Realty Corp. (“SL Green”) completed the acquisition (the “SL Green Merger”) of all of the outstanding shares of common stock of the Company pursuant to the terms of the Agreement and Plan of Merger, dated as of August 3, 2006, as amended (the “Merger Agreement”), among SL Green, Wyoming Acquisition Corp., Wyoming Acquisition GP LLC, Wyoming Acquisition Partnership LP, the Company and the Operating Partnership. Pursuant to the terms of the Merger Agreement, each of the issued and outstanding shares of common stock of the Company was converted into the right to receive (i) $31.68 in cash, (ii) 0.10387 of a share of the common stock, par value $0.01 per share, of SL Green and (iii) a prorated dividend in an amount equal to approximately $0.0977 in cash. SL Green also assumed an aggregate of approximately $238.6 million of our mortgage debt, approximately $287.5 million of our convertible public debt and approximately $967.8 million of our public unsecured notes.

On January 25, 2007, SL Green completed the sale (the “Asset Sale”) of certain assets of the Operating Partnership to an investment group led by certain of our former executive management (the “Buyer”) for a total consideration of approximately $2.0 billion. SL Green caused the Operating Partnership to transfer the following assets to the Buyer in the Asset Sale: (1) certain real property assets and/or entities owning such real property assets, in either case, of the Operating Partnership and 100% of certain loans secured by real property, all of which are located in Long Island, New York; (2) certain real property assets and/or entities owning such real property assets, in either case, of the Operating Partnership located in White Plains and Harrison, New York; (3) all of the real property assets and/or entities owning 100% of the interests in such real property assets, in either case, of the Operating Partnership located in New Jersey; (4) the entity owning a 25% interest in Reckson Australia Operating Company LLC, the Company’s Australian management company (including its Australian licensed responsible entity), and other related entities, and the Operating Partnership and the Operating Partnership subsidiaries’ rights to and interests in, all related contracts and assets, including, without limitation, property management and leasing, construction services and asset management contracts and services contracts; (5) the direct or indirect interest of the Company in Reckson Asset Partners, LLC, an affiliate of RSVP and all of the Operating Partnership’s rights in and to certain loans made by the Operating Partnership to Frontline Capital Group, the bankrupt parent of RSVP, and other related entities, which will be purchased by a 50/50 joint venture with an affiliate of SL Green; (6) a 50% participation interest in certain loans made by a subsidiary of the Operating Partnership that are secured by four real property assets located in Long Island, New York; and (7) 100% of certain loans secured by real property located in White Plains and New Rochelle, New York.

During January 2007, in connection with the SL Green Merger, the Operating Partnership sold 1350 Avenue of the Americas to SL Green for $450 million.  This acquistion was completed pursuant to the Merger Agreement with SL Green and was undertaken to facilitate SL Green’s completion of a tax-free like-kind exchange of 286 and 290 Madison Avenue and 1140 Avenue of the Americas, which had been sold in 2006.

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Notes Receivable Investment Activity

On July 27, 2006, we advanced $20.0 million under a loan agreement which is secured by certain pledges of project income and ownership interests and a personal guarantee of an affiliate of the borrower.  This loan matures in August 2009 and bears interest at 15% per annum (10% annual pay rate and 5% monthly compounded deferred rate).  The loan is pre-payable at any time with yield maintenance through August 1, 2007 if pre-paid prior to August 2007.  This investment was funded through a borrowing under our credit facility.

On August 10, 2006, we advanced $10.0 million under a loan agreement which is secured by certain pledges of project income and ownership interests and a personal guarantee of an affiliate of the borrower.  This loan matures in August 2009 and bears interest at 15% per annum (10% annual pay rate and 5% monthly compounded deferred rate).  The loan is pre-payable at any time with yield maintenance through August 15, 2007 if pre-paid prior to such date.  This investment was funded through a borrowing under our credit facility.

At December 31, 2006, we had invested approximately $123.4 million in mezzanine loans and approximately $70.9 million in other loan investments (collectively, the “Note Receivable Investments”). In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, a first mortgage, other guaranties, pledges and assurances.

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The following table sets forth the terms of the mezzanine loans at December 31, 2006 (in 000’s):

(a)             Prepayable without penalty.

(b)            In addition to this mortgage loan, Reckson Construction and Development, LLC (“RCD”) entered into a development agreement with the owner of the property to perform certain predevelopment, development and / or other services with respect to the property.  In exchange for its services, RCD received a development fee of $2.0 million which is payable in equal monthly installments over a two-year period which commenced during October 2005.

(c)             Junior mezzanine loan secured by interests in a 550,000 square foot condominium interest.

(d)            Notes sold as part of the Asset Sale Agreement.

On March 30, 2006, we advanced approximately $14.2 million under three separate loan agreements which are secured by certain flex properties, aggregating approximately 450,000 square feet,  located in Nassau County, Long Island and in part by a personal guarantee of an affiliate of the borrower.  These loans have an initial weighted average interest rate of 15.3% and mature on April 1, 2008.  In addition, the loans are not prepayable, without penalty, prior to October 1, 2007.

As of December 31, 2006, we held one other note receivable, which aggregated $1.0 million and carried an interest rate of 10.50% per annum. The Other Note matures on January 31, 2010 and is secured in part by a minority partner’s preferred unit interest in the Operating Partnership.

The following table sets forth the terms of our other loan investments at December 31, 2006 (in 000’s):

(a)                As part of the Asset Sale Agreement 50% interest was sold.

Other Investing Activities

During 1997, the Company formed FrontLine Capital Group (“FrontLine”) and RSVP, a real estate venture capital fund whose common equity is held indirectly by FrontLine.  In connection with the formation and subsequent spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100.0 million. The Operating Partnership also approved the funding of investments of up to $110.0 million relating to REIT-qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an additional unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”). Through December 31, 2006, approximately $59.8 million has been funded to RSVP-

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controlled joint ventures and $142.7 million through the FrontLine Loans (collectively, the “RSVP / FLCG Investments”) on which we accrued interest (net of reserves) of approximately $19.6 million.

A committee of the Board of Directors of the Company, comprised solely of independent directors, considered any actions to be taken by the Company in connection with the RSVP / FLCG Investments and during 2001, based on our assessment of value and recoverability of the RSVP / FLCG Investments and considering the findings and recommendations of the committee and its financial advisor, we recorded a $163.0 million valuation reserve charge, inclusive of anticipated costs against the carrying cost of the RSVP / FLCG Investments. In addition, we have discontinued the accrual of interest income with respect to the FrontLine Loans and have also reserved against our share of Generally Accepted Accounting Principles (“GAAP”) equity in earnings, if any, from the RSVP-controlled joint ventures funded until such income is realized through cash distributions.

FrontLine is in default under the FrontLine Loans and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.

In connection with RSVP’s capital restructuring, RSVP and certain of its affiliates obtained a $60.0 million secured loan (the “RSVP Secured Loan”).  On November 3, 2005, the outstanding balance of the RSVP Secured Loan was repaid primarily with proceeds received from the sale of certain assisted living related assets.

The net carrying value of our investments in the RSVP / FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2006.

Scott H. Rechler, who served as Chief Executive Officer, President and Chairman of the Board of the Company, serves as CEO and Chairman of the Board of Directors of FrontLine and is its sole board member.  Scott H. Rechler also serves as a member of the management committee of RSVP.

We sold the Frontline Loans and the RSVP / FLCG Investments to the Buyer in the Asset Sale.

In addition to the foregoing, as of December 31, 2006, we also had investments in unconsolidated real estate joint ventures of (i) an approximate 5% indirect ownership interest in a joint venture that owns an investment in a New York City Class A office tower where our share of unconsolidated joint venture debt is approximately $11.6 million with an interest rate of 6.35% per annum and a remaining term of approximately 15 years, (ii) a 25% joint venture interest in the RAOC JV where our share of unconsolidated joint venture debt is approximately $79.9 million with a weighted average interest rate of 5.23% per annum and a weighted average term of 4.6 years (such joint venture interest was sold as part of the Asset Sale) and (iii) a 30% joint venture interest in the property located at One Court Square, Long Island City, NY where our share of unconsolidated joint venture debt is $94.5 million with an interest rate of 4.91% per annum and a remaining term of approximately 8.7 years.

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Leasing Activity

During the year ended December 31, 2006, the Company executed 292 leases encompassing approximately 2.4 million square feet.  The following table summarizes the leasing activity by location and property type:

(1)             Average effective rent is base rent adjusted on a straight-line basis for free rent periods, tenant improvements and leasing commissions.

Financing Activities

As of December 31, 2006, we maintained a $500 million Credit Facility (the “Credit Facility”) with JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp North America, Inc. and Wachovia Bank, National Association as co-documentation agents.  The Credit Facility had a maturity in August 2008, contained options which provided for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to $750 million.  In addition, borrowings under the Credit Facility accrued interest at a rate of LIBOR plus 80 basis points and the Credit Facility carried a facility fee of 20 basis points per annum.  In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee were subject to change.  At December 31, 2006, the outstanding borrowings under the Credit Facility aggregated $269.0 million and carried a weighted average interest rate of 6.14% per annum.  This facility was repaid and terminated in connection with the SL Green Merger.

We utilized the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes.

At December 31, 2006, we had availability under the Credit Facility to borrow approximately an additional $231.0 million, subject to compliance with certain financial convenants.

We capitalized interest incurred on borrowings to fund certain development projects in the amount of $12.7 million, $11.4 million and $8.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.

On January 13, 2006, we obtained a $250.0 million term loan (the “Term Loan”) from Goldman Sachs Mortgage Company.  The Term Loan was for an initial period of three months and had terms, including interest rates and financial covenants, substantially similar to our Credit Facility.  Proceeds from the Term Loan were used to repay outstanding borrowings under our Credit Facility.  On March 31, 2006, in conjunction with net proceeds received from the issuance of Senior Unsecured Notes, we repaid the entire amount outstanding under the Term Loan.  As a result, the Term Loan has been retired and is no longer available for borrowings thereunder.

On January 6, 2006, we sold two of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY to the RAOC JV, subject to their mortgage debt of approximately $20.1 million.  The RAOC JV subsequently pre-paid the mortgage notes with proceeds from an unrelated financing transaction.

As a result of increased market values for our commercial real estate assets, we have sold certain non-core assets or interests in assets where significant value has been created.  During 2004, we sold assets or interests in assets with aggregate sales prices of approximately $51.4 million, net of minority partners’ joint venture interests. During 2005 we sold approximately $909.8 million of our real estate assets including disposition of interests to joint ventures. During 2006, we sold two of our non-core assets, the Tranche II and III Properties, a non-core parcel of land and an option to acquire our minority partner’s 40% partnership interest in the Omni Property for aggregate sales proceeds of approximately $292.7 million.  We used the proceeds from these sales primarily to pay down borrowings under the Credit Facility, for general corporate purposes and to invest in short-term liquid investments until such time as alternative real estate investments could be made.

On March 23, 2007, we mailed notices to the holders of our 7.20% Senior Unsecured Notes due 2007 and the 6.00% Notes due 2007 notifying the holders of such notes that we were exercising rights under the governing documents of the notes to redeem each series of notes in full.  The redemption of both series of notes is expected to occur on April 27, 2007.

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Stock and Other Equity Offerings

As of December 31, 2006 a Class A OP Unit and a share of common stock of the Company had similar economic characteristics as they effectively share equally in the net income or loss and distributions of the Operating Partnership.  As of December 31, 2006, the Operating Partnership had issued and outstanding 1,129,733 Class A OP Units and no Class C OP Units.    The Class A OP Units and the Company’s common stock as of December 31, 2006 received prior to the SL Green merger and while outstanding a quarterly distribution of $0.4246 per unit/share.

During June 2005, the Operating Partnership issued $287.5 million aggregate principal amount of 4.00% exchangeable senior debentures due June 15, 2025. The debentures were issued at 98% of par and are exchangeable for shares of common stock of the Company on or after June 15, 2024 at an initial exchange rate of 24.6124 common shares per $1,000 of principal amount of debentures.   The debentures are also exchangeable:  (i) if the market price of the Company’s common stock over a specified period of time is more than 125% of the exchange price per share then in effect; (ii) if the trading price of the debentures over a specified period of time is less than 98% of the product of the closing price of the Company’s shares multiplied by the applicable exchange rate; (iii) during a specified period of time, for any debentures that have been called for redemption; (iv) under certain circumstances, upon the occurrence of a distribution to holders of the Company’s shares of (a) rights to purchase the Company’s common stock at a price below the market price of the Company’s shares or (b) assets, debt securities or rights to purchase the Company’s securities or securities of the Operating Partnership that have a per share / unit value exceeding 10% of the market price of our shares; (v) if the Company’s common stock is not listed on a national or regional securities exchange or quoted on NASDAQ for 30 consecutive trading days; or (vi) if the Operating Partnership or the Company is party to a consolidation, merger or binding share exchange pursuant to which all of the Company’s common stock would be exchanged for cash, securities or other property.

If exchanged in accordance with their terms, the debentures will be settled in cash up to their principal amount and any remaining exchange value will be settled, at our option, in cash, the Company’s common stock or a combination thereof.  The debentures were guaranteed by the Company.  We have the option to redeem the debentures beginning June 18, 2010 for the principal amount plus accrued and unpaid interest.  Holders of the debentures have the right to require us to repurchase their debentures at 100% of the principal amount thereof plus accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020 or, in the event of certain change in control transactions (including the Merger), prior to June 15, 2010.

In connection with the SL Green Merger, the Operating Partnership entered into a supplemental indenture pursuant to which it elected to change the exchange obligation of the Operating Partnership with respect to the debentures into an obligation to deliver, upon exchange of the debentures, cash, shares of SL Green common stock or combination thereof, at the Operating Partnership’s election.  In connection with the SL Green Merger, SL Green guaranteed all obligations under the debentures.

On February 14, 2007, the Operating Partnership announced that, following the SL Green Merger, the adjusted exchange rate for the debentures is 7.7461 shares of SL Green common stock per $1,000 of principal amount of debentures and the adjusted reference dividend for the debentures is $1.3491.

During the year ended December 31, 2006, certain limited partners in the Operating Partnership exchanged 264,766 OP Units and all then outstanding Class C OP Units for an equal number of shares of the Company’s common stock.

The Operating Partnership had issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit and a stated distribution rate of 7.0%, which was subject to reduction based upon terms of their initial issuance (the “Preferred Units”).  The terms of the Preferred Units provided for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates, which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998.  As a result of the aforementioned reduction, no distributions were made on the Preferred Units.

In connection with the SL Green Merger, the holder of the Preferred Units transferred the Preferred Units to SL Green Operation Partnership, L.P. (“SLG OP”) in exchange for the issuance of 1,200 preferred units of limited partnership interest in SLG OP with substantially similar terms as the Preferred Units.

Business Strategies and Growth Opportunities

On January 25, 2007, the Company was acquired by SL Green. See Item 1 “Business — Business and Growth Strategies” in SL Green’s Annual Report on Form 10-k for the year ended December 31, 2006 for a complete description of SL Green’s business and growth strategies.

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Regulations

Many laws and governmental regulations are applicable to our business and properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Environmental Matters

Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property.  These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances.  The cost of any required remediation and the owner’s liability therefore as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral.  Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person.  Certain environmental laws govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition.  Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs.  In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.

All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies.   These environmental audits have not revealed any environmental liability that would have a material adverse effect on our business.

Competition

The leasing of real estate is highly competitive.  There are numerous commercial properties that compete with us in attracting tenants and numerous companies that compete in selecting land for development and properties for acquisition.  We compete for tenants with landlords and developers of similar properties located in our markets primarily on the basis of location, rent charged, services provided, and the design and condition of our properties.   When attempting to acquire real estate, we compete with  REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others.

Forward Looking Information

This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Such forward-looking statements relate to, without limitation, our future capital expenditures, dividends and acquisitions (including the amount and nature thereof) and other development trends of the real estate industry and the Manhattan office market, business strategies, and the expansion and growth of our operations.  These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate.  We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Act and Section 21E of the Exchange Act.  Such statements are subject to a number of assumptions, risks and uncertainties which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements.  Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms.  Readers are cautioned not to place undue reliance on these forward-looking statements.  Among the factors about which we have made assumptions are:

·                  general economic or business (particularly real estate) conditions, either nationally or in New York City, being less favorable than expected;

·                  reduced demand for office space;

·                  risks of real estate acquisitions;

·                  risks of structured finance investments;

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·                  availability and creditworthiness of prospective tenants;

·                  adverse changes in the real estate markets, including increasing vacancy, decreasing rental revenue and increased insurance costs;

·                  availability of capital (debt and equity);

·                  unanticipated increases in financing and other costs, including a rise in interest rates;

·                  market interest rates could adversely affect the market price of our common stock, as well as our performance and cash flows;

·                  our ability to satisfy complex rules in order for us to qualify as a REIT, for federal income tax purposes, our operating partnership’s ability to satisfy the rules in order for it to qualify as a partnership for federal income tax purposes, the ability of certain of our subsidiaries to qualify as REITs and certain of our subsidiaries to qualify as taxable REIT subsidiaries for federal income tax purposes and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

·      accounting principles and policies and guidelines applicable to REITs;

·                  competition with other companies;

·                  the continuing threat of terrorist attacks on the national, regional and local economies including, in particular, the New York City area and our tenants;

·                  legislative or regulatory changes adversely affecting REIT’s and the real estate business; and

·                  environmental, regulatory and/or safety requirements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

The risks included here are not exhaustive.  Other sections of this report may include additional factors that could adversely affect our business and financial performance.  In addition, sections of the SL Green’s Annual Report on Form 10-K contains additional factors that could adversely affect our business and financial performance.  Moreover, we operate in a very competitive and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Item 1A.    RISK FACTORS

Set forth below are the risks that we believe are material to us as of December 31,2006 investors who purchase or own our securities.  The occurrence of any of the following factors or circumstances could adversely affect our cash flows, financial condition, results of operations and/or our ability to service debt and make distributions to our equityholders, any or all of which could in turn cause a decline in the market value of our securities.

These risk factors are the risks associated with our business as of December 31, 2006 while we were the operating partnership of Reckson Associates Realty Corp., a publicly traded REIT.  On January 25, 2007, we completed the SL Green Merger and were acquired by SL Green Operating Partnership, L.P.  We encourage you to read the Annual Report on Form 10-K for SL Green Realty Corp, our 100% indirect parent company.

·      We are dependent on the New York Tri-State area market due to limited geographic diversification and our financial results may suffer as a result of a decline in economic conditions in such area.

A decline in the economic conditions in the Tri-State Area and for commercial real estate could adversely affect our business, financial condition and results of operations.  All of our properties are located in the Tri-State Area, although our organizational documents do not restrict us from owning properties outside this area.  As of December 31, 2006, our markets were located in New York City and the suburbs of New York City and may be similarly affected by economic changes in this area.  A significant downturn in the financial services industry and related industries would likely have a negative effect on these markets and on the performance of our properties.

The potential impact of terrorist attacks in the New York City and Tri-State Area may adversely affect the value of our properties and our ability to generate cash flow. As a result, there may be a decrease in demand for office space in metropolitan areas that are considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals.

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·      Debt servicing and refinancing, increases in interest rates and financial and other covenants could adversely affect our economic performance.

Dependence upon debt financing; risk of inability to service or refinance debt.  Under the terms of our partnership agreement as of December 31, 2006, we operate so as to facilitate the SL Green’s qualifications as a REIT.  In order for SL Green  to qualify as a REIT, for federal income tax purposes, it is required to distribute at least 90% of its taxable income.  As a result, we are more reliant on debt or equity financings than many other companies that are able to retain more of their income.

We are subject to the risks associated with debt financing.  Our cash flow could be insufficient to meet required payments of principal and interest.  We may not be able to refinance existing indebtedness, which in virtually all cases requires substantial principal payments at maturity, or the terms of such refinancing might not be as favorable as the terms of the existing indebtedness.  As of December 31, 2006, the weighted average maturity of our existing indebtedness was approximately 4.3 years and our total existing indebtedness (net of minority partners’ interests’ share of our consolidated joint venture debt and including our share of unconsolidated joint venture debt) was approximately $2.0 billion.  We also may not be able to refinance any indebtedness we incur in the future.  Finally, we may not be able to obtain funds by selling assets or raising equity or debt to make required payments on maturing indebtedness.

Rising interest rates could adversely affect cash flow.  Increases in interest rates could increase our interest expense, which could adversely affect our ability to service our indebtedness or to pay distributions to its equityholders.  As of December 31, 2006, approximately 13.6% of our total existing indebtedness was variable rate debt and our total debt was approximately $2.0 billion.  Outstanding advances under our Credit Facility bore interest at variable rates.  In addition, we may incur indebtedness in the future that also bears interest at a variable rate.

Covenants in our debt agreements could adversely affect our financial condition and our ability to make distributions.  As of December 31, 2006, we had an unsecured Credit Facility with JPMorgan Chase Bank, National Association, as administrative agent, which provided for a maximum borrowing amount of up to $500 million.  The Credit Facility which had a maturity in August 2008, provided for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to $750 million.  Our ability of the Operating Partnership to borrow under the Credit Facility as of December 31, 2006, was subject to certain covenants, including covenants relating to limitations on unsecured and secured borrowings, minimum interest and fixed charge coverage ratios, a minimum equity value and a maximum dividend payout ratio.  The Credit Facility also contained a financial covenant limiting the amount of cash distributions that we were able to pay to holders of our common equity during any fiscal quarter if they exceeded, when added to all distributions paid during the three immediately preceding quarters, the greater of:

·                  90% of the our funds from operations; and

·                  the amounts required in order for the Company to continue to qualify as a REIT.

We relied on borrowings under our Credit Facility to finance acquisition and development activities and for working capital purposes.  Although, as of December 31, 2006, we were in compliance with the covenants under the Credit Facility, our ability to borrow under such facility was subject to continued compliance with the financial and other covenants contained therein.  If we were unable to borrow under our Credit Facility, it could have adversely affected our financial condition, including our ability to service our indebtedness or pay distributions to our equityholders.

The indenture under which our unsecured notes are issued also contains customary covenants, including financial covenants relating to limitations on our ability to incur secured and unsecured indebtedness and the maintenance of a certain percentage of unencumbered assets.  As of December 31, 2006, we were in compliance with the covenants under the indenture, but there can be no assurance that we will continue to be in compliance with such covenants.

In addition, the mortgage loans which are secured by certain of our properties contain customary covenants, including covenants that require us to maintain property insurance in an amount equal to the replacement cost of the properties with insurance carriers who satisfy certain ratings standards.  As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all-risk” policies.  In November 2002, the Terrorism Risk Insurance Act of 2002 (the “TRIA”) was signed into law which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005.  The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005.  In the event that our coverage for losses resulting from terrorist acts is limited, there can be no assurance that the lenders under our mortgage loans would not take the position that

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exclusions from our coverage for losses due to terrorist acts is a breach of a covenant which, if uncured, could allow the lenders to declare an event of default and accelerate repayment of the mortgage loans.  Other outstanding debt instruments contain standard cross default provisions that would be triggered in the event of an acceleration of the mortgage loans.  This matter could adversely affect our financial results and our ability to finance and/or refinance or sell our properties or to buy or sell properties.  Our property insurance coverage as of December 31, 2006, which would have expired on June 2, 2007, provided for full replacement cost of our properties, including for acts of terrorism up to $540 million on a per occurrence basis.

The facility fee and interest rate payable under the terms of our Credit Facility were subject to change based upon changes in our credit ratings. In the event of a change in the our unsecured credit ratings, the interest rates and facility fee were subject to change.  At December 31, 2006, the outstanding borrowings under our Credit Facility aggregated $269.0 million and carried a weighted average interest rate of 6.14%.  The Credit Facility was repaid and terminated in connection with the SL Green Merger.

No limitation on debt.  We had a policy of incurring debt only if our Debt Ratio was 50% or less.  As of December 31, 2006, our Debt Ratio was approximately 33.8%.  For these purposes, “Debt Ratio” was defined as our total debt as a percentage of the market value of outstanding shares of common stock of the Company, including the conversion of our outstanding partnership units, the liquidation preference of the preferred units, excluding all units of general partnership interest owned by the Company, plus total debt (including our share of unconsolidated joint venture debt and net of minority partners’ interests’ share of consolidated joint venture debt).  Under this policy, we could incur additional debt if the Company’s stock price increased, even if we may not have had a corresponding increase in our ability to repay the debt.  In addition, as of December 31, 2006, our debt-to-equity ratio was 1.96x.  We calculated our debt-to-equity ratio as of December 31, 2006 by comparing the total debt to the value of the Company’s outstanding common stock, our common units of limited partnership interest and liquidation preference of our preferred units (including our share of unconsolidated joint venture debt and net of minority partners’ interests’ share of consolidated joint venture debt), each based upon the market value of the Company’s common stock, and the liquidation preference of our preferred units of limited partnership interest in, excluding all units owned by the Company.

As described above, our Credit Facility and the indenture under which our unsecured notes are issued contain financial covenants which limit our ability of incur additional indebtedness.  However, our organizational documents do not and did not contain any limitation on the amount of indebtedness we may incur.  Accordingly, the Board of Directors of the Company could have altered or eliminated our policy with respect to the incurrence of debt and if this policy were changed, we could have become more highly leveraged, resulting in higher interest payments that could have adversely affected our ability to pay distributions to our equityholders and could have increased the risk of default on our existing indebtedness.

·      The value of our investments in loans to FrontLine Capital Group (“FrontLine”) and in joint venture investments with Reckson Strategic Venture Partners LLC (“RSVP”) may be subject to further loss.

During 1997, we formed Frontline and RSVP, a real estate venture capital fund whose common equity is held indirectly by Frontline.  In connection with the formation and spin-off of Frontline, we established an unsecured Credit Facility with FrontLine (the “FrontLine Facility”) in the amount of $100 million we also approved the funding of investments of up to $110 million relating to REIT-qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”).  As of December 31, 2006, approximately $59.8 million had been funded to RSVP-controlled joint ventures and $142.7 million through the FrontLine Loans (collectively, the “RSVP/FLCG Investments”), on which we accrued interest (net of reserves) of approximately $19.6 million.  The net carrying value of our investments in the RSVP/FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2006. Such amount is included in investments in affiliate loans and joint ventures on our consolidated balance sheet.

FrontLine is in default under the FrontLine Loans and on June 12, 2002 filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.  As of December 31, 2006, a committee of the Board of Directors of the Company, comprised solely of independent directors, considered any actions to be taken by us in connection with the RSVP/FLCG Investments. Scott H. Rechler, who served as Chief Executive Officer, President and Chairman of the Board of Directors of the Company, serves as CEO and Chairman of the Board of Directors of FrontLine and is its sole board member. As of December 31, 2006 Scott H. Rechler also served as a

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member of the management committee of RSVP and serves as a member of the Board of Directors of American Campus Communities, a company formerly owned by RSVP.  The RSVP / FLCG Investments were sold to the Buyer in the Asset Sale.

·      Our acquisition, development and construction activities could result in losses.

We may acquire existing office properties to the extent that suitable acquisitions can be made on advantageous terms.  Acquisitions of commercial properties entail risks, such as the risks that we may not be in a position or have the opportunity in the future to make suitable property acquisitions on advantageous terms and that our investments will fail to perform as expected.  Some of the properties that we acquire may require significant additional investment and upgrades and are subject to the risk that estimates of the cost of improvements to bring such properties up to standards established for the intended market position may prove inaccurate.

We may continue certain development and construction projects of office properties in accordance with our development and underwriting policies as opportunities arise.  Our development and construction activities include the risks that:

·                  we may abandon development opportunities after expending resources to pursue development;

·                  construction costs of a project may exceed our original estimates;

·                  occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;

·                  financing may not be available to us on favorable terms for development of a property; and

·                  we may not complete construction and lease-up on schedule, resulting in increased carrying costs to complete construction, construction costs and, in some instances, penalties owed to tenants with executed leases.

Our development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations.  If any of the above events occur, our ability to pay distributions to our equityholders and service our indebtedness could be adversely affected.  In addition, new development activities, regardless of whether or not they are ultimately successful, typically require a substantial portion of management’s time and attention.

·      Adverse real estate market conditions, increases in operating expenses or capital expenditures, tenant defaults and uninsured losses could adversely affect our financial results.

Our properties revenues and value may be adversely affected by a number of factors including:

·                  the national, state and local economic climate and real estate conditions, such as oversupply of or reduced demand for space and changes in market rental rates;

·                  the need to periodically renovate, repair and relet our space;

·                  increasing operating costs, including real estate taxes and utilities, which may not be passed through to tenants;

·                  defaults by our tenants or their failure to pay rent on a timely basis; and

·                  uninsured losses.

As of December 31, 2006, a significant portion of our real estate investment expenses, such as mortgage payments, real estate taxes, insurance and maintenance costs, were generally not reduced when circumstances caused a decrease in income from our properties.  In addition, our real estate values and income from properties were also affected by our compliance with laws, including tax laws, interest rate levels and the availability of financing.

We may suffer losses as a result of tenant bankruptcies.  If any of our tenants files for protection from creditors under federal bankruptcy laws, such tenant generally has the right, subject to certain conditions, to reject its leases with us.  In the event this occurs, we may not be able to readily lease the space or to lease it on equal or better terms.

Our reliance on a major tenant could lead to losses.  As a result of our acquisition in May 2005 of a 1.4 million square foot office tower located at One Court Square, Long Island City, New York, our lease with the seller, Citibank, N.A. and our subsequent transfer of a 70% interest in the property to a joint venture partner, rent from Citibank at this and other properties in our portfolio currently comprises approximately 5.4% of our pro-rata share of annualized base rent.   As of December 31, 2006,

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we could be adversely affected if Citigroup experiences a significant downturn in its business, becomes insolvent or files for bankruptcy. Under the terms of its lease at One Court Square, Citibank has the right to cancel up to 20% of the leased space in 2011 and 2012 and to cancel up to an additional 20% of such space in 2014 and 2015.  We could be adversely affected if Citibank exercises its options to terminate its leases and we are unable to lease the space at similar rents.

Because real estate investments are illiquid, we may not be able to sell properties when appropriate.  Real estate investments generally cannot be sold quickly.  We may not be able to vary our portfolio promptly in response to economic or other conditions.  In addition, provisions of the Code of 1986, limit a REIT’s ability to sell properties in some situations when it may be economically advantageous to do so.  Since under our partnership agreement we operate in a manner that facilitates SL Green’s qualifications as a REIT, this limitation may limit our ability to dispose of assets.

We may be unable to structure property dispositions in a tax-efficient manner.  Certain of our properties have low tax bases relative to their fair values and, accordingly, the disposition of such properties would generate significant taxable gain unless they were transferred in a tax-free exchange under Section 1031 of the Code or another tax-free or tax-deferred transaction.  For an exchange to qualify for tax-deferred treatment under Section 1031, many technical requirements must be satisfied.  For example, a qualified replacement property must be identified within 45 days of the sale of the relinquished property and such qualified replacement property generally must be acquired within 180 days from the sale.  Given the competition for properties meeting our investment criteria, there can be no assurance that we will be able to identify and acquire qualified replacement properties within the required time frames under Section 1031, in which case we would not receive the tax benefit of such an exchange.

Competition in our markets is significant.  The competition for tenants in the office markets in the Tri-State Area is significant and includes properties owned by other REITs, local privately-held companies, institutional investors and other owners.  There is also significant competition for acquisitions in our markets from the same types of competitors.

Increasing operating costs could adversely affect cash flow.  Our properties are subject to operating risks common to commercial real estate, any and all of which may adversely affect occupancy or rental rates.  Our properties are subject to increases in our operating expenses such as cleaning, electricity, heating, ventilation and air conditioning; elevator repair and maintenance; insurance and administrative costs; and other costs associated with security, landscaping, repairs and maintenance of our properties. As a result of the impact of the events of September 11, 2001, we have realized increased insurance costs, particularly relating to property and terrorism insurance, and security costs.  While our tenants generally are currently obligated to pay a portion of these costs, there is no assurance that tenants will agree to pay these costs upon renewal or that new tenants will agree to pay these costs initially.  If operating expenses increase, the local rental market may limit the extent to which rents may be increased to meet increased expenses without at the same time decreasing occupancy rates.  While we have cost saving measures at each of our properties, if any of the above occurs, our ability to pay distributions to our equityholders and service our indebtedness could be adversely affected.

Some potential losses are not covered by insurance; losses could result from terrorist acts.  We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties.  Five of our properties are located in New York City.  As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all risk” policies.  In November 2002, the TRIA was signed into law, which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005.  The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005.  Our property insurance coverage as of December 31, 2006, which would have expired on June 2, 2007, provided for full replacement cost of our properties, including for acts of terrorism up to $600 million on a per occurrence basis.  There can be no assurance that we will be able to replace these coverages at reasonable rates or at all.

Furthermore, losses arising from acts of war or relating to pollution are not generally insured because they are either uninsurable or not economically insurable.  If an uninsured loss or a loss in excess of insured limits should occur, we could lose our capital invested in a property, as well as any future revenue from the property.  We would remain obligated on any mortgage indebtedness or other obligations related to the property.  Any such loss could materially and adversely affect our business and financial condition and results of operations.

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·      Property ownership through partnerships and joint ventures creates additional investment risks.

Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partners or co-venturer might become bankrupt, that our partners or co-venturer might at any time have different interests or goals than we do, and that our partners or co-venturer may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to facilitating the Company’s qualification as a REIT.  Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor our partners or co-venturer would have full control over the partnership or joint venture.  There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures.

The following is a description of the significant joint ventures in which we are involved:

Our joint venture in 919 Third Avenue, New York, New York, includes the risks that we cannot enter into large leases or refinance or dispose of the property in our discretion.  On December 21, 2001, we formed a joint venture (the “919JV”) with the New York State Teachers’ Retirement Systems (“NYSTRS”) whereby NYSTRS acquired a 49% indirect interest in the property located at 919 Third Avenue, New York, New York for $220.5 million, which was comprised of $122.1 million of its proportionate share of secured mortgage debt and approximately $98.4 million of cash which was then distributed to us.  We are responsible for managing the day-to-day operations and business affairs of the 919JV and have substantial rights in making decisions affecting the property such as developing a budget, leasing and marketing.  We must obtain the consent of NYSTRS in order to make certain decisions, including a sale of the property, purchasing any additional property or entering into significant leases.  NYSTRS has certain rights primarily intended to protect its investment.

Our joint venture in a portfolio of six office properties includes the risks that we cannot enter into large leases or refinance the properties in our discretion.  During September 2000, we formed a joint venture (the “Tri-State JV”) with Teachers Insurance and Annuity Association (“TIAA”) and contributed nine Class A suburban office properties aggregating approximately 1.5 million square feet to the Tri-State JV for a 51% majority ownership interest.  TIAA contributed approximately $136 million for a 49% interest in the Tri-State JV which was then distributed to us.  Since the formation of the Tri-State JV, we acquired TIAA’s 49% interest in two of the properties held by the Tri-State JV and the Tri-State JV sold one of its properties to a third party.  As a result of these transactions, the Tri-State JV as of December 31, 2006 owned six Class A suburban office properties aggregating approximately 946,000 square feet.  We are responsible for managing the day-to-day operations and business affairs of the Tri-State JV and have substantial rights in making decisions affecting the properties such as leasing, marketing and financing.  The minority member has certain rights primarily intended to protect its investment.

Our investment in the Omni includes the risks that we cannot refinance or dispose of the property in our sole discretion and we could have our general partnership interest converted into a limited partnership interest.  We own a 60% general partner interest in Omni Partners, L.P.  (the “Omni Partnership”), the partnership that owned the Omni, a 579,000 square foot office building located in our Nassau West Corporate Center office park. Through our partnership interest, we acted as managing partner and had the sole authority to conduct the business and affairs of the Omni Partnership subject to the limitations set forth in the amended and restated agreement of limited partnership of the Omni Partnership (the “Omni Partnership Agreement”).  On March 31, 2006, a group of institutional investors led by JPMorgan Investment Management, our joint venture partner in the Court Square JV and the property located at 919 Third Avenue, NY, purchased our option to acquire the existing minority partners’ 40% partnership interest in the Omni Property for net proceeds of approximately $9.0 million.  Such proceeds have been included in investment income and other on our consolidated statements of income.  In connection with this transaction, the original minority partner repaid to us approximately $22.1 million representing amounts due under a note receivable which was secured by their interest in the Omni Property.  Such aggregate proceeds to us of approximately $31.2 million were used for the repayment of the mortgage note encumbering the property located at 1350 Avenue of the Americas in New York, NY.

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Our joint venture in One Court Square, Long Island City, New York, includes the risks that we cannot enter into large leases or refinance or dispose of the property in our sole discretion and we could be removed as administrative member.  On November 30, 2005, we formed a joint venture (the “Court Square JV”) with a group of institutional investors (the “JV Partners”) led by JPMorgan Investment Management, whereby the JV Partners acquired a 70% interest in our 1.4 million square foot, 50-story, Class A office tower located at One Court Square, Long Island City, for approximately $329.7 million, including the assumption of approximately $220.5 million of debt.  Pursuant to the terms of the operating agreement governing the Court Square JV, the Court Square JV will be managed by a two-person management committee composed of one representative from each of the Company and the JV Partners.  We have been designated as the administrative member of the Court Square JV, the operating agreement of the Court Square JV requires approvals from members on certain decisions including annual budgets, sale of the property, refinancing of the property’s mortgage debt and material renovations to the property. In addition, after September 20, 2009 the members each have the right to recommend the sale of the property, subject to the terms of the property level debt, and to dissolve the Court Square JV.  We may be removed as administrative member if (i) we become bankrupt, (ii) we are found to have committed fraud, willful misconduct or gross negligence in the conduct of our duties, (iii) we make an unpermitted transfer under the agreement or (iv) the Operating Partnership holds, directly or indirectly, less than a 10% interest in the Court Square JV.

The operating agreement grants to each of us and the JV Partners a right of first offer to acquire the other member’s interest in the Court Square JV at any time after November 30, 2007.  In addition, after September 20, 2009, either we or the JV Partners may recommend the sale of One Court Square (or 100% of the interest in the Court Square JV) to a third party at the price at which such member would be willing to sell the property.  The non-recommending member may either approve the proposed marketing of the property or may purchase the property at an equivalent price.  Also, either member may initiate a buy-sell process at any time after (i) November 30, 2007, if a dispute with respect to a “major decision” arises, or (ii) September 20, 2009.  In the event the JV Partners exercise their right to recommend the sale of the property or initiate a buy-sell process, we may not be able to finance our acquisition of the property and it may be sold to a third party.

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·      Investments in mortgage debt could lead to losses.

We hold investments in mortgages secured by office or other types of properties.  We may acquire the mortgaged properties through foreclosure proceedings or negotiated settlements.  In addition to the risks associated with investments in commercial properties, investments in mortgage indebtedness present additional risks, including the risk that the fee owners of such properties may not make payments of interest and principal in a timely fashion or at all, and we may not realize our anticipated return or sustain losses relating to the investments.  Moreover, to the extent that we make investments in mortgages that are secured by properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments.  Although we currently have no intention to originate mortgage loans as a significant part of our business, we may make loans to a seller in connection with our purchase of real estate.  The underwriting criteria we would use for these loans would be based upon the credit and value of the underlying real estate.

·      Investments in mezzanine loans involve greater risks of loss than senior loans secured by properties.

We hold investments in mezzanine loans relating to office or other types of properties in the Tri-State Area.  Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property.  These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender.  In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan.  If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full.  Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers.  As a result, we may not recover some or all of our investment, which could result in losses.  In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.  Moreover, to the extent that we hold investments in mezzanine loans that relate to properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments.  There is no limitation under our organizational documents as to the amount of mezzanine debt in which we may invest.

·      Environmental problems are possible.

Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property.  These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances.  The cost of any required remediation and the owner’s liability therefor as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral.  Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person.  Even if more than one person was responsible for the contamination, each person covered by the environmental laws may be held responsible for the clean-up costs incurred.  In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site.  Certain environmental laws also govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition.  Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs.  In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.

All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies.  These Phase I, or similar environmental audits have revealed limited environmental issues which we are currently addressing at the affected properties. These environmental audits have not revealed any environmental liability that we believe would have a material adverse effect on our business.

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·      Failure by the SL Green to qualify as a REIT would be costly.

SL Green has operated (and intends to operate) so as to qualify as a REIT under the Code beginning with its taxable year ended December 31, 1997.  Under the terms of our partnership agreement we operate in a manner to facilitate SL Green’s (prior to the SL Green Merger, the Company’s) ability to qualify as a REIT. Although our management believes that SL Green is organized and operated in a manner to so qualify, no assurance can be given that SL Green will continue to qualify or remain qualified as a REIT.

If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates.  Moreover, unless entitled to relief under certain statutory provisions, it also will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost.  This treatment would significantly reduce net earnings available to service indebtedness, make investments or pay distributions to equityholders because of the additional tax liability of the REIT for the years involved.  Also, SL Green would not then be required to pay dividends to its stockholders. These circumstances would likely also have a negative impact on us as SL Green might cause us to cease the payment of regular quarterly distributions.

·      We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of shares of SL Green’s common stock.

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect the SL Green and us.  Effective generally for taxable years 2003 through 2008, the maximum rate of tax applicable to individuals on qualified dividend income from regular C corporations is 15%. This reduces substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs. Dividends from REITs generally will not qualify for the 15% dividend tax rate because, as a result of the dividends-paid deduction to which REITs are entitled, REITs generally do not pay corporate level tax on income that they distribute to stockholders.  The lower rates of taxation of qualified dividend income may cause individual investors to view stocks of non-REIT corporations as more attractive relative to stocks of REITs. We cannot predict what impact these tax rates, or future changes in the laws or regulations governing REITs, may have on the value of shares of common stock.

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•      Transactions by the Operating Partnership or the SL Green could adversely affect debt holders.

Except with respect to a covenant limiting the incurrence of indebtedness, a covenant requiring us to maintain a certain percentage of unencumbered assets and a covenant requiring any successor in a business combination with the Operating Partnership to assume all of our obligations under the indenture pursuant to which the debt securities have been issued, the indenture does not contain any provisions that would protect holders of debt securities in the event of (i) a highly leveraged or similar transaction involving us, our management of the Operating Partnership, SL Green or any affiliate of any these parties, (ii) a change in control or (iii) certain reorganizations, restructuring, mergers or similar transactions involving us, or SL Green.

•       No market exists for our equity securities.

No market exists for our equity securities, nor is it expected that one will develop.  In addition, transfers of any interest generally require the consent of our as general partner which it may withhold in its sole discretion.

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Item 1B.    Unresolved Staff Comments

We have not received any comments from the Securities and Exchange Commission that remain unresolved.

Item 2.       Properties

General

As of December 31, 2006 we owned 100 properties (including thirty office properties owned through joint ventures) in the Tri-State Area CBD and suburban markets, encompassing approximately 20.2 million rentable square feet, all of which are managed by us.  The properties include 17 Class A CBD office properties encompassing approximately 7.3 million rentable square feet.  The CBD office properties consist of six properties located in New York City, nine properties located in Stamford, CT and two properties located in White Plains, NY.  The CBD office properties comprised 55.0% of our net operating income (property operating revenues less property operating expenses) for the three months ended December 31, 2006.  The properties also include 75 Class A suburban office properties encompassing approximately 12.0 million rentable square feet, of which 60 of these properties, or 81.2% as measured by square footage, are located within our 15 office parks.  The properties also include eight flex properties encompassing approximately 863,000 rentable square feet.

On January 25, 2007, SL Green sold the following assets to the Buyer in the Asset Sale: (1) certain real property assets and/or entities owning such real property assets, in either case, of the Operating Partnership and 100% of certain loans secured by real property, all of which are located in Long Island, New York; (2) certain real property assets and/or entities owning such real property assets, in either case, of the Operating Partnership located in White Plains and Harrison, New York; (3) all of the real property assets and/or entities owning 100% of the interests in such real property assets, in either case, of the Operating Partnership located in New Jersey; (4) the entity owning a 25% interest in Reckson Australia Operating Company LLC, our Company’s Australian management company (including its Australian licensed responsible entity), and other related entities, and the Operating Partnership and the Operating Partnership subsidiaries’ rights to and interests in, all related contracts and assets, including, without limitation, property management and leasing, construction services and asset management contracts and services contracts; (5) the direct or indirect interest of the Company in Reckson Asset Partners, LLC, an affiliate of RSVP and all of the Operating Partnership’s rights in and to certain loans made by the Operating Partnership to Frontline Capital Group, the bankrupt parent of RSVP, and other related entities, which will be purchased by a 50/50 joint venture with an affiliate of SL Green; (6) a 50% participation interest in certain loans made by a subsidiary of the Operating Partnership that are secured by four real property assets located in Long Island, New York; and (7) 100% of certain loans secured by real property located in White Plains and New Rochelle, New York.

Set forth below is a summary of certain information relating to our properties, categorized by office and flex properties, as of December 31, 2006.  This information does not take into account the sale of certain of our properties in the Asset Sale or otherwise.

Office Properties

General

As of December 31, 2006, we owned or had an interest in 17 Class A CBD office properties encompassing approximately 7.3 million square feet and 75 Class A suburban office properties encompassing approximately 12.0 million square feet.  As of December 31, 2006, the office properties were approximately 92.0% leased (excluding properties under development) to approximately 1,400 tenants.

The office properties are leased to both national and local tenants.  Leases on the office properties are typically written for terms ranging from five to ten years and require (i) payment of base rent, (ii) payment of a base electrical charge, (iii) payment of real estate tax escalations over a base year, (iv) payment of compounded annual increases to base rent and/or payment of operating expense escalations over a base year, (v) payment of overtime HVAC and electric and (vi) payment of electric escalations over a base year.  In virtually all leases, the landlord is responsible for structural repairs.  Renewal provisions typically provide for renewal rates at market rates or a percentage thereof, provided that such rates are not less than the most recent renewal rates.

The following table sets forth certain information as of December 31, 2006 for each of the office properties and does not take into account the sale of certain of our properties in the Asset Sale or otherwise.

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