NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Annual Report: 2004 (Form 10-K)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

Commission file number 0-12138

New England Realty Associates Limited Partnership
(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Class A
Limited Partnership Units
(Title of class)

        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 o    No ý

        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. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý

        As of June 30, 2004, the aggregate market value of the registrant's securities held by non-affiliates of the registrant was $73,117,139 based on the average bid and asked price of the registrant's traded securities on such date.

        (For this computation, the Registrant has excluded the market value of all Depositary Receipts reported as beneficially owned by executive officers and directors of the General Partner of the Registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant.)

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

TABLE OF CONTENTS

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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

PART I

ITEM 1. BUSINESS

General

        New England Realty Associates Limited Partnership ("NERA" or the "Partnership"), a Massachusetts Limited Partnership, was formed on August 12, 1977 as the successor to five real estate limited partnerships (collectively, the "Colonial Partnerships"), which filed for protection under Chapter XII of the Federal Bankruptcy Act in September 1974. The bankruptcy proceedings were terminated in late 1984. In July 2004, the General Partner extended the termination date of the Partnership until 2057, as allowed in the Partnership Agreement.

        The authorized capital of the Partnership is represented by three classes of partnership units ("Units"). There are two categories of limited partnership interests ("Class A Units" and "Class B Units") and one category of general partnership interests (the "General Partnership Units"). The Class A Units were issued to creditors and limited partners of the Colonial Partnerships and have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each Class A Unit is exchangeable for 10 publicly traded depositary receipts ("Receipts"), which are currently listed on the American Stock Exchange and are registered under Section 12(b) of the Exchange Act. The Class B Units were issued to the original general partners of the Partnership. The General Partnership Units are held by the current general partner of the Partnership, NewReal, Inc. (the "General Partner"). The Class A Units represent an 80% ownership interest, the Class B Units represent a 19% ownership interest, and the General Partnership Units represent a 1% ownership interest.

        The Partnership is engaged in the business of acquiring, developing, holding for investment, operating and selling real estate. The Partnership, directly or through 24 subsidiary limited partnerships or limited liability companies, owns and operates various residential apartment buildings, condominium units and commercial properties located in Massachusetts and New Hampshire. As used herein, the Partnership's subsidiary limited partnerships and limited liability companies are each referred to as a "Subsidiary Partnership" and are collectively referred to as the "Subsidiary Partnerships".

        The Partnership owns between a 99.67% and 100% interest in each of the Subsidiary Partnerships, except in three limited liability companies (the "Investment Properties") in which the Partnership has a 50% ownership interest, the majority shareholder of the General Partner owns 47.5%, and the President of the Partnership's management company, The Hamilton Company, owns 2.5%, respectively. See Note 14 to the Consolidated Financial Statements for a description of the properties and their operations. The Partnership's interest in the Investment Properties is accounted for on the equity method of consolidation in the Consolidated Financial Statements. See Note 1 to the Consolidated Financial Statements—"Principles of Consolidation". Of those Subsidiary Partnerships not wholly owned by the Partnership, except for the Investment Properties, the remaining ownership interest is held by an unaffiliated third party. In each such case, the third party has entered into a lease agreement with the Partnership, pursuant to which any benefit derived from its ownership interest in the applicable Subsidiary Partnerships will be returned to the Partnership.

        The long-term goals of the Partnership are to manage, rent and improve its properties and to acquire additional properties with income and capital appreciation potential as suitable opportunities arise. When appropriate, the Partnership may sell or refinance selected properties. Proceeds from any such sales or refinancings will be reinvested in acquisitions of other properties, distributed to the partners, or used for operating expenses or reserves, as determined by the General Partner.

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Operations of the Partnership

        The Partnership is managed by the General Partner, NewReal, Inc., a Massachusetts corporation wholly owned by Harold Brown and Ronald Brown. The General Partner has engaged The Hamilton Company, Inc. (the "Hamilton Company" or "Hamilton") to perform general management functions for the Partnership's properties in exchange for management fees. The Hamilton Company is wholly owned by Harold Brown and employs Ronald Brown and Harold Brown. The Partnership and its Subsidiary Partnerships currently employ 45 individuals who are primarily involved in the supervision and maintenance of specific properties. The General Partner has no employees.

        As of February 25, 2005, the Partnership and its Subsidiary Partnerships owned 2,396 residential apartment units in 23 residential and mixed-use complexes (collectively, the "Apartment Complexes"), inclusive of 19 units held for sale. The Partnership also owns 24 condominium units in a residential condominium complex, all of which are leased to residential tenants (collectively referred to as the "Condominium Units"). The Apartment Complexes, the Condominium Units and the Investment Properties are located primarily in the metropolitan Boston area of Massachusetts.

        Additionally, as of February 25, 2005, the Subsidiary Partnerships owned a commercial shopping center in Framingham, Massachusetts and commercial space in mixed-use buildings in Boston, Brockton and Newton, Massachusetts. These properties are referred to collectively as the "Commercial Properties." See Note 2 to the Consolidated Financial Statements, included as a part of this Form 10-K.

        Additionally, as of December 31, 2004, the Partnership owned a 50% ownership interest in three residential complexes, the Investment Properties, with a total of 362 units. See Note 14 to the consolidated financial statements for additional information on these investments.

        The Apartment Complexes, Investment Properties, Condominium Units and Commercial Properties are referred to collectively as the "Properties."

        Harold Brown and, in certain cases, Ronald Brown, own or have owned interests in certain of the Properties and the Subsidiary Partnerships. See "Item 13. Certain Relationships and Related Transactions."

        The leasing of real estate in the metropolitan Boston area of Massachusetts is highly competitive. The Apartment Complexes, Condominium Units and the Investment Properties must compete for tenants with other residential apartments and condominium units in the areas in which they are located. The Commercial Properties must compete for commercial tenants with other shopping malls and office buildings in the areas in which they are located. Thus, the level of competition at each Property depends on how many other similarly situated properties are in its vicinity. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors that May Affect Future Results."

        The Second Amended and Restated Contract of Limited Partnership of the Partnership (the "Partnership Agreement") authorizes the General Partner to acquire real estate and real estate related investments from or in participation with either or both of Harold Brown and Ronald Brown, or their affiliates, upon the satisfaction of certain terms and conditions, including the approval of the Partnership's Advisory Committee and limitations on the price paid by the Partnership for such investments. The Partnership Agreement also permits the Partnership's limited partners and the General Partner to make loans to the Partnership, subject to certain limitations on the rate of interest that may be charged to the Partnership. Except for the foregoing, the Partnership does not have any policies prohibiting any limited partner, General Partner or any other person from having any direct or indirect pecuniary interest in any investment to be acquired or disposed of by the Partnership or in any transaction to which the Partnership is a party or has an interest in or from engaging, for their own account, in business activities of the types conducted or to be conducted by the Partnership. The

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General Partner is not limited in the number or amount of mortgages which may be placed on any Property, nor is there a policy limiting the percentage of Partnership assets which may be invested in any specific Property.

Industry Segments

        The Partnership operates in only one industry segment—real estate. The Partnership does not have any foreign operations, and its business is not seasonal. Please see the Consolidated Financial Statements attached hereto and incorporated by reference herein for financial information relating to our industry segment.

Recent Developments

        In 2004, the Partnership paid a distribution of $27.20 per Unit ($2.72 per Receipt) for a total payment of $4,704,838. In 2003, the Partnership paid a distribution of $29.40 per Unit ($2.94 per Receipt) for a total payment of $5,085,377. In February 2005, the Partnership approved a quarterly distribution of $7.00 per Unit ($0.70 per Receipt), payable on March 31, 2005.

        During 2004, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately $4,542,000. These improvements were funded from cash reserves and, to some extent, escrow accounts established in connection with the financing or refinancing of the applicable Properties. These sources have been adequate to fully fund improvements. The most significant improvements were made at 62 Boylston Street, 1144 Commonwealth Avenue, Hamilton Oaks, Westside Colonial, Linhart and School Street, at a cost of approximately $537,000, $244,000, $355,000, $203,000, $405,000 and $265,000, respectively. In 2004, the Partnership also completed the construction of 20 residential units at the Courtyard at Westgate in Woburn, Massachusetts at a cost of approximately $3,500,000.

        As more fully described in Note 14 to the Consolidated Financial Statements, during 2004, the Partnership invested approximately $9,000,000 to acquire 50% equity interests in two complexes, located in Watertown and Lexington, Massachusetts, respectively. Also, as more fully described in Note 5 to the Consolidated Financial Statements, in December 2004, the Partnership refinanced 38-48 Dean Street in Norwood, Massachusetts for $5,650,000. This amount was substantially used to pay-off the existing mortgage debt, due to mature in 2008. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

Advisory Committee

        The Partnership has an Advisory Committee composed of two limited partners (a former limited partner, Edward Sarkesian, sold all of his interest in the Partnership on May 24, 2004) who are not general partners or affiliates of the Partnership. The Partnership was not aware that Mr. Sarkesian is no longer a limited partner until very recently. As the terms of the Partnership Agreement require that each member of the Advisory Committee be a limited partner, the Partnership is taking steps to rectify this situation. The Advisory Committee meets with the General Partner to review the progress of the Partnership, assist the General Partner with policy formation, review the appropriateness, timing and amount of proposed distributions, approve or reject proposed acquisitions and investments with affiliates, and advise the General Partner on various other Partnership affairs. Per the Partnership Agreement, the Advisory Committee has no binding power except that it must approve certain investments and acquisitions or sales by the Partnership from or with affiliates of the Partnership.

        Two members of the Advisory Committee were elected directors of the General Partner and appointed members of the General Partner's Audit Committee on March 11, 2002, and the third member was elected a director of the General Partner and appointed a member of the General

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Partner's Audit Committee on January 2, 2003. See "Item 10. Directors and Executive Officers of the Registrant."

Available Information

        The Partnership's website is www.thehamiltoncompany.com/InvestorRelations.htm. On its website, the Partnership makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended. These forms are made available as soon as reasonably practical after the Partnership electronically files or furnishes such materials to the Securities and Exchange Commission. In addition, the Partnership's website includes other items related to corporate governance matters, including, among other things, the Partnership's corporate governance guidelines, charters of various committees of the Board of Directors, and the Partnership's code of business conduct and ethics applicable to all employees, officers and directors. Copies of these documents may be obtained, free of charge, from the website. Any shareholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Director of Investor Relations, New England Realty Associates Limited Partnership, 39 Brighton Avenue, Allston, MA 02134.

ITEM 2. THE PROPERTIES

        The Partnership and its Subsidiary Partnerships own the Apartment Complexes, the Condominium Units, the Commercial Properties and a 50% interest in three Investment Properties.

        See also "Item 13. Certain Relationships and Related Transactions" for information concerning affiliated transactions.

Apartment Complexes

        The table below lists the location of the 23 Apartment Complexes, the number and type of units in each complex, the range of rents and vacancies as of February 25, 2005, the principal amount outstanding under any mortgages as of December 31, 2004, the fixed interest rates applicable to such mortgages, and the maturity dates of such mortgages.

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(1)

A $2,000,000 mortgage loan was obtained by Courtyard at Westgate in January 2005.

(2)

Middlesex Apartments L.P. was held for sale at December 31, 2004. See Note 19 to the Consolidated Financial Statements.

        See Note 5 to the Consolidated Financial Statements, included as part of this Form 10-K, for information relating to the mortgages payable of the Partnership and its Subsidiary Partnerships.

Condominium Units

        The Partnership owns and leases to residential tenants 24 Condominium Units in the metropolitan Boston area of Massachusetts.

        The table below lists the location of the 24 Condominium Units, the type of units, the range of rents received by the Partnership for such units, and the number of vacancies as of February 25, 2005.

Commercial Properties

        BOYLSTON DOWNTOWN LP.    In 1995, this Subsidiary Partnership acquired the Boylston Downtown property in Boston, Massachusetts ("Boylston"). This mixed-use property includes 17,218 square feet of rentable commercial space. As of February 25, 2005, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $20.77. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $20,000 per year through July 2006. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

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        HAMILTON OAKS ASSOCIATES, LLC.    The Hamilton Oaks Apartment complex, acquired by the Partnership in December 1999 through Hamilton Oaks Associates, LLC, includes 6,075 square feet of rentable commercial space, occupied by a daycare center. As of February 25, 2005, the commercial space was fully occupied, and the average rent per square foot was $15.53. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $27,000 per year through November 2005. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        LINHART LP.    In 1995, the Partnership acquired the Linhart property in Newton, Massachusetts ("Linhart"). This mixed-use property includes 21,555 square feet of rentable commercial space. As of February 25, 2005, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $22.30. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        NORTH BEACON 140 LP.    In 1995, this Subsidiary Partnership acquired the North Beacon property in Boston, Massachusetts ("North Beacon"). This mixed-use property includes 1,050 square feet of rentable commercial space. The property was fully rented as of February 25, 2005, and the average rent per square foot as of that date was $24.15. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        STAPLES PLAZA.    In 1999, the Partnership acquired the Staples Plaza shopping center in Framingham, Massachusetts ("Staples Plaza"). The shopping center consists of 39,600 square feet of rentable commercial space. The Partnership assumed a mortgage in the amount of $5,267,949, which carries a fixed interest rate of 8.00% and matures in 2016. As of December 31, 2004, the mortgage had an outstanding balance of $4,250,242. As of February 25, 2005, Staples Plaza was fully occupied, and the average net rent per square foot was $20.72.

Investment Properties

        The Partnership has a 50% ownership interest in the properties summarized below:

        345 FRANKLIN, LLC.    In November 2001, the Partnership acquired, through this LLC, a 50% interest in a 40-unit apartment building in Cambridge, Massachusetts. This property has a 12-year

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mortgage, which is amortized on a 30-year schedule, with a final payment of approximately $6,000,000 due in 2014.

        HAMILTON PLACE, LLC.    In August 2004, the Partnership acquired, through this LLC, a 50% interest in a 280-unit apartment building in Watertown, Massachusetts for $56,000,000. Each investor invested approximately $8,000,000, and a 3-year mortgage of approximately $43,000,000 was obtained to finance the acquisition and improvements to the property. The loan requires minimum repayment of $7,800,000 as follows: $2,400,000, $2,400,000 and $3,000,000 at the end of years two, three and four. The Partnership anticipates selling up to one half of the units as condominiums to fund these curtailment payments. (See Note 14 to the Consolidated Financial Statements.) The maturity date can be extended for an additional two years.

        HAMILTON MINUTEMAN, LLC.    In August 2004, the Partnership acquired, through this LLC, a 50% interest in a 42-unit apartment building in Lexington, Massachusetts for $10,000,000. Each investor invested approximately $5,075,000 to initially fund the purchase price of the property. In October 2004, the Partnership obtained a 3-year mortgage on the property in the amount of $8,025,000 and returned $3,775,000 to the Partnership. The loan requires minimum principal payments of $1,000,000 payable $340,000 within 12 months and an additional $320,000 in year two and the remaining $320,000 within 30 months of the closing date (collectively, the "curtailment payments"). The Partnership may sell some units if necessary to make the curtailment payments. The maturity date can be extended for an additional one year. (See Note 14 to the Consolidated Financial Statements.)

        See "Item 13. Certain Relationships and Related Transactions" concerning current and former ownership interests held by related parties in certain of the above properties.

ITEM 3. LEGAL PROCEEDINGS

        The Partnership, the Subsidiary Partnerships and their properties are not presently subject to any material litigation, and, to management's knowledge, there is not any material litigation presently threatened against them. The Partnership and Subsidiary Partnerships are occasionally subject to ordinary routine legal and administrative proceedings incident to the ownership of residential and commercial real estate. Some of the legal and other expenses related to these proceedings are covered by insurance and none of these costs and expenses are expected to have a material adverse effect on the Consolidated Financial Statements of the Partnership.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of the limited partners of the Partnership during the fourth quarter of the year ended December 31, 2004.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Each Class A Unit is exchangeable, through Equiserve LP, the Partnership's Depositary Agent, for ten Depositary Receipts ("Receipts"). The Receipts are listed and publicly traded on the American Stock Exchange under the symbol "NEN". Prior to December 13, 2002, the Receipts were listed and publicly traded on NASDAQ under the symbol "NEWRZ". There has never been an established trading market for the Class B Units or General Partnership Units.

        In 2004, the high and low bid quotations for the Receipts were $95.85 and $51.00, respectively. The table below sets forth the high and low bids for each quarter of 2004 and 2003 and the distributions paid on the Partnership's Depositary Receipts:

        On March 11, 2005, the closing price on the American Stock Exchange for a Depositary Receipt was $91.55.

        Any portion of the Partnership's cash which the General Partner deems not necessary for cash reserves is distributed to the Partners, and distributions are made on a quarterly basis. The Partnership has made annual distributions to its Partners since 1978. In each of 2004 and 2003, the Partnership made total distributions of $27.20 and $29.40 per Unit, respectively ($2.72 and $2.94 per Receipt, respectively). The total value of the distribution in 2004 was $4,704,838, and the total value for 2003 was $5,085,377. In February 2005, the Partnership declared a quarterly distribution of $7.00 per Unit ($0.70 per Receipt) payable on March 31, 2005.

        Taxable income reportable by the Partnership and includable in its partners' tax returns is different than financial statement income because of accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances. Taxable income is approximately $1,400,000 less than statement income for the year ended December 31, 2004 and approximately $700,000 less than statement income for the year ended December 31, 2003. The cumulative tax basis of the Partnership's real estate at December 31, 2004 is approximately $200,000 less than the statement basis. The depreciation rules that generated substantial deductions in 2004 and 2003 expired in 2004; accordingly, taxable income in future years is expected to increase.

        See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for certain information relating to the number of holders of each class of Units.

ITEM 6. SELECTED FINANCIAL DATA

        The information required by this Item is included on page 35 of this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the financial statements and notes thereof appearing elsewhere in this Report. This Report, on Form 10-K, contains forward-looking statements within the meaning of the securities laws. Actual results or developments could differ

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materially from those projected in such statements as a result of certain factors set forth in the section below entitled "Factors That May Affect Future Results" and elsewhere in this Report.

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

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

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

        Mr. Brown, his brother Ronald Brown, and the President of Hamilton, Carl Valeri, collectively own approximately 19.9% of the Depositary Receipts representing the Partnership Class A Units (including Depositary Receipts held by trusts for the benefit for such persons' family members). Harold Brown also owns 75% of the Partnership's Class B Units, 75% of the capital stock of NewReal, Inc. ("NewReal"), the Partnership's sole general partner, and all of the outstanding capital stock of Hamilton. Ronald Brown also owns 25% of the Partnership's Class B Units and 25% of NewReal's capital stock. In addition, Ronald Brown is the President and director of NewReal, and Harold Brown is NewReal's Treasurer and also a director. Two of NewReal's other directors, Thomas Raffoul and Conrad DiGregorio also own immaterial amounts of the Partnership's Class A Units.

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

        Payments to Hamilton accounted for approximately 5% and 6% of the repair and maintenance expenses paid by the Partnership in 2004 and 2003, respectively. Of the funds paid to Hamilton for this

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purpose, the great majority was to cover the cost of services provided by the Hamilton maintenance department, including plumbing, electrical, carpentry and snow removal services. However, several of the larger Partnership properties have their own maintenance staff and use Hamilton's services infrequently. Further, those properties that do not have their own maintenance staff but are located more than a reasonable distance from Hamilton's headquarters in Allston, Massachusetts are generally serviced by local, independent companies.

        Hamilton's legal department handles most of the Partnership's eviction and collection matters. Additionally, it prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions. Overall, Hamilton provided approximately 81% of the legal services paid for by the Partnership in 2004 and approximately 75% of such services during 2003.

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

        The Partnership requires that three bids be obtained for construction contracts in excess of $5,000. Hamilton may be one of the three bidders on a particular project and may be awarded the contract if its bid and its ability to successfully complete the project are deemed appropriate. For contracts that are not awarded to Hamilton, Hamilton charges the Partnership a construction supervision fee equal to 5% of the contract amount. Hamilton's architectural department also provides services to the Partnership on an as-needed basis. In 2004 and 2003, Hamilton provided all of the construction services and architectural services paid for by the Partnership, including approximately $4,748,000 for the construction of 20 additional residential units at Westgate Apartments in Woburn, Massachusetts.

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

        Revenue Recognition:    Revenues from rental properties are recognized when due from tenants. Residential leases are generally for terms of one year, and commercial leases are generally for 5 to

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10 years, with renewal options at increased rents. Significant commercial leases with stepped increases over the term of the lease are recorded on the straight-line basis.

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

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



•

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

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

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

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

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

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

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RESULTS OF OPERATIONS

Years ended December 31, 2004 and December 31, 2003 (as adjusted for discontinued operations)

        The Partnership and its Subsidiary Partnerships earned income before other income and loss and discontinued operations of $2,105,407 during the year ended December 31, 2004, compared to $4,159,514 for the year ended December 31, 2003, a decrease of $2,054,107 (49%).

        The rental activity is summarized as follows:

15

        Year Ended December 31, 2004 Compared to Year Ended December 31, 2003:

16

        The following is a comparative schedule of rental operations, excluding the 2004 acquisitions and dispositions:

*

The adjustment removes from 2004 the operations of properties that are not comparable to the same properties in 2003.

**

Discontinued operations are excluded in the year-to-year comparisons.

        Rental income from continuing operations for the year ended December 31, 2004 was approximately $30,510,000, compared to approximately $30,381,000 for the year ended December 31, 2003, an increase of approximately $130,000. This increase was due to a full year of rental revenue of approximately $800,000 from School Street, acquired in April 2003, and approximately $50,000 of rental revenue from Courtyard at Westgate since the commencement of operations in October 2004. As more fully described in the above schedule, rental income from comparable properties decreased approximately $722,000 in 2004. This decrease was due to an increase in vacancies and decreases in rental rates, reflecting the softening real estate market in the Greater Boston area.

        Expenses from continuing operations for the year ended December 31, 2004 were approximately $29,000,000, compared to approximately $27,000,000 for the year ended December 31, 2003, an increase of approximately $2,000,000. The most significant factors contributing to this increase were: an increase in depreciation of $896,000 (17%) due to continuing property improvements, a full year ownership of School Street, and the commencement of operations at the Courtyard at Westgate in October 2004; an increase in interest expense $325,000 (4%) primarily due to carrying the School Street mortgage for a full year and increased interest payments on the mortgages refinanced in 2003; an increase in operating expense of $393,000 (13%) primarily relating to increases in utility expense; and an increase in repairs and maintenance of $584,000 (14%) resulting from increases in cleaning and painting, and other expenses related to increased tenant turnover. As more fully described in the above schedule, for the comparable properties, School Street and Courtyard at Westgate accounted for the following increases, an increase in depreciation of $503,000, an increase in interest expense of $232,000,

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an increase in operating expense of $120,000, an increase in repairs and maintenance of $138,000, and an increase in taxes and insurance of $91,000.

        The Partnership owns a 50% interest in three limited liability companies that own residential property in Cambridge, Watertown, and Lexington Massachusetts, respectively (the "Investment Properties"). For the year ended December 31, 2004, the Partnership's share of loss on these investments was $335,445 compared to a loss of $119,887 for the year ended December 31, 2003, an increase of $215,558. The Cambridge investment was purchased in 2001, and the 2004 loss is approximately $150,000 compared to approximately $120,000 in 2003, an increase of $30,000. This is primarily due to decreases in rental rates. The Watertown and Lexington investments were made in 2004, and their losses are $118,000 and $66,000, respectively.

        Interest income was approximately $216,000 for the year ended December 31, 2004, compared to approximately $202,000 for the year ended December 31, 2003, an increase of approximately $14,000 (7%). This is due to a slight increase in interest rates earned.

        In 2004, the Partnership recorded a loss on the early extinguishment of debt of approximately $411,000 due to prepayment penalties of $387,000 and the write-off of deferred financing fees of approximately $24,000 relating to the Dean Street refinancing.

        In 2003, the Partnership refinanced four properties and incurred a loss of $1,435,028 due to prepayment penalties of approximately $1,355,000 and the write-off of deferred financing fees of approximately $80,000.

        As a result of the changes discussed above, net income for the year ended December 31, 2004 was approximately $1,612,000, compared to approximately $2,769,000 for the year ended December 31, 2003, a decrease of approximately $1,157,000 (42%).

Years Ended December 31, 2003 and 2002 (as adjusted for discontinued operations)

        The Partnership and its Subsidiary Partnerships earned income before other income and loss and discontinued operations of $4,159,514 during the year ended December 31, 2003, compared to $6,397,743 for the year ended December 31, 2002, a decrease of $2,238,229 (35%). This decrease in operating income before other income and discontinued operations is largely due to an increase in operating expenses of approximately $4,000,000 (18%) offset by an increase in rental income of approximately $1,800,000 (6%). As more fully described below, both increases are substantially due to acquisitions in 2003. Due to a softening residential rental market, rental income at some of the properties declined during the year ended December 31, 2003 offset by increases at other properties while expenses increased at all properties.

        The rental activity is summarized as follows:

18

        Year Ended December 31, 2003 Compared to Year Ended December 31, 2002:

19

        The following is a comparative schedule of rental operations, excluding the 2003 acquisitions and dispositions:

*

The adjustment removes from 2003 the operations of properties that are not comparable to the same properties in 2002.

**

Discontinued operations are excluded in the year-to-year comparisons.

        Rental income from continuing operations for the year ended December 31, 2003 was approximately $30,380,000, compared to approximately $28,557,000 for the year ended December 31, 2002, an increase of approximately $1,800,000 (6%). The increase is largely due to two acquisitions made by the Partnership. In April 2003, the Partnership acquired a 184-unit residential property located at 9 School Street in Framingham, Massachusetts (referred to as "School Street"). On June 30, 2003, the Partnership acquired five condominium units in Brookline, Massachusetts. Revenues from School Street for the year ended December 31, 2003 was approximately $1,509,000 and rental income from the five condos purchased in June was approximately $68,000. Total rental income at the other Partnership properties increased approximately $247,000 (1%). This minimal increase is reflective of the softening real estate market.

        Expenses from continuing operations for the year ended December 31, 2003 were approximately $27,000,000, compared to approximately $23,000,000 for the year ended December 31, 2002, an increase of approximately $4,000,000 (18%). Expenses related to the aforementioned acquisitions represent approximately $2,100,000 of this increase.

        Unrelated to these acquisitions, there was an increase in expenses of approximately $2,000,000. The most significant components of this increase were: an increase of approximately $741,000 (22%), primarily due increased costs for cleaning and repainting of vacant apartments; increased renting expenses of approximately $217,432 (62%) due to increased advertising expenses as well as rental commissions paid by the Partnership; increases in other operating expenses of approximately $438,000 (18%) due to increases in utility costs; and increases in taxes and insurance of approximately $275,000

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(10%) due to increases in the real estate taxes based upon higher property valuations, and increased insurance premiums. Additionally, total interest expense increased approximately $928,000, which includes approximately $681,000 of interest expense for the financing of the 2003 acquisitions and the 2003 refinancings. Total depreciation increased approximately $919,000 (21%) of which approximately $836,000 relates to the acquired properties and the balance is from continuing capital improvements at other properties.

        The Partnership has a 50% ownership interest in a limited liability company that owns a 40-unit residential property in Cambridge, Massachusetts (the "Cambridge Investment"). For the year ended December 31, 2003, the Partnership's share of loss on this investment is $119,887 due to rental concessions, a decrease in rental rates, an increase in rental commissions and an increase in repairs and maintenance expenses due to tenant turnover. There were no vacancies as of February 25, 2004.

        Interest income was approximately $202,000 for the year ended December 31, 2003, compared to approximately $276,000 for the year ended December 31, 2002, a decrease of approximately $74,000 (27%). This decrease is due to a decline in interest rates in 2003.

        On August 1, 2003, the Partnership refinanced four mortgages with outstanding balances totaling approximately $11,526,000. The Partnership recorded a loss on the early extinguishment of debt of $1,435,028 due to prepayment penalties of approximately $1,355,000 and the write-off of the deferred financing fees of approximately $80,000 on the mortgages paid.

        For the year ended December 31, 2003, the Partnership had income from discontinued operations of $46,623 which represents the net income from Middlesex Apartments which are being held for sale. Rental income from Middlesex Apartments was approximately $399,000 for the year ended December 31, 2003.

        For the year ended December 31, 2002, the Partnership had income from discontinued operations of approximately $204,194 which represents the net income of approximately $60,000 from East Hampton Mall, sold in December 2002, and net income from Middlesex Apartments of approximately $144,000. Rental income at East Hampton Mall was approximately $470,000 and at Middlesex Apartments approximately $443,000.

        Included in discontinued operations for the year ended December 31, 2002 is a gain of approximately $916,000 on the sale of the East Hampton Mall and a gain of approximately $93,000 on the sale of a condominium unit in Brockton, Massachusetts. There were no sales in 2003.

        During the year ended December 31, 2003, the Partnership recorded a non-cash charge of approximately $77,000 due to the write-off of air conditioning and heating equipment replaced at 62 Boylston Street.

        As a result of the changes discussed above, net income for the year ended December 31, 2003 was approximately $2,769,000, compared to approximately $7,825,000 for the year ended December 31, 2002, a decrease of approximately $5,056,000 (65%).

LIQUIDITY AND CAPITAL RESOURCES

        The Partnership's principal source of cash during 2004 and 2003 was the collection of rents, as well as the refinancing of Partnership properties during the third quarter of 2003. The majority of cash and cash equivalents of $9,862,810 at December 31, 2004 and $24,362,328 at December 31, 2003 were held in interest-bearing accounts at creditworthy financial institutions.

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        This decrease of $14,499,518 at December 31, 2004 is summarized as follows:

        Cash provided by operating activities consists primarily of net income plus depreciation expense. The increase in cash used in investing activities is due to the investments in Partnerships made in August and September 2004. The decrease in cash provided by financing activities is due to the refinancing of some Partnership properties in August 2003, described below.

        As discussed previously, in August and September 2004, the Partnership invested approximately $13,000,000 for a 50% ownership interest in two Investment Properties. See Note 14 to the Consolidated Financial Statements for a discussion of the Investment Properties and the related net loss on these investments. In October 2004, $3,755,000 was returned from one of these investments upon the mortgaging of that property.

        During 2004, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately $4,542,000. These improvements were funded from cash reserves and, to some extent, escrow accounts established in connection with the financing or refinancing of the applicable Properties. These sources have been adequate to fully fund improvements. The most significant improvements were made at 62 Boylston Street, 1144 Commonwealth Avenue, Hamilton Oaks, Westside Colonial, Linhart and School Street, at a cost of approximately $537,000, $244,000, $355,000, $203,000, $405,000 and $265,000, respectively.

        During the year ended December 31, 2004, the Partnership completed the construction of 20 residential units at the Courtyard at Westgate in Woburn, Massachusetts for a total cumulative cost of approximately $5,100,000. In January 2005, the Partnership obtained a $2,000,000 mortgage on this property, with 5.25% interest-only payments, maturing in December 2014.

        On December 1, 2004, the Partnership refinanced the Dean Street Associates, LLC, which had an outstanding mortgage balance totaling approximately $5,237,000, with an interest rate of 7.08%, maturing in 2008. The new mortgage is $5,650,000 with an interest rate of 5.13%. The new loan requires interest-only payments until 2007 and, thereafter, interest and principal payments of $30,781 monthly until November 2014. The remaining balance of approximately $5,025,000 becomes due on December 2014.

        On August 1, 2003, the Partnership refinanced four mortgage loans with a total outstanding balance of approximately $11,526,000, earning interest at rates ranging from 8.38% to 8.75%, and all due to mature in 2005. The Partnership borrowed a total of $26,750,000, with interest rates ranging from 4.84% to 5.30%. The new loans are represented by 10-year notes with interest-only payments during their entire terms. The total monthly payment on the old loans was approximately $101,000, including principal of approximately $20,000. The total monthly payment on the new loans is approximately $109,000, resulting in an increase in annual payments of approximately $96,000. Annual interest expense will increase approximately $340,000 due to the increased debt. The Partnership's cash reserves increased approximately $15,000,000 as a result of these financings. See Note 5 to the Consolidated Financial Statements for a schedule of mortgage debt maturities.

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        On June 30, 2003, the Partnership purchased five condominium units from a group of investors who are affiliated with the Partnership. In the event any of these units are sold during the three year period commencing on the date of acquisition and the sale price is less than the price paid by the Partnership for such units, Harold Brown has agreed to indemnify the Partnership for the difference. The total purchase price for the five units was $2,421,286 including closing costs. This acquisition was funded from cash reserves. In August 2003, the Partnership obtained a $1,600,000 mortgage loan for three years, with interest only payments at 5.25% and no prepayment penalties, secured by these five condominium units.

        On April 25, 2003, the Partnership acquired a 184 unit residential property located at 9 School Street in Framingham, Massachusetts for a total purchase price of $23,368,000. The Partnership obtained a mortgage of $17,000,000 with an interest rate of 5.47%. The balance of approximately $6,368,000 was funded from cash reserves. The mortgage has a ten-year term and is amortized over 30 years, with interest only payments for the first three years.

        In February 2003, the Partnership voted to increase the quarterly distribution to $6.60 per Unit ($0.66 per Depositary Receipt) and pay an additional one-time distribution of $3.00 per Unit ($0.30 per Receipt) for a total distribution of $9.60 per Unit ($0.96 per Receipt), payable on March 31, 2003. The Partnership paid a quarterly distribution of $6.60 per Unit ($0.66 per Receipt) on June 30, September 30, and December 31, 2003.

        In 2004, the Partnership paid a quarterly distribution of $6.60 per Unit ($.66 per Receipt) on March 31, 2004 and June 30, 2004. On September 30, 2004 and December 31, 2004, the Partnership paid a quarterly distribution of $7.00 per Unit ($0.70 per Receipt) for a total distribution of $27.20 per Unit ($2.72 per Receipt) for 2004.

        In February 2005, the Partnership approved a distribution of $7.00 per Unit ($.70 per Receipt) payable March 31, 2005.

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Statements

        Certain information contained herein includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the "Act"). Forward-looking statements in this report, or which management may make orally or in written form from time to time, reflect management's good faith belief when those statements are made, and are based on information currently available to management. Caution should be exercised in interpreting and relying on such forward-looking statements, the realization of which may be impacted by known and unknown risks and uncertainties, events that may occur subsequent to the forward-looking statements, and other factors which may be beyond the Partnership's control and which can materially affect the Partnership's actual results, performance or achievements for 2005 and beyond. Should one or more of the risks or uncertainties mentioned below materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward- looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

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

•

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



•

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



•

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



•

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



•

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



•

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



•

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



•

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



•

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



•

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



•

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



•

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

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•

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



•

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



•

Competition for acquisitions may result in increased prices for properties.



•

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



•

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



•

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 31, 2004, the Partnership and its Subsidiary Partnerships collectively have approximately $115,616,000 in long-term debt, all of which pays interest at fixed rates. Accordingly, the fair value of these debt instruments is affected by changes in market interest rates. For information regarding the fair value and maturity dates of these debt obligations, see Notes 5 and 12 to the Consolidated Financial Statements.

        For additional disclosure about market risk, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results".

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements of the Partnership appear on pages F-1 through F-18 of this Form 10-K and are indexed herein under Item 15(a)(1).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

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ITEM 9A. CONTROLS AND PROCEDURES

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

ITEM 9B. OTHER INFORMATION

        None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The General Partner is a Massachusetts corporation wholly owned by Harold Brown and Ronald Brown, who are brothers. Harold Brown and Ronald Brown were individual general partners of the Partnership until May 1984, when NewReal, Inc. replaced them as the sole General Partner of the Partnership. The General Partner is responsible for making all decisions and taking all action deemed by it necessary or appropriate to conduct the business of the Partnership.

        From October 1992 until 1996, the General Partner engaged the Hamilton Partnership as the management company to manage the properties of the Partnership and its Subsidiary Partnerships. The Hamilton Company, a Massachusetts corporation, was the 99% General Partner of Hamilton Partnership. During 1996, the Hamilton Partnership was dissolved and its successor and general partner assumed the management functions of the Hamilton Partnership. The Hamilton Company continues to manage the Properties. The Hamilton Company was purchased by Harold Brown in August 1993. Harold Brown also owned the corporation that was the 1% limited partner of the Hamilton Partnership. See "Item 11. Executive Compensation" for information concerning fees paid by the Partnership to the Hamilton Company during 2004.

        Because the General Partner has engaged the Hamilton Company as the manager for the Properties, the General Partner has no employees.

        The directors of the General Partner are Ronald Brown, Harold Brown, Guilliaem Aertsen, Conrad DiGregorio and Thomas Raffoul. Messrs. Aertsen, DiGregorio and Raffoul were elected directors on March 11, 2002, pursuant to a joint unanimous written consent of the only two shareholders and the only two directors (at that time) of the General Partner, Ronald Brown and Harold Brown. The directors of the General Partner hold office until their successors are duly elected and qualified. On January 2, 2003, Edward Sarkisian was elected as a director of the General Partner.

        Ronald Brown and Harold Brown hold all of the executive officer positions of the General Partner. The executive officers of the General Partner serve at the pleasure of the Board of Directors.

        On June 14, 2001, the Board of Directors of the General Partner created an Audit Committee, consisting of three members, and approved the charter of the Audit Committee. The Audit Committee was not filled until March 11, 2002, on which date Messrs. Aertsen, DiGregorio and Raffoul were appointed as its members. On January 2, 2003, the Audit Committee was expanded to four members, and Edward Sarkisian was added as a member. The Board of Directors of the General Partner has

26

determined that Guilliaem Aertsen is an audit committee financial expert, as that term is defined in Item 401 of Securities and Exchange Commission Regulation S-K.

        The following table sets forth the name and age of each director and officer of the General Partner and each such person's principal occupation and affiliation during the preceding five years.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's directors, executive officers, and persons who own more than 10% of a registered class of the Partnership's equity securities to file with the Securities and Exchange Commission reports of ownership changes and changes in ownership of the Partnership. Officers, directors and greater-than-10% shareholders are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file.

        Based solely on review of the copies of such reports furnished to the Partnership or written or oral representations that no reports were required, the Partnership believes that during the 2004 fiscal year,

27

all filing requirements applicable to its officers, directors and greater-than-10% beneficial owners were complied with, except that Messrs. DiGregorio, Raffoul and Sarkisian inadvertently did not timely file Form 3s with the SEC in connection with their ownership of Receipts upon becoming Directors of NewReal, Inc., the Partnership's General Partner. Also, as of December 2003, Mr. Raffoul only owned 846 Class A Units (the 2003 10K incorrectly listed his ownership as 907 Class A Units), and Mr. Raffoul sold an additional 150 Class A Units on October 11, 2004. Finally, Mr. Sarkisian sold all of his Class A Units on May 24, 2004.

CODE OF ETHICS

        The Partnership, its General Partner and Hamilton, the Partnership's management company, have adopted a Code of Business Conduct and Ethics, which constitutes a "Code of Ethics" as defined by the SEC and applies to executive officers as well as to all other employees. A copy of the Code of Business Conduct and Ethics is available in the "Investor Relations" section of the management company's website at www.thehamiltoncompany.com/Investor Relations.htm. To the extent required by the rules of the SEC, the Partnership and its related entities will disclose amendments and waivers of the Code of Business Conduct and Ethics in the same place on the aforementioned website.

ITEM 11. EXECUTIVE COMPENSATION

        Pursuant to the Partnership Agreement, the General Partner, or any management entity employed by the General Partner, is entitled to a management fee equal to 4% of the rental and other operating income from the Properties and a mortgage servicing fee equal to 0.5% of the unpaid principal balance of any debt instruments received, held and serviced by the Partnership (the "Management Fee"). The Partnership Agreement also authorizes the General Partner to charge to the Partnership its cost for employing professionals to assist with the administration of the Partnership Properties (the "Administrative Fees"). The Administrative Fees is not charged against the Management Fee. In addition, upon the sale or disposition of any Partnership Properties, the General Partner, or any management entity which is the effective cause of such sale, is entitled to a commission equal to 3% of the gross sale price (the "Commission"), provided that should any other broker be entitled to a commission in connection with the sale, the commission shall be the difference between 3% of the gross sale price and the amount to be paid to such broker.

        In accordance with the Partnership Agreement, the Management Fee, the Administrative Fees and the Commission are paid to the management company, The Hamilton Company ("Hamilton"). See "Item 10. Directors and Executive Officers of the Registrant." The total Management Fee charged by Hamilton during 2004 was approximately $1,268,000. The management services provided by Hamilton include but are not limited to: collecting rents and other income; approving, ordering and supervising all repairs and other decorations; terminating leases, evicting tenants, purchasing supplies and equipment, financing and refinancing properties, settling insurance claims, maintaining administrative offices and employing personnel. In addition, the Partnership employs the president of Hamilton to provide asset management services to the Partnership, for which the Partnership paid $50,000 in 2004.

        In 2004, the Partnership and its Subsidiary Partnerships paid Administrative Fees to Hamilton of approximately $512,000 inclusive of construction supervision and architectural fees of $125,000, repairs and maintenance service fees of $227,000, legal fees of $160,000, and rental commissions of $19,000. The Partnership also paid Hamilton $80,000 for accounting services and approximately $3,781,000 for construction costs capitalized in rental properties. Additionally, the Administrative Fees included $24,000 that was paid by the Partnership to Ronald Brown for construction supervision services.

        Additionally, the Hamilton Company received approximately $88,000 from the Investment Properties of which approximately $65,000 was the management fee, $15,000 was for construction supervision and architectural fees, and $5,000 was for maintenance services.

        There were no sales of Partnership properties in 2004.

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        Prior to the second quarter of 2002, members of the Partnership's Advisory Committee and Ronald Brown and Harold Brown each received $400 for each committee meeting attended; thereafter, they received $500 for each such meeting. The Advisory Committee held six meetings during 2004, and each of the persons indicated above received $3,000 in total for attendance at and participation in such meetings. Additionally, each member of the Audit Committee received $500 per meeting for a total of $2,000 in 2004. The chairman of the Audit Committee received an additional $500 for attending a Sarbanes-Oxley related meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        As of March 16, 2005, except as listed below, the General Partner was not aware of any beneficial owner of more than 5% of the outstanding Class A Units or the Depositary Receipts, other than EquiServe LP ("EquiServe"), which, under the Deposit Agreement, as Depositary, is the record holder of the Class A Units exchanged for Depositary Receipts. As of March 16, 2005, pursuant to the Deposit Agreement, EquiServe was serving as the record holder of the Class A Units with respect to which 1,183,886 Depositary Receipts had been issued to 1,025 holders. As of March 16, 2005, there were issued and outstanding 19,989 Class A Units (not including the Depositary Receipts) held by 965 limited partners, 33,015 Class B Units and 1,738 General Partnership Units held by the persons listed below. During 2004, 1,087 Class A Units were exchanged for 10,870 Depositary Receipts.

        The following table sets forth certain information regarding each class of Partnership Units beneficially owned as of 2005 by (i) each person known by the Company to beneficially own more than 5% of any class of Partnership Units, (ii) each director and officer of the General Partner and (iii) all directors and officers of the General Partner as a group. For purposes of this table, all Depositary Receipts are included as if they were converted back into Class A Units. The inclusion in the table below of any Units deemed beneficially owned does not constitute an admission that the named persons are direct or indirect beneficial owners of such Units. Unless otherwise indicated, each person listed below has sole voting and investment power with respect to the Units listed.

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