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, ~~2008~~2009

[ ] 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 001-33262

MERUELO MADDUX PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5398955
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

761 Terminal Street, Building 1, Second Floor, Los Angeles, California	90021
(Address of principal executive offices)	(Zip Code)

(213) 291-2800

(Registrant’s telephone number, including area code)

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

Title of each class		Name of each exchange on which registered
Common stock, $0.01 par value		The Nasdaq Global Market

Title of each class		Name of each exchange on which registered
*		*

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

*The registrant’s common stock, par value $0.01 per share, was delisted from The Nasdaq Global Market effective April 7, 2009. On January 22, 2010, the registrant filed, on Form 15, a certification and notice of termination of registration under Section 12(g) of the Securities Exchange Act of 1934 and suspension of duty to file reports under Section 15(d) of the Securities Exchange Act of 1934. The registrant’s obligation to file reports pursuant to Section 15(d) is suspended effective with fiscal year 2010.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] 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 [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer [ ] Accelerated filer [X ]

Non-accelerated filer [ ] Smaller reporting company [ X ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $9229,~~722~~063,~~594~~524 based on the closing price on the ~~NASDAQ~~OTC ~~Global~~Bulletin ~~Market~~ Board as of June 30, ~~2008~~2009.

Number of the registrant’s common stock outstanding as of ~~March~~June 1321, ~~2009~~2010: 88,~~076~~054,~~987~~443

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement with respect to its 2009 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the registrant’s fiscal year are incorporated by reference into Part III hereof as noted therein. None

MERUELO MADDUX PROPERTIES, INC.

DEBTOR-IN-POSSESSION

INDEX

Item No.		Form 10-K Report Page		~~Form 10-K Report Page~~
	PART I		~~PART I~~
1.	1Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3	~~Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		3
1A.	1ARisk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12	~~Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		10
1B.	1BUnresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26	~~Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		25
2.	2Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26	~~Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		26
3.	3Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29	~~Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		30
4.	4[Removed and Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29	~~Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		31
	PART II		~~PART II~~
5.	5Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		31
6.	6Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33	~~Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		34
7.	7Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		37
7A.	7AQuantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58	~~Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . .~~		60
8.	8Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59	~~Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . .~~		60
9.	9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~		60
9A.	9AControls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59	~~Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		60
9B.	9BOther Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60	~~Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		61
	PART III		~~PART III~~
10.	10Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61	~~Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		62
11.	11Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65	~~Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		62
12.	12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		62
13.	13Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78	~~Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . .~~		62
14.	14Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	79	~~Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		62
	PART IV		~~PART IV~~
15.	15Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80	~~Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~		63

Forward-Looking Statements

This report contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we include this statement for purposes of complying with these safe harbor provisions.

Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. Statements regarding the following subjects may be impacted by a number of risks and uncertainties:

•

our ability to emerge from bankruptcy with a plan of reorganization that is acceptable to the bankruptcy court, our creditors, equity holders, who may receive no value for their shares, and other parties in interest;

•

our ability to raise additional cash to provide the company with sufficient liquidity to continue as a going concern;

• our ability to ~~obtain~~extend ~~new~~our debt ~~and~~maturities ~~equity capital~~ and tolower ~~obtain~~our ~~extensions~~interest ~~of existing debt~~rates;

•

our business and investment strategy;

•

our projected results of operations;

•

our proposed development and redevelopment of our projects and our uses of projects after such development or redevelopment;

•

our ability to obtain land use entitlements;

•

our ability to maintain existing relationships with lenders and obtain future financing arrangements;

•

our understanding of our competition and our ability to compete effectively;

•

market and industry trends in the United States;

•

projected capital and operating expenditures (including projected redevelopment costs);

•

state of the real estate industry, particularly with respect to commercial, residential and mixed-use projects;

•

availability and creditworthiness of current and prospective tenants;

•

interest rates; and

•

lease rates and terms.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common stock, along with the following factors that could cause actual results to vary from our forward-looking statements:

•

confirmation and effectiveness of our proposed plan of reorganization;

•

the fact that our common stock is not listed on any national securities exchange;

•

the fact that we are no longer required, and do not intend, to file reports with the Securities and Exchange Commission effective with fiscal year 2010;

•

the factors referenced in this report, including those set forth under the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

• availability, terms and deployment of capital;

• lack of debt or equity financing, the possible acceleration of defaulted debt and general volatility of the capital markets;

• the possibility that the Company may file for bankruptcy protection, or that an involuntary petition for bankruptcy may be filed against the Company or its subsidiaries;

•

availability, terms and deployment of capital;

•

lack of debt or equity financing, the possible acceleration of defaulted debt or that the acceleration of defaulted debt may not be stayed as a result of our Chapter 11 bankruptcy filings, and general volatility of the capital markets;

•

changes in our business and investment strategy;

•

availability of qualified personnel;

•

perception of the commercial and residential subsegments of the real estate industry;

•

changes in supply and demand dynamics within the commercial and residential subsegments of the real estate industry;

•

availability of purchasers of our projects;

•

change in costs associated with development or redevelopment and repositioning of projects;

•

changes in interest rates;

•

changes in applicable laws and regulations (including land use entitlement processes);

•

changes in political climates that may affect our proposed development and redevelopment projects;

•

state of the general economy and the greater Los Angeles economy in which our projects are located;

•

a taking of any of our rental properties or development projects by eminent domain; and

•

the degree and nature of our competition.

We cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements set forth in this report to reflect new information, future events or otherwise.

Market Data

Market and industry data and forecasts used in this report have been obtained from independent industry sources and from research reports prepared for other purposes. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as other forward-looking statements in this report.

PART I

Item 1. Business

In this report, unless the context suggests otherwise, references to “our company,” ”debtors,” “we,” “us” and “our” mean Meruelo Maddux Properties, Inc. and its subsidiaries.

When we refer to “urban infill,” we mean development of vacant land or redevelopment of underused structures in built-up areas that have infrastructure and other public services in place. When we refer to “stabilized properties,” we mean completed development or redevelopment projects that have consistently commanded market-rate rents and occupancies.

The historical operations described in this report refer to the historical operations of Meruelo Maddux Properties, Inc., entities contributed to Meruelo Maddux Properties, Inc. and certain of their affiliates and predecessor entities, which we refer to collectively as our predecessor business throughout this report. We have generally described our operations in this report as if the historical operations of our predecessor business were conducted by us.

Overview

As discussed below, we and substantially all of our subsidiaries are in bankruptcy. The outcome of the bankruptcy proceedings will determine whether our existing stockholders will have any equity value in our company. The most recently proposed plan of reorganization in connection with our bankruptcy contemplates that a stockholder’s shares of our common stock will be treated in one of two different ways. The stockholder may elect to receive $0.08 per outstanding share. Alternatively, the stockholder may elect to receive a number of new shares of common stock in our reorganized, post-bankruptcy company equal to the number of shares of our existing common stock held by the stockholder. The second option will require that the stockholder make a cash payment to us equal to $0.07 per new share, in addition to exchanging the stockholder’s old shares for the new shares. The new shares will not be freely tradeable and will be subject to significant ownership limits and transfer restrictions in our organizational documents. We can make no assurance that any plan of reorganization will be confirmed and made effective on any of the terms and conditions currently contemplated. The plan of reorganization as ultimately confirmed and made effective may result in no value to our stockholders.

Our obligation to file reports with the Securities and Exchange Commission is suspended effective with fiscal year 2010, and the most recently proposed plan of reorganization contemplates terms and conditions that may result in the indefinite suspension of our obligation to file reports. We currently expect that this annual report on Form 10-K, which relates to fiscal year 2009, is the last report we will file with the Securities and Exchange Commission.

We are a self-managed, full-service real estate company that develops, redevelops and owns commercial and residential properties located in downtown Los Angeles and other densely populated urban areas in California. We focus on properties that have alternate, more profitable uses achievable through major renovation, redevelopment or development. Our projects are predominantly located in a densely urban, multi-ethnic environment and involve numerous local entitlement, property assemblage and physical challenges.

We are committed to responsible property investing that has economic, environmental and social benefits. Our development activities include urban infill projects that are expected to meet the demands of urban communities and that utilize or upgrade existing infrastructure instead of creating new infrastructure. Many of our projects will locate businesses, customers and employees close to each other and close to existing public transit systems.

We were formed to succeed to certain operations of the our predecessor, which was not a legal entity but rather a combination of entities and operations whose owners were Richard Meruelo, Maria Meruelo and John Charles Maddux and were collectively doing business as Meruelo Maddux, an owner, developer and acquirer of industrial, commercial and residential properties. We were incorporated in Delaware on July 5, 2006 in anticipation of our initial public offering of common stock (our “IPO”), which was consummated on January 30, 2007 concurrently with the consummation of various formation transactions. The formation transactions and IPO were designed to (i) allow us to acquire and continue the operations of our predecessor business, (ii) pay down existing mortgage debt, (iii) payoff a mezzanine loan facility from the State of California Public Employees’ Retirement System, or CalPERS, (iv) provide capital for future acquisitions, (v) fund future development costs, and (vi) establish a capital reserve for general corporate purposes. Prior to the formation transactions our company (which was formed for the purposes of our IPO and is not the predecessor) did not have any meaningful operating activity.

We commenced substantial operations upon completion of our IPO and sold to the public 40,000,000 shares of our common stock at $10.00 per share. On February 14, 2007, the underwriters of our IPO exercised their option to purchase an additional 5,550,000 shares of our common stock at $10.00 per share. Including the shares issued in the over-allotment option, we raised approximately $425.7 million in proceeds in our IPO, after the underwriting discount but before expenses related to the IPO. Our company’s operations are predominantly carried on through, and its assets are owned through, Meruelo Maddux Properties, L.P., which we refer to as our operating partnership. As of December 31, ~~2008~~2009, we held a 99.6% interest in our operating partnership. The 0.4% of minority interests consists of 347,835 LTIP units that have achieved parity with common units in our operating partnership. We are also the sole general partner of our operating partnership. We are structured as a taxable corporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). As of December 31, ~~2008~~ 2009, the total number of shares of our common stock outstanding was 88 87,~~076~~964,~~987~~784.

As of December 31, ~~2008~~2009, we own 2827 rental projects and 1916 projects held for real estate development ~~(one of which was subject to a lease with rights to purchase and this option was terminated in the first quarter of 2009)~~. Most of our projects are located in or around the downtown area of Los Angeles, and all of our projects are in Southern California. Downtown Los Angeles is commonly defined as an area of approximately 350 city blocks, or approximately 2,500 acres, ringed by the U.S. Highway 101/Santa Ana Freeway on the north, the Los Angeles River on the east, U.S. Interstate 10/Santa Monica Freeway to the south and the State Highway 110/Pasadena Freeway to the west. Downtown Los Angeles has attracted several billions of dollars in new construction investment in the past nine years, according to the Los Angeles Downtown Center Business Improvement District. With approximately 80 acres of land in downtown Los Angeles, we believe we are the largest non-government landowner in downtown Los Angeles. By comparison, a 27-block area in the financial district of downtown Los Angeles, often referred to as Bunker Hill, which contains the bulk of downtown’s class A high-rise office buildings, major hotels and retail properties, is situated on approximately 143 acres.

Incidental to our ownership of one of our projects, we owned and operated a cold storage business in an approximately 85,800 square foot facility. We ceased operating this business as of January 1, 2009.

Recent Developments Related to Liquidity and Capital Resources

We are a development company, and our primary objective is to maximize return on investment through development and redevelopment activities, which activities require significant amounts of capital. We experience significant, recurring cash shortfalls from (i) operating activities, (ii) recurring investment activities such as carrying costs for interest payments, real estate taxes and unfunded development expenditures and (iii) capital expenditures on existing rental properties. We would need to generate additional cash of approximately $28.0 million annually to fund such shortfalls, before any significant development and redevelopment activities other than the development of our 717 West 9th Street project.

Chapter 11 Proceedings

On March 26 and 27, 2009, Meruelo Maddux Properties, Inc. (“MMPI”) and 53 of its direct and indirect subsidiaries and affiliates (the” MMPI Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California, San Fernando Valley Division (the “Bankruptcy Court”). These Chapter 11 cases are jointly administered under the caption “In re Meruelo Maddux Properties, Inc., et al., Case No. 1:09-bk-13356-KT” (the “Lead Chapter 11 Case” or “Lead MMPI Case”).

On September 3, 2009, two additional MMPI subsidiaries, Meruelo Maddux-845 S. Flower Street, LLC (“845 Flower”) and Meruelo Chinatown, LLC ("Meruelo Chinatown," together with 845 Flower, the "Flower Debtors"), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, Case Nos. 1:09-bk-21621-KT and 1:09-bk-21622-KT, respectively. These cases relate to our high-rise residential project at 705 W. Ninth Street, and are not jointly administered under the Lead Chapter 11 Case. The MMPI Debtors and Flower Debtors are referred to herein as the "Debtors" either collectively, or as to certain of such debtors as the context requires, and any one of which may be referred to herein as a "Debtor."

We continue to operate our businesses and manage our properties that are in Chapter 11 proceedings as debtors and debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As part of the “first day” relief, the MMPI Debtors obtained Bankruptcy Court approval to, among other things, use cash collateral on an interim basis, meet our pre-petition payroll obligations, maintain our cash management systems, maintain utilities, continue to provide employee benefits and maintain our insurance programs. The MMPI Debtors also subsequently obtained rulings determining that they were not subject to the provisions of the Bankruptcy Code applicable to debtors owning “single asset real estate,” as defined in the Bankruptcy Code. The filing of the Chapter 11 petitions by the Debtors may have given rise to claims by lenders of defaults under our debt instruments and agreements. As a result, our debt obligations may have become immediately payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the Chapter 11 filings.

Notice to Creditors. Shortly after the Chapter 11 filings on March 27 and September 3, 2009 respectively, the Debtors began notifying all known current or potential creditors of the Chapter 11 filing.

Claims Bar Date. On June 22, 2009, the Bankruptcy Court entered an order in the Lead Chapter 11 Case, setting the last day for filing proofs of claim against the MMPI Debtors as September 24, 2009. The Bankruptcy Court set a bar date of October 30, 2009 for the filing of proofs of claim against the Flower Debtors. As a result, any and all pre-petition claims against the Debtors generally are barred if they were not filed before the applicable bar date.

Effect of Filing on Creditors and Shareowners. Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise and subject to other applicable exceptions, pre-petition liabilities and post-petition liabilities must be satisfied in full before shareowners are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or shareowners, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 cases to each of these constituencies or what types or amounts of distributions, if any, they would receive. A plan of reorganization could result in holders of our liabilities and/or securities, including our common stock receiving no distribution on account of their interests and cancellation of their holdings.

As discussed below, the Second Amended Joint Chapter 11 Plan (as may be further amended or supplemented, the “Plan”) currently proposed by the Debtors in the Lead MMPI Case calls for one of two treatments of our outstanding common stock. A stockholder may elect to receive $0.08 per outstanding share. Alternatively, a stockholder may elect to receive a number of new shares of common stock in our reorganized, post-bankruptcy company equal to the number of shares of our existing common stock held by the stockholder. The second option will require that the stockholder make a cash payment to us equal to $0.07 per new share, in addition to exchanging the stockholder’s old shares for the new shares. The new shares will be subject to significant ownership limits and transfer restrictions and not be freely tradeable. If as a result of the second option we would have 300 or more stockholders, we will effect a reverse stock split to eliminate stockholders so that we have fewer than 300. We can make no assurance that any plan of reorganization will be confirmed and made effective on any of the terms and conditions currently contemplated. For example, prior versions of the Plan called for cancellation of existing equity in MMPI. This meant that the shares owned by our existing common stockholders would be cancelled, and the stockholders would receive no value for their shares and have no rights. The Plan as ultimately confirmed and made effective may result in no value to our stockholders.If the requirements of the Bankruptcy Code are met, a plan of reorganization can be confirmed notwithstanding its rejection by the holders of our stock and notwithstanding the fact that such holders do not receive a distribution or retain any property on account of their equity interests under the plan. Because of such possibilities, the value of our liabilities and securities, including our stock, is highly speculative. We urge that appropriate caution be exercised with respect to existing and future investments in any of the liabilities and/or securities of the Debtors.

Appointment of Creditors’ Committee. The Office of the United States Trustee has appointed an official committee of unsecured creditors (the “Creditors’ Committee”). The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to the MMPI Debtors in the Lead Chapter 11 Case. There can be no assurance that the Creditors’ Committee will support the Debtors’ positions or ultimate plan of reorganization.

Rejection of Executory Contracts. Under Section 365 and other relevant sections of the Bankruptcy Code, the Debtors may assume, assign, or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. In general, rejection of an executory contract or unexpired lease is treated as a pre-petition breach of the executory contract or unexpired lease in question and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases can file claims against the Debtors’ estate for such damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure most existing defaults under such executory contract or unexpired lease and provide adequate assurance of future performance.

Accordingly, any description of an executory contract or unexpired lease elsewhere herein, including where applicable our express termination rights or a quantification of our obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights we have under Section 365 of the Bankruptcy Code.

We expect that liabilities subject to compromise and resolution in the Chapter 11 proceedings may arise in the future as a result of damage claims created by the Debtors’ rejection of various executory contracts and unexpired leases. Conversely, we expect that the assumption of certain executory contracts and unexpired leases may convert liabilities shown as subject to compromise to liabilities not subject to compromise. Due to the uncertain nature of the potential rejection claims, the magnitude of such claims is not reasonably estimable at this time. Such claims may be material.

Magnitude of Potential Claims. On and before June 12, 2009, the MMPI Debtors, filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of the MMPI Debtors, subject to the assumptions contained in certain notes filed in connection therewith. On September 30, 2009, the two Flower Debtors filed with the Bankruptcy Court schedules and statements of financial affairs. The schedules are subject to further amendment or modification. Differences between amounts scheduled by the Debtors and claims by creditors are being investigated and will be resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

Costs of Reorganization. We have incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, are expected to significantly impact our results of operations.

Process for Plan of Reorganization. In order to exit Chapter 11 successfully, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization that satisfies the requirements of the Bankruptcy Code. A plan of reorganization would resolve, among other things, the Debtors’ pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to exit from bankruptcy.

The Debtors filed their Chapter 11 Joint and Consolidated Plan of Reorganization on December 1, 2009 and their disclosure statement on December 4, 2009. A hearing on the approval of the disclosure statement was held on January 20, 2010. The Court declined to approve the disclosure statement at that time, and set a further hearing on the disclosure statement. As a result of the hearing and various other factors, the Flower Debtors filed on February 17, 2010 their First Amended Joint Disclosure Statement and First Amended Joint Plan of Reorganization separate from the amended plan filed in the Lead MMPI Case. A hearing on the First Amended Disclosure Statement of the Flower Debtors was scheduled for June 7, 2010 and has been continued to a date as yet to be scheduled. The Flower Debtors anticipate filing a further amended plan. On February 27, 2010, the MMPI Debtors in the Lead MMPI Case filed their First Amended Joint Chapter 11 Plan and their First Amended Disclosure Statement. On March 19, 2010, the Court held a hearing on the First Amended Disclosure Statement. The Debtors in the Lead Chapter 11 Case filed their Second Amended Disclosure Statement and Second Amended Joint Chapter 11 Plan on May 1, 2010, and then filed a modification to such plan on June 11, 2010. A hearing on the modified Second Amended Disclosure Statement has been scheduled for July 21, 2010.

Pursuant to applicable provisions of the Bankruptcy Code, in order for a plan of reorganization to be confirmed, among other things, the Bankruptcy Court must first approve of the adequacy of the disclosure statement filed in connection with the proposed plan. The MMPI Debtors in the Lead MMPI Case have filed their amended disclosure statement and are in the process of seeking the Bankruptcy Court's approval. Once a disclosure statement is approved, the disclosure statement, plan of reorganization, and a ballot for accepting or rejecting the plan will be distributed to those classes of claims entitled to vote according to the Bankruptcy Code and the Bankruptcy Court's orders. The ballots will be returned to the Debtors and the votes will be tabulated and submitted to the Bankruptcy Court prior to the hearing at which the Debtors will seek to confirm their plan, pursuant to various applicable provisions of the Bankruptcy Code. All parties in interest will have an opportunity to be heard.

Pursuant to Section 1121 of the Bankruptcy Code, the exclusive period to file a plan may not be extended beyond 18 months after the petition date and the exclusive period to solicit and obtain acceptances of a plan beyond 20 months after the petition date. The deadline for the Debtors' exclusivity has been extended from time to time by the Bankruptcy Court. In the Lead Chapter 11 Case, subject to further extensions granted by the Bankruptcy Court, the Debtors’ exclusive right to solicit and obtain acceptances of their plan expires on September 30, 2010, except with regard to the Creditors’ Committee, an equity committee, and two minority shareholders, which have been authorized to file a plan. In the cases of Flower Debtors, the Debtors' exclusive right to solicit and obtain acceptances of their plan expires on August 30, 2010.

Summary of Proposed Plans of Reorganization. The Plan for the MMPI Debtors generally provide for the payment in full of all creditor claims over time with interest. Generally our secured creditors for the MMPI Debtors will be paid interest over the term of the Plan and the principal balance will be paid either through the sale of the property securing the note, the refinance of the secured debt, or other satisfaction of the secured creditors’ claims. The Plan for the MMPI Debtors contemplate adding the accrued interest incurred before the effective date of the Plan to the principal balance of the secured debt unless we have agreed with the creditor to a different treatment. The Plan also currently contemplates that a stockholder’s shares of our common stock will be treated in one of two different ways. The stockholder may elect to receive $0.08 per outstanding share. Alternatively, the stockholder may elect to receive a number of new shares of common stock in our reorganized, post-bankruptcy company equal to the number of shares of our existing common stock held by the stockholder. The second option will require that the stockholder make a cash payment to us equal to $0.07 per new share, in addition to exchanging the stockholder’s old shares for the new shares. The new shares will be subject to significant ownership limits and transfer restrictions in our organizational documents and will not be freely tradeable. If as a results of the second treatment we would have 300 or more stockholders, we will effect a reverse stock split to eliminate stockholders so that we have fewer than 300. We can make no assurance that any plan of reorganization will be confirmed and made effective on any of the terms and conditions currently contemplated. Our operating partnership will be merged into MMPI and our operating partnership’s equity interests will be cancelled. Payment under the Plan by the MMPI Debtors will be funded from our operations, sale and refinance of certain of our assets, and from other sources.

Settlement Agreements. We are actively attempting to reach agreements with our lenders to extend the maturity dates on our notes and significantly reduce our interest rates. We have completed settlement agreements with six lenders and have obtained the necessary bankruptcy court approval with loans totaling approximately $172.4 million. On April 26, 2010 and in connection with the sale of 705 W. Ninth Street, we paid off our $84.0 million construction loan secured by this project. Excluding this loan, the weighted average pay rate on the loans approved by the Bankruptcy Court is approximately 3.8%. Assuming the applicability of contingent interest, the weighted average interest rate would be 5.0%. Our proposed plans of reorganization, if confirmed and effective, would change the interest rates on our loan agreements from the weighted average default rate of approximately 9.2% asserted by lenders on some loans to 4.0%. It would also extend the maturity dates on these loans for a period of 5 or 7 years. There is no assurance that a plan containing these terms will be confirmed by the Bankruptcy Court, and the Debtors may amend their plans and propose different terms.

Recent Developments Related to Liquidity and Capital Resources

The matters described herein, to the extent that they relate to future events or expectations, may be significantly affected by our Chapter 11 proceedings. Those proceedings will involve, or may result in, various restrictions on our activities, limitation on financing, the need to obtain Bankruptcy Court and perhaps other approvals for various matters and uncertainty as to relationships with vendors, lenders, suppliers, tenants and others whom we may conduct or seek to conduct business.

The filing of the Chapter 11 petitions may have given rise to claims by lenders of defaults under our debt instruments and agreements. As a result, our debt obligations may have become immediately payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the Chapter 11 filings.

We sold on April 26, 2010 our 705 W. Ninth Street project for $110.0 million, paid off principal and accrued interest on our $84.0 million 12.0% construction loan, set aside funds in escrow to cover potential liabilities, and received approximately $18.3 million in proceeds (net of other closing costs). We expect to receive additional proceeds from the funds set aside in escrow of approximately $4.6 million once we settle these issues.

We are a development company and experience significant, recurring cash shortfalls. Before filing our Chapter 11 petitions, we needed to generate approximately $28.0 million in cash annually to cover such shortfalls from (i) operating activities, (ii) recurring investment activities such as carrying costs for interest payments, real estate taxes and other unfunded development expenditures and (iii) capital expenditures on existing rental properties.

On a forward-looking basis, our current recurring annual cash shortfall, assuming we pay our obligations as incurred, has increased from $28.0 million to $38.7 million or $10.7 million for the following reasons:

We have classified approximately $195.2 million of notes payable secured by real estate as liabilities subject to compromise on our consolidated balance sheet. For accounting purposes, we are accruing and deferring interest on these notes at the default rate claimed by lenders, even though we may dispute whether default interest may be charged and/or the amount of default interest. Recording default interest has increased our annual interest obligation by approximately $7.9 million.

·	While in bankruptcy, we are incurring bankruptcy related costs of approximately $5.3 million annually.

·	These increases are partially offset by operational improvements of approximately $2.5 million annually.

To preserve cash flow in this challenging economic environment, we suspended all development projects. As of January 1, 2009, we stopped capitalizing these carrying costs and began reflecting the revenue and expense activities on our statement of operations.

We commenced the Chapter 11 proceedings because we are not assured that we will have sufficient capital to satisfy our liquidity needs over the next 12 months and because there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:

•

our ability to generate and maintain adequate cash;

	•			the cost, duration and outcome of the reorganization process in the Chapter 11 proceedings; and
		•		our ability to retain key employees.

These challenges are in addition to those operational and competitive challenges that we face in connection with our business. In conjunction with our advisors, we are implementing strategies to improve our liquidity and our ability to continue as a going concern. However, we cannot guarantee that such efforts will be successful.

The current economic recession and associated disruption in the debt and equity capital markets have been extremely challenging for us. They have or may affect us in a number of ways, including by:

•	making it very difficult for us to refinance our maturing indebtedness or to obtain financing to fund our planned development and redevelopment;

• ~~making~~leading ~~the~~us ~~terms~~to ofsuspend ~~any~~substantially ~~available~~all ~~financing~~of ~~less~~our ~~attractive,~~development ~~resulting~~projects inother ~~lower~~than ~~loan-to-value~~our ~~ratios~~705 ~~and~~West ~~loan-to-cost~~Ninth ~~ratios,~~Street ~~higher~~project ~~interest rates~~ and ~~generally~~therefore ~~less~~expense ~~available~~previously ~~debt~~capitalized ~~capital,~~carrying ~~to the extent financing is available~~costs;

• leading us to suspend substantially all of our development projects other than our 717 West 9th Street project and therefore expense previously capitalized carrying costs;

•	increasing our projected development costs and therefore the amount of equity we are required to contribute to our projects;

•	moving sales and leasing revenue on our properties from earlier periods to later periods, thereby delaying the reduction of associated negative cash flows and as a result reducing our liquidity more than anticipated;

• leading us to seek to sell several of our assets at a time when the market is experiencing significant negative impacts;

• making it difficult for us to sell assets timely or on favorable terms because few buyers in the prevailing market have the financial position to consummate property acquisitions;

•	leading us to seek to enter into joint venture agreements with respect to certain of our more capital intensive projects;

•	leading us to seek potentially dilutive debt or equity-linked capital or to issue additional equity at unattractive prices or in exchange for outstanding debt at dilutive exchange rates;

•	leading us to refocus certain previously anticipated longer-term development projects to produce more near-term income through leasing the project and thereby reducing capital outflows through the redevelopment process and increasing near-term cash flow; and

•	leading us to reduce our employee base.

We began 2009 with $4.5 million in unrestricted cash. We require approximately $1.8 million in cash monthly to satisfy principal and interest payments on 26 out of 30 of our loans that total $266.0 million. This unrestricted cash balance would cover approximately 2.5 months of these payments absent any funds generated from asset sales. Though we have several properties currently in escrow to be sold, we have not closed on any as of yet.

Consequently, we have stopped making interest and principal payments on 26 of our 30 loans totaling $266.0 million. We continue to make interest payments on our construction loan at 717 W. Ninth Street and on other three other loans that have interest reserves. As of March 13, 2009, we owe approximately $2.8 million in accrued interest and another $0.8 million in principal repayments and reserve funds. On December 15, 2008, we did not make a $4.0 million principal repayment on a $17.0 million land loan. The lender subsequently agreed to defer the principal repayment. On March 15, 2009, we will owe another $5.0 million in principal on this land loan. Additionally, we have not been able to extend or refinance three other loans totaling $86.9 million that matured on February 28, 2009 and March 1, 2009.

We are currently seeking loan workout agreements with four depository lenders on loans that total $177.8 million. We are unsure as to what results will be derived from such efforts, but we expect that we will continue to negotiate with these four lenders. We are also examining all feasible strategic alternatives. Potential strategic alternatives include a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy code.

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 7 of this report below.

~~Post-IPO Highlights~~2009 Activities

~~Since~~During ~~becoming a public company on January 30~~2009, ~~2007,~~ we have completed the following major activities:

Financing ~~Transactions~~ Transaction

· WeIn ~~repaid~~January ~~all~~2009, ~~principal~~we ~~and~~obtained ~~interest~~$42.0 ~~outstanding~~million ~~under~~in ~~the~~funds ~~revolving~~from ~~credit~~our ~~facility~~$84.0 ~~that~~million ~~was~~construction ~~provided~~loan toat our ~~predecessor~~705 byW ~~CalPERS~~Ninth Street project.

·Development We/ ~~retired mortgage debt instruments secured by certain of the projects we acquired in our formation transactions.~~Leasing

· We ~~obtained~~completed a construction ~~loan~~on ~~for~~the ~~$84~~residential portion of the Union Lofts project and began leasing the property in March 2008.0 ~~million~~We ~~for~~are ~~our~~currently ~~717~~89.1% Wleased ~~9th~~as ~~Street~~of ~~project~~June 18, 2010.

· WeIn August 2009, we extended our lease with American Apparel for 10 years (with a right by the ~~maturity~~tenant ~~dates~~to ofterminate ~~numerous~~after ~~loans~~5 ~~throughout~~years) ~~2008~~and increased its annual rents to $3.3 million with annual rent increases thereafter.

5· In October 2009, we substantially completed construction on our 214-unit luxury residential tower at 705 W. Ninth Street.

~~Acquisition and Development Activities~~Dispositions

· WeOn ~~completed~~April ~~construction~~30, on2009, ~~the~~we ~~residential~~successfully ~~portion~~completed of the ~~Union~~sale ~~Lofts~~of ~~project~~our ~~and~~rental ~~began~~project ~~leasing~~at ~~the~~500 ~~property~~Mateo inStreet ~~March~~for ~~2008.~~approximately ~~We are currently 50~~$1.0%9 ~~leased as of March 10, 2009~~million.

· WeOn ~~continued~~July to13, ~~make~~2009, ~~progress~~we onsuccessfully completed the ~~development~~sale of ~~the~~our ~~717~~development ~~W 9th Street~~ project. ~~The~~at ~~214~~146 ~~unit~~E ~~luxury~~Front ~~apartment~~Street ~~tower~~for ~~has~~approximately ~~been topped out and the glass curtain wall has been completed~~$1.1 ~~The project is on schedule to be completed by the end of September 2009 and pre-leasing activities are anticipated to commence in the summer of 2009~~million.

· WeOn September 18, 2009, we successfully completed the ~~following~~sale ~~acquisitions~~of orour ~~conversions~~development ofproject ~~development~~at ~~projects~~Camfield toRetail ~~rental~~Center ~~projects:~~for approximately $5.0 million.

Projects	Acquisition or Conversion Date	Net Rentable Square Footage
Washington Produce Market (2640 Washington Blvd.)	March 7, 2007		31,876
230 W. Avenue 26th	April 1, 2007		67,671
2000 San Fernando Road	April 2, 2007		119,381
420 Boyd Street	June 27, 2007		47,806
4th Street Center	September 30, 2007		14,472
Union Lofts	July 1, 2008		81,609
Barstow Produce Center	July 1, 2008		261,750
Santa Fe Plaza	September 1, 2008		16,000
Overland Terminal	September 3, 2008		309,340
Total			949,905

· We successfully completed, acquired or placed in service the following parcels attached to current rental projects:

Projects	Date of Addition	Square Footage
Crown Commerce Center	January 26, 2007		18,500
905 E 8th Street	March 23, 2007		3,597
Center Village	March 27, 2007		66,135
620 Gladys Avenue	April 13, 2007		49,959
Total			138,191

Disposition Activities

· We successfully completed the sales of the following projects ($ in thousands):

Projects	Date of Sale	Sales Price(1)
Rental Projects
2000 San Fernando Road (2)	August 15, 2008	$	35,000
1800 E Washington Blvd	September12, 2008		14,200
Overland Terminal	November 14, 2008		19,702
Total Rental Projects		$	68,902
Development Projects
9901 Alameda	March 31, 2008	$	31,200
801 E 7th Street	November 21, 2008		9,500
816 Stanford (3)	November 7, 2008		1,000
Total Development Projects		$	41,700
Total Projects Sold		$	110,602

(1) We recognized $14.2 million (net of income taxes) in gains upon the sales of these projects. In addition, no impairment was ever recognized on any of these projects.

(2) We originally sold this project during the quarter ended June 30, 2008 for $28.7 million. We retained an option to resell this project to another buyer which we did during the third quarter 2008 and as a result, we received an additional $5.0 million in net proceeds.

(3) Represents a separate building that is part of the 905 E 8th Street project.

History of our Company and our Management Team

Through our predecessor business, we have been investing in urban real estate since 1972, when Cuban immigrants Homero and Belinda Meruelo purchased their first commercial building in downtown Los Angeles. Our current management team is led by our co-founders Richard Meruelo, who serves as our Chief Executive Officer and Chairman of our Board of Directors and who is the son of Homero and Belinda Meruelo, and John Charles Maddux, who serves as our President and Chief Operating Officer and a member of our Board of Directors. Mr. Meruelo and Mr. Maddux both have more than 20 years of experience in identifying, acquiring, entitling, financing, developing and redeveloping urban real estate. They have worked together since 1987.

Our Strategies

Our business is focused on real estate development and redevelopment. The substantial majority of our properties are not stabilized. Our strategy has three primary components: investment, value creation and operations.

Our Investment Strategy

We invest in sub-markets that are undergoing demographic, structural or economic changes, where a significant portion of the properties and participants are historically of a non-institutional nature, where the buildings are predominantly obsolete or no longer relevant to the submarket’s changing profile, where we have established strong working relationships with the city planners, community redevelopment agencies and local political organizations and where the existing transportation networks, particularly public transportation systems, are nearby.

Our Value Creation Strategies

Focus on the Property Needs of Specific Industries and Premium Space Users. We seek to achieve rent premiums by meeting the property needs of “premium space users” such as food processing and food distribution companies, whose critical business functions depend on the location, zoning, tenant improvements or utilities of the leased space and whose needs frequently coincide with urban environments. The ability to provide premium space users with facilities and services that maximize their operating profits may allow a landlord to minimize leasing risk and charge rents that, net of costs incurred to provide such facilities and services, exceed rents that could be obtained from tenants that are relatively indifferent to location or amenities. We will continue to identify premium space users in our markets and work to understand and fulfill their evolving requirements.

Focus on Sub-Markets that are Transitioning from Large to Small Tenants. We acquire, modernize and subdivide large, older single-tenant industrial and mixed-use buildings. In many urban markets, large manufacturers and distributors have relocated their businesses, often vacating such buildings for overseas or suburban locations. Taking their place are small emerging businesses and established companies that are de-centralizing their operations. We seek to transform large, single-tenant buildings into workplaces for many small tenants by re-using a large portion of the existing facility and creatively subdividing the space at a relatively low cost. This approach should allow us to offer competitively-priced space (as compared to rental rates for new buildings) in convenient urban locations.

Aggregate Small, Synergistic Tenants. In urban areas, the non-office tenant base includes many small businesses. Grouping similar businesses together creates a marketplace that offers convenience to product buyers and a steadier stream of prospective customers to the businesses. These advantages may increase tenants’ business profits and stability and may justify a rental premium compared to stand-alone locations. We seek sub-markets where there is an active, but unorganized, critical mass of similar businesses that could benefit from aggregation. We believe this strategy should allow us to generate higher rental income from our small tenants.

Focus on Residential Development in Appropriate Locations. We intend to develop downtown residential projects on sites we own near transportation infrastructure and demand generators such as office buildings, retail stores, restaurants, and cultural and sports venues. In the long run, we believe demand for residential units in downtown Los Angeles will also grow. we believe that our residential projects will offer desirable housing and provide us with attractive returns on invested capital.

Coordinate Residential and Industrial Development in Shifting Urban Markets. We believe that much of the downtown Los Angeles industrial space is aging or obsolete and not properly serving its industrial users. We seek properties within historically industrial districts that are located in emerging housing sub-markets. As active developers and operators of industrial/distribution space, we believe we have greater ability to acquire such opportunities quickly and at lower industrial/distribution pricing than residential-only developers. We also seek the purchase of industrial/distribution properties in areas near downtown but not in emerging residential markets. We see opportunities to better serve industrial users we displace through residential redevelopment by providing them with more suitable space in commercial projects of ours in such near downtown areas. We believe coordinating residential and industrial development in this manner facilitates our land assemblage.

Pursue Opportunities Offered by Governmental Organizations. In the State of California, the state government, regional agencies and local community redevelopment agencies created under the California Community Redevelopment Law control a large amount of surplus property in urban areas and have substantial land use discretion. These organizations often must dispose of their surplus property in a manner that encourages socially responsible development. We believe that such organizations present some of the more compelling opportunities in California urban areas because of the size or location of the parcels they control or because the acquisition terms for such parcels may be more favorable than typical private seller terms. We believe our management’s advocacy of socially-minded solutions for urban real estate problems gives us a competitive advantage to be selected by these government organizations, thereby creating opportunities to acquire properties at attractive values.

Aggregate Separate Parcels and Acquire Controlling Locations in Developing Neighborhoods. In our markets, large, contiguous development properties are infrequently for sale and, when available, sell for prices that often reflect their potential value. We seek to acquire smaller, separate real estate parcels over time with a view toward aggregating those smaller parcels into one property that can accommodate a larger-scale development project. To acquire the individual parcels and reduce our holding costs, we sometimes purchase an option contract or sign a long-term purchase agreement that gives us the right to acquire the land at a specific price on or before a specified future date. We may also acquire a strategically sized or configured parcel in a city block that would be instrumental in any material redevelopment of the block, thereby deterring any substantial competing development and creating an incentive for owners of adjacent parcels to sell.

Our Operating Strategies

Efficiently Manage the Development and Operation of Our Projects. We employ a mixture of project development management and asset management strategies. First, we keep direct control over critical development functions in which we believe we have valuable expertise and that require significant local knowledge, such as identification and acquisition of projects and land use entitlement. Second, because of the widely varying nature of our projects, we ~~generally~~may retain expert third-party general contractors to manage the construction of our projects, and we employ in-house project managers to supervise the construction management process closely. Third, once a project is complete, we directly manage its operation and leasing activities, or we retain third-party sales companies in the case of for-sale projects. We will engage third-party leasing agents when they have superior tenant relationships or knowledge of the sub-markets in which our projects are located.

Seek Interim Revenues from Properties. The public approval process for certain projects may last two years or longer. During the assemblage or approval process, we take steps to permit us to generate interim revenues and allow us to terminate leases promptly or relocate tenants when we obtain the final assemblage piece or approvals. We accomplish this by converting long-term leases to month-to-month leases and seeking additional interim income from additional sources, such as surface parking or by temporarily licensing space to entertainment companies for on-location filming. In addition, because we have a roster of month-to-month tenants who have shown a willingness to relocate at our discretion, we have the flexibility to generate interim revenues by relocating tenants from a property commencing redevelopment construction to another property that is not currently being redeveloped.

Sell or Recapitalize our Projects to Realize Value. We expect to dispose of or recapitalize many of our projects from time to time once they reach what we believe to be their maximum near-term value and redeploy some or all of our equity and profits into other real estate investments that we believe have a greater long-term potential for economic appreciation. We believe that we will maximize our risk-adjusted returns with a policy of selling some of our projects to realize capital appreciation and reinvesting the net proceeds in new redevelopment projects, rather than redeveloping and retaining these projects to realize increased rents over a long period.

Our Underwriting Process

In considering whether to acquire an available property, we first examine the property’s current use and market value based on historical income from operations, revenue and expense trends and likely future profitability based on its current use. We then undertake an extensive due diligence review and analyze current demand generators and the property’s competitive position. As applicable, we review the property’s current tenants and leases.

Because we are foremost a redeveloper and focus on creating value through converting real estate to different uses, we critically examine possible uses of each potential property. In addition to the net financial value of a new property use, our financial models of these potential properties consider projected returns to stockholders that reflect risk discounts and timelines that take into account the factors described below. Key factors in our investment decision include compatibility of the property’s future use with the general plan, zoning and planning laws, regulations and policies of the municipality, including current zoning; an estimate of our ability and the time needed to obtain necessary entitlement; local political support or opposition to the proposed use; whether we own or control adjacent parcels; whether we have the ability to relocate current tenants to other projects in our portfolio; the profile and availability of anticipated future tenants or purchasers; trends in the property’s neighborhood, including ongoing or proposed redevelopment projects and expected shifts in demographics and demand generators; and the availability of debt financing for the project upon acceptable terms.

As we evaluate potential residential developments, we underwrite such property on a for-rent and on a for-sale basis. We decide to sell or rent the units in a residential development based on market factors at the time and based on which strategy will maximize the return to the company.

Competition

We compete with other public and private real estate companies (including real estate investment trusts, or REITs), public and private investment firms, private real estate investors and lenders in acquiring and developing properties. Many of these entities have greater resources than us or other competitive advantages. We also face significant competition in leasing or subleasing available properties to prospective tenants and in re-leasing space to existing tenants.

Principal factors of competition in our primary business of owning, acquiring, developing, redeveloping and leasing properties are the quality and nature of properties, leasing terms (including rent and other charges and allowances for tenant improvements), attractiveness and convenience of location, the quality and breadth of tenant services provided, and reputation of an owner and operator of quality properties in the relevant market. Each of our projects is subject to significant competition from other properties in the same general area. Additionally, our ability to compete depends upon, among other factors, availability and cost of capital, trends of the national and local economies, investment alternatives, the financial condition and operating results of current and prospective tenants, construction and renovation costs, taxes, governmental regulations, legislation and population trends.

Insurance

Our projects are covered by ~~comprehensive~~general liability, casualty and rental loss insurance. We believe that the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice, and that our projects will be covered adequately by insurance. Because it is expensive and not customary in the market, we do not have earthquake or terrorism coverage for our projects. However, future lenders may require that we obtain insurance to cover losses caused by terrorism and earthquakes.

Employees

We employed ~~101~~82 full-time employees as of ~~March~~June 1318, ~~2009~~2010. We believe that our relations with our employees are good. We ~~recently~~have from time-to-time terminated the employment of several employees as a result of the current economic environment. We may elect to further reduce the number of our employees.

Additional Information

We have made available copies of the charters of the committees of our Board of Directors, our code of ethics and conduct, our corporate governance guidelines, our whistleblower policy and any materials we file with the SEC on our website at www.meruelomaddux.com. Copies of these documents are available in print to any stockholder who requests them. Requests should be sent to Meruelo Maddux Properties, Inc., 761 Terminal Street, Building 1, Second Floor, Los Angeles, California, Attention: Corporate Secretary. All filings we make with the SEC are also available on our website.

~~All~~ Effective ~~reports~~with ~~filed~~fiscal year 2010, our obligation to file reports with the Securities and Exchange Commission, ~~may~~or ~~also~~SEC, beis ~~read~~suspended, and ~~copied~~we atdo ~~the~~not ~~SEC’s~~intend ~~public reference~~to ~~room~~file atany ~~100~~such ~~F Street~~reports, ~~N.E.~~including any annual report on Form 10-K, ~~Washington~~quarterly report on Form 10-Q or current report on Form 8-K, ~~D.C.~~for ~~20549~~so long as our reporting obligation is suspended. ~~Further information~~We ~~regarding~~also no longer have an obligation to file proxy statements with the ~~operation~~SEC in connection with meetings of ~~the~~our ~~public~~stockholders ~~reference~~or ~~room~~deliver ~~may~~such beproxy ~~obtained by~~statements ~~calling~~to ~~1-800-SEC-0330~~our stockholders. ~~In addition~~Moreover, ~~all~~as a result of the terms of our ~~filed~~reorganization ~~reports~~in ~~can be~~bankruptcy, ~~obtained~~including ata proposed limit on the ~~SEC’s~~number ~~website~~of atour ~~www~~stockholders and restrictions on transferring our common stock, our obligation to report may be suspended indefinitely.~~sec.gov.~~

9 Our historical reports filed with the SEC may also be read and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Further information regarding the operation of the public reference room may be obtained by calling 1-800-SEC-0330. In addition, all of our historical reports filed with the SEC can be obtained at the SEC’s website at www.sec.gov.

Item 1A. Risk Factors

Investment in our common stock involves significant risks. If any of the risks discussed in this report occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. The risk factors set forth below are not the only risks that may affect us. Additional risks and uncertainties not presently known to us, or not identified below, may also materially affect our business, financial condition, liquidity and results of operations. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements.”

~~Our Current~~We ~~Operations,~~filed ~~Debt~~for ~~Obligations~~protection ~~and~~under ~~Development~~Chapter ~~Plans~~11 of the U.S. Bankruptcy Code. Our Plan

~~Our independent~~ As ~~auditors~~more ~~have~~fully ~~expressed~~described ~~substantial~~in ~~doubt~~Note ~~about~~1 to the consolidated financial statements of this report, the MMPI Debtors filed voluntary petitions to reorganize under Chapter 11 on March 26 and 27, 2009. On September 3, 2009, the Flower Debtors also filed Chapter 11 petitions. The most recent version of our ~~ability~~Plan contemplates one of two treatments of our outstanding common stock. A stockholder may elect to ~~continue~~ asreceive a$0.08 ~~going~~per ~~concern~~outstanding share. Alternatively, ~~which~~a stockholder may ~~hinder~~elect receive a number of new shares of common stock in our ~~ability~~reorganized, post-bankruptcy company equal to ~~obtain~~the number of shares of our existing common stock held by the stockholder. The second option will require that the stockholder make a cash payment to us equal to $0.07 per new share, in addition to exchanging the stockholder’s old shares for the new shares. We can make no assurance that any plan of reorganization will be confirmed and made effective on any of the terms and conditions currently contemplated. For example, prior versions of our Plan provided that our outstanding common stock would be cancelled and that our stockholders would receive no distribution. The value of our stock is highly speculative.We urge that appropriate caution be exercised with respect to existing and future ~~financing~~ investments in our stock.

In During ~~their report dated March 13, 2009,~~ our ~~independent~~Chapter ~~auditors~~11 ~~stated that our financial statements for the year ended December 31~~cases, ~~2008 were prepared assuming that~~ we ~~would~~plan to continue asto aoperate ~~going concern. But~~our ~~they~~business ~~further~~and ~~stated~~manage ~~that there is substantial doubt about~~ our ~~ability~~properties ~~to continue~~ as adebtors ~~going concern because of recurring losses from operations~~ and adebtors-in-possession ~~working~~under ~~capital deficiency. In addition, it was noted that~~ the ~~Company~~jurisdiction ~~has not complied with certain covenants~~ of ~~loan agreements~~the ~~with~~Bankruptcy ~~banks~~Court and ~~expects that future debt violations will occur at various dates~~ in ~~2009~~accordance ~~which~~with ~~will require waivers to be obtained from~~ the ~~lenders in~~applicable ~~order~~provisions ~~for~~of ~~the~~Chapter ~~debt not to be considered in default~~11. Our Weoperations, ~~continue~~including ~~to experience net operating losses and incur carrying costs on~~ our ~~development projects. Our~~ ability to ~~continue~~execute asour abusiness ~~going~~plan, ~~concern~~are is subject to ~~our~~the ~~ability~~risks toand ~~generate positive~~uncertainties ~~cash~~associated ~~flows~~with ~~from~~bankruptcy, ~~operations~~including, ~~reduce~~but ~~our~~not ~~carrying~~limited ~~costs~~to, ~~cure loan defaults, obtain necessary funding from outside sources including that generated through extensions of existing loans and generate net cash proceeds from~~ the ~~sale~~ ~~of non-core properties. There can be no assurances that such methods will prove successful.~~following:

· We ~~may~~have ~~file~~incurred ~~for bankruptcy~~and ~~protection~~will continue to incur significant costs associated with the reorganization. The amount of these costs, orwhich anare ~~involuntary~~being ~~petition~~expensed ~~for~~as ~~bankruptcy~~incurred, ~~may~~are beexpected ~~filed against~~to ussignificantly impact our results of operations.

We have approximately $328.2 million in indebtedness, of which $172.5 million matures in 2009. We may not be able to refinance or extend the maturities of our indebtedness as it matures. In addition, we have ceased making required payments and are in default under approximately $266.0 million of our indebtedness. If we are unable to refinance or extend our indebtedness, or if such indebtedness is accelerated due to our default, we will have insufficient liquidity to repay such indebtedness, and our available cash flow will be inadequate to maintain our operations. Under such circumstances, or if we believe such circumstances are likely to occur, we may pursue various forms of negotiated restructurings of our indebtedness, which may involve a recapitalization of our company and which may be required to occur under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code. In addition, under certain circumstances our creditors may file an involuntary petition for relief under the Bankruptcy Code against us. Due to the possibility of such circumstances, we have begun active planning for such potential restructurings.

If we file for bankruptcy protection, our business and operations will be subject to certain risks

A bankruptcy filing by or against us, our operating partnership and certain of our subsidiaries (each referred to as a “filer”) would subject our business and operations to various risks, including but not limited to, the following:

· A bankruptcy filing by or against a filer may adversely affect our business prospects and our ability to operate during the reorganization process.

· The coordination of a bankruptcy filing and operating under protection of the bankruptcy court would involve significant costs, including expenses of legal counsel and other professional advisors.

·	We may have difficulty continuing to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms.

·	We may have difficulty maintaining existing and building new tenant relationships or pursuing our planned development projects.

· Transactions ~~by filers~~ outside the ordinary course of business ~~would~~will be subject to the prior approval of the court, which may limit our ability to respond timely to certain events or take advantage of certain opportunities.

· ~~Filers~~We may not be able to obtain court approval or such approval may be delayed with respect to motions made in the reorganization cases.

·	We may be unable to retain and motivate key executives and associates through the process of reorganization, and we may have difficulty attracting new employees.

· We may be unable to maintain or obtain sufficient financing sources ~~for operations or~~ to fund ~~any~~the reorganization plan and meet future obligations.

· WeThe ~~may~~value beof ~~unable~~our tocommon ~~develop,~~stock ~~prosecute,~~could ~~confirm~~be ~~and~~reduced ~~consummate~~to ~~one~~zero oras ~~more~~result ~~plans~~ of ~~reorganization that are acceptable to~~ the bankruptcy ~~court and our creditors, equity holders and other parties in interest~~filing.

· The ~~value~~ultimate ofimpact ~~our~~that ~~common~~events ~~stock~~that ~~could~~occur beduring ~~reduced~~these toproceedings ~~zero~~will ashave ~~result~~on our business, financial condition and results of aoperations ~~bankruptcy~~cannot ~~filing~~be accurately predicted or quantified.

We may be in default under certain of our financing agreements as we have failed to make required principal and interest payments. Our lenders may foreclose on the properties securing the loans, accelerate our loans or take other adverse actions which would have a material adverse affect on our ability to continue our business operations.12

We ~~have not~~face ~~been~~risks ~~able~~associated to extend or refinance three loans totaling $86.9 million that recently matured. As of March 13, 2009, we have not made the required regular interest and principal payments of $3.6 million on 26 out of 30 of our debt instruments totaling $266.0 million. Accordingly, we may be in default under these loans. Some of these lenders may choose to accelerate these loans and require us to either pay the outstanding loan amount, including all accrued but unpaid fees and interest, or foreclose on the properties securing the loans; provided that, regardless of any acceleration, we may have a right under California law to reinstate these loans by paying past due amounts and other fees and costs required by law or the respective loan documents. If we are not successful in negotiating with ~~these lenders to prevent~~ the ~~foreclosure of~~process ~~certain~~ of ~~our properties or the acceleration of certain of our indebtedness, we may be forced to sell some of our properties on unfavorable terms to satisfy our debt obligations~~reorganization. If we are forced to repay debt earlier than we expected or if our properties are foreclosed upon to satisfy certain outstanding debt obligations, our ability to execute our development, acquisition and other business plans and our ability to meet our current liquidity needs, and therefore operate as a going concern, would be materially adversely affected.

In ~~addition,~~order weto ~~may~~exit beChapter in11 ~~technical~~successfully, ~~default~~each ~~under certain~~ of ~~our~~the ~~mortgages~~Debtors aswill ~~a result~~need ofto ~~corporate~~propose, ~~restructuring~~and ~~activities~~obtain ~~that~~confirmation ~~occurred~~by at the ~~time~~Bankruptcy ofCourt ~~our IPO. A significant number~~ of, ~~the financing agreements we have entered into in connection with the acquisition of our properties contain provisions prohibiting~~ a ~~change~~plan of ~~control~~reorganization offor ~~the~~each ~~borrower~~Debtor ~~subsidiary~~that ~~and~~satisfies ~~permitting~~ the ~~lenders~~requirements ~~under such agreements to accelerate payment~~ of the ~~related~~Bankruptcy ~~debt in the event the change of control provisions are triggered~~Code. A ~~number~~plan of ~~these provisions~~reorganization ~~relating~~would toresolve, ~~aggregate~~among ~~indebtedness~~other ofthings, ~~$32.2~~the ~~million~~applicable ~~were~~Debtors’ ~~technically triggered~~pre-petition inobligations, ~~connection~~set ~~with~~forth ~~our formation transactions at~~ the ~~time~~revised ofcapital ~~our~~structure ~~IPO due to the transfer~~ of ~~ownership of~~ the ~~borrower~~newly ~~subsidiaries~~reorganized toentity ~~the operating partnership. Of the $32.2 million of indebtedness, $12.5 million is maturing in 2009~~ and isprovide ~~included~~for incorporate ~~the~~governance ~~total~~subsequent ~~of $172.5 million of debt due in 2009, which we will need~~ to ~~repay~~exit orfrom ~~refinance~~bankruptcy. ~~Such~~The ~~lenders~~risks ~~were notified~~associated ofwith ~~our formation transaction and they have since accepted debt service payments. However, no assurances can be given that one or more of~~ the ~~lenders~~ ~~under~~plan ~~the affected financing agreements will not elect to accelerate payment~~ of ~~the~~reorganization ~~related~~process ~~indebtedness on the basis of the formation transaction, particularly with respect to those loans that may also be accelerated on the basis of default in repayment. If we~~ are forced to repay debt earlier than we expected or if our properties are foreclosed upon to satisfy certain outstanding debt obligations, our ability to execute our development, acquisition and other business plans and our ability to meet our current liquidity needs, and therefore operate as ~~a going concern, would be materially adversely affected.~~follows:

· We ~~currently~~ ~~generate~~may ~~insufficient~~be ~~revenue~~unable ~~from operations~~ to ~~pay~~develop, ~~our contractual obligations~~prosecute, confirm and weconsummate ~~will~~a ~~require~~plan ~~significant~~of ~~amounts~~reorganization ofthat ~~cash~~is acceptable to ~~stabilize~~the ~~our portfolio,~~bankruptcy ~~build~~court ~~out~~and our ~~development~~creditors, ~~projects~~equity holders and ~~satisfy~~other ~~our~~parties ~~contractual obligations~~in interest.

We· ~~are~~There acan ~~development company~~be ~~and~~no ~~must~~assurance ~~generate~~that ~~cash~~the ofCreditors’ ~~approximately~~Committee ~~$28.0~~will ~~million~~support ~~annually~~the toDebtors’ ~~fund our~~positions ~~cash~~or ~~shortfalls~~ultimate ~~from~~plan ~~(i)~~of ~~operating~~reorganization ~~activities~~for each entity, ~~(ii)~~once ~~recurring~~proposed. ~~investment activities~~Disagreements ~~such~~between asthe ~~carrying~~Debtors ~~costs~~and ~~for~~the ~~interest~~Creditors’ ~~payments~~Committee could protract the Chapter 11 proceedings, ~~real~~negatively ~~estate~~impact ~~taxes~~the ~~and other~~Debtors’ ~~unfunded~~ability ~~development~~to ~~expenditures~~operate and ~~(iii)~~delay ~~capital~~the ~~expenditures~~Debtors’ ~~on existing~~emergence ~~rental~~from ~~properties~~the Chapter 11 proceedings.

~~Assuming~~· noWe ~~development~~may ~~of any~~encounter ofthird ~~our~~parties ~~projects~~seeking ~~other~~and ~~than~~obtaining ~~the~~court ~~project~~approval ~~identified~~to ~~below,~~terminate ~~our~~or ~~cash requirements~~shorten ~~for~~the ~~2008~~exclusivity ~~include~~period ~~but~~for ~~are~~us ~~not limited~~ to: ~~approximately~~propose ~~$38.7 million~~and toconfirm ~~fund~~a ~~the~~plan ~~ongoing~~of ~~construction~~reorganization, ~~and~~to noobtain ~~acceleration~~relief offrom ~~loans~~the ~~under which~~automatic westay ~~are~~ in ~~default~~bankruptcy ofand ~~our~~to ~~717~~seek W.foreclosure ~~Ninth~~or ~~Street~~other ~~project,~~remedy ~~approximately~~against ~~$172.5 million~~our assets, to ~~satisfy~~appoint ~~borrowings~~a ~~maturing~~Chapter in11 ~~2009,~~trustee ~~and~~or ~~approximately~~to ~~$3.5~~convert ~~million of~~a ~~planned~~case ~~but~~to ~~uncommitted~~a ~~capital~~Chapter ~~improvements~~7 ~~to our operating properties~~case.

11· We may not be able to achieve confirmation of a plan of reorganization as to each Debtor. While we believe that there is a strong likelihood of confirming a plan for most, if not all, Debtors, in the event one or more Debtors' cases are not confirmed, it may be necessary to re-evaluate the options available to a Debtor in light of its inability to confirm its proposed plan, which options would include without limitation, an alternative plan of reorganization, conversion of the case to a chapter 7 case or dismissal of the case.

InThe ~~addition,~~Chapter ~~certain~~11 ofReorganization ~~our~~has ~~lenders may~~consumed ~~have~~and ~~the~~will ~~ability~~consume toa ~~accelerate~~substantial ~~indebtedness~~portion of ~~ours~~the ~~totaling~~time ~~$32.2~~and ~~million, $12.5~~attention ~~million~~ of ~~which~~our ismanagement ~~due~~and inwill ~~2009~~impact ~~and~~how our business is ~~included~~conducted, inwhich ~~the~~may ~~$172.5~~have ~~million~~an ~~of principal~~adverse ~~identified~~effect ~~above~~on our business and results of operations.

AsThe arequirements ~~result~~ of the ~~foregoing~~Chapter ~~needs and~~11 ~~our~~cases ~~combined~~have ~~annual~~consumed ~~negative cash flow from operating activities~~ and ~~capital and~~will ~~development~~continue ~~expenditures,~~to weconsume ~~will~~a ~~require~~ substantial ~~amounts~~portion of ~~new capital to meet~~ our ~~contractual~~management’s ~~obligations~~time inand ~~2009,~~attention ~~before~~and ~~any~~leave ~~discretionary development. Our~~them ~~primary~~with ~~expected~~less ~~sources~~time ofto ~~new~~devote ~~capital~~to ~~are from~~ the ~~extension~~ ofoperations ~~existing loan maturities and the sale~~ of ~~non-core properties~~our business. ~~However,~~This asdiversion ~~noted~~of ~~in greater detail in~~ the ~~risk~~management’s ~~factor below,~~attention ~~current~~may ~~market conditions~~ have ~~made~~a itmaterial ~~more~~adverse ~~difficult~~effect ~~for~~on usthe toconduct ~~extend loans~~of orour ~~source~~business, ~~new~~and, ~~debt~~as ~~financings. As~~a ~~previously mentioned~~result, weon ~~are currently~~our infinancial ~~default~~condition onand ~~the~~results ~~majority~~ of ~~our outstanding indebtedness~~operations.

~~Because~~Operating ofunder ~~the~~Chapter ~~equity~~11 ~~and~~may ~~debt capital~~restrict ~~market crisis and~~ our ~~liquidity~~ability needs, our previously disclosed development and redevelopment plans and timelines have been adversely impacted. This impact will likely delay the point in time at which we could achieve profitability from operations. We have ceased all significant development activities other than the development of our 717 W. Ninth Street project and will continue to ~~evaluate~~pursue ~~and adjust as appropriate~~ our ~~development~~ ~~and~~business ~~redevelopment plans and timelines (both commencement and completion dates) to correlate with adjustments in the availability of equity and debt capital and other current and changing market conditions~~strategies. In addition, we are pursuing or considering actions that would generate cash sooner or delay or reduce our liquidity needs. These actions include selling certain of our rental properties and development projects, including foregoing portions of the approximately $3.5 million in uncommitted capital expenditures identified above, refocusing projects to produce more near-term income that require less capital, and entering into joint ventures in respect of our larger or more capital intensive development projects.

~~These~~Under ~~actions~~Chapter ~~may~~11, ~~reduce~~transactions outside the ~~potential~~ ~~long-term~~ordinary ~~cash~~course ~~flow~~of orbusiness ~~value~~and weother ~~otherwise~~matters ~~could~~will ~~have~~be ~~recognized~~subject ~~from our~~to ~~projects~~the ifprior weapproval ~~were~~of ~~able~~the toBankruptcy ~~execute~~Court, onwhich may limit our ~~development~~ability ~~plans~~to respond in ~~place~~a ~~before the~~timely ~~credit~~manner ~~market~~to ~~crisis~~certain events or take advantage of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:

We· ~~cannot~~Sell ~~assure~~assets ~~you~~outside ~~that~~the weordinary ~~will~~course ~~be able to obtain loan maturity extensions or additional financing or that we will be able to obtain such on favorable terms or that we will be successful in taking any~~ of the actions that we are considering to generate cash alternatives to borrowings or delay or reduce our liquidity needs. If we are unsuccessful in obtaining the capital we require on a timely basis, our business ~~will be significantly harmed and our ability to operate as a going concern may be adversely affected.~~;

·	Consolidate, merge, sell or otherwise dispose of all or substantially all of the assets of a particular Debtor;

·	Grant liens; and

·	Finance our operations, investments or other capital needs or to engage in other business activities that would be in our interest.

As a result of our Chapter 11 Reorganization, our historical financial information may not be indicative of our future financial performance.

Our capital structure will likely be significantly changed under any plan of reorganization. Under fresh start accounting rules that may apply to us upon the effective date of any plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh start accounting rules apply, our financial condition and results of operations following our emergence from Chapter 11 would not be comparable to the financial condition or results of operations reflected in our historical financial statements. In connection with the Chapter 11 Reorganization and the development of any plan of reorganization, it is also possible that additional restructuring and similar charges may be identified and recorded in future periods. Such charges could be material to our consolidated financial position and results of operations in any given period.

If we are unable to successfully reorganize our capital structure and operations and implement our plan of reorganization, the debtors may be required to liquidate their assets.

Even assuming a successful emergence from Chapter 11, there can be no guarantee as to the overall long-term viability of our operational reorganization, including our ability to generate sufficient cash to support our operating needs, fulfill our objectives without incurring substantial indebtedness that will hinder our ability to compete, adapt to market changes and grow our business in the future.

In addition, the uncertainty regarding the eventual outcome of our reorganization and the effect of other unknown adverse factors, could threaten our existence as a going concern. Our ability to continue as a going concern is dependent upon the following risk factors:

·	our ability to generate and maintain adequate cash;

·	the cost, duration and outcome of the reorganization process in the Chapter 11 proceeding;

·	our ability to retain key employees;

·	our successful implementation of the reorganization plan and the transactions contemplated thereby; and

·	maintaining the support of key vendors and customers.

We currently generate insufficient revenue from operations to pay our contractual obligations, and we will require significant amounts of cash to stabilize our portfolio, build out our development projects and satisfy our contractual obligations. Under the proposed plan that we filed with the Bankruptcy Court and which has not been confirmed, the equity interests in MMPI and our operating partnership would be cancelled.

On a forward-looking basis, our recurring annual cash shortfall, assuming we pay our obligations as incurred, has increased from $28.0 million to $38.7million or $10.7 million for the following reasons:

·	While in bankruptcy, we are incurring bankruptcy related costs of approximately $5.3 million annually.

·	These increases are partially offset by operational improvements of approximately $2.5 million annually.

Given these recurring shortfalls, it is important to reduce these recurring charges and quickly obtain Bankruptcy Court approval of our proposed plan of reorganization. As presently proposed, our Plan would add the deferred interest incurred before the effective date of the Plan to the applicable note balance, would reduce the interest rates on our loan agreements from the default rate asserted by lenders on some loans to 4.0%, would require interest-only payments on a monthly basis, would also extend the maturity dates on these loans to period of 5 or 7 years after the effective date of the Plan. If confirmed, the Plan would reduce the initial recurring cash flow shortage to approximately $20.2 million annually (including by substantially reducing bankruptcy-related costs) and would allow us the time and means to improve operations. We believe we can make up for this shortfall by raising new capital at the effective date of the Plan, and further by selling or refinancing certain properties, by improving our operating performance and by implementing profitable development strategies. There are no assurances as to whether a plan containing these proposed terms will be confirmed or as to whether alternative plans may be proposed by the Debtors or others. Also, we may from time to time enter into settlements with lenders that provide for different terms than those proposed in the Plan, and our Plan would be modified to conform to the terms of those settlements.

We commenced the Chapter 11 proceedings because we were not assured that we would have sufficient capital to satisfy our liquidity needs over a year and because there was substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:

•

our ability to generate and maintain adequate cash;

	•			the cost, duration and outcome of the reorganization process in the Chapter 11 proceedings; and
		•		our ability to retain key employees.

These challenges are in addition to those operational and competitive challenges that we face in connection with our business. In conjunction with our advisors, we are implementing strategies to aid our liquidity and our ability to continue as a going concern. However, we are not assured that such efforts will be successful.

We are no longer an SEC-reporting company and do not expect to be an SEC-reporting company in the future.

Effective with fiscal year 2010, our obligation to file reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, is suspended. We also no longer have an obligation to file proxy statements on Schedule 14A or deliver such proxy statements, or yearend annual reports, to our stockholders. As a result of the terms of our reorganization in bankruptcy, including a proposed limit in the number of our stockholders and restrictions on transferring our common stock, our obligation to report may be suspended indefinitely. Current and future stockholders will have highly limited information about our financial condition, results of operations and developments affecting our business.

Mortgage debt obligations expose us to increased risk of property losses, and a significant portion of our mortgage debt is recourse to us.

Incurring mortgage and other secured debt obligations increase our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. As previously mentioned, we are currently in default on the majority of our outstanding indebtedness. For tax purposes generally, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds.

In addition, substantially all of our mortgage indebtedness is subject to guarantees provided by us and ~~other~~ affiliated individuals. As a result, in the event we default on a note payable secured by our real estate where we are a guarantor, we may remain liable to the lender for any difference between the amounts of the indebtedness we owe the lender and the amount of the successful bid at foreclosure, even if we lose our property collateral in a foreclosure action by the lender.

Required payments of principal and interest on borrowings may leave us with insufficient cash to operate or develop our projects and may expose us to the risk of default under our debt obligations.

We have borrowed and ~~will~~may be required to continue to borrow significant amounts in order to continue to operate and in connection with the development and redevelopment of our projects and any future acquisitions of properties. We may in the future be required to enter into joint venture agreements, sell certain assets, access the capital markets, or undertake a combination of the foregoing to finance our operations.

12 Our present and future level of debt and the limitations imposed on us by our present and future debt agreements, including concessions that our lenders may extract from us in connection with any settlement, refinancing or extension, could have significant adverse consequences, including the following:

Our present and future level of debt and the limitations imposed on us by our present and future debt agreements, including concessions that our lenders may extract from us in connection with any refinancing or extension, could have significant adverse consequences, including the following:

•	we may be required to use a substantial portion of our cash flow from operations to pay principal and interest, which reduces the amount available for development;

•	we may be at a competitive disadvantage compared to our competitors that have less debt;

•	our cash flow may be insufficient to meet our required principal and interest payments;

•	we may be unable to borrow additional funds as needed or on favorable terms;

• we may be ~~unable~~forced to ~~refinance~~dispose ~~our~~of ~~indebtedness~~one ~~at maturity,~~ or ~~upon~~more ~~acceleration upon an event~~ of ~~default~~our projects, orpossibly ~~may~~on ~~find that the refinancing terms may be~~ less ~~favorable~~ than ~~the~~optimal terms ~~of our original indebtedness~~;

• because a portion of our debt may bear interest at variable rates, an increase in interest rates could materially increase our interest expense;

• we may be forced to dispose of one or more of our projects, possibly on disadvantageous terms;

•	we may experience increased vulnerability to economic and industry downturns, reducing our ability to respond to changing business and economic conditions;

•	we may be restricted in our business activities and operations;

•

we may violate restrictive covenants in our loan documents or otherwise default on our obligations, which would entitle the lenders or mortgagees to accelerate our debt obligations, collect additional fees and interest and foreclose on our projects that secure their loans and receive an assignment of lease payments; and

•	our default under any mortgage loan or other debt with cross-default or cross-collateralization provisions, if we enter into such arrangements, could result in default on other indebtedness or result in the foreclosures of other projects we own.

If the economic performance of any of our projects declines or we fail to develop and stabilize our projects as planned, our ability to service our debt could be adversely affected.

The global financial crisis, and other events or circumstances beyond the control of the Company, may adversely affect our industry, business, results of operations, contractual commitments, and access to capital.

What began initially as a “subprime” mortgage crisis has turned into an extraordinary United States and worldwide ~~structural~~ economic and financial crisis. ~~coupled~~Severe ~~with~~financial ~~the~~and ~~rapid~~structural ~~decline~~strains ofon the ~~consumer~~ ~~economy.~~banking ~~Recently,~~and ~~significant~~financial ~~concerns~~systems ~~over~~have ~~energy~~led ~~costs,~~to ~~geopolitical issues,~~significant ~~the~~lack ~~availability~~of trust and ~~cost~~confidence ofin ~~credit,~~ the ~~United~~global ~~States~~credit ~~mortgage market~~ and afinancial ~~declining~~system. The ~~real estate market in the~~ United States ~~have contributed to increased volatility~~ and ~~diminished~~foreign ~~expectations~~governments ~~for~~have ~~the~~taken ~~economy~~extraordinary ~~and~~actions ~~the~~in ~~markets going~~an ~~forward. These~~attempt ~~factors,~~to ~~combined~~deal with ~~volatile~~the ~~oil~~worldwide ~~prices,~~financial ~~declining business~~crisis and ~~consumer~~the ~~confidence~~severe ~~and~~decline ~~increased~~in ~~unemployment,~~the ~~have~~consumer ~~precipitated~~driven ~~a steep~~economy. These ~~economic~~extraordinary ~~decline~~actions, ~~and~~including ~~fears~~the merger of alarge ~~deep~~financial institutions and ~~prolonged~~significant ~~recession.~~investment ~~Further,~~in ~~severe financial~~ and ~~structural~~control ~~strains~~by ongovernment ~~the~~bodies, ~~banking~~has ~~and~~so ~~financial systems~~far ~~have~~resulted ~~led~~in tolimited ~~significant~~or ~~lack~~no ofrelief ~~trust~~to ~~and confidence in~~ the ~~global~~ credit ~~and~~markets, ~~financial system. Consumers~~ and ~~money~~there ~~managers~~is ~~have~~no ~~liquidated equity~~assurance ~~investments~~that ~~and~~their ~~consumers~~actions ~~and~~will ~~banks~~ultimately ~~have~~be ~~held~~successful. The ~~cash~~resulting and ~~other~~ongoing ~~lower~~lack ~~risk investments,~~of ~~resulting~~available ~~in significant and~~credit, inlack ~~some cases, catastrophic declines in the equity capitalization~~ of ~~companies~~lending ~~and~~between ~~unusual failures of~~ financial institutions~~. Additionally,~~ ~~financial~~and ~~systems~~other ~~throughout~~key ~~the~~lending ~~world~~sources ~~are undergoing~~(such ~~severe~~as ~~structural~~life ~~changes~~insurance ~~with~~companies ~~banks~~and ~~much~~pension ~~less~~funds), lack ~~willing~~of tolending ~~lend substantial amounts~~ to ~~other~~borrowers ~~banks~~ and ~~borrowers. This~~further ~~extraordinary~~failures and ~~level~~ consolidation of ~~illiquidity~~financial institutions could ~~has~~materially ~~caused~~and aadversely ~~significant~~affect ~~decline~~our intenants, ~~available~~key ~~credit~~vendors ~~from financial institutions~~ and ~~other~~contractors, ~~lenders~~our ~~and~~ability ~~the~~to ~~unprecedented~~execute ~~declines~~our indevelopment, ~~the market~~acquisition ~~values~~and ofother ~~United~~business ~~States~~plans and ~~foreign~~our ~~stock~~ability ~~exchanges~~to ~~has~~meet ~~led~~our ~~to significantly~~current ~~higher~~liquidity ~~cost~~needs, ofand ~~debt~~therefore ~~and~~operate ~~equity~~as ~~capital~~a going concern.

The United States and foreign governments have taken extraordinary actions in an attempt to deal with the worldwide financial crisis and the severe decline in the consumer driven economy. These extraordinary actions, including the merger of large financial institutions and significant investment in and control by government bodies, has so far resulted in limited or no relief to the credit markets, and there is no assurance that their actions will ultimately be successful. The resulting and ongoing lack of available credit, lack of lending between financial institutions and other key lending sources (such as life insurance companies and pension funds), lack of lending to borrowers and further failures and consolidation of financial institutions could materially and adversely affect our tenants, key vendors and contractors, our ability to execute our development, acquisition and other business plans and our ability to meet our current liquidity needs, and therefore operate as a going concern.

Our organizational documents contain no limitations on the amount of indebtedness we may incur.

Our certificate of incorporation and bylaws do not limit the amount of indebtedness that we or our operating partnership may incur. In addition, we do not have a policy limiting the amount of debt that we may incur. Our management and Board of Directors have discretion to increase the amount of our outstanding debt at any time without approval by our stockholders. If we incur additional indebtedness, we may experience increased difficulty in obtaining additional financing based on our current portfolio, refinancing existing debt on favorable terms or at all or repaying our outstanding indebtedness. The terms of any credit facility we may obtain in the future, or the terms of any indebtedness we are able to refinance or extend, may require us to maintain certain leverage ratios that may limit the amount of indebtedness that we may incur or may contain covenants that limit our business and operational flexibility. Failure to obtain additional financing could impede our ability to grow and develop our business.

Almost all of our projects are in the greater metropolitan Los Angeles area and depend upon the Southern California economy, which ~~exposes~~may expose us to more concentrated risk, including recession and other economic risks, than if our projects were in several geographic regions.

Almost all of our projects are located in the greater metropolitan Los Angeles area, and a substantial majority of them are in downtown Los Angeles or nearby areas, which ~~exposes~~ may expose us to more concentrated economic risks than if we owned projects in several geographic regions. Therefore, economic and other events that adversely affect this narrow geographic region will have a direct negative effect on our business and operations. We are susceptible to adverse developments in the Southern California region, such as adverse developments in the local industrial, commercial and residential real estate market, including market declines in real estate values and oversupply of or reduced demand for such space. We are also susceptible to business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist attacks, earthquakes and other natural disasters, infrastructure quality issues, California state budgetary constraints and priorities, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors. ~~The~~Although we believe the California economy, ~~in comparison~~ to ~~other~~be ~~parts~~one of the ~~country~~most diverse and dynamic economies in the world, isthe California economy may be negatively affected to a greater extent by changes and downturns in certain industries, including the entertainment, manufacturing, high technology and defense industries and in Pacific Rim trading activities. Any adverse developments in the economy or real estate market in Los Angeles or Southern California in general would adversely affect us. We cannot assure you of the continued growth of the Southern California economy or the national economy or our future growth rate.

Changing market conditions, especially in the greater metropolitan Los Angeles area may adversely impact our ability to sell or rent residential units at expected prices or rents, or at all.

There ~~will~~may be a significant amount of time before we can develop our residential projects and offer units available for sale or rent. The market rental value of a unit in a proposed residential project can vary significantly during this time due to changing market conditions. Prices of residential units and sales and rental activities in the Los Angeles market will have a large impact on our profitability because we conduct substantially all of our business in this market. These prices or rents could decline from time to time for market-specific reasons, including adverse economic conditions due to, among other things, the failure or decline of key industries and employers affecting the local, regional or national economies. If market conditions were to deteriorate, we may need to sell or rent residential units at lower prices or rates than we anticipate, or attempt to convert any for-sale units to for-rent units, and may not be able to develop or complete projects as proposed. We may also need to take write-downs of our unit inventories and land holdings if market values decline. ~~The Los Angeles market continues to exhibit signs of decreasing consumer demand, and sales of new and existing homes have declined.~~ If the prices of residential units or sales or rental activity decline in the key market in which we operate, our costs may not decline at all or at the same rate and, as a result, our business, results of operations and financial condition would be adversely affected

New developments, redevelopments and acquisitions may fail to perform as we expect.

We focus our business on the acquisition and redevelopment of commercial and residential projects. In deciding whether to acquire, develop or redevelop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected sale or resale value, or occupancy and rental rates, as applicable. If the property is unable to achieve the expected resale price, or occupancy and rental rates, as applicable, depending on our investment strategy for a particular property, it may fail to perform as we expected in analyzing our investment. When we acquire a property, we often reposition or redevelop that property with the goal of increasing profitability. Our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate. Additionally, we may acquire unimproved land or properties not leased or not fully leased, and any cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is improved or more fully leased.

14The development and redevelopment of projects are highly speculative activities, and our success in large part depends on our ability to redevelop and develop new projects, which may make investing in our stock riskier than investing in the stock of real estate companies that own stabilized properties occupied by tenants with long-term leases.

~~The development~~ As ~~and~~a ~~redevelopment~~primary part of ~~projects~~our ~~are~~business, ~~highly~~we ~~speculative~~develop ~~activities,~~new projects and ~~our~~ ~~success~~redevelop ~~depends~~existing onprojects. ~~our~~Unless ~~ability~~we determine that a property should be sold, we plan to develop or redevelop a substantial majority of our portfolio. ~~and develop~~Many ~~many~~of ~~new~~our projects, ~~which~~are ~~may~~several ~~make~~years ~~investing~~away infrom commencing. All of our ~~stock~~projects ~~riskier~~are ~~than investing~~subject into national, regional and local economic changes, and localized demographic and population shifts, each of which could affect the ~~stock~~demand for the specific types of real estate ~~companies~~improvements ~~that~~we ~~own~~anticipate ~~stabilized~~building. ~~properties occupied~~In byaddition, ~~tenants~~the ~~with~~financial ~~long-term~~success ~~leases~~of each project depends on our ability to plan and execute the project and, in many cases, on our success in securing adequate capital to fund the development or redevelopment.

As Before a ~~primary~~project ~~part~~can ofgenerate ~~our~~any ~~business~~revenues, ~~we develop~~material ~~new~~expenditures ~~projects~~must ~~and~~be ~~redevelop~~incurred ~~existing~~to ~~projects.~~acquire Weland, ~~plan~~obtain togovernmental ~~develop~~approvals ~~or redevelop~~and aconstruct ~~substantial~~significant ~~majority~~portions of ~~our~~project ~~portfolio~~infrastructure and facilities. ~~Many~~It ofgenerally ~~our~~may ~~projects~~require ~~are~~ several years ~~away~~for ~~from~~a ~~commencing.~~development ~~All~~or ofredevelopment ~~our~~project ~~projects~~to ~~are~~achieve ~~subject~~cumulative topositive ~~national, regional~~cash ~~and~~flow. ~~local~~If ~~economic~~we ~~changes,~~are ~~and~~unable ~~localized~~to ~~demographic~~develop and ~~population shifts,~~market ~~each~~our ofprojects ~~which~~successfully ~~could~~and ~~affect~~to ~~the~~generate ~~demand~~positive ~~for~~cash ~~the~~flows ~~specific~~from ~~types~~these ofoperations ~~real estate~~in ~~improvements~~a wetimely ~~anticipate building. In addition~~manner, ~~the~~it ~~financial~~will ~~success of~~have ~~each~~a ~~project~~material ~~depends~~adverse oneffect ~~our ability to plan and execute the project and, in many cases,~~ on ~~our success in securing adequate capital to fund the development or redevelopment~~us.

Before a project can generate any revenues, material expenditures must be incurred to acquire land, obtain governmental approvals and construct significant portions of project infrastructure and sales facilities. It generally may require several years for a development or redevelopment project, particularly a high-rise residential project, to achieve cumulative positive cash flow. If we are unable to develop and market our projects successfully and to generate positive cash flows from these operations in a timely manner, it will have a material adverse effect on us.

More specifically, in connection with the development of new projects and the redevelopment of existing projects, we will be subject to risks such as:

• ~~deteriorating~~weak credit markets, which challenge our ability to obtain financing for our projects on favorable terms, or at all;

•	cyclical overbuilding;

•	cost overruns, including increases in the cost of materials because of increased global demand (particularly in the price of steel, lumber, drywall, copper and concrete, which are significant components of construction costs);

•	difficulties in obtaining or failures to obtain land use entitlements, occupancy and other government permits and authorizations;

•	delays because of a number of factors, including unforeseen circumstances;

•	changes in political views toward the proposed development, redevelopment or use;

•	governmental restrictions on the nature or size of a project;

•	strikes, labor disputes or supply disruptions;

•	condemnation and taking of any of our projects by the government under eminent domain;

•	shortages of qualified trade workers and building materials;

•	development costs for projects not pursued to completion;

•	earthquakes, floods, mudslides, fires, bad weather and other acts of God;

•	design and construction defects and unforeseen or underestimated environmental and engineering problems;

•	contractor and subcontractor disputes and mechanics’ liens; and

•	lack of income until leasing or sale.

Any or all of these risks could have an adverse affect on our business, operations, cash flow and ability to increase values for our stockholders. Real estate companies that own stabilized, fully developed properties are substantially less affected by many of the specific risks noted above including, but not limited to ~~declining~~weak credit market conditions, failure to obtain land use entitlements, design and development cost overruns, construction delays, and contractor and subcontractor disputes. Because these types of real estate companies are less susceptible to these risks, investing in the stock of those companies may be less risky than buying our stock.

1517

We face competition in the Southern California market, which may decrease or prevent increases in the occupancy and rental rates of our projects, and may decrease our profitability from sales of our projects.

Our projects are located in areas that have other warehouse and industrial, commercial, residential and mixed-use projects, both developed and undeveloped, which may be more attractive to potential tenants or purchasers. Competition from other properties may adversely affect our ability to lease or sell our projects and to increase sales prices or the rentals charged on our leases. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants, and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our tenants’ leases expire. We also expect competition in the acquisition of existing properties and the development of new projects. This competition could increase prices for properties of the type that we would like to pursue. As a result, we may not be able, or have the opportunity, to make suitable investments on favorable terms in the future.

We compete in our markets with numerous national, regional and local residential ~~builders~~and commercial developers. This competition with other ~~builders~~developers could reduce the scope of our ~~residential~~ projects, or cause us to accept reduced margins in order to maintain sales or rental volume at particular ~~residential~~ projects. Our ~~residential~~ projects ~~will~~may also compete with resales of existing ~~used~~ or foreclosed ~~homes and residential units~~properties, ~~housing~~ speculators and available ~~rental housing~~properties. Increased competitive conditions in the ~~residential~~ resale or rental market in the region where we operate could decrease demand for new ~~residential~~properties ~~units~~ and increase cancellations of sales contracts ~~in backlog~~.

Many of our redevelopment projects require municipal authorities to approve or change land use entitlements, environmental certifications pursuant to the California Environmental Quality Act and other permits to allow these projects to proceed in certain areas so that our projects comply with the land use laws in effect.

~~Nineteen~~ Many of our projects ~~are proposed for redevelopment. Substantially all~~ may require city and other governmental authorities to approve or change land use entitlements, environmental certifications pursuant to the California Environmental Quality Act and other permits to allow our projects to proceed. Land use laws are complex and the approval process is subject to delays, the discretion of individual governmental bodies and the political process. There is no guarantee that land use entitlements and other approvals needed for our projects to proceed will ultimately be ~~approved~~obtained. If we fail to obtain any required land use approvals or entitlements, it would harm our ability to complete certain ~~redevelopment~~ projects.

We may be unable to renew leases or find other lessees, and a majority of our portfolio’s annualized base rents are set to expire before the end of ~~2009~~ 2010.

We are subject to the risks that, upon expiration, leases may not be renewed, the space subject to such leases may not be relet or the terms of renewal or reletting, including the cost of required renovations, may be less favorable than expiring lease terms. As of December 31, ~~2008~~2009, leases representing approximately 3713.9% of the square footage of our owned projects are month-to-month leases, and an additional approximately 45 51.80% of the square footage of our owned projects was available for lease (including space available for lease at rental and development projects). In addition, leases ~~constituting a substantial portion of the annualized base rent from our owned projects are~~ scheduled to expire before the end of ~~2009.~~2010 ~~Leases scheduled to expire before the end of 2009~~ and existing month-to-month leases, when taken together, constitute approximately 7670.7% of our owned portfolio’s annualized base rent, or approximately $1715.57 million out of $22.8 2 million. If we are unable to promptly renew a significant number of expiring leases or to promptly relet the space covered by such leases, or if the rental rates upon renewal or reletting were significantly lower than the then current rates, our business ~~would~~could be materially and adversely affected. Additionally, we may incur significant costs to renew expiring leases or lease vacant space. Any of these factors could cause a decline in our lease revenues, which would harm our profitability. The lease for our largest tenant, American Apparel, expired on December 31, 2008 and they are now considered a month-to-month tenant. As of March 13, 2009, American Apparel is a rent paying tenant based on the terms of the expired lease and we are currently in the process of negotiating a new lease with this tenant. There are no assurances that we will be successful in procuring a new lease with American Apparel.

In the future, we may offer for-sale residential units and potential customers may be unwilling or unable to purchase our residential units at times when mortgage-financing costs are high or during periods of challenging credit market conditions.

The majority of the potential customers for units in our residential projects that may be for sale in the future will finance their purchases through third-party lenders. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing as a result of declining customer credit quality or other issues. Recently, the residential mortgage market in the United States has experienced a variety of difficulties and changed economic conditions that may adversely affect the ability of borrowers to obtain mortgage financing. Because of higher than expected rates of delinquencies, many lending institutions have imposed more stringent loan underwriting standards and less favorable loan contract terms and conditions. Because of these market conditions, demand for our units may decrease as it may be more difficult for potential buyers of our residential units to obtain the financing necessary to purchase a unit.

1618

We are subject to high taxes levied on California real estate, and any increases in our property taxes, including through the repeal of laws that establish maximum property tax rates, could adversely affect our business.

Each of our projects is subject to real and personal property taxes. These taxes on our projects may increase as tax rates change and as the projects are assessed or reassessed by taxing authorities, and we ~~will~~may experience reassessments as a result of the contribution of our projects to us in connection with our IPO and formation ~~transaction~~ transactions. In addition, owners of California property are subject to particularly high taxes. If property taxes increase, our business would be adversely affected.

Voters in the State of California previously passed Proposition 13, which generally limits annual real estate tax increases to 2% of assessed value per annum. From time to time, various groups have proposed repealing Proposition 13, or providing for modifications such as a “split roll tax,” whereby commercial property, for example, would be taxed at a higher rate than residential property. Given the uncertainty, it is not possible to quantify the risk to us of a tax increase or the resulting financial impact of any increase, but any tax increase would reduce the amount of cash available ~~for new investment or distribution to stockholders~~.

We may assume unknown liabilities in connection with the acquisition of properties.

We have historically acquired real estate that may be subject to existing liabilities, some of which may be unknown at the time we acquired the property. Unknown liabilities might include liabilities for cleanup or remediation of environmental conditions, claims of tenants, vendors or other persons dealing with the entities prior to our acquisition of the properties (that had not been asserted or threatened prior to these acquisitions), tax liabilities and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. Our recourse with respect to such liabilities ~~will~~may be limited. ~~The~~Acquiring ~~assumption~~properties ofwith existing liabilities ~~in connection with the acquisition of our properties~~ could have a material adverse affect on our operations and our ability to develop or redevelop such properties.

We may have to seek legal remedies to remove existing tenants from projects that we have planned for redevelopment, which would increase our investment costs, decrease our profitability for those projects and delay completion of the redevelopment.

The execution of our business strategy depends on redevelopment and repositioning of some of our existing projects. Current tenants of those projects may refuse to vacate the premises to allow the redevelopment work to commence. Some tenants may have no legal right to holdover. We take legal action where appropriate to remove holdover tenants so that our projects proceed. Any negotiations or legal action with respect to current tenants of redevelopment projects would increase our costs related to the project and delay its completion.

We may make errors in determining the creditworthiness of our current or prospective tenants.

We expect that ~~substantially~~mostof ~~all of~~ our leasing revenues will be derived from tenants who do not have publicly available credit ratings and that a substantial majority of our leasing revenues will be derived from tenants with very limited credit histories. For some of these tenants, we expect to analyze the tenants’ credit by reviewing available financial and other data. We may misinterpret or incorrectly analyze available credit data. These mistakes may, in part, lead us to make investments we would not have otherwise made and may ultimately result in losses on one or more of our investments. Any tenant failures to make lease payments when due or tenant bankruptcies could result in the termination of the tenant’s lease and, particularly in the case of a large tenant, in material losses to us.

We depend on tenants, and their failure to pay rent could seriously harm our business, operating results and financial condition.

Our results of operations and cash flow would be adversely affected if tenants are unable to pay their rent or otherwise meet their obligations to us. In the event of default by tenants, we may experience delays and incur substantial costs in enforcing our rights as landlord. In addition, at any time, a tenant of one of our projects may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease. Upon a default, we may not be able to relet the space at all or on terms that are as favorable to us as the defaulted lease. We are an accrual basis taxpayer and will have to include in income and may have to pay tax on rent that has accrued even though it has not been paid by a tenant. In addition, phantom income tax liability could result for our company to the extent cash profits are reinvested or expended on non-deductible items such as the payment of principal on debt. The inability to depend on tenants, their default and an inability to relet the space on reasonable terms, if at all, would adversely affect our operations and our cash flows.

Our tenants may conduct activities at our projects that reduce the value of our projects.

~~Because~~ We wemay have limited control over the ~~operations~~acts and ~~activities~~omissions of our tenants, ~~they~~and our tenants may conduct certain activities that damage the space they lease at one of our projects or cause a project to be viewed in a negative light. ~~Under~~In ~~our lease documents, our ability to control~~ the ~~activities of tenants is limited and, in the~~ event our tenants damage our projects, we may not be able to recoup losses from them, either due to economic or contractual reasons. These activities could reduce the value of the projects in which they lease space, which could reduce the value of our investment, impair our ability to repay debt on the projects or render it more difficult for us to sell the project or re-lease the space to a different tenant, any of which would harm our operations and cash flows.

Our Company and Management

Our success depends on key personnel whose continued service is not guaranteed.

We depend on the efforts and expertise of our senior executive officers to manage our day-to-day operations and strategic business direction. In addition, many of our senior executive officers have strong industry reputations, which aid us in identifying acquisition and borrowing opportunities, having such opportunities brought to us, and negotiating with tenants and sellers of properties. The loss of the services of these key personnel could diminish our relationships with lenders, existing and prospective tenants, property sellers and industry personnel and harm our business and our prospects.

All management rights are vested in our Board of Directors, and our stockholders have limited rights.

Our Board of Directors is responsible for our management and strategic business direction, and our senior executive officers are responsible for our day-to-day operations. ~~Our~~The ~~major~~Board ~~policies, including~~and ~~our~~management may from time to time develop policies with respect to acquisitions, leasing, financing, growth, operations, debt limitation and distributions~~, will be determined by our Board of Directors~~. Our Board ofand ~~Directors~~management may develop, amend or revise these and other policies from time to time without a vote of our stockholders.

Our Chairman and Chief Executive Officer, Richard Meruelo, has pledged his shares of our common stock as collateral for a loan.

Our Chairman and Chief Executive Officer, Richard Meruelo, has pledged his shares of our common stock as collateral for a loan, the proceeds of which were utilized by Mr. Meruelo to purchase 3,000,000 shares of our common stock in our initial public offering at the public offering price. ~~Upon~~In ~~the~~connection ~~occurrence~~with of an event of default, the ~~lenders~~holders ~~would~~of the debt may be entitled to declare the loan immediately due and payable and enforce on the collateral. Mr. Meruelo informed us that he previously reduced the principal balance of the loan from the proceeds of the sale of personal real estate that is not a company-owned asset, but that the loan has matured. Accordingly, ~~and~~ the ~~lender~~holder ~~has declared a default for nonpayment~~ of the ~~remaining~~debt ~~outstanding balance of the loan. Accordingly, the lender~~ may elect to accelerate the loan and enforce on the pledged shares, thereby transferring a controlling voting interest in our company to another party or substantially ~~depress~~depressing our stock price as a result of sales of the pledged shares. See “—Risks Related to Our Organization and Structure—Messrs. Meruelo and Maddux have a controlling vote in certain matters as a result of their ownership interest in us.” ~~A copy of Mr. Meruelo’s loan agreement is available publicly as an exhibit to a Schedule 13D Mr. Meruleo has filed with the SEC.~~

Risks Related to Our Organization and Structure

We did not obtain appraisals of our projects that were contributed to us by our predecessor business in connection with our IPO, and the consideration given by us in exchange for them was not negotiated at arm’s length and may have exceeded their fair market value or the value that would have been determined by third-party appraisals.

We acquired almost all of our current projects pursuant to a contribution agreement and merger agreements with entities owned and controlled by our founders. We did not obtain any third-party appraisals of our projects, nor any independent third-party valuations or fairness opinions in connection with our formation transactions. The terms of the contribution agreement and merger agreements relating to our projects were not negotiated on an arm’s length basis. The terms of these agreements and the valuation methods used to determine the value of the projects were determined by our management team, including Messrs. Meruelo and Maddux, who received total consideration in the formation transactions of 39,652,757 shares of our common stock, excluding shares that we ~~have~~had a contingent obligation to issue, and $2.8 million in cash as a result of the contributions and mergers. As a result, the consideration given by us in exchange for the entities owning our projects in the formation transactions may have exceeded their fair market value.

Messrs. Meruelo and Maddux have a controlling vote in certain matters as a result of their ownership interests in us.

Messrs. Meruelo and Maddux received shares of our common stock in our formation transactions, acquired additional shares in our IPO, and were issued ~~a portion of~~ the shares that we had a contingent obligation to issue, that collectively constitute a majority of our voting stock. Mr. Meruelo by himself indirectly holds 45.3% of our voting stock (As noted above under “—Our Company and Management—Our Chairman and Chief Executive Officer, Richard Meruelo, has pledged his shares of our common stock as collateral for a loan,” Mr. Meruelo’s loan is in default. The ~~lender~~ holder of the debt may elect to enforce on the pledged shares and sell the shares to a buyer, which buyer would then hold and be able to vote such shares.). Messrs. Meruelo and Maddux may have interests that differ from those of our public stockholders and may accordingly vote as stockholders in ways that may not be consistent with the interests of our public stockholders. This voting control over certain matters, including decisions relating to the election of our Board of Directors, may have the effect of delaying, preventing or deterring a change of control of our company, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company.

We may experience conflicts of interest with our directors and officers relating to their duties owed both to us and to the limited partners of our operating partnership, their ownership interests in our operating partnership and their interests in properties that may compete for the same tenants as our projects.

Our directors and officers may have conflicting duties because, in their capacities as our directors and officers, they have a duty to us and our stockholders and, in our capacity as general partner of our operating partnership, they have a fiduciary duty to limited partners. These conflicts of interest could lead to decisions that are not in the best interest of our stockholders. Conflicts may arise when the interests of our stockholders and the limited partners of the operating partnership diverge, particularly in circumstances in which there may be an adverse tax consequence to the limited partners, such as upon the sale of certain projects contributed to our operating partnership or the repayment of indebtedness below certain levels.

We may also experience conflicts of interest with several members of our senior management team who have become limited partners in our operating partnership through the receipt of LTIP units granted under our 2007 Equity Incentive Plan.

Messrs. Meruelo and Maddux own interests in projects that were not contributed to us. We may experience conflicts of interest with these members of our senior management team to the extent that these properties compete for the same tenants or customers as our properties or divert their attention away from our business.

A change in control may affect our ability to use our net operating loss carryforwards.

If we have a change in control, as defined in Section 382 of the Code, our ability to use our net operating loss carryforwards to offset future cash taxes may be reduced or eliminated. The ~~significant~~ ~~stock activity we have recently experienced, the~~ possibility of our issuing additional ~~equity~~or ~~(including~~new inequity ~~exchange for outstanding indebtedness)~~ to address our liquidity needs and the fact that Mr. Meruelo has pledged his shares of stock in our company as collateral for a loan that is now in default , all increase the risk of this provision affecting us in the future.

We are subject to corporate income tax, which may reduce the amount of funds we have to invest and to pay to you as dividends and we have substantial built-in taxable income in our assets.

We are taxed as a regular C corporation for federal income tax purposes. As a result, our taxable income is subject to the federal corporate income tax, which is 35.0% currently. We are also subject to state and local corporate income taxes. As a result of our formation transactions, we have substantial built-in taxable income in our assets. As of January 30, 2007, the estimated inherent gain in the assets contributed to us in our formation transactions was $429.4 million. The federal, state and local taxes we will pay on our earnings including the tax on the inherent gain (if and when we dispose of those assets in a taxable transaction), will reduce any funds we may have to invest or to pay to you as dividends.

We are a holding company with no direct operations and rely on funds received from our operating partnership to pay liabilities.

We are a holding company and conduct all of our operations through our operating partnership. We do not have, apart from our ownership of our operating partnership, any independent operations. We rely on distributions from our operating partnership to meet our debt service and other obligations, including tax liability on taxable income allocated to us from our operating partnership (which might not make distributions to the company equal to the tax on such allocated taxable income). As a result, we will rely on distributions from our operating partnership to pay any dividends we might declare on our common stock. The ability of subsidiaries of the operating partnership to make distributions to the operating partnership, and the ability of our operating partnership to make distributions to us in turn, will depend on their operating results and on the terms of any loans that encumber the projects owned by them. Such loans may contain lockbox arrangements, reserve requirements, financial covenants and other provisions that restrict the distribution of funds. In the event of a default under these loans, the defaulting subsidiary ~~would~~may be prohibited from distributing cash.

In addition, because we are a holding company, your claims as stockholders are structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, the assets of our operating partnership and its subsidiaries will be able to satisfy the claims of our stockholders only after all of our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full. A significant portion of the indebtedness of the subsidiaries of our operating partnership is secured by real property.

As of ~~March~~June 1318, ~~2009~~2010, we own an estimated 99.6% interest in the operating partnership, which may, in connection with our acquisition of additional properties or otherwise, issue additional common units of limited partnership interest. Such issuances would reduce our ownership in our operating partnership. Our stockholders will not directly own common units of limited partnership interest of the operating partnership and do not have any voting rights with respect to any such issuances or other partnership level activities of the operating partnership.

As further discussed in Part I, Item 1, under the section heading "Chapter 11 Proceedings," our Plan proposes that the limited partnership interests in our operating partnership be cancelled, and that our operating partnership be merged into MMPI. There is no assurance that a plan containing these terms will be confirmed by the Bankruptcy Court, and the Debtors may amend the Plan and propose different terms.

Some provisions of our certificate of incorporation and bylaws may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.

Some of the provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium over the then market price. Our certificate of incorporation and bylaws provide that:

•	vacancies on our Board of Directors may only be filled by the remaining directors;

•	only the Board of Directors can change the number of directors;

•	our directors may adopt, amend or repeal any of our bylaws;

•	the affirmative vote of holders of a majority of the total votes eligible to be cast in the election of directors is required for stockholders to adopt, amend or repeal any of our bylaws;

•	there is no cumulative voting for directors;

•	our stockholders are not permitted to act by written consent; and

•	stockholders must comply with advance notice procedures to make proposals to be brought before stockholder meetings, including nominations of persons for election to the Board of Directors.

In addition, our certificate of incorporation authorizes the Board of Directors to issue up to 50 million shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which will be determined at the time of issuance by our Board of Directors without further action by the stockholders. These terms may include voting rights, including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. No shares of preferred stock are outstanding as of the filing of this report. The issuance of any preferred stock, however, could diminish the rights of holders of our common stock, and therefore could reduce the value of our common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders’ control of our ~~comp~~company.

Finally, we are also subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder.

The provisions of our certificate of incorporation and bylaws, described above, as well as Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change in control and prevent changes in our management, even if these events would be in the best interest of our stockholders.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in our stockholders’ best interests.

Our certificate of incorporation authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the extent permitted by Delaware law. Our bylaws require us to indemnify each director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service to us. We may also be obligated to fund the defense costs incurred by our directors and officers. In addition, our certificate of incorporation limits the liability of our directors and officers for money damages, except for liability resulting from any breach of the duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, or any transaction in which an improper personal benefit was derived. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist.

Risks Related to the Real Estate Industry

Our real estate investments are relatively illiquid and their values may decline.

Real estate investments are relatively illiquid. Therefore, we are limited in our ability to reconfigure our real estate portfolio in response to economic changes, including our current liquidity crisis. Our ability to sell these projects and the prices we receive on their sale will be affected by the number of potential buyers, the number of competing properties on the market and other national and local economic and market conditions, as well as whether the project is leased and if it is leased, the terms of the lease. Our ability to sell these projects may also depend on changes in interest rates and in the availability, cost and terms of debt financing as well as ongoing need for capital improvements, particularly in older buildings. In addition, the current state of the equity and debt capital markets may force us to extend sales and leasing revenue from our properties from earlier periods to subsequent periods thereby not eliminating our negative cash flow as quickly as we anticipate. Finally, our current financial difficulties may encourage potential purchasers to offer less attractive terms for our properties. As a result, we may be unable to sell our projects for an extended period of time without incurring a loss. We may be required to expend funds to correct defects or make improvements before a project can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements and as a result our ability to sell the property could be limited.

The costs of compliance with or liabilities under environmental laws may harm our business.

Our projects may be subject to significant environmental liabilities. An owner of real property can face strict, joint and several liability for environmental contamination created by the presence or discharge of petroleum products or other hazardous or toxic substances on the property. We may face liability regardless of:

•	our knowledge of the contamination;

•	the timing of the contamination;

•	the cause of the contamination; or

•	the party responsible for the contamination of the property.

There may be unknown or underestimated environmental liabilities associated with our projects. Most of our projects are on or are adjacent to or near other properties upon which others, including former owners or operators or tenants of the properties, have engaged in or may in the future engage in activities that may release petroleum products or other hazardous or toxic substances. For instance, some of our projects are at locations where former businesses conducted industrial and other operations that involved the use, storage or the release of petroleum products or other hazardous or toxic substances or generated hazardous waste. Naturally occurring conditions, such as the presence of methane may also result in environmental liabilities. Certain projects have on-going assessment and clean-up efforts or have not yet fully identified or quantified environmental contamination or potential investigation or clean-up costs. The presence of or contamination resulting from petroleum products, or other hazardous or toxic substances on a project or the failure to properly remediate them may cause a decline in the value of that property and may adversely affect our ability to develop, sell or rent our projects, and we may incur substantial remediation or increased development costs. In addition, persons exposed to petroleum products or other hazardous or toxic substances at our projects may sue us for personal injury damages.

We must also comply with a variety of local, state and federal environmental statutes, ordinances, rules and regulations affecting the development process, including with respect to petroleum products or other hazardous or toxic substances, endangered species, air quality, water supply, biology, archeology and other potential environmental impacts or effects. These environmental laws sometimes result in delays, cause us to incur additional costs, or severely restrict land development and building activity in environmentally sensitive regions or areas. For example, the presence of petroleum products or hazardous or toxic substances may limit a project’s use or prevent us from selling residential units or for-sale commercial units, and we may also be liable, under applicable laws and regulations or as a result of lawsuits brought by governmental and private parties, for liabilities relating to contamination on projects that we have sold in the past. Environmental laws are subject to changing interpretations and amendments, and new laws are frequently adopted. We cannot predict the impact of any new or amended environmental laws.

Our projects may contain or develop harmful mold or contain asbestos or lead, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our projects could require us to undertake a costly remediation program to contain or remove the mold from the affected project, which would reduce our operating results. In addition, the presence of significant mold could expose us to liability from our tenants, their guests, employees of ours or of our construction contractors, purchasers of our projects and others if property damage or health concerns arise.

Environmental laws also govern the presence, maintenance, removal and disposal of certain building materials, including asbestos and lead-based paint. For instance, laws may require that owners or operators of certain buildings containing asbestos (1) properly manage and maintain the asbestos, (2) notify and train those who may come into contact with asbestos and (3) undertake special precautions, including removal and disposal, or other abatement, if asbestos would be disturbed during renovation or demolition of a building. In addition, lead-based paint must also be managed, abated and disposed of according to the laws. Such laws may impose civil and criminal fines and penalties on developers and building owners or operators who fail to comply with these requirements. In addition, third parties may seek recovery from owners or operators for personal injury associated with exposure to hazardous substances, such as asbestos or lead.

Future terrorist attacks in the United States, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of terrorism or war, whether in the United States or abroad, may result in declining economic activity and reduced demand for our projects.

A decrease in demand would make it difficult for us to renew or re-lease our projects at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our projects through damage, destruction or loss. To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor obligations under their existing leases. These types of events also may adversely affect the markets in which our securities trade. Any one of these events may cause a decline in the demand for real estate, delay the time in which our new, renovated or redeveloped projects reach stable occupancy, increase our operating expenses due to increased physical security and insurance costs for our projects and limit our access to capital or increase our cost of raising capital.

We may experience uninsured and underinsured losses.

We maintain ~~comprehensive~~ insurance on each of our projects, including liability, fire and extended coverage, of the type and amount we believe are customarily obtained in the industry. There are no assurances that such coverage will continue to be available at reasonable rates. Various types of catastrophic losses, like earthquakes, hurricanes and floods, environmental or pollution damage and losses from terrorist activities, may not be insured, insurable or may not be economically insurable or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We do not generally obtain terrorism, earthquake or flood insurance on our projects. We sometimes, but not always, obtain environmental insurance. Future lenders may require such insurance, which would result in substantial additional expense; and our failure to obtain such insurance could constitute a default under loan agreements to the extent required.

All of our projects are located in Southern California, an area especially subject to earthquakes, and we do not carry any earthquake insurance. Because most of our projects are located within downtown Los Angeles, an earthquake there could materially damage, destroy or impair our projects as well as the use by tenants of all of these projects or harm our ability to develop, redevelop or sell affected projects and none of these damages or increased costs would be covered by insurance. A catastrophic earthquake centered in the downtown area of Los Angeles could harm our business as a consequence of property damage sustained in the earthquake, the negative impact thereof on the local economy, or both.

In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a project, as well as the anticipated future revenue from that particular project. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the project. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a project after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed project. The insurance policies contain standard exclusions applicable to, inter alia, losses related to pollution, asbestos, mold/fungus, earth movement and water. Also, some of the policies have been issued by surplus lines insurers (i.e., insurers who are not licensed by the State of California). Some rights and limitations applicable to coverage under policies issued by insurers licensed by the State of California are not applicable to coverage under policies issued by surplus lines insurers. For example, a surplus lines insurer does not participate in any of the insurance guarantee funds created under California law. Therefore, these funds would not be available to pay any claims in the event a surplus lines insurer becomes insolvent or is otherwise unable to pay a covered claim.

We are subject to substantial legal and regulatory requirements including compliance with fire, safety and other regulations regarding the development, redevelopment and operation of our projects and the protection of the environment, which may require us to make unanticipated expenditures, and some regulations could prohibit or restrict some projects.

Our development and redevelopment business is heavily regulated and subject to increasing local, state and federal statutes, ordinances, rules and regulations concerning zoning, resource protection, environmental impacts, building design, construction and similar matters. These regulations often provide broad discretion to governmental authorities that regulate these matters, which can result in unanticipated delays or increases in the cost of a specified project or a number of projects in particular markets. In addition, we are subject to laws and regulations related to workers’ health and safety. We generally are required to obtain permits, entitlements and approvals from local authorities to commence and complete our development and construction projects. Such permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, neighboring property owners or other interested parties, adding delays, costs and risks of non-approval to the process. In particular, we are required to obtain the approval of numerous governmental authorities regulating matters such as permitted land uses, levels of density, the installation of utility services, zoning, building standards and environmental protection. Our obligation to comply with the laws and regulations under which we operate, and our obligation to ensure that our employees, subcontractors and other agents comply with these laws and regulations, could delay our projects, cause us to incur substantial costs and prohibit or restrict our proposed projects.

Our business is conducted in California, which is one of the most highly regulated and litigious states in the country. Therefore, our potential exposure to losses and expenses due to new laws, regulations or litigation may be greater than other real estate companies with a less significant California presence.

In addition, our projects are subject to various other federal, state and local regulatory requirements, such as state and local fire and life safety requirements. Local regulations, including municipal or local ordinances and zoning restrictions, may restrict the use of our properties or otherwise affect our projects and may require us to obtain approval from local officials or community standards organizations with respect to our projects, including prior to undertaking renovations of any of our existing projects or acquiring a new project. If we fail to comply with various requirements, we might incur governmental fines or private damage awards. These regulations may cause us to incur additional costs and may lead to significant delays in our development projects, which could adversely affect us. In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures.

Compliance with the Americans with Disabilities Act of 1990 may require us to make unintended expenditures.

Under the Americans with Disabilities Act of 1990, or ADA, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. The ADA and a number of additional U.S. federal, state and local laws may require modifications to our projects or restrict certain further renovations of the projects, with respect to access thereto by disabled persons. Noncompliance with the ADA or these other laws could result in the imposition of fines or an award of damages to private litigants and an order to correct any non-complying feature, which may require substantial capital expenditures. We have not conducted an audit or investigation of all of our projects to determine our compliance, and we cannot predict the ultimate cost of compliance with the ADA or other similar legislation. If one or more of our projects is not in compliance with the ADA or other similar legislation, then we would be required to incur additional costs to bring the non-complying projects into compliance.

Risks Related to the Market for our Common Stock

~~The~~ Our common stock is not listed on any exchange, and the market price and trading volume of our common stock may be especially volatile, adversely affecting our stockholders.

We consummated our IPO in January 2007. Since that time, our common stock was delisted from the Nasdaq Global Market, and the market price of and trading volume in our common stock has fluctuated and caused significant price variations to occur. These price variations may continue and the price of our common stock may continue to fall. The Debtors’ filing of the Bankruptcy Cases and Proceedings in such cases may further negatively affect our stock price. If the market price of our common stock declines, you may be unable to resell your shares at or above your purchase price. We cannot assure you that the market price of our common stock will not fluctuate or decline ~~significantly~~even further in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

23• the status of the Bankruptcy Cases and our reorganization plan filed pursuant to Chapter 11 of the Bankruptcy Code;

•	actual or anticipated variations in our quarterly operating results or payment of dividends, or the lack thereof;

•	changes in estimates of our earnings;

•	general market and economic conditions;

•	redemptions of common units of our operating partnership;

•	adverse market reaction to any increased indebtedness that we may incur or any deterioration in our ability to obtain financing at all or on attractive terms;

• future issuances and/or cancellations of our common or preferred stock;

•	publication of research reports about us or the real estate industry;

•	additions or departures of key management personnel; or

•	changes in market valuations of similar companies.

The closing price for our common stock on the Nasdaq Global Market has recently remained below $1.00. If the closing price of our common stock continues to remain below $1.00, our stock may be delisted from the National Global Market, which may reduce any liquidity in our stock and further depress its market price.25

Future offerings of debt securities, which would rank senior to our common stock upon liquidation, and future offerings of equity securities (including any exchanges of equity for outstanding indebtedness), which would dilute our existing stockholders and may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by making offerings of debt or additional offerings of equity securities, including commercial paper, senior or subordinated notes, convertible notes and series of preferred stock or common stock, and including issuing equity securities in exchange for our outstanding indebtedness. Upon liquidation, holders of our debt securities and shares of preferred stock, if any, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

Future sales of our common stock could have an adverse effect on our stock price.

As of ~~March~~June 1318, ~~2009~~2010, there are approximately 88,~~076~~054,~~987~~443 shares of our common stock outstanding and ~~867~~347,835 LTIP units in our operating partnership, which are exchangeable into shares of our common stock on a one-to-one basis, outstanding. We ~~expect to issue an additional 20,000 LTIP units later in 2009.~~ We cannot predict whether future issuances of shares of our common stock or the availability of shares for resale in the open market will decrease the market price of our common stock. Our directors and officers are able to sell an aggregate total of 45,216,287 shares of our common stock (excluding LTIP units)~~, subject to restrictions imposed by federal securities laws and subject to vesting provisions applicable to 10,000 of those shares~~. Sales of substantial numbers of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock. Mr. Meruelo has pledged ~~substantially~~ all of his shares of our common stock as collateral for a loan, and the loan is in default. Accordingly, the ~~lender~~holder of the debt may enforce on the collateral and sell substantial amounts of our common stock. We may issue from time to time additional common stock or common units of our operating partnership convertible into common stock in connection with the acquisition of properties, and we may grant demand or piggyback registration rights in connection with these issuances.

Item 1B. Unresolved Staff Comments

On March 3, 2009, we received a comment letter from the Securities and Exchange Commission, which was in follow up to a response letter dated January 26, 2009 from the Company. The comment to be addressed shortly in a response letter is as follows:None

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007

Financial Statements and Notes

Note 2 – Summary of Significant Accounting Policies

Share-Based Compensation, page F-11

1) We read your response to comment four. It is unclear whether the illiquidity discount and the discount due to the risk related to the book-up requirement account for the expected volatility and the risk-free interest rate, respectively. Please advise or alternately confirm that volatility and risk free interest rate are not considered substantive characteristics of your LTIP units. Refer to paragraphs A11 and A18 of SFAS 123R.

Additionally, we note your disclosure on page F-11 and in Note 12. However, please confirm that in future filings you will include a clear explanation of the types of discounts taken and how they are necessary in assessing the value of your LTIP units, the specific discount rates and other assumptions used in your valuation model as required by paragraph 240(c) of SFAS 123R.

Item 2.

Properties

At December 31, ~~2008~~2009, we own 2827 rental projects and 1916 development projects ~~(one of which was subject to an option that was terminated in the first quarter of 2009)~~. Most of the projects are located in or around the downtown area of Los Angeles, and all of the projects are in Southern California.

We have a wide range of project types, including commercial and residential projects. We believe these projects are well positioned in urban areas undergoing demographic, structural and/or economic change and present the opportunity to create value in otherwise obsolete or undervalued properties. Our projects were selected by our management for the purpose of increasing our return on investments while also having social benefits such as upgrading existing infrastructure instead of building new infrastructure, as well as reducing automobile reliance by locating businesses, customers and employees closer to each other and to existing public transit systems. This emerging category of urban infill development is called “Smart Growth” or “Transit Oriented Development.” By definition, urban infill is the development of vacant land or redevelopment of underused structures in built-up areas that have infrastructure and other public services in place. We believe our projects in downtown Los Angeles and our other projects are well positioned for Smart Growth.

Our projects were generally purchased for the purpose of developing, redeveloping, renovating or repositioning them for what we consider to be a higher and better use to maximize the return on investment, to create Smart Growth and to provide the community with social benefits. ~~Our~~ ~~projects are in various stages of development.~~ Some of our projects are presently, in our view, at their highest and best use and are currently operating as rental projects. Other projects are currently operating as rental projects, but we have long-term redevelopment plans for those projects. These rental projects are not at what we consider being their highest and best use and are classified according to their long-term use rather than the current type of temporary operations. In addition, we have projects that are classified as development projects because they are currently under renovation, or construction will be commencing shortly. Incidental revenue is earned at certain development projects where the construction period has not begun.

Beginning approximately two months before our estimated commencement of construction with respect to a redevelopment project, we begin terminating in-place leases at the project, whether month-to-month or otherwise, and finalize discussions with tenants about relocating to another one of our projects. Prior to these lease terminations, we discuss with tenants the redevelopment plans, and the steps needed to modify existing leases to month-to-month leases and relocation possibilities in anticipation of the redevelopment and related construction.

In light of our bankruptcy filings, our efforts to preserve cash, current and changing credit market conditions and availability of capital, we are evaluating and adjusting as appropriate our previously disclosed development and redevelopment plans, timelines and costs. We currently have ceased development activities on mostof our projects. This may change as our financial position and/or market condition improve.

Rental Projects

Presented below isare our rental ~~project~~projects ~~portfolio~~ as of December 31, ~~2008. Projects~~ ~~at what we consider to be their highest and best use are denoted with a footnote~~2009.

Rental Project		# of Projects			Net Rentable Square Feet			% Leased				Total Annualized Rents (1)			Annualized Rent $/RSF (2)
Project	Current Use		# of Projects			Net Rentable Square Feet			% Leased				Total Annualized Rents (1)			Annualized Rent $/RSF (2)
Commercial Projects
788 S Alameda (3)	Small-tenant produce industry space with cooler		1	1		~~33,984~~	33,984		~~75.0~~	%59.4	%	$	~~1,017,195~~$	823,710	$	~~39.91~~$	40.82
Washington Cold Storage (3)	Single-tenant cold storage facility		1	1		~~59,000~~	59,000		~~100.0~~	%100.0	%		~~1,320,000~~	1,200,000		~~22.37~~	20.34
500 Mateo Street			1			12,938			100.0	%			122,400			9.46
Meruelo Wall Street (3)	Wholesale and office space			1			98,245			88.6	%			1,747,242			20.07
Meruelo Wall Street (3)			1			98,245			94.9	%			1,924,044			20.63
Washington at Central (6)	Small-tenant retail space			1			5,479			78.1	%			52,284			12.22
Washington at Central			1			5,479			78.1	%			52,284			12.22
Southern California Institute of Architects (3)	Architectural school			1			81,741			100.0	%			1,212,000			14.83
Southern California Institute of Architects (3)			1			81,741			100.0	%			1,212,000			14.83
Washington Produce Market (3)	Small-tenant produce industry space with cooler			1			31,876			91.1	%			611,183			21.04
Washington Produce Market (3)			1			31,876			79.3	%			510,285			20.19
905 E 8th Street (sold parking lot + 3,800 sq ft)	Small-tenant industrial space			1			28,200			27.0	%			78,000			10.26
905 E 8th Street			1			28,200			40.4	%			129,600			11.37
3rd and Omar Street	Small-tenant industrial and distribution space			1			23,297			9.7	%			32,760			14.43
3rd and Omar Street			1			23,297			29.1	%			117,360			17.31
1919 Vineburn Avenue (3)	Single-tenant industrial and distribution space			1			122,345			100.0	%			506,520			4.14
1919 Vineburn Avenue			1			122,345			100.0	%			506,520			4.14
1500 Griffith Avenue	Distribution space			1			50,058			100.0	%			467,192			9.33
1500 Griffith Avenue			1			50,058			100.0	%			448,217			8.95
4th Street Center	Single-tenant industrial and distribution space			1			14,472			53.2	%			60,000			7.80
4th Street Center			1			14,472			53.2	%			98,400			12.79
Seventh Street Produce Market (3)	Wholesale produce distribution space			1			122,120			65.3	%			3,784,492			47.49
Seventh Street Produce Market (3)			1			122,120			60.1	%			3,307,974			45.07
Alameda Square (3)	Industrial, distribution and office space			1			1,463,696			60.9	%			4,001,885			4.49
Alameda Square (3)			1			1,463,696			60.9	%			3,613,212			4.05
620 Gladys Avenue	Multi-tenant wholesale distribution space			1			72,711			78.0	%			372,027			6.56
620 Gladys Avenue			1			57,354			55.9	%			332,182			10.37
1000 E Cesar Chavez	Single tenant industrial and distribution space			1			50,373			16.8	%			58,200			6.86
1000 E Cesar Chavez			1			50,373			16.8	%			58,200			6.86
306 North Avenue 21 (4)	Single tenant industrial and distribution space			1			80,712			26.5	%			82,200			3.84
306 North Avenue 21 (4)			1			80,712			56.9	%			164,400			3.58
Crown Commerce Center (3)	Multi-tenant industrial space			1			301,491			100.0	%			1,660,845			5.51
Crown Commerce Center (3)			1			301,491			93.9	%			1,877,955			6.64
420 Boyd Street	Multi-tenant retail and office space			1			47,806			57.8	%			341,579			12.36
420 Boyd Street			1			47,806			61.8	%			370,529			12.53
230 W Ave 26th	Industrial and distribution space			1			67,671			23.6	%			123,145			7.72
230 W Ave 26th			1			67,671			57.2	%			287,412			7.42
5707 S Alameda	Small-tenant industrial space			1			55,729			56.2	%			94,342			3.01
5707 S Alameda			1			55,729			55.7	%			109,977			3.55
Santa Fe Plaza (3)	Small-tenant retail space			1			16,000			29.4	%			112,800			23.99
Santa Fe Plaza			1			16,000			0.0	%			-			-
Barstow Produce Center	Small-tenant produce industry space with cooler			1			261,750			0.0	%			-			-
Barstow Produce Center			1			261,750			1.9	%			24,000			4.80
1211 E Washington Blvd	Manufacturing space			1			108,000			72.9	%			463,860			5.89
1211 E Washington Blvd			1			108,000			84.5	%			447,072			4.90
Total Commercial Projects				23			3,196,756			62.2	%			17,886,263			8.99
Total Commercial Projects			24			3,194,337			63.6	%			18,051,218			8.89
Residential Projects
Residential Projects
American Apartments (3)	Apartment building			1			13,550			79.3	%			262,273			24.40
American Apartments (3)			1			13,550			97.8	%			314,377			23.73
Union Lofts (3)	Apartment building			1			81,609			45.3	%			1,230,190			33.25
Union Lofts (3)			1			81,609			35.4	%			854,918			29.62
Southpark Tower - Phase 2 - J Restaurant	Restaurant space		See Note (5)							100.0	%			300,000			25.36
Southpark Tower - Phase 2 - J Restaurant		See Note(5)				11,829			100.0	%			425,844			37.08
Center Village	Industrial and cold storage			1			176,628			14.0	%			343,200			13.90
Center Village			1			176,628			100.0	%			343,200			4.32
Pomona Park Village (2001-2021 Mission)	Industrial building			1			242,042			0.0	%			-			-
Pomona West			1			242,042			0.0	%			-			-
Total Residential Projects				4			525,658			16.0	%			2,135,662			25.34
Total Residential Projects			4			525,658			43.9	%			2,371,359			10.28
Total Rental Project Portfolio				27			3,722,414			55.7	%			20,021,926			9.66
Total Rental Project Portfolio			28			3,719,995			60.8	%		$	20,422,577		$	9.03

(1) Annualized rent represents the annualized monthly contractual rent under existing leases as of December 31, ~~2008~~2009.

(2) Annualized rent per rentable square foot ~~(“RSF”)~~ represents annualized rent as computed above, divided by the total square footage under lease as of the same date.

(3) Project is at what we consider its highest and best use.

(4) This parcel is part of a larger project that will be redeveloped as part of the 2131 Humboldt Street project discussed in the "Development Pipeline."

(5) This parcel is part of a larger project that will be redeveloped as part of the Southpark Tower project discussed in the "Development Pipeline."

(6) This project is combined with 1211 E. Washington, both owned and operated by 1211 E. Washington Blvd, LLC.

Development Projects

Presented below isare our development ~~pipeline~~projects as of December 31, ~~2008. In addition,~~2009 and their annualized incidental revenue. isDuring ~~disclosed~~2009, ~~for~~all ~~certain~~of ~~projects~~the ~~as construction~~incidental revenue has ~~not~~been ~~yet~~reflected ~~commenced~~as rental income on our consolidated statement of operations, since we suspended development activities at these ~~sites~~projects and ceased capitalizing this income. In earlier years, we reduced capitalized development costs by this income. Development projects are classified by their intended use (residential or commercial) ~~after construction~~based ison ~~complete~~our development plan.

Development Project	# of Projects		Annualized Incidental Revenue per Year
Project	# of Projects		Estimated Incidental Revenue per Year
Residential Projects
Commercial Projects
Southpark Towers		1	$	342,000
2131 Humboldt Street	See Note (1)			123,000
Desmond Building		1		196,000
Meruelo Baldwin Park		1		59,400
Sky Arc		1		157,000
Olive Street Towers		1		204,000
Transamerica Lofts		1		60,000
717 W 9th Street		1		36,000
Chinatown Towers		1		-
Total Residential Projects		7		995,000
Suspended Construction Projects (1)
Ullman Tower One		1		365,000
Ullman Tower Two		1		180,000
2131 Humboldt Street	See Note (2)			144,000
Meruelo Baldwin Park		1		55,000
Pomona East		1		-
1828 Oak Street (3)		1		-
Camfield Retail Center		1		-
Ceres Street Produce Center		1		-
Musica Latina Building		1		-
Total Commercial Projects		3		182,400
Residential Projects
Southpark Towers (2)		1		402,000
Ullman Tower One		1		364,500
Desmond Building		1		201,235
Sky Arc		1		162,072
Olive Street Towers		1		144,000
Pomona East		1		102,000
TransAmerica Lofts		1		84,000
Ullman Tower Two		1		66,000
705 W Ninth Street		1		-
Meruelo Chinatown Tower		1		-
Vignes Village		1		-
San Fernando Court		1		-
Musica Latina Building		1		-
Citrus Gardens		1		-
Covina Gardens		1		-
Total Residential Projects		13		1,525,807
Total Suspended Construction Projects		12		744,000
Total Development Pipeline		16		1,708,207
Total Development Pipeline		19	$	1,739,000

(1) ~~Because~~Project ofis ~~the~~currently ~~difficulty~~considered ofa ~~obtaining~~portion ~~construction financing and to preserve cash flow in this challenging economic environment, we suspended development~~ of ~~these projects on October 1, 2008. We likewise stopped capitalizing costs as of this date. We have continued to group these assets as real estate held for development on~~ the ~~balance~~306 ~~sheet.~~W OnAvenue ~~the~~21 ~~statement~~project ofand ~~operations,~~is wecounted ~~group incidental revenue~~ as ~~either~~a rental ~~revenue or other income~~project. We also grouped expenses such as interest costs, property taxes and in-house development costs as interest expense, operating expenses or general and administrative expenses on the statement of operations. We will continue to expense our costs until we renew our efforts to develop these projects.

(2) ~~Project is~~ ~~currently~~In ~~considered~~connection with our purchase of the project, we have agreed to construct a ~~portion~~parking structure that will contain at least 132 parking spaces for the benefit of an adjacent project not owned by us. Per the ~~306~~terms Nof the contract, monetary damages may apply for each day after July 1, 2008 that construction is not complete. In ~~Avenue~~addition, 21the original seller may have a right to repurchase the project ~~and~~at the price we paid if construction is ~~counted as~~not acommenced ~~rental~~by October 1, 2008. Our redevelopment of this project includes plans for a parking structure that satisfies the contract, although construction has not begun. Our plan proposes to extend the term for performance of any such obligation.

(3) We have an option to purchase this project. This option was terminated in the first quarter of 2009.

Tenants

The following table sets forth information regarding the 10 largest tenants in our portfolio ~~of owned projects~~ based on annualized base rent paid or payable as of December 31, ~~2008. Our largest tenant, American Apparel, became a month-to-month tenant upon the lease expiration date of December 31, 2008. As of March 13,~~ 2009~~, American Apparel is a rent paying tenant based on the terms of the expired lease and we are currently in the process of negotiating a new lease with this tenant~~. ~~There~~ ~~are no assurances that we will be successful in securing this new lease.~~

Top Ten Tenants in Our Portfolio of Owned Projects

Tenant	Number of Projects		Total ~~Leased~~Lease Square Feet (1)		Percentage of Our Portfolio’'s Total Rentable Square Feet (1) %			Annualized Base Rent (2) (3$)		Percentage of Our Portfolio’'s Annualized Base Rent ~~(3)~~
American Apparel		1		788,273		18.4	%	$	3,077,652		13.5	%
American Apparrel		1		788,273		18.5	%		3,300,000		14.8	%
Prestige Parking		7	~~See Note (4)~~	-		0.0	%		1,~~488~~374,000		6.52	%	(4)
Southern California Institute of Architecture		1		81,741		1.9	%		1,~~369~~374,~~356~~072		6.02	%	(3)
Aztlan Cold Storage(5)		1		59,000		1.4	%		1,320,000		5.8	%
Aztlan Cold Storage		1		59,000		1.4	%		1,200,000		5.4	%
The Outdoor Recreation Group		1		122,345		2.9	%		506,521		2.2	%
Outdoor Recreation Group, The		1		122,345		2.9	%		506,521		2.3	%
AJSE/Santa Fe Fishing Inc		1		87,404		2.0	%		498,000		2.2	%
M.X.F. Designs, Inc.		1		55,585		1.3	%		394,800		1.8	%
J Lounge Restaurant.		1		11,829		0.3	%		438,624		1.9	%
AJSE Inc / Santa Fe Finishing, Inc.		1		87,404		2.0	%		384,000		1.7	%
MXF Designs, Inc		1		55,585		1.3	%		424,380		1.9	%
Woodland Poultry Operations, Inc.		1		24,694		0.6	%		343,200		1.5	%
United Pacific Studios………...		1		66,135		1.5	%		420,240		1.8	%
J Lounge Restaurant		1		11,829		0.3	%		300,000		1.3	%
Woodland Poultry Operations, Inc.		2		24,694		0.6	%		343,200		1.5	%
26 International Inc.		1		30,058		0.7	%		281,400		1.3	%
Total				1,297,006		30.3	%	$	9,885,973		43.4	%
TOTALS				1,260,929		29.5	%	$	9,457,993		42.5	%

(1) Based on total square footage of 4,~~279~~269,~~363,~~120 which is the ~~total~~ square footage of space leased or available or offered for lease ~~at both rental~~ and ~~development projects and~~ excludes substantial portions of square footage in the projects that are not available or offered for lease because of redevelopment or repositioning activities. Parking square footage is not included in the calculation.

(2) Because annualized base rent is not derived from historical results that were accounted for in accordance with accounting principles generally accepted in the ~~Unites~~United States, historical results differ from the annualized amounts.

(3) ~~Annualized~~For ~~base~~Southern ~~rent~~California ~~includes~~Institute ~~parking~~of ~~revenue~~Architecture, ~~per~~parking ~~tenant’s~~is ~~contracts.~~included ~~The~~in ~~portfolio’s~~the ~~total~~calculation ~~annualized~~with ~~base~~their ~~rent~~annual ~~includes parking revenue for this table only~~rent.

(4) ~~Prestige~~Projects ~~Parking~~include ~~leases~~the ~~parking~~following: ~~lots~~Southpark atTower-Phase2-J ~~seven~~Restaurant, ~~projects~~Southpark ~~totaling~~Towers, ~~approximately~~Ullman ~~285~~Tower II,~~000~~ ~~square~~Desmond ~~feet~~Building, ofMeruelo ~~land~~Wall Street, 420 Boyd Street,Ullman Tower I.

(5) Tenant has a new lease effective as of January 1, 2009 at reduced rental rates.

Lease Expirations

The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, ~~2008~~2009 for each of the 10 calendar years beginning January 1, ~~2009~~2010 at the projects we own and are currently leasing space at, regardless of the project classification between rental and development. The information set forth in the table assumes that tenants exercise no renewal options or early termination rights.

Year of Lease Termination	Number of Leases Expiring		Square Footage of Expiring ~~Leases~~Lease		Percentage of Total Rentable Square Feet(1)			Annualized Base Rent of Expiring Leases(2)		Percentage of Portfolio Annualized Base Rent (%)
Month to Month		~~303~~259		1594,~~620,285~~923		3713.9	%	$	1511,~~636~~590,~~801~~505		6852.61	%
2009		31		233,515		5.5	%		1,848,642		8.1	%
2010		53		358,129		8.4	%		4,129,971		18.6	%
2010		23		229,781		5.4	%		2,490,769		10.9	%
2011		6		121,835		2.9	%		873,840		3.9	%
2011		4		154,278		3.6	%		1,151,604		5.1	%
2012		3		161,039		3.8	%		973,001		4.4	%
2012		1		24,694		0.5	%		343,200		1.5	%
2013		2		63,702		1.5	%		1,312,800		5.9	%
2013		1		59,000		1.3	%		1,320,000		5.8	%
2014		2		790,664		18.5	%		3,358,046		15.1	%
Thereafter		0		-		-			-		-
Total/Weighted Average		325		2,090,292		49.0	%	$	22,238,163		100	%
Total		363		2,321,553		54.2	%	$	22,791,016		100.0	%

(1) Based on total square footage of 4,~~279~~269,~~363,~~120 which is the ~~total~~ square footage of space leased or available or offered for lease ~~at both rental~~ and ~~development projects and~~ excludes substantial portions of square footage in the projects that ~~are~~is not available or offered for lease because of redevelopment or repositioning activities. ~~Parking square footage is not included in the calculation.~~

(2) Based on annualized base rent paid or payable as of December 31, ~~2008~~2009. Because annualized base rent is not derived from historical results that were accounted for in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting~~in ~~principles~~the United States, historical results differ from the annualized amounts. ~~Annualized base rent does not include parking income.~~

Item 3. Legal Proceedings

~~From~~As ~~time to~~more ~~time,~~fully wedescribed ~~are~~in ~~party~~Note 1 (Chapter 11 Proceedings) to ~~various~~the ~~lawsuits~~consolidated financial statements of this report and incorporated herein by reference, ~~claims~~the MMPI Debtors filed on March 26 and ~~other~~27, ~~legal~~2009, ~~proceedings~~voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These Chapter 11 cases are jointly administered under the Lead Chapter 11 Case. As further discussed, ~~including~~ ~~those~~on ~~identified~~September ~~below~~3, ~~none~~2009, the Flower Debtors filed voluntary petitions for relief under Chapter 11 of ~~which~~the weBankruptcy ~~currently~~Code ~~believe~~in the Bankruptcy Court. These cases will not be jointly administered under the Lead Chapter 11 Case. These Chapter 11 proceedings are material. Weto ~~intend~~the Company and our ability to ~~vigorously~~continue ~~seek~~as ~~enforcement~~a ofgoing concern, including our ~~rights~~ability to meet our ongoing operational obligations, is dependent upon, among other things, the cost, duration and ~~defend ourselves~~outcome of the reorganization process in ~~each~~the ofChapter ~~these~~11 ~~matters~~proceedings.

~~With respect~~In addition to ~~our~~the ~~specific~~Chapter ~~performance~~11 ~~action~~proceedings, ~~related~~we are party to ~~Overland~~various ~~Terminal~~lawsuits, ~~the judgment~~claims and other legal proceedings, some of ~~specific~~which ~~performance~~may webe ~~obtained~~material, inincluding ~~our~~actions ~~favor~~or atclaims ~~the~~for ~~trial~~breach ~~court level~~of ~~was~~our ~~affirmed~~obligations onto ~~appeal~~repay debt and ~~became~~proceedings ~~final,~~seeking ~~and~~appointment weof ~~acquired~~a ~~the~~receiver ~~property~~for ~~on September~~one 3,or ~~2008~~more ~~pursuant~~of our projects or to ~~the~~exercise ~~judgment~~other remedies in connection with loan defaults. AsWe believe that any actions or other efforts to enforce the payment obligations or to assert claims against the Debtors are stayed as a result of the Chapter 11 filings. We may from time to time stipulate to, ~~this~~or ~~action has~~the ~~been~~Bankruptcy ~~finally~~Court may grant, relief from the stay in order for the parties to proceed with litigation or proceedings and ~~fully~~liquidate ~~concluded~~or resolve claims in forums other than the Bankruptcy Court. ~~The~~For instance, we have not opposed relief from stay in connection with an eminent domain proceeding instituted against a portion of our Alameda Square project ~~subsequently~~and ~~has been~~an ~~sold~~eminent todomain proceeding instituted against a ~~third~~portion ~~party~~of our Pomona East project; provided that enforcement of any final order or judgment shall be stayed and shall be enforceable only after further order of the Bankruptcy Court.

~~With~~We ~~respect to~~may ~~our~~also ~~specific~~from ~~performance~~time ~~action related~~ to ~~9901~~time ~~Alameda,~~institute weactions ~~exercised~~or ~~our rights~~proceedings ~~under~~either in the ~~judgment~~Bankruptcy Court or in ~~our~~other ~~favor~~forums to ~~purchase~~assert ~~the~~our ~~property~~rights and ~~thereafter sold~~claims ~~the~~against ~~property as contemplated~~others, ~~which~~including ~~sale~~tenant ~~closed~~eviction onor ~~March~~other ~~31, 2008. All~~lease ~~rights~~or ofcontract ~~appeal~~enforcement ~~were~~proceedings. We ~~waived~~intend byto ~~both~~vigorously ~~parties~~seek injudicial ~~the specific~~enforcement ~~performance~~of ~~action,~~our ~~and~~rights ~~this~~in ~~matter~~these ~~has~~proceedings ~~therefore~~as ~~been finally and fully concluded~~well.

Item 4. ~~With~~[Removed ~~respect to our Pomona East project, our secured lender has commenced a nonjudicial foreclosure proceeding by filing, on February 17, 2009, a notice of default~~ and ~~election~~ ~~to sell in the real property records.~~Reserved]

With respect to our 788 S. Alameda project, our secured lender has commenced a judicial foreclosure proceeding by filing an action on March 4, 2009 in the Superior Court of the County of Los Angeles, and has additionally requested the appointment of a receiver for this project. A hearing regarding the appointment of receiver is scheduled for March 30, 2009.29

There are other lawsuits, claims and legal proceedings that arise in the ordinary course of our business, including tenant eviction proceedings and other tenant disputes, and personal injury matters, none of which we currently believe are material. We intend to vigorously seek judicial enforcement of our rights in these proceedings as well.

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

There were no matters submitted to a vote of our stockholders during the fourth quarter of the year ended December 31, 2008.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

~~Our~~ On ~~common stock has been listed and is traded on the Nasdaq Global Market under the symbol “MMPI” since~~ January 2622, ~~2007. The~~ ~~following~~2010, ~~table~~we ~~presents~~filed ~~the~~a ~~high~~Form ~~and~~15 ~~low~~with ~~sales~~the ~~prices~~SEC ~~for our~~in ~~common~~order ~~stock~~to asderegister ~~reported~~from byany ~~the~~future ~~Nasdaq~~filings ~~Global~~pursuant ~~Market~~to ~~for~~ the ~~period~~1934 ~~from January~~Securities ~~26,~~and ~~2007~~Exchange ~~to December 31, 2008~~Act.

	High		Low
Period from January 26, 2007 to March 31, 2007	$	10.90	$	7.55
Quarter Ended June 30, 2007		8.83		7.11
Quarter Ended September 30, 2007		8.29		4.59
Quarter Ended December 31, 2007		6.70		3.14
Quarter Ended March 31, 2008		5.80		2.31
Quarter Ended June 30, 2008		3.28		1.60
Quarter Ended September 30, 2008		2.62		0.85
Quarter Ended December 31, 2008		1.30		0.33

Our common stock has been listed and traded on the Nasdaq Global Market under the symbol “MMPI” from January 26, 2007 through April 6, 2009. As a result of our bankruptcy filings, we were delisted by Nasdaq Global Market. Thereafter, our common stock has been listed and is traded on the OTC Bulletin Board under the symbol “MMPIQ.” The following table presents the high and low sales prices for our common stock as reported by the Nasdaq Global Market or the OTC Bulletin Board for the period from January 1, 2008 to December 31, 2009.

The per-share closing price for our common stock, as reported by the Nasdaq Global Market on March 12, 2009, was $0.08.

	High		Low
Quarter Ended March 31, 2008	$	5.80	$	2.31
Quarter Ended June 30, 2008		3.28		1.60
Quarter Ended September 30, 2008		2.62		0.85
Quarter Ended December 31, 2008		1.30		0.33
Quarter Ended March 31, 2009		1.24		0.03
Quarter Ended June 30, 2009		0.47		0.03
Quarter Ended September 30, 2009		0.57		0.24
Quarter Ended December 31, 2009		0.58		0.03

The per-share closing price for our common stock, as reported by the OTC Bulletin Board on June 18, 2010, was $0.23.

Holders of Our Common Stock

As of ~~March~~June 1318, ~~2009~~2010, there were approximately ~~691~~57 record holders of our common stock, including shares held in “street name” by nominees who are record holders, but excluding employees that received stock awards under our 2007 Equity Incentive Plan.

Dividends

We did not pay any cash dividends during the years ended December 31, ~~2007~~2009 and December 31, 2008 and do not anticipate paying any in the foreseeable future.

Recent Sales of Unregistered Securities

On December 31, ~~2008~~2009, pursuant to ~~obligations~~employment ~~we entered into in connection with our IPO and formation transactions~~agreements, and in consideration of services rendered or to be rendered to the operating partnership, our operating partnership issued 2080,000 LTIP units to certain of our executive officers. The result of this issuance effectively reduced the Company’s potential obligation in the event of an equalization event from $0.56 to $0.01a unit. As of December 31, 2009, we have 135,000 LTIP units outstanding that have not achieved parity with our common stock.

~~The~~ Our ~~LTIP~~stock ~~units~~closed ~~are subject~~at to$0.03 ~~forfeiture~~per ~~provisions~~share ~~that expire ratably~~ on ~~each~~December of31, ~~the~~2009. Under ~~first three anniversaries of~~ the ~~date~~terms of ~~grant.~~our ~~Forfeitability~~proposed ~~provisions~~plan ~~generally will expire on the death or disability~~ of ~~the~~reorganization, ~~officer~~all ~~or the termination~~ of ~~such officer by us or~~ the ~~operating partnership without cause. The~~ LTIP units ~~were issued~~will inbe ~~reliance~~cancelled onand anextinguished ~~exemption~~and ~~from registration under Section 4(2) of~~ the ~~Securities~~holders ~~Act~~ of ~~1933~~these ~~and~~securities ~~Regulation~~will Dreceive ~~promulgated~~no ~~thereunder.~~value Wefor ~~relied~~their ~~on the~~cancelled ~~exemption~~units. The ~~based~~LTIP onunits ~~representations~~have ~~given~~become ~~by the recipients of the securities~~worthless.

Subject to the Chapter 11 proceedings and the proposed Plan, the LTIP unit holders would operate and have the below enumerated rights and obligations. The LTIP units are subject to forfeiture provisions that expire ratably on each of the first three anniversaries of the date of grant. Forfeitability provisions generally will expire on the death or disability of the officer or the termination of such officer by us or the operating partnership without cause. The LTIP units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. We relied on the exemption based on representations given by the recipients of the securities.

LTIP units are a special class of partnership interests in our operating partnership that initially have a liquidation value of zero. LTIP units will receive the same quarterly per unit profit distributions, if any, as common units of our operating partnership, except for disposition proceeds distributed prior to the corresponding “LTIP Equalization Date” for such LTIP units, as described below. Common units in our operating partnership will receive a distribution amount per unit equal to the dividend amount per share of our common stock. We have not declared or paid any dividends to date. Upon a certain event that we refer to as the LTIP Equalization Date, LTIP units may be converted, at the election of the holder, into one common unit in our operating partnership (or cash, at the election of our operating partnership). Common units in our operating partnership are redeemable at the election of the holder for (i) cash equal to the then fair market value of one share of our common stock, or (ii) at our option, one share of our common stock.

3231

Performance Graph

The following graph compares the cumulative total shareholder return on the Common Stock of Meruelo Maddux Properties, Inc. from January 26, 2007 (the date upon which our Common Stock began publicly trading) through December 31, ~~2008~~2009 with the cumulative total return on the NASDAQ Composite index and an appropriate “peer group” index, the Dow Jones Wilshire Real Estate Holding & Development Index (assuming the investment of $100 in our Common Stock and in each of the indexes on January 26, 2007).

The actual returns displayed in the graph above are as follows:

	1/26/07	3/31/07	6/30/07	9/30/07	12/31/07	3/31/08	6/30/08	9/30/08	12/31/08
			Jan-07	Mar-07	Jun-07	Sep-07	Dec-07	Mar-08	Jun-08	Sep-08	Dec-08	Mar-09	Jun-09	Sep-09	Dec-09
Meruelo Maddux Properties	~~100.00~~	~~82.55~~	76100.9800	5582.7555	3776.7498	2355.9675	2037.5774	1123.5196	1120.7057	11.51	11.70	0.69	3.11	3.96	0.26
NASDAQ Composite	~~100.00~~	~~100.45~~	~~107~~100.5400	~~112~~100.0639	~~109~~108.1815	93110.8352	94108.7951	8492.1281	6393.6166	83.67	64.13	62.16	74.64	86.43	92.63
DJ Wilshire Real Estate Holding & Development	100.00	103.28	100.71	86.88	72.08	70.34	60.51	53.85	28.67
Dow Jones US Real Estate Holding & Development TSM			100.00	100.00	100.00	100.00	100.00	100.00	100.00	96.82	53.56	41.33	57.35	73.58	74.85

33 32

Item 6. Selected Financial Data

The following tables set forth selected consolidated financial and operating data for our company and on a combined historical basis for our predecessor business. Our company (which was formed for the purposes of our IPO and is not the predecessor) did not have any material corporate activity before January 30, 2007, the date on which we consummated our IPO. Accordingly, information in the following tables as of any date or for any period before January 30, 2007 reflects the financial and operating data for our predecessor business.

The following consolidated financial and other data for the ~~year~~years ended December 31, 2008 and 2009 consists of information about our company. The following summary combined financial and other data for the year ended December 31, 2007 consists of information about our predecessor business for the period from January 1, 2007 to January 29, 2007 and about our company for the period from January 30, 2007 to December 31, 2007. The following summary combined financial and other data for the years ended December 31, 2006, ~~2005~~ and ~~2004~~2005 reflect the historical financial data of our predecessor business, which was not a legal entity but a combination of ~~multiple~~ limited liability companies and corporations previously owned by two affiliates of Mr. Meruelo and one affiliate of Mr. Maddux. The data for the years ended December 31, ~~2008~~2009, ~~2007~~ 2008 and ~~2006~~2007 has been derived from audited financial statements contained elsewhere in this report. The data for the years ended December 31, ~~2005~~2006 and ~~2004~~ ~~has~~2005 have been derived from audited financial statements not contained in this report. The audited historical combined financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary for a fair presentation of our financial condition and the results of operations as of such dates and for such periods under U.S. generally accepted accounting principles.

The following financial data should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements and related notes included elsewhere in this Form 10-K.

Selected Consolidated Financial and Other Data

(in In thousands)

	The Company						~~The Predecessor~~			The Predecessor
	Year ended December 31, 2008			Period from January 30, 2007 to December 31, 2007			Period from January 1, 2007 to January 29, 2007			Year ended December 31,
	Year ended December 31,												Year ended December 31,
										2006			2005			2004
	2009			2008			Period from January 30, 2007 to December 31, 2007			Period from January 1, 2007 to January 29, 2007			2006			2005
Revenue:
Rental income	$	2223,~~709~~311		$	1922,~~617~~586		$	119,~~922~~495		$	221,~~327~~922		$	1622,~~526~~327		$	1116,~~836~~526
Management fees		~~285~~41			~~260~~285			12260			~~285~~12			~~602~~285			~~142~~602
Interest income		~~839~~367			~~2,824~~839			~~205~~2,823			~~3,614~~205			23,~~942~~614			–2,942
Other income		~~351~~538			~~493~~351			28493			~~751~~28			~~794~~751			~~628~~794
Total Revenues		24,~~184~~257			2324,~~194~~061			223,~~167~~071			262,~~977~~167			2026,~~864~~977			1220,~~606~~864
Expenses:
Rental expenses		15,~~291~~375			1215,~~097~~084			~~992~~12,053			~~10,097~~992			710,~~673~~097			57,~~089~~673
Interest expense		1123,~~445~~736			811,~~630~~312			28,~~134~~540			252,~~015~~134			1625,~~492~~015			616,~~188~~492
Depreciation and amortization		76,~~091~~197			57,~~390~~077			~~363~~5,376			~~3,960~~363			23,~~502~~960			12,~~987~~502
Impairment loss on real estate assets		~~142~~148,~~295~~275			–139,195			–-			–-			–-			–-
General and administrative		913,~~524~~093			89,~~991~~504			~~628~~8,986			~~6,045~~628			46,~~222~~045			14,~~934~~222
Total Expenses		~~185~~206,~~646~~676			35182,~~108~~172			434,~~117~~955			454,117			3045,~~889~~117			1530,~~198~~889
Loss from continuing operations before minority interests and income taxes		(161,462	)		(11,914	)		(1,950	)		(18,140	)		(10,025	)		(2,592	)
Loss from continuing operations before income taxes, reorganization items		(182,419	)		(158,111	)		(11,884	)		(1,950	)		(18,140	)		(10,025	)
Minority interests		(843	)		–			–			–			–			–
Benefit from income taxes		-			51,933			-			-			-			-
Benefit for income taxes		51,933			–			–			–			–			–
Reorganization items		(3,987	)		-			-			-			-			-
Loss from continuing operations		(~~110~~186,~~372~~406	)		(11106,~~914~~178	)		(111,~~950~~884	)		(181,~~140~~950	)		(1018,~~025~~140	)		(210,~~592~~025	)
Income (loss) from discontinued operations		163			45			(54	)		(252	)		–			–
(Loss) income from discontinued operations		(613	)		(3,188	)		15			(54	)		(252	)		-
Gain on sale of real estate		~~14,189~~830			–14,189			–-			~~1,329~~-			–1,329			~~3,183~~-
Net income (loss) from discontinued operations		14,352			45			(54	)		1,077			–			3,183
Income (loss) from discontinued operations		217			11,001			15			(54	)		1,077			-
Net (loss) income	$	(96,020	)	$	(11,869	)	$	(2,004	)	$	(17,063	)	$	(10,025	)	$	591
Net loss	$	(186,189	)	$	(95,177	)	$	(11,869	)	$	(2,004	)	$	(17,063	)	$	(10,025	)
Less: net income (loss) attributable to
non-controlling interests		(440	)		843			-
Net loss attributable to common stockholders	$	(185,749	)	$	(96,020	)	$	(11,869	)
Basic and diluted loss per share:
Loss from continuing operations	$	(2.12	)	$	(1.21	)	$	(0.14	)
Income (loss) from discontinued operations	$	0.00			0.13			0.00
Net loss	$	(2.12	)	$	(1.09	)	$	(0.14	)
Weighted average common shares outstanding - basic and diluted		87,951,260			86,866,699			85,218,110			N/A			N/A			N/A

35 33

Selected Consolidated Financial and Other Data

(in In thousands)

	The Company						~~The Predecessor~~			The Predecessor
	Year ended December 31, 2008			Period from January 30, 2007 to December 31, 2007			Period from January 1, 2007 to January 29, 2007			Year ended December 31,
	Year ended December 31,												Year ended December 31,
										2006			2005			2004
	2009			2008			Period from January 30, 2007 to December 31, 2007			Period from January 1, 2007 to January 29, 2007			2006			2005
Balance Sheet Data (at period end):
Investments in real estate	$	~~645~~537,~~755~~287		$	~~767~~645,~~885~~755		$	~~N/A~~767,885		$	~~494,809~~N/A		$	~~407~~494,~~649~~809		$	~~122~~407,~~190~~649
Total assets		~~681~~571,~~769~~327			~~784~~681,~~180~~769			~~N/A~~784,180			~~508,057~~N/A			~~427~~508,~~352~~057			~~125~~427,~~810~~352
CalPERS and mortgages notes		~~328~~172,~~229~~363			~~307~~328,~~394~~229			~~N/A~~307,394			~~492,643~~N/A			~~431~~492,~~141~~643			~~109~~431,~~406~~141
Total liabilities		342,022			365,125			N/A			553,114			449,733			119,207
Liabilities subject to compromise		202,121			-			-			N/A			-
Owners' equity (deficit)		339,244			419,055			N/A			(45,057	)		(22,381	)		6,603
Total liabilities		415,939			342,022			365,125			N/A			553,114			449,733
Total liabilities and stockholders' / owners equity		681,769			784,180			N/A			508,057			427,352			125,810
Owners' equity (deficit)		-			503			419,055			N/A			(45,057	)		(22,381	)
Total liabilities and stockholders' / owners equity		155,388			339,747			784,180			N/A			508,057			427,352
Other Data:
EBITDA (1)		24(6,~~561~~972	)		323,~~708~~550			~~575~~3,704			~~12,252~~576			812,~~969~~252			8,~~766~~969
Cash flows from (used in) :
Operating activities		(83,~~216~~153	)		(78,~~210~~216	)		~~226~~(7,292	)		~~(15,852~~226	)		(1715,~~169~~852	)		(117,~~899~~169	)
Investing activities		(2638,~~240~~498	)		(~~217~~26,~~015~~240	)		(3214,~~171~~223	)		(625,~~261~~963	)		(~~276~~62,~~182~~261	)		(56276,~~110~~182	)
Financing activities		3540,~~886~~036			~~226~~35,~~268~~886			1223,~~551~~558			704,~~999~~343			~~301~~70,~~853~~999			58301,~~815~~853
Reconciliation of EBITDA to Net (Loss) Income:
Net (loss) income	$	(96186,~~020~~189	)	$	(1195,~~869~~177	)	$	(211,~~004~~869	)	$	(172,~~063~~004	)	$	(1017,~~025~~063	)	$	~~591~~(10,025	)
Plus:
Interest expense		1223,~~206~~746			912,~~513~~037			29,~~205~~510			252,~~333~~206			1625,~~492~~333			616,~~188~~492
Depreciation and amortization		76,~~568~~202			67,~~064~~569			~~374~~6,063			~~3,982~~374			23,~~502~~982			12,~~987~~502
Net tax benefit		~~(42,331~~-	)		-(42,331	)		-			-			-			-
Minority interests		843			-			-			-			-			-
Non-Controlling interests		440			(843	)		-			-			-			-
Impairment on real estate assets		~~142~~148,~~295~~829			-142,295			-			-			-			-
EBITDA	$	24(6,~~561~~972	)	$	323,~~708~~550		$	~~575~~3,704		$	~~12,252~~576		$	812,~~969~~252		$	8,~~766~~969

(1)

EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization. We believe it is a useful financial performance measure for us and for our stockholders and is a complement to net income and other financial performance measures provided in accordance with generally accepted accounting principles in the United States of America, or GAAP. We use EBITDA to measure the financial performance of our operating properties because it excludes expenses such as depreciation and amortization, taxes and interest expense, which are not indicative of operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. By excluding depreciation and amortization expense, which can vary from property to property based on a variety of factors unrelated to the properties’ financial performance, we can more accurately assess the financial performance of our properties. Under GAAP, real estate properties are recorded at historical cost at the time of acquisition and are depreciated on a straight line basis. By excluding depreciation and amortization, we believe EBITDA provides a basis for measuring the financial performance of properties unrelated to historical cost. However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our fixed assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as calculated by us, may not be comparable to EBITDA reported by other companies that do not define EBITDA exactly as we define the term. Because we use EBITDA to evaluate our financial performance, we reconcile it to net income (loss), which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.

36 34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion relates to the consolidated and combined financial statements of our company and our predecessor business and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Statements included below that are not historical may be forward-looking statements, including information concerning development timing and investment amounts. See “Forward-Looking Statements.” These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Although the information is based on our current estimations, actual results could vary. You are cautioned not to place undue reliance on this information. For a discussion of important risks related to our business, and an investment in our common stock, see the discussion under the caption “Risk Factors” above and under the caption “Factors That May Influence Future Results of Operations” below. References in the discussion below, unless the context suggests otherwise, “we,” “our,” “us,” “debtors,” or “our company” mean Meruelo Maddux Properties, Inc. and its subsidiaries.

Overview and Background

WeChapter ~~are~~11 a self-managed, full-service real estate company that develops, redevelops and owns commercial and residential properties located in downtown Los Angeles and other densely populated urban areas in California that are undergoing demographic or economic changes. As of December 31, 2008, we own 46 projects and lease with right to purchase one project. We terminated the lease and the option to purchase this project during the first quarter of 2009.Reorganization

WeOn ~~were formed~~March to26 ~~succeed~~and ~~certain operations of the Meruelo Maddux predecessor~~27, ~~which was not a legal entity but rather a combination of entities and operations whose owners were Richard Meruelo~~2009, ~~Maria~~ Meruelo ~~and John Charles~~ Maddux ~~and were collectively doing business as Meruelo Maddux~~Properties, ~~an owner, developer and acquirer of industrial, commercial and residential properties~~Inc. We ~~were incorporated in Delaware on July 5, 2006 in anticipation of our initial public offering of common stock~~ (~~our~~ “~~IPO~~MMPI”), ~~which~~and ~~was~~53 ~~consummated on January 30, 2007 concurrently with the consummation~~ of ~~various~~its ~~formation transactions. The~~direct ~~formation transactions~~ and ~~IPO~~indirect ~~were~~subsidiaries ~~designed to (i) allow us to acquire~~ and ~~continue~~affiliates (the” ~~operations~~MMPI ~~of our predecessor business, (ii~~Debtors”) ~~pay~~ ~~down~~filed ~~existing~~voluntary ~~mortgage~~petitions ~~debt,~~for ~~(iii) payoff~~relief ~~a mezzanine~~under ~~loan~~Chapter ~~facility~~11 ~~from~~of ~~the~~Title ~~State~~11 of ~~California~~the ~~Public~~United ~~Employees’ Retirement~~States ~~System,~~Code ~~or CalPERS,~~ (~~iv) provide~~the ~~capital~~“Bankruptcy ~~for future acquisitions, (v~~Code”) ~~fund~~ ~~future~~in ~~development~~the ~~costs,~~United ~~and~~States ~~(vi) establish~~Bankruptcy ~~a capital~~Court ~~reserve~~ for ~~general~~the ~~corporate~~Central ~~purposes.~~District ~~Prior~~of toCalifornia, ~~the~~San ~~formation transactions~~Fernando ~~our~~Valley ~~company~~Division (~~which~~the ~~was~~“Bankruptcy ~~formed~~Court”). These ~~for~~Chapter ~~the~~11 ~~purposes~~cases ofare ~~our~~jointly ~~IPO~~administered ~~and~~under ~~is not~~ the ~~predecessor)~~caption ~~did~~“In ~~not~~re ~~have~~Meruelo ~~any~~Maddux ~~meaningful~~Properties, ~~operating activity~~Inc. ~~Accordingly~~, aset ~~a result of the formation transactions~~al., ~~our consolidated~~Case ~~financial~~No. ~~statements~~1:09-bk-13356-KT” ~~are~~(the ~~not~~“Lead ~~comparable~~Chapter to11 ~~the~~Case” ~~combined~~or ~~financial statements~~“Lead ofMMPI ~~the predecessor~~Case”).

~~We commenced~~ On ~~substantial~~September ~~operations~~3, ~~upon~~2009, ~~completion~~two ofadditional ~~our~~MMPI ~~IPO~~subsidiaries, ~~and~~Meruelo ~~sold~~Maddux-845 toS. ~~the public~~Flower 40Street,~~000,000~~ ~~shares~~LLC of(“845 ~~our~~Flower”) ~~common~~and ~~stock~~Meruelo atChinatown, ~~$10.00~~LLC ~~per~~("Meruelo ~~share. On February 14~~Chinatown," ~~2007,~~together ~~the~~with ~~underwriters~~845 ofFlower, ~~our~~the ~~IPO~~"Flower ~~exercised their option to purchase an additional 5~~Debtors"),~~550,000~~ ~~shares~~filed ofvoluntary ~~our~~petitions ~~common~~for ~~stock~~relief atunder ~~$10.00~~Chapter ~~per~~11 ~~share. Including~~of the ~~shares~~Bankruptcy ~~issued~~Code in the ~~over-allotment~~Bankruptcy ~~option~~Court, weCase ~~raised approximately $425~~Nos.7 ~~million~~1:09-bk-21621-KT inand ~~proceeds in our IPO~~1:09-bk-21622-KT, ~~after~~respectively. These ~~the~~cases ~~underwriting discount~~relate ~~but before expenses related~~ to ~~the~~our ~~IPO.~~high-rise ~~Our~~residential ~~company’s~~project ~~operations~~at ~~are predominantly~~705 ~~carried~~W. onNinth ~~through~~Street, and ~~its assets~~ are ~~owned~~not ~~through,~~jointly ~~Meruelo Maddux~~administered ~~Properties,~~under ~~L.P.,~~the ~~which~~Lead weChapter ~~refer~~11 ~~to as our operating partnership~~Case. ~~As of December 31, 2008, we held a 99.6% interest in our operating partnership.~~ The ~~0.4%~~MMPI ofDebtors ~~minority~~and ~~interests~~Flower ~~consists~~Debtors ofare ~~347,835~~referred ~~LTIP units~~to ~~that~~herein ~~have~~as ~~achieved~~the ~~parity~~"Debtors" ~~with~~either ~~common units in our operating partnership. The interest will become 99.0% if 520~~collectively,~~000~~ ~~additional~~or ~~LTIP~~as ~~units~~to ~~achieve parity. We~~certain ~~are also the sole general partner~~ of ~~our~~such ~~operating partnership. We~~debtors ~~are structured~~ as ~~a taxable corporation under Subchapter C of~~ the ~~Internal~~context ~~Revenue Code of 1986~~requires, asand ~~amended~~any ~~(the “Code”). As~~one of ~~December~~which ~~31,~~may ~~2008,~~be wereferred ~~had~~to ~~88,076,987~~herein ~~shares~~as ~~of common~~a ~~stock outstanding~~"Debtor."

~~In addition,~~ We ascontinue ofto ~~January~~operate ~~30,~~our ~~2007,~~businesses ~~the~~and ~~operations~~manage of our ~~company~~properties that are ~~carried~~in ~~on primarily~~Chapter ~~through~~11 ~~Meruelo~~proceedings ~~Maddux~~as ~~Properties,~~debtors ~~L.P.~~and ~~(the~~debtors-in-possession ~~“operating~~under ~~partnership”). Our~~the ~~company~~jurisdiction isof the ~~sole~~Bankruptcy ~~general~~Court ~~partner~~and in ~~the~~accordance ~~operating~~with ~~partnership.~~the ~~Pursuant to~~applicable ~~contribution~~provisions ~~agreements~~of ~~among~~the usBankruptcy Code and orders of the ~~owners~~Bankruptcy Court. As part of ~~our~~the ~~predecessor~~“first ~~business~~day” relief, we ~~received~~the aMMPI ~~contribution~~Debtors ofobtained ~~interests~~Bankruptcy inCourt ~~real~~approval ~~estate~~to, ~~properties~~among inother ~~exchange for~~things, ~~shares~~use ofcash ~~common~~collateral ~~stock~~on inan interim basis, meet our ~~company~~pre-petition payroll obligations, maintain our cash ~~tax~~management ~~coverage~~systems, ~~payments~~maintain ~~and~~utilities, ~~our assumption~~continue ofto ~~debt~~provide employee benefits and ~~other~~maintain ~~specified~~our ~~liabilities~~insurance programs. The ~~Our~~MMPI ~~predecessor~~Debtors ~~business combined~~also 50subsequently ~~limited~~obtained ~~liability~~rulings ~~companies~~determining ~~and~~that ~~three~~they ~~S-corporations~~were ~~with~~not ~~their respective~~subject ~~member/ownership~~to ~~interests.~~the Inprovisions ~~connection~~of ~~with~~the ~~our~~Bankruptcy ~~IPO~~Code ~~and~~applicable ~~our formation~~to ~~transactions,~~debtors weowning ~~acquired~~“single ~~entities~~asset ~~that~~real ~~own~~estate,” oras ~~that~~defined ~~are~~in ~~party~~the Bankruptcy Code. The filing of the Chapter 11 petitions by the Debtors may have given rise to ~~pending~~ ~~purchase~~claims ~~and~~by ~~sale~~lenders of defaults under our debt instruments and agreements,. ~~build-to-suit~~As ~~contracts~~a result, ~~options~~our debt obligations may have become immediately payable. We believe that any efforts to ~~purchase~~ ~~and~~enforce ~~leases~~the inpayment ~~respect~~obligations ofare 32stayed ~~development~~as ~~and~~a ~~redevelopment~~result ~~projects~~of ~~and 22~~the ~~rental~~Chapter ~~projects~~11 filings.

~~We experience~~Summary ~~significant,~~of ~~recurring~~Proposed ~~cash~~Plans ~~shortfalls~~of ~~from~~Reorganization. ~~(i)~~The ~~operating~~Plan ~~activities, (ii)~~for ~~recurring~~the ~~investment~~MMPI ~~activities~~Debtors ~~such~~generally asprovide ~~carrying~~for ~~costs~~the payment in full of all creditor claims over time with interest. Generally our secured creditors for the MMPI Debtors will be paid interest ~~payments,~~ ~~real~~over ~~estate~~the ~~taxes~~term of the Plan and ~~unfunded~~the ~~development~~principal ~~expenditures~~balance ~~and~~will ~~(iii) capital~~be ~~expenditures~~paid oneither ~~existing~~through ~~rental~~the ~~properties~~sale of the property securing the note, the refinance of the secured debt, or other satisfaction of the secured creditors’ claims. The Plan for the MMPI Debtors contemplate adding the accrued interest incurred before the effective date of the Plan to the principal balance of the secured debt unless we have agreed with the creditor to a different treatment. ~~Moreover~~The Plan also currently contemplates that a stockholder’s shares of our common stock will be treated in one of two different ways. The stockholder may elect to receive $0.08 per outstanding share. Alternatively, the ~~current~~ ~~economic~~stockholder ~~recession~~may ~~and~~elect ~~associated~~to ~~disruption~~receive a number of new shares of common stock in our reorganized, post-bankruptcy company equal to the ~~debt~~number ~~and~~of ~~equity capital~~shares ~~markets~~of ~~have~~our ~~been~~existing ~~extremely~~common ~~challenging~~stock ~~for~~held by the stockholder. The second option will require that the stockholder make a cash payment to us ~~and~~equal ~~have~~to ~~made~~$0.07 ~~it difficult~~per new share, in addition to exchanging the stockholder’s old shares for usthe new shares. The new shares will be subject to ~~refinance~~significant ownership limits and transfer restrictions in our ~~maturing~~organizational ~~indebtedness~~documents orand towill ~~generate~~not ~~liquidity by~~be ~~selling~~freely ~~assets~~tradeable. If Asas a results of ~~December~~the ~~31,~~second ~~2008~~treatment we would have 300 or more stockholders, we ~~had~~will $4effect a reverse stock split to eliminate stockholders so that we have fewer than 300.5 ~~million~~We incan ~~unrestricted cash~~make no assurance that any plan of reorganization will be confirmed and made effective on any of the terms and conditions currently contemplated. Our operating partnership will be merged into MMPI and our operating partnership’s equity interests will be cancelled. Payment under the Plan by the MMPI Debtors will be funded from our operations, sale and refinance of certain of our assets, and from other sources.

We Liabilities ~~lack the~~Subject ~~necessary~~to ~~cash~~Compromise. ~~flow~~Differences orbetween ~~liquidity~~liabilities towe ~~continue~~have ~~making~~estimated ~~required~~and ~~monthly payments~~the onclaims ~~our~~filed, ~~loans~~ or to ~~repay~~be ~~our~~filed, ~~maturing~~are ~~loans. We~~being ~~have~~investigated ~~stopped making interest~~ and ~~principal~~resolved ~~payments on, and may be declared~~ in ~~default~~connection ~~under, 26~~with ofthe ~~our~~claims 30resolution ~~loans totaling $266~~process.~~0 million.~~ We will continue to ~~make interest~~evaluate ~~payments~~these onliabilities ~~our~~throughout ~~construction~~the ~~loan~~Chapter at11 ~~717~~process ~~W. Ninth Street~~ and onadjust ~~other three~~amounts ~~other~~as ~~loans~~necessary. Such ~~that~~adjustments ~~have~~may ~~interest~~be ~~reserves~~material. In ~~addition,~~light ~~on December~~of ~~15,~~the ~~2008,~~expected wenumber ~~did~~of ~~not~~creditors, ~~make~~the aclaims ~~$4.0~~resolution ~~million~~process ~~principal~~may ~~repayment~~take onconsiderable atime ~~$17.0 million land loan. The lender subsequently agreed~~ to ~~defer the principal repayment~~complete. ~~On March 15~~Accordingly, ~~2009,~~the weultimate ~~will~~number ~~owe~~and ~~another~~amount ~~$5.0~~of ~~million~~allowed ~~in principal~~claims onis ~~this land loan. Additionally, we have~~ not ~~paid~~presently ~~or been able to extend or refinance three other loans totaling $86~~known.~~9 million that matured on February 28, 2009 and March 1, 2009.~~

WeSettlement ~~are currently~~Agreements. ~~seeking~~On ~~loan~~October ~~workout~~22, ~~agreements~~2009 ~~with~~the ~~four~~Bankruptcy ~~depository~~Court ~~lenders~~entered onan ~~loans that~~order ~~total~~approving a settlement pursuant to which the parties agreed to amend a $~~177~~3.84 million secured note. We ~~are~~The ~~unsure~~principal asbalance did not change but the maturity date of the loan was extended to ~~what~~August ~~results~~7, ~~will~~2012 ~~be derived~~and the interest rate was reduced to a fixed rate of 2.5% per annum to maturity. The order provided for, among other things, the payment of some past-due interest from ~~such~~unrestricted ~~efforts~~cash and ~~are~~authorized ~~exploring~~recurring ~~various~~interest ~~restructuring~~only ~~options~~payments ~~with our~~thereafter ~~professional~~to ~~advisors~~be made from cash collateral.

~~Additionally~~ On January 5, we ~~received~~2010, athe ~~“going~~Bankruptcy ~~concern”~~Court ~~opinion~~entered ~~from~~an ~~our~~order ~~independent~~approving ~~auditors~~a ~~with~~settlement, ~~respect~~ pursuant to ~~our~~which ~~financials~~the ~~included~~parties ~~this~~agreed ~~report. There~~to ~~may~~amend bea ~~substantial doubt~~$2.9 ~~about~~million ~~our~~secured ~~ability~~note. toThe ~~continue~~settlement asprovided for a ~~going~~$55,000 ~~concern~~principal ~~because~~reduction payment and $100,000 in approved fees. The maturity date of ~~cash shortfalls~~the ~~from~~loan ~~rental~~was ~~and~~extended ~~development~~to ~~operations~~January 26, 2013 and the interest rate was reduced to a ~~need~~fixed rate of 3.75% per annum to maturity. The order provided for, ~~loan restructurings~~among ~~and~~other things, the ~~related~~payment ~~difficulties~~of inpast-due ~~obtaining~~interest ~~loan~~from ~~extensions~~unrestricted cash and ~~the timing~~authorized ~~and~~recurring ~~magnitude~~interest ofonly ~~non-core~~payments ~~asset~~thereafter ~~sales~~to be made from cash collateral.

~~In addition~~ On toMarch ~~seeking~~30, ~~loan~~2010, ~~workouts~~the weBankruptcy ~~have~~Court ~~reduced~~entered ~~our~~an ~~employee~~order ~~base~~approving ~~and~~a ~~have suspended~~settlement ~~all~~with ~~substantial~~one ~~development~~of ~~efforts,~~its ~~except~~lenders ~~for~~to ~~the~~amend ~~funded~~three ~~development activity~~secured atnotes ~~our~~totaling ~~717~~$21.5 Wmillion. ~~Ninth~~ StThe principal balances did not change. ~~project~~The maturity dates of these loans were extended to January 1, 2013. We The initial interest rate is 3.25%. The interest rates are ~~also examining all~~ ~~feasible strategic~~based ~~alternatives~~on the six month Treasury plus 3. ~~Potential strategic~~0% ~~alternatives~~per ~~include a~~annum. ~~voluntary~~Contingent ~~bankruptcy~~interest ~~filing~~also ~~under~~may ~~Chapter 11~~be applicable and accrues at the greater of i) prime plus 1.0% less the Upay rate or ii) 8.S.25% ~~Bankruptcy~~less ~~code~~the pay rate. It Contingent interest is ~~also~~applicable ~~possible~~and payable to the extent that ~~an involuntary~~there ~~petition~~are ~~for~~excess ~~bankruptcy~~proceeds ~~may~~upon the sale of the property or based on a calculation of excess proceeds that would be ~~filed~~derived ~~against~~using usthe deemed fair market value of the property at the prepayment date or at loan maturity.

As Having ~~of December~~obtained ~~31,~~prior ~~2008~~approval from the Bankruptcy Court, we ~~have~~sold 99on April 26, 2010 our 705 W.6 Ninth Street project for $110.0 million and paid off our $84.0 million 12.0% ~~ownership~~construction ~~interests~~loan with its applicable accrued interest. When we entered into our purchase and sale agreement in ~~each~~February 2010, we also began to negotiate a settlement agreement with our construction lender. We agreed to pay the principal amount of the ~~entities (which~~note ~~have~~and ~~ownership,~~interest ~~leasehold~~at orthe ~~acquisition~~stated ~~rights~~rate. To the extent not recovered in ~~respect~~the ofpayoff amount, the ~~projects~~ ~~indicated~~lender inwaived ~~parentheses)~~any asrights, ~~summarized~~which ~~below~~were disputed by us, to charge default interest or recover bankruptcy related costs that it had incurred.

On June 8, 2010 the Bankruptcy Court entered an order approving a settlement pursuant to which the parties agreed to amend a $2.0 million secured note. The maturity date was extended to June 8, 2013 and the interest rate was fixed at 4% per annum with limited amortization. The settlement also provided for the payment of accrued interest and $35,000 in approved fees.

On June 17, 2010, the Bankruptcy Court entered an order approving a settlement with one of the Company’s lenders to amend two secured notes totaling $58.7 million. The settlement provided for the payment of approximately $0.19 million in approved fees. Pursuant to the agreement, the maturity dates will be extended four years from the date the Bankruptcy Court will issue its order, which is generally a few days after a hearing. Outstanding accrued interest from January 1, 2009 through the date of the Bankruptcy Court’s order totaling approximately $3.4 million will be added to the principal balance of the notes. The payment rate during the term of the notes is interest only and is due and payable monthly at 4.0% per annum. Interest rates during the term of the notes are 4.0% per annum during the first year, 4.5% per annum during the second year and 5.0% per annum for the third and fourth year. Interest that accrues in excess of the payment rate is deferred until the note is paid in full or upon the maturity date.

On March 19, 2010, we filed a motion for approval of a settlement with the County of Los Angeles Tax Collector regarding the calculation and payment of the County’s secured tax claims. An initial hearing on the motion was held on April 9, 2010, and continued to June 29, 2010. We are continuing to negotiate with other lenders and parties in interest regarding the treatment of their claims under our proposed Chapter 11 plan.

Once a settlement agreement is approved by the Bankruptcy Court, we reclassify the accrued interest and principal on the consolidated balance sheet from liabilities subject to compromise to accrued expenses and other liabilities and notes payable secured by real estate.

We are actively attempting to reach agreements with our lenders to extend the maturity dates on our notes and significantly reduce our interest rates. We have completed settlement agreements with six lenders and have obtained the necessary bankruptcy court approval with loans totaling approximately $172.4 million. On April 26, 2010 and in connection with the sale of 705 W. Ninth Street, we paid off our $84.0 million construction loan secured by this project. Excluding this loan, the weighted average pay rate on the loans approved by the Bankruptcy Court is approximately 3.8%. Assuming the applicability of contingent interest, the weighted average interest rate would be 5.0%. In the Lead Chapter 11 Case, our proposed plan of reorganization, if confirmed and effective, would change the interest rates on our loan agreements from the weighted average default rate of approximately 9.2% asserted by lenders on some loans to 4.0%. It would also extend the maturity dates on these loans for a period of 5 or 7 years. There is no assurance that a plan containing these terms will be confirmed by the Bankruptcy Court, and the Debtors may amend their plans and propose different terms.

The foregoing discussion provides general background information regarding our Chapter 11 Cases, and is not intended to be an exhaustive description. Financial information presented to the Bankruptcy Court is prepared according to requirements of federal bankruptcy law and the local Bankruptcy Court. While such financial information accurately reflects information required under federal bankruptcy law, such information may be unconsolidated, unaudited and prepared in a format different than that used in our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States and filed under the securities laws. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for investment decisions relating to our stock or for comparison with other financial information filed with the Securities and Exchange Commission.

We commenced the Chapter 11 proceedings to preserve the going concern value of our business. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:

•

our ability to generate and maintain adequate cash;

•

the cost, duration and outcome of the reorganization process in the Chapter 11 proceedings; and

•

our ability to retain key employees.

These challenges are in addition to those operational and competitive challenges that we face in connection with our business. In conjunction with our advisors, we are implementing strategies to aid our liquidity and our ability to continue as a going concern. However, we cannot guarantee that such efforts will be successful.

We have taken and will continue to take aggressive actions to maximize cash receipts and minimize cash expenditures with the understanding that certain of these actions may make us less able to take advantage of future improvements in the market. We continue to take steps to reduce our expenses by streamlining activities and increasing efficiencies, which have led and will continue to lead to reductions in the workforce. However, much of our efforts to reduce expenses are being offset by professional and consulting fees associated with our Chapter 11 cases.

Business Overview

We were formed to succeed certain operations of the Meruelo Maddux predecessor, which was not a legal entity but rather a combination of entities and operations whose owners were Richard Meruelo, Maria Meruelo and John Charles Maddux and were collectively doing business as Meruelo Maddux, an owner, developer and acquirer of industrial, commercial and residential properties. We were incorporated in Delaware on July 5, 2006 in anticipation of our initial public offering of common stock (our “IPO”), which was consummated on January 30, 2007 concurrently with the consummation of various formation transactions.

We commenced substantial operations upon completion of our IPO and sold to the public 40,000,000 shares of our common stock at $10.00 per share. On February 14, 2007, the underwriters of our IPO exercised their option to purchase an additional 5,550,000 shares of our common stock at $10.00 per share. Including the shares issued in the over-allotment option, we raised approximately $425.7 million in proceeds in our IPO, after the underwriting discount but before expenses related to the IPO. Our company’s operations are predominantly carried on through, and its assets are owned through, Meruelo Maddux Properties, L.P., which we refer to as our operating partnership. As of December 31, 2009, we held a 99.6% interest in our operating partnership. The 0.4% of non-controlling interests consists of 347,835 LTIP units that have achieved parity with common units in our operating partnership. We are also the sole general partner of our operating partnership. We are structured as a taxable corporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). As of December 31, 2009, we had 87,964,784 shares of common stock outstanding.

Additionally, we received a “going concern” opinion from our independent auditors with respect to our financials included in this report. There may be substantial doubt about our ability to continue as a going concern because of recurring cash shortfalls and because of the difficulties to emerge successfully from bankruptcy.

As of December 31, 2009, we have 99.6% beneficial ownership interests in each of the entities (projects indicated in parentheses) as summarized below.

Rental Properties:

•

788 South Alameda, LLC (788 S. Alameda)

•

Merco Group — 3185 E. Washington Boulevard, LLC (Washington Cold Storage)

• ~~Meruelo~~Alameda ~~Maddux~~Produce ~~— 500 Mateo Street~~Market, LLC (~~500~~Alameda ~~Mateo~~Square & Seventh Street Produce Market)

• Alameda Produce Market, Inc. (Alameda Square & Seventh Street Produce Market)

•

Meruelo Wall Street, LLC (Meruelo Wall Street)

•

Merco Group — 620 Gladys Avenue, LLC (620 Gladys Avenue)

•

Meruelo Maddux Properties — 1919 Vineburn Street, LLC (1919 Vineburn Avenue)

•

Merco Group — 1500 Griffith Avenue, LLC (1500 Griffith Avenue)

•

Santa Fe Commerce Center, Inc. (Crown Commerce Center)

•

905 8th Street, LLC (905 E. 8th Street)

•

Merco Group — 1211 E. Washington Boulevard, LLC (1211 E. Washington Blvd. & Washington at Central Retail)

•

Meruelo Maddux — 3rd & Omar Street, LLC (3rd & Omar Street)

•

Merco Group, LLC (Sky Arc—Development Project and Southern California Institute of Architects—Operating Project)

•

Santa Fe & Washington Market, Inc. (American Apartments)

• Merco Group — 2001-2021 West Mission Boulevard, LLC (Pomona ~~East and Pomona~~ West)

•

Meruelo Farms, LLC (Center Village)

•

Meruelo Maddux Properties — 306-330 N. Avenue 21, LLC (2131 Humboldt Street)

•

Merco Group — 5707 S. Alameda, LLC (5707 S. Alameda)

•

Meruelo Maddux — 1000 E. Cesar Chavez, LLC (1000 E. Cesar Chavez)

•

Merco Group — Little J, LLC (TransAmerica Lofts – Operating Project and Southpark Towers – Development Project)

•

Meruelo Maddux — 420 Boyd Street, LLC (420 Boyd Street)

•

Meruelo Maddux — 230 W. Avenue 26, LLC (230 W. Ave. 26th)

•

2640 Washington Boulevard, LLC (Washington Produce Market)

•

Meruelo Maddux — 2415 E. Washington Blvd., LLC (Crown Commerce Center)

•

Merco Group — 2529 Santa Fe Avenue, LLC (Santa Fe Plaza)

•

Meruelo Maddux Properties — 2951 Lenwood Road, LLC (Barstow Produce Center)

•

Meruelo Maddux Properties — 760 S. Hill Street, LLC (The Union Lofts)

Real Estate Held for Development:

• Meruelo Maddux — 555 Central Avenue, LLC (American Fish)

•

Meruelo Maddux Properties — 2131 Humboldt Street, LLC (2131 Humboldt Street)

•

Merco Group — Ceres Street Produce, LLC (Ceres Street Produce Market)

•

Merco Group — 1225 E. Washington Boulevard, LLC (Crown Commerce Center)

• 1828 Oak Street, LLC (1828 Oak Street)

•

Merco Group — 4th Street Center, LLC (4th Street Center)

•

Merco Group — 425 West 11th Street, LLC (Desmond Building)

•

Merco Group — 1308 S. Orchard, LLC (Musica Latina Building)

•

Meruelo Maddux — Mission Boulevard, LLC (Pomona East)

•

Merco Group — 801 E. 7th Street, LLC (801 E. 7th Street)

• ~~Merco~~Meruelo ~~Group~~Maddux — ~~2035~~845 ~~Camfield~~S. ~~Avenue~~Flower Street, LLC (~~Camfield~~705 ~~Retail~~W. ~~Center~~Ninth ~~and Gold’s Gym & Storage~~Street)

• Merco Group — 2040 Camfield Avenue, LLC (Camfield Retail Center and Gold’s Gym & Storage)

• Meruelo Maddux — 845 S. Flower Street, LLC (717 W. Ninth Street)

•

Meruelo Maddux — 915-949 S. Hill Street, LLC (Ullman Tower One)

•

Meruelo Maddux — 817-825 S. Hill Street, LLC (Ullman Tower Two)

•

Merco Group — Southpark, LLC (Southpark Towers, TransAmerica Lofts & Olive Street Towers)

•

Meruelo Maddux — 336 W. 11th Street, LLC (Southpark Towers)

•

Meruelo Chinatown, LLC (Meruelo Chinatown Village)

•

Meruelo Baldwin Park, LLC (Meruelo Baldwin Park)

•

Meruelo Maddux Properties — 1060 N. Vignes, LLC (Vignes Village)

•

Meruelo Maddux Properties — 1009 North Citrus Avenue, Covina, LLC (Citrus Gardens)

• Merco Group — 146 E. Front Street, LLC (Covina Gardens)

•

Meruelo Maddux Properties — 12385 San Fernando Road, LLC (San Fernando Court)

Other Entities:

•

Meruelo Maddux Construction, Inc.

•

Meruelo Maddux California Future Fund, LLC

•

MMP Ventures, LLC

•

Meruelo Maddux Properties, LP

•

Meruelo Maddux Management, LLC

•

Alameda North Parking, LLC

•

Funes Architecture, LLC

•

Santa Fe Commerce Center, Inc.

•

Merco Group — 146 E. Front Street, LLC (Covina Gardens)

•

1828 Oak Street, LLC (1828 Oak Street)

•

Meruelo Maddux — 555 Central Avenue, LLC (American Fish)

•

Meruelo Maddux — 5500 Flotilla Street, LLC (Camfield Retail Center)

•

Meruelo Maddux — 500 Mateo Street, LLC (500 Mateo Street)

•

Merco Group — 2035 Camfield Avenue, LLC (Camfield Retail Center)

•

Merco Group — 2040 Camfield Avenue, LLC (Gold’s Gym & Storage)

Significant Financing Transactions

~~The~~ During ~~State of~~the ~~California~~year ~~Public~~ended ~~Employee’s~~December ~~Retirement System~~31, ~~or CalPERS~~2008, ~~had~~we ~~been~~entered ~~a substantial~~into ~~investor~~an ~~in our predecessor business~~$84.0 Inmillion ~~February~~construction ~~2005,~~loan ~~CalPERS~~facility ~~had provided our predecessor business~~ with ~~capital~~an inaffiliate ~~the form~~ of aCanyon ~~revolving~~Capital ~~credit facility~~Realty inAdvisors ~~the~~LLC ~~principal~~to ~~amount~~provide offor ~~approximately~~the ~~$150.0~~completion ~~million. We used a portion~~ of the ~~net~~construction ~~proceeds~~ of our ~~IPO~~class toA, ~~pay~~high-rise ~~all~~apartment ~~amounts~~project ~~outstanding~~located ~~under~~at ~~the CalPERS~~705 ~~facility,~~W. ~~including~~Ninth ~~$34~~Street.2 ~~million~~On inJanuary ~~accrued~~28, ~~interest~~2009, ~~and~~we ~~terminated the~~drew ~~facility.~~down Wethe ~~further~~second ~~reduced~~tranche ~~interest~~of ~~expense by repaying approximately~~ $~~109~~42.9 0 million, offor ~~net~~a total principal ~~mortgage~~balance ~~debt~~of ~~secured~~$84.0 ~~by our projects~~million.

During the year ended December 31, 2008, we entered into an $84.0 million construction loan facility with an affiliate of Canyon Capital Realty Advisors LLC located in Los Angeles, California to provide for the completion of the construction of our class A, high-rise apartment project located at 717 W. Ninth Street. This flexible or bridge construction loan is for an initial 18-month term with five extension options of six months each for a total possible term of 48 months. The interest rate of this loan is fixed at 12.0% per annum through final maturity. The commitment fee was 1.5% of the total loan amount for the initial 18-month term. Extension fees are 0.5% of the commitment for the first three extensions, 1.0% for the fourth extension and 1.5% for the fifth extension. The loan may be repaid in full at anytime within the initial term for a prepayment penalty that provides for the lender to earn a minimum of 12 months of interest on the loan funds advanced. After the initial term, the loan may be repaid in full with no prepayment penalty.

Revenue Base

As of December 31, ~~2008~~2009 and ~~2007~~2008, we had 2827 and 2728 projects, respectively, that were classified as rental properties. We receive revenue primarily from rental income (including tenant reimbursements) from commercial and industrial properties, which is included as rental income in the financial statements of our company and our predecessor business. We also generate a small amount of management fee revenue by providing property management, leasing and development services to properties that are owned by affiliates. However, our business plan is distinctive in that we focus on urban infill development and on finding different, more profitable uses for existing urban properties. Such properties may have substantial vacancies or unstable occupancies or require major renovation for a new use. Because we are foremost a redeveloper and the large majority of our projects are not complete, we do not believe that the results of our current leasing operations are indicative of the inherent value of our existing portfolio.

Recent Developments

On January 2822, ~~2009~~2010, we ~~drew~~filed ~~down~~Form 15 with the ~~second~~SEC ~~tranche~~in oforder ~~$42.0~~to ~~million~~deregister offrom ~~our~~any ~~717~~future ~~W 9th Street~~filings ~~loan. The~~pursuant ~~loan~~to ~~balance~~the isSecurities ~~now~~Exchange ~~$84.0~~Act ~~million~~of 1934.

~~Subsequent to~~ On ~~year-end~~March 30, we2010, ~~have~~the ~~resolved~~Bankruptcy ~~the~~Court ~~two~~entered ~~outstanding~~an ~~purchase~~order ~~obligations~~approving ~~discussed earlier~~a insettlement ~~this~~with ~~report~~one of its lenders to amend three secured notes totaling $21. On5 million. The principal balances did not change. The maturity dates of these loans were extended to January 51, ~~2009,~~2013. weThe ~~terminated~~initial ~~our~~interest ~~lease and~~rate ~~option~~is ~~rights~~3.25%. atThe ~~our~~interest ~~American~~rates ~~Fish~~are ~~project~~based inon ~~exchange~~the ~~for~~six amonth ~~portion~~Treasury plus 3.0% per annum. Contingent interest also may be applicable and accrues at the greater of i) prime plus 1.0% less the ~~sales~~ ~~proceeds~~pay rate or ii) 8. As25% less the pay rate. Contingent interest is applicable and payable to the extent that there are excess proceeds upon the sale of ~~February~~the ~~17,~~property ~~2009,~~or webased ~~have~~on ~~terminated~~a calculation of excess proceeds that would be derived using the ~~purchase obligation~~deemed ~~for~~fair ~~1828~~market ~~Oak~~value ~~Street~~of the property at the prepayment date or at loan maturity.

~~As previously~~ During ~~mentioned~~February 2010, we ~~may~~filed beseparate inplans ~~default~~of asreorganization wefor ~~have~~the ~~not~~MMPI ~~been~~Debtors ~~able~~and tothe ~~extend~~Flower ~~or refinance~~Debtors. ~~any~~As a result of the ~~approximately~~sale ~~$86.9~~of ~~million~~our inproject ~~loans~~at ~~that~~705 ~~matured~~W. inNinth ~~the first~~Street ~~quarter~~and ofour ~~2009~~settlement ~~and~~with Canpartners, we ~~did~~anticipate ~~not~~that ~~make~~the aplan ~~scheduled~~for ~~$5.0~~the ~~million~~Flower ~~principal paydown~~Debtors, ~~due~~if onwe adetermine ~~land~~to ~~loan~~pursue ina ~~the~~plan, ~~first~~will ~~quarter~~be ofsubstantially ~~2009~~modified. We ~~also recently~~These ~~stopped~~Plans ~~making~~provide ~~our~~for ~~regular~~the ~~monthly~~payment ~~interest~~in ~~and~~full ~~principal~~of ~~payments~~all ~~on 26~~claims ofover ~~our~~time 30with ~~loans~~interest. As aOur ~~result,~~secured ~~two~~creditors ofwill ~~our~~be ~~secured~~paid ~~lenders~~interest ~~have commenced~~over ~~foreclosure~~the ~~proceedings. With~~term ~~respect~~of tothe ~~our~~Plan ~~Pomona~~and ~~East project,~~the ~~our~~principal ~~secured~~balance ~~lender~~will ~~has~~be ~~commenced~~paid aeither ~~nonjudicial~~through ~~foreclosure~~the ~~proceeding by~~sale ~~filing,~~of onthe ~~February~~property ~~17,~~securing ~~2009~~the note, athe ~~notice~~refinance of ~~default~~the ~~and~~secured ~~election~~debt, toor ~~sell~~other insatisfaction of the ~~real~~ ~~property~~secured ~~records. With~~creditors’ ~~respect to our 788 S~~claims. ~~Alameda~~The ~~project, our~~Plans ~~secured~~contemplate ~~lender~~adding ~~has~~the ~~commenced~~accrued ainterest ~~judicial~~incurred ~~foreclosure~~before ~~proceeding~~the byeffective ~~filing~~date ~~an action~~of onthe ~~March~~Plan 4,to ~~2009 in~~ the ~~Superior~~principal ~~Court~~balance of the ~~County~~secured ofdebt. ~~Los~~Payment ~~Angeles,~~under ~~and has~~the ~~additionally~~Plan ~~requested~~will ~~the~~be ~~appointment~~funded offrom aour ~~receiver~~operations, ~~for~~sale ~~this project. A~~and ~~hearing~~refinance ~~regarding~~of ~~the~~certain ~~appointment~~ of ~~receiver~~our isassets, ~~scheduled for~~and ~~March~~from ~~30,~~other ~~2009~~sources.

Having obtained prior approval from the Bankruptcy Court, we sold on April 26, 2010 our 705 W. Ninth Street project for $110.0 million, paid off our $84.0 million 12.0% construction loan with its applicable accrued interest, and received approximately $18.3 million in net proceeds. As a result of this sale, we recorded an impairment loss on $18.1 million taken in the fourth quarter of 2009. When we entered into our purchase and sale agreement in February 2010, we also began to negotiate a settlement agreement with our construction lender. We agreed to pay the principal amount of the note and interest at the stated rate. To the extent not recovered in the payoff amount, the lender waived any rights, which were disputed by us, to charge default interest or recover bankruptcy related costs that it had incurred. We have also set aside funds in escrow to cover for potential liabilities related to construction issues. We expect to receive additional proceeds of approximately $4.6 million once we settle with these vendors.

On June 17, 2010, the Bankruptcy Court entered an order approving a settlement with one of the Company’s lenders to amend two secured notes totaling $58.7 million. The settlement provided for approximately $0.19 million in approved fees. The maturity dates will be extended four years from the date Bankruptcy Court issue its order, which is generally a few days after the hearing. Outstanding accrued interest from January 1, 2009 through the date of the Bankruptcy Court’s order totaling approximately $3.4 million will be added to the principal balance of the notes. The payment rate during the term of the notes is interest only and is due and payable monthly at 4.0% per annum. Interest rates during the term of the notes are 4.0% per annum during the first year, 4.5% per annum during the second year and 5.0% per annum for the third and fourth year. Interest that accrues in excess of the payment rate is deferred until the note is paid in full or upon the maturity date.

Critical Accounting Policies

Our discussion and analysis of the financial condition and results of operations of our company and our predecessor are based upon the consolidated and combined financial statements, and schedules which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period. Actual amounts may differ from those estimates and assumptions. We have provided a summary of our significant accounting policies in Note 34 to the consolidated and combined financial statements included elsewhere in this report. We have summarized below those accounting policies that require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. We evaluate these estimates on an ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of that date.

Real Estate Held for Development

Real estate held for development includes land and buildings (at cost) we intend to or have begun developing. We start to capitalize costs to real estate held for development as we take steps required to prepare the property for its intended use. Project costs associated with the development and construction of a real estate project, including land, entitlement and building improvement costs, are capitalized as construction in progress. In addition, interest, loan fees, real estate taxes, general and administrative expenses that are directly associated with the development are also capitalized in the period in which they are incurred. We reduce these capitalized costs for incidental revenue generated from tenant leases, parking income and movie shoots. If we ~~temporarily~~ suspend development activities which we had previously commenced, we cease capitalizing costs. We will continue to expense these costs until we renew our development activities. Once the real estate project is completed and the project is ready for its intended use, the costs capitalized to construction in progress and the land and building costs associated with the completed project are transferred to rental properties on the consolidated balance sheet as the historical cost of the project.

Rental Properties

Rental properties, including land, building improvements and capitalized leasing commissions, are stated at cost, less accumulated depreciation. We are required to make subjective assessments as to the useful lives of our assets for purposes of determining the amount of depreciation to record on an annual basis with respect to our buildings and building improvements. These assessments are primarily based upon our decision to either develop or operate a property. For example, if we determine that we will be developing a property and the building will be replaced upon commencement of construction, the estimated useful life will be the time from the date of purchase to the estimated date of demolition. Upon completion of the development, buildings and building improvements are depreciated over estimated useful lives ranging from 2 to 39 years. Tenant improvements are depreciated over the term of the respective tenant leases. Capitalized lease commissions are amortized over the term of the related leases.

Costs related to the acquisition and improvement of the rental properties are capitalized, while expenses for repairs and maintenance are charged to operations as incurred. In certain cases, certain expenses such as property taxes, utilities and repair and maintenance costs are chargeable to the tenants as provided in their lease agreements. Such reimbursements are recorded as rental income in the consolidated and combined statements of operations. Costs related to terminated deal costs are expensed when we cease due diligence and related acquisition efforts.

The acquisition of real estate properties is accounted for ~~in accordance with SFAS No. 141, Business Combinations (“SFAS 141”)~~ whereby the value of real estate acquired is allocated between land, buildings and improvements, acquired leasing commissions and tenant coordination costs, and to acquired above- and below-market leases and tenant relationships. The fair value of tangible assets is determined on an “as-if-vacant” basis based upon comparable sales and other relevant information obtained in connection with the acquisition of the property. The estimated fair value of acquired in-place at-market leases are the costs we would have incurred to lease property to the occupancy level of the property at the date of acquisition. Such estimate includes the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period, which generally ranges up to eight to nine months. These allocations have a direct impact on our results of operations as allocations between land, buildings and improvements because, if we were to allocate more value to land, there would be no depreciation with respect to such amount. If we were to allocate more value to the buildings as opposed to allocating the value of tenant leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the terms of the leases.

Revenue Recognition

Revenue is recognized in accordance with Staff Accounting Bulletin No. 104 of the Securities and Exchange Commission, Revenue Recognition (“SAB 104”), as amended. SAB 104 requires that four basic criteria must be met before revenue can be recognized: persuasive evidence of an arrangement exists; the delivery has occurred or services rendered; the fee is fixed and determinable; and collectibility is reasonably assured. All leases are classified as operating leases and minimum rents are recognized on lease terms exceeding one year on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in accounts receivable in the consolidated ~~and combined~~ balance sheets. Recoveries from tenants for common area maintenance expenses, real estate property taxes and other recoverable operating expenses are recognized as revenue in the period the associated costs are incurred. In addition, the company records a capital asset for leasehold improvements constructed by us that are reimbursed by tenants, with the offsetting amount recorded to deferred revenue which is included in accrued expenses and other liabilities. The deferred revenue is amortized as additional rental revenue over the life of the related lease.

42Rental revenue from month-to-month leases or leases with no scheduled rent increases or other adjustments is recognized on a monthly basis when earned. Lease termination fees are recorded when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

We ~~maintain~~ anrecognize ~~allowance~~gains ~~for~~on ~~estimated~~sales ~~losses~~of ~~that~~real ~~may~~estate ~~result~~when ~~from~~all ~~the inability~~ of ~~tenants~~ ~~to make required lease payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to~~ the ~~amount~~following offour ~~unpaid~~criteria ~~rent~~are ~~and deferred rent.~~met:

~~Rental revenue~~1) ~~from~~A ~~month-to-month~~sale ~~leases or leases with no scheduled rent increases or other adjustments~~ is ~~recognized on a monthly basis when earned.~~consummated,

~~Lease termination~~2) ~~fees~~The ~~are~~buyer’s ~~recorded~~initial ~~when the related leases are canceled~~ and ~~our company has no~~ continuing ~~obligation~~investments toare ~~provide~~adequate ~~services~~ to ~~such~~demonstrate ~~former~~a ~~tenants. Lease~~commitment ~~termination~~to ~~fees~~pay ~~are included in rental revenues and were not material~~ for the ~~years ended December 31~~property, ~~2008, 2007 and 2006.~~

~~We recognize~~3) ~~gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate.~~ The ~~specific~~seller’s ~~timing~~receivable ~~of a sale~~ is ~~measured~~not ~~against~~subject ~~various criteria in SFAS No. 66 related~~ to ~~the~~future ~~terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the property. If the sales criteria are not met~~subordination, ~~we defer gain recognition and accounts for the continued operations of the property by applying the finance, installment or cost recovery methods, as appropriate, until the sales criteria are met.~~

~~Evaluation~~ 4) The seller has transferred to the buyer the usual risks and rewards of ~~Asset~~ownership ~~Impairment~~in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property.

~~We evaluate~~If ~~a property for potential impairment when events or changes in circumstances indicate that~~ the ~~current~~sales ~~book~~criteria ~~value~~are ~~of the property may~~ not ~~be recoverable~~met ~~pursuant to SFAS No. 144, Accounting for~~ the ~~Impairment~~company ~~or Disposal~~defers ofgain ~~Long-Lived~~recognition Assets. In the event that these periodic assessments result in a determination that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and ~~eventual~~accounts ~~disposition~~for of the ~~property,~~continued ~~we would~~operations ~~recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value~~ of the property. ~~Estimates~~by ofapplying ~~expected future net cash flows are inherently uncertain and are based on assumptions dependent upon future and current market conditions and events that affect~~ the ~~ultimate value of the property. These estimates require us to make assumptions relating to~~finance, ~~among~~ ~~other~~installment ~~things,~~or ~~future~~cost rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future sale of the property. We recognized impairment on several rental and development projects due to the market value assessments of the fair value. In addition, we recognized impairment on several development projects after carefully evaluating our options and making the strategic business decision to no longer pursue our purchase of these projects. As such, we recognized impairments on purchase deposits (that may be subject to future recovery) ~~and capitalized costs related to these projects. As a result~~methods, weas ~~recognized $142.3 million of impairment losses on real estate during the year ended December 31~~appropriate, ~~2008. No~~ ~~impairment~~until ~~was recognized during~~ the ~~years~~sales ~~ended~~criteria ~~December 31,~~are ~~2007 and 2006~~met.

Impairment of Long-Lived Assets

We record impairment losses when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets to be held and used are less than their related carrying amounts. The amount recorded as an impairment loss is measured as the difference between the carrying value of the asset and its related discounted cash flows. In addition, the Company accounts for long-lived assets to be disposed of at the lower of their carrying amounts or fair value less selling and disposal costs. Management assesses whether there has been impairment in the value of its long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

If the current carrying value exceeds the estimated undiscounted cash flows, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its value based on the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. As such, we recognized impairments on purchase deposits and capitalized costs related to these projects. As a result, we recognized $112.0 and $36.8 million of impairment loss on development and rental real estate during the year ending December 31, 2009, respectively. During the year ending December 31, 2008, we recognized $142.3 million of impairment loss on development and rental real estate. No impairment was recognized during the year ended December 31, 2007.

Factors That May Influence Future Results of Operations

The following is a summary of the more significant factors we believe may affect our results of operations. For a more detailed discussion, see the information under the caption “Risk Factors” elsewhere in this report.

~~Effect of~~We ~~Debt~~filed ~~and~~for ~~Equity~~protection ~~Capital~~under ~~Market~~Chapter ~~Disruptions~~11 of the U.S. Bankruptcy Code.

~~Our primary~~As ~~objective~~more isfully described in Note 1 to ~~maximize~~the ~~return~~consolidated onfinancial ~~investment~~statements ~~through~~of ~~development~~this report, the MMPI Debtors filed voluntary petitions to reorganize under Chapter 11 on March 26 and ~~redevelopment~~ ~~activities~~27, ~~and~~2009. ~~these~~On ~~activities~~September ~~require~~3, ~~significant~~2009, ~~amounts~~the ~~of capital~~Flower Debtors filed Chapter 11 petitions. ~~The~~During ~~current~~our ~~disruption~~Chapter 11 cases, we plan to continue to operate our business and manage our properties as debtors and debtors-in-possession under the ~~debt~~jurisdiction ~~and~~of ~~equity~~the ~~capital markets~~Bankruptcy ~~has~~Court ~~made~~and itin ~~more~~accordance ~~difficult~~with ~~for~~the usapplicable toprovisions ~~obtain~~of ~~debt financing~~Chapter 11. ItOur ~~has~~operations, ~~also~~including ~~caused~~our usability to ~~evaluate~~execute ~~additional~~our ~~sources~~business ~~of capital~~plan, ~~and~~are ~~cash~~subject ~~flow.~~to ~~This~~the ~~disruption~~risks ~~has~~and oruncertainties ~~may~~associated ~~affect~~with usbankruptcy, inincluding, abut ~~number~~not oflimited ~~ways~~to, ~~including~~ bythe following:

4344

•· ~~making~~We ithave ~~more~~incurred ~~difficult~~and orwill ~~impossible~~continue ~~for us~~ to ~~obtain~~incur ~~extension~~significant ofcosts ~~loan~~associated ~~maturities~~with ~~and/or~~the ~~new~~reorganization. ~~financing~~The onamount ~~attractive~~of ~~terms~~these costs, ~~resulting~~which inare ~~lower~~being ~~loan-to-value~~expensed ~~ratios~~as ~~and loan-to-cost ratios~~incurred, ~~higher~~are ~~interest~~expected ~~rates and generally less available debt capital and causing us~~ to ~~default~~significantly onimpact ~~principal~~our ~~and~~results ~~interest~~of ~~payments;~~operations.

•· ~~causing~~We usmay have difficulty continuing to ~~consider~~obtain ~~various~~and ~~means~~maintain contracts necessary to ~~restructure~~continue our ~~debt~~operations and toat ~~engage~~affordable inrates ~~other~~with ~~forms~~competitive ~~of corporate reorganization;~~terms.

•· ~~leading~~We usmay tohave ~~postpone~~difficulty ~~the~~maintaining ~~payments~~existing ofand ~~property~~building ~~taxes~~new ~~and~~tenant ~~other~~relationships ~~payables~~or ~~and~~pursuing ~~deferring~~our ~~capital~~planned ~~expenditures;~~development projects.

•· ~~creating~~Transactions outside the ~~need~~ordinary tocourse ~~evaluate~~of ~~and~~business ~~adjust~~will asbe ~~appropriate~~subject ~~our~~to ~~previously~~the ~~disclosed~~prior ~~development~~approval ~~and~~of ~~redevelopment~~the ~~plans~~court, ~~and~~which ~~timelines~~may ~~(both~~limit ~~commencement~~our ~~and~~ability ~~completion~~to ~~dates)~~respond timely to ~~correlate~~certain ~~with~~events ~~adjustments~~or intake ~~the~~advantage ~~availability~~ of ~~capital~~certain ~~and other current and changing market conditions;~~opportunities.

•· ~~increasing~~We ~~our~~may ~~projected~~not ~~development~~be ~~costs~~able ~~and~~to ~~the~~obtain ~~percentage~~court ~~and~~approval ~~therefore~~or ~~amount~~such ofapproval ~~equity~~may webe ~~are~~delayed ~~required~~with respect to ~~contribute~~motions tomade ~~our~~in ~~projects;~~the reorganization cases.

•· ~~moving~~We ~~sales~~may ~~and~~be ~~leasing~~unable ~~revenue~~to ~~from~~retain ~~our~~and ~~properties~~motivate ~~from~~key ~~earlier~~executives ~~periods~~and toassociates ~~later~~through ~~periods, thereby delaying~~ the ~~reduction~~process of ~~associated~~reorganization, ~~negative cash flows~~ and aswe amay ~~result~~have ~~reducing~~difficulty ~~our~~attracting ~~liquidity~~new ~~more than anticipated;~~employees.

•· ~~leading~~We usmay tobe ~~decide~~unable to ~~sell~~maintain ~~certain assets that we believe have reached near-term maximum value~~ or ~~which~~obtain ~~are~~sufficient ~~not~~financing ~~central~~sources to ~~our~~fund ~~development or redevelopment plans, or which are otherwise in~~ the ~~best~~reorganization ~~interests~~plan ofand ~~the~~meet ~~company~~future ~~to sell;~~obligations.

•· ~~leading~~The usvalue toof ~~enter~~our ~~into~~common ~~joint~~stock ~~venture~~could ~~agreements~~be ~~with~~reduced ~~respect~~ to ~~certain~~zero ofas ~~our~~result ~~more~~of ~~capital~~the ~~intensive~~bankruptcy ~~projects;~~filing.

•The ~~leading~~ultimate usimpact tothat ~~seek~~events ~~potentially~~that ~~dilutive~~occur ~~debt~~during orthese ~~equity-linked~~bankruptcy ~~capital~~proceedings ~~available~~will tohave ~~public~~on ~~companies~~our business, financial condition and results of operations cannot be accurately predicted or quantified.

• leading us to refocus certain previously anticipated longer-term development projects to produce more near-term income through leasing the project and thereby reducing capital outflows through the redevelopment process and increasing near-term cash flow.

Development and Redevelopment Activities

While we have suspended much of our development activities, ~~if the economy and the debt and equity capital markets improve,~~ we believe that our development and redevelopment activities present growth opportunities for us over the next several years. We continually evaluate the size, timing and scope of our development and redevelopment initiatives and, as necessary, sales activity to reflect the economic conditions and the real estate fundamentals that exist. However, development and redevelopment of our projects is highly speculative and subject to timing, budgeting and other risks, including cyclical over-building or over-investing within certain real estate submarkets and changing political situations that may interfere with our proposed uses of projects. In particular, we are subject to increases in the costs of materials (especially in the price of steel, lumber, dry wall, copper and concrete, which are significant components of construction costs) caused by changing market conditions, including increased global demand. We are also affected by changes in laws and regulations (including the land use entitlement processes), particularly in the City of Los Angeles, fiscal policies and zoning ordinances and the related costs of compliance with laws, their regulations and policies. Increases in interest rates will increase our borrowing costs and our overall development or redevelopment costs for a project. In addition, customers may be unwilling or unable to purchase our for-sale residential units at times when mortgage-financing costs are high or as borrower credit quality declines. Finally, changes in availability of capital will affect our ability to develop our projects, including timing and the type and extent of development. The occurrence of one or more of these events could adversely affect our financial condition, results of operations and cash flows.

Rental Revenue

The amount of net rental income generated by our rental properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space as well as space in newly developed or redeveloped properties and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates. We operate in the greater Los Angeles area and, accordingly, market conditions in this area have a significant impact on our results of operations.

The amount of rental income is also significantly impacted by our ability to attract and retain large tenants in our properties. Our top 10 tenants comprise 42.5% of our annualized base rental revenues as of December 31, 2009. In addition, our largest tenant is American Apparel, who leases 788,273 square feet of industrial space as of December 31, 2009. This lease represents 14.8% of our annualized base rental revenue for the year ended December 44 31, 2009. No other tenant comprises more than 10.0% of our portfolio’s total rentable square feet or annualized base rental revenues.

The amount of rental income is also significantly impacted by our ability to attract and retain large tenants in our properties. Our top 10 tenants comprise 43.4% of our annualized base rental revenues as of December 31, 2008. In addition, our largest tenant is American Apparel, who leases 788,273 square feet of industrial space as of December 31, 2008. This lease represents 13.5% of our annualized base rental revenue for the year ended December 31, 2008 and expired on December 31, 2008. American Apparel, as of March 13, 2009, is a rent paying tenant based on the terms of the expired lease and we are currently in the process of negotiating a new lease with this tenant. There are no assurances that we will be successful in securing this new lease. No other tenant comprises more than 10.0% of our portfolio’s total rentable square feet or annualized base rental revenues.

Scheduled Lease Expirations

Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets as well as the desirability of our individual properties. As of December 31, 2008, approximately 2.0 million square feet, or 45.8% of the square footage held for lease, of our portfolio of wholly-owned rental and development projects was available for lease. To allow for flexibility in our redevelopment strategy, we generally seek to execute month-to-month leases with tenants in our properties that have not yet been developed to what we consider to be their highest and best use. As of December 31, 2008, month-to-month leases represent approximately 68.6% of the annualized base rent of our portfolio of owned projects. The following table sets forth a summary schedule of lease expirations for leases in place at our owned projects as of December 31, 2008:

Year of Lease Termination	Number of Leases Expiring		Square Footage of Expiring Leases		Percentage of Total Rentable Square Feet(1)			Annualized Base Rent of Expiring Leases(2)		Percentage of Portfolio Annualized Base Rent
Month to Month		303		1,620,285		37.9	%	$	15,636,801		68.6	%
2009		31		233,515		5.5	%		1,848,642		8.1	%
2010		23		229,781		5.4	%		2,490,769		10.9	%
2011		4		154,278		3.6	%		1,151,604		5.1	%
2012		1		24,694		0.5	%		343,200		1.5	%
2013		1		59,000		1.3	%		1,320,000		5.8	%
Thereafter		0		-		-			-		-
Total		363		2,321,553		54.2	%	$	22,791,016		100.0	%

(1) Based on total square footage of 4,279,363 which is the total square footage of space leased or available or offered for lease at both rental and development projects and excludes substantial portions of square footage in the projects that are not available or offered for lease because of redevelopment or repositioning activities. Parking square footage is not included in the calculation.

(2) Based on annualized base rent paid or payable as of December 31, 2008. Because annualized base rent is not derived from historical results that were accounted for in accordance with U.S. generally accepted accounting principles, historical results differ from the annualized amounts. Annualized base rent does not include parking income.

Scheduled Lease Expirations

Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets as well as the desirability of our individual properties. As of December 31, 2009, approximately 2.2 million square feet, or 51.0% of the square footage held for lease, of our portfolio of wholly-owned rental and development projects was available for lease. To allow for flexibility in our redevelopment strategy, we generally seek to execute month-to-month leases with tenants in our properties that have not yet been developed to what we consider to be their highest and best use. As of December 31, 2009, month-to-month leases represent approximately 52.1% of the annualized base rent of our projects. The following table sets forth a summary schedule of lease expirations for leases in place at our owned projects as of December 31, 2009:

Year of Lease Termination	Number of Leases Expiring		Square Footage of Expiring Lease		Percentage of Total Rentable Square Feet(1)			Annualized Base Rent of Expiring Leases(2)		Percentage of Portfolio Annualized Base Rent (%)
Month to Month		259		594,923		13.9	%	$	11,590,505		52.1	%
2010		53		358,129		8.4	%		4,129,971		18.6	%
2011		6		121,835		2.9	%		873,840		3.9	%
2012		3		161,039		3.8	%		973,001		4.4	%
2013		2		63,702		1.5	%		1,312,800		5.9	%
2014		2		790,664		18.5	%		3,358,046		15.1	%
Total/Weighted Average		325		2,090,292		49.0	%	$	22,238,163		100	%

(1) There are current lease terminations for the years ending December 31, 2013 through December 31, 2014

(2) Based on total square footage of 4,279,363 which is the square footage of space leased or available or offered for lease and excludes substantial portions of square footage in the projects that is not available or offered for lease because of redevelopment or repositioning activities.

(3) Based on annualized base rent paid or payable as of December 31, 2007. Because annualized base rent is not derived from historical results that were accounted for in accordance with accounting principles generally accepted in the United States, historical results differ from the annualized amounts.

Results of Operations

Executive Summary

For the year ended December 31, ~~2008~~2009, we recorded a net loss of $96196.0 5 million. ~~This~~ ~~result~~Because ~~was~~of ~~derived~~our inChapter ~~large~~11 ~~part~~proceedings ~~from~~and the ~~decision~~uncertainty to ~~take~~ ~~$117.4~~finance, ~~million~~develop ofand ~~non-cash~~operate ~~impairment~~our ~~charges~~real inestate ~~the~~properties, ~~fourth~~we ~~quarter~~have ofstated ~~2008 against~~our ~~the~~real ~~net~~estate ~~book~~projects ~~values~~at the lower of ~~certain~~cost ~~properties~~or fair value. During 2009, ~~which~~we isreduced inour ~~addition~~net tobook ~~the~~ value by $24154.95 million offor ~~impairment~~a ~~charges~~non-cash ~~taken~~impairment ~~during~~charge. ~~the~~We ~~first~~adjusted, ~~three~~on ~~quarters~~an of“as-is” ~~the year.~~basis ~~The~~and ~~decision~~without consideration to ~~take~~what ~~these~~additional ~~significant~~value ~~non-cash~~may ~~impairment~~be ~~charges~~achieved inthrough ~~2008 was~~our todevelopment ~~adjust~~activity, the net book values to ~~current~~fair ~~estimated~~values ~~market~~for ~~valuations~~all ~~related to~~of ~~certain~~our ~~non-core~~properties. ~~assets~~In ~~that~~accordance wewith ~~are~~general ~~considering~~accepted ~~selling~~accounting ~~in 2009. These~~principles ~~non-cash~~(GAAP), ~~impairments~~no ~~were~~upward ~~offset~~adjustments bywere amade ~~corresponding~~if ~~$51.9 million~~fair invaluations ~~benefits~~exceeded ~~for~~net ~~income~~book ~~taxes~~values.

~~In addition,~~The ~~effective~~filing ~~October~~of 1,the ~~2008,~~Chapter we11 ~~suspended~~petitions ~~development~~may ~~activities~~have atgiven ~~13 development~~rise ~~projects due~~ to ~~difficult~~claims ~~market~~by ~~conditions~~lenders ~~including~~of ~~difficulty~~defaults ~~in obtaining~~under ~~construction~~our ~~financing~~debt instruments and ~~the need to preserve cash flow in this challenging economic environment~~agreements. As a result, ofour ~~the~~debt ~~suspension~~obligations ofmay ~~development, we~~have ~~ceased~~become ~~capitalization~~immediately ofpayable. ~~certain~~Accordingly, ~~incidental~~we ~~revenues~~began ~~and~~accruing ~~carrying~~interest ~~costs~~in ~~such as~~these ~~interest~~financial ~~expense,~~statements ~~real~~at ~~estate~~the ~~taxes~~default ~~and~~interest ~~insurance. As~~rate offrom ~~October 1,~~March ~~2008~~27, ~~these~~2009 ~~incidental~~for ~~revenues~~all ~~and~~loans, ~~expenses~~unless ~~associated~~we ~~with~~have ~~carrying costs were expensed through~~ the ~~income~~bankruptcy ~~statement. The~~court ~~assets~~approval ~~are~~of ~~still classified~~certain asloan ~~real~~modification ~~estate~~agreements ~~held~~that ~~for~~we ~~development~~have ~~even~~negotiated ~~though~~with ~~these~~our ~~costs~~lenders. ~~are~~We ~~no longer~~have ~~being~~recorded ~~capitalized. The increases~~ in ~~the~~these ~~rental~~financial ~~and~~statements default interest ~~expenses~~ inexpense ~~2008~~and ~~over~~default ~~the~~capitalized ~~previous~~interest ~~year~~of ~~were~~$10.1 ~~due~~million inand ~~large~~4.0 ~~part~~million ~~to this change in accounting methodology~~respectively.

In spite of a difficult market conditions in 2008, we managed to increase total annualized rents at December 31, 2008 over total annualized rents at December 31, 2007. We had noteworthy rental increases at the Washington Produce Market, Crown Commerce Center and 230 W Ave 26th projects. These gains were offset in part by rental income decreases at the 4th Street Center, 620 Gladys Avenue, Meruelo Wall Street, 905 E 8th Street and 5707 S Alameda projects. Rental income for the year ended December 31, 2008 totaled $22.7 million.

In the near term, we expect to incur net cash outflows of approximately $7.0 million per quarter, including carrying costs of our development projects excluding 717 W. Ninth Street, which has a construction loan in place sufficient to cover estimated future construction expenditures.

Balance Sheet Management

During 2008, we collected our affiliate note receivable and issued additional shares of common stock as we received $14.2 million in cash proceeds from the conclusion of the Taylor Yard matter. We obtained the first tranche of $42.0 million of our $84.0 million construction loan for our 717 W. Ninth Street project. The funding of this construction loan was the primary reason for the increases in our notes payable secured by real estate and in our restricted cash. We also sold properties and retired the related mortgage debt which partially offset the increase in our notes payable secured by real estate. During 2008, rental properties decreased by $8.3 million from the sales of 2000 San Fernando Road and 1800 E. Washington Blvd. and asset impairment, partially offset by the reclassification of three development projects to rental properties. Real estate held for development decreased by $113.8 million due to the reclassification of the three properties cited above and asset impairments, partially offset by continuing development at 717 W Ninth Street. In 2008, our deferred tax liability decreased from $41.1 million to zero due to our pretax losses.

Overview of year-over-year comparisons

Year-over-year comparisons are challenging given the non-recurring nature of the use of our 2007 IPO proceeds for the acquisition of a majority of our projects and the one-time pay down of a substantial amount of debt. In addition, during 2008 we completed and placed several development projects into service which has affected the comparability of rental income as well as rental expenses between the applicable periods. We also suspended development on 13 projects as of October 1, 2008. We stopped capitalizing costs on these projects as of this date and began expensing these costs. In 2008, we had asset impairments, gains on sale of real estate, benefit for income taxes and minority interests. In 2007, there were no corresponding impairments on real estate assets, gains on sale of assets, benefit for income taxes or minority interests.

~~The~~In ~~IPO significantly~~addition, ~~affected~~effective ~~our~~January ~~results~~1, ~~for~~2009, ~~2007~~we ~~(which~~suspended ~~included~~development ~~one~~activities, ~~month~~other ofthan our ~~predecessor’s~~ ~~operations)~~construction asproject ~~compared~~at to705 ~~2008~~W. OnNinth ~~and after January 30~~Street, ~~2007,~~due ~~we used IPO proceeds~~ to ~~pay~~the ~~down~~difficult ~~existing~~market ~~mortgage~~conditions ~~debt~~ and ~~to pay off~~ the ~~CalPERS mezzanine~~need ~~loan~~to ~~facility~~preserve ~~incurred~~cash. byAs ~~our~~a ~~predecessor~~result ~~business.~~of ~~This~~the ~~has substantially~~suspension ~~reduced~~of ~~interest~~development, ~~expense~~we ~~since~~ceased ~~this~~capitalization ~~date~~of ascertain ~~the~~incidental ~~prior~~revenues ~~period reflects~~and acarrying ~~full~~costs ~~month~~such ofas interest onexpense, areal ~~substantially~~estate ~~higher~~taxes ~~level~~and ~~of debt~~insurance. As ~~We also~~of ~~used~~January ~~IPO~~1, ~~proceeds to acquire eight properties~~2009, ~~three~~these ofincidental ~~which~~revenues ~~are identified~~and inexpenses ~~this~~associated ~~report~~with ascarrying ~~rental~~costs ~~properties,~~were ~~and~~reflected ~~acquired~~on ~~four~~the ~~parcels attached~~income tostatement. The ~~existing~~assets ~~rental~~are ~~properties~~still ~~and~~classified ~~placed~~as ~~them~~real inestate ~~service~~held ~~upon purchase. These~~for ~~acquisitions~~development ~~resulted~~even inthough ~~increases~~these incosts ~~depreciation and~~are ~~amortization~~no ~~expense~~longer ~~during~~being ~~2008~~capitalized. InThe ~~addition,~~increases ~~we had IPO proceeds invested~~ in athe ~~money~~rental ~~market~~and ~~account~~interest expenses in ~~2007,~~2009 ~~but~~over ~~those~~the ~~proceeds~~previous ~~have been~~year ~~used~~were ~~for~~due ~~various~~in ~~acquisitions~~large ~~and~~part ~~debt~~to ~~repayment;~~this ~~thus~~change ~~resulting~~ in ~~less interest~~accounting ~~income in the current year~~methodology.

In ~~addition,~~spite ~~we experienced~~of ~~several~~a ~~significant~~difficult ~~changes~~market conditions in ~~our~~2009, ~~accounting~~we asmanaged ato ~~result~~increase oftotal ~~our~~annualized ~~IPO that~~rents ~~affect~~at ~~the~~December ~~comparability~~31, of2009 ~~our~~over ~~results.~~total ~~These~~annualized ~~changes~~rents ~~include~~at ~~certain purchase~~December ~~accounting~~31, ~~adjustments~~2008. We ~~recorded~~had ~~under~~a ~~SFAS~~significant ~~No. 141,~~rental ~~Business~~increase ~~Combinations,~~at ~~for~~ the ~~fair~~Alameda ~~value~~Square ofproject. ~~real~~This ~~estate,~~increase ~~which~~was ~~affect~~partially ~~depreciation~~offset ~~and~~by ~~amortization expense.~~rental Inincome ~~addition,~~decreases ~~the~~at ~~adjustments~~Meruelo ~~increasing~~Wall ~~the~~Street ~~fair~~and ~~value~~Santa ofFe ~~the~~Commerce ~~real estate~~Center. ~~subsequently~~Rental ~~increased~~income ~~our~~for ~~deferred~~the ~~income~~year ~~tax~~ended ~~liabilities~~December ~~and~~31, ~~paid~~2009 ~~in capital~~totaled $23.3 million.

~~Acquisition~~ As a result of our bankruptcy filings, we have implemented strategies to preserve cash. We have stopped making most of our interest payments, which has increased our interest payable over the prior year by approximately $20.0 million. Under our amended plan of reorganization, if confirmed and ~~development~~effective, ~~activities~~we expect to significantly reduce our interest costs. Currently we are accruing at the default rate claimed by our lenders (even if we dispute whether default interest applies or the amount of default interest), which amounts to approximately $38.5 million in annual interest costs. Under the amended plan we expect to reduce this amount to approximately $11.9 million.

~~The comparability~~Balance ofSheet our results of operations is significantly affected by our development and acquisition activities in 2008 and 2007. At December 31, 2007, we owned interests in 27 rental projects and 28 projects held as real estate for development. At December 31, 2008, we owned interests in 28 rental projects and 19 projects held as real estate for development (this count includes 1828 Oak Street, which we decided not to purchase in the first quarter of 2009). Our rental project count changes are due to the transfer of four projects from development to the rental portfolio and the sale of our projects at 2000 San Fernando Road, Overland Terminal, and 1800 E. Washington Blvd., which were included at December 31, 2007. Our development project count change is due to the four projects placed into service, our sale of 801 E 7th Street, our strategic business decision not to pursue the project acquisitions of 3000 E. Washington Blvd., Gold’s Gym, and Wall Street Market, and the consolidation of our project at 5500 Flotilla into Camfield Retail Center. The results of our projects at 2000 San Fernando Road, Overland Terminal and 1800 E. Washington Blvd. for all periods presented are shown in discontinued operations in accordance with SFAS 144.Discussion

During 2009, we obtained the second tranche of $42.0 million of our $84.0 million construction loan for our 705 W. Ninth Street project. The funding of this construction loan and the deferral of interest and property taxes were the primary reasons for the increases in our total liabilities. As a result of our bankruptcy filings, we have reclassified most of our notes payable secured by real estate and all prepetition accounts payables and accrued liabilities as liabilities subject to compromise. During 2009, rental properties decreased by $41.5 million primarily from asset impairment. Real estate held for development decreased by $67.0 million primarily from asset impairments and property sales partially offset by continuing development expenditures at 705 W. Ninth Street.

Overview of year-over-year comparisons

Our 2009-over-2008 comparisons are dramatically affected by our bankruptcy filings and steps we took to preserve cash. As of March 27, 2009, we began accruing interest at the default rate, which increased the weighted average interest rate to 9.2% from 7.1%. As of January 1, 2009, we suspended all development projects other than our 705 W. Ninth Street project. As a result, we stopped capitalizing our costs on these projects as of this date and began expensing our carrying costs and any incidental development costs. This increased our revenue, operating expenses, general and administrative expenses and our interest expenses. In 2009 and 2008, we had significant asset impairments which continued to reduce the asset valued upon which depreciation expense is based. In 2009, we recorded a small gain on sale of real estate, and we recorded a significant gain on sale of real estate in 2008. In 2008, primarily as a result of asset impairments, we eliminated the benefit for income taxes resulting from our step-up of basis from purchase accounting. In 2008, we booked an equalization event on our LTIP units which resulted in the recording of non-controlling interests. In 2009, as a result of continued losses, the non-controlling interests were reduced to zero.

The IPO significantly affected our results for 2007 (which included one month of our predecessor’s operations) as compared to 2008. On and after January 30, 2007, we used IPO proceeds to pay down existing mortgage debt and to pay off the CalPERS mezzanine loan facility incurred by our predecessor business. This has substantially reduced interest expense since this date as the prior period reflects a full month of interest on a substantially higher level of debt. We also used IPO proceeds to acquire eight properties, three of which are identified in this report as rental properties, and acquired four parcels attached to existing rental properties and placed them in service upon purchase. These acquisitions resulted in increases in depreciation and amortization expense during 2008. In addition, we had IPO proceeds invested in a money market account in 2007, but those proceeds have been used for various acquisitions and debt repayment; thus resulting in less interest income in 2008.

~~Between January~~ In 1addition, ~~2007~~we ~~and~~experienced ~~December~~several ~~31,~~significant ~~2008,~~changes wein ~~acquired~~our oraccounting ~~placed~~as ina ~~service~~result of our IPO that affect the ~~following~~ ~~nine~~comparability ~~rental~~of ~~projects~~our results. These changes include certain purchase accounting adjustments, for the fair value of real estate, which affect depreciation and amortization expense.

Acquisition and development activities

The comparability of our results of operations is significantly affected by our development and acquisition activities in 2009 and 2008. At December 31, 2009, we owned interests in 27 rental projects and 16 projects held as real estate for development. At December 31, 2008, we owned interests in 28 rental projects and 19 projects held as real estate for development. Our rental project count dropped by one due to the sale of our 500 Mateo project. Our development project count change is due to the sale of two projects: Camfield Retail Center and 146 Front Street and our strategic business decision not to pursue the project acquisition of American Fish. The results of our rental projects at 500 Mateo, 2000 San Fernando Road, Overland Terminal and 1800 E. Washington Blvd. for all periods presented are shown in discontinued operations. In addition, because we recently began expensing our development costs at Camfield Retail Center and 146 Front Street, we have likewise presented these projects in discontinued operations during the time expensing was in effect.

Between January 1, 2007 and December 31, 2009, we acquired or placed in service the following nine rental projects.

Projects	Acquisition or Conversion Date	Net Rentable Square Footage

Washington Produce Market (2640 Washington Blvd.)	March 7, 2007		31,876
230 W. Avenue 26th	April 1, 2007		67,671
2000 San Fernando Road	April 2, 2007		119,381
420 Boyd Street	June 27, 2007		47,806
4th Street Center	September 30, 2007		14,472
Union Lofts	July 1, 2008		81,609
Barstow Produce Center	July 1, 2008		261,750
Santa Fe Plaza	September 1, 2008		16,000
Overland Terminal	September 3, 2008		309,340
Total			949,905

In addition, between January 1, 2007 and December 31, ~~2008~~2009, we acquired or placed in service additional parcels attached to the following current rental projects.

Projects	Date of Addition	Additional Square Footage

Crown Commerce Center	January 26, 2007	18,500
905 E 8th Street	March 23, 2007	3,597
Center Village	March 27, 2007	66,135
620 Gladys Avenue	April 13, 2007	49,959
Total		138,191

In addition, ~~during~~between ~~the~~January ~~year~~1, ~~ended~~2007 and December 31, ~~2008~~2009, we sold the following rental and development projects ($ in thousands).

Projects	Date of Sale	Sales Price (1)
2000 San Fernando Road (1)	August 15, 2008	$	35,000
Rental Projects:
1800 E Washington Blvd	September 12, 2008		14,200
2000 San Fernando Road (2)	August 15, 2008		35,000
1800 E. Washington Road	September 12, 2008		14,200
Overland Terminal	November 14, 2008		19,702
Total		$	68,902
500 Mateo Street	April 30, 2009		1,900
Total Rental Projects		$	70,802
Development Projects:
9901 Alameda	March 31, 2008		31,200
801 E. 7th Street	November 21, 2008		9,500
816 Stanford (3)	November 7, 2008		1,000
146 E. Front Street	July 13, 2009		1,114
Camfield Retail Center (4)	September 18, 2009		5,000
Total Development Projects		$	47,814
Total Projects Sold		$	118,616

(1) We originally sold this project during the quarter ended June 30, 2008 for $28.7 million. We retained an option to resell this project to another buyer which we did during the third quarter 2008 and as a result, we received an additional $5.0 million in net proceeds._______________________________________

(1) Comprises of 5500 Flotilla Street and 2040 Camfield Avenue, sold at $210,000 and $4,790,000, respectively.

Comparison of the year ended December 31, 2009 to year ended December 31, 2008

The following table reflects our consolidated statements of operations for the years ended December 31, 2009 and 2008 (in thousands):

	Year Ended December 31, 2009			Year Ended December 31, 2008			Increase (Decrease)
Revenue:
Rental income	$	23,311		$	22,709		$	602		2.7	%
Management fees		41			285			(244	)	-85.6	%
Interest income		367			839			(472	)	-56.3	%
Other income		538			351			187		53.3	%
Total Revenues		24,257			24,184			73		0.3	%
Expenses:
Rental expenses		15,375			15,291			84		0.5	%
Interest expense		23,736			11,445			12,291		107.4	%
Depreciation and amortization		6,197			7,091			(894	)	-12.6	%
Impairment loss on assets		148,275			142,295			5,980		4.2	%
General and administrative		13,093			9,524			3,569		37.5	%
Total Expenses		206,676			185,646			21,030		11.3	%

Loss from continuing operations before income taxes, reorganization items		(182,419	)		(161,462	)		(20,957	)	-13.0	%
Benefit from income taxes		-			51,933			(51,933	)	100.0	%
Reorganization items		(3,987	)		-			(3,987	)	100.0	%
Loss from continuing operations		(186,406	)		(109,529	)		(72,890	)	-66.5	%

(Loss) income from discontinued operations		(613	)		163			(776	)	-476.1	%
Gain on sale of real estate		830			14,189			(13,359	)	-94.2	%
Income (loss) from discontinued operations		217			14,352			(14,135	)	98.5	%
Net loss	$	(186,189	)	$	(95,177	)	$	(87,025	)	-91.4	%
Less: net income (loss) attributable to non-controlling interests		(440	)		843			(1,283	)	152.2	%
Net loss attributable to common stockholders	$	(185,749	)	$	(96,020	)	$	(88,308	)	-92.0	%

Rental income. Rental income increased by $0.6 million, or 2.7%, to $23.3 million for the year ended December 31, 2009 compared to $22.7 million for the year ended December 31, 2008. The increase is primarily attributable to our suspension of all development projects other than 705 W. Ninth Street, which caused the rental income (mainly parking revenue) of approximately $1.6 million to be reflected as rental income and not capitalized as in the prior year. This increase was largely offset from a decrease in revenue from our cold storage facilities.

Management fees. Management fees, which primarily consists of fees earned for management services provided to properties owned by the mother of Richard Meruelo, decreased by $0.24 million, or 85.6% to $0.04 million for the year ended December 31, 2009 compared to $0.28 million for the year ended December 31, 2008. The decrease is due to a reduction in the number of properties we manage for others.

Interest income. Interest income decreased by $0.47 million, or 56.3%, to $0.37 million for the year ended December 31, 2009 compared to $0.84 million for the year ended December 31, 2008. The decrease is primarily due to interest income received from an affiliate note receivable during the year ended December 31, 2008, which was paid off in the prior year. The decrease is partially offset by interest income earned on our restricted cash reserve that was set aside for our 705 W. Ninth Street construction loan.

Other income. Other income, which primarily consists of leasing space to businesses in the entertainment industry for filming, increased by $0.19 million, or 53.3% to $0.54 million for the year ended December 31, 2009 compared to $0.35 million for the year ended December 31, 2008. As of January 1, 2009, we suspended all of our development projects other than 705 W. Ninth Street. Accordingly, filming revenue from suspended development projects flowed to the income statement during 2009 while in 2008 all filming revenue from development projects offset other capitalized costs.

Rental expenses. Rental expenses increased by $0.1 million, or 0.6%, to $15.4 million for the year ended December 31, 2009 compared to $15.3 million for the year ended December 31, 2008. The increase is attributable to rental properties placed in service during 2008 that had limited or no operations during the year ended December 31, 2008. In addition, as of January 1, 2009, we suspended all our development projects other than 705 W. Ninth Street which increased rental expenses by approximately $2.8 million. The increases were offset from a decrease in expenses from our cold storage facilities.

Interest expense. Interest expense increased by $17.7 million or 154.5% to $29.1 million for the year ended December 31, 2009 compared to $11.4 million for the year ended December 31, 2008. The increase is primarily due to our suspension of all development projects other than 705 W. Ninth Street as mentioned above and accruing interest at the default rate beginning on the date of the Chapter 11 filings.

Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.9 million, or 12.6%, to $6.2 million for the year ended December 31, 2009 compared to $7.1 million for the year ended December 31, 2008. This decrease is primarily due to the impairment losses on real estate assets recognized during the past year. The losses decreased our asset values upon which depreciation is calculated.

General and administrative expenses. General and administrative expenses increased by $3.6 million, or 37.5%, to $13.1 million for the year ended December 31, 2009 compared to $9.5million for the year ended December 31, 2008. The increase is primarily due to the expensing of development costs in 2009 while in the prior period of 2008 we had been capitalizing these costs.

Impairment loss on real estate assets. Impairment loss on real estate assets increased by $6.0 million for the year ended December 31, 2009 to $148.3 million compared to $142.3 million for the year ended December 31, 2008. This increase is largely attributable to the uncertainty with respect to our holding periods because of our Chapter 11 proceedings. Accordingly, we adjusted on an “as-is” basis, and without consideration to what additional value may be achieved through our development activity, the net book values to fair values for all of our properties. During the year ended December 31, 2009, we recognized $111.9 million and $36.4 million of impairment loss related to our development and rental projects, respectively.

Gain on sale of real estate. Gain on sale of real estate decreased by $13.4 million for the year ended December 31, 2009 compared to the year ended December 31, 2008, due to the sale of 9901 Alameda, 2000 San Fernando Road and 1800 E. Washington during the year ended December 31, 2008. We recorded a gain of $14.2 million on the sale of these projects during 2008, partially offset by a gain of $0.8 million at Camfield Retail Center during 2009.

Non-controlling interests. Non-controlling interests decreased by $1.3 million for the year ended December 31, 2009 compared to the year ended December 31, 2008, due to the equalization event that occurred in March 2008. In accordance with the terms of our partnership agreement, all then outstanding LTIP units achieved parity with the common units in our operating partnership and a $1.4 million special allocation of the profits was recognized. During 2009, non-controlling interests on the balance sheet were reduced to zero as partnership losses, primarily from impairments, were allocated to the non-controlling interest holders. There were no equalization events that happened during the comparable period in 2009.

Benefit for income taxes. Benefit for income taxes decreased by $51.9 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. In connection with the IPO formation transactions, we accounted for our certain projects that we acquired in the formation transactions and that had a non-controlling interest as a purchase. Accordingly, we, concurrently with the consummation of the IPO, increased the asset value of the non-controlling interest to fair market value and recorded the associated deferred tax liability. During 2008, we recorded a benefit for income taxes to reduce the deferred tax liability reflected on our balance sheet that would not be used as a result of impairment. As of January 1, 2009 we did not reflect any deferred tax liabilities on our balance sheet. As such, there was no corresponding benefit for income taxes from the impairment losses generated during 2009. Due to the uncertainty surrounding the Company’s ability to generate sufficient future taxable income to realize its deferred tax assets, a valuation allowance has been recorded against this asset.

Reorganization items. We filed for Chapter 11 protection on March 27, 2009 and September 3, 2009 and have incurred $4.0 million in professional fees during 2009. We did not incur any costs in the same period of 2008.

Comparison of the year ended December 31, 2008 to year ended December 31, 2007

The following table reflects our consolidated and combined statements of operations for the years ended December 31, 2008 and 2007 (in thousands):

	Year Ended December 31,
	2008			2007 (1)			Increase (Decrease)
Revenues:
Rental income	$	22,709		$	21,539		$	1,170		5.4	%
Management fees		285			272			13		4.8	%
Interest income		839			3,029			(2,190	)	-72.3	%
Other income		351			521			(170	)	-32.6	%
Total revenues		24,184			25,361			(1,177	)	-4.6	%
Expenses:
Rental expenses		15,291			13,089			2,202		16.8	%
Interest expense		11,445			10,764			681		6.3	%
Depreciation and amortization		7,091			5,753			1,338		23.3	%
Impairment on real estate assets		142,295			-			142,295		(2	(2)
General and administrative		9,524			9,619			(95	)	-1.0	%
Total expenses		185,646			39,225			146,421		373.3	%
Loss from continuing operations before minority interests and income taxes		(161,462	)		(13,864	)		(147,598	)	-1,064.6	%
Minority interests		(843	)		-			(843	)	(2	(2)
Benefit for income taxes		51,933			-			51,933		(2	(2)
Loss from continuing operations		(110,372	)		(13,864	)		(96,508	)	-696.1	%
Discontinued operations
Income (loss) from discontinued operations		163			(9	)		172		(2	(2)
Gain on sale of real estate		14,189			-			14,189		(2	(2)
Income (loss) from discontinued operations		14,352			(9	)		14,361		(2	(2)
Net loss	$	(96,020	)	$	(13,873	)	$	(82,147	)	-592.1	%

(1)	For purposes of comparison, 2007 amounts include the predecessor results for the period from January 1, 2007 to January 29, 2007 and our company results for the period from January 30, 2007 to December 31, 2007.

(2)	The calculated percentages are not meaningful.

Rental income. Rental income increased by $1.2 million, or 5.4%, to $22.7 million for the year ended December 31, 2008 compared to $21.5 million for the year ended December 31, 2007. An increase of $0.2 million is attributable to property tax recoveries collected and billed in the current year that was not billed in the prior year. In addition, an increase of $1.1 million is attributable to rental operations at projects acquired or placed into service during 2008, which had partial or no operations in the prior year. The increase is partially offset by rental income declines due to decreased revenues at the 4th Street Center, 620 Gladys Avenue and Meruelo Wall Street projects.

Management fees. Management fees, which consist of fees earned for management of properties outside of the company and management fees from the ~~parents~~ mother of Richard Meruelo, remained flat during the year ended December 31, 2008 compared to the year ended December 31, 2007.

Interest income. Interest income decreased by $2.2 million, or 72.3%, to $0.8 million for the year ended December 31, 2008 compared to $3.0 million for the year ended December 31, 2007. The decrease is primarily due to the IPO proceeds invested in interest bearing accounts in the prior year. We used the IPO proceeds throughout 2007 to pay down mortgage debt and to acquire additional projects. The decrease is partially offset by interest income earned on our restricted cash reserve that was set aside for our ~~717~~705 W. Ninth Street construction loan.

Other income. Other income, which primarily consists of termination income and leasing space to businesses in the entertainment industry for filming, decreased $0.2 million, or 32.6%, to $0.35 million for the year ended December 31, 2008 compared to $0.52 million for the year ended December 31, 2007. The decrease is primarily due to $0.16 million of operations income earned through our operation of the Coffee Beanery during the year ended December 31, 2007. We closed the Coffee Beanery in March 2008.

Rental expenses. Rental expenses increased by $2.2 million, or 16.8%, to $15.3 million for the year ended December 31, 2008 compared to $13.1million for the year ended December 31, 2007. The increase is primarily attributable to $1.0 million in additional receivables written off due to tenants claiming hardship due to the economic downturn during the year ended December 31, 2008. In addition, beginning October 1, 2008, we suspended development at numerous development projects and are now expensing costs such as property taxes and insurance that was previously capitalized. The increase is also attributable to the operation of rental properties placed in service during 2007 and 2008 that had limited or no operations during the year ended December 31, 2007.

Interest expense. Interest expense increased by $0.7 million or 6.3% to $11.4 million for the year ended December 31, 2008 compared to $10.8 million for the year ended December 31, 2007. The increase is due to our suspension of development at numerous projects on October 1, 2008. We previously capitalized the $1.5 million of the quarterly interest expense related to these projects. In addition, the principal balance of our consolidated debt increasing by approximately $20.8 million throughout the last twelve months. This is offset by the decrease in our weighted average interest rate at December 31, 2008 which was 7.14% compared to 7.47% at December 31, 2007.

Depreciation and amortization expense. Depreciation and amortization expense increased by $1.3 million, or 23.3%, to $7.1 million for the year ended December 31, 2008 compared to $5.8 million for the year ended December 31, 2008. This increase is primarily due to increased real estate values as a result of property acquisitions and our completion of development projects and placing them into service.

Impairment on real estate assets. Impairment on real estate assets increased by $142.3 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to the recognition of $98.8 million of impairment on various development projects and $43.5 million of impairment on various rental projects. The majority of the impairment has been recognized due to market value assessments of our projects. However, due to our strategic business decision to no longer pursue several acquisitions we forfeited deposits of $10.3 million. There were no corresponding impairments on real estate assets during the comparable period in 2007.

General and administrative expenses. General and administrative expenses remained flat for the year ended December 31, 2008 compared to the year ended December 31, 2007.

~~Minority~~ Non-controlling interests. ~~Minority~~Non-controlling interests decreased by $0.8 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to the equalization event that occurred in March 2008. In accordance with the terms of our partnership agreement, all then outstanding LTIP units achieved parity with the common units in our operating partnership and a $1.4 million special allocation of the profits was recognized. In addition, $0.6 million of the net loss was allocated to the LTIP unit holders. There were no corresponding equalization events during the comparable period in 2007.

Benefit for income taxes. Benefit for income taxes increased by $51.9 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to the recognition of a $9.6 million deferred tax expense due to the various gain on sales of projects throughout the year. In addition, we reversed the $41.1 million deferred tax liability that was reflected on our balance sheet that would not be used as a result of the $142.3 million impairment losses recognized on our projects throughout the year. In connection with the IPO formation transactions, we accounted for these projects as a purchase in accordance with SFAS 141. There was no corresponding benefit for income taxes during the comparable period in 2007.52

Benefit for income taxes. Benefit for income taxes increased by $51.9 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to the recognition of a $9.6 million deferred tax expense due to the various gain on sales of projects throughout the year. In addition, we reversed the $41.1 million deferred tax liability that was reflected on our balance sheet that would not be used as a result of the $142.3 million impairment losses recognized on our projects throughout the year. In connection with the IPO formation transactions, we accounted for these projects as a purchase. There was no corresponding benefit for income taxes during the comparable period in 2007.

Income (loss) from discontinued operations. Income from discontinued operations increased by $0.2 million for the year ended December 31, 2008 compared to the year ended December 31, 2007. Income (loss) from discontinued operations includes income and expenses from the projects we sold at 1800 E. Washington Blvd. and 2000 San Fernando Road, net of income taxes. As we obtained interim financing on our 2000 San Fernando Road project on May 27, 2008, income ceased on that date (we incurred a few expenses after the interim financing date). In the prior year, the project at 2000 San Fernando Road recorded income of $0.3 million, whereas in the current year, it generated net income of $0.5 million primarily due to an increase in the rents in October 2007. In addition, our project at 1800 E. Washington Blvd. incurred a net loss of $0.05 million for the year ended December 31, 2008 compared to the loss of $0.4 million incurred during the year ended December 31, 2007. These increases are offset by the $0.2 million loss incurred on Overland Terminal for the months we operated it as a rental project in 2008. In 2007, Overland Terminal was a development project with all costs being capitalized.

Gain on sale of real estate. Gain on sale of real estate increased by $14.2 million for the year ended December 31, 2008 compared to the year ended December 31, 2007, due to the sales of five projects (9901 Alameda, 2000 San Fernando Road, Overland Terminal, 801 E 7th Street and 1800 E. Washington Blvd.) and one parking lot (816 Stanford) during the year ended December 31, 2008. Our three largest gains were recorded on the sales of 2000 San Fernando Road, 9901 Alameda and 1800 E. Washington Blvd. which had gains of $14.2 million, $6.7 million, and $1.7 million, respectively. In addition, we recorded a combined gain of $0.7 million from the sales of Overland Terminal, 801 E 7th Street and 816 Stanford. All sales generated cash proceeds net of the mortgage debt held on the projects and closing costs. All gain on sales are presented net of $9.6 million of income tax expense. There were no corresponding sales during the comparable period in 2007.

Comparison of the year ended December 31, 2007 to year ended December 31, 2006

The following table reflects our consolidated and combined statements of operations for the years ended December 31, 2007 and 2006 (in thousands):

	Year Ended December 31,
	2007 (1)			2006 (2)			Increase (Decrease)
Revenues:
Rental income	$	21,539		$	22,327		$	(788	)	-3.5	%
Management fees		272			285			(13	)	4.6	%
Interest income		3,029			3,614			(585	)	-16.2	%
Other income		521			751			(230	)	-30.6	%
Total revenues		25,361			26,977			(1,616	)	-6.0	%
Expenses:
Rental expenses		13,089			10,097			2,992		29.6	%
Interest expense		10,764			25,015			(14,251	)	-57.0	%
Depreciation and amortization		5,753			3,960			1,793		45.3	%
General and administrative		9,619			6,045			3,574		59.1	%
Total expenses		39,225			45,117			(5,892	)	-13.1	%
Loss from continuing operations		(13,864	)		(18,140	)		4,276		23.6	%
Discontinued operations
Loss from discontinued operations		(9	)		(252	)		243		-96.4	%
Gain on sale of real estate		-			1,329			(1,329	)	(2	)
Income (loss) from discontinued operations		(9	)		1,077			(1,086	)	-100.8	%
Net loss	$	(13,873	)	$	(17,063	)	$	3,190		18.7	%

(1) For purposes of comparison, 2007 amounts include the predecessor results for the period from January 1, 2007 to January 29, 2007 and our company results for the period from January 30, 2007 to December 31, 2007.

(2) Includes the predecessor results for the year.

(3) The calculated percentages are not meaningful.

Rental income. Rental income decreased by $0.8 million, or 3.5%, to $21.5 million for the year ended December 31, 2007 compared to $22.3 million for the year ended December 31, 2006. The decrease is primarily due to rental declines at Pomona Village and Seventh Street Produce Market of $3.2 million, which include the Rockwell Collins lease expiration at Pomona Village and occupancy decreases at the Seventh Street Produce Market that are a result of health department actions. These declines are offset by an increase of $0.6 million is attributable to rental operations at the J restaurant and 788 S. Alameda, which had limited or no operation in the prior year. We also had increased rental income from other properties of $1.8 million.

Management fees. Management fees decreased by $0.01 million, or 4.6%, to $0.27 million for the year ended December 31, 2007 compared to $0.28 million for the year ended December 31, 2006. The decrease is due to the reduction in fees applicable to the Taylor Yards property. We reduced management fees on June 30, 2006 due to the condemnation proceedings and the fact that developing activities ceased partially offset by an increase in construction services to affiliated entities during 2007.

Interest income. Interest income decreased by $0.6 million, or 16.2%, to $3.0 million for the year ended December 31, 2007 compared to $3.6 million for the year ended December 31, 2006. An increase of $2.2 million is attributable to interest income from investing the funds from our IPO offset by a decrease in the interest income from affiliate note receivable of $2.8 million, which is due to a decrease in the interest rate from 18.0% to 4.77% pursuant to an agreement with the affiliated parties.

Other income. Other income, which is primarily composed of leasing our space to businesses in the entertainment industry for filming, decreased by $0.2 million, or 30.6%, to $0.5 million for the year ended December 31, 2007 compared to $0.7 million for the year ended December 31, 2006. The decrease is attributable to fewer filming contracts in the current year compared to the prior year.

Rental expenses. Rental expenses increased by $3.0 million, or 29.6%, to $13.1 million for the year ended December 31, 2007 compared to $10.1 million for the year ended December 31, 2006. The increase of $1.3 million is attributable to the operation of rental properties placed in service during 2006 or 2007 and which had limited or no operations during the year ended December 31, 2006. In addition, as a result of the Rockwell Collins triple net lease expiration at Pomona Village, rental expenses increased by approximately $0.5 million. Finally, we began accruing for estimated property tax contingencies resulting from our formation transactions.

Interest expense. Interest expense decreased by $14.3 million, or 57.0%, to $10.8 million for year ended December 31, 2007 compared to $25.0 million for the year ended December 31, 2006. The decrease is due to the payoff of the CalPERS credit facility and other mortgage debt instruments from our IPO proceeds and the cessation of amortization of loan costs associated with the CalPERS note.

Depreciation and amortization expense. Depreciation and amortization expense increased by $1.8 million, or 45.3%, to $5.8 million for the year ended December 31, 2007 compared to $4.0 million for the year ended December 31, 2006. This increase is primarily due to increased real estate values as a result of property acquisitions and the purchase of additional interests in the current portfolio. In addition, during the current year, we reclassified certain amounts between land and building and improvements, which resulted in increased depreciation expense. See Note 5 of the “Notes to the Consolidated and Combined Financial Statements” in Item 15 of this report for more information.

General and administrative expenses. General and administrative expenses increased by $3.6 million, or 59.1%, to $9.6 million for the year ended December 31, 2007 compared to $6.0 million for the year ended December 31, 2006 as a result of our IPO in the current year. Since the IPO, we have added staff and infrastructure to accommodate the requirements of becoming a public company, which resulted in increased compensation and administrative costs such as director fees, director and officer insurance, investor relations fees and transfer agent costs. We have also incurred significantly higher consulting and professional fees associated with corporate governance and compliance with SEC regulations (i.e. Sarbanes-Oxley, audit fees). In addition, we implemented the 2007 Equity Incentive Plan, which resulted in stock compensation expense, which was not present in the prior period.

Income (loss) from discontinued operations. Loss from discontinued operations decreased by $0.2 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. Income (loss) from discontinued operations includes income and expenses from the projects we sold at 1800 E. Washington Blvd. and 2000 San Fernando Road. During the year ended December 31, 2007, the project at 2000 San Fernando Road recorded income of $0.3 million, whereas it had no income in 2006 because we purchased the project in April 2007. In addition, our project at 1800 E. Washington Blvd. incurred a net loss of $0.4 million and $0.3 million during the years ended December 31, 2007 and 2006, respectively.

Gain on sale of real estate. Gain on sale of real estate decreased by $1.3 million for the year December 31, 2007 compared to the year ended December 31, 2006, due to the sale of Leonis Cold Storage to an unrelated third party in May 2006. There were no sales during 2007.

Liquidity and Capital Resources

WeThe ~~are~~matters ~~a development~~described ~~company~~herein, ~~and~~to ~~experience~~the ~~significant,~~extent ~~recurring~~that ~~cash~~they ~~shortfalls~~relate ~~from (i)~~to ~~operating~~future ~~activities~~events or expectations, ~~(ii)~~may ~~recurring~~be ~~investment~~significantly ~~activities~~affected ~~such~~by asour ~~carrying costs~~Chapter ~~for~~11 ~~interest~~proceedings. ~~payments~~Those proceedings will involve, ~~real~~or ~~estate~~may ~~taxes~~result ~~and~~in, ~~unfunded~~various ~~development expenditures~~restrictions ~~and~~on ~~(iii)~~our ~~capital~~activities, ~~expenditures~~limitations on ~~existing~~financing, ~~rental properties. We~~the ~~would~~ need to ~~generate~~obtain anBankruptcy ~~additional~~Court ~~$28.0~~and ~~million~~perhaps ~~in cash~~other ~~annually~~approvals for various matters and uncertainty as to ~~cover~~relationships ~~such~~with ~~shortfalls~~lenders, ~~before~~vendors, ~~any~~suppliers, ~~significant~~tenants ~~development activities~~and ~~other~~others ~~than~~with ~~the~~whom ~~funded~~we ~~development~~may ofconduct ~~our~~or ~~717~~seek Wto ~~Ninth~~conduct ~~Street project~~business.

WeThe ~~also require~~filing ~~significant~~of ~~capital~~the toChapter ~~satisfy~~11 ~~development~~petitions ~~commitments,~~may have given rise to ~~pay indebtedness~~claims ~~maturing~~by ~~over~~lenders ~~the~~of ~~next~~defaults ~~year~~under ~~and~~our todebt ~~pursue~~instruments ~~discretionary developments~~and agreements. InAs ~~this~~a ~~very~~result, ~~difficult~~our debt ~~and~~obligations ~~equity~~may ~~capital~~have ~~market~~become ~~environment, we~~immediately ~~cannot~~payable. ~~borrow~~We ~~money~~believe ~~with~~that ~~reasonable~~any ~~terms~~efforts onto ~~our~~enforce ~~unencumbered~~the ~~development projects. Moreover,~~payment ~~many~~obligations ofare ~~our~~stayed ~~existing~~as ~~lenders~~a ~~want~~result ~~their~~of ~~loans~~the ~~to be~~Chapter ~~repaid~~11 filings.

~~One~~The ~~way to~~following ~~generate~~table ~~liquidity~~sets inforth ~~this~~certain ~~challenging~~information ~~credit~~with ~~climate~~respect ~~and real estate market is~~ to ~~sell~~our ~~assets.~~outstanding ~~Hence,~~indebtedness weas ~~are actively marketing many~~ of ~~our~~December ~~projects. However~~31, ~~selling~~2009 (in ~~this environment is difficult.~~thousands):

Accordingly we are discussing various options with many of our lenders. We have stopped making interest payments on most of our loans, and, as a result, we may be declared in default and the loans may be accelerated. As of March 13, 2009, we owe approximately $2.8 million in accrued interest. On December 15, 2008, we failed to make a $4.0 million principal repayment and later obtained the lender’s verbal approval to defer the payment. As of March 13, 2009, we have not repaid or been able to extend or refinance any of the approximately $86.9 million in loans that matured in the first quarter of 2009 or make a scheduled principal paydown of $5.0 million due in the first quarter of 2009.

	Principal Balance		Weighted Average Interest Rate			Current Principal Due
Fixed rate mortgage debt	$	150,909		8.41	%	$	84,000
Variable rate mortgage debt		21,454		3.25	%		-
Total fixed and variable rate mortgage debt		172,363		7.77	%		84,000
Fixed mortgage debt subject to compromise (1)		26,712		10.72	%		26,712
Variable mortgage debt subject to compromise (1)		168,475		10.43	%		168,475
Total fixed and variable rate mortgage debt subject to compromise		195,187		10.47	%		195,187
Total consolidated debt	$	367,550		9.21	%	$	279,187

On(1) ~~our consolidated~~The ~~statements~~filing of ~~cash~~the ~~flows,~~Chapter we11 ~~classify~~petitions ~~cash~~may ~~flows~~have ~~into~~given ~~operating activities,~~rise ~~investing~~to ~~activities~~claims ~~and~~by ~~financing~~lenders ~~activities. Our operating activities reflect the operating cash flow performance~~ of ~~our~~defaults ~~rental properties~~under ~~and~~ our ~~suspended~~debt ~~development~~instruments ~~projects~~and agreements. ~~These~~As ~~activities~~a ~~consist of total revenue~~result, ~~offset~~our bydebt ~~rental~~obligations ~~expenses,~~may ~~interest~~have ~~expense,~~become ~~general~~immediately ~~and administrative~~payable ~~expenses~~ and ~~the~~default ~~impact~~may ~~of changes in assets and liabilities. Changes in assets and liabilities fluctuate from month to month but tend to~~ be ~~negligible over time~~applicable. ~~Excluding~~ ~~the impact of changes in assets and liabilities~~Accordingly, we ~~expect~~are inrecording ~~the~~interest ~~near~~at ~~term~~the todefault ~~use~~rate ~~cash in excess of revenues of approximately $4.8 million per quarter~~ for ~~operating activities.~~all Tomortgage ~~preserve~~debt ~~cash~~subject ~~flow~~to ~~in this challenging economic environment, we suspended 13 development projects with a book value of approximately $143~~compromise.~~3 million. As of October 1, 2008, we stopped capitalizing these costs and began reflecting the revenue and expense activities on our statement of operations.~~

The carrying costs of our continuing development projects are reflected in investing activities. As of December 31, 2008, our book value of real estate held for development was approximately $347.9 million, of which $204.6 million related to continuing development projects. We have a construction loan in place to fund the development commitments for our 717 W. Ninth Street project. For other continuing development projects, we must find other sources to fund our carrying costs. In the near term, we expect we will have net cash outflows associated with these development projects of approximately $2.2 million per quarter. Carrying costs consist primarily of interest, property taxes and development staff salaries, all of which are capitalized. Thus, in the near term, we expect to have net cash outflows of approximately $7.0 million per quarter or $28.0 annually from our combined rental properties and development projects, excluding 717 W. Ninth Street, which has a construction loan in place.

As of December 31, 2008, we had cash and cash equivalents of approximately $4.5 million.

The following table sets forth certain information with respect to our outstanding indebtedness as of December 31, 2008 (in thousands):

	Principal Balance		Weighted Average Interest Rate			Current Principal Due
Fixed rate mortgage debt	$	138,904		8.53	%	$	59,356
Variable rate mortgage debt		189,325		6.13	%		113,162
Total consolidated debt	$	328,229		7.14	%	$	172,518

As of December 31, 2009, we had $367.6 million in notes payable secured by real estate. We classified on our consolidated balance sheet approximately $195.2 million of our notes payable secured by real estate as liabilities subject to compromise and the remaining $172.4 million as notes payable secured by real estate. In our proposed Plan we intend to pay the full amount of these secured claims with interest. As of December 31, 2009 and December 31, 2008, the total balance of our notes payable secured by real estate was $367.6 million and $328.2 million, respectively.

~~The following~~We ~~table~~are ~~sets~~actively ~~forth~~attempting ~~additional~~to ~~information~~reach agreements with ~~respect~~our lenders to extend the maturity dates on our ~~outstanding~~ ~~indebtedness~~notes asand ofsignificantly ~~December~~reduce 31our interest rates. We have completed settlement agreements with six lenders and have obtained the necessary bankruptcy court approval with loans totaling approximately $172.4 million. On April 26, ~~2008~~2010 (and in ~~thousands):~~connection with the sale of 705 W. Ninth Street, we paid off our $84.0 million construction loan secured by this project. Excluding this loan, the weighted average pay rate on the loans approved by the Bankruptcy Court is approximately 3.8%. Assuming the applicability of contingent interest, the weighted average interest rate would be 5.0%. In the Lead Chapter 11 Case, our proposed plan of reorganization, if confirmed and effective, would change the interest rates on our loan agreements from the weighted average default rate of approximately 9.2% asserted by lenders on some loans to 4.0%. It would also extend the maturity dates on these loans for a period of 5 or 7 years. There is no assurance that a plan containing these terms will be confirmed by the Bankruptcy Court, and the Debtors may amend their plans and propose different terms.

Project Name	Interest Rate			Maturity Date (1)	Principal		Annual Debt Service (2)		Balance at Maturity
Seventh Street Produce Market/Alameda Square(3)		6.75	%	2/28/2009	$	48,946	$	5,569	$	48,552
717 W 9th Street(3)		12.0	%	1/31/2010		42,000		5,110		42,000
Santa Fe Commerce Center		7.48	%	9/5/2011		10,182		1,181		9,725
Seventh Street Produce Market/Alameda Square(3)		8.00	%	2/28/2009		9,861		935		9,824
3185 E Washington Blvd		6.93	%	4/13/2016		9,555		818		8,436
2131 Humboldt Street		6.50	%	1/1/2011		7,000		455		7,000
420 Boyd Street(3)		7.49	%	6/15/2012		5,950		542		5,655
1500 Griffith Ave		7.00	%	1/24/2013		3,000		210		3,000
905 8th Street		7.50	%	1/15/2009		1,950		146		1,950
500 Mateo Street		7.00	%	3/1/2011		460		205		55
TOTAL FIXED RATE DEBT						138,904		15,171		136,197
Union Lofts Mini Permanent Loan(3)	1-Month LIBOR plus 1.65%			3/1/2009		28,108		595		28,108
Meruelo Wall Street	Prime plus 2.0%			11/5/2011		20,878		1,716		19,788
Southpark Towers(3)	Prime			7/14/2009		20,000		659		20,000
Sky Arc (3)	Prime plus 2.0%			6/15/2009		17,000		1,422		6,500
Southern California Institute of Architecture(3)	Prime plus .25%			8/1/2011		10,114		961		9,846
Barstow Produce Center Construction Loan(3)	Prime plus .75%			1/9/2013		8,999		573		8,077
Ullman Tower One(3)	Prime plus 1.0%			6/1/2009		8,885		751		9,225
Pomona Park Village(3)	Prime plus 7.0%			6/26/2011		8,800		1,191		8,800
1875 W Mission Blvd	6-Month Libor plus 6.25%			4/1/2009		8,480		1,229		8,404
788 S. Alameda St. (3)	Prime plus 0.5%			4/1/2013		7,165		539		6,484
Center Village	Prime plus 1.0%			10/1/2009		6,985		641		6,906
4th Street Center and 1500 Griffith St(3)	Prime plus 1.0%			8/1/2009		6,397		389		6,397
Barstow Produce Center Construction Loan(3)	Prime plus 1.0%			1/9/2010		6,190		405		6,037
2640 Washington Boulevard(3)	Prime plus .50%			12/5/2012		6,072		575		5,684
1919 Vineburn Street	Prime plus 1.0%			7/1/2009		5,473		526		5,432
620 Gladys Avenue(3)	Prime			10/1/2009		5,383		492		5,348
Desmond Building(3)	Prime plus 1.0%			5/1/2009		5,340		230		5,340
Meruelo Farms(3)	Prime			11/7/2010		3,350		110		3,350
Santa Fe Plaza (3)	6-Month US Treasury plus 2.875%			10/1/2017		3,137		269		2,758
3rd & Omar Street(3)	Prime plus .25%			8/15/2010		2,569		202		2,450
TOTAL VARIABLE RATE DEBT						189,325		13,475		174,934
TOTAL CONSOLIDATED DEBT					$	328,229	$	28,646	$	311,131

As of December 31, 2009, using our total liabilities and our total assets from our consolidated balance sheet, our debt-to-total assets ratio is 74.4%. Because we are recording interest at the default rate, our weighted average interest rate increased from 7.14% as of December 31, 2008 to 9.2% as of December 31, 2009.

~~(1)~~As ~~Maturity~~of ~~date~~December ~~represents~~31, 2009, we had cash and cash equivalents of approximately $9.2 million. As of June 18, 2010 we have increased our cash balance to approximately $26.0 million, primarily from proceed we received from the ~~date~~sale of 705 W. Ninth Street on ~~which~~April 26, 2010. Because of our bankruptcy filings during 2009, we sustained our operation by deferring our recurring liabilities (primarily interest and property taxes) and generating net proceeds of approximately $8.0 million from the ~~principal~~sale ~~amount~~of isproperties. ~~due~~Since we have stopped making interest and ~~payable~~principal payments on mortgage debt subject to compromise, ~~assuming~~we nocurrently ~~payments~~use ~~have~~approximately ~~been~~$0.6 ~~made~~million ina ~~advance~~month of ~~the~~cash ~~maturity~~to ~~date~~sustain our operation while in bankruptcy.

~~(2)~~We ~~Annual~~are ~~debt~~a ~~service~~development ~~includes~~company ~~payments~~and ~~made~~experience ~~for~~significant, ~~principal~~recurring ~~and~~cash ~~interest~~shortfalls. Before ~~Variable~~filing ~~rate~~our ~~interest~~Chapter is11 ~~calculated~~petitions, ~~based~~we onneeded ~~the~~to ~~respective~~generate ~~rate~~approximately as$28.0 ofmillion ~~December~~in ~~31,~~cash ~~2008.~~annually ~~The~~to ~~six-month~~cover ~~LIBOR~~such ~~was~~shortfalls ~~1.75%~~from (i) operating activities, ~~the~~(ii) ~~six-month~~recurring ~~Treasury~~investment ~~rate~~activities ~~was~~such ~~0.27%~~as carrying costs for interest payments, ~~the~~real ~~one-month~~estate ~~LIBOR~~taxes ~~was~~and ~~0.44%~~other unfunded development expenditures and ~~the~~(iii) ~~Prime~~capital ~~rate~~expenditures ~~was~~on 3existing rental properties.~~25%~~

~~(3)~~On ~~The~~a ~~Company~~forward-looking isbasis, aour ~~guarantor~~current ~~for~~recurring ~~this~~annual ~~loan~~cash shortfall, assuming we pay our obligations as incurred, has increased from $28.0 million to $38.7 million or $10.7 million for the following reasons:

As· ~~of December~~We ~~31,~~have ~~2008,~~classified ~~using~~approximately ~~our~~$195.2million of notes payable secured by real estate ~~and~~as ~~our~~liabilities ~~total assets~~subject ~~from~~to compromise on our consolidated balance sheet,. ~~our~~For ~~debt-to-total~~accounting ~~assets~~purposes, ~~ratio~~we ~~is 48.1%. Our~~are ~~weighted~~accruing ~~average~~and deferring interest ~~rate~~on ~~decreased~~these ~~from~~notes ~~7.47% as~~at ofthe ~~December~~default 31rate claimed by lenders, ~~2007~~even tothough ~~7.14%~~we asmay dispute whether default interest may be charged and/or the amount of ~~December~~default ~~31,~~interest. ~~2008~~Recording default interest has increased our annual interest obligation by approximately $7.9 million.

We· ~~have stopped~~While ~~making interest and principal payments on, and may be declared~~ in ~~default~~ ~~under~~bankruptcy, 26we ofare ~~our~~incurring 30bankruptcy ~~loans~~related ~~totaling~~costs ~~$266.0 million. We continue to make payments on our construction loan at 717 W. Ninth Street and other three other loans that have interest reserves. As~~ of ~~March 13, 2009, we owe~~ approximately ~~$2.8~~ ~~million in accrued interest and another~~ $0.8 million in principal repayments and reserve funds. On December 15, 2008, we failed to make a required $4.0 million principal repayment on a $17.0 million land loan. The lender subsequently agreed to defer the principal repayment. On March 15, 2009, we owe another $5.03 million ~~in principal on this land loan~~annually. We have not been able to extend or refinance three other loans totaling $86.9 million that matured on February 28, 2009 or March 1, 2009. We have twelve loans that mature within the next twelve months with an aggregate principal balance of $170.8 million (in addition to $1.7 million of principal amortization on other long-term loans). The status of these loans is as follows:

·	These increases are partially offset by operational improvements of approximately $2.5 million annually.

Given these recurring shortfalls, it is important to reduce these recurring charges and quickly obtain Bankruptcy Court approval of our proposed plan of reorganization. As presently proposed, our Plan would add the deferred interest incurred before the effective date of the Plan to the applicable note balance, would reduce the interest rates on our loan agreements from the default rate of approximately 9.2% asserted by lenders on some loans to 4.0%, would require interest-only payments on a monthly basis, would also extend the maturity dates on these loans to period of 5 or 7 years after the effective date of the Plan. If confirmed, the Plan would reduce the initial recurring cash flow shortage to approximately $20.2 million annually (including by substantially reducing bankruptcy-related costs) and would allow us the time and means to improve operations. We believe we can make up for this shortfall by raising new capital at the effective date of the Plan, and further by selling or refinancing certain properties, by improving our operating performance and by implementing profitable development strategies. There are no assurances as to whether a plan containing these proposed terms will be confirmed or as to whether alternative plans may be proposed by the Debtors or others. Also, we may from time to time enter into settlements with lenders that provide for different terms than those proposed in the Plan, and our Plan would be modified to conform to the terms of those settlements.

§ We ~~Two~~commenced ~~loans~~the ~~totaling~~Chapter ~~approximately~~11 ~~$58.8~~proceedings ~~million~~because ~~matured~~we onwere ~~February~~not ~~28,~~assured ~~2009~~that ~~and are collectively secured by Seventh Street Produce Market and Alameda Square. Our largest lease with American Apparel expired on December 31, 2008. During 2008,~~ we ~~earned~~would ~~lease~~have ~~revenue~~sufficient ~~and~~capital ~~parking income of approximately $3.1 million from this tenant. During 2009, American Apparel continues~~ to ~~make~~satisfy ~~lease~~our ~~payments.~~liquidity ~~Lease~~needs ~~negotiations~~over ~~are~~a ~~ongoing~~year and webecause dothere ~~not~~was ~~expect~~substantial ~~the~~doubt ~~tenant~~about ~~to vacate the space. Because the tenant has not renewed its lease, it has complicated~~ our ~~loan~~ability ~~negotiations.~~to ~~As of March 13, 2009, we have not made two months of interest and principal payments and~~ continue toas ~~seek~~ a ~~loan~~going ~~workout agreement from this lender~~concern. ~~The~~Our ~~lender~~ability ~~has~~to ~~not~~continue ~~formally~~as ~~demanded~~a ~~payment.~~going Weconcern, ~~expect~~including ~~the~~our ~~lender~~ability ~~will continue~~ to ~~negotiate~~meet ~~with~~our usongoing ~~but~~operational weobligations, ~~are~~is ~~not~~dependent ~~assured~~upon, ofamong ~~this.~~other things:

§• ~~One loan with a balance of approximately $28.1 million matured on March 1, 2009 and is secured by~~ our ~~Union~~ability ~~Lofts project and cash collateral of approximately $6.6 million. We are in the process of leasing up this project and expect~~ to ~~stabilize~~generate this project by December of 2009. We are in discussion with our lender to extend this loan until the project is stabilized. We hope to obtain a takeout loan on this project once the project is stabilized. As of March 13, 2009, we have not made two months of interest payments and ~~continue~~maintain toadequate ~~seek a loan workout agreement from this lender. The lender has not formally demanded payment. We expect the lender will continue to negotiate with us, but we are not assured of this.~~cash;

§ One land loan with a balance of approximately $17.0 million, which is in default as we did not make a $4.0 million principal payment in December of 2008, has remaining maturities of $5.0 million and $8.0 million on March 15, 2009 and June 14, 2009 respectively. This loan is secured by land at our Sky Arc development project. As of March 13, 2009, we have not made two months of interest payments. Although the lender has verbally agreed to a deferral on the principal maturing in December 2008, we have not yet received written notice. We likewise are not in a financial position to make the principal repayment of $5.0 million on March 15, 2009. We continue to seek a loan workout agreement from this lender and have not yet reached a satisfactory conclusion.

	•			the cost, duration and outcome of the reorganization process in the Chapter 11 proceedings; and
		•		our ability to retain key employees.

§ These ~~Three~~challenges ~~loans~~are ~~totaling~~in ~~approximately~~addition ~~$22.7~~to ~~million,~~those ofoperational ~~which~~and ~~one~~competitive ~~loan~~challenges ofthat ~~$8.9~~we ~~million~~face isin ~~secured~~connection bywith ~~land~~our atbusiness. ~~our~~In ~~Ullman~~conjunction ~~Tower~~with ~~One~~our ~~project~~advisors, ~~mature~~we inare ~~the~~implementing ~~second~~strategies ~~quarter of 2009. We continue~~ to ~~seek~~aid aour ~~loan~~liquidity ~~workout~~and ~~agreement~~our inability ~~regard~~ to ~~the~~continue ~~Ullman~~as ~~land~~a ~~loan~~going ~~and~~concern. ~~one~~However, ~~other~~we ~~loan~~are ofnot ~~$5.3~~assured ~~million~~that ~~included~~such inefforts ~~the~~will ~~$22.7~~be ~~million amount~~successful.

§ Three loans totaling approximately $31.9 million, of which one loan of $20.0 million is secured by land at our South Park Towers projects, mature in the third quarter of 2009. We continue to seek a loan workout agreement in regard to the South Park land loan and one other loan of $5.5 million included in the $31.9 million amount.

§ Two loans totaling approximately $12.3 million mature in the fourth quarter of 2009. We continue to seek a loan workout agreement in regard to both of these loans.

§ Overall, we are seeking loan workout agreements on $177.8 million in loans.

The debt and equity capital market crisis has made it more difficult for us to obtain debt financing on favorable terms or at all. Lenders are frequently lending at lower loan to value ratios, are taking longer to make lending decisions and are generally applying more stringent underwriting standards. As a result, some lenders have required us to make principal debt reductions as a condition of renewing or extending our notes. In this tight credit environment, it is also very difficult to obtain loans solely secured by land. In addition, many of our existing lenders are maintaining high floor rates, so that we do not always benefit from reduction in the prime rate on our variable rate debt. In addition, some lenders have required other security for their notes in the form of restricted cash or other properties. Given that we have an approximately $28.0 million annual shortfall in our combined operating and development activities and the turmoil in the credit markets especially for development financing, we must obtain significant loan concessions from our lenders to survive.

We also hope to generate liquidity from the sale of certain non-core properties.

In summary, our liquidity requirements for the next twelve months consist primarily of the following:

· Approximately $172.5 million to satisfy principal amortization and the twelve loans maturing during the next year.

· Approximately $38.7 million in development commitments relating to our 717 W Ninth Street project.

· Approximately $28.0 million to fund our near term cash flow needs of our rental properties and development projects.

· Approximately $3.5 million of discretionary capital improvements to our rental properties primarily related to new leases.

Our potential cash sources to fund our liquidity requirements for the year consist of the following:

· Refinancing, repaying out of sale proceeds or obtaining loan concessions from lenders of approximately $172.5 million in debt maturing during the next year.

· Selling certain non-core properties.

· Using reserve funds of approximately $38.7 million to fund the remaining commitment relating to our 717 W. Ninth Street project.

· Obtaining borrowings secured by our unencumbered or under-encumbered properties.

· Improving net operating income from our rental properties, including by revising certain of our development plans to convert development projects into smaller scale income-producing projects that will generate revenue sooner.

In addition, as disclosed elsewhere in this report, we are actively pursuing additional cash sources and considering actions that would delay or reduce our liquidity needs. We are examining all feasible strategic alternatives. Potential strategic alternatives include a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code.

Based on the foregoing and the additional actions we are considering, we are not assured that we will have sufficient capital to satisfy our liquidity needs over the next 12 months. In this regard, we observe that we received a “going concern” opinion from our independent auditors. See our auditors’ letter included in the financial pages to this report and Note 2 to our financial statements therein.

Contractual Obligations

The following table provides information with respect to our contractual obligations at December 31, ~~2008~~2009, including the maturities (not including extensions), ~~and~~ scheduled principal and interest payments of our secured debt, schedule of secured debt subject to compromise and provides information about the minimum commitments due in connection with our construction costs and purchase obligations.


	Payments due by period
	Less than 1 year (1)		1-3 years		3-5 years		More than 5 years		Total
Contractual Obligations at December 31, 2009
Notes payable secured by real estate	$	279,187	$	29,699	$	58,664	$	-	$	367,550
Interest payments on notes payable		6,677		9,505		1,041		-		17,223
Construction obligations (2)		7,000		-		-		-		7,000
Total Contractual Obligations	$	292,864	$	39,204	$	59,705.00	$	-	$	391,773

	Payments due by period
	Less than 1 year(1)		1-3 years		3-5 years		More than 5 years		Total
Contractual Obligation at December 31, 2008
Notes payable secured by real estate	$	172,518	$	114,054	$	29,915	$	11,742	$	328,229
Interest payments on notes payable(2)		17,056		13,881		3,366		2,196		36,499
Construction obligations (3)		38,668		—		—		—		38,668
	$	228,242	$	127,935	$	33,281	$	13,938	$	403,396
(1) These amounts include all payments due in calendar 2009. (2) Computes interest on variable rate debt using the respective interest rates in place as of December 31, 2008. As of December 31, 2008, the six-month LIBOR was 1.75%, the one-month LIBOR was 0.44%, the six-month Treasury rate was 0.27% and the Prime rate was 3.25%. (3) Based upon executed contracts with general contractors as of December 31, 2008. We have a construction loan in place to cover these costs.

(1) These amounts include all payments due in calendar 2010.

(2) Based upon executed contracts with general contractors as of December 31, 2009. We have a construction loan in place to cover these costs.

Off-Balance Sheet Arrangements

At December 31, ~~2008~~2009, we did not have any guarantee contracts, retained or contingent interests in transferred assets, obligations under derivative instruments, obligations arising out of variable interests in unconsolidated entities, or other off-balance sheet arrangements.

Cash Flows

Comparison of the year ended December 31, 2009 to the year ended December 31, 2008

Cash and cash equivalents were $9.2 million as of December 31, 2009 and $4.5 million as of December 31, 2008.

Net cash provided by operating activities increased by $11.4 million to $3.2 million for the year ended December 31, 2009 compared to $8.2 million of net cash used in operating activities for the year ended December 31, 2008. The increase during 2009 is attributable to our bankruptcy filings, which has allowed us to defer the payments of our prepetition liabilities and post petition interest. This increase is partially offset by the net increase in expenses attributable to suspending as of January 1, 2009, all of our development projects, other than our 705 W. Ninth Street project.

Net cash used in investing activities increased by $12.3 million to $38.5 million for the year ended December 31, 2009 compared to $26.2 million for the year ended December 31, 2008. The increase was caused by a reduction in proceeds from sale of real estate of $102.3 million during 2009 over 2008. During the year ended December 31, 2008, we sold various projects including 2000 San Fernando Road (Fed Ex), 9901 Alameda, Overland Terminal and 1800 E. Washington, which increased our cash flow by $110.6 million. During 2009, we generated $8.3 million in proceeds from sale of assets. This increase is largely offset due to three factors. First, a decrease of $39.2 million is due to acquiring properties during 2008 and not acquiring any property during 2009. Second, a decrease of $26.2 million is due to a reduction in our restricted cash balance at our 705 W. Ninth Street construction project. Third, a decrease of $24.6 million results from a reduction in our expenditures for improvements to real estate during 2009, because we capitalized carrying cost during 2008 and expensed these costs during 2009.

Net cash provided by financing activities increased by $4.2 million to $40.0 million for the year ended December 31, 2009, compared to $35.8 million for year ended December 31, 2008. Because of our bankruptcy filings, most of our financing activities ceased. Before our bankruptcy filings, we obtained the second tranche of $42.0 million on our construction loan at our 705 W. Ninth Street project. No other significant activity occurred during 2009. During 2008 we received a significant amount of proceeds, partially offset by a significant amount of principal payments.

Comparison of the year ended December 31, 2008 to the year ended December 31, 2007

Cash and cash equivalents were $4.5 million as of December 31, 2008 and $3.0 million as of December 31, 2007. For purposes of comparison, the following discussion regarding 2007 amounts include the predecessor results for the period from January 1, 2007 to January 29, 2007 and our company results for the period from January 30, 2007 to December 31, 2007.

Net cash used in operating activities increased by $1.2 million to $8.2 million for the year ended December 31, 2008 compared to $7.0 million for the year ended December 31, 2007. The increase is primarily due to costs on development projects.

Net cash used in investing activities decreased by $194.0 million to $26.2 million for the year ended December 31, 2008 compared to $220.2 million for the year ended December 31, 2007. With the net proceeds received from our IPO during the year ended December 31, 2007, we repaid $32.6 million in deferred interest on the CalPERS credit facility and acquired additional real estate for $103.5 million. During the year ended December 31, 2008, we had no CalPERS credit facility obligations and acquired less real estate than in the previous year. In fact, the two projects we acquired (9901 Alameda and Overland Terminal) were subsequently sold immediately, generating $6.8 million and $2.8 million of net proceeds, respectively. In addition, we also sold our projects at 2000 San Fernando Road, 1800 E. Washington Blvd., 801 E 7th Street, and a building at 816 Stanford for a total of $59.7 million. There were no sales in the prior period. The sales are offset by increased restricted cash balances required by our new loans, primarily our construction loan for our ~~717~~705 W ~~9th~~Ninth Street project.

Net cash provided by financing activities decreased by $192.0 million to $35.9 million for the year ended December 31, 2008, compared to $227.9 million for the year ended December 31, 2007. The decrease is primarily attributable to the $455.5 million of proceeds received from our IPO in the prior year partially offset by the prior year repayment of the $150.0 million CalPERS credit facility and offering costs and expenses related to our ~~offering~~IPO of $36.2 million. In addition, we received $14.2 million from the repayment of the affiliate notes receivable due to the Taylor Yards litigation settlement during the year ended December 31, 2008 with no comparable activity in the prior period.

5756

Comparison of the year ended December 31, 2007 to the year ended December 31, 2006

Cash and cash equivalents were $3.0 million as of December 31, 2007 and $2.4 million as of December 31, 2006. For purposes of comparison, the following discussion regarding 2007 amounts include the predecessor results for the period from January 1, 2007 to January 29, 2007 and our company results for the period from January 30, 2007 to December 31, 2007.

Net cash used in operating activities decreased by $8.9 million to $7.0 million for the year ended December 31, 2007 compared to $15.9 million for the year ended December 31, 2006. The decrease is primarily due to lower interest costs paid, which is a direct result of our repayment of debt with the net proceeds of our IPO.

Net cash used in investing activities increased by $157.9 million to $220.2 million for the year ended December 31, 2007 compared to $62.3 million for the year ended December 31, 2006. As a result of the net proceeds received from our IPO, we repaid $32.6 million in deferred interest on the CalPERS credit facility and acquired additional real estate of $66.4 million. In addition, we actively continued our planned construction of our development properties, primarily Union Lofts and 717 W 9th Street, which resulted in an increase of $49.7 million in costs over the prior year.

Net cash provided by financing activities increased by $156.8 million to $227.8 million for year ended December 31, 2007 compared to $71.0 million for the year ended December 31, 2006. The increase is primarily attributable to the $455.5 million of proceeds received from our IPO partially offset by the repayment of the $150.0 million CalPERS credit facility, the net payments on notes payable secured by real estate of $35.2 million and costs and expenses related to our offering of $36.2 million.

Impact of Inflation, Changing Prices and Economic Conditions

Residential projects

The market value of a unit in a proposed residential project can vary significantly due to changing market conditions, and there may be a significant amount of time before we can develop our residential projects and offer units available for sale or rent.

Commercial projects

Some of our commercial leases provide for fixed base rent increases and operating expense reimbursements. We believe that inflationary increases may be at least partially offset by these contractual rent increases and expense reimbursements.

Total portfolio

Prices of residential units and sales and commercial rental activities in the Los Angeles market ~~have a large~~ impact on our profitability because we conduct substantially all of our business in this market. These prices or rents could decline from time to time for market-specific reasons, including adverse economic conditions due to, among other things, the failure or decline of key industries and employers affecting the local, regional or national economies. If the prices of residential units or sales or commercial rental activity decline in the key market in which we operate, our business, results of operations and financial condition would be materially adversely affected.

Recent Accounting Pronouncements

In ~~June 2006~~December 2007, the FASB ~~issued~~revised ~~FASB~~the ~~Interpretation~~authoritative ~~No. 48,~~guidance ~~Accounting~~ for ~~Uncertainty~~business ~~in Income Taxes (FIN 48)~~combinations, towhich ~~create~~establishes aprinciples ~~single~~and ~~model~~requirements tofor ~~address~~recognizing ~~accounting~~and ~~for uncertainty~~measuring inidentifiable ~~tax~~assets ~~positions.~~and ~~FIN~~goodwill 48acquired, ~~clarifies~~liabilities ~~the~~assumed, ~~accounting~~and ~~for~~any ~~income~~non-controlling ~~taxes, by~~interest ~~prescribing~~in athe ~~minimum~~acquiree. ~~recognition~~The ~~threshold~~revised aguidance ~~tax~~also ~~position~~provides isdisclosure ~~required~~requirements to ~~meet~~ ~~before~~enable ~~being~~users ~~recognized~~of in the financial statements. ~~FIN~~to 48evaluate ~~also~~the ~~provides guidance~~nature ~~on derecognition, measurement, classification, interest~~ and ~~penalties, accounting~~financial ineffects ~~interim~~of ~~periods,~~the ~~disclosure~~business ~~and transition~~combination. WeThe ~~adopted~~adoption ~~FIN~~of 48this guidance on January 1, ~~2007.~~2009 ~~Based~~did onnot ~~our evaluation, we~~ have ~~concluded~~a ~~that~~material ~~there~~impact ~~are no~~on ~~significant uncertain tax positions requiring recognition in~~ our consolidated financial ~~statements~~ atposition ~~December~~or ~~31,~~results ~~2008~~of ~~and 2007~~operations.

58 In December 2007, the FASB issued authoritative guidance that establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of any retained non-controlling equity investment when a subsidiary is deconsolidated. The guidance also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The adoption of this guidance on January 1, 2009 did not have a material impact on our consolidated financial position or results of operations

~~In September~~Pronouncement ~~2006,~~Affecting ~~the~~Life ~~FASB issued Statement~~ of ~~Financial~~Intangible Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13 (“FSP SFAS 157-1”). FSP FAS 157-1 defers the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. FSP SFAS 157-1 also excludes certain leasing transactions accounted for under Statement of Financial Accounting Standards No. 13, Accounting for Leases from the scope of SFAS 157. The implementation of SFAS No. 157 for financial assets and liabilities, effective January 1, 2008, did not have a significant impact on our consolidated financial position and results of operations.Assets

~~In February~~On ~~2007~~January 1, ~~the~~2009, ~~FASB~~we ~~issued~~adopted ~~Statement~~new ofaccounting ~~Financial~~guidance ~~Accounting~~for ~~Standard~~the ~~No. 159,~~determination ~~The~~of ~~Fair~~the ~~Value~~useful ~~Option~~life ~~for Financial~~of ~~Assets~~intangible ~~and~~assets ~~Financial~~as ~~Liabilities~~issued ~~Including~~by anthe ~~Amendment~~FASB. ofThe ~~FASB Statement~~new ~~No.~~guidance ~~115~~amends ~~(“SFAS~~the ~~159”). This~~factors ~~standard~~that ~~permits~~should ~~entities to~~be ~~choose~~considered toin ~~measure~~developing ~~many~~the ~~financial~~renewal ~~instruments~~or ~~and~~extension ~~certain~~assumptions ~~other~~used ~~items~~to atdetermine ~~fair value~~the ~~and~~useful islife ~~effective~~of ~~for~~a ~~the~~recognized ~~first~~intangible ~~fiscal~~asset. ~~year~~The ~~beginning~~new ~~after~~guidance ~~November~~also ~~15, 2007. Effective~~requires ~~January~~expanded 1,disclosure ~~2008,~~regarding wethe ~~adopted~~determination ~~SFAS~~of ~~159~~intangible onasset auseful ~~prospective basis~~lives. The adoption of ~~SFAS~~this ~~159~~accounting guidance did not have a ~~significant~~material impact on our consolidated financial statements ~~as we did not elect to apply the fair value option for any of our eligible financial instruments or other items on the January 1, 2008 effective date~~.

~~In December~~Pronouncement ~~2007,~~Affecting ~~the~~Fair ~~FASB~~Value issued Statement of Financial Accounting Standard No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations occurring in any reporting period beginning on or after December 15, 2008. We are currently evaluating the effect the adoption of SFAS 141R will have on our consolidated financial position and results of operations.Measurement

In ~~December~~ ~~2007~~April 2009, the FASB issued ~~FAS~~guidance ~~No.~~that ~~160,~~requires ~~Non-controlling~~fair ~~Interests~~value ~~in Consolidated~~disclosures ~~Financial Statements-an Amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for a non-controlling interest~~ in aboth ~~subsidiary~~interim ~~and~~as ~~for~~well ~~the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a non-controlling interest (minority interest)~~ as ~~equity~~ inannual ~~the consolidated~~ financial statements ~~separate~~in ~~from~~order ~~the parent’s equity. The amount of net income attributable~~ to ~~the~~provide ~~non-controlling interest~~more ~~will~~timely beinformation ~~included~~about ~~in consolidated net income on~~ the ~~face~~effects of ~~the~~current ~~income statement. SFAS~~market ~~160~~conditions ~~clarifies~~on ~~that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling~~ financial ~~interest. In~~ ~~addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated~~instruments. ~~Such~~ ~~gain~~The oradoption ~~loss will be measured using the fair value~~ of ~~the~~this ~~non-controlling~~pronouncement ~~equity investment~~ on ~~the~~April deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, which for us means January 1, 2009~~. We~~ dodid not ~~expect the adoption of SFAS 160 to~~ have a ~~significant~~material ~~effect~~impact on our consolidated financial ~~statements~~position, results of operations or cash flows.

In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162, The Hierarchy of Generally Accepted Accounting Principle (“SFAS 162”). SFAS 162 identified the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS 162 to have a significant effect on our consolidated financial statements.57

59 In January 2010, the FASB issued new accounting guidance related to the disclosure requirements for fair value measurements and provides clarification for existing disclosures requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements for or related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years ending after December 15, 2010. We do not believe the adoption of this guidance will have a material impact to our consolidated financial statements

Pronouncement Resulting in Modified Disclosures in the Financial Statements

In May 2009, the FASB established general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance requires disclosure of the date through which subsequent events have been evaluated and whether this date represents the date the financial statements were issued or were available to be issued. We adopted this guidance during the quarter ended June 30, 2009, which resulted in additional disclosure but did not have a material impact on our financial position or results of operations.

During the third quarter of 2009, we adopted the new Accounting Standards Codification (“ASC”) as issued by the FASB. The ASC has become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. The ASC is not intended to change or alter existing GAAP. The adoption of the ASC did not have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

WeSubject to the outcome of our Bankruptcy Cases, we are exposed to market risks related to fluctuations in interest rates on mortgage loans and other forms of debt financing. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows.

~~The following~~ In ~~tables~~some ~~set~~instances ~~forth~~the creditors have claimed the Chapter 11 petitions accelerated repayment obligations under a number of our debt instruments and agreements. As a result, our pre-petition debt obligations ~~outstanding~~became immediately payable and ~~their~~have ~~maturities~~ been reflected as such in the following table. We believe any efforts to enforce the payment obligations are stayed as a result of ~~December~~the 31Chapter 11 filings. Because our debt instruments subject to compromise are immediately payable, ~~2008~~there ~~(in~~is ~~thousands):~~no basis to make a fair market value determination. Accordingly, the principal amount of the note and its fair value are equal.

	Principal due by year
	2009		2010		2011		2012		2013		Thereafter		Total
Fixed rate debt instruments	$	59,356	$	44,548	$	17,201	$	5,855	$	3,152	$	8,792	$	138,904
Variable rate debt instruments		113,162		12,912		39,393		6,238		14,670		2,950		189,325
Total Debt	$	172,518	$	57,460	$	56,594	$	12,093	$	17,822	$	11,742	$	328,229

~~We calculate~~The ~~the~~following ~~fair~~tables ~~value~~set offorth our ~~notes~~debt ~~payable~~obligations ~~based on a currently available market rate; assuming the loans are~~ outstanding ~~through maturity~~ and ~~considering the~~their ~~collateral. In~~maturities ~~determining~~as ~~the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to debt. As~~ of December 31, ~~2008~~2009 ~~and~~(in ~~2007, the aggregate fair value of our secured notes payable was approximately $328.1 million and $308.7 million, respectively.~~ thousands):

As of December 31, 2008, we had approximately $189.3 million in variable rate financing outstanding, which represented approximately 57.7% of consolidated total indebtedness. If interest rates were to increase by 75 basis points, or approximately 10% of our weighted average rate, the combined increase in interest expense and capitalized interest would decrease our cash flows by approximately $1.4 million annually.

	Principal due by year
	2010		2011		2012		2013		2014		Thereafter		Total
Fixed rate debt instruments	$	84,026	$	58	$	3,421	$	4,740	$	58,664	$	-	$	150,909
Variable rate debt instruments		-		-		-		21,454		-		-		21,454
Fixed rate debt instruments subject to compromise		26,712		-		-		-		-		-		26,712
Variable rate debt instruments subject to compromise		168,475		-		-		-		-		-		168,475
Total debt	$	279,213	$	58	$	3,421	$	26,194	$	58,664	$	-	$	367,550

We calculate the fair value of our notes payable based on a currently available market rate; assuming the loans are outstanding through maturity and considering the collateral. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to debt. As of December 31, 2009, we had $367.6 million in notes payable secured by real estate. We classified on our consolidated balance sheet approximately $195.2 million of our notes payable secured by real estate as liabilities subject to compromise and the remaining $172.4 million as notes payable secured by real estate. As of December 31, 2009 and 2008, the aggregate fair value of our secured notes payable was approximately $364.2 million and $328.1 million, respectively.

As of December 31, 2009, we had approximately $189.9 million in variable rate financing outstanding, which represented approximately 51.7% of consolidated total indebtedness. If interest rates were to increase by 90 basis points, or approximately 10% of our weighted average rate, the combined increase in interest expense and capitalized interest would decrease our cash flows by approximately $1.7 million annually.

Item 8. Financial Statements and Supplementary Data

The required response under this Item is submitted in a separate section of this Report. See ~~Listing~~Index to the Financial Statements at Item 15 on page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the Board of Directors.

Based on management’s evaluation as of December 31, ~~2008~~2009, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

60 59

Management’s Report on Internal Control over Financial Reporting

As defined in SEC Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that i) pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect our transactions and assets, ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. We have used the framework set forth in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to assess our internal control over financial reporting. Our internal control over financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. Based on our evaluation, which included participation by our principal executive and principal financial officers, conducted using the guidance set forth by COSO, our management has concluded that as of December 31, ~~2008~~2009, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. The attestation report of Ernst & Young LLP, our independent registered public accounting firm, regarding internal control over financial reporting is included below under the caption “Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.”

Changes in Internal Control over Financial Reporting

There have been no significant changes that occurred during the fourth quarter of the year covered by this report in our internal control over financial reporting identified in connection with the evaluation referenced above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

61 60

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The ~~information~~Board ~~required~~of byDirectors ~~Item~~and 10Its ~~is incorporated by reference to our definitive Proxy Statement for our 2009 annual stockholders’ meeting.~~Committees

The Company is managed under the direction of our seven-member Board of Directors. Members of our Board are kept informed of our business through discussions with our executive officers, by reviewing materials provided to them, by visiting our properties and by participating in meetings of the Board and its committees. Four of the directors are independent of the Company’s management. Meruelo Maddux Properties, Inc. has three permanent committees: the audit committee, the compensation committee, and the nominating and corporate governance committee. The Board of Directors has adopted a written charter for each of these committees. Though the Company is no longer listed on The Nasdaq Global Market™, each of these committees has three directors and is composed exclusively of independent directors, as defined in the rules and listing qualifications of Nasdaq and, with respect to the members of the audit committee, the Securities Exchange Act of 1934, as amended. Each of the directors of the compensation committee satisfies the definition of a “non-employee director” as defined in the rules of the Securities Exchange Act of 1934, as amended. During 2009, the Board of Directors held 22 meetings, the audit committee held four meetings, the compensation committee held two meetings and the nominating and corporate governance committee held two meetings.

Audit Committee and Audit Committee Financial Expert

Our Board has established an audit committee, whose chairman is Philip S. Payne and whose other members are John B. Hansen and Anthony A. Williams. Each of the members of the audit committee meets the applicable independence rules and regulations of Nasdaq and the SEC. See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Director Independence” below. Our Board has determined that Mr. Payne is an “audit committee financial expert” under applicable SEC rules and regulations.

Corporate Governance Matters

The Company has adopted a code of ethics that applies to all Company employees and each member of the Company’s Board of Directors and corporate governance guidelines. We anticipate that any waivers of our code of ethics will be posted on the Company’s website. The following documents are available at the Company’s website at www.meruelomaddux.com in the “Corporate Governance” area of the “Investor Relations” section:

· audit committee charter	· code of ethics
· compensation committee charter	· corporate governance guidelines
· nominating and corporate governance committee charter	· whistleblower policy

Each committee reviews its written charter annually. Copies of the documents listed above are available free of charge in print to any stockholder who requests them. Requests should be sent to Meruelo Maddux Properties, Inc., 761 Terminal Street, Building 1, Second Floor, Los Angeles, California 90021, Attention: Corporate Secretary.

The Board of Directors will annually elect a Chairman of the Board, who may or may not be the Chief Executive Officer of our Company. Mr. Meruelo has served as our Chairman of the Board and Chief Executive Officer since our IPO in 2007 and is involved in both our day-to-day operations and the strategic decision making at the Board level. Based on its most recent review of our leadership structure, the Board continues to believe that this leadership structure provides our Company with consistent leadership. The Board believes that having one leader serving as both Chairman of the Board and Chief Executive Officer provides the Company with decisive leadership.

The Board of Directors oversees our risk management policies and strategies. Our executive officers, who are responsible for our day-to-day risk management practices, regularly present to the Board of Directors a report on the material risks to the Company, including, among others, operational risk, liquidity risk, interest rate risk, strategic risk, compliance and reporting risk and capital market risk. The management team also reviews with the Board of Directors the company’s risk mitigation policies and strategies specific to each risk that is identified. If necessary, the Board of Directors may delegate specific risk management tasks to management or an appropriate committee. The audit committee also actively monitors our risks throughout the year, and with the aid of management, identifies any additional risks that need to be elevated for the full Board’s consideration.

The Board of Directors does not have a policy with respect to directors’ attendance at Annual Meetings of Stockholders.

Information Regarding the Directors

The biographical descriptions below set forth certain information with respect to each director. Each of our current directors has served on the Board since our initial public offering, which was consummated in January 2007 (“IPO”).

Richard Meruelo Chairman and Chief Executive Officer Age: 45 Shares beneficially owned: 39,911,378 LTIP units owned: 30,000(1)	Mr. Meruelo has served as our Chief Executive Officer and Chairman of our Board of Directors since our IPO. Mr. Meruelo served as chairman of our predecessor business from 1987 until our IPO. During that time, Mr. Meruelo led the strategic planning for the business while managing project acquisitions, purchase negotiations and related financings totaling nearly $1.2 billion. In addition, Mr. Meruelo was responsible for maintaining the predecessor business’ relationships with CalPERS and local and state governmental bodies that had land-use jurisdiction over the contributed projects. Mr. Meruelo earned his degree in business administration from the University of Southern California, with an emphasis in finance and real estate. Mr. Meruelo currently serves as a board member for the Central City East Association and the Los Angeles Central Industrial Redevelopment Project.

	The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Meruelo, in light of his significant acquisition and management experience, to continue to serve as a director on the Board.

John Charles Maddux President, Chief Operating Officer and Director Age: 50 Shares beneficially owned: 5,797,588 LTIP units owned: 30,000(1)	Mr. Maddux has served as our President and Chief Operating Officer, and as a director since our IPO. Mr. Maddux served as president of our predecessor business from 2005 until our IPO. Before joining our predecessor business, Mr. Maddux served as a founder and shareholder of the law firm of Nevers, Palazzo, Maddux & Packard, PLC from 1998 to 2005, and practiced law with the firm of O’Melveny & Myers, LLP from 1986 to 1996, where he was a member of the real estate practice group. While at each firm, Mr. Maddux served as our predecessor’s outside legal counsel. Mr. Maddux earned his bachelor’s degree in business management—finance from Brigham Young University’s Marriott School of Management and his J.D. from Brigham Young University’s J. Reuben Clark Law School. His affiliations include the Urban Land Institute, the International Conference of Shopping Centers, the Los Angeles County Bar Association and the California Bar Association, Real Property Section.

	The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Maddux, in light of his Company-specific day-to-day operational and management experience, to continue to serve as a director on the Board.

Lynn Beckemeyer Executive Vice President—Development and Director Age: 50 Shares beneficially owned: 0 LTIP units owned: 64,167(1)	Mr. Beckemeyer has served as our Executive Vice President for Development and as a director since our IPO. Mr. Beckemeyer served as the senior vice president of development and construction of our predecessor business from 2006 until our IPO. Before joining our predecessor business, Mr. Beckemeyer served in various real estate development and management positions with The Walt Disney Company for twelve years. Mr. Beckemeyer managed the development, design and construction of urban projects in the Washington, DC metropolitan area and Dallas, Texas. He is an alumnus of Kansas State and Harvard GSD. The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Beckemeyer, in light of his commercial real estate development and redevelopment experience, to continue to serve as a director on the Board.

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Long-Term Incentive Plan Units in our subsidiary Meruelo Maddux Properties, L.P., through which we conduct most of our business operations (our “Operating Partnership”), are subject to forfeiture over a three-year period. Upon achieving parity with the common units in our Operating Partnership and becoming “redeemable” in accordance with the terms of the partnership agreement of our Operating Partnership, LTIP units may be redeemed for cash or, at our option, an equal number of shares of our Common Stock.

John B. Hansen Director Age: 52 Share beneficially owned: 10,100 Committees: · Audit · Compensation (Chair)	Since 1987, Mr. Hansen has served as president and chief executive officer of Glenwood Properties, Inc., a real estate company which acquires, develops and redevelops multi-family, retail and office projects in urban and suburban markets in Southern California, Arizona, and Utah. In addition, since 1995, Mr. Hansen has served as vice president of Greenwood Interests Holding, Inc., an affiliate of Greenwood Companies, which was the second largest operator of childcare centers in the Los Angeles area. Since 2000, Mr. Hansen has been a founding shareholder and director of Tomato Bank, N.A., a national bank operating in the Southern California market. Mr. Hansen is a member of the board of advisors for Royal Field Morningside Fund LLC, a fund that was organized in 2006 to specialize in the redevelopment of urban multi-family and mixed-use projects in New York City. Mr. Hansen received a B.A. in literature from Brigham Young University. He also received a J.D. from the University of Utah College of Law.

	The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Hansen, in light of his senior executive experience within the real estate industry, to continue to serve as a director on the Board.

Philip S. Payne Director Age: 58 Shares beneficially owned: 7,500 Committees: · Audit (Chair) · Compensation · Nominating and corporate governance	Mr. Payne currently serves as chief executive officer of Babcock & Brown Residential. From 2004 until 2007, Mr. Payne served as chairman of BNP Residential Properties, Inc., an AMEX-listed real estate investment trust focused on owning and operating apartment communities. BNP Residential Properties was acquired by Babcock & Brown in 2007. Mr. Payne joined BT Venture Corporation, which was subsequently purchased by BNP Residential Properties, in 1990 as vice president of capital market activities and became executive vice president and chief financial officer in 1994. He was named treasurer BNP Residential Properties in 1995 and became a director in 1997. In 2004, Mr. Payne became chairman of the Board of Directors of BNP Residential Properties. From 1987 to 1990, he was a principal in Payne Knowles Investment Group, a financial planning firm. From 1983 to 1987, he was a registered representative with Legg Mason Wood Walker. From 1978 to 1983, Mr. Payne practiced law, and he currently maintains his license to practice law in Virginia. He received B.S. and J.D. degrees from the College of William and Mary. He is a member of the board of directors of the National Multi Housing Council and a member of the Urban Land Institute. In addition, he serves on the board of directors of Ashford Hospitality Trust, a NYSE-listed real estate investment trust focused on the hospitality industry, and is chairman of its audit committee.

	The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Payne, in light of his senior executive real estate experience and financial reporting expertise, to continue to serve as a director on the Board.

Richard Garcia Polanco Director Age: 59 Shares beneficially owned: 2,500 Committees: · Compensation · Nominating and corporate governance (Chair)	Mr. Polanco is a former California State Assembly Member and Senator, having been first elected in 1986. He served in the State Assembly for eight years. In 1994, he was elected to the State Senate and served as Senate Majority Leader from 1998 until his retirement in 2002. Mr. Polanco chaired the California Latino Legislative Caucus from 1990 to 2002. In October 2002, Mr. Polanco established the California Latino Caucus Institute for Public Policy, a non-profit organization to serve as a broad based public policy, educational and leadership development organization. Prior to elected office, Mr. Polanco served on the staff of Los Angeles County Supervisor Ed Edelman, Assemblyman Richard Alatorre and former Governor Jerry Brown. Mr. Polanco attended East Los Angeles College, the University of Redlands and the Universidad de Mexico where he majored in business administration.

	The Board has determined that it is in the best interests of the Company and its stockholders for Mr. Polanco, in light of his senior public leadership experience, to continue to serve as a director on the Board.

Anthony A. Williams Director Age: 58 Shares beneficially owned: 2,500 Committees: · Audit · Nominating and corporate governance	Mr. Williams, the former Mayor of Washington, D.C. (1999 – 2007), is the Executive Director of the Global Government Practice at the Corporate Executive Board in Arlington, Virginia. He also serves as the William H. Bloomberg Lecturer in Public Management at the Harvard Kennedy School. In addition, Mr. Williams maintains his affiliation with Arent Fox LLP as its Director of State and Municipal Practice. During his two terms as Mayor, he is widely credited with leading the comeback of Washington, restoring the finances of our nation’s capital and improving the performance of government agencies, all while lowering taxes and investing in infrastructure and human services. Before his election as Mayor, he was the independent Chief Financial Officer of the District from 1995 to 1998, working with and on behalf of local officials, the D.C. Financial Control Board, and the U.S. Congress. Before his service in local Washington, Mr. Williams worked in a variety of positions in federal, state, and local government, including as the first CFO for the U.S. Department of Agriculture, appointed by President Bill Clinton and confirmed by the U.S. Senate. In addition to his work on company boards, Mr. Williams devotes his attention to issues of education and the environment, serving on the board of Fight for Children and the Chesapeake Bay Foundation. He holds a BA from Yale and an MPP from the Kennedy School and a J.D. from the Harvard Law School, as well as a number of awards and honorary degrees, including Governing Magazine Public Official of the Year in 1997. He is a fellow of the National Academy of Public Administration and former President of the National League of Cities.

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