<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 1997
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 0-5305 94-1722214
- ------------------------------- ------------------------ ---------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, California 94104-5525
---------------------------------------- --------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 445-6530
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 14, 1997, BRE Properties, Inc. ("BRE") acquired Red Hawk Ranch
Apartments (the "Red Hawk Apartments") for $58.7 million from Red Hawk Ranch, a
California limited partnership ("Red Hawk LP"). The acquisition was funded
through cash proceeds from sales of certain assets of BRE. BRE and its
affiliates are not related to Red Hawk LP or any of its affiliates.
Red Hawk Apartments is a 453-unit apartment community on 18 acres of land in
Fremont, Alameda County, California. Red Hawk Apartments was constructed in two
phases. Phase I (consisting of 303 units) was completed in 1995 and is
currently 94% occupied. Phase II, with 150 units, was completed just prior to
the purchase by BRE, and is in lease up. The property has an average unit size
of 892 square feet and the average monthly rent per unit was $1,266.
The purchase price for the property was determined through arms length
negotiations. BRE believes the purchase price to be competitive under the
current market conditions.
The description contained herein is qualified in its entirety by reference to
the purchase agreement dated January 15, 1997 between BRE and Red Hawk LP and
the press release dated April 15, 1997, attached hereto as Exhibits 10.1 and
99.1, respectively, and incorporated herein by reference.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired:
(1) Auditors' report on the Statement of Gross Income and Direct
Operating Expenses of Red Hawk Ranch for the year ended
December 31, 1996 (attached hereto as page FS-1).
(2) Statement of Gross Income and Direct Operating Expenses and
Notes (attached hereto as pages FS-2 to FS-3).
(b) Pro forma financial information:
(1) Pro Forma Financial Information as of and for the quarter ended
March 31, 1997 and Notes (attached hereto as pages FS-4 to FS-7).
(2) Pro Forma Financial Information for the year ended December 31,
1996 and Notes (attached hereto as pages FS-8 to FS-9).
(c) Exhibits
Exhibit No. Description
10.1 Agreement between Red Hawk Ranch and BRE Properties, Inc,
dated January 15, 1997
99.1 Press release dated April 15, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date: April 25, 1997 /s/ LeRoy E. Carlson
--------------------
LeRoy E. Carlson
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To BRE Properties, Inc.
We have audited the accompanying Statement of Gross Income and Direct Operating
Expenses of Red Hawk Ranch apartments (the "Property") for the year ended
December 31, 1996. This Statement is the responsibility of the management of
BRE Properties, Inc. (the "Company"). Our responsibility is to express an
opinion on the Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the basis of
accounting used and significant estimates made by management, as well as
evaluating the overall presentation of the Statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion
in the Current Report on Form 8-K filed by BRE Properties, Inc. as described in
Note 2, and is not intended to be a complete presentation of the Property's
revenue and expenses.
In our opinion, the Statement referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of the
Property as described in Note 2 for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
San Francisco, California
April 22, 1997
FS-1
<PAGE>
RED HAWK RANCH
STATEMENT OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
GROSS INCOME
Rental income ........................................ $3,819,768
Other income ......................................... 142,266
---------------
3,962,034
DIRECT OPERATING EXPENSES
Property taxes ....................................... 329,259
Salaries and wages ................................... 248,761
Utilities ............................................ 224,494
Management fees to related party ..................... 118,754
Insurance ............................................ 76,256
Repairs and maintenance .............................. 72,685
Other operating expenses ............................. 63,691
General and administrative ........................... 46,896
---------------
1,180,796
---------------
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES $2,781,238
---------------
---------------
See report of independent auditors and accompanying notes to the statement of
gross income and direct operating expenses.
FS-2
<PAGE>
RED HAWK RANCH
NOTES TO STATEMENT OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICY
BRE Properties, Inc. (the "Company") acquired Red Hawk Ranch apartments ("the
Property") on April 14, 1997 from an unrelated party. The Property is a
453-unit apartment community comprised of two phases located in Fremont,
California. Phase I (303 units) was completed in 1995 and was operational
throughout 1996. Phase II (150 units) was under development in 1996 and was
completed just prior to the Company's purchase in 1997; therefore, Phase II had
no income or expenses in 1996.
Expenditures for repairs, maintenance and minor renewals are charged to expense
as incurred, while those expenditures that improve or extend the estimated
useful life of the Property are capitalized.
NOTE 2. BASIS OF PRESENTATION
The Statement reflects the revenue on direct operating expenses with the
Property recorded on an accrual basis and excludes the following expenses
which are not comparable with those resulting from the proposed future
operations of the Property:
- - Depreciation and amortization expense
- - Mortgage interest expense
Property taxes have not been adjusted to reflect the estimated reassessed value
of the Property after acquisition by the Company, or completion of Phase II of
the Property.
The Company has not provided for federal income taxes because it believes it
qualifies as a real estate investment trust under Section 856-860 of the
Internal Revenue Code and similar California statutes and distributes
substantially all of its taxable income to its shareholders.
The Company is not aware of any material factors relating to the Property that
would cause the reported financial information not to be indicative of future
operating results, other than property tax reassessments described above and
the impact of the lease-up of Phase II.
FS-3
<PAGE>
BRE Properties, Inc. and Red Hawk Ranch
Pro Forma Financial Information
On April 14, 1997, BRE Properties, Inc. (the "Company") completed the
purchase of Red Hawk Ranch Apartments (the "Property") located in Fremont,
California, for a price of approximately $58,700,000. The accompanying
unaudited pro forma condensed balance sheet assumes that the purchase of the
Property occurred on March 31, 1997 with funds drawn on the Company's
unsecured lines of credit. The accompanying unaudited pro forma condensed
statements of operations for the year ended December 31, 1996 and the three
months ended March 31, 1997 assumes that the purchase of the property
occurred on January 1, 1996. In the opinion of management, all adjustments
necessary to present fairly such pro forma data have been made. The pro
forma statements of operations are not necessarily indicative of what the
actual results of operations of the Company would have been for the period
had the transaction occurred at the beginning of the period nor does it
purport to indicate the results of future periods.
FS-4
<PAGE>
BRE Properties, Inc. and Red Hawk Ranch
Pro Forma Condensed Balance Sheet
As of March 31, 1997
(unaudited)
The following pro forma condensed Balance Sheet reflects the financial
position of the Company as if the Company purchased Red Hawk Ranch Apartments
on March 31, 1997. This presentation assumes the funds were borrowed on the
Company's line of credit to fund the acquisition of Red Hawk Ranch
apartments.
Pro forma
BRE as Balance
reported Pro forma Sheet
March 31, acquisition March 31,
1997 adjustments 1997
--------- ----------- ----------
ASSETS
INVESTMENTS IN
RENTAL PROPERTIES, NET. . . $787,097 $58,700(a) $845,797
OTHER ASSETS. . . . . . . . . 22,764 -- 22,764
--------- ----------- ----------
TOTAL ASSETS. . . . . . . $809,861 $58,700 $868,561
--------- ----------- ----------
--------- ----------- ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
TOTAL LIABILITIES . . . . . . $343,738 $58,700(b) $402,438
SHAREHOLDERS' EQUITY. . . . . 466,123 466,123
--------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY. . $809,861 $58,700 $868,561
--------- ----------- ----------
--------- ----------- ----------
Notes and assumptions to unaudited pro forma Balance Sheet as of March 31,
1997:
(a) Represents purchase price and costs to acquire Red Hawk Ranch Apartments
acquired by the Company on April 14, 1997.
(b) Represents amounts borrowed under the Company's unsecured lines of credit
to purchase the Red Hawk Ranch Apartments.
FS-5
<PAGE>
BRE Properties, Inc. and Red Hawk Ranch
Pro Forma Condensed Statement of Operations
For the Three Months Ended March 31, 1997
and the year ended December 31, 1996
(Unaudited)
The following pro forma statements of operations reflect the results of
operations of the Company for the three months ended March 31, 1997 and the
year ended December 31, 1996 as if the Company purchased Red Hawk Ranch
apartments on as of January 1, 1996. This presentation assumes the funds were
borrowed on the Company's line of credit to fund the acquisition of Red Hawk
Ranch. The pro forma historical amounts for the three months ended March 31,
1997 for Red Hawk were obtained by adding the historical amounts for January
and February 1997 to an amount for March 1997 derived from the January and
February 1997 historical amounts. In the opinion of management, all
adjustments necessary to fairly present such pro forma data have been made.
The unaudited pro forma condensed statement of operations are not necessarily
indicative of what the actual results of operations of the Company would have
been for the periods presented nor does it purport to indicate the results of
future periods.
FS-6
<PAGE>
BRE Properties, Inc. and Red Hawk Ranch
Pro Forma Condensed Statement of Operations
For the Three Months Ended March 31, 1997
(Unaudited)
BRE as Red Hawk
reported, Ranch,
quarter quarter
(In thousands ended ended
except per March 31, March 31, Pro forma Pro forma
share amounts) 1997 1997 adjustments results
--------- ----------- ----------- ----------
Revenues:
Rental $29,861 $1,015 $30,876
Other 1,866 27 1,893
--------- ----------- ----------
31,727 1,042 32,769
--------- ----------- ----------
Expenses:
Depreciation 4,168 $ 226 (a) 4,394
Interest 5,889 751 (b) 6,640
Other 10,729 294 11,023
--------- ----------- ----------- ----------
20,786 294 977 22,057
--------- ----------- ----------- ----------
Net income $10,941 $ 748 $(977) 10,712
--------- ----------- ----------- ----------
--------- ----------- ----------- ----------
Net income per share $.33 $.32
--------- ----------
--------- ----------
Weighted average
shares outstanding 32,980 32,980
--------- ----------
--------- ----------
(a) Depreciation for the three months ended March 31, 1997, based upon a
40 year life and a purchase price of approximately $58,700,000, of which
$46,960,000 is allocated to depreciable improvements. This amount is
further reduced for units which were under development, which amounted
to 23% of the entire community for the quarter ended March 31, 1997.
(b) Interest expense for the three months ended March 31, 1997, on borrowed
funds of $58,700,000 under BRE's lines of credit at an interest rate or
6.65%. This amount is further reduced for units which were under
development, which amounted to 23% of the entire community for the quarter
ended March 31, 1997. If the interest rate were 1/8 of 1% higher or lower,
the change in the pro forma interest expense would be approximately $14,000.
FS-7
<PAGE>
BRE PROPERTIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BRE RED HAWK RED HAWK RANCH
AS REPORTED RANCH TWELVE PROFORMA RESULTS
YEAR ENDED MONTHS ENDED TWELVE MONTHS
(IN THOUSANDS, EXCEPT PER SHARE DECEMBER 31, DECEMBER 31, PRO FORMA ENDED DECEMBER 31,
AMOUNTS) 1996 1996 ADJUSTMENTS 1996
---- ---- ----------- ----
<S> <C> <C> <C> <C>
Revenues:
Rental............................ $93,135 $3,820 $96,955
Other............................. 8,516 142 8,658
--------------------------------------- -------------------
101,651 3,962 105,613
--------------------------------------- -------------------
Expenses:
Depreciation...................... 13,283 785 (a) 14,068
Interest.......................... 16,325 2,591 (b) 18,916
Other............................. 35,029 1,181 36,210
--------------------------------------- -------------------
64,637 1,181 3,376 69,194
--------------------------------------- -------------------
Net income before gains on sales
of investments in rental
properties...................... 37,014 2,781 (3,376) 36,419
--------------------------------------- -------------------
Gains on sales of investments in
rental properties 52,825 - - 52,825
--------------------------------------- -------------------
Net income.......................... $89,839 $2,781 (3,376) $89,244
--------------------------------------- -------------------
--------------------------------------- -------------------
Net income per share:
Income before net gain on
sales of investments in
rental properties......... $1.21 - $1.19
Net gain on sales of
investments in rental
properties................ $1.73 - $1.73
------------ -------------------
Net income per share............... $2.94 $2.92
------------ -------------------
------------ -------------------
Weighted average shares
outstanding.................... 30,520 30,520
------------ -------------------
------------ -------------------
See notes and assumptions to unaudited pro forma statement of operations
</TABLE>
FS-8
<PAGE>
BRE PROPERTIES, INC.
NOTES AND ASSUMPTIONS TO UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) Depreciation for the period January 1, 1996 to December 31, 1996, based
upon a 40 year life and a purchase price of approximately $58,700,000,
with $46,960,000 allocated to depreciable improvements and the remainder
to land. Of the total purchase price, $19,437,000 was allocated to the
150 units in Phase II which were under development and for which no
depreciation was provided.
(b) Interest expense for the period January 1, 1996 to December 31, 1996, on
borrowed funds of $58,700,000 under the Company's lines of credit at an
interest rate of 6.6%. Of the total purchase price, $19,437,000 was
allocated to the 150 units in Phase II which were under development and
for which the related interest was capitalized into the basis of Phase II
and not recorded as a charge to operations. If the interest rate were to
change by 1/8 of 1%, the interest expense would change by approximately
$49,000.
FS-9
<PAGE>
Exhibit 10.1
AGREEMENT
between
RED HAWK RANCH, CALIFORNIA LIMITED PARTNERSHIP
and
BRE PROPERTIES, INC., A MARYLAND CORPORATION
1
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. PURCHASE AND SALE OF PROJECT ........................................ 1
2. PURCHASE PRICE. ..................................................... 2
3. ESCROW. ............................................................. 4
4. DEPOSIT. ............................................................ 5
5. CONDITIONS PRECEDENT TO CLOSING. .................................... 7
5.1 CONDITIONS FOR THE BENEFIT OF PURCHASER. ...................... 7
5.2 CONDITIONS FOR THE BENEFIT OF SELLER. ......................... 9
6. SELLER'S WARRANTIES. ................................................ 10
7. PURCHASER'S WARRANTIES. ............................................. 14
8. CLOSING. ............................................................ 19
9. RISK OF LOSS, DESTRUCTION, CONDEMNATION, ETC. ....................... 22
9.1 DAMAGE OR DESTRUCTION. ........................................ 22
9.2 CONDEMNATION. ................................................. 25
10. ASSIGNMENT. ......................................................... 26
11. BROKERS. ............................................................ 26
12. MISCELLANEOUS. ...................................................... 27
13. CERTAIN OTHER AGREEMENTS. ........................................... 30
EXHIBITS
Exhibit A -- Real Property ..........................................Paragraph 1
Exhibit B -- Personal Property.......................................Paragraph 1
Exhibit C -- Warranting Subcontractors............................Paragraph 13.4
2
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DEFINED TERMS
Absorption Adjustment Increment ........................................... 3
Absorption Lease Total .................................................... 3
Adjustment Increment ...................................................... 3
Closing ................................................................... 4
Closing Date .............................................................. 4
Deposit ................................................................... 5
Executed Leases ........................................................... 2
Leases .................................................................... 1
Preliminary Report ........................................................ 8
Project ................................................................... 1
Purchaser ................................................................. 1
Seller .................................................................... 1
Survey Deadline ........................................................... 34
Title Company ............................................................. 4
To Seller's Knowledge ..................................................... 13
Transferred Agreements .................................................... 1
Warranting Subcontractors ................................................. 32
3
<PAGE>
AGREEMENT
January 15, 1997
RED HAWK RANCH, A CALIFORNIA LIMITED PARTNERSHIP ("SELLER"), and BRE
PROPERTIES, INC., a Maryland corporation ("PURCHASER"), hereby agree as follows:
1. PURCHASE AND SALE OF PROJECT. Seller shall sell to Purchaser and
Purchaser shall purchase from Seller, for the consideration and on the terms and
conditions set forth herein, the following assets, which are collectively
referred to as the "PROJECT": the real property located in the City of Fremont,
County of Alameda, State of California, more particularly described in EXHIBIT A
attached hereto; the improvements and fixtures located thereon (consisting of a
453-unit multi-family garden apartment complex known as "Red Hawk Ranch"); the
personal property described in EXHIBIT B attached hereto; Seller's right (if
any) to the name "Red Hawk Ranch"; Seller's interest in the leases of apartments
in the apartment complex (individually and collectively, the "LEASES"), in
security deposits and prepaid rent (if any) under the Leases, and, to the extent
transferable, in agreements (the "TRANSFERRED AGREEMENTS") with third persons to
provide materials and/or services to the apartment complex; and, plans,
specifications, blue prints and all other items of tangible and intangible
property relating to the Project.
2. PURCHASE PRICE.
2.1 The purchase price for the Project shall be FIFTY-EIGHT MILLION SIX
HUNDRED THOUSAND DOLLARS ($58,600,000.00), which shall be payable in cash by
Purchaser to Seller at the Closing (described in paragraph 3) (inclusive of the
Deposit defined in paragraph 4), by means of wire transfer in same day federal
funds into a bank account within the United States designated by Seller prior to
the Closing.
2.2 If Seller has not received prior to the Closing either leases that
have been executed by the prospective tenants, or deposit receipts that have
been executed by prospective tenants, in the case of such deposit receipts each
of which deposit receipts calls for the prospective tenant in question to
execute his or her
1
<PAGE>
lease and take occupancy of his or her unit within 30 days following the
execution date of the deposit receipt (such executed leases and deposit receipts
are here collectively called "EXECUTED LEASES"), of at least 143 of the 150
residential dwelling units in the Project that were under construction on
November 12, 1996, then, the purchase price set forth in paragraph 2.1 shall be
reduced by an amount determined as follows:
(i) The number of such units as to which Seller has received such
Executed Leases at the time of the Closing shall be multiplied by
$1,320.54, and the resulting product shall be subtracted from
$188,177. The resulting remainder (here called an "ADJUSTMENT
INCREMENT") shall be subtracted from the purchase price set forth
in paragraph 2.1, subject to the adjustment provisions contained
in clauses (ii) and (iii) below.
(ii) The number of Executed Leases shall be increased by the LESSER of
[A] 30, or [B] the difference between 143 and the number of
Executed Leases at the time of the Closing. The resultant sum
(called an "ABSORPTION LEASE TOTAL") shall be multiplied by
$1,320.54, and the resulting product shall be subtracted from
$188,177. If the resulting remainder (an "ABSORPTION ADJUSTMENT
INCREMENT") is a POSITIVE amount, such Absorption Adjustment
Increment shall be added to the Adjustment Increment calculated
pursuant to clause (i) above. If such Absorption Adjustment
Increment is a NEGATIVE amount, such Absorption Adjustment
Increment shall be subtracted from the Adjustment Increment
calculated pursuant to clause (i) above.
(iii) If the Absorption Adjustment Increment determined in clause (ii)
is a positive amount, the calculation described in clause (ii)
shall be repeated, using a NEW Absorption Lease Total determined
by increasing the Absorption Lease Total calculated pursuant to
clause (ii) by the LESSER of [A] 30, or [B] the difference
between 143 units and such Absorption Lease Total, and, such
calculation shall CONTINUE to be repeated, in each instance using
a re-calculated Absorption Lease Total determined by increasing
the immediately prior Absorption Lease Total by the LESSER of [A]
30, or [B] the difference between 143 units and the immediately
prior Absorption Lease Total, with positive Absorption Adjustment
Increments being added to the Adjustment Increment calculated
under clause (i) above, until the calculation results in an
2
<PAGE>
Absorption Adjustment Increment that is a NEGATIVE amount (which
shall be subtracted from the Adjustment Increment).
(iv) The following hypothetical examples are intended to illustrate
the results of the calculations described in clauses (i), (ii)
and (iii).
If at the Closing there are 140 Executed Leases, the purchase
price would be reduced by $3,301.
If at the Closing there are 113 Executed Leases, the purchase
price would be reduced by $38,296.
If at the Closing there are 75 Executed Leases, the purchase
price would be reduced by $147,900.
3. ESCROW. The purchase and sale of the Project shall close on the date set
forth in paragraph 8.1 through an escrow to be established in connection with
this transaction at the Redwood City, California office of First American Title
Insurance Company (the "TITLE COMPANY"). The term "CLOSING" means the
consummation of the purchase and sale of the Project through such escrow; the
term "CLOSING DATE" means the date on which the Closing actually occurs.
4. DEPOSIT.
4.1 Purchaser previously has delivered, or shall deliver on or before
December 31, 1996, to the Title Company, for deposit into escrow, the sum of
FIVE HUNDRED EIGHTY THOUSAND DOLLARS ($580,000.00). Without limiting any other
rights or remedies that Seller might have under this Agreement or at law because
of a breach of this Agreement by Purchaser, Seller may cancel and terminate this
Agreement if Purchaser fails to deliver such $580,000 amount to the Title
Company in timely manner. The Title Company shall place the $580,000.00 amount
in an interest-bearing federally insured account selected by Seller and approved
by Purchaser. Such $580,000 amount, together with such interest, are
collectively called the "DEPOSIT". A photocopy of this Agreement showing
execution of this Agreement by both parties shall constitute
3
<PAGE>
the joint instructions of Seller and Purchaser to the Title Company to place the
$580,000.00 amount in an interest-bearing federally insured account selected by
Seller and approved by Purchaser and to otherwise handle and deliver the deposit
pursuant to this paragraph 4 (including delivering such $580,000.00 amount to
Seller or to Purchaser as set forth in subparagraph 4.3).
4.2 If the purchase and sale of the Project is consummated as contemplated
herein, the Deposit shall be credited against the purchase price for the
Project, and shall be delivered to Seller through escrow at the Closing.
4.3 If this Agreement is cancelled and terminated pursuant to paragraph
8.1, 9 or 13.6, the Deposit shall be released and delivered to Purchaser by the
Title Company upon Purchaser's demand.
4.4 BY AFFIXING THEIR INITIALS, SELLER /s/NP [INITIALS] AND PURCHASER
/s/BMF[INITIALS] EACH HEREBY AGREE THAT IF THE PURCHASE AND SALE OF THE PROJECT
IS NOT CONSUMMATED AS CONTEMPLATED HEREIN BECAUSE OF A BREACH OF THIS AGREEMENT
BY PURCHASER, THE DEPOSIT SHALL BE RETAINED BY SELLER AS LIQUIDATED DAMAGES IN
LIEU OF ALL OTHER DAMAGES, THE PARTIES HEREBY ACKNOWLEDGING AND AGREEING THAT
THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY SUCH A BREACH BY PURCHASER WOULD
BE IMPOSSIBLE OR EXTREMELY IMPRACTICABLE TO ASCERTAIN, AND THAT THE DEPOSIT
REPRESENTS FAIR AND REASONABLE CONSIDERATION UNDER THE CIRCUMSTANCES EXISTING AT
THE DATE OF THIS AGREEMENT FOR SELLER'S HAVING BEEN PREVENTED FROM SELLING THE
PROJECT TO A THIRD PARTY AND FOR SELLER'S EXPENSES IN CONNECTION WITH THIS
TRANSACTION. IF THE PURCHASE AND SALE OF THE PROJECT IS NOT SO CONSUMMATED
BECAUSE OF SUCH A BREACH BY PURCHASER, THE TITLE COMPANY SHALL RELEASE THE
DEPOSIT TO SELLER UPON SELLER'S DEMAND.
4
<PAGE>
4.5 The Title Company shall credit the Deposit against the purchase price
for the Project, or shall deliver all or part(s) of the Deposit to the parties
upon demand pursuant to paragraphs 4.2, 4.3 or 4.4, without further
instructions, directions or authorizations from either party being required,
this Agreement constituting the irrevocable joint instructions of the parties
hereto to the Title Company to release such sums to Seller and/or Purchaser
pursuant to those paragraphs.
5. CONDITIONS PRECEDENT TO CLOSING.
5.1 CONDITIONS FOR THE BENEFIT OF PURCHASER. Purchaser's obligation to
close the transactions contemplated herein is conditioned upon the existence or
happening of the following; in the event that any of the conditions set forth in
this paragraph 5.1 are not satisfied, then, Purchaser, by notice to Seller and
the Title Company, may elect to terminate this Agreement or may waive
noncompliance with any such condition in whole or in part; such waiver by
Purchaser shall not permit or result in the termination of this Agreement by
Seller, and (except as set forth in paragraph 5.1(i)) shall not constitute a
waiver by Purchaser of any of Purchaser's rights or remedies under law or as set
forth in this Agreement by reason of any breach or default by Seller, or
otherwise:
(i) Immediately following the Closing, Title to the Project
shall be vested of record in Purchaser, subject only to (in
all cases, whether or not of record): real property taxes,
personal property taxes (if any) which may constitute a lien
against the Project, and assessments, all nondelinquent;
conditions and restrictions of applicable governmental
authorities; the leasehold or (as applicable) subleasehold
interests of tenants and subtenants in possession; all
matters which would be disclosed by inspection and/or
accurate survey of the Project; the printed exceptions
contained in the Title Company's standard CLTA Owners form
of title insurance policy; and exceptions Nos. 1 through 14,
17, 18 and 19 set forth in the preliminary title report of
the Fremont, California office of the Title Company dated
October 11, 1996 at
5
<PAGE>
7:30 am, No. SP850134, ("PRELIMINARY REPORT"). The delivery
to Purchaser of title to the Project in the condition of
title specified in this paragraph 5.1(i) shall be
conclusively (but not exclusively) established, and the
condition precedent set forth in this paragraph 5.1(i)
conclusively (but not exclusively) satisfied, by the
willingness of the Title Company to deliver at the Closing
its commitment to issue, or to issue at the Closing, its
CLTA Owners title insurance policy in the condition of title
set forth in this paragraph 5.1(i); (without limiting the
foregoing) Purchaser's acceptance of Seller's grant deed of
the Project to Purchaser shall discharge all liability of
Seller with respect to title to the Project, other than
respect to the warranties implied in the grant deed.
(ii) All covenants on the part of Seller to have been performed
hereunder that are conditions precedent to Purchaser's
obligation to consummate the transactions contemplated
herein at or prior to the Closing (or at earlier time(s) as
may be specified herein) shall have been duly performed or
satisfied, and all warranties and representations of Seller
hereunder shall be true and correct as of the Closing.
5.2 CONDITIONS FOR THE BENEFIT OF SELLER. Seller's obligation to close
the transactions contemplated herein is conditioned upon the existence or
happening of the following: in the event that any of the conditions set forth
in this paragraph 5.2 are not satisfied, then, Seller, by notice to Purchaser
and the Title Company, may elect to terminate this Agreement or may waive
noncompliance with any such condition in whole or in part; such waiver by Seller
shall not permit or result in the termination of this Agreement by Purchaser,
and shall not constitute a waiver by Seller of any of Seller's rights or
remedies under law or as set forth in this Agreement by reason of any breach or
default by Purchaser, or otherwise:
(i) All covenants on the part of Purchaser to have been
performed hereunder that are conditions precedent to
Seller's obligation to consummate the transactions
contemplated herein at or prior to the Closing (or at
earlier time(s) as may be
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specified herein) shall have been duly performed or
satisfied, and all warranties and representations of
Purchaser hereunder shall be true and correct as of the
Closing.
6. SELLER'S WARRANTIES.
6.1 Seller warrants and represents to, and covenants with, Purchaser as
follows:
(i) To Seller's knowledge, the internally prepared profit and
loss variance for the Project for the months ended September
30, 1996, and the financial statements of the Project for
the 12 months ended December 31, 1995 prepared by Seiler and
Co. and delivered to Purchaser on November 18, 1996, are
true, correct and complete copies of such documents; and,
the current monthly rent roll for the Project as of December
10, 1996 is true, correct and complete as of December 10,
1996, to the extent that an inaccuracy in such rent roll
would have a material adverse effect on the value of the
Project.
(ii) To Seller's knowledge, Seller is not in material default
beyond applicable cure periods, where such default would
have a material adverse effect on the value of the Project,
under: (A) a Transferred Agreement, other than a Transferred
Agreement which can be cancelled or terminates within 60
days following the Closing, (B) a Lease, or (C) any other
agreement or instrument (other than one which can be
cancelled or terminates within 60 days following the
Closing) which relates to the Project and is or remains
effective following the Closing.
(iii) Seller has not received written notice of litigation, and,
to Seller's knowledge, there is no litigation pending or
threatened against Seller, that arises out of Seller's
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ownership, use or operation of the Project, in which the
amount of damages claimed against Seller or the Project
exceeds $10,000.00.
(iv) Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code.
(v) The execution and delivery of this Agreement by Seller, and
Seller's consummation of the transactions contemplated by
this Agreement, have been approved by the board of directors
of Seller's general partner and by all other persons and
entities whose approvals are required.
(vi) To Seller's knowledge, as of the date of this Agreement, no
materials regulated under any federal, state or local law or
regulation in effect as of such date as a toxic, hazardous,
contaminated or similarly harmful or dangerous material or
substance (including, without limitation, asbestos and
petroleum) are located on, in or under the Project, other
than cleaning supplies, paint and similar products, pool and
spa supplies, gardening materials and other items of a type
readily available for purchase by the public and of a
quantity normally kept and used by owners and managers of
apartment projects such as that on the Project.
(vii) The 150 residential dwelling units in the Project that were
under construction on November 12, 1996, shall be materially
the same, when completed, as the residential dwelling units
in the Project that had been completed prior to that date,
EXCEPT FOR the sprinkler systems, the windows in the "F
Units", and the exterior sidings.
6.2 For purposes of this Agreement, whenever the phrase "TO SELLER'S
KNOWLEDGE" or words of similar import are used, they mean the actual knowledge
of Nick Podell after a reasonable review of the files, books and records which
are in his personal possession and after making reasonable inquiry of Seller's
on-site
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manager for the Project (provided that Seller shall not be charged with the
knowledge of such Project manager for purposes of this Agreement), but without
further investigation or examination. In this connection, Purchaser
acknowledges that Seller did not, and was not and is not obligated under this
Agreement to, personally examine documents for completeness or accuracy, and
that Seller did not, and was not and is not obligated under this Agreement to,
compare copies against the originals.
6.3 The current monthly rent roll for the Project described in paragraph
6.1 shall be updated by Seller as of a date within fifteen (15) days prior to
the Closing and shall be true, correct and accurate as of such updated date, to
the extent that an inaccuracy in such rent roll would have a material adverse
effect on the value of the Project.
6.4 Seller shall indemnify, protect, save, hold and defend Purchaser, and
its representatives, partners, successors and assigns, harmless from and against
any and all liabilities, obligations, fines, penalties, claims, demands, suits,
judgments, actions, causes of action, damages, costs, losses and expenses
(including reasonable attorneys' fees and costs and court costs) directly or
indirectly arising by reason of, in connection with, on account of or pertaining
to any breach of a warranty, representation, covenant or agreement of Seller
under this Agreement.
6.5 Seller shall be deemed to have repeated as of the Closing the
representations, warranties and covenants of Seller set forth in paragraph 6.1
with the same effect as though such representations, warranties and covenants
had been made at the Closing. All such representations, warranties and
covenants shall survive the Closing.
7. PURCHASER'S WARRANTIES.
7.1 Purchaser warrants and represents to, and covenants with, Seller as
follows:
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(i) Except as set forth in paragraph 6.1 there are no
representations or warranties made by Seller in connection
with this Agreement or Purchaser's purchase of the Project,
and except for Seller's representations and warranties set
forth in paragraph 6.1, Purchase is not relying on any
statement, representation, warranty or information
furnished by Seller or a partner, investor or affiliate
of Seller, or an officer, director, shareholder,
employee, agent, contractor, consultant, representative
or partner of any of them, for any purpose whatsoever,
including (without limitation) determining whether to
enter into and/or consummate the purchase of the Project.
Without limiting the foregoing, Purchaser acknowledges
and agrees: that all of the Leases may not conform to
Seller's standard form of lease for the Project
previously delivered to Purchaser by Seller and that
Purchaser has ascertained the contents of each Lease
based upon Purchaser's own review of the Leases; that the
plans and specifications, landscape plans, structural
calculations and the like for the Project may not be
final and are not "as built" and do not reflect changes
in the Project made after the same were prepared, and
that Seller does not represent or warrant the accuracy of
any of the foregoing items.
(ii) Purchaser has made a full, thorough and complete independent
investigation of (including, without limitation, a full,
thorough and complete physical investigation of the Project
site, the Project and all improvements and structures
thereof and all elements and aspects of such improvements
and structures), has sought the advice of its own attorneys,
accountants, structural engineers, civil engineers,
geotechnical engineers, mechanical and electrical engineers,
architects and other construction experts, consultants,
experts and/or advisors concerning, all aspects of the
Project, the purchase of the Project and the transactions
contemplated herein, or has waived or has deemed to have
waived and voluntarily relinquished its opportunity for the
same, and, except for Seller's representations set forth in
paragraph 6.1, Purchaser
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has made its decision to purchase the Project strictly on
the basis of and in reliance on its own investigation.
Notwithstanding anything to the contrary contained
herein, except as to the documents described in paragraph
6.1 (i) no reliance by Purchaser upon information
contained in any documents or materials furnished or made
available by Seller to Purchaser shall constitute the
basis for a claim, demand, right, action or cause of
action.
(iii) The execution and delivery of this Agreement by Purchaser,
and Purchaser's consummation of the transactions
contemplated by this Agreement, have been approved by
Purchaser's board of directors and by all other persons and
entities whose approvals are required.
(iv) Except for the cancellation of this Agreement by either
party pursuant to paragraph 9 or the nonfulfillment of
Purchaser's conditions precedent to the Closing set forth in
paragraph 5.1, and except for the automatic cancellation of
this Agreement pursuant to paragraph 13.6, Purchaser shall
be deemed to have waived all contingencies and conditions
precedent to its obligation to close the transactions
contemplated herein, and shall be absolutely and
unconditionally obligated to consummate such transactions
pursuant to this Agreement. Purchaser shall purchase the
Project in its "AS IS, WHERE IS, SUBJECT TO ALL FAULTS"
condition as of the date of this Agreement, giving the
broadest meaning to that term.
7.2 Purchaser shall be deemed to have repeated as of the Closing the
representations, warranties and covenants of Purchaser set forth in
paragraph 7.1 with the same effect as though such representations, warranties
and covenants had been made at the Closing. All such representations,
warranties and covenants shall survive the Closing.
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7.3 Purchaser shall indemnify, protect, save, hold harmless and defend
Seller, and the past, present and/or future partners of Seller, and their
respective partners, officers, directors, shareholders, investors, fiduciaries,
beneficiaries, employees, agents, contractors, heirs, devisees, legatees,
executors, administrators, representatives, successors and assigns, harmless
from and against any and all liabilities, obligations, fines, penalties, claims,
demands, suits, judgments, actions, causes of action, damages, costs, losses and
expenses, (including, without limitation, reasonable attorneys' fees and costs
and court costs, and personal injury and/or property damage to Purchaser and
Purchaser's employees, agents and contractors) directly or indirectly arising by
reason of, in connection with, on account of or pertaining to (i) the violation
or alleged or claimed violation by Purchaser or Seller of any federal, state or
local law or regulation pertaining to any subsequent offering or sale of the
Project or any interest therein, direct or indirect, (ii) any breach of a
warranty, representation, covenant, waiver, relinquishment, discharge, agreement
or acknowledgment of Purchaser under this Agreement, (iii) Purchaser's acts or
omissions and those of Purchaser's agents, contractors and employees on the
Project.
8. CLOSING.
8.1 The Closing shall occur on the tenth (10th) day following the date on
which the Building Inspector of the City of Fremont, California, executes the
final sign-off on the on-site construction permit card relating to the 150
residential dwelling units in the Project that were under construction on
November 12, 1996, or such City otherwise authorizes occupancy of such units,
PROVIDED, that if the date on which the Building Inspector of the City of
Fremont, California, executes the final sign-off on the on-site construction
permit card relating to the 150 residential dwelling units in the Project that
were under construction on November 12, 1996, or such City otherwise authorizes
occupancy of such units, does not occur on or before July 1, 1997, then
Purchaser, by and upon written cancellation notice to Seller received by Seller
on or before July 10, 1997, may cancel and terminate this Agreement. Any "punch
list" items outstanding as of the Closing shall be resolved by Seller after the
Closing at Seller's cost.
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8.2 Prior to the Closing, Seller shall deposit into escrow a fully
executed and acknowledged grant deed to Purchaser of the real property described
in Exhibit A and improvements thereon, and a duly executed bill of sale
transferring the Personal Property to Purchaser, and Purchaser and Seller shall
deposit into escrow a duly executed and acknowledged blanket assignment of the
Leases, FIRPTA affidavits and an assignment of intangibles, all in form and
substance reasonably satisfactory to both parties; and each party shall deposit
into escrow all sums, escrow instructions and other instruments required of each
party hereunder in order to consummate the Closing in timely manner in
accordance with the provisions of this Agreement.
8.3 Closing costs and prorations shall be charged and credited at the
Closing as follows: real property taxes; personal property taxes, assessments
and/or bonds, whether or not collected with real property taxes but which
nonetheless constitute a lien against the Project, if any; and, rents that
theretofore have been paid, all shall be prorated through escrow. Purchaser
shall pay the premiums for any title insurance covering the Project. The cost
of documentary stamps and transfer taxes shall be paid by Seller. All escrow
fees, shall be shared equally by the parties. Security and cleaning deposits,
and other future lease credits, with respect to Leases that remain in effect and
in Seller's possession after the Closing, shall be charged to Seller and
credited to Purchaser through escrow. Expenses arising with respect to the
Project, and/or use, occupancy or operation thereof, on or before the Closing
shall be the responsibility of and shall be paid by Seller, irrespective of
whether bills or other demands for payment are received or payment is otherwise
required or made prior or subsequent to the Closing; if any such expenses are
paid by Purchaser, Seller shall reimburse Purchaser for them upon demand.
Seller shall be entitled to rental and/or other income arising with respect to
the Project, and/or the use, occupancy or operation thereof, at or before the
Closing, irrespective of whether payments with respect to such income are
received prior or subsequent to the Closing; Purchaser shall not be required to
collect or attempt to collect such income items, but if any such items of income
are received by Purchaser, it shall forward them to Seller promptly. Expenses
arising with respect to the Project, and/or use, occupancy or operation thereof,
from and after the Closing shall be the responsibility of and shall be paid by
Purchaser, irrespective of whether bills or other demands for payment are
received or payment is otherwise required or made prior or subsequent to the
Closing; if any such expenses are paid by Seller, Purchaser shall reimburse
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Seller for them upon demand. Purchaser shall be entitled to rental and/or other
income arising with respect to the Project, and/or the use, occupancy or
operation thereof, from and after the Closing, irrespective of whether payments
with respect to such income are received prior or subsequent to the Closing;
Seller shall not be required to collect or attempt to collect such income items,
but if any such items of income are received by Seller, it shall forward them to
Purchaser promptly. Any payment from one party to the other required or
contemplated pursuant to the preceding four sentences shall be made outside of
escrow. Other Closing costs shall be charged to the parties in the manner
customary in Alameda County.
9. RISK OF LOSS, DESTRUCTION, CONDEMNATION, ETC.
9.1 DAMAGE OR DESTRUCTION. Seller shall be bound to sell and Purchaser
shall be bound to purchase the Project for the full purchase price required by
the terms hereof notwithstanding the occurrence of damage to or destruction of
the Project or any portion thereof, PROVIDED THAT the conditions set forth in
both (A) and (B) below are satisfied: (A) It is estimated that such damage or
destruction can be repaired within six (6) months following the occurrence, or
both parties waive such six-month limitation; AND (B) the cost to repair such
damage or destruction is fully covered by insurance, or the uninsured portion
thereof is estimated not to exceed $250,000, or (if the estimated cost of
repairing the uninsured portion of such damage or destruction exceeds $250,000)
EITHER (i) Purchaser notifies Seller within ten (10) days following Purchaser's
receipt of Seller's estimate of the cost to repair such uninsured portion
(subject to provisions set forth below regarding the determination of such
estimate if Purchase disagrees with Seller's estimate), or, if sooner, prior to
the Closing, of Purchaser's agreement to pay the excess over $250,000 of the
actual uninsured portion of the cost of such repairs, OR (ii) Seller notifies
Purchaser within fifteen (15) days following Purchaser's receipt of Seller's
estimate of the cost to repair such uninsured portion (subject to provisions set
forth below regarding the determination of such estimate if Purchase disagrees
with Seller's estimate), or, if sooner, prior to the Closing, of Seller's
agreement to pay the excess over $250,000 of the actual uninsured portion of the
cost of such repairs. The estimate of the time required to repair such damage
or destruction and/or the cost to repair the uninsured portion thereof shall
initially be made by Seller and delivered to Purchaser. If Purchaser disagrees
with either
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or both of such estimates, Purchaser shall so notify Seller within two (2) days
following Purchaser's receipt of the estimate in question, whereupon such
estimate(s) shall be made by an independent architect jointly selected by Seller
and Purchaser (or if they are unable to agree upon the independent architect
within one (1) day following Seller's receipt of the notice of disagreement from
Purchaser, the selection of the independent architect shall be made by the
presiding judge of the Superior Court in and for Alameda Country, California,
acting in his or her individual capacity, upon application of either Seller or
Purchaser). The independent architect shall make the estimate(s) in question
within three (3) days following his or her appointment, and the estimate(s) of
the independent architect shall be conclusive as between the parties. If the
estimate of the uninsured portion of the repair cost is made by the independent
architect, the ten-day and fifteen-day periods for Purchaser's or Seller's
determining whether to pay the excess over $250,000 of the uninsured actual cost
of repairs shall start when the cost estimate is made by the independent
architect. For the purpose of the first sentence of this paragraph, the actual
time required to repair such damage or destruction and/or the actual cost to
repair the uninsured portion thereof, shall be irrelevant. If the parties are
required to consummate the purchase and sale of the Project pursuant to the
first sentence of this paragraph, the date for the Closing shall be postponed
for the period actually required to effect the repairs to such damage or
destruction, and Seller shall make such repairs so that the condition of the
Project after the repairs will be substantially the same as that which existed
prior to the damage or destruction. At the Closing, Purchaser shall receive a
credit for the amount of any insurance proceeds received by Seller prior to the
Closing as a result of such damage or destruction (or such proceeds shall be
assigned to Purchaser by Seller if not received by Seller prior to the Closing,
and/or shall be delivered by Seller to Purchaser if subsequently received by
Seller). Except as provided above, if the estimated time to repair any such
damage or destruction exceeds six (6) months and/or the estimated cost of
repairing the uninsured portion thereof exceeds $250,000, then Seller shall not
be obligated to make any such repairs and this Agreement shall be cancelled and
terminated, whereupon the sums and documents theretofore delivered by either
party to the Title Company or to the other party shall be returned and each
party shall be released from all further obligations and liabilities to the
other arising out of the transactions contemplated herein.
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9.2 CONDEMNATION. Either party, by notice to the other party and to the
Title Company given prior to the Closing or (if earlier) within seven (7) days
following the occurrence of the event giving rise to such right to cancel, may
cancel and terminate this Agreement if all or a material portion of the Project
is taken or condemned by competent public authority or sold under threat of
condemnation. If either party elects so to cancel, all proceeds, awards, fees,
and/or other amounts paid or payable by reason of such condemnation, taking or
sale under threat of condemnation shall be payable to and remain the sole and
exclusive property of Seller, and Purchaser shall have no interest in the same.
If neither party elects so to cancel, at the Closing Purchaser shall receive a
credit for the amount of any such proceeds, awards, fees, and/or other amounts
that have been received by Seller prior to the Closing by reason of such
condemnation, taking or sale under threat of condemnation (or such proceeds,
awards, fees, and/or other amounts shall be assigned to Purchaser by Seller if
not received by Seller prior to the Closing, and/or shall be delivered by Seller
to Purchaser if subsequently received by Seller).
9.3 Subject to the provisions of paragraphs 9.1 and 9.2, possession of the
Project shall be given, and risk of loss and damage thereto shall pass, at the
Closing.
10. ASSIGNMENT. Purchaser shall not have the right to assign or otherwise
voluntarily or involuntarily (by operation of law or otherwise) transfer any
right, obligation or interest of Purchaser under or by virtue of this Agreement,
but Purchaser's escrow instructions may provide the manner in which title to the
Project shall vest upon conveyance by Seller. For the purpose of this
paragraph, a change in control of Tenant or an entity controlled by Tenant, or
(if Purchaser is a partnership) a change in a general partner or in control of a
general partner of Purchaser, shall be deemed to be an assignment of this
Agreement by Purchaser. Subject to the provisions of this paragraph, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, devisees, legatees, executors, administrators,
representatives, successors and assigns.
11. BROKERS. If the sale and purchase of the Project is consummated in
accordance with this Agreement, Seller shall pay a broker's commission to Marcus
& Millichap Real Estate Brokerage Investment Company
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pursuant to a separate agreement between Seller and that firm. Each party
respectively warrants to and covenants with the other party that such party has
not incurred and will not incur, directly or indirectly, any liability on behalf
of the other party for any agent's, broker's, salesman's or finder's fees,
commissions or other compensation in connection with the purchase and sale or
other transfer of the Project to Purchaser. Each party shall indemnify, save,
protect, hold harmless and defend the other party from and against claims,
demands, costs, expenses (including reasonable attorneys' fees and costs and
court costs), damages, losses and actions arising out of the breach by the
indemnifying party of its warranties and covenants contained in this paragraph.
12. MISCELLANEOUS.
12.1 This document constitutes the sole agreement between the parties, and
supersedes any and all prior oral or written agreements or understandings
between them, pertaining to the transactions contemplated herein and/or to the
sale of the Project to Purchaser; no representations, warranties or inducements,
express or implied, have been made by either party to the other, except as set
forth herein.
12.2 Should any litigation be commenced between the parties hereto
concerning the Project, this Agreement, or the rights and duties of either party
in relation thereto, the party, Purchaser or Seller, prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum for its attorneys' fees and costs and court costs
in such litigation, which shall be determined by the court in such litigation or
in a separate action brought for that purpose.
12.3 Time is and shall be of the essence of this Agreement.
12.4 The headings of this Agreement are for convenience only, are not a
part of this Agreement, and do not in any way limit or amplify the terms and
provisions hereof.
12.5 All modifications to this Agreement must be in writing and signed by
the parties hereto.
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12.6 The respective representations, warranties, covenants, agreements,
obligations and undertakings of each party hereunder shall be construed as
dependent upon and given in consideration of those of the other party, and
(subject to the limitations contained elsewhere herein) shall survive the
Closing and the delivery of the deed of the property described in Exhibit A and
the bill of sale of the Personal Property.
12.7 From time to time prior to and after the Closing, each party shall
execute and deliver such instruments of transfer and other documents as may be
reasonably requested by the other party or necessary to carry out the purpose
and intent of this Agreement.
12.8 All notices, demands, requests, elections, approvals, disapprovals,
consents, waivers or other communications which this Agreement contemplates, or
requires or permits either party to give to the other, shall be in writing and
shall be personally delivered or sent by registered or certified mail, return
receipt requested, or by receipted fax, receipted federal express or other
receipted messenger service, addressed to the respective parties as follows:
SELLER: Nick Podell
M. H. Podell Company
1201 Howard Avenue
Burlingame, California 94010
PURCHASER: BRE Properties, Inc.
One Montgomery Street, Suite 2500
San Francisco, California 94104
or to such other address as either party may from time to time designate by
notice to the other given in accordance with this paragraph.
12.9 This Agreement shall be interpreted and enforced in accordance with
the laws of the State of California.
12.10 Purchaser and Seller agree that the terms of the transaction
contemplated by this Agreement shall be maintained in strict confidence prior to
the Closing and that prior to the Closing no disclosure of such
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information will be made, whether or not the transaction contemplated by this
Agreement is consummated, except to such attorneys, accountants, investment
advisors, lenders and others as are reasonably required to evaluate and
consummate this transaction, and except to lenders, prospective lenders and
business consultants of M.H. Podell Company and its affiliates. The parties
each further agree that nothing in this paragraph shall prevent Purchaser,
Seller or the Title Company from disclosing or accessing any information
otherwise deemed confidential under this paragraph (i) in connection with that
party's enforcement of its rights hereunder; (ii) pursuant to any legal
requirement, any statutory reporting requirement or any accounting or auditing
disclosure requirement; (iii) in connection with performance by either party of
its obligations under this Agreement (including, but not limited to, the
delivery and recordation of instruments, notices or other documents required
hereunder).
13. CERTAIN OTHER AGREEMENTS.
13.1 Prior to the Closing, Seller, at its expense, shall manage, maintain
and keep the Project and the improvements thereon in a manner and in the
condition of order and repair consistent with Seller's practices prior to the
execution of this Agreement, PROVIDED that Seller shall have full and absolute
unilateral discretion and control over the operations, management, maintenance
and conduct of the Project and over the way in which Seller's covenants under
this paragraph are performed.
13.2 Seller agrees, at Purchaser's sole cost and expense, and PROVIDED
that Seller does not and shall not incur any additional liability or obligation
as a consequence thereof and that the Closing is not delayed, to cooperate with
Purchaser (but not by the assignment of this Agreement), including the execution
of documents reasonably required, should Purchaser elect to purchase the Project
to complete a like-kind exchange under IRC Section 1031. The parties agree that
the consummation of the transactions contemplated by this Agreement is NOT
predicated or conditioned upon the completion of any such exchange. Purchaser
shall indemnify, save, protect, hold harmless and defend Seller from and against
claims, demands, costs, expenses, damages, losses and actions arising out of
Seller's participation in such an exchange.
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13.3 Seller agrees to provide Purchaser promptly with new documents or
other items materially affecting or regarding the Project on an ongoing basis
until the Closing.
13.4 At the Closing Seller shall assign to Purchaser (to the extent
assignable) the warranties as to workmanship and/or materials obtained by
Seller's general contractor from those subcontractors and suppliers
(collectively, the "WARRANTING SUBCONTRACTORS") of such general contractor who
are listed in EXHIBIT C attached to this Agreement. PROVIDED THAT PURCHASER
NOTIFIES SELLER IN WRITING OF ANY WARRANTY CLAIM UNDER SUCH A WARRANTY NO LATER
THAN TWO (2) WEEKS PRECEDING THE EXPIRATION OF THE SUBCONTRACTOR WARRANTY IN
QUESTION: Seller shall perform or caused to be performed at no cost to Purchaser
the required remedial work under such warranting subcontractor's warranty of
workmanship and/or materials made to Seller's general contractor. Purchaser
hereby authorizes Seller to make and handle warranty claims of warranting
subcontractors under the preceding sentence. Seller shall provide Purchaser at
the Closing with a list of any subcontractors whose warranties expire prior to
the first anniversary of the Closing Date, and the expiration dates for such
warranties. If Seller so performs such remedial work or causes the remedial
work to be performed, Seller shall be subrogated to Purchaser's rights, claims,
interests, actions and causes of action with respect to the warranty of
workmanship and/or materials in question. The assignment of warranties, and the
subrogation of Purchaser's rights, claims, interests, actions and causes of
action with respect to the warranties, described in this paragraph shall be
deemed to have been made and accomplished at the Closing (with respect to the
assignments) and/or at the time that Seller performs remedial work (with respect
to such subrogation), automatically and without the execution and delivery of
any additional instruments of assignment, transfer and/or subrogation being
required.
13.5 Following the execution of this Agreement and until the Closing Date:
(i) Seller shall send to Purchaser bi-weekly an updated rent roll for the
Project; (ii) Seller shall allow Purchaser and Purchaser's employees and
representatives involved in construction-related activities to enter upon the
Project site at all reasonable times for the purpose of observing and inspecting
construction activities on the site, SO LONG AS the exercise of Purchaser's
rights under this clause (ii) does not interfere with Seller's construction
activities or with Project occupants or prospective occupants, and PROVIDED THAT
Purchaser shall indemnify and save and hold
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harmless the Project, Seller and Seller's partners, and their employees,
directors and investors, harmless from and against liabilities, claims, demands,
damages, costs and losses (including, without limitation, personal injury and/or
property damage to Purchaser, Purchaser's employees, agents and contractors)
directly or indirectly arising by reason of Purchaser's acts or omissions and
those of Purchaser's agents, contractors and employees on the Project or
otherwise connected with the exercise of Purchaser's rights under this clause
(ii); and, (iii) Seller shall notify Purchaser of each proposed construction
change order and shall allow Purchaser a period of 48 hours following
Purchaser's receipt of each such proposed change order within which to comment
upon such change order, provided, that (subject to the provisions of paragraph
6.1 (vii)) no such comment shall be binding on Seller and Seller shall not be
obligated to take any action or refrain from taking any action with respect to
the purchase order as a consequence of any comment from Purchaser.
13.6 Purchaser shall have until 5:00 p.m., Pacific Standard Time, on the
second business day following Purchaser's receipt of an ALTA survey of the
Project (the "SURVEY DEADLINE") to approve such survey and the information
disclosed therein; Purchaser shall pay the cost of such survey. Purchaser may,
by and upon written notice to Seller received by Seller prior to the Survey
Deadline, cancel and terminate this Agreement if Purchaser does not approve such
survey and the information disclosed therein. IN ADDITION, IF PRIOR TO THE
SURVEY DEADLINE SELLER HAS NOT RECEIVED WRITTEN NOTICE FROM PURCHASER THAT
PURCHASER APPROVES OR WAIVES THE RIGHT TO APPROVE SUCH SURVEY AND THE
INFORMATION DISCLOSED THEREIN, THIS AGREEMENT SHALL BE CANCELLED AND TERMINATED
AUTOMATICALLY, WITHOUT ANY FURTHER NOTICE OR ACTION BY EITHER PARTY. If this
Agreement is cancelled and terminated pursuant to this paragraph, Purchaser
shall be entitled to a return of the Deposit. Once Purchaser approves or waives
the right to approve the survey and the information disclosed therein, paragraph
7.1(iv) shall be deemed modified to remove all references to this paragraph.
13.7 Purchaser may acquire the Project by way of a tax-deferred exchange
of real property. Seller agrees to cooperate with Purchaser in conmnection with
such exchange, PROVIDED, HOWEVER, that (i) the exchange shall not delay the
Closing; (ii) Seller shall not be required to take title to any property other
than the Project, (iii) Purchaser shall indemnify and hold Seller harmless for,
from and against any claim, demand,
21
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action, cause of action, liabililty, loss, damage or expense (including
attorneys fees) in connection therewith, including (without limitation) any
increase in escrow fees or charges resulting from such exchange, (iv) Purchaser
acknowledges and agrees that Seller has not made and will not make any
representation aor warranty as to the effectiveness for tax purposes of any such
exchange; (v) the parties agree that the consummation of the transactions
contemplated by this Agreement is NOT predicated or conditioned upon the
completion of any such exchange.
13.8 In conjunction with Purchaser's exercise of its rights under clause
(ii) of paragraph 13.5, Purchaser at its cost may physically inspect the
residential dwelling units in the Project that were completed prior to November
12, 1996 and deliver to Seller, to be received by Seller not later than four (4)
business days prior to the date scheduled for the Closing, a list of items of
extraordinary damage or destruction (as opposed to items of ordinary wear and
tear) requiring repair and the estimated cost of the repairs required (for
purposes of illustration only, an example of an "extraordinary" item is a
kicked-in door). Seller may object to the inclusion of an item or items on
Seller's list and/or the estimated repair costs. Purchaser shall use good faith
and reasonableness in compiling the list and the repair cost estimates, and
Seller shall use good faith and reasonableness in objecting to items on the list
and the repair cost estimates. Seller shall not be responsible for making any
repairs to the Project; however, an amount (if any) equal to the lesser of (i)
the aggregate of the estimated repair costs agreed upon by the parties or (ii)
Twenty Thousand Dollars ($20,000) (if the agreed upon costs exceed $20,000)
shall be subtracted from the purchase price for the Project. The parties agree
that the consummation of the transactions contemplated by this Agreement is NOT
predicated or conditioned upon the results of any such inspection by Purchaser,
any repairs that might be required or the completion of any such repairs. In
exercising its inspection rights under this paragraph 13.8, Purchaser may not
interfere with Seller's construction activities or with Project occupants.
Purchaser shall indemnify and save and hold harmless the Project, Seller and
Seller's partners, and their employees, directors and investors, harmless from
and against liabilities, claims, demands, damages, costs and losses (including,
without limitation, personal injury and/or property damage to Purchaser,
Purchaser's employees, agents and contractors) directly or indirectly arising by
22
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reason of Purchaser's acts or omissions and those of Purchaser's agents,
contractors and employees on the Project or otherwise connected with the
exercise of Purchaser's rights under this paragraph. Purchaser shall
coordinate in advance the timing of the inspection of dwelling units with
Nick Podell or Coral Mierke and shall give reasonable prior notice to the
occupant of a unit before inspecting that unit.
13.9 Purchaser shall not offer for sale, sell or otherwise transfer less
than the entire Project to any party; without limiting the generality of the
foregoing, Purchaser shall not market the Project as condominiums or cooperative
apartments or sell or offer condominium or cooperative units or interests in the
Project. In the event that there is any offering, sale or other transfer by
Purchaser of the Project or any interest therein, direct or indirect, following
the execution of this Agreement: (A) Purchaser shall include or cause to be
included the text of paragraph 7.1 of this Agreement in the agreement for such
offering and/or sale, with Purchaser hereunder being appropriately designated in
the text so included as the seller, offeror, transferor or the like where the
term "Seller" appears in paragraph 7.1 of this Agreement, and with the other
party to the transaction in question (E.G., the offeree, purchaser, transferee
or the like) being appropriately designated in the text so included where the
term "Purchaser" appears in paragraph 7.1 of this Agreement; and (B) either (x)
Purchaser shall record against the Project prior to such sale or other transfer
a restriction against the Project's being divided into condominium or
cooperative units or interests, or (y) Purchaser shall indemnify, protect, save,
hold harmless and defend Seller, and the past, present and/or future partners of
Seller, and their respective partners, officers, directors, shareholders,
investors, fiduciaries, beneficiaries, employees, agents, contractors, heirs,
devisees, legatees, executors, administrators, representatives, successors and
assigns, harmless from and against any and all liabilities, obligations, fines,
penalties, claims, demands, suits, judgments, actions, causes of action,
damages, costs, losses and expenses, (including, without limitation, reasonable
attorneys' fees and costs and court costs, and personal injury and/or property
damage to Purchaser and Purchaser's employees, agents and contractors) directly
or indirectly arising by reason of, in connection with, on account of or
pertaining to defects or alleged defects, inadequacies or
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faults in the site work, design, planning, engineering, plans, specifications,
materials, workmanship or construction of the Project or any improvement or
structure thereon or any element or aspect thereof, or the existence of any
condition on, about or affecting the Project.
SELLER: RED HAWK RANCH, A
CALIFORNIA LIMITED PARTNERSHIP
By: Red Hawk Ranch, Inc.,
a California corporation,
Its: General Partner
By /s/ Nick Podell
---------------
Nick Podell, Vice President
PURCHASER: BRE PROPERTIES, INC.,
a Maryland corporation
By /s/ Byron M. Fox
----------------
Its Executive Vice President
------------------------
By /s/ Jane Maushardt
------------------
Its Vice President
--------------
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Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contact: Lauren L. Barr
BRE Properties, Inc.
(415) 445-6523
BRE PROPERTIES BUYS 453-UNIT APARTMENT COMMUNITY IN
SAN FRANCISCO BAY AREA FOR $58.7 MILLION
COMPANY ANNOUNCES ADDITIONAL NON-CORE PROPERTY SALES
SAN FRANCISCO (April 15, 1997) - BRE Properties, Inc. (NYSE: BRE), one of
the nation's largest multifamily real estate investment trusts (REITs), has
purchased Red Hawk Ranch, a 453-unit apartment community in the San Francisco
Bay Area city of Fremont for an all cash purchase price of $58.7 million.
"This purchase achieves two important goals in our strategic plan for
creating shareholder value," said Frank C. McDowell, BRE's President and Chief
Executive Officer. "First, it expands our focus on the ownership and management
of multifamily properties in one of the strongest apartment markets in the
nation. Second, it redeploys capital formerly invested in non-core retail
assets into a property type in which BRE has demonstrated operating strength."
The purchase increases BRE's Bay Area multifamily apartment ownership to
more than 1,900 apartment homes and raises the total multifamily apartment
portfolio to 13,015 apartment units in nine key growth markets of the Western
United States. BRE acquired Red Hawk Ranch using tax-deferred proceeds from the
sale of a retail portfolio announced last week.
BRE's Chief Operating Officer Jay W. Pauly said, "Red Hawk Ranch represents
an opportunity for BRE to take advantage of two of its core operating strengths
- - property management transitions of new acquisitions and lease-up of newly
developed communities. Red Hawk Ranch consists of two phases: Phase I was
built in 1995 and consists of 303 units with a current occupancy of 94%. The
newly constructed 150-unit Phase II has just been completed and is 30% leased.
Our underwriting allows for a six month lease-up period and projects a
stabilized first year yield of 8.2%, including replacement reserves."
- more -
<PAGE>
- 2 -
Pauly said that Red Hawk Ranch's Fremont location represents the kind of
employment and transportation fundamentals BRE emphasizes in its acquisitions.
"Situated approximately 45 miles southeast of San Francisco in Alameda County,
Red Hawk Ranch is close to the high-tech employment centers along Interstates
880 and 680. Red Hawk Ranch is conveniently located within walking distance of
the Fremont Bay Area Rapid Transit (BART) station."
Red Hawk's residents enjoy both underground and covered parking, washers
and dryers in all units, an oversized swimming pool and an on-site business
center. The architecture award-winning property contains 225 one-bedroom, 219
two-bedroom and nine three-bedroom designs; the units average 892 square feet
and have an average monthly rental rate of $1,266 per unit. The apartment
community is located directly across the street from Fremont Central Park, which
features an 80-acre lake, 18 tennis courts, a seven-acre swimming lagoon and a
golf driving range.
In other news, BRE announced the continuing results of its non-core asset
disposition program. "Within the past few days," said McDowell, "we have closed
on four additional asset sales including two land leases, a small retail center
and a commercial property for an approximate total of $14 million. These four
properties sold for an aggregate capitalization rate of 8.2%. This brings the
total proceeds from our non-core sales program to approximately $200 million and
leaves about $50 million in potential funding from future non-core sales."
BRE Properties, Inc., headquartered in San Francisco, is a
self-administered, self-managed and fully integrated real estate investment
trust (REIT) focusing on the ownership and management of multifamily properties
in the Western United States. BRE owns and operates 55 apartment communities
totaling 13,015 units in nine major markets in California, Arizona, Washington,
Oregon and Nevada.
###
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS REGARDING COMPANY
AND PROPERTY PERFORMANCE. ACTUAL RESULTS COULD VARY MATERIALLY DEPENDING ON
RISKS AND UNCERTAINTIES INHERENT TO GENERAL AND LOCAL REAL ESTATE CONDITIONS, OR
COMPETITIVE FACTORS SPECIFIC TO MARKETS IN WHICH BRE OPERATES. THE COMPANY
ASSUMES NO LIABILITY TO UPDATE THIS INFORMATION. FOR MORE DETAILS, PLEASE REFER
TO THE COMPANY'S SEC FILINGS, INCLUDING ITS MOST RECENT ANNUAL REPORT ON FORM
10-K AND QUARTERLY REPORTS ON FORM 10-Q.
