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: April 9, 1999
APPLE RESIDENTIAL INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23983 54-1816010
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
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APPLE RESIDENTIAL INCOME TRUST, INC.
FORM 8-K
Index
Page No.
--------
Item 2. Acquisition or Disposition of Assets 3
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits 7
a. Financial Statements and Pro Forma
Financial Information
b. Exhibits
10.1 Purchase Contract for Hunters Creek
Apartments, as amended
10.2 Property Management Agreement for
Hunters Creek Apartments
2
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Item 2. Acquisition or Disposition of Assets
HUNTERS CREEK APARTMENTS
Charlottesville, Virginia
On April 9, 1999, Apple REIT Limited Partnership (together with its parent
companies, the "Company") purchased the Hunters Creek Apartments, a 240-unit
apartment complex having an address of 2230-C Commonwealth Drive, outside of
Charlottesville, within Albemarle County, Virginia (the "Property").
The purchase price for the Property was $7,750,000. At closing, the Company
paid the entire purchase price in cash using proceeds from the sale of its
Common Shares. Title to the Property was conveyed to the Company by limited
warranty deed.
The seller was Southeastern Income Properties II Limited Partnership, a
Virginia limited partnership (the "Seller"). Prior to January, 1993, Glade M.
Knight, who is a director and the Chief Executive Officer of the Company, served
as a general partner of the Seller. Mr. Knight had organized the Seller in 1987.
In January, 1993, Mr. Knight ceased to serve as a general partner of the Seller,
but retained an economic interest in the Seller. In connection with the sale of
the Property by the Seller to the Company, Mr. Knight did not receive and will
not receive any of the Seller's proceeds from the sale.
Location. The following information is based in part upon information
provided by the Charlottesville Chamber of Commerce. The Property is located in
Virginia, within Albemarle County, in close proximity to the City of
Charlottesville. The greater Charlottesville metropolitan area has a population
of approximately 130,000. Growth has been steady since the 1970's, and steady
growth is expected to continue for the foreseeable future. Charlottesville is
located approximately 70 miles northwest of Richmond, Virginia and approximately
110 miles southwest of Washington, D.C.
The Charlottesville area has a diverse economy which includes
manufacturing, retail trade, construction and services. However, the largest
employer in the area is the University of Virginia, which has approximately
14,700 employees. The University of Virginia was designed by Thomas Jefferson in
1815 and has grown into one of the largest colleges in Virginia, with an
undergraduate program as well as graduate schools in law, business, medicine,
engineering, commerce and education. There are over 20,000 students at the
school. The University of Virginia is responsible for bringing many visitors to
the area each year.
The Property is located at 2230-C Commonwealth Drive, just north of the
City of Charlottesville, within Albemarle County. Since Charlottesville is
situated just below the Blue Ridge Mountains, and was the home of Thomas
Jefferson, the area in which the Property is located is both scenic and
historic.
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The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is located near various major employers, such as G.E. Fanuc, Comdial,
Sperry-Marine, and the University of Virginia and its affiliated Medical Center.
The Property is also near shopping, restaurants, schools, churches and various
historical attractions such as Monticello.
The Property is easily accessible from Route 29, Route 250 Bypass and
Interstate 64.
As noted below, the Property is situated immediately adjacent to Trophy
Chase Apartments, which are owned by Cornerstone Realty Income Trust, Inc.,
which serves as the advisor for the Company (the "Advisor").
Description of the Property. The Property consists of 240 garden-style
apartments in 17 three-story buildings on approximately 9.6 acres of land. The
Property was constructed in 1970.
The Advisor believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$960,000 for certain improvements to the Property, including a substantial
clubhouse renovation.
The Property offers nine unit types. The unit mix and rents being charged
new tenants as of April 1999 are as follows:
<TABLE>
<CAPTION>
Approximate Interior Square Monthly
Quantity Type Footage Rental
-------- ---- --------------------------- -------
<S> <C> <C> <C> <C>
8 1 bedroom, 1 bathroom 750 $ 510
4 1 bedroom, 1 bathroom (den) 795 530
127 2 bedrooms, 1 bathroom 860 550
25 2 bedrooms, 1 bathroom (den) 974 575
28 2 bedrooms, 1.5 bathrooms (den) 978 600
12 3 bedrooms, 1 bathroom 1,089 585
20 3 bedrooms, 1.5 bathrooms 1,089 635
6 3 bedrooms, 1 bathroom (den) 1,185 600
10 3 bedrooms, 1.5 bathrooms (den) 1,185 650
</TABLE>
The apartments provide a combined total of approximately 224,000 square
feet of net rentable area.
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Leases at the Property are for terms of one year or less. Average rental
rates for the last five years have generally increased. As an example, a
one-bedroom, one-bathroom apartment unit (795 square feet) rented for $425 in
1994, $425 in 1995, $450 in 1996, $475 in 1997, and $530 in 1998. The average
effective annual rental per square foot at the Property for 1994, 1995, 1996,
1997, and 1998, was $5.90, $5.90, $6.25, $6.60, and $7.36, respectively.
The buildings are of wood frame construction, with a combination of brick
veneer, cedar siding, T-111 and aluminum siding exteriors. Roofs are sloped with
asphalt shingles over plywood sheathing.
The amenities at the Property include an outdoor swimming pool, a
playground, a picnic area and a laundry facility. There is ample paved parking
for tenants.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up and an
individually controlled heating and air-conditioning unit. All apartment units
have miniblinds, ceiling fans and a private patio or balcony. All kitchens are
equipped with a refrigerator/freezer, gas range and oven, dishwasher, and
garbage disposal. The owner of the Property supplies cold water, sewer service
and trash removal. The tenants pay for their gas usage, which covers heat,
cooking and hot water, and for their electricity usage, which includes air
conditioning and lights.
There are at least four apartment properties that compete with the
Property. All offer similar amenities and have rents that are generally
comparable when compared with those of the Property. Based on a recent telephone
survey, the Advisor estimates that occupancy at nearby competing projects now
averages approximately 96%.
On March 9, 1999, the Property was approximately 82% occupied.
Occupancy figures for earlier periods are not available. The tenants are a mix
of white-collar and blue-collar workers, students and retired persons.
For real estate tax purposes, the Property is comprised of four separate
tax parcels. For 1998, the real estate tax rate applicable to the Property was
$0.72 per $100 of assessed value. The aggregate 1998 assessed value of the
parcels was $ 7,908,300 and the real estate taxes for 1998 were calculated at $
56,940. The assessed value of the Property for 1999 is $ $7,860,700, but the tax
rate has not yet been announced.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $6,228,802) will be depreciated over 27.5
years on a straight line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company
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on repairs and improvements will be treated for tax purposes as permitted by the
Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlottesville,
Virginia area will enjoy continued economic development and steady population
increase, and that such development and increase, together with the presence of
the University of Virginia, will support stable occupancy rates and reasonable
increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
4. The Property is located adjacent to the Trophy Chase Apartments,
which are owned by the Advisor. Since the Advisor manages both the Trophy Chase
Apartments and the Property, it is believed that there will be certain
management efficiencies and economies of scale associated with the dual
management.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Cornerstone Realty Income Trust, Inc. a property
acquisition fee of $155,000. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property.
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ITEM 7.a.
The Company is unable to provide an audited financial statement relative to
the Hunters Creek Apartments. However, the Company's inability to provide an
audited financial statement (in light of the significance of the acquisition to
the Company in terms of purchase price, the Company's assets, and the Company's
providing of audited financial statements with regard to other property
acquisitions) is consistent and in compliance with Securities and Exchange
Commission staff interpretations regarding the relevant financial statement
filing requirements of SEC Regulation S-X and Rule 3-14 thereunder.
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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 hereunto duly authorized.
Apple Residential Income Trust, Inc.
Date: April 26, 1999 By /s/ Glade M. Knight
----------------------------------------
Glade M. Knight, Chief Executive Officer
Cornerstone Realty Income Trust, Inc.
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EXHIBIT INDEX
Apple Residential Income Trust, Inc.
Form 8-K dated April 9, 1999
Exhibit Number Exhibit
- -------------- -------
10.1 Purchase Contract for
Hunters Creek Apartments, as amended
10.2 Property Management Agreement
for Hunters Creek Apartments
9
EXHIBIT 10.1
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 20th day of October 1998, between
CORNERSTONE REALTY GROUP, INC. or its nominee, (hereinafter called "Purchaser")
and SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP, a Virginia limited
partnership, (hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 SALE OF PROPERTY. Seller agrees to sell and convey, and Purchaser
agrees to purchase, Seller's real property known as HUNTERS CREEK APARTMENTS
located in CHARLOTTESVILLE, VA with all buildings and improvements located
thereon, as more particularly described in the attached legal description in
EXHIBIT A including, but not limited to 240 individually heated and air
conditioned apartment units, with all appurtenances, together with all
appliances, drapes, carpeting, shrubbery and all other personal property used in
connection with the premises, including, the inventory of personal property to
be supplied by Seller and attached hereto as EXHIBIT B (all such real and
personal property hereinafter collectively referred to as the "Property" unless
the context clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price shall be SEVEN MILLION SEVEN
HUNDRED FIFTY THOUSAND ($7,750,000) as evidenced by cash or cash equivalent at
closing.
2.2 NON-REFUNDABLE DEPOSIT. Upon the execution of this Agreement, Purchaser
shall deposit the sum of TWENTY FIVE THOUSAND ($25,000) DOLLARS in escrow as a
non-refundable fee. However, in the event that Seller does not fulfill its
obligations to Purchaser as required in this Agreement prior to the completion
of the "Inspection Period" described in Article VI below (whether or not
Purchaser proceeds to closing), then this sum shall be refundable.
2.3 DEPOSIT. SEVENTY FIVE THOUSAND ($75,000) DOLLARS to be placed in escrow
at the end of the "Inspection Period"
<PAGE>
described in Article VI below. Said deposits shall be placed in escrow with
Commonwealth Land Title Insurance Company or its authorized agent as an earnest
money deposit which may be credited against the purchase price or applied as per
Article XI below.
ARTICLE III
TITLE MATTERS
3.1 MARKETABLE TITLE. Seller, shall convey good and marketable title by
Special Warranty Deed in the form attached hereto as EXHIBIT C, subject only to
general taxes for the current year not yet due and payable and those matters of
record accepted by Purchaser in accordance with paragraphs 3.2 and 3.3 below.
(A) Title shall be free from any and all liens or mortgages and Seller
shall be responsible for any prepayment penalties necessary to deliver such free
title.
3.2 TITLE DEFECTS; ELECTION TO CURE. Seller shall furnish to Purchaser a
commitment for Title Insurance, (the commitment). If title is not marketable,
except as stated above in the preceding paragraph, Purchaser shall give written
notice of any defects in title to Seller's counsel during the Inspection Period.
Seller may, at its option, elect whether to cure said defects or by written
notice to Purchaser indicate its intention not to cure. The commitment shall be
furnished without cost to Purchaser, except and unless Purchaser obtains a
policy.
3.3 ELECTION NOT TO CURE DEFECTS. Should Seller elect not to cure title
defects, this Agreement, at Purchaser's option, execised by written notice to
Seller within five (5) business days after receipt of Seller's notice, shall be
void; each party shall be released from all obligations hereunder except those
that expressly survive pursuant to the terms of this Agreement; and all deposits
shall be immediately returned to Purchaser.
3.4 TITLE. Purchaser shall have the obligation to review the title report
and Survey as part of its "Inspection Period" described in Article VI below.
ARTICLE IV
PRORATIONS
4.1 INCOME AND EXPENSE ALLOCATIONS. The following shall be prorated, on a
calendar-month basis, as of 12:00 midnight on the day prior to the closing:
rents and other income from the Property; operating expenses; any pre-paid rent;
advances and/or consideration (on such service contracts and other obligations
as Purchaser may agree to assume); and general and real property taxes
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and personal and business property taxes for the year of closing (based on the
most recent assessment and the most recent levy).
4.2 CLOSING COSTS. Purchaser and Seller shall pay their customary share of
all taxes, recording fees, if any, imposed on the Deed, or any other documents
executed in connection with the transfer of the Property. Purchaser agrees to
pay cost of title insurance. Seller shall pay any prepayment penalty charged by
the holders of any existing notes.
4.3 ALLOCATION OF RENTS. Rents collected by Seller prior to Closing shall
be prorated as agreed in 4.1 above. Purchaser shall apply rents received after
Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
4.4 PRIOR LEASE CONCESSIONS. If Seller has committed to give any future
monetary concessions to tenants under existing leases to which Purchaser would
become liable, then Seller shall pay to Purchaser said amount in a lump sum at
closing.
ARTICLE V
POSSESSION OF THE PROPERTY
5.1 POSSESSION. Possession of the Property shall be delivered to Purchaser
at closing, subject to the rights of the tenants under existing leases and
rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT. Purchaser's obligation to purchase shall be
subject to and contingent upon the satisfaction of the following conditions
precedent:
(A) Receipt by Purchaser of an engineering report of building and site
conditions, satisfactory to Purchaser in its sole discretion, said report to
include in part, a description of any hazardous waste sites, hazardous wastes
and/or hazardous materials affecting the property. Purchaser shall have until
the expiration of the Inspection Period in which to review the reports set forth
herein and exercise its right to reject the Property based thereon or the right
hereunder shall be deemed waived.
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(B) The receipt by Purchaser of Seller documents described in 7.2
below.
(C) On the condition that Sellers representations and warranties
described in Article VIII below remain true and correct in all material
respects.
(D) On the condition that there have been no material or adverse
changes to the property or to the terms of the leases.
(E) Seller acknowledges that Purchaser is a public entity and that it
is required to furnish financial statements to the Securities and Exchange
Commission in connection with this acquisition. Seller agrees to make the
information available for Purchaser to audit the last 12 months of operation of
the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission.
(F) Survey which shall show no encroachments onto the Land from any
adjacent property, no encroachments by or from the Land onto adjacent property
and no violation of or encroachments upon any recorded building lines,
restrictions or easements affecting the Property. If the Survey discloses any
such encroachment or violation, Purchaser may elect, or or before the completion
of the Inspection Period to (i) terminate this Agreement (in which case the
Earnest Money shall be returned to Purchaser) and neither party shall have any
further liability or obligation to the other hereunder, or (ii) accept the
property subject to any such encroachment or violation.
6.2 INSPECTION. This Agreement shall be further subject to and contingent
upon Purchaser's satisfactory inspection as follows herein below.
6.2.1 PREPARATION FOR INSPECTION. At the execution of this Agreement,
Seller shall deliver to Purchaser copies of the following: The current rent roll
for the Property; detailed statements of income and expenses with respect to the
Property for the past two years; the most recent tax bills for the Property;
utility bills for the Property for the twelve (12) months previous to the date
hereof; all contracts, all loss runs for the last five (5) years, if available;
Plans and Specifications for the Property, if available, service contracts,
Certificates of Occupancy, to the extent reasonably available; a copy of the
title policy and most recent survey for the Property, if available. The Seller
warrants that all these items were those actually relied upon by the Seller and
were prepared or received in the ordinary course of business.
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6.2.2 INSPECTION OF BOOKS AND RECORDS; ACCESS. Upon execution of this
Agreement and receipt of fully executed copies by both parties or their
attorneys, Purchaser, its employees, agents and contractors shall have 14 days
(the "Inspection Period") to enter upon the Property subject to the rights of
the tenants during normal business hours and upon reasonable prior notice to
Seller for the purpose of making physical inspections thereof, including but not
limited to roofs, heating, cooling, electrical and plumbing systems, swimming
pool, appliances, and structural elements of the buildings. In the event any
invasive tests shall be used by the Purchaser, then the Purchaser shall give
notice to the Seller for approval (not to be unreasonably withheld) prior to the
commencement of said testing. In any event, the Purchaser shall be responsible
for any actual damages to the Property as a result thereof and Purchaser shall
carry insurance to hold Seller harmless from any claims as a result of the
inspection. Where insurance does not provide coverage and Purchaser is liable,
the Purchaser agrees to hold Seller harmless over and above insurance. Purchaser
shall also be permitted to review all original leases, expense records, tenant
cards and occupancy data available. Upon the conclusion of the Inspection Period
this contract shall be deemed to be a firm agreement of purchase and sale
binding the parties hereto, except as it may be terminated by other provisions
and conditions contained herein.
6.2.3 RIGHT OF TERMINATION DURING INSPECTION PERIOD. If Purchaser is not
satisfied, in its sole and exclusive discretion, with the state of maintenance
and repair of the Property or the rents, occupancy or expenses of the Property,
then notwithstanding anything contained herein to the contrary, Purchaser shall
have the right to terminate this Agreement by giving written notice to Seller
before the end of the Inspection Period, and no party hereto shall have any
further liability to any other party hereto, and all deposits shall be returned
to Purchaser.
6.2.4 TERMINATION OF INSPECTION PERIOD. Notwithstanding anything to
the contrary set forth herein, the Inspection Period shall expire fourteen (14)
days from the date of this Agreement or such other date as the parties may agree
to in writing. However, it is agreed that in the event of any delay caused in
the obtaining of either the title report and/or the Survey that there will be an
automatic extension of the Inspection Period, as to these two items only, of
five (5) after the receipt of the title report and/or Survey, but in no event
later than November 11, 1998.
6.2.5 "RENT READY". During the "Inspection Period", both Seller and
Purchaser will inspect an apartment unit at the Property and mutually agree that
said apartment shall be representative of a "rent ready" unit by which all other
units shall be judged for "rent ready" condition at closing. All vacant, but in
no event later than November 11, 1998.
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apartment units, are to be in a "rent ready" condition (as defined above), at
the time of closing, containing, but not limited to the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating, plumbing and
electrical systems.
6.2.6 CONDITION OF PERSONAL PROPERTY AT CLOSING. All personal property
included in the sale and all mechanical, electrical, heating, air conditioning,
sewer, water and plumbing systems will be in the same working order at the time
of closing and in the same condition as at the time of the initial inspection by
Purchaser. If Seller fails to make reasonable efforts to conserve the property,
Purchaser shall have the option of waiving such requirement, in writing, and
proceeding to closing, or Purchaser may void this Agreement and obtain a prompt
return of its deposit.
ARTICLE VII
CLOSING
7.1 CLOSING. Closing will be held on or about seven (7) days after the
completion of the Inspection Period at such place and at such time as the
parties may agree.
7.2 SELLER'S DELIVERIES. At closing, Seller shall execute and deliver to
Purchaser the Special Warranty Deed referred to in Paragraph 3 hereof and shall
also execute, where necessary, and deliver to Purchaser, the following:
(A) A Bill of Sale, with warranty of title transferring the personal
property (as shown in Schedule B) to Purchaser free of all liens, charges and
encumbrances.
(B) Originals or copies of all signed leases and rental agreements in
effect with tenants of the Property.
(C) All security and cleaning deposits made by such tenants. Seller
will give the tenants the required notice of such transfer in compliance with
the laws of VIRGINIA.
(D) An affidavit of Seller in such form as will cause the Title
Company to omit from the title insurance policy the exclusion relating to
unrecorded mechanic's and materialmen's liens.
(E) A rent roll certified by Seller to be true and correct as of the
date of closing showing the name of, and the amount of monthly rental payable,
by each tenant of the Property, the apartment occupied by the tenant, the date
to which rent has been paid, any advance payment of rent, and the amount of any
escrow, or security deposit of tenant.
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(F) An affidavit of Seller that to the best of its information and
belief there are, on the date of closing, no unsatisfied judgments, creditor's
claims, tax liens, or pending bankruptcies involving Seller.
(G) Assignments of all Seller's interest in the following: (1) all
assignable licenses, and permits relating to the operation of the Property, (2)
the leases and rental agreements with tenants of the Property, (3) the existing
Property telephone number and (4) the business and trade name as set forth in
Par. 1.1.
(H) Assignments of all warranties and guarantees to the extent such
are still in effect and provide Purchaser with copies of all such warranties and
guarantees without limitation for all appliances, dishwashers, disposals,
refrigerators, heating and air conditioning units, washers and dryers.
(I) Seller's affidavit that it is authorized to execute this Agreement
and to complete the sale without any further action on its behalf.
(J) Provide documents for the transfer of the telephone, electric,
water and sewer, and gas utilities, as may be required by the utility, for
execution at closing.
(K) Satisfactory evidence of the power and authority of Seller to
enter into and consummate this agreement.
(L) Seller shall provide a satisfactory and valid written termination
of the management agreement executed by the existing management and rental agent
for the Property, without cost to the Purchaser.
(M) A notice letter to all the residents of the apartment complex as
to change of ownership in the form prepared by the Purchaser and reasonably
acceptable to Seller.
(N) All such other documents as are normally transferred at settlement
in the jurisdiction in which the property is located or are reasonably requested
by Purchaser or its counsel.
(O) A representation letter as normally required by auditors for a
public company in the form attached hereto as EXHIBIT E.
(P) Purchaser hereby waives any claim it may have against Seller as a
result of Seller's compliance with the above Paragraph O, and further agrees to
indemnify and hold harmless
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Seller and its property manager from a claim, damage, loss or liability to which
Seller or its property manager are at any time subject by any person not a party
to this Agreement as a result of Seller's compliance with this paragraph.
7.3 PURCHASER'S DELIVERIES. At closing and contemporaneously with the
Seller's compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the cash portion of the purchase price, adjusted for
the prorations herein provided for in Article IV.
(B) Execute and deliver an assumption of obligations under leases,
securities, any contracts which may be accepted by the Purchaser and any other
obligations specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a valid and binding agreement of Purchaser,
and
(ii) Purchaser has complete unrestricted power to buy the
Property from the Seller and to execute any documents required to effectuate the
transfer.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS OF THE PARTIES. Seller warrants that as of the date of
closing hereof:
(A) That Seller, is the owner in fee simple of the Property and has
the power to convey same.
(B) That Seller is not subject to any other agreements or
arrangements, with the exception of those contained in any existing mortgage
documents which would prevent Seller from selling the Property to Purchaser.
This warranty shall survive for one year following closing.
(C) All necessary action has been taken by Seller to authorize the
execution of this Agreement and the performance of the obligations contemplated
hereunder, which are not excluded elsewhere in existing mortgage documents. This
warranty shall survive for one year following closing.
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(D) Seller has no actual knowledge and has not been advised in writing
that it is in default under any lease, rental agreement service or equipment
contract, or mortgage or other encumbrances relating to the Property. This
warranty shall survive for one year following closing.
(E) Seller has no actual knowledge of any existing or threatened
litigation which relates to or which would affect the Property, except for
actions against tenants for rent, none of which having a counterclaim.
(F) Seller has no actual knowledge that any part of the Property or
the operation of the Property, is in violation or may violate any governmental
statute, regulation, ordinance or building code or of any private restriction,
that any governmental authority requires any work to be done on or affecting the
Property, or that any governmental authority has expressed an intent to condemn
or to make special improvements for the benefit of the Property or any part
thereof. This warranty shall survive for one year following closing.
(G) That Seller is not a "foreign person" within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
(H) To Seller's knowledge, during the period of Seller's ownership, no
portion of the Property has ever been used by Seller as a landfill or as a dump
to receive garbage, refuse, waste or fill material whether or not hazardous.
Seller, to Seller's knowledge, during the period of Seller's ownership, has not
stored, handled, installed or disposed of any Hazardous Substances (as
hereinafter defined) in, or about the Property or any other location within the
vicinity of the Property; and, to Seller's knowledge, there are no Hazardous
Substances on the Property. As used in this Agreement, the term "Hazardous
Substances" means asbestos, polychlorinated biphenyl and such materials, waste,
contaminants or other substances defined as toxic, dangerous to health or
otherwise hazardous by cumulative reference to the following sources as amended
from time to time: (I) the Resource and Recovery Act of 1976, 42 USC Section
6901 et. seq. ("RCRA"); (ii) the Hazardous Materials Transportation Act, 49 USC
Section 1801, et. seq.; (iii) the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 USC Section 9601 et. seq. ("CERCLA");
(iv) applicable laws of the jurisdiction where the Property is located; and (v)
any federal, state or local statutes, regulations, ordinances, rules or orders
issued or promulgated under or pursuant to any of those laws or otherwise by any
department, agency or other administrative, regulatory or judicial body. The
term "Hazardous Substances" does not include usual and customary cleaning and
other supplies necessary for the
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normal maintenance and/or occupancy of the Property.
(I) Seller covenants and agrees that, between this date and the date
of closing, Seller shall continue to maintain, operate and manage the Property
in a manner consistent with its prior practices, making every reasonable effort
to do nothing which might damage the reputation of the Property or the
relationships with the tenants. Seller shall not permit the modification,
extension or cancellation of any tenant lease (except in accordance with the
terms of such lease) or any dealing with any tenant other than the ordinary
course of managing the Property, without the prior written consent of Purchaser,
which consent shall not be unreasonably withheld or delayed. If the leases of
any tenants expire before thirty (30) days after the date of closing, Seller
shall, up to the date of closing and without cost to the Purchaser, continue its
normal course of operation with respect to causing tenants to be obtained for
apartments which are unrented.
(J) The representations and warranties of Seller contained in this
Agreement will survive the Closing for a period of one (1) year after the
Closing; and any claim based upon any alleged breach thereof must be alleged (in
writing) within such one year period. Failure to give notice on any alleged
breach within the time period specified herein shall constitute a waiver of any
such claim. In addition, and notwithstanding any other provision of this
Agreement, if Purchaser has actual knowledge of any misrepresentation or breach
of Seller on or prior to the Closing, and nevertheless proceeds to close on the
Closing Date, then Purchaser shall be deemed to waive, and hereby waives, any
such misrepresentations and breach.
8.2 CONTINUATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS TO THE DATE
OF CLOSING. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated, Seller shall return all
payments made by Purchaser, or Purchaser may elect to close the sale and waive
failure of the warranties.
8.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
the provisions of 8.2 above, Seller shall indemnify Purchaser for all reasonable
costs incurred as a result of the failure of any of Seller's representations,
warranties or covenants contained herein to remain true as of the date of
closing.
8.4 "AS IS". Purchaser represents, warrants and agrees that (i) except as,
and solely to the extent specifically set forth in this Agreement, neither
Seller nor any of the employees, agents
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or attorneys of Seller make any verbal or written representations, warranties,
promises or guaranties whatsoever to Purchaser, whether express or implied, of
any sort or nature relating to the condition (physical, financial or otherwise)
or operation of the Property, the access, fitness for any specific use,
merchantability, habitability, or the lie and topography, of all or any portion
of the Property, the existence, location or availability of utility, lines for
water, sewer, drainage, electricity or any other utility, the income-producing
potential of the Property, the competition or market of the Property or the
actual or projected revenue and expenses of the Property, the laws, regulations
and rules applicable to the Property or the compliance (or non-compliance) of
the Property therewith, any environmental laws, regulations and rules (or other
laws relative to Hazardous Materials) applicable to the Property or the
compliance (or non-compliance) of the Property therewith, the quantity, quality
or condition of the articles of personal property included in the transactions
contemplated hereby, the use or occupancy of the Property or any part thereof or
any other matter or thing affecting or relating to the Property or the
transactions contemplated hereby, and Purchaser has not relied upon any such
representations, warranties, promises or guarantees or upon any statements made
in any informational brochure with respect to the Property, and (ii) upon the
expiration of the Inspection Period and provided Purchaser does not elect to
terminate this Agreement as provided for herein the Purchaser will have examined
the Property, and based upon such examination, will be familiar with the
physical condition thereof, and will have conducted such investigations of the
financial affairs and management to the Property as Purchaser considered
appropriate, and elected to proceed with the transaction having made and relied
solely on Purchaser's own independent investigation, inspection, analysis,
appraisal, examination and evaluation of the facts and circumstances expect as,
and solely to the extent specifically set forth in this Agreement.
Except as specifically provided for in this Agreement, Purchaser agrees to
accept the Property "as is" in its present condition, subject to the reasonable
use, wear, tear and natural deterioration of the Property between the date of
this Agreement and the Closing.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property is
damaged by fire or other casualty, the Seller agrees to assign all of its
insurance covering said loss, tender its deductible under its policy as a
closing adjustment, and further compensate Purchaser for lost rent collection to
the extent of the insurance proceeds. Seller shall promptly notify Purchaser in
writing upon the occurrence of any such damage and Purchaser
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shall have the right to review the insurance, the damages and other relevant
data. The Purchaser shall, within thirty (30) days, either accept the premises
pursuant to the terms of this paragraph or send a notice of cancellation. In the
event of cancellation, all funds paid by Purchaser under this Agreement shall be
returned to the Purchaser and this Agreement shall become null and void and the
parties shall be released of all obligations hereunder.
9.2 CONDEMNATION. In the event of any actual or threatened taking, pursuant
to the power of eminent domain, all or any part thereof, or any actual or
proposed sale in lieu thereof, the Seller shall give written notice thereof to
the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property (any part of the building or more than
5% of the parking area), Purchaser may elect to either (a) terminate this
Agreement, in which event the deposit shall be immediately returned to Purchaser
and all other rights and obligations of the parties hereunder shall terminate
immediately, or (b) waive its right to terminate this Agreement and proceed to
closing, in which event all proceeds, awards and other payments arising out of
such condemnation or sale (actual or threatened) shall be paid to the Purchaser
at Closing, if such payment has been received. If payment has not as yet been
received, but an amount has been agreed upon, Seller shall assign the claim to
Purchaser.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
BROKER'S COMMISSION
10.1 COMMISSION. Seller agrees to pay a brokerage fee to INSIGNIA CAPITOL
ADVISORS, pursuant to a separate agreement between Seller and Broker. Said
brokerage fee shall be deemed earned if, and only if, settlement occurs
hereunder, and shall not be deemed earned even if Purchaser and/or Seller
wrongfully fail(s) to consummate the purchase and sale herein contemplated.
Purchaser shall not be obligated for any brokerage fees to any broker, and
Seller agrees to hold Purchaser harmless in connection with such fees. Seller
and Purchaser represent and warrant to each other that no other brokerage fees
are or shall be owing in connection with this transaction or in any way with the
Apartments and Seller and Purchaser hereby indemnify and hold the other harmless
from any and all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this
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Agreement shall mean any failure by Seller or Purchaser to fulfill all the
terms, conditions and covenants contained herein, however, it shall not be an
event of default for either party to exercise its rights to terminate this
contract as contained in other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at it's
election, may elect (a) to terminate this Agreement whereupon the Title Company
shall return the Earnest Money to Purchaser and Seller shall pay Purchaser
Twenty Five Thousand ($25,000) Dollars under this Agreement as agreed-upon
liquidated damages and not as a penalty, it being otherwise difficult or
impossible to estimate Purchaser's actual damages, and which liquidated damages
shall be in lieu of any other damages or the right to specific performance; or
(b) be entitled to sue Seller for specific performance of this Agreement,
provided, however, Seller shall not be required to expend is excess of Twenty
Five Thousand ($25,000) Dollars under this Agreement to correct any matter
Seller did not deliberately cause, except for monetary liens, including but not
limited to taxes, mortgages, mechanic's Liens, etc.; or (c) Purchaser may
commence an injunction proceeding to stop conveyance contrary to this Agreement.
Seller shall indemnify Purchaser for any and all expenses incurred if Purchaser
elects to pursue its option under (b) or (c) above, including reasonable
attorneys' fees.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, this Agreement shall be
terminated and both parties released from all obligations hereunder, and the
deposit shall be retained by the Seller as liquidated damages. Such amount and
terms are agreed upon by and between Seller and Purchaser as liquidated damages,
due to the difficulty and inconvenience of ascertaining and measuring actual
damages, and the uncertainty thereof, and the payment of the deposit and the
terms provided herein shall constitute full satisfaction of Purchaser's
obligations under this Agreement. Such amount is agreed upon by and between
Seller and Purchaser as a reasonable estimate of just compensation for the harm
caused by Purchaser's default. Seller shall have no other remedy against
Purchaser in the event of Purchaser's default.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
12.2 ASSIGNMENT. Purchaser may assign this Agreement without the consent of
Seller once to Cornerstone Realty Income
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Trust, Inc.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree that it
shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State set forth in Par. 1.1.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to herein
and/or attached hereto shall be deemed to constitute a part of the Agreement.
12.8 HEADINGS. The headings of the Articles and sections hereof are
inserted for convenience only and shall not be deemed to constitute a part of
the Agreement.
12.9 CONSTRUCTION OF CONTRACT. Each party hereto have reviewed and revised
(or requested revisions of) this Agreement, and therefore the normal rule of
construction that any ambiguities are to be resolved against a particular party
shall not be applicable in the construction and interpretation of this Contract
or any amendments or exhibits hereto.
12.10 CONFIDENTIALITY. The parties shall keep confidential the existence of
this Agreement, the transactions described herein, and all information obtained
from the other party both during and subsequent to the transaction. However, the
covenants contained in this paragraph shall not apply in respect to any
information which (a) was already known to either party when such information
was received from the other, (b) was readily
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available to the general public at the time of such receipt, (c) subsequently
becomes known to the general public through no fault or omission by the other
party, (d) is subsequently disclosed by a third party which has the bona fide
right to make such disclosure, or (e) is required to be disclosed by law or a
governmental agency. This clause shall survive closing.
12.11 EXHIBITS. The following exhibits are attached to this Agreement and
are incorporated into this Agreement by this reference and made a part hereof
for all purposes:
(a) EXHIBIT A, the legal description of the Land.
(b) EXHIBIT B, list of personal property.
(c) EXHIBIT C, the form of Deed.
(d) EXHIBIT D, (i) the form of Bill of Sale
(ii) Assignment and Assumption of Leases, etc.
(e) EXHIBIT E, the form of the Representation
Letter.
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under this
Agreement shall be in writing signed by the party giving the same or its
attorney and shall be sent or delivered to the address set forth below (or such
other address as may be hereafter specified in writing):
To Seller:
With a copy to
Seller's Attorneys: William Post, Esq.
Post & Heymann
100 Jericho Quadrangle, Suite 2140
Jericho, NY 11753
Fax: (516) 433-2777
To Purchaser: Mr. Gus Remppies
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
Fax: (804) 782-9302
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
Fax: (516) 374-3490
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-and-
Steve Delaney, Esq.
LeClair Ryan
707 East Main Street - 11th Fl.
Richmond, VA 23219
Fax: (804) 783-2294
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or Certified
Mail, Return Receipt Requested, or by overnight express mail shall be deemed
given when deposited in the United States Mail, postage prepaid, delivered to a
reliable overnight courier or by facsimile transmission (provided receipt of the
notice is confirmed and the original follows by one of the other methods of
delivery described herein). Notices sent in any other manner shall be deemed
given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed this day and date first written above.
SELLER: Southeastern Income Properties II Limited Partnership, a Virginia
limited partnership
BY: Winthrop Southeast Limited Partnership, a Delaware limited partnership, its
general partner
BY: Eight Winthrop Properties, Inc., a Delaware corporation, it general partner
BY: /s/ John Alba
-----------------------------
Date:
-------------
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
BY: /s/ Gus G. Remppies
-----------------------------
Its: Vice President Date:
---------------------------- -------------
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FIRST MODIFICATION TO PURCHASE CONTRACT
(HUNTERS CREEK APARTMENTS)
This First Modification to Purchase Contract ("MODIFICATION") is made and
entered into this ____ day of November 1998 between CORNERSTONE REALTY GROUP,
INC. ("PURCHASER") and SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
("SELLER").
WHEREAS, Purchaser and Seller entered into a Purchase Contract on the 20th
day of October 1998 ("AGREEMENT").
WHEREAS, Purchaser and Seller now desire to modify and amend the Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, Seller and Purchaser agree as follows:
1. All terms not specifically defined herein shall have the same meaning as
ascribed to them in the Agreement.
2. ARTICLE II, Paragraph 2.1, is hereby amended and restated as follows:
2.1 PURCHASE PRICE. The total purchase price shall be SEVEN
MILLION SEVEN HUNDRED FIFTY THOUSAND ($7,750,000) DOLLARS payable by
cash or cash equivalent at closing.
3. Purchaser shall recieve a credit against the purchase price upon closing
in the amount of the then outstanding principal balance of the Note (as defined
herein) on the date of closing.
4. ARTICLE II, Paragraph 2.2, is hereby amended and restated in its
entirety as follows:
2.2 NON-REFUNDABLE DEPOSIT. Upon execution of theis Modification,
Purchaser shall deliver to Seller the sum of Twenty Five Thousand
($25,000) Dollars as a non-refundable fee. In the event closing
occurs, such amount will be credited towards the purchase price, but
1
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shall otherwise be non-refundable in the event the sale does not
occur, except for failure to close as a result of the acts or defualt
of the Seller.
5. ARTICLE II, Paragraph 2.3, is hereby amended and restated in its
entirety as follows:
2.3 DEPOSIT. FOUR HUNDRED SEVENTY FIVE THOUSAND ($475,000)
DOLLARS to be placed in escrow by November 4, 1998. Said deposit shall
be placed in escrow in an interest-bearing account with Commonwealth
Land Title Insurance Company or its authorized agent as a earnest
money deposit which may be credited against the purchase price or
applied as per Article XI below.
6. ARTICLE II is hereby further amended to add the following Paragraph:
2.4 EXISTING MORTGAGE.
(a) The Property shall be conveyed subject to Purchaser's
assumption and promise to pay in accordance with its terms the loan
(the "Loan") evidenced by that certain Promissory Note (the "Note"),
dated February 17, 1993 in the original principal sum of FOUR MILLION
ONE HUNDRED THOUSAND ($4,100,000) DOLLARS payable to the order of
HANOVER CAPITAL MORTGAGE CORPORATION (the "Lender"), and assumption
and promise to perform all covenants and obligations of Seller under
the documents or instruments governing, securing, evidencing or
pertaining to the indebtedness evidenced by the Note (collectively,
the "Loan Documents"), including, but not limited to, that certain
Indenture of Mortgage, Deed of Trust, Deed to Secure Debt, Security
Agreement, Fixture Filing, Financing Statement and Assignment of Rents
and leases of even date with the Note (the "Deed of Trust") recorded
in the Real Property Records of Albemarle County, Virginia.
(b) Seller represents and warrants that (i) Seller will deliver
to Purchaser true and complete copies of the existing Deed of Turst,
the Note secured thereby and any extensions and modifications thereof
in its possession or in the possession of its attorney, and (ii) there
are no monetary defaults by Seller under
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the terms of the Loan Documents and it has received no written notice
of any defualt under any of the terms of the Loan Documents. From and
after the Effective Date of this Agreement to the Closing Date, Seller
agrees to pay to Lender all installments of principal, interest and
escrows and any other sums of which Seller has notice that are due and
payable under the Loan Documents, as and when such payments are due.
(c) Seller and Purchaser shall immediately upon the execution of
this Agreement take whatever steps are necessary to contact the Lender
and initiate the procedure to procure the right to assign the Loan to
the Purchaser pursuant to an Assignment and Assumption Agreement. The
Purchaser and Seller agree to cooperate with the other in procuring
permission for Purchaser to purchase the Property and assume the Loan
set forth herein above. Seller agrees to provide copies of all
correspondence and applications to the Purchaser. The Purchaser agrees
to submit promptly to Lender, but in any event no later than five (5)
business days after receipt of Lender's "Assumption Package", all
information requested by Lender to process the Property transfer
request, and thereafter diligently and promptly submit all additional
information reasonable requested by Lender. The parties further agrees
to use their reasonable efforts to procure said approval within sixty
(60) days from the execution of this Modification.
(d) Purchaser agrees to execute and deliver to the Lender all
documents and instruments reasonably requested by the Lender in
connection with the assumption, to form an "SPE Entity" and take title
to the Property in such entity if required by the Lender, and further
agrees to pay to the Lender all reasonable fees and reasonable
expenses of the Lender, and its reasonable counsel fees in connection
with the assumption, including, but not limited to, any assumption or
transfer fee provided for in the Deed of Trust and the reasonable fees
of Lender's attorney in connection with preparation of the assumption
documents. Purchaser shall also pay all premiums for any endorsements
required by the Lender in connection with the assumption to the
Lender's mortgagee policy of
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title insurance or the cost of a new mortgage policy of title
insurance, if required by the lender. Seller shall not be obligated to
incur any expenses other than normally required in a sale and its
legal fees.
(e) Seller shall assign to Purchaser all its escrow and reserve
accounts held by Lender and in that case Purchaser shall pay amount in
the escrow account or reserve fund to Seller at Closing.
(f) It is understood that in the event that the assignment of the
mortgage is not approved, the deposit set forth in Paragraph 2.3,
together with interest, shall be returned to the Purchaser at the
termination of the sixty (60) days or extension thereof and
notification by the Purchaser.
7. ARTICLE IV is hereby amended to add the following Paragraph:
4.5 MORTGAGE ADJUSTMENT. Purchaser shall receive a credit for
what would have been the prepayment charge required by the aforesaid
Lender if the Loan had not been assumed as of 11/3/98 in the amount of
$254,521.90, and Purchaser agrees to assume the cost of the assignment
fee. Interest on the loan shall be prorated as of the closing date.
8. ARTICLE VI, Paragraph 6.2.4, is hereby amended and restated as follows:
6.2.4 TERMINATION OF INSPECTION PERIOD. Purchaser acknowledges
that it has inspected the Property and hereby agrees that the
Inspection Period has terminated and it has elected to proceed with
the purchase of the Property upon the terms and conditions set forth
in the Agreement, as amended hereby, except for the terms of the
mortgage and note to be assumed. The Inspection Period for the
mortgage assignment shall remain open for three (3) days after receipt
of the final documents.
9. ARTICLE VII, Paragraph 7.1, is hereby amended and restated in its
entirety to read as follows:
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<PAGE>
7.1 CLOSING. Closing will be held on or about five (5) days after
the notification that the assignment of the Existing Mortgage has been
completed, with an extension of an additional thirty (30) days if
requested by the Purchaser, at such place and at such time as the
parties may agree, but in any event no later than February 10, 1999.
10. Except as herein modified, the terms and provisions of the Agreement
shall remain in full force and effect.
11. In the event there is any conflict in the terms of this Modification
and the terms of the Agreement, the terms of this Modification shall govern.
12. This Modification may be executed in separate counterparts, each of
which shall be deemed an original and all of which taken together will
constitute one agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Modification on
the date first above written.
SELLER:
SOUTHEASTERN INCOME PROPERTIES II LIMITED
PARTNERSHIP
BY: WINTHROP SOUTHEAST LIMITED PARTNERSHIP,
a Delaware limited partnership,
Its General Partner
BY: EIGHT WINTHROP PROPERTIES, INC.,
a Delaware corporation,
Its General Partner
By: /s/ John Alba
-------------------------------
John Alba
Its: Vice President
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ Gus G. Remppies
---------------------------
Its: Vice President
--------------------------
5
EXHIBIT 10.2
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 9th day of April, 1999 by
and between Apple REIT Limited Partnership, a Virginia limited partnership
(hereinafter referred to as "Owner"), and Apple Residential Management Group,
Inc., a Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Hunters Creek Apartments (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby engages
Manager as sole and exclusive manager to rent, manage and operate the Property,
upon the conditions and for the term and compensation herein set forth. All or a
portion of the services being performed by Manager may be contracted or
subcontracted to another property management company, provided that such company
agrees to be bound by the terms of this Agreement.
2. Term of Agreement; Renewal. This Agreement shall be valid for an initial
term of two (2) years. In the event Owner sells its interest in the Property,
this Agreement will terminate upon the date of such sale. Unless either party by
written notice sent to the other party at least sixty (60) days before the end
of any two-year term hereof elects not to renew this Agreement, this Agreement
shall renew automatically for successive terms of two (2) years on the same
terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as the
manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
<PAGE>
c. The contracting on behalf of Owner for water, gas, electricity and
other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property inspection
letters regarding repairs necessary to avoid mortgage loan defaults. The
furnishing monthly of a detailed statement of all receipts and disbursements for
that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and I shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph I, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be
<PAGE>
implemented in the forthcoming year, which recommendations shall be accompanied
by an estimated budget for such items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents, tenant
security deposits or other deposits on space in the Property, deposits on keys
and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to the
Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
<PAGE>
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to Manager
on or before the 10th day of each month and shall be based upon the income
received by Owner (for such month) which has been obtained by such date. If
additional gross revenues are received by Owner after the day Manager is paid,
the sum due to Manager on account of such additional income shall be paid to
Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for Manager's
expenses, including salaries and related overhead expenses, associated with
bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget prepared
by Manager, pursuant to paragraph 3(k), will contain a category labeled "Reserve
for Capital Items." Owner agrees to place rents and other income in a bank
account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints Manager
its true and lawful attorney-in-fact, for it and in its name, place and stead
and for its use and benefit to sign, acknowledge and file all documents and
agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this Agreement
as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that Manager
is and shall operate as an independent contractor in performing its duties under
this Agreement, and shall not be deemed an employee or agent of Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with and
be governed by the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OWNER:
APPLE REIT LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., general partner
By: /s/ Stanley J. Olander, Jr.
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Title: Vice President
----------------------------------
<PAGE>
MANAGER:
APPLE RESIDENTIAL MANAGEMENT GROUP, INC.
By: /s/ Stanley J. Olander, Jr.
-------------------------------------
Title: Vice President
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