UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-9198
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BALCOR PENSION INVESTORS
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(Exact name of registrant as specified in its charter)
Illinois 36-2943462
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Pension Investors (the "Registrant") is a limited partnership formed in
1977 under the laws of the State of Illinois. The Registrant raised $71,675,000
from sales of Limited Partnership Interests. The Registrant's operations
consisted exclusively of investment in wrap-around mortgage loans. The
Registrant also currently operates two properties acquired through foreclosure,
and all financial information included in this report relates to this industry
segment.
The Registrant originally funded thirty-six loans. A portion of Mortgage
Reductions generated by repayments was distributed to the holders of Limited
Partnership Interests and the remainder was added to the Registrant's working
capital reserves. As a result of the repayments, foreclosures and write-offs of
thirty-five loans, the Registrant has one loan in its portfolio as of December
31, 1995. Six properties were acquired through foreclosure, of which three have
been sold and one has been relinquished to the underlying lender through
foreclosure. The Registrant has two properties in its portfolio as of December
31, 1995, described under "Item 2. Properties".
In October 1995, the Registrant received $600,000 from the guarantors of the
loan collateralized by Normandy Mall and Norwood Plaza as settlement of a
lawsuit. This amount was recognized as interest income for financial statement
purposes. See "Item 7. Liquidity and Capital Resources" for additional
information.
During November 1995, the Registrant received $100,000 as payment in full for
the Waterford/Ferndale Centers wrap-around loan. This amount was recognized as
interest income for financial statement purposes. See "Item 3. Legal
Proceedings" for additional information.
The North Capitol Building wrap-around loan matured in December 1995. The
borrower failed to make the payment due and in March 1996 filed for bankruptcy
protection. See "Item 3. Legal Proceedings" and "Item 7. Liquidity and Capital
Resources" for additional information.
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to Limited Partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The
General Partner cannot predict with any certainty what impact a tender offer
will have on the operations or management of the Registrant.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure, is subject to Federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate. The
General Partner is not aware of any potential liability due to environmental
issues or conditions that would be material to the Registrant.
<PAGE>
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
Shopping centers are the most troubled asset class in real estate currently.
Unlike other asset classes, construction of power shopping centers, those with
a preponderance of "big box" retailers, occurred at a brisk pace during the
early 1990s, and now a shake-out of retailers is taking place. Retailers posted
lackluster sales in 1995, particularly in the latter half of the year, and
similar results are expected for 1996. The slight rise in interest rates in
1995 also contributed to low sales growth in interest rate sensitive sectors
such as automobiles and home furnishings. Nevertheless, retail properties are
particularly unique, and those with strong tenant alignments should better
weather the current slowdown. In the long-term, however, retail real estate is
also vulnerable to technological changes (e.g. home shopping) which could
drastically alter the retail distribution system.
The Registrant is now in its liquidation stage. It is expected that the
Registrant will complete the disposition of its remaining assets and be
terminated by the end of 1996. However, the timing of the liquidation could be
lengthened or shortened due to changes in market conditions, economic factors,
interest rates, the outcome of the North Capitol Building bankruptcy filing,
and unforeseen events.
The officers and employees of Balcor Mortgage Advisors, the General Partner of
the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Item 2. Properties
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As of December 31, 1995, the Registrant owns the two properties described
below:
Location Description of Property
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Huntington, Indiana Huntington Plaza: a one-story regional shopping
center containing approximately 199,000 square
feet located on approximately 18 acres.
Winter Park, Florida Nob Hill Apartments - Phase I: a 200-unit
apartment complex located on approximately 10
acres.
The Registrant continues to retain an interest in one building within Normandy
Mall which is vacant. (See Item 3. Legal Proceedings for additional
information regarding Normandy Mall). This property is not included in the
operations of the Registrant. Further reference to the Registrant's properties
relates to Huntington Plaza and Nob Hill Apartments.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726 (U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates are the
defendants. The complaint alleges violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in the Related Partnerships and alleges breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint seeks compensatory and punitive
damages. The defendants subsequently filed a counterclaim asserting claims of
fraud and breach of warranty against certain plaintiffs, as well as a request
for declaratory relief regarding the defendants' rights to be indemnified for
their expenses incurred in defending the litigation. The defendants seek to
recover for damage to their reputations and business as well as costs and
attorneys' fees in defending the claims.
<PAGE>
In May 1993, the Court issued an order denying the plaintiffs' motion for class
certification based principally on the inadequacy of the individual plaintiffs
representing the proposed class. However, the Court gave plaintiffs leave to
propose new individual class representatives. Upon the defendants' motion, the
Court ordered plaintiffs' counsel to pay $75,000 to the defendants and $25,000
to the Court for costs incurred with the class certification motion, which
amounts continue to be outstanding.
In July 1994, the Court granted plaintiffs' motion certifying a class relating
to the Federal securities fraud claims. The class certified by the Court
includes only the original investors in the Related Partnerships. The
defendants filed a motion for reconsideration in opposition to the class
certification, which was denied in December 1994. The Court approved the Notice
of Class Action in August 1995 which was sent to potential members of the class
in September 1995.
The defendants intend to continue vigorously contesting this action.
Management of each of the defendants believes they have meritorious defenses to
contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Waterford Shopping Center and Ferndale Supermarket
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In 1980, the Registrant funded a $1,506,653 loan evidenced by a note in the
amount of $4,000,000 and collateralized by a wrap-around mortgage on the
Ferndale Supermarket. The loan was additionally collateralized by an interest
in the Waterford Shopping Center (together with the Ferndale Supermarket, the
"Property"). The loan matured in November 1993 and the amount due was not
paid. The Registrant commenced non-judicial foreclosure proceedings and a
foreclosure sale of the Property was scheduled for January 1994. However, in
December 1993, one of the borrowers commenced bankruptcy proceedings under
Chapter 11 of the U.S. Bankruptcy Code in the U. S. Bankruptcy Court, Eastern
District of New York, at Westbury, in re Daleford Associates, a New York
Limited Partnership, Case No. 893-87224-22, which stayed the foreclosure sale.
The bankruptcy proceedings were dismissed in September 1995 and, pursuant to
negotiations between the Registrant, the underlying first mortgage holder and
the borrower, in November 1995 the Registrant received $100,000 from the
borrower as payment in full of its loan and released its lien on the property.
In addition, the Registrant retained $67,000 of previously collected rents that
were being held in an escrow account.
Normandy Mall
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In February 1991, the Registrant acquired title to the Normandy Mall and
Norwood Plaza shopping centers through foreclosure. In July 1993, title to the
properties, with the exception of one building in Normandy Mall (the
"Building"), was relinquished to the first mortgage holder pursuant to a
settlement agreement. The first mortgage loan ("Loan") collateralized by the
Building is held by a different third party lender, Gulf Life Insurance Company
("Gulf Life"). The Building has been vacant and, when title to the remainder
of the properties was relinquished in 1993 and all cash flow ceased, the
Registrant stopped debt service payments on the Loan.
<PAGE>
In January 1995, Gulf Life commenced foreclosure proceedings in the Fourth
Judicial Circuit Court, Duval County, Florida, Gulf Life Insurance Company vs.
Normandy Norwood Limited Partnership, et al., Case No. 95-00334CA. A
foreclosure sale of the Building is scheduled for March 29, 1996 and the
Registrant does not intend to oppose the action. It is expected that Gulf Life
will be the successful bidder at the foreclosure sale and will obtain title to
the Building in April 1996 at which time the Registrant will have no further
interest in the Building.
North Capitol Building
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In May 1981, the Registrant funded a $4,140,000 loan to North Capitol, Ltd., a
Washington, D.C. limited partnership, evidenced by a promissory note in the
amount of $30,520,000 and collateralized by a wrap-around mortgage on the North
Capitol Building, Washington, D.C. In December 1995, the loan matured and the
borrower failed to make the principal payment due. Pursuant to a forebearance
agreement dated January 24, 1996, the Registrant agreed not to exercise its
rights against the borrower through March 1, 1996. The borrower continued to
make monthly interest only payments through February 1996 while negotiations
with the Registrant for a repayment of the loan continued. The borrower did
not make the March 1996 monthly interest payment and the loan was placed in
default on March 7, 1996. On March 22, 1996, the borrower commenced
proceedings under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court, Southern District of New York, In re North Capitol Limited Partnership,
Case No. 96B41523. The General Partner is reviewing the borrower's bankruptcy
filing and will take such actions as are necessary to protect the Registrant's
interests.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1995.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see Item 7. Liquidity and Capital Resources.
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was 3,657.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
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Total income $ 2,627,452 $ 2,055,694 $ 2,633,494 $ 2,662,072 $4,710,844
Provision for
losses on
loans, real
estate and
accrued interest
receivable 4,200,000 None 1,988,000 2,750,000 2,500,000
Net (loss) income
before gain on
foreclosure of
property (2,324,001) 1,465,209 92,635 (862,690) 710,748
Net (loss) income (2,324,001) 1,465,209 182,117 (862,690) 710,748
Net (loss) income
per Limited
Partnership
Interest (32.10) 20.24 2.52 (11.92) 9.82
Total assets 15,210,655 20,512,471 22,374,872 32,538,628 33,200,526
Mortgage notes
payable 575,301 575,301 3,057,594 9,247,419 5,658,601
Distributions per
Limited
Partnership
Interest (A) 37.15 13.00 53.76 43.16 154.00
(A) These amounts include distributions of original capital of $12.40, $40.76,
$5.41, and $86.00 per Limited Partnership Interest for the years 1995, 1993,
1992, and 1991, respectively.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Pension Investors (the "Partnership") recognized a provision for
potential losses during 1995 and 1993. In addition, the Partnership received
$600,000 in 1995 from the guarantors of the loan collateralized by the Normandy
Mall and Norwood Plaza as settlement of a lawsuit. The combination of these
events resulted in recognition of a net loss during 1995 as compared to net
income in 1994 and increased net income in 1994 as compared to 1993. Further
discussion of the Partnership's operations is summarized below.
1995 Compared to 1994
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The Partnership received $600,000 from the guarantors of the loan
collateralized by Normandy Mall and Norwood Plaza as settlement of a lawsuit
which resulted in an increase in net interest income on loans receivable during
1995 as compared to 1994.
The North Capitol Building loan was placed on nonaccrual status in December
1995 when the borrower did not make the payment due upon maturity of the loan.
For nonaccrual loans, income is recorded only as cash payments are received
from the borrower. The funds advanced by the Partnership for this loan total
approximately $4,100,000, representing approximately 6.4% of original funds
advanced. See Liquidity and Capital Resources, below, for additional
information.
Primarily as a result of higher interest rates, interest income on short-term
investments increased during 1995 as compared to 1994.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represent estimations based on many variables
which affect the value of real estate, including economic and demographic
conditions. The Partnership recognized a loan loss provision of $3,900,000 in
1995 related to the North Capitol Building loan. No such provision was
recognized in 1994. In addition, during 1995, the Partnership recognized a
provision of $300,000 related to Huntington Plaza to provide for a change in
the estimate of the fair value of this property. During 1995, allowances of
$1,269,445 were written off in connection with the Partnership's receipt of
$100,000 as payment in full for the Waterford/Ferndale Centers wrap-around
loan.
<PAGE>
General Partner management fees increased in 1995 as compared to 1994 due to a
special distribution to Limited Partners of Cash Flow in 1995.
Administrative expenses increased in 1995 as compared to 1994 as a result of
higher legal fees relating to litigation involving Normandy Mall
1994 Compared to 1993
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The Spring Hill and Circle Hill loan repayments in 1993 were the primary
reasons for the decrease in net interest income on loans receivable and
mortgage servicing fees during 1994 as compared to 1993. The Waterford/
Ferndale Centers loan was on non-accrual status as of December 31, 1994. For
non-accrual loans, income is recorded only as cash payments are received from
the borrowers. The original funds advanced by the Partnership for this loan
were approximately $1,500,000. The loan matured in November 1993 and the
borrower did not make the payment due. See Note 3 of Notes to Financial
Statements and "Item 3. Legal Proceedings" for additional information.
Income from operations of real estate held for sale represent the net property
operations of the properties acquired by the Partnership through foreclosure.
Income was generated from the Emerald Ridge Apartments which was acquired
through foreclosure in October 1993 and sold in April 1994, and Huntington
Plaza Shopping Center which was acquired in February 1993. As a result, income
from operations of real estate held for sale increased during 1994 as compared
to 1993. These increases in income were partially offset by decreased rental
income as a result of a fire in November 1993 at one of the Nob Hill - Phase I
apartment buildings. In addition, title to the Normandy Mall, with the
exception of the one building, and Norwood Plaza, which were generating income
due to the suspension of debt service payments, was conveyed to the underlying
lender in July 1993.
Increased cash available for investment resulting from the repayment of the
Spring Hill loan in September 1993 and the sale of the Emerald Ridge Apartments
in 1994 was the primary reason for an increase in interest income on short-term
investments during 1994 as compared to 1993.
The Partnership recognized a provision for potential losses of $700,000 for its
loans and $1,288,000 for its real estate held for sale in 1993. No provision
for potential losses was recognized during 1994. Allowances of $1,288,000 were
written off in connection with the sale of the Emerald Ridge Apartments in
April 1994.
The Partnership recognized a gain of $89,482 in connection with the conveyance
of title to the Normandy Mall and Norwood Plaza shopping centers during 1993.
See Note 9 of Notes to Financial Statements for additional information.
Liquidity and Capital Resources
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The cash position of the Partnership decreased as of December 31, 1995 as
compared to December 31, 1994. Operating activities included cash flow from
the operations of the Partnership's real estate held for sale and net interest
income earned on its loans receivable, which were partially offset by the
payment of administrative expenses. Financing activities included the payment
of distributions to the Partners and the payment of principal on the underlying
loans.
<PAGE>
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. The Partnership
defines cash flow generated from its properties as an amount equal to the
property's revenue receipts less property related expenditures. During the
years ended 1995, 1994 and 1993, both of the remaining properties generated
positive cash flow. In addition, the Emerald Ridge Apartments, which was sold
in April 1994, generated positive cash flow.
As of December 31, 1995, occupancy rates were 98% and 88% at the Nob Hill
Apartments - Phase I and Huntington Plaza, respectively. Many rental markets
continue to remain extremely competitive; therefore, the General Partner's
goals are to maintain high occupancy levels, while increasing rents where
possible, and to monitor and control operating expenses and capitol improvement
requirements at the properties.
In 1990, the Partnership commenced proceedings against the guarantors of the
loan collateralized by the Normandy Mall and Norwood Plaza shopping centers
after the loan was placed in default. The Partnership obtained title to the
properties in 1991 pursuant to a foreclosure but continued the action against
the guarantors. In October 1995, the Partnership received $600,000 from the
guarantors in settlement of the lawsuit. This amount has been recognized as
interest income for financial statement purposes.
The Waterford/Ferndale Centers wrap-around loan matured in November 1993. The
borrowers failed to make the payment due and one of the borrowers filed for
protection under the U.S. Bankruptcy Code which proceedings were dismissed in
September 1995. In November 1995, the Partnership received $100,000 as payment
in full for the loan. This amount has been recognized as interest income in
1995. See Item 3. Legal Proceedings for additional information.
In December 1995, the North Capitol Building wrap-around loan matured and the
borrower failed to make the principal payment due. Pursuant to a forebearance
agreement dated January 24, 1996, the Partnership agreed not to exercise its
rights against the borrower through March 1, 1996. The borrower continued to
make monthly interest only payments on the loan while negotiations with the
Partnership for repayment continued. The borrower did not make the March 1996
monthly interest payment and the loan was placed in default on March 7, 1996.
On March 22, 1996, the borrower commenced proceedings under Chapter 11 of the
U.S. Bankruptcy Code. The General Partner is reviewing the borrower's
bankruptcy filing and will take such actions as are necessary to protect the
Partnership's interests.
The Partnership made four distributions totaling $37.15, $13.00 and $53.76 per
Interest in 1995, 1994 and 1993, respectively. See Statement of Partner's
Capital for additional information. Distributions were comprised of $24.75 per
Interest of Cash Flow and $12.40 per Interest of Mortgage Reductions in 1995,
$13.00 per Interest of Cash Flow in 1994 and $13.00 per Interest of Cash Flow
and $40.76 per Interest of Mortgage Reductions in 1993. The level of Cash Flow
distributions in 1995 increased from the amounts distributed in 1994 and 1993
due primarily to the cash flow received from the settlement of the Normandy
Mall lawsuit.
<PAGE>
In January 1996, the Partnership paid a distribution of $1,242,128 ($17.33 per
Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow of $5.00 per Interest for the
fourth quarter of 1995 and a special distribution of $12.33 per Interest from
Mortgage Reductions received from prior loan repayments and property sales. To
date, Limited Partners have received cumulative distributions of $1,726.14 per
$1,000 Interest, of which $1,166.41 represents Cash Flow from operations and
$559.73 represents a return of Original Capital.
The Partnership expects to continue making cash distributions from the Cash
Flow generated by property operations less fees to the General Partner and
administrative expenses. The General Partner believes it has retained, on
behalf of the Partnership, an appropriate amount of working capital to meet
cash or liquidity requirements which may occur. It is expected that the
Partnership will complete the disposition of its remaining assets and be
terminated by the end of 1996. However, the timing of the liquidation could be
lengthened or shortened due to changes in market conditions, economic factors,
interest rates, the outcome of the North Capitol Building bankruptcy filing,
and unforeseen events.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
On September 14, 1995, the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995. The General Partner
of the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Mortgage Advisors, its General Partner,
has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was
employed at the Harris Trust and Savings Bank in the commercial real estate
division where he was involved in various lending activities. Mr. Meador
received his M.B.A. degree from the Indiana University Graduate School of
Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capitol markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. Mr.
Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy
from DePaul University.
<PAGE>
John K. Powell Jr. (June 1950) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell has been designated a
Certified Real Estate Financier by the National Society for Real Estate Finance
and is a full member of the Urban Land Institute.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1995.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of Balcor Mortgage Advisors, the General
Partner. Certain of these officers receive compensation from The Balcor Company
(but not from the Registrant) for services performed for various affiliated
entities, which may include services performed for the Registrant. However, the
General Partner believes that any such compensation attributable to services
performed for the Registrant is immaterial to the Registrant. See Note 8 of
Notes to Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Neither Balcor Mortgage Advisors nor its officers own any Limited
Partnership Interests of the Registrant.
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 8 of Notes to Financial Statements for information relating to
transactions with affiliates.
See Note 3 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership, and the Amended
and Restated Certificate of Limited Partnership of Balcor Pension Investors,
previously filed as Exhibits 3(a) and 3(b), respectively, to Amendment No. 2 to
the Registrant's Registration Statement on Form S-11 dated December 15, 1977
(Registration No. 2-60478) are hereby incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 3(c) to Amendment No. 2
to the Registrant's Registration Statement on Form S-11 dated December 15, 1977
(Registration No. 2-60478) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-9198) are incorporated
herein by reference.
(10) Agreement of sale relating to the sale of Emerald Ridge Apartments,
Atlanta, Georgia, previously filed as Exhibit (2) to the Registrant's current
Report on Form 8-K dated January 28, 1994, is incorporated herein by reference.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
File No. 0-9198) is hereby incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated October 27,
1995, amending the Current Report on Form 8-K dated September 19, 1995,
reporting a change in the Registrant's certifying accountant, was filed
(Commission File No. 0-9198).
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BALCOR PENSION INVESTORS
By: /s/Brian D. Parker
----------------------------------
Brian D. Parker
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors,
the General Partner
Date: April 1, 1996
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------------------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
/s/Thomas E. Meador Advisors, the General Partner April 1, 1996
- ---------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage
/s/Brian D. Parker Advisors, the General Partner April 1, 1996
- --------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Pension Investors:
We have audited the accompanying balance sheet of Balcor Pension Investors (An
Illinois Limited Partnership) as of December 31, 1995 and the related
statements of partners' capital, income and expenses and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors at
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 23, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors:
We have audited the accompanying balance sheet of Balcor Pension Investors (An
Illinois Limited Partnership) as of December 31, 1994 and the related
statements of partners' capital, income and expenses and cash flows for each of
the two years in the period ended December 31, 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors at
December 31, 1994 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1995
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
------------- -------------
Cash and cash equivalents $ 5,159,556 $ 6,226,192
Accounts and accrued interest receivable 245,402 748,024
------------- -------------
5,404,958 6,974,216
------------- -------------
Investment in loans receivable:
Loans receivable - wrap-around mortgages 30,443,927 33,466,592
Less:
Loans payable - underlying mortgages 21,547,919 23,768,581
Allowance for potential loan losses 4,853,336 2,222,781
------------- -------------
Net investment in loans receivable 4,042,672 7,475,230
Real estate held for sale (net of allowance
of $300,000 in 1995) 5,763,025 6,063,025
------------- -------------
9,805,697 13,538,255
------------- -------------
$ 15,210,655 $ 20,512,471
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 69,002 $ 323,430
Due to affiliates 42,885 85,232
Other liabilities, principally real estate
taxes and security deposits 147,277 146,918
Mortgage note payable 575,301 575,301
------------- -------------
Total liabilities 834,465 1,130,881
------------- -------------
Limited Partners' capital (71,675
Partnership Interests issued
and outstanding) 14,561,840 19,525,328
General Partner's deficit (185,650) (143,738)
------------- -------------
Total partners' capital 14,376,190 19,381,590
------------- -------------
$ 15,210,655 $ 20,512,471
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
Partners' Capital (Deficit) Accounts
-------------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1992 $ 22,538,905 $ (140,595) $ 22,679,500
Cash distributions (A) (3,863,057) (9,808) (3,853,249)
Net income for the year
ended December 31, 1993 182,117 1,821 180,296
------------- ------------- -------------
Balance at December 31, 1993 18,857,965 (148,582) 19,006,547
Cash distributions (A) (941,584) (9,808) (931,776)
Net income for the year
ended December 31, 1994 1,465,209 14,652 1,450,557
------------- ------------- -------------
Balance at December 31, 1994 19,381,590 (143,738) 19,525,328
Cash distributions (A) (2,681,399) (18,672) (2,662,727)
Net loss for the year
ended December 31, 1995 (2,324,001) (23,240) (2,300,761)
------------- ------------- -------------
Balance at December 31, 1995 $ 14,376,190 $ (185,650) $ 14,561,840
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership
Interest:
1995 1994 1993
------------- ------------- -------------
First Quarter $ 3.25 $ 3.25 $ 3.25
Second Quarter 5.00 3.25 3.25
Third Quarter 23.90 3.25 24.01
Fourth Quarter 5.00 3.25 23.25
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------- ------------- -------------
Income:
Interest on loans receivable $ 3,266,914 $ 2,740,650 $ 3,952,185
Less interest on loans
payable - underlying
mortgages 1,635,396 1,696,371 2,301,383
------------- ------------- -------------
Net interest income on loans
receivable 1,631,518 1,044,279 1,650,802
Income from operations of
real estate held for sale 697,288 740,966 664,361
Interest on short-term
investments 298,646 270,449 146,395
Participation income 171,936
------------- ------------- -------------
Total income 2,627,452 2,055,694 2,633,494
------------- ------------- -------------
Expenses:
Provision for potential
losses on loans, real
estate, and accrued
interest receivable 4,200,000 1,988,000
General Partner management
fees 79,975 39,232 39,232
Administrative 671,478 551,253 513,627
------------- ------------- -------------
Total expenses 4,951,453 590,485 2,540,859
------------- ------------- -------------
Net (loss) income before gain
on foreclosure of property (2,324,001) 1,465,209 92,635
Gain on foreclosure of
property 89,482
------------- ------------- -------------
Net (loss) income $ (2,324,001) $ 1,465,209 $ 182,117
============= ============= =============
Net (loss) income allocated
to General Partner $ (23,240) $ 14,652 $ 1,821
============= ============= =============
Net (loss) income allocated
to Limited Partners $ (2,300,761) $ 1,450,557 $ 180,296
============= ============= =============
Net (loss) income per Limited
Partnership Interest
(71,675 issued and
outstanding) $ (32.10) $ 20.24 $ 2.52
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------- ------------- -------------
Operating activities:
Net (loss) income $ (2,324,001) $ 1,465,209 $ 182,117
Adjustments to reconcile
net (loss) income to net
cash provided by operating
activities:
Provision for potential
losses on loans, real
estate and accrued
interest receivable 4,200,000 1,988,000
Accrued interest income
due at maturity (24,278)
Gain on foreclosure of
property (89,482)
Net change in:
Accounts and accrued
interest receivable 502,622 (527,099) 333,330
Accounts and accrued
interest payable (254,428) 96,895 (327,781)
Due to affiliates (42,347) 45,954 (18,256)
Other liabilities 359 (46,582) 143,151
------------- ------------- -------------
Net cash provided by
operating activities 2,082,205 1,034,377 2,186,801
------------- ------------- -------------
Investing activities:
Collection of principal
payments on loans
receivable 8,056,200
Proceeds from property sale 4,050,000
Costs incurred in connection
with the sale of real
estate (121,500)
Costs incurred in connection
with real estate held for
sale (340,465)
Improvements to property (20,000)
Condemnation proceeds 134,200
------------- -------------
Net cash provided by
investing activities 3,908,500 7,849,935
------------- -------------
Financing activities:
Distributions to Limited
Partners (2,662,727) (931,776) (3,853,249)
Distributions to General
Partner (18,672) (9,808) (9,808)
Principal payments on
underlying loans and
mortgage notes payable (467,442) (505,908) (645,076)
Repayment of underlying loans
and mortgage notes payable (2,453,858) (3,709,867)
------------- ------------- -------------
Net cash used in financing
activities (3,148,841) (3,901,350) (8,218,000)
------------- ------------- -------------
Net change in cash and cash
equivalents (1,066,636) 1,041,527 1,818,736
Cash and cash equivalents at
beginning of period 6,226,192 5,184,665 3,365,929
------------- ------------- -------------
Cash and cash equivalents at
end of period $ 5,159,556 $ 6,226,192 $ 5,184,665
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Partnership's Business
Balcor Pension Investors (the "Partnership") is engaged principally in the
operation of one commercial property located in Huntington, Indiana, one
residential property located in Winter Park, Florida, and an investment in a
wrap-around loan receivable.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) The Partnership records wrap-around mortgage loans at the face amount of
the mortgage instrument which includes the outstanding indebtedness of the
borrower under the terms of the underlying mortgage obligations. The underlying
mortgage obligations are recorded as a reduction of the wrap-around mortgage
loan and the resulting balance represents the Partnership's net advance to the
borrower. The Partnership is responsible for making periodic payments to the
underlying mortgage lender only to the extent that payments as required by the
wrap-around mortgage agreement are received by the Partnership from the
borrower.
(c) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
is recognized as revenue in the period the applicable costs are incurred.
(d) Income on loans is recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest is discontinued when a loan
becomes ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment has occurred in the value of the property
collateralizing the loan. Income on nonaccrual loans or loans which are
otherwise not performing in accordance with their terms is recorded on a cash
basis.
Various loan agreements provide for participation by the Partnership in
increases in value of the collateral property when the loan is repaid or
refinanced. In addition, certain loan agreements allow the Partnership to
receive a percentage of rental income exceeding base amount. Participation
income is reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate owned is reflected in the accompanying
Statements of Income and Expenses net of related direct operating expenses.
<PAGE>
(e) Loan losses on mortgage notes receivable are charged to income and an
allowance account is established when the General Partner believes the loan
balance will not be recovered. The General Partner assesses the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance is transferred to real estate
held for sale after the fair value of the property, less costs of disposal, is
assessed. Upon the transfer to real estate held for sale, a new basis in the
property is established.
Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." Under SFAS 121,
the General Partner periodically assesses, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimates the fair value of its properties by dividing the property's
expected net operating income by a risk adjusted rate of return or by applying
a discounted cash flow analysis both of which consider economic and demographic
conditions in the market. Changes in the property's fair value is recorded by
an adjustment to the property allowance account and is recognized in the income
statement as an increase or decrease through recovery income or a provision for
loss in the period the change in fair value is determined. The General Partner
considers the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicate otherwise.
(f) The Financial Accounting Standard Board's Statement No. 107, "Disclosure
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Statement No. 107 does not apply to all balance sheet items and
exclude certain financial instruments and all non-financial instruments such as
real estate and investment in joint ventures from its disclosure requirements.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less.
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) Several reclassifications have been made to the previously reported 1994
and 1993 financial statements to conform with the classifications used in 1995.
These reclassifications have not changed the 1994 or 1993 results.
Mortgage servicing fees have been reclassified and are included in
administrative expenses during 1995. This reclassification has also been made
to the previously reported 1994 and 1993 financial statements to conform with
the classification used in 1995.
3. Partnership Agreement:
The Partnership was organized in October 1977. The Partnership Agreement
provides for Balcor Mortgage Advisors to be the General Partner and for the
admission of Limited Partners through the sale of Limited Partnership Interests
at $1,000 per Interest up to a maximum of 100,000 Interests, 71,675 of which
were sold prior to January 9, 1981, the termination date of the offering.
<PAGE>
The Partnership Agreement provides that the General Partner or an affiliate of
the General Partner will service the Partnership's loans and will receive
mortgage servicing fees at an annual rate equal to 1/4 of 1% of the amounts
advanced by the Partnership and outstanding from time to time. The General
Partner will receive a management fee equal to 4% of the Cash Flow, distributed
when and as cash distributions are made to the Limited Partners. The General
Partner is also reimbursed for certain expenses incurred in the day-to-day
operations of the Partnership. In addition, the General Partner may receive an
incentive partnership management fee of 10% of distributed Cash Flow
subordinated on an annual basis to a 14% per annum Non-Cumulative Distribution
to Limited Partners on Adjusted Original Capital. See Note 8 of Notes to
Financial Statements for amounts paid or payable to the General Partner for
these fees and services.
All profits and losses of the Partnership are allocated 99% to the capital
accounts of the Limited Partners and 1% to the capital account of the General
Partner. The General Partner also receives a 1% distributive share of Cash Flow
distributed when and as distributions are made to Limited Partners.
4. Investment in Loans Receivable:
(a) The North Capitol Office Building wrap-around loan receivable and
underlying loan payable had balances of $30,443,927 and $21,547,919 at December
31, 1995. The loan matured on December 1, 1995 and the borrower failed to make
the principal payment due. Pursuant to a forebearance agreement dated January
24, 1996, the Partnership agreed not to exercise its rights against the
borrower through March 1, 1996. The borrower continued to make monthly
interest only payments on the loan while negotiations with the Partnership for
repayment continued. The borrower did not make the March 1996 monthly interest
payment and the loan was placed in default in March 1996. On March 22, 1996,
the borrower commenced proceedings under Chapter 11 of the U.S. Bankruptcy
Code. The General Partner is reviewing the borrower's bankruptcy filing and
will take such actions as are necessary to protect the Partnership's interests.
(b) The Waterford/Ferndale Shopping Centers wrap-around loan receivable and
underlying loan payable matured in November 1993. The borrowers failed to make
the payment due and one of the borrowers filed for protection under the U.S.
Bankruptcy Code, which proceedings were dismissed in September 1995. In
November 1995, the Partnership received $100,000 as payment in full for the
loan and this amount has been recognized as interest income during 1995. The
Partnership recognized a loss of $1,269,445 in connection with the release of
its interest in the loan which was written off against the previously
established allowance for potential losses.
Loans which have been classified as nonaccrual as a result of delinquency or
other noncompliance with the terms of loan agreements aggregated $30,443,927
and $3,022,665 at December 31, 1995 and 1994, respectively. The North Capitol
Building loan was classified as nonaccrual as of December 31, 1995 and the
Waterford/Ferndale loan was classified as nonaccrual as of December 31, 1994.
Nonaccrual loans are hereinafter referred to as impaired loans.
Net interest income relating to impaired loans would have been $245,466 in
1995, $247,284 in 1994 and $632,370 in 1993. Net interest income from impaired
loans included in the accompanying Statements of Income and Expenses amounted
to $135,389 in 1995, $90,605 in 1994, and $574,335 in 1993.
<PAGE>
Impaired loans totaled $30,443,927 and $3,022,665 at December 31, 1995 and
1994, respectively. The impaired loan of $30,443,927 has a related allowance
for losses of $4,853,336 at December 31, 1995. The impaired loan of $3,022,665
had a related allowance for losses of $569,000 in 1994. The average recorded
investment in impaired loans during the years ended December 31, 1995 and 1994
was $30,443,927 and $3,022,665, respectively.
5. Mortgage Note Payable:
Mortgage note payable had a balance of $575,301 at December 31, 1995 and 1994.
This first mortgage loan relates to one of the buildings within Normandy Mall.
See Note 9 of Notes to Financial Statements for additional information.
Real estate held for sale with an aggregate carrying value of $575,301 at
December 31, 1995 was pledged as collateral for repayment of this mortgage
loan.
During the years ended December 31, 1994 and 1993, the Partnership incurred
interest expense on the mortgage notes payable of $72,493 and $718,122 and paid
interest expense of $72,493 and $559,598, respectively. No interest expense
was incurred or paid in 1995.
6. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1995 is described in the
table below:
1995 1994 1993
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 2,222,781 $ 2,222,781 $ 2,772,781
Provision charged to
income 3,900,000 700,000
Direct write-off of loans
against allowance (1,269,445) (1,250,000)
------------ ----------- -----------
Balance at the end of
the year $ 4,853,336 $ 2,222,781 $ 2,222,781
============ =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year None $ 1,288,000 None
Provision charged to
income $ 300,000 $ 1,288,000
Direct write-off of real
estate held for sale
against allowance (1,288,000)
----------- ------------ -----------
Balance at the end of
the year $ 300,000 None $ 1,288,000
=========== ============ ===========
<PAGE>
7. Management Agreements:
As of December 31, 1995, both properties owned by the Partnership are under
management agreements with a third-party management company. These management
agreements provide for annual fees of 5% of gross operating receipts for the
Nob Hill Apartments and 3% to 6% of gross operating receipts for Huntington
Plaza.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- --------------- ---------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $13,759 $ 847 $17,477 $1,161 $19,129 $4,712
Property management fees None None 84,507 None 109,753 10,850
General Partner manage-
ment fees 74,693 15,090 39,232 9,808 39,232 9,808
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 53,162 4,536 64,966 27,448 56,698 4,680
Data processing 10,457 1,468 21,334 3,097 13,913 3,601
Investor communica-
tions 9,864 None 23,761 8,320 20,526 1,695
Legal 11,235 1,618 7,586 3,252 3,980 328
Portfolio management 99,019 14,586 44,197 25,227 39,844 3,426
Property sales
administration 16,516 4,716 137 4,262 26,571 None
Other 3,047 24 9,870 2,657 2,156 178
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $25,764, $27,195 and $18,210 in 1995, 1994 and 1993, respectively.
<PAGE>
9. Disposition of Property Acquired through Foreclosure:
In February 1991, the Partnership acquired title to the Normandy Mall and
Norwood Plaza shopping centers through foreclosure. These properties had two
underlying mortgage loans from separate lenders. One loan related to one of the
buildings within Normandy Mall and the other underlying loan related to the
remainder of the property. In July 1993, title to these properties, with the
exception of the one building within Normandy Mall discussed above, was
conveyed to the lender pursuant to a settlement agreement. In connection with
the conveyance of title, the Partnership wrote-off the carrying value of the
properties of $2,419,528, the outstanding mortgage loan payable balance of
$2,419,528 and other liabilities of $89,482. The Partnership recognized a gain
for financial statement purposes of $89,482. The Partnership still holds title
to the one building within Normandy Mall. The building has been vacant and,
when title to the remainder of the properties was relinquished in 1993 and cash
flow ceased, the Partnership stopped debt service payments. In January 1995,
the lender commenced foreclosure proceedings to acquire the building. It is
expected that the lender will obtain title to this property in April 1996.
10. Real Estate Held for Sale:
The Partnership acquired the Emerald Ridge Apartments and the Huntington Plaza
Shopping Center through foreclosure in 1993. The Partnership recorded the costs
of the properties at $5,959,457. These amounts represented the outstanding loan
balances plus any accrued interest receivable. The Partnership increased the
basis of the properties by $295,213 for certain receivables, escrows and costs
recognized or incurred in connection with the foreclosure. At the date of
foreclosure, the properties were transferred to real estate held for sale at
fair value, net of any allowances previously recorded.
11. Property Sale:
During 1994, the Partnership sold the Emerald Ridge Apartments for $4,050,000.
From the proceeds of the sale, the Partnership paid $2,237,451 in full
satisfaction of the property's first mortgage loan. The basis of the property
totaled $3,928,500. For financial statement purposes, the Partnership
recognized no gain or loss on the sale of this property. The Partnership had
previously established an allowance for potential losses related to Emerald
Ridge Apartments against which its remaining net investment of $1,288,000 was
written off in 1994.
12. Contingencies:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
this action. While a plaintiff class has been certified, no determinations of
the merits have been made. It is not determinable at this time whether or not
an unfavorable decision in this action would have a material adverse impact on
the Partnership. Management of each of the defendants believes that they have
meritorious defenses to contest the claims.
<PAGE>
13. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, accounts payable and loan receivable approximates fair value.
Based on borrowing rates available to the Partnership at the end of 1995 for
mortgage loans with similar terms and maturities, the fair value of the
mortgage notes payable approximates the carrying value.
14. Subsequent Event:
In January 1996, the Partnership paid $1,242,128 to Limited Partners
representing the quarterly distribution of available Cash Flow of $5.00 per
Interest for the fourth quarter of 1995 and a special distribution of $12.33
per Interest from Mortgage Reductions received from prior loan repayments and
property sales.
15. Other:
The Partnership intends to dispose of its real estate held for sale and its
remaining mortgage loan investment by December 31, 1996. Upon disposition of
these assets and in accordance with the Partnership Agreement, the Partnership
will be dissolved.
Due to the bankruptcy filing by the North Capitol Building borrower as
described in Note 4, and the uncertainty as to when the Partnership will
dispose of its remaining real estate assets held for sale, there is no
assurance the Partnership will terminate by December 31, 1996.
<PAGE>
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