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, 1996
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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 one wrap-around mortgage loan. The
Registrant also operated 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 the Mortgage
Reductions generated by loan 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, 1996. Six properties were acquired through foreclosure, of
which five have been sold and one has been relinquished to the underlying
lender through foreclosure.
The Registrant's loan receivable is collateralized by the North Capital Office
Building located in Washington, D.C., which is subject to certain competitive
conditions in the market in which it is located. See "Item 7. Liquidity and
Capital Resources" for additional information. The North Capitol Office
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.
In May 1996, the Registrant sold the Huntington Plaza Shopping Center for
$2,400,000, consisting of cash of $2,093,800 and $306,200 in the form of a
purchase money note collateralized by a junior mortgage on the property. See
"Item 7. Liquidity and Capital Resources" for additional information.
In July 1996, the Registrant sold the Nob Hill Apartments - Phase I for
$4,775,000, consisting of cash of $4,510,820 and $264,180 in the form of a
promissory note. See "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 investment in a loan receivable which is
collateralized by real estate, is subject to Federal and state laws and
regulations covering various environmental issues.
<PAGE>
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.
While it is the Registrant's intent to complete the disposition of its
remaining asset, the bankruptcy of the borrower on the North Capitol Office
Building loan may prevent the loan from being repaid. The timing of the
termination of the Registrant and final distribution of cash will also depend
upon the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Registrant. In the absence of any contingency, the
reserves will be paid within twelve months of the disposition of the
Registrant's interest in the North Capitol Office Building. In the event a
contingency arises, reserves may be held by the Registrant for a longer period
of time.
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.
Item 2. Properties
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As of December 31, 1996, the Registrant no longer owns any physical properties.
See Notes to Financial Statements for other information regarding prior real
property investments.
Item 3. Legal Proceedings
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Proposed 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
were the defendants. The complaint alleged 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
alleged breach of fiduciary duty, fraud, negligence and violations under the
Racketeer Influenced and Corrupt Organizations Act. The complaint sought
compensatory and punitive damages.
A settlement of these proceedings was approved by the District Court on
November 20, 1996 on the terms previously described in the form of settlement
agreement attached as Exhibit 99 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996. Distributions to be paid pursuant to the
settlement were paid in February 1997. All proceedings relating to this matter
are now dismissed.
<PAGE>
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 forbearance
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 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 1996.
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, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 3,523.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
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Total income $777,868 $ 2,627,452 $ 2,055,694 $ 2,633,494 $ 2,662,072
Provision for
losses on
loans, real
estate and
accrued interest
receivable 4,617,973 4,200,000 None 1,988,000 2,750,000
<PAGE>
Net (loss) income
before gain on
foreclosure of
property, gains on
sales of real estate
and extraordinary
item (4,931,881) (2,324,001) 1,465,209 92,635 (862,690)
Net (loss) income (2,885,380) (2,324,001) 1,465,209 182,117 (862,690)
Net (loss) income
per Limited
Partnership
Interest (40.26) (32.10) 20.24 2.52 (11.92)
Total assets 3,917,770 15,210,655 20,512,471 22,374,872 32,538,628
Mortgage notes
payable 575,301 575,301 3,057,594 9,247,419
Distributions per
Limited
Partnership
Interest (A) 106.27 37.15 13.00 53.76 43.16
(A) These amounts include distributions of original capital of $56.27, $12.40,
$40.76, and $5.41 per Limited Partnership Interest for the years 1996, 1995,
1993, and 1992, respectively.
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") recorded provisions for potential
loan losses related to the North Capitol Office Building loan in 1996 and 1995,
respectively, resulting in the recognition of a net loss during each of 1996
and 1995 as compared to net income for 1994. The loss during 1996 was
partially offset by gains recognized on the sales of the Nob Hill Apartments -
Phase I and the Huntington Plaza Shopping Center during 1996. Further
discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
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The borrower on the North Capitol Office Building loan failed to make the
payment due upon maturity of the wrap-around loan in December 1995 and the loan
was placed on non-accrual status. In March 1996, the borrower discontinued the
monthly payments required on the loan pursuant to a forbearance agreement and
subsequently filed for bankruptcy protection.
<PAGE>
This resulted in a decrease in net interest income on the loan receivable
during 1996 when compared to 1995. Due to the timing of the recognition of
interest expense on the underlying mortgage loan, additional interest expense
was recognized by the Partnership in 1996 which resulted in the recognition
of net interest expense on loans receivable during 1996.
The Partnership's wrap-around loan is on non-accrual status at December 31,
1996 and is collateralized by the North Capitol Office Building. For nonaccrual
loans, income is recorded only as cash payments are received from the borrower.
The funds advanced by the Partnership for this loan totaled approximately
$4,100,000, representing approximately 6.4% of original funds advanced. This
loan has been fully reserved as of December 31, 1996. See Liquidity and
Capital Resources, below, for additional information.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. The Partnership
sold its remaining properties, the Huntington Plaza Shopping Center and the Nob
Hill Apartments - Phase I in May 1996 and July 1996, respectively. The timing
of the sales resulted in a decrease in income from real estate held for sale
during 1996 as compared to 1995.
Interest income on short-term investments decreased primarily as a result of
lower interest rates in 1996 as compared to 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties, 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 loan loss provisions of $4,042,672 and $3,900,000 in 1996 and 1995,
respectively, related to the North Capitol Office Building loan. The
Partnership also recognized a provision of $575,301 in 1996 in connection with
the foreclosure of the remaining building to which the Partnership held title
in the Normandy Mall. In addition, during 1996, the Partnership recognized a
recovery of the $300,000 provision recorded by the Partnership in 1995 related
to Huntington Plaza Shopping Center to provide for a change in the estimate of
the fair value of the property. During 1995 an allowance of $1,269,445 was
written off related to the Waterford/Ferndale Centers wrap-around loan.
During 1996, the Partnership recognized participation expense of $473,394 in
connection with the sale of Huntington Plaza Shopping Center. See Liquidity
and Capital Resources below for additional information.
As a result of a special distribution of Cash Flow made in October 1996,
General Partner management fees increased during 1996 when compared to 1995.
Legal fees and other expenses incurred in 1995 relating to litigation for the
Normandy Mall resulted in a decrease in administrative expenses during 1996
when compared to 1995.
<PAGE>
During 1996, the Partnership recognized gains of $70,769 and $1,400,431 in
connection with the sales of the Huntington Plaza Shopping Center and the Nob
Hill Apartments - Phase I, respectively.
During 1996, the Partnership recognized a $575,301 extraordinary gain on
forgiveness of debt in connection with the foreclosure of the remaining
building to which it held title in the Normandy Mall. See Liquidity and Capital
Resources below for additional information.
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.
No provisions related to loans or real estate were recognized by the
Partnership in 1994.
Primarily as a result of higher interest rates, interest income on short-term
investments increased during 1995 as compared to 1994.
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
Liquidity and Capital Resources
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The cash position of the Partnership as of December 31, 1996 decreased by
approximately $1,576,000 when compared to December 31, 1995. The Partnership
used cash of approximately $143,000 to fund operating activities. The revenue
generated primarily by property operations and interest income on short-term
investments was offset by the payment of administrative expenses. The timing of
the sale of the Partnership's properties in 1996 and the default by the
borrower under the forbearance agreement on the remaining loan investment in
1996 resulted in a significant decrease in operating cash flow. Cash flow of
approximately $6,221,000 from investing activities was generated by the sales
of the Huntington Plaza Shopping Center and Nob Hill Apartments - Phase I. The
Partnership's financing activities consisted primarily of the payment of
distributions to the Partners totaling approximately $7,655,000.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property-related expenditures.
The Huntington Plaza Shopping Center, which was sold in May 1996, and the Nob
Hill Apartments - Phase I, which was sold in July 1996, both generated positive
cash flow prior to their sales in 1996 and for 1995.
In December 1995, the North Capitol Office Building wrap-around loan matured
and the borrower failed to make the principal payment due. Pursuant to a
forbearance agreement dated January 24, 1996, the Partnership agreed not to
exercise its rights against the borrower through March 1, 1996.
<PAGE>
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 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 will take such actions as are
necessary to protect the Partnership's interests.
The North Capitol buildings are comprised of two nine-story class "B" office
buildings each with approximately 290,000 square feet of rental space. The
buildings are located in the Capitol Hill sub-market in Washington, D.C. This
sub-market contains approximately 8.3 million square feet of office space in 81
Class "A" and Class "B" buildings. The sub-market currently has a nine percent
vacancy. Prospective tenants in this sub-market encounter a shortage of large
available blocks, but new options are emerging because of tenant move-outs as
well as renovations and some new development. Many buildings with available
blocks over 100,000 square feet were built in the 1960's and 1970's and, in
most cases, owners are waiting for pre-lease agreements from large tenants
before going ahead with the necessary renovations.
In 1991, the Partnership obtained title to the Normandy Mall and Norwood Plaza
shopping centers and in 1993, title to the properties, with the exception of
one building (the "Building") in Normandy Mall, was relinquished to the first
mortgage holder pursuant to a settlement agreement. The first mortgage loan
collateralized by the Building was held by a different third party lender, Gulf
Life Insurance Company ("Gulf Life"), which commenced foreclosure proceedings
in January 1995. Gulf Life subsequently sold the loan to American Mortgage
Acquisition Corporation ("American"). A foreclosure sale of the Building took
place in March 1996 pursuant to which American made a successful bid and
subsequently obtained title to the Building in April 1996. The Partnership has
no further interest in the Building or the remainder of Normandy Mall. See Note
9 of Notes to Financial Statements for additional information.
In 1993, the Partnership acquired title to the Huntington Plaza Shopping Center
through foreclosure. Prior to the foreclosure, this property had been
encumbered by a second mortgage loan which was subordinate to the Partnership's
loan. The Partnership and the holder of the second mortgage executed an
agreement providing that the holder of the second mortgage would not contest
the Partnership's foreclosure action and that any net proceeds from the sale of
the property would be distributed to both the Partnership and the second
mortgage holder pursuant to an agreed-upon formula. In May 1996, the
Partnership sold the Huntington Plaza Shopping Center for $2,400,000,
consisting of $306,200 in the form of a purchase money note collateralized by a
junior mortgage on the property and cash totaling $2,093,800. From the
proceeds, $167,194 was paid to the second mortgage holder. In addition, the
second mortgage holder agreed to accept the $306,200 purchase money note as
full settlement of the agreement. These amounts totaling $473,394, represent
the second mortgage holder's participation pursuant to the 1993 agreement. From
the proceeds of the sale, the Partnership paid $3,088 of selling costs. Net
proceeds received by the Partnership from this transaction were $1,923,518,
which were distributed to the Partners in July 1996. See Note 10 of Notes to
Financial Statements for additional information.
In July 1996, the Partnership sold the Nob Hill Apartments - Phase I for
$4,775,000, consisting of cash totaling $4,510,820 and $264,180 in the form of
a promissory note which matured in December 1996.
<PAGE>
From the proceeds of the sale the Partnership paid $212,988 of selling costs.
Net proceeds of $4,297,832 were received by the Partnership of which the cash
portion was distributed to Limited Partners in October 1996. Full payment of
the promissory note was received by the Partnership in January 1997. See Note
10 of Notes to Financial Statements for additional information.
The Partnership made four distributions totaling $106.27, $37.15 and $13.00 per
Interest in 1996, 1995 and 1994, respectively. See Statement of Partner's
Capital for additional information. Distributions were comprised of $50.00 per
Interest of Cash Flow and $56.27 per Interest of Mortgage Reductions in 1996;
$24.75 per Interest of Cash Flow and $12.40 per Interest of Mortgage Reductions
in 1995; and $13.00 per Interest of Cash Flow in 1994. The level of Cash Flow
distributions in 1996 increased from the amounts distributed in 1995 due
primarily to proceeds received from the sales of the Huntington Plaza Office
Building and Nob Hill Apartments - Phase I in excess of the original funds
advanced for the loans collateralized by the properties, which is classified as
Cash Flow. The level of Cash Flow distributions in 1995 increased from the
amounts distributed in 1994 due primarily to the Cash Flow received from the
settlement of the Normandy Mall lawsuit.
In January 1997, the Partnership paid a distribution of $358,375 to the holders
of Limited Partnership Interests representing the regular quarterly
distribution of available Cash Flow of $5.00 per Interest for the fourth
quarter of 1996. The level of the regular quarterly distribution remained
unchanged from the amounts distributed to Limited Partners during 1996. The
Partnership will issue a distribution in 1997 from cash reserves. This will be
the final distribution to the Limited Partners prior to the termination of the
Partnership. To date, Limited Partners have received cumulative distributions
of $1,820.08 per $1,000 Interest, of which $1,216.41 represents Cash Flow from
operations and $603.67 represents a return of Original Capital.
In February 1997, the General Partner made a settlement payment of $16,976
($.27 per $1,000 Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly Kennedy
et. al. vs. Balcor Pension Investors, et. al. class action lawsuit.
While it is the Partnership's intent to complete the disposition of its
remaining asset, the bankruptcy of the borrower on the North Capitol Office
Building loan may prevent the loan from being repaid. The timing of the
termination of the Partnership and final distribution of cash will also depend
upon the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Partnership. In the absence of any contingency, the
reserves will be paid within twelve months of the disposition of the
Partnership's interest in the North Capitol Office Building. In the event a
contingency arises, reserves may be held by the Partnership for a longer period
of time.
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.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
<PAGE>
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
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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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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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
each of the two fiscal years ended December 31, 1994 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.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(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 James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) 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 (age 42) 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.
James E. Mendelson (age 34) joined Balcor in July 1984 and is
responsible for Balcor's property sales activities. He also has
supervisory responsibility for Balcor's accounting, financial,
treasury, investor services and investment administration functions.
From 1989 to 1995, Mr. Mendelson was Vice President - Transaction
Management and Vice President - Senior Transaction Manager and had
responsibility for various asset management matters relating to real
estate investments made by Balcor, including negotiations for the
restructuring of mortgage loan investments. Mr. Mendelson received his
M.B.A. degree from the University of Chicago.
John K. Powell, Jr. (age 46) 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 function. 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.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief
Financial Officer, is responsible for Balcor's financial, human
resources and treasury functions.
<PAGE>
From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public
and private partnerships. She is also Treasurer and a Managing
Director of The Balcor Company. Ms. Kosik is a Certified Public
Accountant.
(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 1996.
Item 11. Executive Compensation
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The Registrant paid $3,309 in 1996 to one of the executive officers and
directors of Balcor Mortgage Advisors, the General Partner. The Registrant has
not paid and does not propose to pay any remuneration to the remaining
executive officers and directors of the General Partner. Certain of the
remaining 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) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
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Limited Mellon Bank NA 5,200 7.18%
Partnership Custodian for
Interests Sherwin-Williams Limited
Collective Partnership
Investment Trust Interests
Pittsburgh,
Pennsylvania
(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.
<PAGE>
(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
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(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.
PART IV
Item 14. Exhibits and Reports on Form 8-K
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(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 are incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto; First Amendment to Agreement
of Sale; Form of Junior Mortgage and Security Agreement; Form of Principal
Note; and Satisfaction and Release, relating to the sale of Huntington Plaza,
Huntington, Indiana, previously filed as Exhibits (2)(a), (b), (c), (d) and (e)
to the Registrant's Current Report on Form 8-K dated April 26, 1996 are
incorporated herein by reference.
(a)(ii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of Huntington Plaza, Huntington, Indiana, previously filed as Exhibit
(10)(b) to the Registrant's Report on Form 10-Q for the quarter ended March 31,
1996, is incorporated herein by reference.
<PAGE>
(b) Agreement of Sale and attachment thereto relating to the sale of Nob Hill
Apartments - Phase I, previously filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated June 4, 1996, 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 is hereby
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating
to Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors,
et al. previously filed as Exhibit (99)(i) to the Registrant's Report on
Form 10-Q for the quarter ended June 30, 1996 is incorporated herein by
reference.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended December 31, 1996.
(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/ Jayne A. Kosik
----------------------------------
Jayne A. Kosik
Managing Director and
Chief Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors,
the General Partner
Date: March 27, 1997
--------------
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 March 27,1997
- ---------------------- -------------
Thomas E. Meador
Managing Director and
Chief Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage
/s/ Jayne A. Kosik Advisors, the General Partner March 27, 1997
- ---------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
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 sheets of Balcor Pension Investors
(An Illinois Limited Partnership) as of December 31, 1996 and 1995 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, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statments
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 stamements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors at
December 31, 1996 and 1995, and results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
As described in Note 1 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon disposition of all its
real estate interests. As described in Note 4 to the financial statments, the
Partnership's remaining real estate interest is an investment in a note
receivable collateralized by the commercial office building owned by an
unrelated entity. The owner of the office building has filed for Chapter 11
bankruptcy protection. At December 31, 1996 the Partnership has provided an
allowance equal to their equity in the note receivable. The Partnership will
continue to operate until the bankruptcy proceedings are resolved and the
Partnership can dispose of its remaining real estate interest at which time
the Partnership will commence liquidation and dissolve.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND, L.L.P.
Chicago, Illinois
March 24, 1997
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors:
We have audited the accompanying statments of partners' capital, income and
expenses and cash flows of Balcor Pension Investors (An Illinois Limited
Partnership) for the year 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 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 statments. 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 results of operations and cash flows of Balcor
Pension Investors for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1995
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 3,583,628 $ 5,159,556
Accounts and accrued interest receivable 69,962 245,402
------------- -------------
3,653,590 5,404,958
------------- -------------
Investment in loans receivable:
Loans receivable - wrap-around mortgages 30,708,107 30,443,927
Less:
Loans payable - underlying mortgages 21,547,919 21,547,919
Allowance for potential loan losses 8,896,008 4,853,336
------------- -------------
Net investment in loans receivable 264,180 4,042,672
Real estate held for sale (net of allowance
of $300,000 in 1995) 5,763,025
------------- -------------
264,180 9,805,697
------------- -------------
$ 3,917,770 $ 15,210,655
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 9,100 $ 69,002
Due to affiliates 72,488 42,885
Other liabilities, principally real estate
taxes and security deposits 147,277
Mortgage note payable 575,301
------------- -------------
Total liabilities 81,588 834,465
------------- -------------
Commitments and contingencies
Limited Partners' capital (71,675
Partnership Interests issued
and outstanding) 4,059,555 14,561,840
General Partner's deficit (223,373) (185,650)
------------- -------------
Total partners' capital 3,836,182 14,376,190
------------- -------------
$ 3,917,770 $ 15,210,655
============= =============
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, 1996, 1995 and 1994
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
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
Cash distributions (A) (7,654,628) (37,723) (7,616,905)
Net loss for the year
ended December 31, 1996 (2,885,380) (2,885,380)
------------- ------------- -------------
Balance at December 31, 1996 $ 3,836,182 $ (223,373) $ 4,059,555
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership
Interest:
1996 1995 1994
------------- ------------- -------------
First Quarter $ 17.33 $ 3.25 $ 3.25
Second Quarter 5.00 5.00 3.25
Third Quarter 29.94 23.90 3.25
Fourth Quarter 54.00 5.00 3.25
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, 1996, 1995 and 1994
1996 1995 1994
------------- ------------- -------------
Income:
Interest on loans receivable $ 171,861 $ 3,266,914 $ 2,740,650
Less interest on loans
payable - underlying
mortgages 247,334 1,635,396 1,696,371
------------- ------------- -------------
Net interest (expense) income
on loans receivable (75,473) 1,631,518 1,044,279
Income from operations of
real estate held for sale 286,949 697,288 740,966
Interest on short-term
investments 266,392 298,646 270,449
Recovery of loss on
real estate 300,000
------------- ------------- -------------
Total income 777,868 2,627,452 2,055,694
------------- ------------- -------------
Expenses:
Provision for potential
losses on loans
and accrued
interest receivable 4,617,973 4,200,000
Participation expense related
to sale of real estate 473,394
General Partner management
fees 135,806 79,975 39,232
Administrative 482,576 671,478 551,253
------------- ------------- -------------
Total expenses 5,709,749 4,951,453 590,485
------------- ------------- -------------
Net (loss) income before gain
on sales of real estate
and extraordinary item (4,931,881) (2,324,001) 1,465,209
Gain on sales of real estate 1,471,200
------------- ------------- -------------
Net (loss) income before
extraordinary item $ (3,460,681) $ (2,324,001) $ 1,465,209
Extraordinary item:
Gain on forgiveness of debt 575,301
------------- ------------- -------------
Net (loss) income $ (2,885,380) $ (2,324,001) $ 1,465,209
============= ============= =============
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 32, 1996, 1995, and 1994
(Continued)
Loss before extaordinary
item allocated
to Limited Partners $ (3,460,681) None None
============= ============= =============
Loss before extaordinary
item per Limited
Partnership Interest
(71,675 issued and
outstanding) $ (48.29) None None
============= ============= =============
Extraordinary item allocated
to Limited Partners $ 575,301 None None
============= ============= =============
Extraordinary item per Limited
Partnership Interest (71,675
issued and outstanding) $ 8.03 None None
============= ============= =============
Net (loss) income allocated
to General Partner $ None (23,240) 14,652
============= ============= =============
Net (loss) income allocated
to Limited Partners $ (2,885,380) $ (2,300,761) $ 1,450,557
============= ============= =============
Net (loss) income per Limited
Partnership Interest
(71,675 issued and
outstanding) $ (40.26) $ (32.10) $ 20.24
============= ============= =============
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, 1996, 1995 and 1994
1996 1995 1994
------------- ------------- -------------
Operating activities:
Net (loss) income $ (2,885,380) $ (2,324,001) $ 1,465,209
Adjustments to reconcile
net (loss) income to net
cash provided by operating
activities:
Gain on forgiveness of debt (575,301)
Participation expense
related to sale of
real estate 473,394
Gain on sales of
real estate (1,471,200)
Provision for potential
losses on loans,
real estate and accrued
interest receivable 4,617,973 4,200,000
Recovery of loss on
real estate (300,000)
Net change in:
Accounts and accrued
interest receivable 175,440 502,622 (527,099)
Accounts and accrued
interest payable (59,902) (254,428) 96,895
Due to affiliates 29,603 (42,347) 45,954
Other liabilities (147,277) 359 (46,582)
------------- ------------- -------------
Net cash (used in) provided
by operating activities (142,650) 2,082,205 1,034,377
------------- ------------- -------------
Investing activities:
Proceeds from sales of
real estate 6,604,620 4,050,000
Distribution of proceeds to
second mortgagee (167,194)
Costs incurred in connection
with sales of real estate (216,076) (121,500)
Improvements to property (20,000)
------------- -------------
Net cash provided by
investing activities 6,221,350 3,908,500
------------- -------------
<PAGE>
Financing activities:
Distributions to Limited
Partners (7,616,905) (2,662,727) (931,776)
Distributions to General
Partner (37,723) (18,672) (9,808)
Principal payments on
underlying loans and
mortgage notes payable (467,442) (505,908)
Repayment of underlying loans
and mortgage notes payable (2,453,858)
------------- ------------- -------------
Net cash used in financing
activities (7,654,628) (3,148,841) (3,901,350)
------------- ------------- -------------
Net change in cash and cash
equivalents (1,575,928) (1,066,636) 1,041,527
Cash and cash equivalents at
beginning of period 5,159,556 6,226,192 5,184,665
------------- ------------- -------------
Cash and cash equivalents at
end of period $ 3,583,628 $ 5,159,556 $ 6,226,192
============= ============= =============
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") has an investment in a wrap-around
loan receivable collateralized by a property located in Washington, D.C.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. While it is the Partnership's intent to complete the disposition
of its remaining asset, the bankruptcy of the borrower on the North Capitol
Office Building loan may prevent the loan from being repaid. The timing of the
termination of the Partnership and final distribution of cash will also depend
upon the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Partnership. In the absence of any contingency, the
reserves will be paid within twelve months of the disposition of the
Partnership's interest in the North Capitol Office Building. In the event a
contingency arises, reserves may be held by the Partnership for a longer period
of time.
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) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease terms. Service income includes reimbursements
of operating costs such as real estate taxes, maintenance and insurance and was
recognized as revenue in the period the applicable costs were incurred.
(c) 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.
<PAGE>
(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.
(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 assessed, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimated the fair value of its properties based on the current sales
price less estimated closing costs. Changes in a property's fair value were
recorded by an adjustment to the property allowance account and was 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 was 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. These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in may cases, may not be realized in immediate
settlement of the instrument. Statement No. 107 does not apply to all balance
sheet items and excludes certain financial instruments and all non-financial
instruments such as real estate and investment in joint ventures from its
disclosure requirements.
<PAGE>
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(h) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the General
Partner was allocated no loss in 1996 for financial statement purposes.
(i) 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.
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.
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,
respectively, at December 31, 1996. The loan receivable bore an interest rate
of 8.14% and matured on December 1, 1995, and the borrower failed to make the
principal payment due. Pursuant to a forbearance agreement dated January 24,
1996, the Partnership agreed not to exercise its rights against the borrower
through March 1, 1996.
<PAGE>
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.
At December 31, 1996 and 1995 the North Capitol Office Building loan in the
amount of $30,443,927 was classified as nonaccrual ("impaired loan") as a
result of delinquency with the terms of loan agreement. The loan has a related
allowance for losses of $8,896,008 at December 31, 1996 and $4,853,336 at
December 31, 1995. Net interest income relating to the impaired loan would have
been $118,164 in 1996, $245,466 in 1995 and $247,284 in 1994. Net interest
(expense) income from the impaired loan included in the accompanying Statements
of Income and Expenses amounted to $(84,279) in 1996, $135,389 in 1995 and
$90,605 in 1994.
(b) In connection with the sale of Nob Hill Apartments - Phase I, the
Partnership received a $264,180 promissory note as a portion of the sale price.
The note bore interest at a rate of 8% and was payable in monthly installments
of interest only through maturity in December 1996. Full payment of the
promissory note was received by the Partnership in January 1997. See Note 10 of
Notes to Financial Statements for additional information.
5. Management Agreement:
The properties owned by the Partnership were under management agreements with a
third-party management company. The agreements provided for annual fees of 5%
of gross operating receipts for the residential property, and a range of 3% to
6% of gross operating receipts for the commercial property.
6. Mortgage Note Payable:
Mortgage note payable had a balance of $575,301 at December 31, 1995. This
first mortgage loan related to one of the buildings within Normandy Mall. Real
estate held for sale with an aggregate carrying value of $575,301 at December
31, 1995 was pledged as collateral for repayment of the mortgage loan. Title to
the property was relinquished through foreclosure in 1996. See Note 9 of Notes
to Financial Statements for additional information.
During the year ended December 31, 1994, the Partnership incurred and paid
interest expense of $72,493 on the mortgage note payable. No interest expense
was incurred or paid in 1995.
7. 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, 1996 is described in the
table below:
<PAGE>
1996 1995 1994
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 4,853,336 $ 2,222,781 $ 2,222,781
Provision charged to
income 4,042,672 3,900,000
Direct write-off of loans
against allowance (1,269,445)
------------ ----------- -----------
Balance at the end of
the year $ 8,896,008 $ 4,853,336 $ 2,222,781
============ =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year $ 300,000 None $ 1,288,000
Recovery charged to
income (300,000)
Provision charged to
income 575,301 $ 300,000
Direct write-off of real
estate held for sale (575,301)
against allowance (1,288,000)
----------- ------------ -----------
Balance at the end of
the year $ None $ 300,000 $ None
============ ============ ===========
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- --------------- ---------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $ 10,160 $ 847 $13,759 $ 847 $17,477 $1,161
Property management fees None None None None 84,507 None
General Partner manage-
ment fees 150,896 None 74,693 15,090 39,232 9,808
Reimbursement of expenses
to the General Partner,
at cost:
<PAGE>
Accounting 12,456 10,710 53,162 4,536 64,966 27,448
Data processing 2,841 1,095 10,457 1,468 21,334 3,097
Investor communica-
tions None None 9,864 None 23,761 8,320
Legal 8,262 7,020 11,235 1,618 7,586 3,252
Portfolio management 34,484 38,807 99,019 14,586 44,197 25,227
Property sales
administration 17,688 14,009 16,516 4,716 137 4,262
Other None None 3,047 24 9,870 2,657
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 $3,529, $25,764 and $27,195 in 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed the
Partnership's properties until the affiliate was sold to a third party in
November 1994.
9. Disposition of Property Acquired through Foreclosure and Extraordinary Item:
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 (the "Building") within Normandy Mall discussed
above in Note 4, was conveyed to the lender pursuant to a settlement agreement.
The first mortgage loan collateralized by the Building was held by a different
third party lender, Gulf Life Insurance Company ("Gulf Life"), who commenced
foreclosure proceedings in January 1995. Gulf Life subsequently sold the loan
to American Mortgage Acquisition Corporation ("American"). A foreclosure sale
of the Building took place in March 1996 and American made a successful bid and
obtained title to the Building in April 1996.
In connection with the foreclosure, the Partnership recognized a $575,301
extraordinary gain on forgiveness of debt. In addition, the Partnership
recognized a $575,301 provision for losses equal to the carrying value of the
building. The Partnership has no further interest in the Building or the
remainder of Normandy Mall and Norwood Plaza.
10. Sales of Real Estate:
(a) During May 1996, the Partnership sold the Huntington Plaza Shopping Center
for $2,400,000, consisting of cash of $2,093,800 and $306,200 in the form of a
purchase money note collateralized by a junior mortgage on the property. The
Partnership assigned the $306,200 note and paid $167,194 to the holder of a
second mortgage on the property as part of an agreement which allowed the
Partnership to take title to the property in 1993.
<PAGE>
These expenses, which total $473,394 have been classified as participation
expense on the income statement. The Partnership also paid $3,088 of selling
costs related to the sale. The basis of the property was $2,326,143. For
financial statement purposes, the Partnership recognized a gain of $70,769 from
the sale of the property.
(b) During July 1996, the Partnership sold the Nob Hill Apartments - Phase I
for $4,775,000, consisting of cash of $4,510,820 and $264,180 in the form of a
promissory note. From the proceeds of the sale, the Partnership paid $212,988
in selling costs. The basis of the property was $3,161,581. For financial
statement purposes, the Partnership recognized a gain of $1,400,431 from the
sale of the property.
11. Settlement of Litigation:
A settlement has received final approval by the court in November 1996 in the
class action, Paul Williams and Beverly Kennedy, et. al. v. Balcor Pension
Investors, et. al. upon the terms described in the notice to class members in
September 1996. The settlement had no material impact on the Partnership.
12. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 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 1996 and
1995 for mortgage loans with similar terms and maturities, the fair value of
the mortgage note payable approximates the carrying value.
13. Subsequent Events:
(a) In January 1997, the Partnership paid $358,375 to Limited Partners
representing the quarterly distribution of available Cash Flow of $5.00 per
Interest for the fourth quarter of 1996.
(b) In February 1997, the General Partner made a settlement payment of $16,976
($.27 per $1,000 Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly Kennedy
et. al. vs. Balcor Pension Investors, et. al. class action lawsuit.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3584
<SECURITIES> 0
<RECEIVABLES> 334
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3654
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3918
<CURRENT-LIABILITIES> 82
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3836
<TOTAL-LIABILITY-AND-EQUITY> 3918
<SALES> 0
<TOTAL-REVENUES> 2249
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3461)
<DISCONTINUED> 0
<EXTRAORDINARY> 575
<CHANGES> 0
<NET-INCOME> (2885)
<EPS-PRIMARY> (40.26)
<EPS-DILUTED> (40.26)
</TABLE>
