<PAGE>
PRELIMINARY COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
CONSENT SOLICITATION STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] CONFIDENTIAL, FOR USE OF
Check the appropriate box: COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Preliminary Consent Solicitation Statement
[_] Definitive Consent Solicitation Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONAM REALTY INVESTORS 81, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAMES OF PERSONS FILING CONSENT SOLICITATION STATEMENT, IF OTHER THAN THE
REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Units
of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies: 78,290
Units
(3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $2,467 has been calculated in accordance with Rule 0-11 under
the Exchange Act and is equal to 1/50 of 1% of $12,334,670 (the
aggregate amount of the cash to be distributed to security holders).
(4) Proposed maximum aggregate value of transaction: $12,334,670
(5) Total fee paid: $2,467
[X] Fee paid previously with preliminary materials: $2,220
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CONAM REALTY INVESTORS 81, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
November [ ], 1998
Dear Limited Partner,
We are writing to inform you of an opportunity to liquidate your investment
in ConAm Realty Investors 81, L.P. (the "Partnership") through the sale of the
remaining two properties (the "Properties") of the Partnership for $22,250,000
to a Delaware limited liability company (the "Purchaser") to be formed if the
sale is approved by the Limited Partners. Shortly after the sale of the
Properties, it is anticipated that the Partnership would be liquidated and net
proceeds from the sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. Two pension funds advised by Lend Lease Real
Estate Investments, Inc. ("Lend Lease"), which is unaffiliated with the
General Partner, will each own a 45.5% interest in the Purchaser, and ConAm
DOC Affiliates LLC, an affiliate of the General Partner, will own a 9%
interest in the Purchaser. In addition, ConAm Management Corporation, an
affiliate of the General Partner which will not be a member of the Purchaser,
will act as the initial property manager for the Purchaser if the sale is
approved. See "THE PROPOSALS--The Purchaser" in the enclosed Consent
Solicitation Statement.
The accompanying materials discuss the proposed sale and certain related
matters in detail, but we would like to summarize our reasons for recommending
that you consent to the sale.
. The General Partner believes that current market conditions are
favorable for the sale of the Properties.
. The Partnership has held the Properties substantially longer than the
originally anticipated holding period.
. If the sale is consummated, aggregate distributions to the Limited
Partners following the sale, including a distribution in respect of the
sale and a final distribution upon the anticipated liquidation of the
Partnership, are estimated to be $175.21 per Unit. This compares
favorably with an average price of $115 per Unit offered in two recent
tender offers made by parties unaffiliated with the General Partner. See
"MARKET FOR THE UNITS" in the enclosed Consent Solicitation Statement.
. The purchase price for the Properties is greater than the fair market
value of the Properties set forth in an independent, annual appraisal of
the Properties made in the ordinary course of the Partnership's business
and greater than that offered by two other prospective purchasers. See
"SPECIAL FACTORS--Independent Appraisal" and "THE PROPOSALS--Background
of the Sale" in the enclosed Consent Solicitation Statement.
. The sale of the Properties will permit the Partnership to liquidate,
thus eliminating (i) the fixed costs associated with maintaining a
public limited partnership and (ii) the annual filing and reporting of
Schedule K-1 tax information by the Limited Partners.
Following for your consideration are some potential disadvantages to the
sale of the Properties:
. An affiliate of the General Partner will own a 9% interest in the
Purchaser in consideration of a pro rata cash contribution to the
Purchaser, and the General Partner will have other relationships with
the Purchaser. See "THE PROPOSALS--The Purchaser."
. The General Partner negotiated the terms of the sale with Lend Lease,
including the consideration to be received.
<PAGE>
. As with most sales of real estate, the Partnership expects to recognize
taxable gains from the sale of the Properties. The Partnership estimates
that these taxable gains will equal approximately $231.27 per Unit,
which will result in federal taxes payable of approximately $56.14 per
Unit. See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
SALE."
. The Partnership will not benefit from possible improvements in economic
and market conditions, if any, which might be expected to produce
increased cash flow and potentially enhance the sales price of the
Properties.
. The sale of the Properties together may not result in as high an
aggregate gross sales price as if each were sold individually.
. Limited Partners will not be afforded appraisal rights or dissenters'
rights in connection with the sale.
Under the terms of the Partnership Agreement, the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, certain affiliated transactions between the
General Partner and the Partnership are prohibited. Because the Purchaser may
be deemed to be an "affiliate" of the General Partner (under the Partnership
Agreement), the General Partner is also seeking to amend the Partnership
Agreement to permit such a sale, which requires the approval of a majority in
interest of the Limited Partners.
The accompanying materials contain a complete discussion of the purchase
price under the heading "SPECIAL FACTORS--Fairness of the Sale," together with
a discussion of all of the disadvantages and conflicts of interest arising in
connection with the sale under the heading "THE PROPOSALS--Conflicts of
Interest of the General Partner."
We have considered several alternatives to this transaction. After carefully
weighing the facts and circumstances associated with the transaction as well
as with alternative courses of action, we have concluded that the proposed
sale of the Properties is the best alternative for the Limited Partners. Our
conclusions are set forth in the section of the Consent Solicitation Statement
entitled "SPECIAL FACTORS--Alternatives Considered to the Sale." It is
anticipated that distributions to the Limited Partners of net proceeds from
the sale, together with certain cash reserves, will occur within 30 days after
the closing date of the sale.
If the Limited Partners fail to approve the sale and the amendment, the
Partnership will attempt to refinance the existing loans secured by the
Properties and utilize the loan proceeds to implement certain capital
improvements, establish reserves for future capital improvements and make a
tax-deferred distribution to the Limited Partners. This course of action would
enable the Partnership to take advantage of future appreciation, if any, in
the value of the Properties, but could also increase the risk of loss of the
Properties because of increased debt service and might adversely affect the
timing and amount of future distributions to Limited Partners. See "THE
PROPOSALS--Failure to Approve the Sale."
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT IN ITS
ENTIRETY. WE REQUEST THAT YOU APPROVE THE SALE AND THE AMENDMENT BY SIGNING
AND RETURNING THE ENCLOSED CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE PRIOR TO [ ], 1998. YOUR VOTE IS IMPORTANT. PLEASE SIGN
AND DATE THE ENCLOSED CONSENT AND RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN
BE COUNTED.
<PAGE>
If you have questions regarding the proposed sale or need assistance in
completing and returning your consent card, you may call the Partnership's
Solicitation Agent, [ ], at (800) [ - ] (toll-free).
Sincerely,
CON AM PROPERTY SERVICES, LTD.,
General Partner
By: Continental American
Development, Inc.,
a General Partner
By: _____________________________
Daniel J. Epstein
President and Chief
Executive Officer
<PAGE>
CONAM REALTY INVESTORS 81, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Solicitation Statement") is being
furnished to limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in ConAm Realty Investors 81, L.P., a
California limited partnership (the "Partnership"), in connection with the
solicitation of written consents ("Consents") by ConAm Property Services, Ltd.
(the "General Partner") to proposals (the "Proposals") to (i) sell the
remaining two income-producing, multi-family residential real properties, and
all intangible and personal property relating thereto (collectively, the
"Properties"), of the Partnership to a Delaware limited liability company,
which will be named DOC Investors, L.L.C. and formed if the Proposals are
approved (the "Purchaser"), in the manner described under the section of this
Solicitation Statement entitled "THE PROPOSALS" (the "Sale") and (ii) enact an
amendment (the "Amendment") to the Partnership's Amended and Restated
Certificate and Agreement of Limited Partnership (the "Partnership Agreement")
to permit the Sale to an "affiliate" of the General Partner as presently
defined in the Partnership Agreement. The full text of the proposed Amendment
is set forth in Appendix A attached hereto. If the Sale is approved by the
Limited Partners but the Amendment is not, the General Partner will have no
authority to consummate the Sale, and the Sale will not occur.
There is no assurance that the Sale will be consummated. However, assuming
the Sale is consummated, it is anticipated that an initial distribution to
Limited Partners of net proceeds from the Sale, together with certain cash
from operations, will aggregate approximately $172.02 per Unit and will occur
within 30 days after the closing date of the Sale. A final distribution of
cash from contingent reserves of up to $3.19 per Unit will be made upon
liquidation of the Partnership, approximately six months after the
consummation of the Sale. See "THE PROPOSALS--Description of the Partnership."
As with most sales of real estate, the Partnership expects to recognize
taxable gains from the Sale of the Properties. The Partnership estimates that
these taxable gains will equal approximately $231.27 per Unit, which will
result in federal taxes payable of approximately $56.14 per Unit. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
While the General Partner, an affiliate of which will own a 9% interest in
the Purchaser, negotiated the terms of the Sale, including the consideration
to be received, holders of a majority of the outstanding Units must consent to
the Proposals for the transaction to proceed. Limited Partners will not be
afforded appraisal rights or dissenters' rights in connection with the Sale.
This Solicitation Statement and the accompanying consent card are first
being mailed to Limited Partners on or about November [ ], 1998.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS NOVEMBER [ ], 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 3
ACTION BY CONSENT.......................................................... 6
General................................................................... 6
Matters to be Considered.................................................. 6
Record Date............................................................... 7
Action by Consent......................................................... 7
SPECIAL FACTORS............................................................ 8
Reasons for the Sale...................................................... 8
Alternatives Considered to the Sale....................................... 9
Effects of the Sale....................................................... 10
Fairness of the Sale...................................................... 12
Independent Appraisal..................................................... 14
THE PROPOSALS.............................................................. 16
Description of the Partnership............................................ 16
The Purchaser............................................................. 16
Description of the Properties to be Sold.................................. 17
Indebtedness on the Properties............................................ 17
Purchaser's Valuation..................................................... 17
General Partner's Valuation............................................... 18
Background of the Sale.................................................... 18
Conflicts of Interest of the General Partner.............................. 21
Failure to Approve the Sale............................................... 22
Terms of the Purchase Agreements.......................................... 22
The Amendment............................................................. 24
Indemnification........................................................... 25
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE.............. 25
General................................................................... 25
Capital Gains............................................................. 28
Passive Loss Limitations.................................................. 28
Certain State Income Tax Considerations................................... 28
Tax Conclusion............................................................ 28
DISTRIBUTIONS.............................................................. 29
NO APPRAISAL RIGHTS........................................................ 29
MARKET FOR THE UNITS....................................................... 29
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 29
YEAR 2000 INFORMATION...................................................... 30
VOTING PROCEDURES.......................................................... 30
AVAILABLE INFORMATION...................................................... 30
</TABLE>
APPENDIX A--THE PROPOSED AMENDMENT
APPENDIX B--FORM OF CONSENT OF LIMITED PARTNER
ANNEX 1--FORM 10-K
ANNEX 2--FORM 10-Q
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
SOLICITATION STATEMENT. REFERENCES ARE MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
SOLICITATION STATEMENT. UNLESS OTHERWISE DEFINED HEREIN, TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS
SOLICITATION STATEMENT. LIMITED PARTNERS ARE URGED TO READ THIS SOLICITATION
STATEMENT IN ITS ENTIRETY.
THE PARTNERSHIP
CONAM REALTY INVESTORS 81, L.P.
The Partnership owns two residential properties: Las Colinas Apartments I and
II ("Las Colinas"), a 300-unit apartment complex located in Scottsdale,
Arizona, and Tierra Catalina, a 120-unit apartment complex located in Tucson,
Arizona. The principal offices of the Partnership are located at 1764 San Diego
Avenue, San Diego, California 92110-1906, and its telephone number is (619)
297-6771.
The proposed transaction contemplates the Sale of the Partnership's remaining
real property assets, which are the only material assets currently owned by the
Partnership. The Partnership will retain no interests in any real property
following the Sale, and the General Partner anticipates liquidating the
Partnership within six months after consummation of the Sale.
THE PURCHASER
If the Proposals are approved, DOC Investors, L.L.C. ( the "Purchaser") will
be formed as a Delaware limited liability company in which two pension funds
(the "Pension Funds") advised by Lend Lease Real Estate Investments, Inc.
("Lend Lease"), which is unaffiliated with the General Partner, will each own a
45.5% interest and in which ConAm DOC Affiliates LLC, an affiliate of the
General Partner, will own a 9% interest. The principal offices of the Purchaser
will be located at 1764 San Diego Avenue, San Diego, CA 92110-1906.
THE PROPOSALS
THE SALE
Upon the approval of a majority in interest of the Limited Partners pursuant
to this Solicitation Statement, the Properties may be sold to the Purchaser for
an aggregate purchase price of $22,250,000 in cash, subject to certain
adjustments at closing (the "Purchase Price"), as described under "THE
PROPOSALS--Terms of the Purchase Agreements." After the payment of outstanding
indebtedness and expenses of the Sale, there will be approximately $12,334,670
of net proceeds from the Sale available for distribution.
THE AMENDMENT
The Partnership Agreement provides that the General Partner has no authority
to sell any Partnership property to the General Partner or an "affiliate" of
the General Partner. An affiliate of the General Partner will own a 9% interest
in the Purchaser, will have a right of first offer and certain buy/sell rights
with respect to interests in the Purchaser and its property, and will be
entitled to receive, under certain circumstances, a percentage of the
Purchaser's profits in excess of such affiliate's percentage ownership interest
in the Purchaser. In addition, an affiliate of the General Partner which will
not be a member of the Purchaser will serve as the initial property manager for
the Purchaser. Taken together, these factors might cause the Purchaser to be an
"affiliate" of the General Partner under the terms of the Partnership
Agreement. In order to permit the Sale, the General Partner proposes to amend
the Partnership Agreement to permit proposed sales of Partnership properties to
"affiliates" of the General Partner, if such proposed sales are approved by the
Limited Partners. See "THE PROPOSALS--The Amendment" and "SPECIAL FACTORS--
Effects of the Sale."
3
<PAGE>
FAIRNESS OF THE SALE AND CERTAIN CONFLICTS OF INTEREST
The General Partner has carefully considered the Sale and has concluded that
the Sale is in the best interests of the Partnership and the Limited Partners.
This conclusion is supported by (i) an appraisal of the Properties rendered by
an independent real estate valuation advisory firm, Bach Realty Advisors, Inc.
(the "Appraiser"), as of December 31, 1997 and (ii) comparisons with other
offers for the Properties received by the General Partner within the last year.
See "SPECIAL FACTORS--Fairness of the Sale" and "THE PROPOSALS--Background of
the Sale." There are certain factors, including conflicts of interest,
described in this Solicitation Statement that Limited Partners should consider
when determining the fairness of the Sale. See "THE PROPOSALS--Conflicts of
Interest of the General Partner," and "SPECIAL FACTORS--Effects of the Sale."
SECURITY OWNERSHIP AND VOTING THEREOF
As of the Record Date, an affiliate of the General Partner owned a total of
20 Units (approximately 0.0255% of the then-outstanding Units). This affiliate
intends to consent to the Proposals. See "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF."
CONSUMMATION OF THE SALE
The material terms of the Agreements for Purchase and Sale and Joint Escrow
Instructions (the "Purchase Agreements") have been negotiated between Lend
Lease and the General Partner. If the Limited Partners approve the Proposals,
the Purchase Agreements will be executed and delivered. Assuming the requisite
approval of the Limited Partners is obtained promptly, the consummation of the
Sale is expected to occur during December 1998 and is required to occur no
later than December 31, 1998, unless extended by the mutual agreement of the
parties (the "Closing Date"). See "THE PROPOSALS--Terms of the Purchase
Agreements."
NO APPRAISAL RIGHTS
If the Sale is approved by Limited Partners owning a majority in interest of
the outstanding Units, dissenting Limited Partners will not have appraisal
rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The General Partner expects that the Limited Partners will recognize taxable
gains of approximately $231.27 per Unit from the Sale. The Sale proceeds
distributed to the Limited Partners, together with certain distributions from
cash reserves, are expected to exceed the Limited Partners' income tax
liability attributable thereto. The Partnership estimates that these taxable
gains will result in federal taxes payable of approximately $56.14 per Unit.
See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
DISTRIBUTION OF NET SALE PROCEEDS
Net proceeds from the Sale, together with certain cash reserves, aggregating
approximately $172.02 per Unit, are expected to be distributed to the Limited
Partners within 30 days after the Closing Date of the Sale. A final
distribution of cash from contingent reserves of up to $3.19 per Unit will be
made upon liquidation of the Partnership, approximately six months after the
consummation of the Sale. The General Partner intends to waive any right it may
have to receive distributions of net proceeds from the Sale.
ACTION BY CONSENT
TERMINATION OF CONSENT SOLICITATION
Consents must be received by mail or facsimile before [ ], 1998, at
5:00 P.M., Pacific Standard Time, unless such date or time is extended for an
aggregate of up to an additional 40 days in the sole discretion of the General
Partner or unless the necessary vote to approve the Proposals is received
earlier.
4
<PAGE>
RECORD DATE; UNITS ENTITLED TO CONSENT
Limited Partners of record at the close of business on [ ], 1998 (the
"Record Date") are entitled to approve the Proposals by written Consent. At
such date there were outstanding 78,290 Units, each of which will entitle the
record owner thereof to one vote.
PURPOSE OF THE ACTION
Written Consents are being solicited to approve the Proposals, which consist
of the Sale and the Amendment.
SOLICITATION AGENT
The Partnership has retained [ ] (the "Solicitation Agent") to
assist in the solicitation of Consents. Completed, signed consent cards must be
returned to the Solicitation Agent by mail or facsimile before the Expiration
Date. If you have any questions, please call [ ] at (800) [ - ]
(toll-free).
VOTE REQUIRED
The Proposals must be approved by Limited Partners holding a majority of all
outstanding Units. If the Sale is approved but the Amendment is not, the
General Partner will have no authority to consummate the Sale, and the Sale
will not occur.
5
<PAGE>
ACTION BY CONSENT
GENERAL
This Solicitation Statement is being furnished on behalf of the Partnership
to the Limited Partners of the Partnership in connection with the solicitation
of Consents by Con Am Property Services, Ltd., as the General Partner.
This Solicitation Statement and accompanying consent card are first being
mailed to Limited Partners on or about November [ ], 1998.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve (i) the Sale of the Properties to
the Purchaser pursuant to the Purchase Agreements and (ii) since the Purchaser
may be an "affiliate" of the General Partner under the Partnership Agreement,
the Amendment of the Partnership Agreement to permit proposed sales of
Partnership properties to "affiliates" of the General Partner, if such
proposed sales are approved by the Limited Partners. If the Proposals are
approved by the Limited Partners, and the Sale is consummated, there will be
approximately $12,334,670 of net proceeds from the Sale, after the payment of
outstanding indebtedness and expenses of the Sale. The following table sets
forth the calculations used in determining the estimated initial distribution
from the net proceeds from the Sale, together with certain cash reserves,
assuming a Sale as of November 30, 1998:
ESTIMATED NET CASH AVAILABLE BEFORE CONTINGENT RESERVES
<TABLE>
<CAPTION>
NET NET CASH
PROCEEDS FROM
FROM SALE OPERATIONS TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Gross Purchase Price........... $22,250,000
Estimated Transaction
Costs(1)...................... (100,000)
-----------
Net Sale Proceeds.............. 22,150,000
Repayment of Secured Debt...... (9,718,148)
Prepayment Penalties(2)........ (97,182)
----------- ----------
Net Distributable Proceeds from
Sale.......................... 12,334,670 $12,334,670
-----------
Other Available Cash(3)........ $1,536,520 1,536,520
Less: General Partner Por-
tion(10%)..................... (153,652) (153,652)
----------- ---------- -----------
Net Cash Available Before Con-
tingent Reserves.............. 12,334,670 1,382,868 13,717,538
=========== ========== ===========
Net Cash Available Before Con-
tingent Reserves, per Unit
(78,290 Units)................ $ 175.21
===========
Net Asset Value Per Unit at
12/31/97...................... $ 151.96
===========
ESTIMATED PROJECTED INITIAL DISTRIBUTION TO LIMITED PARTNERS
<CAPTION>
PER
UNIT
-------
<S> <C> <C>
Net Cash Available Before Con-
tingent Reserves (from above) $13,717,538 $175.21
Less: Contingent Reserves(4)... (250,000) $ (3.19)
----------- -------
Net Initial Distribution to
Limited Partners.............. $13,467,538 $172.02
=========== =======
</TABLE>
- --------
(1) Includes estimated costs of consent solicitation and Sale.
(2) Equal to 1% of the outstanding principal balance.
6
<PAGE>
(3) Includes cash balance at 9/30/98, adjusted for projected cash flow from
10/01/98-11/30/98, refund of security deposits, projected 3rd quarter
distributions to Limited Partners, General Partner recontribution of
previous sale and refinance distributions, and costs incurred in the final
administration and liquidation of the Partnership.
(4) Represents a reserve for unanticipated costs related to the Sale and
liquidation of the Partnership. Any unused portion of this reserve will be
distributed upon liquidation of the Partnership.
Of the $175.21 total potential distribution per Unit, approximately $172.02
will be distributed within 30 days of the consummation of the Sale, and the
remaining $3.19 will be retained to cover contingencies related to the Sale
and the expenses of the Partnership's winding-up and liquidation. This
additional reserve equal to $3.19 per Unit will be distributed to Limited
Partners, to the extent available, upon liquidation of the Partnership, which
is expected to occur within six months of the consummation of the Sale.
The Partnership Agreement provides that, following consummation of the Sale,
the General Partner is entitled to receive an initial distribution equal to 1%
of the net proceeds from the Sale. Pursuant to this provision, approximately
$123,347 of net proceeds from the Sale would be distributable to the General
Partner. However, if the Sale is consummated, the General Partner intends to
waive any right it may have to receive any portion of this distribution.
THE GENERAL PARTNER PROPOSES THAT THE LIMITED PARTNERS TAKE THE FOLLOWING
ACTIONS BY CONSENT:
APPROVE THE SALE OF THE PARTNERSHIP'S RESIDENTIAL PROPERTIES KNOWN AS LAS
COLINAS APARTMENTS I AND II AND TIERRA CATALINA, TOGETHER WITH ALL INTANGIBLE
AND PERSONAL PROPERTY NECESSARY TO THE OPERATION THEREOF, TO THE PURCHASER,
PURSUANT TO CERTAIN PURCHASE AGREEMENTS TO BE ENTERED INTO BETWEEN THE
PURCHASER AND CERTAIN TITLE-HOLDING ENTITIES WHICH THE PARTNERSHIP CONTROLS,
AND APPROVE THE AMENDMENT OF THE PARTNERSHIP AGREEMENT TO PERMIT PROPOSED
SALES OF PARTNERSHIP PROPERTIES TO "AFFILIATES" OF THE GENERAL PARTNER, IF
SUCH PROPOSED SALES ARE APPROVED BY THE LIMITED PARTNERS.
WHILE THE GENERAL PARTNER, AN AFFILIATE OF WHICH WILL OWN A 9% INTEREST IN
THE PURCHASER, NEGOTIATED THE TERMS OF THE SALE, INCLUDING THE CONSIDERATION
TO BE RECEIVED, HOLDERS OF A MAJORITY OF THE OUTSTANDING UNITS MUST CONSENT TO
THE PROPOSALS FOR THE TRANSACTION TO PROCEED.
RECORD DATE
The close of business on [ ], 1998 has been fixed by the General
Partner as the Record Date for determining the Limited Partners entitled to
receive notice of the solicitation of Consents and to give their consent to
the Proposals. As of the Record Date, there were 78,290 issued and outstanding
Units entitled to vote held of record by [3,461] holders.
ACTION BY CONSENT
Under the terms of the Partnership Agreement the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, the sale of Partnership properties to the
General Partner or its affiliates is prohibited, unless the Partnership
Agreement is amended with the approval of a majority in interest of the
Limited Partners to permit such sales. Such approval will be obtained through
the solicitation of written Consents from Limited Partners, and no meeting of
Limited Partners will be held to vote on these matters. Consents must be
received by [ ], 1998, at 5:00 P.M., Pacific Standard Time, unless such
date or time is extended for an aggregate of up to an additional 40 days in
the sole discretion of the General Partner or unless
7
<PAGE>
the necessary vote to approve the Proposals is received earlier (the
"Expiration Date"). Any Consent given pursuant to this solicitation may be
revoked by the person giving it at any time before the Expiration Date by
sending a written notice of revocation or a later-dated Consent containing
different instructions to the Solicitation Agent before such date. Any written
notice of revocation or subsequent Consent should be sent to the Solicitation
Agent at the address that appears on the back cover of this Solicitation
Statement.
In addition to solicitation by use of the mails, officers, directors and
employees of the General Partner or its affiliates, or the Solicitation Agent,
may solicit Consents in person or by telephone, facsimile or other means of
communication. Such officers, directors and employees will not receive
additional compensation for such services but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements have
been made with custodians, nominees and fiduciaries for the forwarding of
Consent solicitation materials to beneficial owners of Units held of record by
such custodians, nominees and fiduciaries, and the Partnership will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Partnership has hired the Solicitation
Agent to assist in the solicitation of the Consents, and will pay an estimated
fee of $[ ] plus the usual and customary fees and expenses associated with
such solicitation assistance. All costs and expenses of the solicitation of
Consents, including the costs of preparing and mailing this Solicitation
Statement, will be borne by the Partnership, whether or not the required
Consents are received and the Sale is consummated. The aggregate expenses
anticipated to be incurred by the Partnership relating to this solicitation
are expected to be approximately $[ ] and are detailed in the following
table:
<TABLE>
<S> <C>
Filing fees......................................................... $2,467
Legal fees..........................................................
Accounting fees.....................................................
Solicitation fees...................................................
Printing fees.......................................................
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SPECIAL FACTORS
REASONS FOR THE SALE
The General Partner's decision to proceed with the Sale at this time is
based upon the belief that current market conditions are favorable for the
Sale; that the Properties have been held substantially longer than the
originally anticipated holding period and many Limited Partners would prefer
to liquidate their investments; that the Purchase Price is attractive; and
that the Pension Funds and Lend Lease are highly likely to consummate the
transaction. The General Partner has also considered: (a) the amount likely to
be distributed to the Limited Partners if the Sale were to occur; (b) the
business risks to which the Partnership would be exposed if the Sale were not
to occur; and (c) the elimination of (i) the fixed costs associated with
maintaining a public limited partnership and (ii) the annual filing and
reporting of Schedule K-1 tax information by the Limited Partners.
If the Sale is consummated, aggregate distributions to the Limited Partners
following the Sale, including a distribution in respect of the Sale and a
final distribution upon the anticipated liquidation of the Partnership, are
estimated to be $175.21 per Unit. This compares favorably with an average
price of $115 per Unit offered in two recent tender offers made by parties
unaffiliated with the General Partner. See "MARKET FOR THE UNITS."
If the Sale does not occur, the Partnership will attempt to refinance the
existing loans secured by the Properties and utilize any loan proceeds to
implement certain capital improvements, establish reserves for future capital
improvements and make a tax-deferred distribution to the Limited Partners. The
Partnership might then take advantage of any future property appreciation
through a future sale of one or both of the Properties to the Purchaser or
otherwise. However, such a course of action could also increase the risk of
loss of the Properties
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due to any failure to make increased debt service payments and might also
adversely affect the timing and amount of future distributions to Limited
Partners. See "THE PROPOSALS--Failure to Approve the Sale."
As indicated in the Partnership's annual reports to Limited Partners and
Form 10-Ks, the annual third party cost of administration of the Partnership
was $218,706 for 1995, $147,482 for 1996 and $176,587 for 1997. These
administrative costs are incurred irrespective of the number of properties
owned by the Partnership and cover the annual audit, preparation of the
Partnership's tax return, transfer agent fees and investor services and public
reporting fees. In addition, the Limited Partners incur individual costs
associated with the preparation of appropriate schedules for their tax
returns.
ALTERNATIVES CONSIDERED TO THE SALE
Continued Ownership of the Properties. The decision to sell the Properties
at this time took into account the General Partner's opinion concerning the
limited prospects for capital appreciation of the Properties, unless
significant additional investments are made in the Properties. The General
Partner considered retaining one or both of the Properties for a longer period
with the expectation of achieving greater capital appreciation. However, due
to the fact that the Properties are aging, the General Partner believes that
the Partnership will need to expend significant funds for capital improvements
and maintenance costs in order for the Properties to compete in their
respective markets in the future. The improvements would involve ongoing
replacement of carpeting, tiling, and appliances, repainting of unit interiors
and ongoing exterior maintenance, including painting, roof replacement,
heating and air conditioning refurbishment, repaving of common areas and
access roads, and ongoing repairs to plumbing, electrical systems and building
exteriors. The General Partner estimates that the average cost of these
improvements in 1999, 2000 and 2001 would approximate $394,000 per year.
While the General Partner believes that the Partnership could borrow
additional funds in order to finance these improvements, the General Partner
does not believe that increasing the level of debt on the Properties would be
in the best interests of the Partnership, if another alternative such as the
Sale is feasible. Increasing indebtedness on the Properties would increase the
risk of loss and significantly decrease net cash flow, resulting in an
indefinite suspension of distributions to the Limited Partners. Such a plan of
action also would subject the Limited Partners to the continued risks of
ownership of the Properties and prolong the fixed costs associated with
maintaining a public limited partnership, including the administrative burden
of annual filing and reporting of Schedule K-1 tax information.
Tender Offer. From time to time, the Limited Partners have been approached
by investors seeking to acquire Units. Based on analyses of these proposals
and general market information as to other tender offers for real estate
limited partnership interests, the General Partner has concluded that such
tender offers are generally made at prices that reflect a significant discount
from the net asset value of the Units. For instance, those tender offers
during the past two years of which the General Partner is aware have been made
at prices that reflect approximately 46% to 75% of the net asset value of the
Units. The General Partner has consistently recommended that the Limited
Partners decline a tender offer on terms that reflect such a significant
discount from net asset value.
The General Partner has considered the possibility of making a tender offer
itself for all or a portion of the outstanding Units of the Partnership.
However, the General Partner determined that the purchase of less than a
controlling interest in the Partnership would be difficult to finance at a
fair approximation of the net asset value of the Units. Accordingly, the
General Partner decided not to pursue a tender offer for the Units. However,
if the Sale is not approved, the General Partner may reconsider such a tender
offer in order to provide liquidity to those Limited Partners who desire it,
although the General Partner is under no obligation to do so. Any such offer
is likely to be at a significant discount to the net asset value of the Units.
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Consolidation. The General Partner also considered a consolidation of the
Partnership with certain other partnerships for which its affiliates act as
general partner. Such a consolidation would have involved the merger of the
Partnership into, or the sale of the Partnership's interests in the Properties
to, a newly-formed entity, pursuant to which the Limited Partners would receive
securities in the surviving entity. Although the General Partner did not
perform any specific financial analysis in the context of evaluating the merits
of this alternative, it rejected this alternative because it would not
necessarily provide the Limited Partners with improved liquidity and might
continue to subject the Limited Partners to the market and other risks
associated with the ownership of securities which might not have an active
trading market. In addition, there has been significant negative publicity
regarding such "roll-up" transactions, and recently enacted legislation on both
the federal and state levels as well as increased regulation of such
transactions have made this alternative expensive and time consuming.
Other Sales. See "THE PROPOSALS--Background of the Sale" for a discussion of
other proposals to purchase the Properties received by the General Partner.
Conclusion. After considering all of the foregoing alternatives, the General
Partner concluded that it is in the best interests of the Partnership and the
Limited Partners to proceed with the Sale to the Purchaser for the Purchase
Price.
EFFECTS OF THE SALE
Partnership. The Sale, if consummated, would effect a dissolution of the
Partnership under the Partnership Agreement and California law. Accordingly, an
initial distribution to Limited Partners of net proceeds from the Sale,
together with certain cash reserves, would be followed by a liquidation
distribution of cash from contingent reserves approximately six months after
consummation of the Sale. Any taxable income realized by the Partnership in
connection with the Sale or liquidation will be passed through to the partners
of the Partnership, in accordance with federal and state tax law and the
Partnership Agreement. The Partnership will not incur any income taxes in
respect of such transactions. See "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE SALE."
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Affiliates of the Partnership. Continental American Development, Inc.
("CADI") is a general partner of the General Partner. The shareholders of CADI
are substantially identical to the partners of Continental American
Properties, Ltd., which is the managing member of ConAm DOC Affiliates LLC
("ConAm DOC"), the prospective owner of a 9% interest in the Purchaser. In
addition, the shareholders of CADI are identical to the shareholders of ConAm
Management Corporation ("ConAm Management"), which will act as the initial
property manager for the Purchaser if the Proposals are approved. As a result,
the Sale is subject to various conflicts of interest. The following charts set
forth the proposed relationship among the General Partner, ConAm Management,
and, when formed, the Purchaser.
[CHART APPEARS HERE]
- --------
* RI 81 Real Estate Services Inc. sold its co-general partner interest in the
Partnership to the General Partner effective July 1, 1997. See "THE
PROPOSALS--Background of the Sale."
The General Partner anticipates benefiting from the Sale to the Purchaser
because ConAm DOC, an affiliate of the General Partner, will own a 9% interest
in the Purchaser and will benefit on any returns the Purchaser receives from
its investment in the Properties. The Purchaser will buy the Properties with a
view to generating a positive return on its investment, whether from operating
the Properties, selling the Properties or ultimately selling interests in the
Purchaser. Achieving this investment objective is possible, because the
Pension Funds are willing to invest funds in capital improvements and other
items necessary to enhance the value of the Properties and potentially
increase the revenues generated by the Properties. In addition, the Purchaser
would likely be able to borrow on more favorable terms than the Partnership if
it purchases additional properties and is therefore able to cross-
collateralize any loans with all of such properties, something the Partnership
is not in a position to do.
As further benefits of the Sale to the General Partner, ConAm DOC might
have, under certain circumstances and at certain times, an option to purchase
additional interests in the Purchaser and will have a right of first offer
with respect to the Purchaser's property. See "THE PROPOSALS--The Purchaser."
As a result of the Sale and subsequent liquidation of the Partnership, the
General Partner (i) will recognize a tax loss of $137,988, (ii) expects to
receive $153,652 as its pro rata share of the cash reserves, excluding net
proceeds from the Sale, and (iii) will be required to recontribute $201,260 to
the Partnership. The recontribution represents distributions previously made
to the General Partner in respect of refinancings or sales of the
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Partnership's properties. As previously discussed, the General Partner intends
to waive any right it may have to receive any distributions of net proceeds
from the Sale.
As a result of the Sale, the General Partner will retain without
modification its current interest in the net book value and net earnings of
the Partnership. No affiliate of the General Partner will obtain any interest
in the net book value and net earnings of the Partnership as a result of the
Sale.
Limited Partners. It is anticipated that, shortly after the Sale, the net
proceeds from the Sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. This initial distribution to Limited Partners of
net proceeds from the Sale and certain cash from operations will aggregate
approximately $172.02 per Unit and will occur within 30 days after the Closing
Date. A final distribution of cash from contingent reserves of up to $3.19 per
Unit will be made upon the subsequent liquidation of the Partnership,
approximately six months after the consummation of the Sale. The Sale will
thus eliminate (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners. The Sale and liquidation will also
have certain income tax consequences to the Limited Partners. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
FAIRNESS OF THE SALE
The General Partner and its affiliates believe that the Sale is fair and
reasonable as to both price and structure and is in the best interests of the
Limited Partners and the Partnership and has, therefore, approved the Sale.
Because an affiliate of the General Partner will have a 9% interest in the
Purchaser, the General Partner has an economic interest that is in conflict
with the economic interest of the Limited Partners, and the interests of the
General Partner may therefore conflict with its fiduciary obligations to the
Limited Partners. The General Partner believes, however, that it has fulfilled
its fiduciary obligations to the Partnership and that the Sale is fair to the
Limited Partners. See "THE PROPOSALS--Conflicts of Interest of the General
Partner."
IN REACHING ITS DETERMINATION THAT THE SALE IS FAIR, THE GENERAL PARTNER
CONSIDERED THE FOLLOWING FACTORS WITH RESPECT TO THE SALE:
(i) The General Partner believes that the Purchase Price represents a
fair price for the Properties. For the reasons described in "--Independent
Appraisal," the General Partner relied during initial negotiations with
Lend Lease on the Independent Appraisal (as defined below) as
representative of a fair price for the Properties. As negotiations for the
Sale continued, Lend Lease and the General Partner learned of higher values
which had been attributed to the Properties by the prospective lender for
the Purchaser. See "THE PROPOSALS--Background of the Sale." Upon learning
of these higher values, the General Partner was able to negotiate an
increase in the purchase offer from the value set forth in the Independent
Appraisal to the Purchase Price. See "THE PROPOSALS--Background of the
Sale." In addition, the Purchase Price exceeds two offers for the
Properties which were made to the General Partner prior to or during
negotiations with Lend Lease. See "THE PROPOSALS--Background of the Sale."
Because the Purchase Price is equal to or in excess of certain market
indicators of a fair market value for the Properties, the General Partner
believes that the Sale is fair and in the best interests of the Limited
Partners.
(ii) The General Partner believes that current market conditions are
favorable for the Sale, because fair market values have generally
appreciated over the last few years. However, recent volatility and
uncertainty in the global capital markets is having (and is likely to
continue to have) an adverse effect on the financing of real estate
acquisitions. Therefore, in the General Partner's opinion, future
appreciation is unlikely in the near term and there is increased risk in
holding real estate generally. In addition, retention of the Properties
will continue to subject the Partnership to the risks inherent in the
ownership of property, such as fluctuations in occupancy rates, operating
expenses and rental rates, which in turn may be affected by general and
local economic conditions, the supply and demand for properties of the type
owned by the Partnership and federal and local laws and regulations
affecting the ownership and operation of real estate. Therefore, the
General Partner has determined that the Sale is more advantageous to the
Limited Partners than retaining the Properties at the present time.
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(iii) Due to the age and physical condition of the Properties, the
General Partner anticipates a need for expenditures averaging approximately
$394,000 per year in 1999, 2000 and 2001 if the Partnership continues to
hold the Properties. These improvements would involve the ongoing
replacement of carpeting, tiling, and appliances, repainting of unit
interiors and ongoing exterior maintenance, including painting, roof
replacement, heating and air conditioning refurbishment, repaving of common
areas and access roads, and ongoing repairs to plumbing, electrical systems
and building exteriors. While higher rents might be obtained if such
improvements are made, distributions might need to be reduced because of
the increased debt service. Given that continued long-term investment in
the Properties would thus subject the Limited Partners to the risk of
reduced distributions, in addition to the increased risk of holding real
estate generally, the General Partner believes that the Sale is in the best
interests of the Limited Partners.
(iv) The form of the Purchase Agreements, described under "THE
PROPOSALS--Terms of the Purchase Agreements," contains several favorable
provisions which are not customarily found in third party agreements,
including: limited representations and warranties; limited survivability of
representations and warranties; sale of the Properties on an "as is" basis;
lack of due diligence conditions precedent to closing; and lack of any
financing contingencies relating to the Sale. Because these favorable
provisions have the effect of limiting the prospective and other risks
inherent in a sale of real property, the General Partner has determined
that the Proposals are a fair opportunity to submit to the Limited Partners
for approval.
(v) Experience in the multi-family housing market indicates that selling
the Properties together will result in lower aggregate transaction costs,
particularly lower legal and title insurance fees.
(vi) As a result of changes in the federal capital gains tax rate which
became effective in 1997, the Limited Partners will receive more favorable
capital gains tax treatment on the distribution of Sale proceeds than they
would have received prior to such changes.
(vii) The Sale will accelerate distributions to the Limited Partners,
thereby permitting them to liquidate their investments. At present, there
is no established public trading market for the Units and liquidity is
limited to (a) sporadic sales which occur within an informal secondary
market or (b) tender offers for Units, both of which are generally at a
substantial discount to net asset value and often involve only a limited
number of Units.
(viii) The Sale will permit the Partnership to liquidate, thus
eliminating (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners.
(ix) Consummation of the Sale is subject to approval of the Proposals by
a majority in interest of the Limited Partners. Given this procedural
safeguard, the General Partner has determined that offering the Limited
Partners the option of liquidating their investment at or above current
appraised values is preferable to subjecting the Limited Partners to the
increased risk associated with making additional capital investments and
continuing to hold properties in an already competitive market.
THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTIES PURSUANT TO THE
SALE ARE AS FOLLOWS:
(i) The Partnership will not benefit from improvements in economic and
market conditions, if any, which might be expected to produce increased
cash flow and potentially enhance the sales price of the Properties. While
retention and refurbishment of the Properties might yield a long-term gain,
distributions might need to be reduced, and such a course of action is
inherently speculative. Given these considerations, the General Partner has
determined that offering the Limited Partners the option of liquidating
their investment at or above the values set forth in the Independent
Appraisal is preferable to subjecting the Limited Partners to the increased
risk associated with making additional capital investments and continuing
to hold properties in an already competitive market.
(ii) The sale of the Properties together may not result in as high an
aggregate gross sales price as if they were sold individually. While
individual sales might result in a higher aggregate sales price for the
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Properties, the protracted timelines, contingencies and administrative
costs associated with such individual sales do not recommend this strategy.
For example, if one of the Properties were sold, the remaining Property
might not generate sufficient revenues to service debt, pay Partnership
administrative costs and provide for distributions at the current level to
Limited Partners. Accordingly, the General Partner believes that the sale
of the Properties together is more advantageous to the Partnership and the
Limited Partners than individual sales.
(iii) Limited Partners will not be afforded appraisal rights or
dissenters' rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
While this lack of procedural safeguards for dissenters is noteworthy, the
Proposals remain subject to a majority vote of Limited Partners. For this
reason, the General Partner has determined that the Proposals have adequate
procedural safeguards to protect the Limited Partners.
(iv) The Purchase Price was negotiated by the General Partner, an
affiliate of which will have an interest in the Purchaser, without the
benefit of an independent committee or representative to negotiate the
terms of the Sale on behalf of the Limited Partners. However, the General
Partner has determined that appraisals of the Properties, as well as the
market value assessments afforded by prior offers for the Properties,
substantiate the fairness of the Proposals to the Limited Partners. See
"THE PROPOSALS--Background of the Sale" and "--Independent Appraisal."
(v) The form of the Purchase Agreements contains provisions that may be
less advantageous to the Partnership than those found in many third party
agreements, in that (a) the purchase of the Properties by the Purchaser is
subject to the concurrent approval by the limited partners of five public
limited partnerships (the "Affiliated Partnerships") of which affiliates of
the General Partner are the general partners of the sale of their
respective properties to the Purchaser and (b) the Purchaser may terminate
the Purchase Agreements if, due to condemnation or casualty, the Purchaser
is entitled to terminate the purchase agreements with respect to any two or
more properties owned by the Affiliated Partnerships. While these
provisions may present risks for the Partnership, the General Partner
believes that these risks are offset by the beneficial provisions of the
Purchase Agreements described above.
INDEPENDENT APPRAISAL
Each year, in the ordinary course of Partnership business, the General
Partner commissions an appraisal of the fair market value of the Partnership's
properties. For the past four years, the Appraiser has rendered these
appraisals for properties of the Partnership, as well as those of the
Affiliated Partnerships. These appraisals have included appraisals of the
Properties and 12 other properties (together with the Properties, the "RI
Portfolio") which are owned by the Affiliated Partnerships and are currently
proposed to be sold to the Purchaser. The General Partner retains the
Appraiser based upon its reputation as a real estate valuation advisory firm
with experience in the valuation of real property assets similar to those
comprising the RI Portfolio. The Appraiser was originally selected by the
former co-general partner of the Partnership based upon the principal's 30
years of experience as an appraiser and real estate executive with several
national real estate appraisal and research companies and the principal's
familiarity with the markets where the Properties are located. The Appraiser
has received annual fees of $6,500 during each of the last two years for
rendering appraisals to the Partnership with respect to the Properties. Total
fees paid to the Appraiser by the Partnership and its affiliates during 1996
and 1997 were $44,150 and $47,900, respectively.
In March 1998, the Appraiser delivered its independent appraisals to the
General Partner (the "Independent Appraisal") that, as of December 31, 1997,
based on the Appraiser's review and subject to the limitations described
below, the value of Las Colinas was $14,500,000 and the value of Tierra
Catalina was $6,400,000. The Independent Appraisal does not constitute a
recommendation to any Limited Partner as to whether such Limited Partner
should approve the Sale.
In appraising the Properties, the Appraiser obtained pertinent property data
regarding income and expense figures and tenant rent rolls and conducted
inspections of the Properties. Additionally, the Appraiser conducted
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research either personally or through associates to obtain information
concerning current market rental rates, construction trends, the sale of
comparable improved properties, anticipated investor returns, appropriate
operating expenses and the supply and demand of competitive apartment projects
in the general and immediate area. The value of the Properties was determined
by the Appraiser using both the sales comparison approach and the income
approach to value.
For Las Colinas, the Appraiser used an actual sales price for nine apartment
sales from December 1996 to October 1997 in order to implement the sales
comparison approach. The Appraiser implemented the income approach for Las
Colinas under the direct capitalization model and the discounted cash flow
model. The Appraiser's assumptions under the direct capitalization model
included: a capitalization rate of 9.5%; current market rents; stabilized
vacancy rate of 7%; other income based on historical collections; operating
expenses based upon historical actuals and comparable projects; a replacement
reserve allowance of $300 per unit per year; and a reduction for deferred
maintenance of $200,000. The Appraiser's assumptions under the discounted cash
flow model included: a terminal capitalization rate of 10.5%; a discount rate
of 12.5%; a 3% cost of sale; a 10-year holding period; income growth rate of
0% in 1998 and 4% thereafter; a vacancy rate of 9% in 1998 and 7% thereafter;
operating expense growth rate of 4% per year; and a replacement reserve of
$300 per unit per year, increasing by 4% per year.
For Tierra Catalina, the Appraiser used an actual sales price for ten
apartment sales from August 1996 to November 1997 in order to implement the
sales comparison approach. The Appraiser implemented the income approach for
Tierra Catalina under the direct capitalization model and the discounted cash
flow model. The Appraiser's assumptions under the direct capitalization model
included: a capitalization rate of 9.5%; current market rents; stabilized
vacancy rate of 8%; other income based on historical collections; operating
expenses based upon historical actuals and comparable projects; a replacement
reserve allowance of $300 per unit per year; a reduction for deferred
maintenance of $105,000; and a reduction for rent loss due to lease-up of
$61,922. The Appraiser's assumptions under the discounted cash flow model
included: a terminal capitalization rate of 10.5%; a discount rate of 12.5%; a
4% cost of sale; a 10-year holding period; income growth rate of 0% in 1998
and 4% thereafter; a vacancy rate of 10% in 1998 and 8% thereafter; operating
expense growth rate of 4% per year; and a replacement reserve of $300 per unit
per year, increasing by 4% per year.
The Appraiser estimated the leased fee market value for Las Colinas to be
$14,500,000 and for Tierra Catalina to be $6,400,000, a total of $20,900,000
for both Properties. These estimates were made after investigating the
appropriate real estate markets and applying the Appraiser's experience with
and knowledge of similar real estate properties. The estimated values assume
an all cash, "as is" basis and a minimum of six to twelve months to market and
sell the Properties, but do not take into consideration any potential costs
which might be incurred in the course of the marketing and sale of the
Properties.
The Independent Appraisal was made in accordance with the accepted
techniques, standards, methods and procedures of the Appraisal Institute and
was certified by the Appraiser. LIMITED PARTNERS SHOULD NOTE, HOWEVER, THAT
APPRAISALS ARE ONLY ESTIMATES OF CURRENT VALUE AND ACTUAL VALUES REALIZABLE
UPON SALE MAY BE SIGNIFICANTLY DIFFERENT. While the Appraiser may have a
conflict of interest in that it has prepared appraisals of properties for the
Affiliated Partnerships, it has not rendered appraisals for any other
affiliates of the General Partner. The General Partner has not commissioned
any appraisals of the Properties other than the Independent Appraisal, because
the General Partner believes that appraisals by the Appraiser accurately
reflect the fair market value of the properties appraised. This determination
is supported by certain offers received for the Properties by the General
Partner. See "THE PROPOSALS--Background of the Sale." While the General
Partner considered the Independent Appraisal in negotiating the terms of the
Sale, the Independent Appraisal was not determinative of the Purchase Price.
The Independent Appraisal is available for inspection and copying at the
principal executive offices of the General Partner during its regular business
hours by any interested Limited Partner or such Limited Partner's
representative who has been so designated in writing.
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THE PROPOSALS
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on April 30, 1981 for the primary purpose of
acquiring and operating multi-family, residential real properties. The
Partnership currently owns two apartment complexes: Las Colinas, a 300-unit
apartment complex located in Scottsdale, Arizona, and Tierra Catalina, a 120-
unit apartment complex located in Tucson, Arizona. The Partnership sold two
residential apartment complexes in 1995 and another in 1996. The Partnership
will retain no interests in real property after the Sale. See "--Description
of the Properties to be Sold."
The Partnership was structured as a self-liquidating partnership with a
finite life, which would distribute its cash flow during its operating stage
and its proceeds of sale during its liquidating stage, whereupon the
Partnership would be liquidated and dissolved. It was originally anticipated
that the Partnership's properties would be held for approximately five years
after their acquisition although, depending on economic and market factors,
they could have been held for shorter or longer periods in the complete
discretion of the General Partner. The interests in the Properties were
purchased between 1982 and 1984 and now have been held for substantially
longer than the originally anticipated holding period.
THE PURCHASER
Prior to the Sale, the Purchaser will be formed as a Delaware limited
liability company in which the Pension Funds will each own a 45.5% interest
and in which ConAm DOC, an affiliate of the General Partner, will own a 9%
interest.
Under the proposed limited liability company agreement of the Purchaser (the
"LLC Agreement"), ConAm DOC will be the administrative member of the Purchaser
and will have the obligation and responsibility to manage and conduct the day-
to-day business and affairs of the Purchaser. However, because significant
decisions (each, a "Major Decision") can be made only by or with the approval
of 66 2/3% of the membership interests in the Purchaser, Lend Lease and the
Pension Funds will effectively control the Purchaser. Major Decisions include:
the approval or amendment of property budgets; the sale, lease, refinancing,
or encumbrance of the Properties; the acquisition of any real property in
addition to the Properties; the making of capital improvements to the
Properties; the admission of a new member of the Purchaser; entering into any
contract with an affiliate of any member; the issuance or sale of equity or
debt securities of the Purchaser; the consummation of any business combination
involving the Purchaser; the filing of any petition in bankruptcy with respect
to the Purchaser; the selection or replacement of a property manager; and the
distribution of net cash flow or capital proceeds.
Under the proposed LLC Agreement, the Purchaser will enter into a two-year
property management agreement with ConAm Management, an affiliate of the
General Partner. ConAm Management is required to manage the daily operations
of the Properties and will receive a management fee of 3.5% of each Property's
gross collected monthly revenues. If the Purchaser elects in its sole
discretion to retain ConAm Management beyond the initial two-year term, the
management fee will be reduced to 3% of each Property's gross collected
monthly revenues. If the Purchaser sells one or both of the Properties during
the year following the initial two-year term, ConAm Management will be
entitled to a termination fee equal to the management fee otherwise payable in
respect of such Property or Properties for the remainder of that year.
The proposed LLC Agreement provides that, following the two-year anniversary
of the effective date of the LLC Agreement (or at any prior time if the
members of the Purchaser are unable to reach a consensus on any Major Decision
within a 30-day period), any member of the Purchaser, including any affiliate
of the General Partner which is a member of the Purchaser, may make an offer
for the other members' interests in the Purchaser. Each other member may elect
to either sell its interests in the Purchaser for the stated price or make an
offer to purchase the other members' interests in the Purchaser for the stated
price. Accordingly, ConAm DOC might have, under certain circumstances and at
certain times, an option to purchase additional interests in the Purchaser.
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At any time following the two-year anniversary of the effective date of the
LLC Agreement, the Pension Funds will be able to solicit offers for the sale
of either or both of the Properties. In such a case, the Pension Funds will
have to provide ConAm DOC with the exclusive opportunity to negotiate a
purchase of the applicable Property for a 30-day period. If the parties are
unable to reach an agreement as to such a purchase, the Pension Funds will
then be able, without the consent of ConAm DOC, to cause the Purchaser to sell
the applicable Property to a third party.
DESCRIPTION OF THE PROPERTIES TO BE SOLD
Las Colinas. Las Colinas is a 300-unit apartment community located eight
miles northeast of Phoenix in southwest Scottsdale, Arizona. Las Colinas
reported average occupancy of 97% during the first six months of 1998 and 96%
in 1997. The Scottsdale apartment market has been strong, but has also
experienced strong competition recently, reflecting high levels of
construction and notable competition from condominiums and single family
homes, as affordable prices and low mortgage rates enticed renters to buy.
Tierra Catalina. Tierra Catalina is a 120-unit apartment community located
near the Foothills region of Tucson, Arizona. The property had an average
occupancy of 96% during the first six months of 1998 and 91.5% in 1997. Low
interest rates and affordable home prices have also increased competition by
luring many renters to purchase homes. This competition has led to the
reemergence of rental incentives and other concessions in the marketplace to
attract tenants.
INDEBTEDNESS ON THE PROPERTIES
The Properties are currently financed with loans from the Federal National
Mortgage Association which mature on September 1, 1999. Each loan was for an
original term of seven years, amortized over thirty years, and has an interest
rate of 8.5%. Due to the interest rate on the loans and the short remaining
term to maturity, the Purchaser will not assume these existing loans.
The existing loan documents provide for a prepayment penalty in an amount
equal to 1% of the outstanding principal balance of each loan. Based upon the
total remaining indebtedness as of November 1, 1998 in the approximate amount
of $9,718,148, the Partnership will pay a penalty of approximately $97,182
upon any prepayment of the loans in connection with the consummation of the
Sale.
PURCHASER'S VALUATION
The Purchase Price for the Properties is $22,250,000, which is greater than
the aggregate appraised values of the Properties as of December 31, 1997. See
"SPECIAL FACTORS--Independent Appraisal." The Purchase Price was derived
through negotiations between Lend Lease and the General Partner. See "--
Background of the Sale." Lend Lease, acting on behalf of the Purchaser,
considered a number of factors, including the preceding twelve months of net
operating income of the Properties, the age, condition and location of the
Properties, and the significant costs necessary to appropriately manage
properties this age and undertake the capital improvements necessary to
position the Properties to meet competition from newer properties.
The Purchase Price is not subject to adjustment based on the results of Lend
Lease's due diligence investigation on behalf of the Pension Funds. In
addition, because the Properties are being sold on an "as is" basis, it is
more likely that the Partnership will receive and retain the full amount of
the Purchase Price without further adjustment. The Partnership has a high
degree of confidence in the Purchaser's ability to consummate the Sale,
because Lend Lease will have completed its due diligence investigation and
will have deposited $222,500 earnest money into escrow prior to consummation
of the Sale. Another advantage of the Sale is that, because the offer is for
multiple properties, the transaction costs are lower than they might otherwise
be if the Properties were listed with a broker and sold in separate sales, and
therefore the amount which can be distributed to the Limited Partners is
enhanced. However, for a discussion of certain disadvantages of the Sale, see
"SPECIAL FACTORS--Fairness of the Sale" and "--Terms of the Purchase
Agreements."
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GENERAL PARTNER'S VALUATION
The General Partner has not prepared a formal valuation with respect to the
proposed Sale. The General Partner has relied on the Independent Appraisal,
prior offers for the Properties and its general familiarity with and
experience in the Properties' markets to establish that the Purchase Price is
a fair price for the Properties. See "SPECIAL FACTORS--Independent Appraisal"
and "--Background of the Sale."
BACKGROUND OF THE SALE
In 1994, the General Partner and RI 81 Real Estate Services Inc., the then
co-general partners of the Partnership (the "General Partners"), determined,
in their business judgment, that it was an appropriate time to begin exploring
a means of converting the Partnership's interests in its properties to either
cash or marketable securities. This determination was based, in significant
part, upon their belief that the consummation of a sale or a "roll-up"
transaction would be consistent with (i) the Limited Partners' desire for
liquidity, (ii) the fact that a longer holding period could subject the
Limited Partners to risks associated with changing interest rates and property
valuations, and (iii) the aging nature of the properties, which would require
increasingly larger commitments of funds to address on-going capital
expenditures and keep the properties competitive in their respective markets.
Under the terms of the Partnership Agreement, the General Partner or General
Partners have the responsibility to determine when Partnership properties
should be sold. As discussed in the Partnership's original offering
prospectus, the decision to sell the Partnership's properties would depend on
a variety of factors. Accordingly, it was not possible at the outset of the
Partnership to determine precisely when the Partnership's properties would be
sold. Although the terms of the Partnership Agreement do not provide for
termination of the Partnership until December 31, 2010, it was never intended
that the Partnership would hold its properties for the entire term of the
Partnership. In fact, the Partnership's offering prospectus originally
anticipated a holding period of approximately five years for the properties.
However, primarily as a result of extremely unfavorable market conditions in
the late 1980's and early 1990's, the properties were held beyond their
originally anticipated holding periods in order to take advantage of
recovering real estate markets and to avoid adverse tax and cash flow
consequences to the Limited Partners resulting from a sale of the properties
at significantly depressed values.
In 1994, the General Partners concluded that a "roll-up" of the Limited
Partners' interests with those of the Affiliated Partnerships was not in the
best interests of the Limited Partners. See"SPECIAL FACTORS-- Alternatives
Considered to the Sale--Consolidation." Therefore, the decision was made to
begin marketing selected properties for sale. This decision was based upon the
General Partners' belief that the real estate capital markets were improving,
particularly in the multi-family sector. Pension funds, real estate investment
trusts and other institutional buyers had increased their purchasing activity
as compared to the early 1990's when these same institutional buyers were
largely out of the market. Lower interest rates had also improved the market
for selling properties, as entrepreneurial buyers who required debt financing
to purchase properties were able to borrow funds at more advantageous interest
rates. Further, with respect to the Partnership's properties, local real
estate market conditions were improving, resulting in improved operating
performances of certain properties and enhanced prospects for selling certain
properties at attractive prices.
Based upon the improvement in the real estate capital markets and certain of
the local real estate markets, the General Partners concluded that it would
then be easier to identify buyers for certain of the Partnership's properties
and that the offers might be at more favorable capitalization rates than were
previously available. Evaluating the effects to the Limited Partners of an
immediate sale and the prospects for near-term appreciation, the General
Partners made an assessment of each of the Partnership's properties and its
local market. In accordance with this assessment, certain properties were
identified for sale and subsequently sold. See "--Description of the
Partnership."
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From time to time, the General Partners have received unsolicited
indications of interest in one or more of the remaining properties owned by
the Partnership, including the Properties. The General Partners did not pursue
these indications of interest for a variety of reasons. For instance, in some
cases, the General Partners could not obtain adequate information regarding
the proposed buyer and its sources of financing. In other cases,
investigations as to the proposed buyer's purchase criteria, return
requirements, sources of capital, experience in the relevant real estate
markets, and timelines did not indicate that the proposed buyer was a
realistic potential purchaser. Finally, certain indications of interest were
not pursued because the General Partners believed that market conditions and,
therefore, prices, were likely to improve over the near-term.
In October 1997 and July 1998, respectively, an equity real estate
investment trust (the "REIT") and a real estate investment fund (the "Fund"),
parties unrelated to the General Partners, each expressed an interest in
acquiring the Properties and certain other properties owned by the Affiliated
Partnerships. The REIT and the Fund were familiar with these properties and
their respective locations within their respective trade areas. The REIT offer
included two properties which are no longer part of the RI Portfolio. Based on
the General Partner's understanding of the allocation of the REIT's offer, the
REIT offer for the RI Portfolio was $111,600,000, which was equal to the
appraised value of the RI Portfolio as of December 31, 1996. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $20,100,000. The Fund offer indicated that the aggregate value
of the RI Portfolio was $115,650,000, which equaled the value set forth in the
Independent Appraisal, but, in consideration of the purported advantages to
the seller of a single transaction over an asset-by-asset sale, including the
avoidance of seller-paid brokerage commissions (estimated by the Fund to be 4%
or more of the purchase price) and reduced legal fees and related closing
costs, the Fund's offer for the RI Portfolio was $104,085,000. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $18,810,000. In any event, these offers were not accepted
because, in the opinion of the General Partner and its affiliates, they either
did not reflect the value of the Properties at the time they were made and/or
they were subject to significant due diligence, underwriting and other
contingencies.
Neither the General Partner, the Partnership nor any of their affiliates
have received any other offers for the RI Portfolio or the Partnership's
properties. Due to, among other things, the protracted timelines,
contingencies and administrative costs associated with sales of individual
properties, continued individual sales of RI Portfolio properties have not
been pursued by the General Partner and its affiliates subsequent to the REIT
and Fund offers.
Effective July 1, 1997, the General Partner purchased the co-general partner
interest of RI 81 Real Estate Services Inc. for $10,000 in cash and the
assumption of $134,173 in liabilities. Subsequent to this acquisition, the
General Partner has considered alternative disposition strategies for the
Properties in light of the following:
(i) Due to previous sales of Partnership property, the Partnership
currently owns only two Properties, resulting in a disproportionate amount
of fixed costs associated with maintaining a public limited partnership;
and
(ii) The General Partner believes that the appropriate strategy for the
continued ownership of the Properties is the implementation of a physical
refurbishment program, which would result in capital expenditures that
would likely be unattractive to the Limited Partners, because they would
result in the suspension or reduction of cash distributions.
In mid-February 1998, ConAm Management, an affiliate of the General Partner,
acquired Alliance Residential Management, Inc., a Phoenix-based property
management company ("Alliance"). At the time of the acquisition, Alliance was
managing property in Phoenix on behalf of Lend Lease, advisor to the Pension
Funds. Shortly after the acquisition of Alliance, Steve Walker, a Pension Fund
senior portfolio manager at Lend Lease, telephoned Jim Krohn, the former owner
of Alliance, who was at that time a newly-appointed officer at ConAm
Management. During this telephone conversation, Mr. Walker asked to be
introduced to the principals of ConAm Management, for the purpose of
familiarizing himself with Lend Lease's new property manager and exploring
whether any further mutually beneficial business relationships could be
established between the two parties and/or their affiliates.
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On March 13, 1998, Mr. Krohn and J. Bradley Forrester, President of ConAm
Management and Vice President of a general partner of the General Partner,
flew to Atlanta to meet with Messrs. Ray D'Ardenne, Don Miller, Ted Klinck,
and Walker of Lend Lease. During this meeting, Messrs. Forrester and Krohn
presented the Lend Lease principals with general information about ConAm
Management and the multi-family real estate holdings of its affiliates,
including the RI Portfolio. The Lend Lease principals responded to this
presentation by expressing Lend Lease's desire to acquire well-located multi-
family properties where there was the opportunity to add value through
physical refurbishment and repositioning. At that time, Mr. D'Ardenne
expressed a possible interest in acquiring a small portfolio of multi-family
residential housing properties from ConAm Management's affiliates. While, as
described above, the General Partner and its affiliates had been contemplating
a sale of the RI Portfolio for some time, no formal presentations, proposals
or solicitations for an offer relating to the RI Portfolio were made to the
Lend Lease principals on that date.
On March 16, Mr. Forrester sent Mr. Klinck at Lend Lease an informational
package relating to the RI Portfolio. The package included information
relating to the locations of the properties, the number of units at each
property, a brief financial overview, and lists of amenities. Over the next
few days, Mr. Forrester continued to send information concerning the RI
Portfolio to Mr. Klinck. Subsequently, Mr. Klinck called Mr. Forrester and
expressed Lend Lease's interest in pursuing the acquisition of the RI
Portfolio. The General Partner believes that, during this time, Lend Lease
representatives may have made site visits to certain of the properties
comprising the RI Portfolio. The General Partner and its affiliates did not
consider retaining an independent advisor to represent the interests of the
Limited Partners in any prospective sale of the Properties, because they
determined that that the Independent Appraisal would provide adequate
assurance that a fair offer would be presented to the Limited Partners for
approval.
In late March and early April, the parties continued to exchange information
relating to the RI Portfolio. At the request of Mr. Klinck, Mr. Forrester
began to deliver more detailed financial reports and other information to Mr.
Klinck, in order to assist Lend Lease in its development of an offer. During
this time, Mr. Klinck and Mr. Forrester discussed the relative merits of
having affiliates of the General Partner contribute up to $5 million to the
purchase price of the RI Portfolio and provide property management services to
the RI Portfolio after the proposed sale. Through this alignment of interests,
Lend Lease believed that the underwriting risks inherent in the purchase of
real estate properties and the risks associated with the ongoing management of
the Properties would be reduced. The General Partner believes that this
reduction of risk to Lend Lease is reflected in the fact that the Purchase
Price is greater than the amounts offered by others.
During the following weeks, Lend Lease performed its own financial analysis
of the RI Portfolio and made several visits to the RI Portfolio property
sites. Also during this time, numerous telephone conversations took place
between Mr. Klinck and Mr. Forrester. Mr. Forrester informed Mr. Klinck that
if Lend Lease was not prepared to pay at least the appraised value of the RI
Portfolio, then the General Partner would not be interested in making a sale.
In arriving at this determination, the General Partner considered the original
Unit price of $500 and concluded that a sale at the appraised value of the
Properties, when taken together with all prior distributions with respect to
the Units, would provide the Limited Partners with a return of capital in
excess of their original investment. Mr. Klinck made several counteroffers for
the RI Portfolio at prices below the appraised value, but the General Partner
refused to consider a sale at those prices. During the same period, Mr. Klinck
attempted to negotiate a break-up fee of $250,000, to become payable to Lend
Lease if the proposed sale of the RI Portfolio did not close due to a lack of
approval by the limited partners of the Partnership or any Affiliated
Partnership. The General Partner refused to make these concessions.
On May 22, 1998, Mr. Klinck sent a proposed term sheet to Mr. Forrester,
including a proposed purchase offer for the RI Portfolio. On June 10, 1998,
Messrs. Klinck, Walker and Joe Thomas from Lend Lease met with Messrs.
Epstein, Dupree, Svatos and Tilley to discuss the transaction in general. On
July 7 and 8, 1998, Mr. Forrester and Michael Johnson, a regional vice
president of ConAm Management, went to Jacksonville, Florida to present the RI
Portfolio properties in that area to Messrs. Walker, Thomas and Klinck and
representatives of the Pension Funds. On July 28 and 29, 1998, a similar
meeting took place in Phoenix, Arizona. Over the next few months, Mr.
Forrester continued to send information on the RI Portfolio to Mr. Klinck,
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including city maps, rental brochures, market summaries, occupancy
information, floor and site plans, management report summaries, operating
statements, rent rolls, location maps, memos regarding capital improvements
and management biographies.
During late July, the parties continued to negotiate the Purchase Price. In
arriving at the purchase offer contained in the proposed term sheet, Lend
Lease had performed independent evaluations of the historical financial
performance of the properties, the current and anticipated local real estate
market conditions affecting the properties, and the existing physical
condition of the properties. Lend Lease's purchase offer was less than the
value set forth in the Independent Appraisal, and the proposed purchase
agreements contained provisions obligating the Partnership to make additional
expenditures for capital improvements prior to closing (or credit the purchase
price for any unexpended amounts). As a result of the late July telephonic
negotiations between Mr. Klinck and Mr. Forrester, the purchase offer was
increased to the value set forth in the Independent Appraisal. In late August
and early September, the parties agreed to eliminate the obligation to make
additional expenditures for capital improvements.
In the course of evaluating financing options for the proposed acquisition,
the prospective lender to the Purchaser had an independent appraisal of the RI
Portfolio prepared (the "Lender Appraisal"). The Lender Appraisal indicated
that the aggregate appraised value of the Properties was $23,100,000. After
deducting a sales commission of 2.5%, or $577,500, normally paid by the seller
but not applicable to the Sale, the Lender Appraisal indicated that the value
of the Properties was $22,522,500, or $1,622,500 more than the value of
$20,900,000 set forth in the Independent Appraisal. During late October 1998,
Mr. Forrester had numerous telephone conversations with Mr. Klinck in which
Mr. Forrester sought to have the purchase offer increased above $20,900,000.
As a result of these discussions, the purchase offer was increased from
$20,900,000 to the Purchase Price of $22,250,000. This brought the aggregate
amount offered by the Purchaser for the RI Portfolio to $117,900,000.
Thereafter, the parties finalized the material terms of the LLC Agreement,
the property management agreement for ConAm Management, and the Purchase
Agreements. The definitive Purchase Agreements will be executed and delivered
immediately after the Proposals are approved by the Limited Partners and
comparable transactions are approved by the limited partners of the Affiliated
Partnerships.
CONFLICTS OF INTEREST OF THE GENERAL PARTNER
The Sale contemplates that the properties will be sold to an entity in which
an affiliate of the General Partner will own a 9% interest. Because of this
ownership interest, the General Partner has a conflict with the interests of
the Limited Partners, and the interests of the General Partner may conflict
with its fiduciary obligation to the Limited Partners. The General Partner
believes, however, that the Sale is fair to the Limited Partners. The General
Partner believes that the fairness factors enumerated in "SPECIAL FACTORS--
Fairness of the Sale," and the fact that the Sale requires the approval of the
Limited Partners, provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction.
Nevertheless, Limited Partners should consider the following factors when
examining the Sale:
(i) In consideration of a pro rata cash capital contribution to the
Purchaser, an affiliate of the General Partner, ConAm DOC, will own a 9%
interest in the Purchaser, and consequently, the General Partner faces
direct conflicts of interest in negotiating the Sale. Furthermore, ConAm
DOC has the potential to receive up to an additional 18% of the profits of
the Purchaser after pro rata distributions of profits to members of the
Purchaser have resulted in recoupment by such members of their aggregate
capital contributions and payment of cumulative returns of 15% per annum on
their previously unrecovered capital contributions.
(ii) No independent committee or representative has been appointed or
retained to negotiate the terms of the Sale on behalf of the Limited
Partners.
(iii) The Partnership has in the past and is currently being represented
by legal counsel who has also represented and is currently representing the
General Partner and certain of its affiliates in various matters, and the
Limited Partners will not be represented by separate legal counsel.
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(iv) As an equity participant in the Purchaser, an affiliate of the
General Partner will benefit from any future cash flow attributable to, and
any future appreciation of, the Properties if the Sale is approved.
Furthermore, if the Sale is approved, ConAm Management, an affiliate of the
General Partner which will not be a member of the Purchaser, will be party
to a property management agreement relating to the Properties. ConAm
Management might not have otherwise obtained this contract if it were not
an affiliate of the General Partner. Finally, the General Partner and its
affiliates will benefit from the Sale as discussed in "SPECIAL FACTORS--
Effects of the Sale."
FAILURE TO APPROVE THE SALE
The General Partner believes that consummation of the Sale is the preferable
course of action at this time. If the Limited Partners fail to approve the
Proposals, however, the Partnership will attempt to refinance the existing
loans secured by the Properties and utilize any loan proceeds to implement
certain capital improvements. The Partnership might then take advantage of any
future property appreciation through a future sale of one or both the
Properties to the Purchaser or otherwise (subject to any necessary amendment
to the Partnership Agreement to permit such sale or sales, which might require
the consent of the Limited Partners). There is no assurance that the General
Partner could arrange for an alternative sale of the Properties at an
appropriate price or on terms acceptable to the Partnership. Such a course of
action could also increase the risk of loss of the Properties due to any
failure to make increased debt service payments and might also adversely
affect the timing and amount of future distributions to Limited Partners.
The General Partner believes that a refinancing of the Properties at 75% of
the Lender Appraisal could generate $17,325,000 in new loan proceeds. After
deducting refinancing costs, repayment of the existing loans and related
prepayment penalties and reserves for capital expenditures required to
maintain the competitive position of the Properties, the General Partner
estimates that the Partnership could make a tax-deferred distribution of
approximately $81.05 per Unit, as compared to an expected distribution of
$175.21 per Unit from net proceeds from the Sale and the subsequent
liquidation of the Partnership.
If the Properties were leveraged to the extent set forth above at a 7%
interest rate, the increased debt service of $429,560 related to the
refinancing might result in the suspension of distributions or might affect
the timing and amount of future distributions. Furthermore, under current
lending practices, the loans would include provisions that could result in
material prepayment penalties if the loans were repaid prior to their
maturity. Furthermore, pursuant to the Partnership Agreement, the General
Partner would be entitled to 1% of the refinance proceeds or approximately
$64,092. Consequently, the General Partner believes that the Sale is the
preferable course of action at this time.
TERMS OF THE PURCHASE AGREEMENTS
The following is a summary of the material terms of the proposed Purchase
Agreements. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE IS
MADE TO THE FORM OF PURCHASE AGREEMENTS, WHICH IS AVAILABLE UPON REQUEST
PURSUANT TO THE PROCEDURES SET FORTH IN THE SECTION OF THIS SOLICITATION
STATEMENT ENTITLED "AVAILABLE INFORMATION." Capitalized terms used but not
defined in this summary of material terms have the meaning ascribed to them in
the form of the Purchase Agreements.
Structure of the Sale. The Partnership holds majority interests in and
controls two limited partnerships, one of which holds title to Las Colinas and
the other of which holds title to Tierra Catalina. In order to effectuate the
Sale, these title-holding entities will transfer title and deliver the deeds
and other documents of transfer to the Purchaser on the Closing Date.
Purchase Price. The Purchase Price for the Properties will be $22,250,000,
payable by the Purchaser on the Closing Date and subject to certain
adjustments at closing. The Purchase Price will be paid in cash and is
expected to be paid out of proceeds from third party financing and capital
contributions made to the Purchaser.
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It is anticipated that the third party financing will be provided by the
Federal National Mortgage Association ("FNMA"). FNMA would be financing 65% of
the aggregate purchase price for the RI Portfolio under a proposed
$100,000,000 Master Credit Facility (the "Proposed Facility") secured by the
RI Portfolio. The Proposed Facility would have a five-year term and a minimum
borrowing base of $50,000,000. All loans under the Proposed Facility would be
cross-collateralized and cross-defaulted, and the Proposed Facility would
require a minimum of five properties in three geographically distinct areas.
For these reasons, a similar financing facility is not available to the
Partnership.
It is expected that borrowings under the Proposed Facility will bear a
variable interest rate of 0.52% plus the effective interest rate at which FNMA
is able to sell mortgage-backed securities collateralized by outstanding
borrowings. The General Partner estimates that the effective interest rate
would be 5.74% if borrowings were outstanding at this time. The Pension Funds
intend to cause the Purchaser to enter into an interest rate swap agreement
with a commercial bank that will effectively fix the interest rate for five
years at approximately 6%.
The Proposed Facility will require the Purchaser to pay a prepayment penalty
if outstanding borrowings are repaid within the first three years. The
Purchaser has no plans to refinance or repay the Proposed Facility prior to
the earlier of its maturity date or the sale by it of any or all of the RI
Portfolio.
Condition of the Properties; Review of the Properties. The Purchaser will
purchase the Properties on an "As Is," "Where-Is" and "With All Faults" basis
with limited representations by the Partnership as to the condition of the
Properties or their fitness for any purpose. Lend Lease, on behalf of the
Pension Funds, has undertaken an extensive due diligence review of the
Properties. Unlike purchasers in many third party purchase agreements, Lend
Lease will complete its due diligence prior to execution of the Purchase
Agreements, and as such, satisfaction with the due diligence investigation
will not be a condition precedent to closing.
Conditions Precedent to Closing. The obligation of the Partnership to close
under the Purchase Agreements will be subject to approval of the Proposals by
the Limited Partners. The obligation of the Purchaser to close under the
Purchase Agreements will be subject to the concurrent approval by the limited
partners of the Affiliated Partnerships of the sale of their respective
properties to the Purchaser. In addition, there will be customary closing
conditions for real estate transactions, including issuance of appropriate
title policies.
Casualty to or Condemnation of the Properties. If any Property or any
portion thereof is damaged by fire or other casualty on or before the Closing
Date, and the cost of repairing such damage equals or exceeds the greater of
$400,000 or 5% of that portion of the Purchase Price allocable to the affected
Property, then the Purchaser may elect to terminate the Purchase Agreement
with respect to such Property. Further, if all or any material portion of any
Property is taken by eminent domain (or is a subject of a pending or
contemplated taking which has not been consummated) before the Closing Date,
then the Purchaser will have the right to terminate the Purchase Agreement as
to the affected Property. In the event of a fire or other casualty where the
damage is less than $400,000 or 5% of that portion of the Purchase Price
allocable to the affected Property, or if the condemnation does not affect a
material portion of the affected Property, the Purchaser will be required to
proceed with the closing without adjustment to the Purchase Price with respect
to the affected Property and will be entitled to receive, as applicable, an
assignment of the proceeds of any insurance in the event of a fire or other
casualty or an assignment of any award for such taking in the event of a
condemnation.
The purchase agreements relating to the properties of the Affiliated
Partnerships will contain provisions substantially similar to those outlined
above with respect to the rights of the Purchaser to terminate such purchase
agreements as a result of condemnation or destruction of the applicable
properties. While, as a general rule, the Purchaser will be able to terminate
the Purchase Agreements if any one of the sales to the Purchaser by the
Affiliated Partnerships is terminated, the Purchase Agreements will provide
that the Purchaser may terminate the Purchase Agreements in the case of
condemnation or destruction of the properties of the Affiliated Partnerships
only if two or more of such properties are condemned or destroyed. For
purposes of the foregoing determination, properties which comprise an
integrated apartment community will be counted as a single property.
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Representations and Warranties and Physical Due Diligence Conditions. Unlike
many third party agreements, the Purchase Agreements will not require the
Partnership to make substantial representations and warranties concerning the
condition or operation of the Properties, or other similar matters, such as
environmental studies or engineering. The Purchase Agreements also will not
provide the purchaser with a typical period to perform due diligence
investigations at the Properties or with a basis on which to refuse to close
the Sale based directly on the outcome of any due diligence investigation,
since such due diligence investigations will have been completed prior to
execution of the Purchase Agreements. Further, any representations and
warranties made by the Partnership pursuant to the Purchase Agreements will
survive for a period of only six months after the closing, which is a shorter
period of time than that found in many third party agreements.
Default and Damages. The Purchase Agreements will provide that the
Purchaser's recourse for any uncured breach ("Default") by the Partnership on
or prior to the Closing Date of any matter related to the Purchase Agreements
will be either to (i) seek from the escrow holder the return of the earnest
money deposits made on behalf of the Purchaser and any documents which have
been deposited with the escrow holder on behalf of the Purchaser and to seek
reimbursement from the Partnership for the reasonable and documented out-of-
pocket expenses incurred in connection with Lend Lease's due diligence
investigation (such as environmental and engineering studies) and other
transaction costs, but in no event an amount in excess of % of the Purchase
Price, or (ii) seek specific performance of the Partnership's obligations
under the Purchase Agreements.
In the event of the Purchaser's Default with respect to either of the
Purchase Agreements or the purchase agreements relating to the properties of
the Affiliated Partnerships, the Partnership's sole remedy will be to retain,
as liquidated damages, the earnest money deposits for the Properties. Further,
in the event the Purchaser objects or fails to cooperate with the release of
such earnest money deposit held by the escrow holder, the Partnership will
also have all of the remedies otherwise available to the Partnership at law or
in equity.
Pro-rations and Costs. All items of income and expense for the Properties,
such as collected rents and real estate taxes, will be apportioned and
adjusted between the Partnership and the Purchaser to the Closing Date. The
Partnership and the Purchaser will each pay one-half of any third party escrow
fees from the transaction, with the Partnership paying any documentary
transfer and stamp taxes in connection with the recordation of the applicable
deed and the Purchaser paying the premiums and other costs for title
insurance, including any endorsements requested by the Purchaser or its
lender.
Comparison to Third Party Agreements. The Purchase Agreements relating to
the Sale will contain several provisions which are not customarily found in
combination with each other in many third party agreements.
Provisions which may be more advantageous to the Partnership than those
found in many third party agreements include the following: the lack of due
diligence conditions precedent to closing; lack of a financing contingency;
limited representations and warranties; limited survivability of
representations and warranties; and sale of the Properties on an "as is"
basis.
Provisions which may be less advantageous to the Partnership than those
found in many third party agreements include the condition precedent to
closing of concurrent approval by the limited partners of the Affiliated
Partnerships of the sale of their respective properties to the Purchaser and
the ability of the Purchaser to terminate the Purchase Agreements if, due to
condemnation or casualty, the Purchaser is entitled to terminate the purchase
agreements with respect to any two or more properties owned by the Affiliated
Partnerships.
THE AMENDMENT
Partnership Agreement prohibits sales of property to the General Partner or
an "affiliate" of the General Partner. "Affiliate" is defined in relevant part
as any person "that, directly or indirectly, is the beneficial owner of 10% or
more of any class of equity securities of, or otherwise has a substantial
beneficial interest in," another person. While the Pension Funds will own 91%
of the Purchaser and will effectively control the
24
<PAGE>
Purchaser, an affiliate of the General Partner will (i) own a 9% interest in
the Purchaser, (ii) have a right of first offer and certain buy/sell rights
under the proposed LLC Agreement and (iii) have the potential to receive up to
an additional 18% of the profits of the Purchaser after pro rata distributions
of profits to members of the Purchaser have resulted in recoupment by such
members of their aggregate capital contributions and payment of cumulative
returns of 15% per annum on their previously unrecovered capital
contributions. An affiliate of the General Partner which will not be a member
of the Purchaser will serve as the initial property manager for the Purchaser.
The foregoing factors might cause the Purchaser to be an "affiliate" of the
General Partner under the terms of the Partnership Agreement. In order to
permit the Sale, the General Partner proposes to amend the Partnership
Agreement to permit proposed sales of Partnership properties to "affiliates"
of the General Partner, if such proposed sales are approved by the Limited
Partners. The proposed Amendment requires the approval of a majority in
interest of the Limited Partners. The full text of the proposed Amendment is
set forth in Appendix A hereto.
INDEMNIFICATION
If a claim is made against the General Partner in connection with its
actions on behalf of the Partnership with respect to the Sale, the General
Partner expects that it will seek to be indemnified by the Partnership with
respect to such claim. The Partnership Agreement provides that, except in the
case of fraud, negligence, misconduct or other breach of fiduciary duty to the
Partnership or any Partner, the General Partner will not be liable,
responsible or accountable in damages or otherwise to the Partnership or any
of the Limited Partners for any liabilities or other obligations imposed on,
incurred by or asserted against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of,
any action or inaction on the part of the Partnership or on the part of the
General Partner as a general partner of the Partnership. However, the General
Partner will not be indemnified from any liability, loss, or damage incurred
by it in connection with any claim or settlement involving allegations that
any state securities law or the Securities Act of 1933, as amended, was
violated by the General Partner unless the General Partner is successful in
defending such action and such indemnification is specifically approved by a
court of law which has been advised as to the current position of both the
Securities Exchange Commission and the California Commissioner of Corporations
regarding indemnification for violations of securities laws.
As a result of these indemnification rights, a Limited Partner's remedy with
respect to claims against the General Partner relating to its involvement in
the Sale could be more limited than the remedy which might have been available
absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification would reduce the amount of Partnership
cash available for distributions to the Limited Partners by an amount
equivalent to that paid to the General Partner under such a claim.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
GENERAL
The Sale, if approved, will have certain tax implications to the Limited
Partners that must be considered. The following summarizes the material
estimated federal income tax consequences to Limited Partners arising from the
Sale and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, court decisions and published
positions of the Internal Revenue Service (the "Service"), each as in effect
on the date of this Solicitation Statement. There can be no assurance that the
Service will agree with the conclusions stated herein or that future
legislation or administrative changes or court decisions will not
significantly modify the federal or state income tax law regarding the matters
described herein, potentially with retroactive effect. This summary is not
intended to, and should not, be considered an opinion respecting the federal
or state income tax consequences of the Sale.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the
25
<PAGE>
partnership's items of income, gain, loss, deduction and credit (hereinafter
referred to as "income or loss") in accordance with the partnership agreement.
If the allocation of income or loss in the partnership agreement does not have
"substantial economic effect" as defined in Code Section 704(b), the law
requires the partnership's income or loss to be allocated in accordance with
the partners' economic interests in the partnership. The distribution of cash
attributable to partnership income is generally not a separate taxable event.
For tax purposes, the Partnership will realize and recognize gain or loss
separately for each Property (and in some cases, for each building which is
part of a Property). The amount of gain for tax purposes recognized with
respect to an asset, if any, will be an amount equal to the excess of the
amount realized (i.e., cash or consideration received reduced by the expenses
of the Sale) over the Partnership's adjusted tax basis for such asset.
Conversely, the amount of loss recognized with respect to an asset, if any,
will be an amount equal to the excess of the Partnership's adjusted tax basis
over the amount realized by the Partnership for such asset. The "adjusted tax
basis" of an asset is its cost (including nondeductible capital expenditures
made by the Partnership at the time of purchase) or other basis with certain
additions or subtractions, including (i) additions for the cost of capital
expenditures such as improvements, betterments, commissions and other
nondeductible charges and (ii) subtractions for depreciation and amortization.
Each Limited Partner must report his or her allocable share of these gains
and losses in the year in which the Properties are sold. Each Limited
Partner's allocable share of any Section 1245 gain, Section 1231 gain, Section
1250 gain or loss and Partnership net taxable income or loss from operations
will be reflected on his or her applicable Schedule K-1 (as determined in
accordance with the allocation provisions contained in the Partnership
Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to separately
state, and partners are required to account separately for, their distributive
share of all gains and losses. Accordingly, each Limited Partner's allocable
share of any Section 1231 gain or loss and depreciation recapture realized by
the Partnership as a result of the Sale would be reportable by such Limited
Partner on his or her individual tax return. Section 1231 gains are those
gains arising from the sale or exchange of "Section 1231 Property" which means
(i) depreciable assets used in a trade or business or (ii) real property used
in a trade or business and held for more than one year. Conversely, Section
1231 losses are those losses arising from the sale or exchange of Section 1231
Property. If Section 1231 losses exceed Section 1231 gains, such losses would
be treated as ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable year exceed certain
Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses will be
treated as long-term capital gains. However, Section 1231 gains will be
treated as ordinary income to the extent of prior Section 1231 losses from any
source that were treated as ordinary in any of the previous five years.
Under Sections 1245 and 1250 of the Code, a portion of the amount allowed as
depreciation expense with respect to Section 1231 Property may be "recaptured"
as ordinary income upon sale or other disposition rather than as long-term
capital gains ("Section 1245 gains" and "Section 1250 gains," respectively).
The Partnership does not anticipate that it would have material amounts of
Section 1245 or Section 1250 gains as a result of the Sale. Therefore, it is
anticipated that the Sale will result in capital gain without the re-capture
of any significant gain to be reported at ordinary income tax rates. (It is
not anticipated that any Property will be sold at a tax loss.)
The Partnership Agreement provides that distributions from the Sale will be
made:
(i) First, 99% to the Limited Partners and 1% to the General Partner
until each Limited Partner has received an amount equal to his Adjusted
Capital Value (as defined in the Partnership Agreement);
(ii) Second, and subject to certain reductions, 99% to the Limited
Partners, 1% to the General Partner until each Limited Partner has received
an amount equal to a 7% cumulative annual return with respect to his
Adjusted Capital Value, which amount is calculated commencing with the
first anniversary date of the last Additional Closing Date (as defined in
the Partnership Agreement) (but in no event less than a 6%
26
<PAGE>
cumulative annual return with respect to the Limited Partner's Adjusted
Capital Value calculated from the date of the Limited Partner's admission
to the Partnership);
(iii) Third, 99% to the Limited Partners, 1% to the General Partner until
the General Partner has received aggregate distributions of Net Proceeds
From Sale or Refinancing (as defined in the Partnership Agreement) pursuant
to subparagraphs (a), (b) and (c) of Section 10b(ii) of the Partnership
Agreement equal to 15% of the aggregate distributions of Net Proceeds From
Sale or Refinancing to the Limited Partners and the General Partner
pursuant to Section 10b(ii)(c) of the Partnership Agreement; and
(iv) Fourth, the balance 85% to the Limited Partners and 15% to the
General Partner.
The General Partner expects that the Limited Partners will recognize taxable
gain from the Sale of approximately $231.27 per Unit. Actual gain will be
allocated among the General Partner and the Limited Partners (the "Partners")
as follows: (i) first, gain attributable to the excess, if any, of the
indebtedness relating to a Property immediately prior to the Sale of such
Property over the Partnership's adjusted basis in the Property will be
allocated to each Partner having a negative balance in its capital account, to
the extent of such negative balance, in the proportion that the negative
balance of each Partner bears to the aggregate negative balances of all
Partners; and (ii) second, the balance of any gain will be treated on a
cumulative basis as if it constituted an equivalent amount of Net Proceeds From
Sale or Refinancing and will be allocated to the General Partner to the extent
that the General Partner would have received Net Proceeds From Sale or
Refinancing in connection therewith, and the balance will be allocated to the
Limited Partners. Any passive losses which have been suspended from this or
other passive investments may be available to reduce this gain. The
Partnership's accountants have estimated that approximately $30 per Unit in
suspended passive losses will be available from the Partnership. Furthermore,
unamortized syndication costs in the amount of $49 per Unit will reduce the
amount of gain reportable by the Limited Partners. The expected distribution to
the Limited Partners from net proceeds from the Sale and certain cash reserves,
together with the planned distribution upon liquidation, is anticipated to be
approximately $175.21 per Unit and is expected to exceed the Limited Partners'
income tax liability attributable thereto.
The Partnership anticipates that approximately $56.14 per Unit in federal
income taxes ($44.26 per Unit for those partners with unused suspended passive
losses from the Partnership) may be incurred by the Limited Partners as a
result of the Sale and liquidation, as reflected in the following table, which
assumes that a Limited Partner has a marginal federal income tax rate of 39.6%.
<TABLE>
<CAPTION>
GAIN
PER EST. FEDERAL
UNIT TAX
------- ------------
<S> <C> <C>
Taxed at a 39.6% federal rate......................... $ 0.02 $ 0.01
Taxed at a 25% federal rate........................... $197.52 $ 49.38
Taxed at a 20% federal rate........................... $ 33.73 $ 6.75
------- -------
Total (without regard to suspended passive losses).... $231.27 $ 56.14
=======
Potential suspended passive losses of $30 at 39.6%.... $(11.88)
-------
Total potential taxes (including suspended passive
losses).............................................. $ 44.26
=======
</TABLE>
After allocating income or loss to the Partners, with the concomitant tax
basis adjustments, the distribution of proceeds from the Sale will reduce each
Limited Partner's federal income tax basis in its Unit. To the extent that the
amount of the distribution is in excess of that basis, such excess will be
taxed as a long-term or short-term capital gain depending on a Limited
Partner's holding period. To the extent that the distribution received is less
than that basis, the remaining basis, representing a Partner's share of the
Partnership syndication cost incurred at the inception of the Partnership, may
represent a tax benefit in connection with the termination of such Partner's
partnership interest. Limited Partners are encouraged to consult their
respective tax advisors with respect to the foregoing.
27
<PAGE>
CAPITAL GAINS
Net long-term capital gains allocated to individuals, trusts and estates
from the Sale will be taxed at a maximum rate of 20% (except that the rate
will be 25% on that portion of the gain which is equal to the amount of real
estate depreciation not recaptured as ordinary income under Section 1250),
while ordinary income will be taxed at a maximum rate of up to 39.6%. The
amount of net capital loss that can be utilized to offset income will be
limited to the sum of net capital gains from other sources recognized by the
Limited Partner during the tax year, plus $3,000 ($1,500 in the case of a
married individual filing a separate return). The excess amount of such net
long-term capital loss may be carried forward and utilized in subsequent years
subject to the same limitations.
PASSIVE LOSS LIMITATIONS
Limited Partners who are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules. A
Limited Partner's allocable share of Partnership income or loss is treated as
derived from a passive activity, except to the extent of the Partnership's
portfolio income. Portfolio income includes such items as interest and
dividends. A Limited Partner's allocable share of any Partnership gain
realized on the Sale will be characterized as passive activity income, and the
liquidation of the Partnership will permit the deduction of any previously
deferred passive losses, if any, allocated to the Limited Partners.
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Limited Partners in all the state tax jurisdictions in
which they are subject to tax. Accordingly, the following is a general summary
of certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Limited Partner will depend
upon the provisions of the state tax laws to which the Limited Partner is
subject. The Partnership will generally be treated as engaged in business in
the state in which the Properties are located, and the Limited Partners would
generally be treated as doing business in that state and therefore subject to
tax in that state. Most states modify or adjust the taxpayer's federal taxable
income to arrive at the amount of income potentially subject to state tax.
Resident individuals generally pay state tax on 100% of such state-modified
income, while corporations and other taxpayers generally pay state tax only on
that portion of state-modified income assigned to the taxing state under the
state's own apportionment and allocation rules.
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Limited Partners of the Sale and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Limited Partners and to certain
other categories of Limited Partners, such as non-United States persons,
corporations, insurance companies, subchapter S corporations, partnerships or
financial institutions. It also does not address local or foreign tax
consequences of the Sale. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE SALE TO
THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
28
<PAGE>
DISTRIBUTIONS
Since its inception on April 30, 1981, the Partnership has made quarterly
distributions aggregating $199.05 per Unit and returns of capital of $254.50
per Unit. The Partnership has made seven quarterly distributions during the
last two years, averaging $1.91 per Unit per distribution, and intends to make
a distribution of $2.00 per Unit in respect of the most recently-completed
fiscal quarter. With the projected distribution of $175.21 per Unit upon
liquidation of the Partnership, Limited Partners will have received aggregate
distributions of approximately $628.76 per Unit on an initial investment of
$500.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the outstanding Units on the Record
Date consent to the Proposals, such approval will bind all Limited Partners.
The Partnership Agreement and the California Uniform Limited Partnership Act,
under which the Partnership is governed, do not give rights of appraisal or
similar rights to Limited Partners who dissent from the consent of the
majority in approving or disapproving the Proposals. Accordingly, dissenting
Limited Partners do not have the right to have their Units appraised or to
have the value of their Units paid to them if they disapprove of the action of
a majority in interest of the Limited Partners.
MARKET FOR THE UNITS
The General Partner has no knowledge of a formal, established public trading
market for the Units and believes that secondary sales activity for the Units
is limited and sporadic. Due to the fact that the Units are not listed on any
exchange or quoted on NASDAQ, privately negotiated sales and sales through
intermediaries are the primary means available to a Limited Partner to
liquidate an investment in the Units. While some information is available
through private publications regarding the prices at which such secondary
sales transactions in the Units have been made, these publications expressly
disclaim the accuracy and reliability of the information regarding such
trades. Accordingly, the General Partner does not believe that such
information is of comparative value in analyzing the distributions to be made
in connection with the Sale. No sales were made by or to affiliates of the
Partnership during the last two years.
In addition to informal secondary market sales, investors have periodically
sought to acquire Units by means of a tender offer for outstanding Units.
However, such tender offers generally involve only a limited number of Units,
are held open only for a limited time, and are available only on a limited
basis. Furthermore, those tender offers during the past two years of which the
General Partner is aware have been made at approximately 46% to 75% of the net
asset value of the Units. In particular, during the last six months, two
tender offers for outstanding Units were made by parties unaffiliated with the
General Partner for prices of $116 and $114 per Unit. The estimated aggregate
distribution to the Limited Partners following consummation of the Sale and
the anticipated liquidation of the Partnership, equal to $175.21 per Unit,
compares favorably with the average price of $115 per Unit represented by
these recent tender offers.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 78,290 Units issued and outstanding and
entitled to vote held of record by [3,461] Limited Partners. At the Record
Date, Daniel J. Epstein, Chairman and Chief Executive Officer of ConAm
Management, owned 20 Units (approximately 0.0255% of the outstanding Units).
Mr. Epstein intends to consent to the Proposals.
Based on a Schedule 13D filed jointly on November 26, 1997 with the
Securities and Exchange Commission, Everest Investors LLC, KM Investments,
LLC, Everest Properties, Inc. and Everest Properties II, LLC hold an aggregate
of 4,513 Units, representing approximately 5.8% of the Units outstanding at
that time. The persons filing the Schedule 13D deny the existence of a "group"
within the meaning of
29
<PAGE>
Section 13(d)(3) of the Securities Exchange Act of 1934, and each such person
disclaims beneficial ownership of the Units held by the other persons filing
the Schedule 13D. The address of each person filing the Schedule 13D is 199
South Los Robles Avenue, Suite 440, Pasadena, CA 91101. Except as may be
indicated in this paragraph, no person is known by the Partnership to be the
beneficial owner of more than 5% of the Units.
YEAR 2000 INFORMATION
The Partnership has assessed the potential impact of the "Year 2000"
computer systems issue on its operations. If the Sale is consummated, the
Partnership will liquidate prior to January 1, 2000, and no Year 2000 issues
will be presented.
In the event that the Sale is not consummated, the Partnership has relied on
the efforts of ConAm Management, which has been retained by the Partnership to
manage the business and financial operations of the Properties, to resolve any
potential Year 2000 issues. In the course of providing property management
services for the Partnership, ConAm Management retained a third party
consultant to modify all applicable software to provide for 4-digit year
fields. The General Partner believes that the modifications undertaken by
ConAm Management are sufficient to address any potential Year 2000 problems
and that the impact of the Year 2000 issue will not materially affect the
Partnership's operating results or financial condition if the Sale is not
consummated. Accordingly, neither ConAm Management nor the Partnership has
taken any further actions with respect to the Year 2000 issue.
VOTING PROCEDURES
Each Limited Partner is entitled to one (1) vote for each Unit owned of
record by such Limited Partner on the Record Date. Approval of the Proposals
requires the affirmative consent of Limited Partners holding a majority in
interest of the Units. A duly executed consent card on which a consent or an
indication of withholding consent is not indicated will be deemed a consent to
the Proposals. A consent may be revoked by written notice of revocation or by
a later-dated consent containing different instructions at any time on or
before the Expiration Date.
This Solicitation Statement is accompanied by a separate consent card.
Consent cards should be completed, signed and returned by the Expiration Date
to the Solicitation Agent at the address specified below or by facsimile
transmission of the front and back of the card to the number specified below.
A self-addressed, prepaid envelope for return of the consent card is included
with this Solicitation Statement.
<TABLE>
<CAPTION>
By Mail: By Facsimile:
-------- -------------
<S> <C>
[ ] ( ) [ - ]
[ ]
[ ]
</TABLE>
For Information Call:
[( ) - ]
(Toll-Free)
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at
30
<PAGE>
450 Fifth Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's regional offices at 500 West Madison, 14th Floor, Chicago,
Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed on the World Wide Web
through the Commission's Internet address at "http://www.sec.gov."
The following documents, which have been filed with the Commission, contain
important information about the Partnership and its financial condition and
are annexed hereto as Annex 1 and Annex 2, respectively:
(i) The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997 (Commission File No. 0-10223) (the "Form 10-K").
(ii) The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended [June 30, 1998] (Commission File No. 0-10223) (the "Form 10-
Q").
The Commission permits the Partnership to "incorporate by reference"
information into this Solicitation Statement, which means that the Partnership
can disclose important information to Limited Partners by referring them to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be a part of this Solicitation
Statement, except for any information superseded by information in this
Solicitation Statement.
The Partnership hereby incorporates by reference the Form 10-K, all reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act that it may file
or has already filed with the Commission between December 31, 1997 and the
date of action by Consent, other than those delivered in connection herewith,
and the financial information contained in Part I of the Form 10-Q.
A Limited Partner of the Partnership may obtain from the Partnership or the
Commission any of the documents incorporated by reference. Documents
incorporated by reference are available from the Partnership without charge,
excluding all exhibits unless such exhibits have been specifically
incorporated by reference in the document incorporated by reference in this
Solicitation Statement. Limited Partners may obtain documents incorporated by
reference in this Solicitation Statement, or a copy of the Partnership
Agreement or the form of Purchase Agreements, by written or oral request, by
first class mail or other equally prompt means within one business day of
receipt of such request, from Con Am Property Services, Ltd., 1764 San Diego
Avenue, San Diego, California 92110-1906, telephone number (619) 297-6771.
If you would like to request documents from the Partnership, please do so by
[ ], 1998 in order to ensure receipt before action by Consent.
San Diego, California
November[ ], 1998 CON AM PROPERTY SERVICES, LTD.,
General Partner
By: Continental American
Development, Inc.,
a General Partner
By: _________________________________
Daniel J. Epstein
President and Chief Executive
Officer
31
<PAGE>
APPENDIX A
THE PROPOSED AMENDMENT
Set forth below is the provision of the Partnership Agreement that would be
modified by the proposed Amendment. The following is qualified in its entirety
by reference to the form of Amendment, a copy of which can be obtained without
charge from the Solicitation Agent.
IF THE PROPOSED AMENDMENT IS ADOPTED, THE FOLLOWING SECTION WILL BE MODIFIED
AS FOLLOWS (underlines indicate where text has been added):
12. RIGHTS, DUTIES AND LIABILITY OF GENERAL PARTNERS.
....
d. Limitations on General Partners' Authority. The General Partners shall
have no authority to do any act prohibited by law, nor shall the General
Partners have any authority to:
....
(xi) Except as provided in Subsection 12f.(vi), permit the Partnership to
purchase or lease property in which a General Partner or any Affiliate has
an interest or sell any Property to a General Partner or any Affiliate,
unless such transaction is specifically approved by Limited Partners owning
---------------------------------------------------------------------------
a majority of the Units outstanding at that time.
------------------------------------------------
[The remainder of Section 12 is unaffected.]
A-1
<PAGE>
APPENDIX B
FORM OF CONSENT OF LIMITED PARTNER
CONAM REALTY INVESTORS 81, L.P.
CONSENT OF LIMITED PARTNER
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF CONAM REALTY INVESTORS 81,
L.P. (THE "PARTNERSHIP") BY CON AM PROPERTY SERVICES, LTD., THE GENERAL
PARTNER OF THE PARTNERSHIP. The General Partner recommends a vote "FOR" the
Proposals, as defined in the accompanying Consent Solicitation Statement. A
vote "FOR" the Proposals also will constitute your consent to all actions
necessary to consummate all transactions with respect to the Proposals
contemplated by the Consent Solicitation Statement. All capitalized terms used
herein without definition have the meanings assigned to them in the Consent
Solicitation Statement.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF
NO INSTRUCTIONS ARE INDICATED, YOU WILL BE DEEMED BY YOUR SIGNATURE BELOW TO
HAVE CONSENTED TO THE PROPOSALS AS RECOMMENDED BY THE GENERAL PARTNER.
PLEASE MARK THE APPROPRIATE BOX WITH RESPECT TO EACH PROPOSAL:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
With the General Partner's recommendation to
approve the Sale of the Property (as set
forth in "ACTION BY CONSENT--Matters to be
Considered), the undersigned votes all of the
undersigned's Units: [_] [_] [_]
With the General Partner's recommendation to
approve the Amendment of the Partnership
Agreement (as set forth in Appendix A to the
Consent Solicitation Statement), the
undersigned votes all of the undersigned's
Units: [_] [_] [_]
</TABLE>
If the Sale is approved but the Amendment of the Partnership Agreement is
not, the General Partner will have no authority to consummate the Sale, and
the Sale will not occur. If the Amendment of the Partnership Agreement is
approved but the Sale is not, the General Partner anticipates amending the
Partnership Agreement in accordance with Appendix A to the Consent
Solicitation Statement.
The undersigned acknowledges receipt from the General Partner of the Consent
Solicitation Statement dated November [ ], 1998 pertaining to the
Proposals.
Dated: , 1998 -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
B-1
<PAGE>
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT, PRIOR TO 5:00 P.M. PACIFIC
STANDARD TIME ON [ ], 1998 (UNLESS SUCH TIME IS EXTENDED PURSUANT TO
THE CONSENT SOLICITATION STATEMENT), BY FACSIMILE TO [facsimile number of
Solicitation Agent] OR BY MAIL, USING THE ENCLOSED PRE-PAID ENVELOPE, TO
[address of Solicitation Agent].
B-2
<PAGE>
Annex I
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____ to _____
Commission file number: 0-10223
CONAM REALTY INVESTORS 81 L.P.
formerly known as
HUTTON/CONAM REALTY INVESTORS 81
Exact name of Registrant as specified in its charter
California 13-3069026
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
1764 San Diego Avenue 92110
San Diego, CA Attn: Robert J. Svatos Zip code
Address of principal executive offices
Registrant's telephone number, including area code: (619) 297-6771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997.
<PAGE>
PART I
Item 1. Business
General Description of Business and Objectives
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange
Act of 1934. Actual results could differ materially from those projected in or
contemplated by the forward-looking statements as a result of a number of
factors, including those identified herein.
ConAm Realty Investors 81 L.P., formerly Hutton/ConAm Realty Investors 81 (the
"Partnership") is a California limited partnership formed on April 30, 1981.
ConAm Property Services Ltd. ("CPS"), a California limited partnership, and RI
81 Real Estate Services Inc. ("RI 81"), a Delaware corporation, were the
original co-general partners of the Partnership. On October 8, 1997, CPS
acquired RI 81's co-general partner interest in the Partnership, effective July
1, 1997, pursuant to a Purchase Agreement between CPS and RI 81 dated August
29, 1997. As a result, CPS now serves as the sole general partner (the
"General Partner") of the Partnership. In conjunction with this transaction,
the name of the Partnership was changed from Hutton/ConAm Realty Investors 81
to ConAm Realty Investors 81 L.P.
The Partnership was organized to engage in the business of acquiring, operating
and holding for investment multi-family residential properties. The Partnership
originally invested in two joint ventures and three limited partnerships, each
of which was formed to own a specified property. As described below, three
properties have been sold. Funds held as a working capital reserve are
invested in unaffiliated money market funds or other highly liquid short-term
investments where there is appropriate safety of principal in accordance with
the Partnership's investment objectives and policies.
The Partnership's principal investment objectives with respect to its interests
in real property are:
(1) capital appreciation;
(2) distributions of net cash from operations attributable to rental
income; and
(3) preservation and protection of capital.
<PAGE>
Distribution of net cash from operations is the Partnership's objective during
its operational phase, while preservation and appreciation of capital are the
Partnership's long-term objectives. The attainment of the Partnership's
objectives will depend on many factors, including future economic conditions in
the United States as a whole and, in particular, in the localities in which the
Partnership's properties are located, especially with regard to achievement of
capital appreciation.
From time to time the Partnership expects to sell its real property interests
taking into consideration such factors as the amount of appreciation in value,
if any, to be realized and the possible risks of continued ownership. Proceeds
from any future sale, financing or refinancing of properties will not be
reinvested and may be distributed to the Limited Partners and General Partner
(sometimes referred to together herein as the "Partners"), so that the
Partnership will, in effect, be self-liquidating. If deemed necessary, the
Partnership may retain a portion of the proceeds from any sale, financing or
refinancing as capital reserves. As partial payment for properties sold, the
Partnership may receive purchase money obligations secured by mortgages or
deeds of trust. In such cases, the amount of such obligations will not be
included in Net Proceeds From Sale or Refinancing (distributable to the
Partners) until and only to the extent the obligations are realized in cash,
sold or otherwise liquidated.
Originally, the Partnership utilized the net proceeds of its public offering to
acquire five residential apartment complexes (collectively, the "Properties")
either directly or through investments in joint ventures, as follows: (1) Las
Colinas Apartments I and II, a 300-unit apartment complex located in
Scottsdale, Arizona; (2) Tierra Catalina, a 120-unit apartment complex located
in Tucson, Arizona; (3) Ridge Park, a 100-unit apartment complex located in
Tulsa, Oklahoma; (4) Cedar Bay Village, a 42-unit apartment complex located in
Altamonte Springs, Florida; and (5) Kingston Village, a 120-unit complex
located in Altamonte Springs, Florida. On July 20, 1995, Cedar Bay Village and
Kingston Village were sold to an unaffiliated institutional buyer for
$1,410,622 and $5,370,000, respectively. On November 27, 1996, Ridge Park
<PAGE>
Apartments was sold to an unaffiliated institutional investor for $3,385,000.
The Partnership's mortgage loans secured by Las Colinas I and II and Tierra
Catalina were refinanced in August 1992 and mature in September 1999. For
information concerning the Partnership's current mortgage indebtedness, see
Note 5, "Mortgages Payable," of the Notes to the Consolidated Financial
Statements, included in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1997, which is filed as an exhibit under Item 14.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
Competition
The Partnership's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located and
such competition has increased since the Partnership's investment in the
Properties due principally to the addition of newly constructed apartment
complexes offering increased residential and recreational amenities. The
Properties have also been subject to competition from condominiums and
single-family properties, especially during periods of low mortgage interest
rates. The Partnership competes with other real estate owners and developers
in the rental and leasing of its Properties by offering competitive rental
rates and, if necessary, leasing incentives. Such competition may affect the
occupancy levels and revenues of the Properties. The occupancy levels at the
Properties reflect some seasonality, which is typical of these markets. In
some cases, Partnership properties may compete with properties owned by other
partnerships affiliated with the General Partner.
For a discussion of current market conditions in the areas where the
Partnership's Properties are located, reference is made to the Partnership's
1997 Annual Report to Unitholders for the year ended December 31, 1997, which
is filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by CPS, ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS, as well as
Service Data Corporation and First Data Investor Services Group, both
unaffiliated companies. The Partnership has entered into property management
agreements pursuant to which ConAm Management provides management services with
respect to the Properties. First Data Investor Services Group has been
retained by the Partnership to provide all accounting and investor
communication functions, while Service Data Corporation provides transfer agent
services. Effective January 1, 1998, the accounting functions of the
Partnership have been transferred to the firm of Brock, Tibbetts & Snell, an
unaffiliated company located in San Diego, California. See Item 13, "Certain
Relationships and Related Transactions", for a further description of the
service and management agreements between the Partnership and affiliated
entities.
Item 2. Properties
For a description of the Partnership's Properties and a discussion of current
market conditions in the areas where the Properties are located and appraised
values, reference is made to the Partnership's Annual Report to Unitholders for
the year-ended December 31, 1997, which is filed as an exhibit to Item 14. For
information on the purchase of the Properties, reference is made to Note 4 to
the Consolidated Financial Statements included herein by reference to the
Partnership's Annual Report to Unitholders. Average occupancy rates are
incorporated by reference to Item 7.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1997, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1997, the number of Unitholders of record was 3,461.
No established public trading market exists for the Units and it is not
anticipated that a market will develop in the future.
Distributions of Net Cash Flow From Operations, when made, are paid on a
quarterly basis, with distributions generally occurring approximately 45 days
after the end of each quarter. Such distributions have been made primarily
from net operating income with respect to the Partnership's investment in the
Properties and from interest on short-term investments, and partially from
excess cash reserves. Information on cash distributions paid by the
Partnership for the past two years is incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997, which is filed as an exhibit under Item 14. The level of future
distributions will be evaluated on a quarterly basis and will depend on the
Partnership's operating results and future cash needs. Reference is made to
Item 7 for a discussion of the General Partner's expectations for future cash
distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1997, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
$1,388,845 that were invested in unaffiliated money market funds, compared with
$2,741,077 at December 31, 1996. The decrease is primarily due to cash used
for distributions and mortgage principal payments exceeding cash provided by
operating activities, and a decrease in cash flow from operations due to the
sale of Ridge Park Apartments ("Ridge Park") in November 1996. The Partnership
also maintains a restricted cash balance, which totaled $430,849 at December
31, 1997, an increase from $351,444 at December 31, 1996, representing escrows
for insurance, real estate taxes, and property replacements and repairs,
required under the terms of the current mortgage loans. The increase in
restricted cash is attributable to payments made to the escrow accounts for
real estate taxes and property improvements. The Partnership expects
sufficient cash to be generated from operations to meet its current operating
expenses and debt service requirements.
Distribution payable decreased from $1,478,811 at December 31, 1996 to $160,929
at December 31, 1997. The decrease is primarily attributable to the payment of
the special cash distribution on February 27, 1997, which represented net
proceeds from the sale of Ridge Park in November 1996. The decrease is also
due to a decline in the quarterly distribution level to reflect reduced cash
flow from the remaining properties.
Accounts payable and accrued expenses totaled $202,484 at December 31, 1997,
compared to $177,414 at December 31, 1996. The increase is primarily
attributable to differences in the timing of payments and accruals for audit
fees and appraisal fees, and a change in billing methods for Partnership
administrative services.
The General Partner declared a cash distribution of $1.85 per Unit for the
quarter ended December 31, 1997 which was paid to investors on February 13,
1998. The level of future distributions will be evaluated on a quarterly basis
and will depend on the Partnership's operating results and future cash needs.
<PAGE>
The Partnership continues to perform various exterior and interior improvements
at the Partnership's remaining properties, Las Colinas I & II and Tierra
Catalina. These improvements include landscaping, carpet and appliance
replacement in selected units and other repairs to prepare vacant units for
occupancy. Such improvements are funded from the Partnership's cash reserves.
The General Partner will evaluate the need for additional improvement work at
the Properties on an ongoing basis.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes refinancing the loans secured by
the Properties in order to return capital to the limited partners on a tax-free
basis and lock in favorable fixed interest rates. This would also potentially
enhance the future marketability of the Properties, while enabling the
Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or all the Properties can be sold, that
particular prices can be achieved, or that the Properties can be sold within a
specific time frame.
Results of Operations
1997 versus 1996
Partnership operations for the year ended December 31, 1997 resulted in a net
loss of $8,210 compared with net income of $1,285,707 in 1996. The change from
net income in 1996 to a net loss in 1997 is attributable to the gain of
$1,410,622 recognized on the sale of Ridge Park during 1996. Excluding the
gain, the Partnership generated a net loss from operations of $124,915 in 1996.
Rental income for the year ended December 31, 1997, was $3,196,975 compared
with $3,622,403 for 1996. The decrease reflects the sale of Ridge Park in
November 1996. Partially offsetting the decrease was an increase in rental
income at Las Colinas and Tierra Catalina due to an increase in rental rates at
both properties and an increase in occupancy at Tierra Catalina. Interest and
other income totaled $102,512 in 1997 compared with $91,282 in 1996. The
increase is attributable to the Partnership maintaining a higher average cash
balance in 1997.
Total expenses for the year ended December 31, 1997 were $3,307,697 compared
with $3,838,600 in 1996. Property operating expenses decreased from $1,817,928
in 1996 to $1,520,450 in 1997, reflecting the decline in operating expenses
primarily resulting from the sale of Ridge Park. Interest expense and
depreciation and amortization also decreased from 1996 to 1997 primarily due to
the sale of Ridge Park.
General and administrative expenses increased from 1996 to 1997 due primarily
to a change in the billing method for certain Partnership administrative
services and an increase in professional consulting fees.
1996 versus 1995
Partnership operations for the year ended December 31, 1996 resulted in net
income of $1,285,707, compared with net income of $1,141,669 in 1995. The
increase in net income in 1996 was attributable to the decline in total
expenses resulting from the sale of Cedar Bay Village and Kingston Village in
July 1995 more than offsetting the corresponding decline in rental income.
Rental income for the year ended December 31, 1996, was $3,622,403 compared
with $4,313,044 for 1995. The decrease reflects the sale of Cedar Bay Village
and Kingston Village in July 1995, the sale of Ridge Park in November 1996 and
lower rental income at Tierra Catalina resulting from a decline in occupancy.
Partially offsetting the decrease was an increase in rental income at Las
Colinas, due to an increase in rental rates and occupancy. Interest and other
income totaled $91,282 in 1996 compared with $102,535 in 1995. The decrease
was attributable to the Partnership maintaining a lower average cash balance in
1996.
Total expenses for the year ended December 31, 1996 were $3,838,600 compared
with $4,759,031 in 1995. Property operating expenses decreased from $2,261,179
<PAGE>
in 1995 to $1,817,928 in 1996, reflecting the decline in operating expenses
primarily resulting from the sale of Cedar Bay Village and Kingston Village.
Interest expense and depreciation and amortization also decreased from 1995 to
1996 primarily due to the sale of Cedar Bay Village and Kingston Village.
General and administrative expenses decreased from 1995 to 1996 due primarily
to lower legal fees and audit fees in 1996.
The average occupancy levels at each of the remaining Properties for the years
ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
Property 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
Las Colinas I & II 96% 96% 93%
Tierra Catalina 92% 90% 93%
--------------------------------------------------------
</TABLE>
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129, "Disclosure
of Information about Capital Structure," SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." These statements, which are effective for years
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Partnership's reported financial
position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1997, which is filed as an exhibit under Item 14.
Supplementary Data is incorporated by reference to page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P.
that it was changing accounting firms and engaged KPMG Peat Marwick LLP.
Coopers & Lybrand L.L.P.'s report on the financial statements for the years
ended December 31, 1996 and December 31, 1995 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. There have been no disagreements with Coopers & Lybrand
L.L.P. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope procedure.
The decision to change accountants was approved by CPS and RI 81, the general
partners of the Partnership at that time.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. CPS, the General Partner of the
Partnership, manages and controls the affairs of the Partnership and has
general responsibility and authority in all matters affecting its business.
CPS is a California limited partnership organized on December 11, 1980. The
general partners of CPS are Continental American Development, Inc. ("ConAm
Development") and ConAm Development Corporation ("ConAm Corp.") The names and
positions held by the directors and executive officers of both ConAm
Development and ConAm Corp. are set forth below. There are no family
relationships between any executive officers or directors.
<TABLE>
<CAPTION>
Name Office
<S> <C>
Daniel J. Epstein President and Director
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
</TABLE>
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development and ConAm Corp. and a general partner of Continental American
Properties, Ltd. ("ConAm"), an affiliate of ConAm Services, since their
inception. He is also Chairman and Chief Executive Officer of ConAm
Management. Prior to organizing ConAm, Mr. Epstein was Vice President and a
Director of American Housing Guild, which he joined in 1969. At American
Housing Guild, he was responsible for the formation of the Multi-Family
Division and directed its development and property management activities. Mr.
Epstein holds a Bachelor of Science degree in Engineering from the University
of Southern California.
E. Scott Dupree, 47, is a Senior Vice President and general counsel of ConAm
Management responsible for negotiation, documentation, review and closing of
acquisition, sale and financing proposals. Mr. Dupree also acts as principal
legal advisor on general legal matters ranging from issues and contracts
involving the management company to supervision of litigation and employment
issues. Prior to joining ConAm Management in 1985, he was corporate counsel to
Trusthouse Forte, Inc., a major international hotel and restaurant corporation.
Mr. Dupree holds a B.A. from United States International University and a Juris
Doctorate degree from the University of San Diego.
Robert J. Svatos, 39, is a Senior Vice President and is the Chief Financial
Officer of ConAm Management. His responsibilities include the accounting,
treasury and data processing functions of the organization. Prior to joining
ConAm Management in 1988, he was the Chief Financial Officer for AmeriStar
Financial Corporation, a nationwide mortgage banking firm. Mr. Svatos holds an
M.B.A. in Finance from the University of San Diego and a Bachelor's of Science
degree in Accounting from the University of Illinois. He is a Certified Public
Accountant.
Ralph W. Tilley, 43, is a Senior Vice President and Treasurer of ConAm
Management. He is responsible for the financial aspects of syndications and
acquisitions, the company's asset management portfolio and risk management
activities. Prior to joining ConAm Management in 1980, he was a senior
accountant with KPMG Peat Marwick LLP, specializing in real estate. He holds a
Bachelor's of Science degree in Accounting from San Diego State University and
is a Certified Public Accountant.
J. Bradley Forrester, 40, is the President of ConAm Management. He is
currently responsible for overseeing all aspects of the operations of the firm.
His primary focus is on new business related activities including property
acquisitions, property development and rehabilitation, and the acquisition of
other property management companies. Prior to joining ConAm in 1994, Mr.
Forrester served as Senior Vice President - Commercial Real Estate for First
Nationwide Bank in San Francisco, where he was responsible for a $2 billion
problem asset portfolio including bank-owned real estate and non-performing
commercial real estate loans for three years. His past experience includes
significant involvement in real estate development and finance, property
acquisitions and dispositions and owner's representation matters. Prior to
entering the real estate profession, he worked for KPMG Peat Marwick LLP in
Dallas, Texas. Mr. Forrester holds a Bachelor of Science degree in Accounting
from Louisiana State University. He received his CPA certification in the
State of Texas.
Item 11. Executive Compensation
Neither the General Partner nor any of its directors or executive officers
received any compensation from the Partnership. See Item 13 of this report for
a description of certain costs of the General Partner and its affiliates
reimbursed by the Partnership.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Except as indicated in this paragraph, no person was known by the Partnership
to be the beneficial owner of more than five percent of the outstanding Units
of the Partnership at March 1, 1998. Based on a Schedule 13D filed jointly
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934 on November 26, 1997 (the Schedule 13D"), Everest Investors LLC
("Investors"), KM Investments, LLC ("KM"), Everest Properties, Inc.
("Properties") and Everest Properties II, LLC ("Properties II"), hold an
aggregate of 4,513 Units, representing approximately 5.8% of the outstanding
Units. The Units are held by Investors as to 3,455 Units, by KM as to 1,048
Units and by Properties as to 10 Units. According to the Schedule 13D,
Properties is the manager of Investors and Properties II is the manager of KM.
Because of such relationships, the Schedule 13D states that Properties and
Properties II ,may be deemed to be beneficial owners of the Units held by
Investors and KM, respectively. The persons filing the Schedule 13D deny the
existence of a "group" within the meaning of Section 13(d)(3) of the Securities
and Exchange Act of 1934 and each such person disclaims beneficial ownership of
Units held by the other persons filing the Schedule 13D. The Schedule 13D
discloses, however, that the individuals who perform management services for
Properties and Properties II are substantially the same and that Investors and
KM have entered into an agreement to share information in connection with the
offer and sale of Units. According to the Schedule 13D, the address of each of
Investors, KM, Properties and Properties II is 199 South Los Robles Avenue,
Suite 440, Pasadena, CA 91101.
The General Partner owns 66 Units, as required by the terms of the
Partnership's public offering of Units. In addition, at March 1, 1998, Daniel
J. Epstein, President and Director of CPS, owned twenty Units. No other
directors or executive officers of the General Partner own any Units.
Item 13. Certain Relationships and Related Transactions
RI 81 and CPS received a total of $64,372 as the General Partners' allocable
share of Net Cash from Operations with respect to the year ended December 31,
1997. Pursuant to the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership, for the year ended December 31, 1997,
$82 of the Partnership's net loss was allocated to CPS and RI 81. For a
description of the share of net cash from operations and the allocation of
income and loss to which the General Partner and former co-General Partner are
entitled, reference is made to Note 3 to the Consolidated Financial Statements,
included in the Partnership's annual report to Unitholders for the year ended
December 31, 1997, which is filed as an exhibit under Item 14. Effective July
1, 1997, all General Partner allocations were made solely to CPS.
The Partnership has entered into property management agreements with ConAm
Management pursuant to which ConAm Management has assumed direct responsibility
for day-to-day management of the Properties. It is the responsibility of ConAm
Management to select resident managers and monitor their performance. ConAm
Management's services also include the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses,
strategic asset management and related services. For such services, ConAm
Management is entitled to receive a management fee of five percent of gross
revenues. A summary of property management fees earned by ConAm Management
during the past three years is incorporated by reference to Note 7 to the
Consolidated Financial Statements, incorporated herein by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997, which is filed as an exhibit under Item 14.
Pursuant to Section 12(g) of the Partnership's Amended and Restated Certificate
and Agreement of Limited Partnership, the General Partner may be reimbursed by
the Partnership for certain of its costs. A summary of amounts paid to the
General Partners or their affiliates during the past three years is
incorporated by reference to Note 7 to the Consolidated Financial Statements,
included in the Partnership's Annual Report to Unitholders for the fiscal year
ended December 31, 1997, which is filed as an exhibit under Item 14.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
<TABLE>
<CAPTION>
Page
(a)(1) Financial Statements: Number
------
<S> <C>
Consolidated Balance Sheets - December 31, 1997 and 1996........... (1)
Consolidated Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995.................................. (1)
Consolidated Statements of Partners' Capital (Deficit) - For the
years ended December 31, 1997, 1996 and 1995...................... (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995.................................. (1)
Notes to the Consolidated Financial Statements..................... (1)
Independent Auditors' Report....................................... (1)
Report of Former Independent Accountants........................... (1)
(a)(3) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation............ F-1
Independent Auditors' Report....................................... F-2
Report of Former Independent Accountants........................... F-3
</TABLE>
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997, filed as an exhibit
under Item 14.
(a) (3) Exhibits:
(3) (A) Amended and Restated Certificate and Agreement of Limited Partnership
(included as, and incorporated herein by reference to, Exhibit A to the
Prospectus of Registrant dated June 24, 1981 (the "Prospectus"),
contained in Amendment No. 2 to Registration Statement, No. 2-70331, of
Registrant filed June 24, 1981, (the "Registration Statement"), and in
Amendment No. 1 to Registration Statement, No. 2-73558, of Registrant
filed August 20, 1981).
(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit B to the Prospectus).
(10)(A) Financing Documents relating to Las Colinas I and II (Promissory Note,
Deed of Trust, Assignment of Rents and Leases) (included as, and
incorporated herein by reference to, Exhibit 10-I to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992
(Commission file No. 0-10223)).
(B) Financing Documents relating to Ridge Park (Promissory Note, Deed of
Trust, Assignment of Rents and Leases) (included as, and incorporated
herein by reference to, Exhibit 10-J to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992 (Commission
file No. 0-10223)).
(c) Financing Documents relating to Tierra Catalina (Promissory Note, Deed
of Trust, Assignment of Rents and Leases) (included as, and
incorporated herein by reference to, Exhibit 10-K to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992
(Commission file No. 0-10223)).
(D) Settlement Agreement by and among the Managing Joint Venturers and the
Epoch Joint Venturers dated July 1, 1992 (included as, and
<PAGE>
incorporated herein by reference to, Exhibit 10.I to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission file No. 0-10223)).
(E) Agreement of Limited Partnership of RI-81 Las Colinas Limited
Partnership dated as of July 1, 1992 (included as, and incorporated
herein by reference to, Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992
(Commission file No. 0-10223)).
(F) Agreement of Limited Partnership of RI-81 Tierra Catalina Limited
Partnership dated as of July 1, 1992 (included as, and incorporated
herein by reference to, Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992
(Commission file No. 0-10223)).
(G) Amended and Restated Agreement of Limited Partnership of Ridge Park
Associates Limited Partnership dated as of April 23, 1992 (included
as, and incorporated herein by reference to, Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (Commission file No. 0-10223)).
(H) Property Management Agreement between Hutton/ConAm Realty Investors 81
and ConAm Management Corp. for the Las Colinas I & II properties
(included as, and incorporated herein by reference to Exhibit 10-L to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (Commission file No. 0-10223)).
(I) Property Management Agreement between Hutton/ConAm Realty Investors 81
and ConAm Management Corp. for the Tierra Catalina property (included
as, and incorporated herein by reference to Exhibit 10-M to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (Commission file No. 0-10223)).
(13) Annual Report to Unitholders for the year ended December 31, 1997.
(21) List of Subsidiaries - Joint Ventures (included as, and incorporated
herein by reference to Exhibit 22 to the Registrant's 1991 Annual
Report on Form 10-K for the year ended December 31, 1991 (Commission
file No. 0-10223)).
(27) Financial Data Schedule
(99) Portions of the Prospectus of Registrant dated June 24, 1981 (included
as, and incorporated herein by reference to Exhibit 28 to the
Registrant's 1988 Annual Report on Form 10-K for the year ended
December 31, 1988 (Commission file No. 0-10223)).
(b) Reports on Form 8-K:
On December 15, 1997 the Partnership filed a Form 8-K reporting the
change in Partnership's Certifying Accountants.
<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.
Dated: March 25, 1998
BY: ConAm Property Services, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /s/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and
Principal Executive Officer
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 in the capacities and on the dates indicated.
CONAM PROPERTY SERVICES, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: March 25, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: March 25, 1998 BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: March 25, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: March 25, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 25, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
<PAGE>
Exhibit 13
ConAm Realty Investors 81 L.P.
1997 Annual Report
ConAm Realty Investors 81 L.P.
ConAm Realty Investors 81 L.P. is a California limited
partnership formed in 1981 to acquire, operate and hold
for investment multifamily residential properties. At
December 31, 1997, the Partnership's portfolio
consisted of two apartment properties located in
Arizona. Provided below is a comparison of average
occupancy levels for the years ended December 31, 1997
and 1996.
<TABLE>
<CAPTION>
Average Occupancy
Property Location 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C>
Las Colinas I & II Scottsdale, Arizona 96% 96%
Tierra Catalina Tucson, Arizona 92% 90%
--------------------------------------------------------------
</TABLE>
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated
Financial Statements
12 Independent Auditors' Report and
Report of Former Independent Accountants
14 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
<PAGE>
Message to Investors
Presented for your review is the 1997 Annual Report for ConAm Realty Investors
81 L.P. (the "Partnership"). In this report, we discuss general market
conditions affecting the Partnership's two remaining properties (the
"Properties"). We have also included a performance summary which addresses
operations at each of the properties and financial highlights for the year.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Actual results could differ from those projected in or
contemplated by the forward-looking statements as a result of a number of
factors, including those identified herein.
Cash Distributions
- -------------------
The Partnership declared cash distributions totaling $23.90 per Unit for the
year ended December 31, 1997, including the fourth quarter distribution of
$1.85 per Unit, which was credited to your brokerage account or sent directly
to you on February 13, 1998. Such amount also includes a special cash
distribution of $16.50, paid on February 24, 1997, representing net proceeds
from the sale of Ridge Park Apartments in December 1996. Since inception, the
Partnership has paid distributions totaling $449.55 per original $500 Unit,
including $254.50 per Unit in return of capital payments. The level of future
distributions will be evaluated on a quarterly basis and will depend on the
Partnership's operating results and future cash needs.
Operations Overview
- --------------------
Operations at the Properties remained stable in 1997, reflecting healthy
economic conditions, tempered by increased competition for tenants in the
markets where the properties are located. As a result of new apartment
construction in the Tucson and Scottsdale markets, some large apartment
properties have begun to offer rental concessions to attract tenants. In both
markets, many high-end renters opted to purchase homes due to low interest
rates. Despite these trends, strong economic growth in Tucson and Scottsdale
helped strengthen multi-family housing, and Tierra Catalina and Las Colinas I
and II sustained average occupancy levels of 92% and 96%, respectively, in
1997. In addition, the appraised values of the Properties increased by 4.0% in
total when compared to the prior year.
Several interior and exterior repairs were performed at each property in 1997,
including landscaping, carpet and appliance replacement in selected units and
other repairs to prepare vacant units for occupancy. The General Partner will
evaluate the need for capital improvements to increase the appeal of the
Properties and position them for eventual sale.
The General Partner continues to evaluate the sale potential of the remaining
properties and other options with respect to the Partnership's investments. One
of these options includes refinancing the loans secured by the Properties in
order to return capital to the limited partners on a tax-free basis and lock in
favorable fixed interest rates. This would also potentially enhance the
future marketability of the Properties, while enabling the Partnership to take
advantage of possible future property appreciation. The Partnership's ability
to sell the Properties is dependent upon a variety of factors, many of which
are not within the Partnership's control. There can be no assurance that any
specific property or all the properties can be sold, that particular prices
will be achieved, or that the Properties can be sold within a specific time
frame. We will keep you apprised of our sales efforts in future
correspondence.
<PAGE>
Property Review
- ----------------
Las Colinas I & II
Las Colinas I & II is a 300-unit apartment community located eight miles
northeast of Phoenix in southwest Scottsdale. Las Colinas I and II reported
average occupancy of 96% in 1997, unchanged from 1996, and an increase in
rental income due to an increase in rental rates. The Scottsdale apartment
market experienced continued strong competition during 1997, reflecting high
levels of construction and notable competition from condominiums and single
family houses, as affordable prices and low mortgage rates enticed renters to
buy. Although vacancy rates in Phoenix and the Scottsdale submarket remained
low in 1997, occupancy levels are expected to decline due to the significant
new construction. The Scottsdale market is experiencing strong job and
population growth with over 70,000 new jobs created in the first six months of
1997 and over 100,000 new residents added to the market during the year. This
economic growth should favorably impact the market, and ease competition until
the pace of new construction subsides.
Tierra Catalina
Tierra Catalina is a 120-unit apartment community located near the Foothills
region of Tucson. The property maintained an average occupancy rate of 92%
during 1997, an increase from 90% for 1996. The increase in occupancy as well
as an increase in rental rates led to a 4.2% rise in the property's rental
income. Apartment vacancy rates remain high in this market, but significant
population growth in Tucson over the last few years is slowly reducing the
number of available units. Low interest rates and affordable home prices have
also increased competition by luring many renters to purchase homes. This
competition has led to the reemergence of rental incentives and other
concessions in the marketplace to attract tenants.
Summary
- --------
We will continue to monitor market conditions at the Properties and evaluate a
potential refinance of the Partnership's mortgage obligations. In the interim,
we intend to maximize the performance of the Properties and further improve
their appearance and condition. We will keep you apprised of significant
developments affecting your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein
President
Continental American Development, Inc.
and ConAm Development Corporation,
General Partners of ConAm Property
Services, Ltd.
March 11, 1998
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected Financial Data
For the periods ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except for per unit data
Total Income $ 3,299 $ 3,714 $ 4,416 $ 4,760 $ 4,485
Gain on Sale of Properties _ 1,411 1,485 _ _
Net Income (Loss) (8) 1,286 1,142 (253) (618)
Net Cash Provided by
Operating Activities 722 753 974 949 1,020
Long-term Obligations at Year End 9,830 9,943 11,954 15,601 15,736
Total Assets at Year End 12,495 14,545 16,022 22,497 23,565
Net Income (Loss) per
Limited Partnership Unit* (.10) 15.53 (1.38) (3.19) (7.81)
Distributions per
Limited Partnership Unit* 7.40 8.00 8.00 8.00 3.50
Special Distributions per
Limited Partnership Unit* 16.50 _ 40.50 _ _
- --------------------------------------------------------------------------------
</TABLE>
* 78,290 units outstanding
Cash Distributions
Per Limited Partnership Unit
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Special Distributions* $16.50 $ _
First Quarter 1.85 2.00
Second Quarter 1.85 2.00
Third Quarter 1.85 2.00
Fourth Quarter 1.85 2.00
------ ------
Total $23.90 $ 8.00
- --------------------------------------------------------------------------------
</TABLE>
* On February 27, 1997, the Partnership paid a special cash distribution
totaling $16.50 per Unit, reflecting net proceeds received from the sale
of Ridge Park Apartments.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Land $ 3,630,175 $ 3,630,175
Buildings and improvements 17,975,267 17,975,267
----------------------------
21,605,442 21,605,442
Less accumulated depreciation (11,022,393) (10,303,382)
----------------------------
10,583,049 11,302,060
Cash and cash equivalents 1,388,845 2,741,077
Restricted cash 430,849 351,444
Mortgage fees, net of accumulated amortization
of $270,880 in 1997 and $220,063 in 1996 84,837 135,654
Other assets 7,162 14,292
- --------------------------------------------------------------------------------
Total Assets $12,494,742 $14,544,527
- --------------------------------------------------------------------------------
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 9,830,261 $ 9,943,036
Distribution payable 160,929 1,478,811
Accounts payable and accrued expenses 202,484 177,414
Security deposits 78,834 71,858
Due to general partners and affiliates 13,797 13,045
----------------------------
Total Liabilities 10,286,305 11,684,164
----------------------------
Partners' Capital (Deficit):
General Partners (265,715) (201,261)
Limited Partners (78,290 Units outstanding) 2,474,152 3,061,624
----------------------------
Total Partners' Capital 2,208,437 2,860,363
- --------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $12,494,742 $14,544,527
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Income
Rental $ 3,196,975 $ 3,622,403 $ 4,313,044
Interest and other 102,512 91,282 102,535
-------------------------------------
Total Income 3,299,487 3,713,685 4,415,579
- --------------------------------------------------------------------------------
Expenses
Property operating 1,520,450 1,817,928 2,261,179
Interest 840,832 992,745 1,191,397
Depreciation and amortization 769,828 880,445 1,087,749
General and administrative 176,587 147,482 218,706
-------------------------------------
Total Expenses 3,307,697 3,838,600 4,759,031
- --------------------------------------------------------------------------------
Loss from operations (8,210) (124,915) (343,452)
Gain on sale of properties _ 1,410,622 1,485,121
- --------------------------------------------------------------------------------
Net Income (Loss) $ (8,210) $ 1,285,707 $ 1,141,669
- --------------------------------------------------------------------------------
Net Income (Loss) Allocated:
To the General Partners $ (82) $ 69,591 $ 1,250,091
To the Limited Partners (8,128) 1,216,116 (108,422)
- --------------------------------------------------------------------------------
$ (8,210) $ 1,285,707 $ 1,141,669
- --------------------------------------------------------------------------------
Per limited partnership unit
(78,290 Units outstanding)
Loss from operations $(.10) $(1.58) $(4.34)
Gain on sale of properties _ 17.11 2.96
- --------------------------------------------------------------------------------
Net Income (Loss) $(.10) $15.53 $(1.38)
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $(1,316,915) $7,669,098 $6,352,183
Net income (loss) 1,250,091 (108,422) 1,141,669
Distributions ($48.50 per Unit) (121,389) (3,797,063) (3,918,452)
- --------------------------------------------------------------------------------
Balance at December 31, 1995 (188,213) 3,763,613 3,575,400
Net income 69,591 1,216,116 1,285,707
Distributions ($24.50 per Unit) (82,639) (1,918,105) (2,000,744)
Balance at December 31, 1996 (201,261) 3,061,624 2,860,363
- --------------------------------------------------------------------------------
Net loss (82) (8,128) (8,210)
Distributions ($7.40 per Unit) (64,372) (579,344) (643,716)
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $ (265,715) $2,474,152 $2,208,437
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (8,210) $1,285,707 $1,141,669
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 769,828 880,445 1,087,749
Gain on sale of properties _ (1,410,622) (1,485,121)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Fundings to restricted cash (396,778) (450,460) (536,471)
Release of restricted cash to
property operations 317,373 493,163 801,400
Other assets 7,130 10,654 16,109
Accounts payable and accrued expenses 25,070 (48,337) 16,898
Security deposits 6,976 (5,575) (63,975)
Due to general partners and affiliates 752 (2,218) (4,567)
----------------------------------
Net cash provided by operating activities 722,141 752,757 973,691
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities -
Net proceeds from sale of properties _ 3,196,264 6,555,332
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions (1,961,598) (695,911) (3,918,452)
Mortgage principal payments (112,775) (2,011,152) (3,646,843)
----------------------------------
Net cash used for financing activities (2,074,373) (2,707,063) (7,565,295)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (1,352,232) 1,241,958 (36,272)
Cash and cash equivalents,
beginning of period 2,741,077 1,499,119 1,535,391
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,388,845 $2,741,077 $1,499,119
- --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 840,832 $ 992,745 $1,191,397
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 81 L.P. (formerly Hutton/ConAm Realty Investors 81) (the
"Partnership") was organized as a limited partnership under the laws of the
State of California pursuant to a Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") dated April 30, 1981, as amended and
restated August 31, 1981. The Partnership was formed for the purpose of
acquiring and operating certain types of residential real estate. The general
partners of the Partnership were RI-81 Real Estate Services Inc. ("RI-81"), an
affiliate of Lehman Brothers Inc., and ConAm Property Services, Ltd. ("CPS"),
an affiliate of Continental American Properties, Ltd. (the "General Partners").
On October 8, 1997, CPS acquired RI-81's co-general partner interest in the
Partnership effective July 1, 1997, pursuant to a purchase agreement between
CPS and RI-81 dated August 29, 1997. As a result, CPS now serves as the sole
general partner (the "General Partner") of the Partnership. In conjunction
with this transaction, the name of the Partnership changed from Hutton/ConAm
Realty Investors 81 to ConAm Realty Investors 81 L.P. The Partnership will
continue until December 31, 2010 unless sooner terminated pursuant to the terms
of the Partnership Agreement.
2. Significant Accounting Policies
Financial Statements The consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Partnership and its
affiliated ventures when the Partnership has a controlling interest in the
ventures. The effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate Investments in real estate are recorded at cost
less accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. Leases are generally for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties (25 years). Maintenance and repairs
are charged to operations as incurred. Costs incurred for significant
betterments and improvements are capitalized and depreciated over their
estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in net income for the period.
Impairment of Long-Lived Assets Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS 121"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
<PAGE>
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate.
Income Taxes No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
Mortgage Fees Included in mortgage fees are deferred mortgage costs incurred
in connection with obtaining financing on the Partnership's properties. Such
costs are amortized over the 7-year term of the applicable loans.
Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents and restricted cash in excess of the financial
institution's federally insured limits. The Partnership invests its cash and
cash equivalents and restricted cash with high credit quality federally insured
financial institutions.
Restricted Cash Restricted cash consists of escrows for insurance, real estate
taxes and property replacement and repairs as required by the first mortgage
lender.
Use of Estimates Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
is to be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss for any fiscal year is to be allocated 99% to the limited partners and
1% to General Partners. Net income for any fiscal year will generally be
allocated 90% to the limited partners and 10% to the General Partners.
Net proceeds from sales or refinancing are to be distributed 99% to the limited
partners and 1% to the General Partners until each limited partner has received
an amount equal to its adjusted capital value (as defined) and an annual,
non-compounded cumulative 7% return thereon. The balance, if any, is to be
distributed 85% to the limited partners and 15% to the General Partners. Gain
from sales resulting from mortgage debt in excess of basis is to be allocated
to each partner having a negative capital account balance, pro rata, to the
extent of such negative balance. Thereafter, such gain is to be allocated in
accordance with the distribution of net proceeds from sale or refinancing, with
the balance allocated to the limited partners.
4. Investments in Real Estate
The Partnership owns two residential apartment complexes that were acquired
either directly or through investments in joint ventures as follows:
<TABLE>
<CAPTION>
Apartment Date Purchase
Property Name Units Location Acquired Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Las Colinas I & II 300 Scottsdale, AZ 5/20/81 & 9/23/82 $12,831,783
Tierra Catalina 120 Tucson, AZ 3/9/84 7,012,650
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
On July 20, 1995, the Partnership sold Kingston Village and Cedar Bay Village
(the "Properties") to an institutional buyer (the "Buyer"), which was
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer. Kingston Village
and Cedar Bay Village were sold for $5,370,000 and $1,410,000, respectively.
The Partnership received aggregate net proceeds of $6,555,332 from the sales of
which $3,541,400, representing outstanding principal and interest, was used to
fully satisfy the Partnership's mortgage obligations on the Properties. The
sales resulted in a gain on sale of $1,485,121 which included the recognition
of mortgage prepayment penalties of $120,926 and a $101,146 write-off of the
unamortized portion of mortgage fees. The gain was allocated in accordance with
the Partnership Agreement. On August 17, 1995, the Partnership paid a special
distribution of $3,170,745 or $40.50 per Unit to the limited partners. The
special distribution was comprised of the net proceeds from the sale of the
Properties and Partnership cash reserves.
On November 27, 1996, the Partnership sold Ridge Park (the "Property") to Ridge
Park Limited Partnership, an Oklahoma limited partnership ("Ridge Park L.P."),
which is unaffiliated with the Partnership. The selling price was determined
by arm's length negotiations between the Partnership and Ridge Park L.P. The
Property was sold for $3,385,000. The Partnership received net proceeds of
$3,196,264 from the transaction of which $1,902,666, representing outstanding
principal and interest, was used to fully satisfy the Partnership's mortgage
obligation on the Property. The transaction resulted in a gain on sale of
$1,410,622 which included the recognition of mortgage prepayment penalties of
$36,843, and a $33,154 write-off of the unamortized portion of mortgage fees.
The gain was allocated in accordance with the Partnership Agreement. On
February 27, 1997, the Partnership paid a special distribution of $1,291,785
($16.50 per unit) to the limited partners, representing the net proceeds from
the sale of the Property.
Cedar Bay Village, Ridge Park, Kingston Village and Tierra Catalina were
originally acquired through joint ventures with unaffiliated developers. To
each venture, the Partnership contributed the apartment projects as its initial
capital contribution. On March 30, 1984, the co-venturer's interest with
respect to Tierra Catalina was acquired for $400,000.
The joint venture and limited partnership agreements for Cedar Bay Village,
Kingston Village, Ridge Park Associates, Tierra Catalina and Las Colinas
substantially provide that:
a. Available cash from operations is to be distributed 100% to the Partnership
until it has received an annual, non-cumulative preferred return, as
defined. Any remaining balance is to be distributed 99% to the Partnership
and 1% to the corporate General Partners.
b. Net income is to be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts have
been increased to zero then, to the Partnership up to the amount of any
payments made on account of its preferred return and thereafter, 99% to
the Partnership and 1% to the corporate General Partners. All losses
are to be allocated first, to the partners with positive capital accounts,
as defined, until such accounts have been reduced to zero and then, 99%
to the Partnership and 1% to the corporate General Partners.
c. Income from a sale is to be allocated first, to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair market
value of the ventures' assets at the date of the amendments. Then, any
remaining balance is to be allocated 99% to the Partnership and 1% to the
corporate General Partners. Net proceeds from a sale or refinancing are to
be distributed first, to the partners with the positive capital account
balance, as defined; thereafter, 99% to the Partnership and 1% to the
corporate General Partners.
5. Mortgages Payable
On August 27, 1992, the Partnership obtained first mortgage loans on Las
Colinas I and II, Tierra Catalina, Kingston Village, Cedar Bay Village, and
Ridge Park properties totaling $15,900,000. The loans, secured by the
respective properties and an assignment of rents and leases, bear interest at
an annual rate of 8.5%. Each of the loans is a non-recourse loan with monthly
payments of principal and interest based on a thirty year amortization schedule
and a seven year term with the balance of the principal due on September 1,
1999. The loans require monthly insurance, real estate tax and property
replacement and repair reserve escrow fundings.
On July 20, 1995, Kingston Village and Cedar Bay Village were sold. A portion
of the sales proceeds, in the amount of $3,662,325, representing outstanding
principal, interest and pre-payment penalties, was used to fully satisfy the
Partnership's mortgage obligations on the Properties.
On November 27, 1996, Ridge Park was sold. A portion of the sales proceeds, in
the amount of $1,939,509 representing outstanding principal, interest and
pre-payment penalties, was used to fully satisfy the Partnership's mortgage
obligation on the Property.
The monthly payment of principal and interest on the remaining outstanding
first mortgage loans is $79,467. Upon maturity of the first mortgage loans, a
balloon payment of $9,619,720 and any accrued interest are due. Additionally,
these mortgages contain provisions for prepayment penalties if the mortgages
are repaid prior to their maturity date of September 1, 1999. Mortgages
payable for Las Colinas I and II and Tierra Catalina at December 31, 1997 are
$6,253,891 and $3,576,370, respectively.
Annual maturities of mortgage principal at December 31, 1997, are as follows:
Year Amount
----------------------------------
1998 122,743
1999 9,707,518
----------------------------------
$9,830,261
----------------------------------
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the fair values be disclosed for
the Partnership's financial instruments. The carrying amount of cash and cash
equivalents, restricted cash, distribution payable, accounts payable and
accrued expenses, security deposits and due to general partners and affiliates
are reasonable estimates of their fair values due to the short-term nature of
those instruments.
The carrying amount of the mortgages payable is a reasonable estimate of its
fair value based on management's belief that the interest rates and terms of
the debt are comparable to those commercially available to the Partnership in
the marketplace for similar instruments.
7. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and affiliates for the years ended December 31, 1997, 1996 and
1995, and the unpaid portion at December 31, 1997:
<TABLE>
<CAPTION>
Earned and
Unpaid at
December 31, Earned
1997 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RI 81 Real Estate Services, Inc.
and affiliates:
Out-of-pocket expenses $ _ $ 4,615 $3,968 $ 2,244
ConAm and affiliates:
Property operating salaries _ 260,841 296,558 394,663
Property management fees 13,797 160,005 181,291 217,706
- --------------------------------------------------------------------------------
Total $13,797 $425,461 $481,817 $614,613
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the consolidated net income (loss) for
financial statement purposes to net income for federal income tax purposes for
the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per financial statements $(8,210) $1,285,707 $1,141,669
Tax basis joint venture net income
(loss) in excess of GAAP basis
joint venture net income (loss)(unaudited) 274,150 (74,666) (443,083)
Gain on sale of properties for tax
purposes in excess of gain per
financial statements (unaudited) _ 1,357,592 2,755,883
Other (unaudited) 18,312 (700) 1,000
- --------------------------------------------------------------------------------
Taxable net income (unaudited) $284,252 $2,567,933 $3,455,469
- --------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital (deficit) for federal income tax purposes as of
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per financial statements $2,208,437 $2,860,363 $3,575,400
Accrued distribution from sale of property _ 1,304,833 _
Adjustment for cumulative difference
between tax basis loss and net income
(loss) per financial statements (unaudited) (2,702,259) (2,994,721) (4,276,947)
- --------------------------------------------------------------------------------
Partners' capital (deficit) per
tax return (unaudited) $ (493,822) $1,170,475 $ (701,547)
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the tax basis of the Partnership's assets was $9,941,445
and the tax basis of the Partnership's liabilities was $10,435,267.
9. Distributions Paid
Distributions, per the consolidated statements of partners' capital (deficit),
are recorded on the accrual basis, which recognizes specific record dates for
payments within each calendar year. The consolidated statements of cash flows
recognize actual cash distributions paid during the calendar year. The
following table discloses the annual differences as presented on the
consolidated financial statements:
<TABLE>
<CAPTION>
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $1,478,811 $ 643,716 $1,961,598 $ 160,929
1996 173,978 2,000,744 695,911 1,478,811
1995 173,978 3,918,452 3,918,452 173,978
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 81 L.P.:
We have audited the accompanying consolidated balance sheet of ConAm Realty
Investors 81 L.P. (a California limited partnership) (formerly Hutton/ConAm
Realty Investors 81) and consolidated ventures (the "Partnership"), as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital (deficit), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
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 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ConAm
Realty Investors 81 L.P. and consolidated ventures as of December 31, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
<PAGE>
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 81 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 81
L.P. (formerly Hutton/ConAm Realty Investors 81), a California limited
partnership, and Consolidated Ventures as of December 31, 1996 and the related
consolidated statements of operations, partners' capital (deficit) and cash
flows for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ConAm
Realty Investors 81 L.P., a California limited partnership, and Consolidated
Ventures as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per Unit at December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Acquisition Cost
(Purchase Price
Plus General
Partners' December 31,
Acquisition 1997 Appraised
Property Date of Acquisition Fees) Value (1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Las Colinas I & II 5/20/81 & 9/23/82 $13,326,613 $14,500,000
Tierra Catalina 3/9/84 7,759,670 6,400,000
----------- -----------
$21,086,283 20,900,000
-----------
Cash and cash equivalents
(including restricted cash) 1,819,694
Other assets 7,162
-----------
22,726,856
Less:
Total liabilities (10,286,305)
-----------
Partnership Net Asset Value (2) $12,440,551
-----------
Net Asset Value Allocated:
Limited Partners $12,258,582
General Partners 181,969
-----------
$12,440,551
-----------
Net Asset Value Per Unit
(78,290 units outstanding) $ 153.90
- -------------------------------------------------------------------------------
</TABLE>
(1) This represents the Partnership's share of the December 31, 1997 Appraised
Values which were determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale at December
31, 1997 of all the Partnership's properties at a price based upon their
value as a rental property as determined by an independent property
appraisal firm, and the distribution of the proceeds of such sale,
combined with the Partnership's cash after liquidation of the
Partnership's liabilities, to the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
<TABLE>
<CAPTION>
Residential Property: Las Colinas Las Colinas Tierra
Apts I Apts II Catalina Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Location Scottsdale, Scottsdale, Tucson, AZ na
AZ AZ
Construction date 1981 1982 1983, 1984 na
Acquisition date 05-20-81 09-23-82 03-09-84 na
Life on which depreciation
in latest income statements
is computed 25 years 25 years 25 years na
Encumbrances $6,253,891 $ _ $3,576,370 $ 9,830,261
Initial cost to Partnership:
Land $1,582,000 $514,564 $1,497,150 $ 3,593,714
Buildings and
improvements $8,268,721 $3,268,996 $6,403,622 $17,941,339
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements $ 29,123 $ 8,494 $ 32,772 $ 70,389
Gross amount at which carried
at close of period: (1)
Land $1,611,123 $ 515,719 $1,503,333 $ 3,630,175
Buildings and
improvements 8,268,721 3,276,335 6,430,211 17,975,267
- --------------------------------------------------------------------------------
$9,879,844 $3,792,054 $7,933,544 $21,605,442
- --------------------------------------------------------------------------------
Accumulated depreciation (2) $5,457,315 $2,009,058 $3,556,020 $11,022,393
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents aggregate cost for both financial reporting and Federal
income tax purposes.
(2) The amount of accumulated depreciation for Federal income tax
purposes is $17,595,293.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in real estate:
Beginning of period $21,605,442 $25,243,577 $33,729,297
Dispositions _ (3,638,135) (8,485,720)
- --------------------------------------------------------------------------------
End of period $21,605,442 $21,605,442 $25,243,577
- --------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $10,303,382 $11,370,295 $13,875,550
Depreciation expense 719,011 818,734 1,011,400
Dispositions _ (1,885,647) (3,516,655)
- --------------------------------------------------------------------------------
End of period $11,022,393 $10,303,382 $11,370,295
- --------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' report.
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 81 L.P.:
Under date of March 3, 1998, we reported on the consolidated balance sheet
of ConAm Realty Investors 81 L.P. (a California limited partnership) (formerly
Hutton/ConAm Realty Investors 81) and consolidated ventures (the
"Partnership") as of December 31, 1997, and the related consolidated
statements of operations, partners' capital (deficit), and cash flows for
the year then ended, as contained in the 1997 annual report to Unitholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the 1997 annual report on Form 10-K. In
connection with our audit of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial
statement schedule. This consolidated financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audit.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
<PAGE>
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm Realty Investors
81 L.P. (formerly Hutton/ConAm Realty Investors 81), a California Limited
Partnership, and Consolidated Ventures has been incorporated by reference in
this Form 10-K from the Annual Report to Unitholders of ConAm Realty Investors
81 for the year ended December 31, 1996. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Annex II
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
- - ----------
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
or
- - ---------- Transition Report Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER: 0-10223
CONAM REALTY INVESTORS 81 L.P.
----------------------------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
CALIFORNIA 13-3069026
---------- ----------
STATE OR OTHER JURISDICTION OF I.R.S.
INCORPORATION OR ORGANIZATION EMPLOYER IDENTIFICATION NO.
1764 San Diego Avenue
San Diego, CA Attn. Robert J. Svatos 92110-1906
------------------------------------- ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
(619)-297-6771
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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
------ ------
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AT JUNE 30, AT DECEMBER 31,
1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in real estate:
Land $ 3,630,176 $ 3,630,176
Buildings and improvements 17,977,572 17,975,266
--------------------------
21,607,748 21,605,442
Less accumulated depreciation (11,379,848) (11,022,393)
--------------------------
10,227,900 10,583,049
Cash and cash equivalents 1,590,508 1,388,845
Restricted cash 369,012 430,849
Mortgage fees, net of accumulated amortization
of $296,288 in 1998 and $270,880 in 1997 83,429 84,837
Other assets 32,789 7,162
- - -----------------------------------------------------------------------------
TOTAL ASSETS $ 12,303,638 $ 12,494,742
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable 9,780,378 9,830,261
Distribution payable 173,978 160,929
Accounts payable and accrued expenses 200,310 202,484
Due to general partner and affiliates 14,083 13,797
Interest payable 69,278 -
Security deposits 71,283 78,834
--------------------------
Total Liabilities 10,309,310 10,286,305
--------------------------
Partners' Capital (Deficit):
General Partner (287,126) (265,715)
Limited Partners (78,290 Units outstanding) 2,281,454 2,474,152
--------------------------
Total Partners' Capital 1,994,328 2,208,437
- - -----------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 12,303,638 $ 12,494,742
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental $ 845,161 $ 773,527 $ 1,694,013 $ 1,577,737
Interest and other 18,711 20,550 30,336 57,973
------------------------------------------------------
Total Income 863,872 794,077 1,724,349 1,635,710
- - ------------------------------------------------------------------------------------
EXPENSES
Property operating 352,669 398,412 699,635 708,858
Depreciation and amortization 192,457 192,457 384,913 384,913
Interest 208,047 210,513 416,731 421,610
General and administrative 46,287 45,621 87,331 95,258
Write-off of assets 1,892 - 1,892 -
------------------------------------------------------
Total Expenses 801,352 847,003 1,590,502 1,610,639
- - ------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 62,520 $ (52,926) $ 133,847 $ 25,071
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ (4,013) $ (529) $ 13,385 $ 32,186
To the Limited Partners 66,533 (52,397) 120,462 (7,115)
------------------------------------------------------
NET INCOME (LOSS) $ 62,520 $ (52,926) $ 133,847 $ 25,071
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(78,290 UNITS OUTSTANDING)
NET INCOME (LOSS) $ 0.85 $ (0.67) $ 1.54 $ (0.09)
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE (DEFICIT) AT DECEMBER 31, 1997 $ (265,715) $ 2,474,152 $ 2,208,437
Net income 13,385 120,462 133,847
Distributions ($4.00 per Unit) (34,796) (313,160) (347,956)
- - ------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT JUNE 30, 1998 $ (287,126) $ 2,281,454 $ 1,994,328
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 133,847 $ 25,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 384,913 384,913
Write-off of assets 1,892 -
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Fundings to restricted cash (125,529) (198,283)
Release of restricted cash 187,366 174,888
Mortgage fees (24,000) -
Other assets (25,627) (6,788)
Accounts payable and accrued expenses (2,174) 1,190
Interest payable 69,278 -
Due to general partner and affiliates 286 (317)
Security deposits (7,551) 4,229
-------------------------
Net cash provided by operating activities 592,701 384,903
- - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
Additions to real estate (6,248) -
- - --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (334,907) (1,639,740)
Mortgage principal payments (49,883) (55,194)
-------------------------
Net cash used for financing activities (384,790) (1,694,934)
- - --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 201,663 (1,310,031)
Cash and cash equivalents, beginning of period 1,388,845 2,741,077
- - --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,590,508 $ 1,431,046
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the period for interest $ 347,453 $ 421,610
- - --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Write-off of buildings and improvements $ (3,942) $ -
Write-off of accumulated depreciation $ 2,050 $ -
- - --------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1997 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal
and recurring adjustments which are, in the opinion of management, necessary
to present a fair statement of financial position as of June 30, 1998 and the
results of operations and cash flows for the three and six months ended June
30, 1998 and 1997 and the consolidated statement of partners' capital for the
six months ended June 30, 1998. Results of operations are not necessarily
indicative of the results to be expected for the full year.
No significant events have occurred subsequent to the year ended
December 31, 1997, and no material contingencies exist, which would require
disclosure in this interim report per Regulation S-X, Rule 10-01, Paragraph
(a)(5).
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Partnership had cash and cash equivalents of $1,590,508
which were invested in unaffiliated money market funds, compared with
$1,388,845 at December 31, 1997. The increase reflects the excess of cash
provided from operations net of distributions and mortgage principal
payments. The Partnership's restricted cash balance totaled $369,012 at June
30, 1998 compared to $430,849 at December 31, 1997. The decrease is
primarily attributable to the net effect of contributions to an escrow
account less payments made from that escrow account for the purpose of
funding insurance, real estate taxes, and property replacements and repairs
as required under the terms of the current mortgage loans.
The General Partner declared a regular cash distribution of $2.00 per Unit
for the quarter ended June 30, 1998 which is to be paid in August, 1998. The
General Partner will determine the amount of future quarterly distributions
based on the Partnership's available cash flow and future cash needs.
RESULTS OF OPERATIONS
Partnership operations for the three and six months ended June 30, 1998
generated net income of $62,520 and $133,847, respectively, compared with a
net loss of $(52,926) and net income of $25,071, respectively, for the
corresponding periods in 1997. The increase for the three and six month
periods is primarily attributable to an increase in rental revenue and a
decrease in property operating and general and administrative expenses.
Rental income totaled $845,161 and $1,694,013 for the three and six months
ended June 30, 1998 compared with $773,527 and $1,577,737, respectively, for
the corresponding periods in 1997. The increase is due to higher overall
occupancy levels at both properties and increased rents at Las Colinas
Apartments I & II.
Interest and other income totaled $18,711 and $30,336, respectively, for the
three and six months ended June 30, 1998 compared with $20,550 and $57,973
for the corresponding periods in 1997. The decrease for the three and six
month periods ended June 30, 1998 is primarily due to lower average cash
balances than the corresponding period in 1997 which included the proceeds
from the sale of Ridge Park prior to their distribution.
Property operating expenses for the three and six months ended June 30, 1998
totaled $352,669 and $699,635, respectively, compared with $398,412 and
$708,858, respectively, for the corresponding periods in 1997. The decrease
is primarily attributable to lower repair and maintenance expenses partially
offset by higher utilities expenses.
During the first six months of 1998 and 1997, average occupancy levels at the
Partnership's properties were as follows:
<TABLE>
<CAPTION>
PROPERTY 1998 1997
-------------------------------------------------
<S> <C> <C>
Las Colinas Apartments I & II 97% 96%
Tierra Catalina Apartments 96% 89%
-------------------------------------------------
</TABLE>
<PAGE>
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable
ITEMS 6 Exhibits and reports on Form 8-K
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONAM PROPERTY SERVICES, LTD.
General Partner of ConAm Realty Investors 81 L.P.
BY: CONTINENTAL AMERICAN DEVELOPMENT, INC.
GENERAL PARTNER
Date: July 30, 1998 BY: /s/ DANIEL J. EPSTEIN
----------------------------------------
Daniel J. Epstein
Director, President, and Principal Executive
Officer
Date: July 30, 1998 BY: /s/ ROBERT J. SVATOS
----------------------------------------
Robert J. Svatos
Vice President and Director
