SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 1)
BALCOR PENSION INVESTORS-II
(Name of Subject Company)
BALCOR PENSION INVESTORS-II
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Thomas E. Meador
Chairman
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
(847) 267-1600
(Name, Address and Telephone Number of Persons Authorized to Receive Notice
and Communications on Behalf of the Person(s) Filing Statement)
Copy To:
Herbert S. Wander
Lawrence D. Levin
Katten Muchin & Zavis
Suite 1600
525 West Monroe Street
Chicago, Illinois 60661-3693
(312) 902-5200
<PAGE>
This Amendment No. 1 to Schedule 14D-9 amends the Schedule 14D-9 (the
"Schedule 14D-9") filed by Balcor Pension Investors-II, an Illinois limited
partnership (the "Partnership"), filed with the Securities and Exchange
Commission on May 29, 1996. All capitalized terms used herein but not
otherwise defined shall have the meanings ascribed to such terms in the
Schedule 14D-9.
Item 9. Material to be Filed as Exhibits
Item 9 hereby is amended by removing "5. (c)(4) The Darby Valuation
Report {to be filed by amendment}" and substituting in its place "5. (c)(4)
The Darby Valuation Report"
Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: May 31, 1996 BALCOR PENSION INVESTORS-II
By: Balcor Mortgage Advisors, its
general partner
By: RGF-Balcor Associates, a
general partner
By: The Balcor Company, a
general partner
By: /s/Thomas E. Meador
----------------------------
Thomas E. Meador, Chairman
<PAGE>
AN APPRAISAL OF
A LIMITED PARTNERSHIP INTEREST
IN
BALCOR PENSION INVESTORS - II
SKOKIE, ILLINOIS
AS OF MARCH 31, 1996
Valuation Counselors
<PAGE>
May 8, 1996
Balcor Mortgage Advisors - II
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
Attention: Mr. John K. Powell, Jr. - First Vice President
Gentlemen:
In accordance with your request, we are pleased to submit our opinion of the
Value of a Limited Partnership Interest in:
Balcor Pension Investors - II
(An Illinois Limited Partnership)
as of March 31, 1996.
The term "Value" is defined as follows:
The amount, in dollars, which a Limited Partnership Interest in Balcor
Pension Investors - II is worth to an investor who owns the Interest with
the intention of holding it to maturity, who fully understands the
complexities of the investment, and has an interest in the potential
interest income and capital appreciation of the Limited Partnership
Interest. The valuation does not represent the amount that would be
received by a holder of a Limited Partnership Interest should he/she
decide to liquidate the Interest prior to the maturity of the Partnership.
The value is subject to the terms and limiting conditions set forth in
this report.
It is anticipated that Balcor Pension Investors - II will close in 1997.
Based on our analyses and conclusions set forth in this report, the estimated
Value of a Limited Partnership Interest in Balcor Pension Investors - II, as of
March 31, 1996, was in the rounded amount of:
$386.00.
The Adjusted Original Capital, as of March 31, 1996, was $588.82.
For the quarter ended June 30, 1995, the value of a Limited Partnership
Interest decreased $21.00 mainly due to a special distribution in April 1995 of
$25.00 per Limited Partnership Interest as a Return of Capital.
<PAGE>
For the quarter ended September 30, 1995, the value of a Limited Partnership
Interest decreased $61.00, mainly due to a distribution of $16.18 per Limited
Partnership Interest as a Return of Capital in July 1995 and an excess of
$42.00 over the normal payout as a Return on Capital as of June 30, 1995, but
paid in July 1995.
For the quarter ended December 31, 1995, the value of a Limited Partnership
Interest increased $36.00 due to an increase in value of $3,328,000 ($39.00 per
Limited Partnership Interest) in the Equity portfolio; and more specifically
based on a projected sale of Cumberland Pines and an offer on Parkway
Distribution.
For the quarter ended March 31, 1996, the value of a Limited Partnership
Interest increased $8.00 due mainly to an increase in the value of Cumberland
Pines Apartments, which is currently under contract for sale.
The present value of a Unit of the Early Investment Incentive Fund, as of March
31, 1996, was in the rounded amount of:
$56.00
The variable components in the total Value of a Limited Partnership Interest
and their values (Schedule E), as estimated by Valuation Counselors Group,
Inc./Darby & Associates Joint Venture are as follows:
Net Investment in Loans Receivable $ 7,585,501
Unamortized Portion of the
Offering Expenses 546,012
Investment in Real Estate 33,776,581
A copy of this report is retained in our files, together with the information
from which the report was compiled.
Respectfully submitted,
/s/Raymond Ghelardi /s/Clement H. Darby
Valuation Counselors Group, Inc. Darby & Associates
Raymond Ghelardi Clement H. Darby
Managing Director President
REG/CHD/ded
cc: Mr. David P. Bennett
Ms. Mary J. Mojica
Ms. Jayne Kosik
Ms. Jane Cody
<PAGE>
TABLE OF CONTENTS
Statement of Facts and Limiting Conditions
Introduction
Payments to the Limited Partners and General Partner
Valuation of a Limited Partnership Interest
Valuation of The Net Investment in Loans Receivable
(1) Discussion of Risk Rates
(2) The Present Value of the Return on Funds Advanced and
the Return of Principal
(3) The Present Value of the Equity Build-up and Accrued Interest
(4) The Present Value of the "Kickers"
Conclusions of Value of the Net Investment in Loans Receivable
Valuation of the "Real Estate Acquired Through Foreclosure"
Calculation of the Unamortized Portion of the Offering Expenses
Other Balance Sheet Adjustments in Anticipation of Dissolution
Calculation of the Value of a Limited Partnership Interest in
Balcor Pension Investors - II
Calculation of an Interest in the Early Investment Incentive Fund
Schedule
A Distributions to the Limited Partnership
B-1 Unadjusted Balance Sheet of Balcor Pension Investors - II
as of March 31, 1996
B-2 Statements of Income and Expenses for the quarters
ended March 31, 1996 and 1995
B-3 Statements of Cash Flows for the quarters ended
March 31, 1996 and 1995
C Loan Portfolio Summary
D-1 Real Estate Asset Summary
D-2 Real Estate Appraisal Projections
E Adjusted Balance Sheet of Balcor Pension Investors - II
as of March 31, 1996
<PAGE>
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc./Darby & Associates Joint Venture strives to
clearly and accurately disclose the assumptions and limiting conditions that
directly affect an appraisal analysis, opinion or conclusion. In order to
assist the reader in interpreting this report, such assumptions are set forth
as follows:
Valuation Counselors Group, Inc./Darby & Associates Joint Venture reserves the
right to make adjustments to the analysis, opinion and conclusions set forth in
the report as deemed necessary by consideration of additional or more reliable
data that subsequently may become available.
No opinion is rendered as to legal fee, property title or mortgage notes
related to the appraised assets, which are assumed to be good and marketable.
It is assumed that no opinion is intended in matters that require legal,
engineering or other professional advice which has been or will be obtained
from professional sources; the valuation report will not be used for guidance
in professional matters exclusive of the appraisal and valuation discipline.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and
accurate to the best of the Appraiser's knowledge and belief. No single item
of information was completely relied upon to the exclusion of other
information.
All financial data, operating histories and other data relating to income and
expenses attributed to the assets and the Partnerships have been provided by
Management or its representatives and have been accepted without further
verification except as specifically stated in the report.
It should be specifically noted that the valuation assumes the appraised assets
will be competently managed and maintained by financially sound owners over the
expected period of ownership except where noted, specifically in assets during
the period of foreclosure where Balcor may not have control. This appraisal
engagement does not entail an evaluation of management's effectiveness, nor are
we responsible for future marketing efforts and other management or ownership
actions upon which actual results will depend.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser or Valuation Counselors Group, Inc./Darby
& Associates Joint Venture shall be disseminated to the public through public
relations media, news media, sales media, prospectus or any other public means
of communications without the prior written consent and approval of Valuation
Counselors Group, Inc./Darby & Associates Joint Venture. The date of the
valuation to which the value estimate conclusion applies is set forth in the
report.
The preponderance of working paper support for this valuation is maintained in
the offices of management, Balcor Mortgage Advisors.
Neither the fees nor any of the terms and conditions of the appraisal
assignments given to Valuation Counselors Group, Inc./Darby & Associates Joint
Venture by Balcor Mortgage Advisors are contingent upon the values reported.
<PAGE>
No independent investigation of the fair market value of the underlying real
estate assets has been made by Valuation Counselors Group, Inc./Darby &
Associates Joint Venture. We have reviewed the real estate appraisals for
reasonableness, but have assumed the real estate appraisals obtained by Balcor
Mortgage Advisors are independent and accurate. Valuation Counselors assumes
responsibility for real estate appraisals prepared by their own staff.
No independent investigation of the terms and conditions of the mortgage loans
made by Balcor Pension Investors - II has been made. We have relied on data
furnished to us by Balcor Mortgage Advisors and the validity of the information
was assumed to be correct.
In the event that this appraisal is used as basis to set a market price for a
Limited Partnership Interest in Balcor Pension Investors - II, no
responsibility is assumed for the seller's inability to obtain a purchaser at
the value reported herein.
The reader of this valuation report should be fully conversant with the terms
and conditions of Balcor Pension Investors - II Limited Partnership as set
forth in the Prospectus, other related documents, and the prior appraisals of a
Limited Partnership Interest in Balcor Pension Investors - II.
We have discussed the current status and condition of the mortgage loans and
real estate owned with the management of Balcor Mortgage Advisors and have
accepted their comments as being factual.
<PAGE>
INTRODUCTION
Balcor Pension Investors - II ("BPI - II") is a Partnership formed on January
23, 1981, pursuant to the Illinois Uniform Limited Partnership Act. The
Partnership serves as an investment vehicle for qualified pension and profit
sharing plans, bank commingled trust funds for qualified pension and profit
sharing plans, Individual Retirement Accounts and HR-10 plans, and other
organizations intended to be exempt from Federal Income Tax. The Limited
Partnership provides for Balcor Mortgage Advisors to be the General Partner.
The sale of the Limited Partnership Interests were at $1,000 per interest
(minimum purchase - five interests or $5,000) up to a maximum of 85,010
interests. The offering period, during which interests were sold by Balcor
Pension Investors - II, commenced in April of 1981 and ran until March 15,
1982. As of March 15, 1982, the closing date, 85,010 Limited Partnership
Interests were sold. Subsequently the Early Investment Incentive Fund
repurchased 1,657 interests.
The Partnership's investment objective is to make wrap-around mortgage loans,
and, to a lesser extent, make other junior mortgage loans and first mortgage
loans. As of March 31, 1996, the loan portfolio consisted of one wrap-around
loan (Alzina Office Building). Unfunded monies totaling $2,871,834(1) were
invested in short-term money market instruments and in demand deposit bank
accounts. As of March 31, 1996, the Partnership owned four real estate assets;
Sherwood I and Sherwood II, Cumberland Pines Apts., Hollowbrook Apts. (Curry
Ford) and Parkway Distribution Center.
On August 30, 1985, Central Park Properties A and Central Park Properties B
mortgage loans were prepaid for a total amount of $6,280,260. On December 31,
1985, Gulf Coast Properties and Chateau Bayou Apartments were paid off for a
combined total of $4,908,660. As of September 30, 1985, they were valued at
$6,194,453 on a combined basis. On September 3, 1985, a deed in lieu of
foreclosure was received on Embarcadero Apartments, and the investment
subsequently was written off.
On March 6, 1986, the General Partner received $10,092,798 in partial
prepayment of the American Can Mortgage Note. A $200,000 note remained in
place which earned interest at 9% per annum, compounded annually, payable March
1, 1992. Pursuant to the note, the borrower was obligated to pay future Sale
Interest, Refinancing Interest, Special Interest and Appraisal Interest. This
Note was reduced $1.1 million in value as of June 30, 1988. In the quarter
ended June 30, 1989, the Note was paid off.
In March of 1986 the Partnership funded a $4,151,208 mortgage loan on Innsbrook
Apartments, Northville, Michigan. This mortgage loan was paid off on July 21,
1988, for $4,978,562.
On May 13, 1986, the North Park Apartments mortgage loan was prepaid in full.
The mortgage loan was valued at $5,508,320 as of March 31, 1986. Total
proceeds from the prepayment were $5,357,976.
On August 28, 1986, the Partnership funded a $9,700,000 loan secured by a first
mortgage on the Tudor Heights Apartments located in Omaha, NE.
On August 27, 1986, The Meadows mortgage loan was prepaid in the amount of
$1,238,124 plus a note valued at $173,660. The amounts received, including the
Note, exceeded the June 30, 1986, valuation by $14,000. No value has been
assigned to the Note.
<PAGE>
On December 23, 1986, the Americana Villas mortgage loan was prepaid in the
amount of $8,952,781. This payoff was $1,106,227 less than the September 30,
1986, valuation. On December 11, 1986, the Trinity House mortgage loan was
prepaid for $2,149,533. This amount exceeded the September 30, 1986, valuation
by $318,075.
The Summer Place mortgage loan had been in default since January 1986. On
December 9, 1986, the borrower filed for bankruptcy and the Partnership took
title on June 8, 1988. In the quarter ended June 30, 1989, the asset was
written off. Vista Larga also was written off. Foreclosure was filed on
Interstate Plaza December 15, 1986. The Partnership took title in July 1988,
and the asset was valued at $3,100,000. On October 30, 1990, the property was
sold for $2,325,000.
The Borrower on Sherwood Acres 1 & 2 filed for bankruptcy December 9, 1986.
The Partnership took title April 22, 1988, by accepting the deed in lieu of
foreclosure and the asset is now carried as Real Estate Owned and valued at
$15,339,637 based on an appraisal of $15,500,000 dated February 25, 1993.
On April 2, 1987, there was a payoff of Hidden Glen Apartments mortgage loan
for $3,582,119. On April 29, 1987, the Parkway Distribution Center mortgage
loan was paid off for an amount of $4,114,466. A new Parkway Distribution
Center mortgage loan was funded for $6,948,769. On June 19, 1991, the
Partnership acquired title through foreclosure and the asset was valued at
$5,300,000 based on an appraisal dated October 1991. As of March 31, 1996, it
was valued at $6,000,000 based on a recent offer to purchase of $6,500,000.
On September 30, 1987, the Pine Lake Mall mortgage loan was prepaid for
$1,777,552, approximately $500,000 less than the previous quarter's valuation.
On January 19, 1988, the Partnership received a deed in lieu of foreclosure on
Midway Office Building and it was sold September 20, 1989. On February 2,
1988, the Partnership received title to Four Winds Apartments. Four Winds was
carried at the value of the underlying mortgage but is now completely written
off. The Embarcadero Apartments mortgage loan also was written off.
On May 26, 1988, the One Independence Plaza mortgage loan was prepaid for
$1,915,799. On June 30, 1988, the Macon Mall mortgage loan was prepaid for
$7,150,000, or $744,000 greater than valuation.
On August 24, 1989, the Pinehurst Park Apartments mortgage loan was prepaid in
the amount of $3,614,877.
On December 17, 1981, the Partnership funded a $5,580,000 loan collateralized
by a wrap-around mortgage on the Broadway Business Center located in Denver,
Colorado, consisting of one office building and four industrial/office
buildings. As a result of the borrower's failure to satisfy certain of its
obligations under the terms of the loan, the Partnership executed a
deed-in-lieu of foreclosure agreement with the borrower on August 13, 1990. As
a result of the agreement, the Partnership obtained title to the four
industrial/office buildings, subject to a first mortgage loan with a balance of
$1,448,580. The General Partner determined that the value of the office
building did not exceed the balance of the existing underlying mortgage loan on
the building ($1,657,507) and therefore agreed to release the Partnership's
lien in order to permit the underlying lender to take title to the office
building through foreclosure. The outstanding wrap-around note receivable
balance of $5,636,037 was reduced by the amount of the underlying loan relieved
<PAGE>
by the lender. The remaining loan balance of $3,978,530, as well as accrued
unpaid interest due to the Partnership, escrow deposits and other expenses and
fees incurred totaling $158,059 were capitalized to the basis of the property.
Broadway Business Center was valued at $1,650,000 as of December 31, 1990. It
was sold October 15, 1992, for $2,025,000.
On April 30, 1991, the Partnership obtained title to Hollowbrook Apts.
(formerly Curry Ford). The asset was valued at $3,150,685 as of September 30,
1995 based on an appraisal dated October 1991. The underlying mortgage in the
amount of $1,088,694 was prepaid in January 1994. The asset was revalued at
$3,645,685 as of March 31, 1996, based on projected 1996 cash flow, because of
the stale date of the appraisal.
In the quarter ended September 30, 1991, the Cumberland Pines Apartments became
Real Estate Owned and was valued at $8,791,259 as of March 31, 1996 based on a
projected sales price of $43,000 per unit. The property sale is scheduled to
close during June 1996.
The Pioneer Plaza Office Building became Real Estate Owned in the quarter ended
June 30, 1989, and was sold for $200,000 over the first mortgage on October 1,
1991.
In the quarter ended September 30, 1991, the value of the accrued interest was
deleted from Arlington Lakeside. As of December 31, 1992, the mortgage loan
was reduced to an agreed payoff amount of $150,000 after the underlying lender
refused to renegotiate their terms, and, in the quarter ended March 31, 1993,
was reduced to the net amount of the note due of $37,500 and subsequently paid
off in the quarter ended June 30, 1993.
The Stonegate MHP was modified as of March 31, 1992. Accrued Interest was
deleted in the quarter ended June 30, 1994. In addition, the Cumberland Pines
Apartments second mortgage was prepaid in January 1992, at a discount. The
Pheasant Run mortgage loan was in default and was valued at funds advanced of
$1,000,000. On October 26, 1993, the mortgage loan was paid off for
$1,520,087, an increase of $520,000 over the valuation. This increase mainly
was due to the recovery of Equity Buildup and Accrued Interest.
On January 5, 1993, the property at 205 Armstrong Road became Real Estate Owned
and was valued at $802,367 as of March 31, 1993. It was sold on July 15,
1993, for a gross price of $775,000, netting the Partnership approximately
$227,000.
On October 26, 1993, the Partnership received $1,520,000 in net proceeds as
payment in full on the Pheasant Run Apartments mortgage loan. On January 27,
1994, the Partnership received $9,921,528 as net cash payment in full on the
Tudor Heights Apartments mortgage loan. Also, in January of 1994, the
Partnership paid off the underlying mortgage loan on the Hollowbrook Apts. Real
Estate Owned in the amount of $1,088,694.
On March 31, 1994, the North Arch Village mortgage loan was paid off for the
net amount of $2,442,795.
On June 17, 1994, Balcor Pension Investors - II prepaid the underlying first
mortgage of approximately $2,300,000 on the Cumberland Pines Apartments Real
Estate Owned.
<PAGE>
On March 8, 1995, the Stonegate MHP mortgage loan was paid off prior to
maturity for $1,691,002.
Cumberland Pines and Parkway Distribution Center are scheduled to be sold in
mid-1996.
Specific adjustments to individual mortgage loans are indicated on Schedule C.
The stated objective of Balcor Pension Investors - II is as follows:
1. Preservation and protection of Limited Partners' capital;
2. Provide the Limited Partners with regular quarterly cash
distributions;
3. Provide the Limited Partners with additional cash distributions through
the receipt of deferred interest;
4. Maximize cash distributions over the life of the Partnership (estimated
to be 12 to 15 years) through the receipt of additional interest in the form of
equity participations.
The intent is to generate a higher total return on investment through the
"equity buildup" portion of a wrap-around mortgage whereby there is a spread in
the principal reduction between the wrap-around mortgage and the underlying
mortgage loans. Although there is a mathematical buildup of this equity during
the life of the loan, the material benefit of the equity buildup is not
normally realized until the maturity of the wrap-around loan - which usually
occurs in a period of from ten to fifteen years from the initial funding of the
loan. In addition, there are potential additional earnings available from a
share in the future gross income as well as a share in the appreciated value on
which Balcor Pension Investors - II has made mortgage loans or commitments.
These potential earnings are commonly known as "kickers."
(1) Source: Balcor Pension Investors - II Balance Sheet, unaudited, as of
March 31, 1996, (Schedule B-1). The Net Investment in Loans Receivable
includes funds advanced as well as earned equity buildup and earned accrued
interest, discounted to a present value, and miscellaneous adjustments.
<PAGE>
PAYMENTS TO THE LIMITED PARTNERS AND GENERAL PARTNER
The Limited Partnership, Balcor Pension Investors - II, is a partial
self-liquidating real estate investment fund. As of March 31, 1996, the
Partners' capital was invested in one real estate loan (Alzina Office Building)
maturing in June 1997, and four equity investments (Sherwood I and Sherwood II,
Cumberland Pines Apts., Hollowbrook Apts. (Curry Ford) and Parkway Distribution
Center). Interest income and amortization, as well as interests in gross
income of certain properties, after deducting the General Partners' expenses,
income and reserves, is distributed to the Limited Partners under certain
formulae, terms and conditions set forth in the Limited Partnership Agreements
and described in the summary in the previous section. The remaining Limited
Partners' capital, equity buildup and interests in the appreciation of certain
properties is distributed to the Limited Partners upon the maturity and/or the
successful payoff of the loans.
The Prospectus of Balcor Pension Investors - II indicated that during the
offering period, which expired on March 15, 1982, as well as during the term of
the Partnership, distributions are to be made to the investors. The following
schedule sets forth the actual distributions made to the Partnership to date.
<PAGE>
SCHEDULE A
DISTRIBUTIONS TO THE LIMITED PARTNERSHIP
Effective Number of Annual
Date Interests Rate Amount Paid
6/30/82 85,010 10.00% $2,125,252
9/30/82 85,010 10.00 2,125,252
12/31/82 85,010 10.00 2,125,252
3/31/83 85,010 10.00 2,125,252
6/30/83 85,010 10.00 2,125,252
9/30/83 85,010 10.00 2,125,252
12/31/83 85,010 10.00 2,125,252
3/31/84 85,010 10.00 2,082,745
6/30/84 85,010 9.80 2,082,745
7/84 85,010 - 42,507
($0.50 per Interest as a Return of Capital)
9/30/84 85,010 9.70 2,061,492
10/84 85,010 - 63,795
($0.75 per Interest as a Return of Capital)
12/31/84 85,010 9.71 2,061,492
1/85 85,010 - 63,795
($0.75 per Interest as a Return of Capital)
3/31/85 85,010 10.02 2,125,252
6/30/85 85,010 10.02 2,125,252
9/30/85 85,010 10.02 2,125,252
12/31/85 85,010 10.02 2,125,252
3/31/86 85,010 10.02 2,125,252
6/30/86 85,010 10.02 2,125,250
9/30/86 85,010 10.02 2,125,250
12/31/86 85,010 10.02 2,125,250
3/31/87 85,010 10.02 2,125,250
6/30/87 85,010 9.02 1,912,725
9/30/87 85,010 9.02 1,912,725
12/31/87 85,010 9.02 1,912,725
1/88 85,010 - 12,751,500
($150 per Interest as a Return of Capital)
3/31/88 85,010 10.61 1,912,725
6/30/88 85,010 8.25 1,487,675
7/88 85,010 - 2,125,250
($25 per Interest as a Return of Capital)
9/30/88 85,010 9.72 1,700,200
10/88 85,010 - 6,800,800
($80 per Interest as a Return of Capital)
12/31/88 85,010 10.23 1,615,190
3/31/89 85,010 10.23 1,615,190
6/30/89 85,010 13.46 2,125,250
7/89 85,010 - 1,700,200
($20 per Interest as a Return of Capital)
9/30/89 85,010 8.85 1,360,160
10/89 85,010 - 1,700,200
($20 per Interest as a Return of Capital)
12/31/89 85,010 9.10 1,360,160
1/90 85,010 - 595,070
($7 per Interest as a Return of Capital)
3/31/90 85,010 14.94 2,210,260
<PAGE>
Effective Number of Annual
Date Interests Rate Amount Paid
6/30/90 85,010 6.32% $935,111
9/30/90 85,010 6.32 935,111
12/31/91 85,010 6.32 935,110
3/31/91 85,010 6.32 935,110
6/30/91 85,010 6.32 935,110
7/91 85,010 - 297,535
($3.50 per Interest as a Return of Capital)
9/30/91 85,010 6.35 935,110
12/31/91 85,010 6.35 935,110
3/31/92 85,010 3.68 531,313
6/30/92 85,010 3.68 531,313
9/30/92 85,010 3.68 531,313
12/31/92 85,010 3.61 531,313
3/31/93 85,010 2.89 425,050
6/30/93 85,010 2.89 425,050
9/30/93 85,010 2.89 425,050
12/31/93 85,010 2.89 425,050
3/31/94 85,010 2.89 425,050
4/94 85,010 - 3,612,925
($42.50 per Interest as a Return of Capital)
6/30/94 85,010 3.08 425,050
7/94 85,010 - 1,700,200
($20.00 per Interest as a Return of Capital)
9/30/94 85,010 3.17 425,050
12/31/94 85,010 3.17 425,050
3/31/95 85,010 3.17 425,050
4/95 85,010 - 2,125,250
($25.00 per Interest as a Return of Capital)
6/30/95 85,010 31.07 3,995,470
($47.00 per Limited Partnership Interest)
7/95 85,010 - 1,375,134
($16.18 per Interest as a Return of Capital)
9/30/95 85,010 3.40 425,050
($5.00 per Limited Partnership Interest)
12/31/95 85,010 4.08 510,060
3/31/96 85,010 4.08 510,060
($6.00 per Limited Partnership Interest)
<PAGE>
The Partnership Agreement provides that the General Partner will receive
mortgage placement fees (points) and standby loan commitment fees paid by
borrowers, subject to certain limitations, when the Partnership funds mortgage
loans or issues commitments to fund mortgage loans. The General Partner will
service the Partnership's mortgages and will receive a mortgage servicing fee,
payable not more frequently than monthly, at an annual rate equal to 1/4 of 1%
of the amounts advanced by the Partnership and outstanding from time to time.
The General Partner is also reimbursed for certain expenses incurred in the day
to day operations of the Partnership.
All profits and losses of the Partnership are allocated 99% to the capital
accounts of the Limited Partners and 1% to the capital accounts of the General
Partner. To the extent that cash flow (as defined in the Partnership
Agreement) is distributed, distributions will be made as follows: (I) 90% of
such cash flow will be distributed to the Limited Partners, (ii) 7.5% of such
cash flow will be distributed to the General Partner, and (iii) 2.5% of such
cash flow will be set aside in the Early Investment Incentive Fund, described
as follows:
Early Investment Incentive Fund:
As set forth in the Partnership Agreement, 2.5% of cash flow distributed
will be set aside in the Early Investment Incentive Fund (the "Fund") for
payment, on dissolution of the Partnership, to those investors who
subscribed for Interests prior to December 31, 1981, ("Early Investors")
if necessary for them to receive a return of their original capital plus a
22% cumulative return. Amounts, if any, remaining in the fund after Early
Investors have received such return will be distributed 90% to all
Limited Partners and 10% to the General Partner.
Amounts placed in the Fund may, in the sole discretion of the General
Partner and subject to certain limitations, be used to repurchase
Interests from existing Limited Partners. Distributions of cash flow
pertaining to such repurchased interests will be paid to the Fund. To the
extent that amounts in the Fund are not utilized to repurchase Interests,
such amounts will be invested in short-term interest bearing instruments
with earnings thereon being credited to the Fund.
<PAGE>
VALUATION OF A LIMITED PARTNERSHIP INTEREST
The methodology used in estimating the Value of a Limited Partnership Interest
in Balcor Pension Investors - II is based upon substituting the estimated value
of the mortgage loan portfolio in place of the "Net Investment in Loans
Receivable" as shown on the March 31, 1996, Balance Sheet of Balcor Pension
Investors - II. In addition, the unamortized portion of the Offering Expenses
is added to the Assets on the same Balance Sheet. The amortization is
calculated by reducing the total Offering Expenses, as set forth in the
financial statements, on a straight line basis, quarterly, to the expiration
date of the loan portfolio. For financial reporting purposes, Balcor Pension
Investors - II initially deducted the total Offering Expenses from the proceeds
of the Limited Partnership Interest. Where equities exist, they are included
in the Balance Sheet (Schedule E) at their market value based on independent
real estate appraisals or estimates based on the cash flows of the properties.
Schedules D-1 and D-2 summarize the calculations of Partnership Asset Values
for the Real Estate Acquired Through Foreclosure.
Future General Partner fees and related expenses are not present valued as an
expense because of their unpredictability but rather are taken as a charge in
the quarter incurred.
Valuation Counselors Group, Inc./Darby & Associates Joint Venture has been
retained by Balcor Mortgage Advisors - II to estimate the Value of a Limited
Partnership Interest in Balcor Pension Investors - II on a quarterly basis. In
order to accomplish this, we valued the "Net Investment in Loans Receivable" as
well as calculated the "Unamortized Portion of the Offering Expenses."
Cash and Investments in Certificates of Deposit and Marketable Securities are
considered short term investments since eventually all but a working capital
reserve will be funded in real estate loans and real estate owned or returned
to the investor. Consequently, they remain in the valuation at face value in
both Schedules B-1 and E.
A simplified version of the Balance Sheet of Balcor Pension Investors - II,
prepared by Balcor Mortgage Advisors - II, before the aforementioned
adjustments, is on the following Schedule B-1. Schedules B-2 and B-3 are
Statements of Income and Expense.
<PAGE>
SCHEDULE B-1
UNADJUSTED BALANCE SHEET
BALCOR PENSION INVESTORS - II
AS OF MARCH 31, 1996
(UNAUDITED)
Assets
Cash and Cash Equivalents $2,871,834
Interest Receivable on Short-term
Investments 5,712
Accounts and Accrued Interest Receivable 31,047
Prepaid Expenses 19,428
Deferred expenses, net of accumulated
amortization of $205,504 141,678
Interest Receivable on Wrap-around Notes
and First Mortgages 122,677
Escrow Deposits, Net 192,367
Net Investment in Loans Receivable 8,212,753
Investment in Real Estate Held for Resale
(Sherwood Acres I & II, Cumberland Pines,
Hollowbrook Apts. and Parkway Distribution
Center) 33,325,170
Allowance for Potential Loan Losses ( 8,979,517)
-----------
Total Assets $35,943,149
===========
Liabilities
Accounts Payable $ 98,440
Due to Affiliates 31,761
Mortgage Notes Payable (Parkway Distribution
Center, and Sherwood Acres I & II) 12,096,405
Other liabilities, principally escrow
deposits 239,030
-----------
Total Liabilities $12,465,636
Partners' Capital
(85,010 Limited Partnership Interests) 23,477,513
-----------
Total Liabilities and Partners'
Capital $35,943,149
===========
<PAGE>
SCHEDULE B-2
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Income:
Interest on loans receivable $ 368,030 $ 666,540
Less interest on loans payable -
underlying mortgages 69,115 93,747
------------- -------------
Net interest income on loans 298,915 572,793
Income from operations of real estate
held for sale 514,975 516,319
Interest on short-term investments 33,871 127,870
Participation income 240,377
------------- -------------
Total income 847,761 1,457,359
------------- -------------
Expenses:
Administrative 69,243 82,007
------------- -------------
69,243 82,007
------------- -------------
Net income $ 778,518 $ 1,375,352
============= =============
Net income allocated to
General Partner $ 58,389 $ 103,151
============= =============
Net income allocated to
Limited Partners $ 720,124 $ 1,272,201
============= =============
Net income per average number of
Limited Partnership Interests
outstanding (77,700 in 1996 and 79,133
in 1995) $ 9.27 $ 16.08
============= =============
Distribution to General Partner $ 42,505 $ 35,421
============= =============
Distribution to Limited Partners $ 466,202 $ 396,446
============= =============
Distribution per Limited Partnership $ 6.00 $ 5.00
Interest outstanding ============= =============
<PAGE>
SCHEDULE B-3
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Operating activities:
Net income $ 778,518 $ 1,375,352
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred expenses 10,152 13,700
Net change in:
Escrow deposits (78,405) (34,415)
Escrow deposits - restricted 81,159
Accounts and accrued interest
receivable 90,824 (38,674)
Prepaid expenses 58,324
Accounts payable (99,440) 41,770
Due to affiliates 12,391 37,170
Other liabilities 84,559 78,254
------------- -------------
Net cash provided by operating activities 856,928 1,554,316
------------- -------------
Investing activities:
Collection of principal on
loans receivable 2,400,000
Improvements to real estate (129,800)
------------- -------------
Net cash (used in) or provided by
investing activities (129,800) 2,400,000
------------- -------------
Financing activities:
Distribution to Limited Partners (466,202) (396,446)
Distribution to General Partner (42,505) (35,421)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (62,806) (42,103)
Principal payments on underlying
loans payable (142,840) (94,191)
Repayment of underlying loan payable (943,416)
Principal payments on mortgage
notes payable (41,955) (38,202)
------------- -------------
Net cash used in financing activities (756,308) (1,549,779)
------------- -------------
Net change in cash and cash equivalents (29,180) 2,404,537
Cash and cash equivalents
at beginning of year 2,901,014 7,699,482
------------- -------------
Cash and cash equivalents at end of period $ 2,871,834 $ 10,104,019
============= =============
<PAGE>
VALUATION OF THE NET INVESTMENT IN LOANS RECEIVABLE
The value of the Net Investment in Loans Receivable (the loan portfolio) is
equal to the present value of the various income and equity components of the
loan portfolio, discounted at current market rates of interest, commensurate
with the risk, as of March 31, 1996.
The income and equity components of the loan portfolio are as follows:
(1) The present value of the average annual rate of return on funds
advanced (Cash Received), by loan, over the life of the loans,
(2) The present value of the funds advanced, due at maturity of each loan,
(3) The present value of the equity buildup and accrued interest, and
(4) The present value of the "kicker" income, i.e., a share in the future
gross income and the appreciated value, "equity kickers," in certain
properties.
(1) Discussion of Risk Rates
The discount rate applied to the cash flow mathematically expresses risk. Risk
represents the uncertainty related to achievement of the prospective cash
flows. The primary components of risk exposure in fixed income securities are
interest rate risk, inflation risk, market risk, liquidity risk and risk of
default. As previously discussed, the valuation of the assets in question have
been predicated upon the present valuing of the components of the loan
portfolio. Therefore, determination of an appropriate risk rate is essential
in the valuation of the net investment in loans receivable.
Financial theory dictates the necessity of incremental return resulting from
incremental risk. Accordingly, the typical risk/return tradeoff indicates that
investors should demand greater rates of return as the perceived riskiness of
the asset or security increases. In examining an investment situation, a
hypothetical investor would weigh the perceived level of risk against the
return expected from the subject investment. In determining the required rate
of return or discount rate on a particular asset or investment, the
hypothetical investor would also consider returns available from alternative
investment opportunities such as government securities, corporate bonds,
mortgages, real estate and common stock, if applicable.
The subject assets consist of a self-liquidating real estate investment fund
with investments in both real estate loans with varying maturities and real
estate assets. Accordingly, in determining an appropriate risk rate associated
with the subject assets, we have considered alternative and comparable rates of
return in the lending and real estate marketplace as indicated by such sources
as the Wall Street Journal, Real Estate Research Corporation Real Estate
Report, Investment Dealers Digest, Corporate Financing Week, American Council
of Life Insurance Investment Bulletin and the National Association of Real
Estate Investment Trusts.
The following table presents yield rates associated with various types of
government and corporate securities as indicated by the March 29,1996 and
January 3, 1996 Wall Street Journals.
<PAGE>
Yield Rates as Indicated by the Wall Street Journal
Security First Quarter 1996 Fourth Quarter 1995
Three Month U.S. Treasury Bills 4.99% 5.04%
Six Month U.S. Treasury Bills 4.97% 5.03%
Prime Rate 8.25% 8.50%
Ten Year U.S. Treasury Bonds 6.60% 5.64%
Twenty Year U.S. Treasury Bonds 6.90% 6.02%
Corporate Bonds
Aaa, Aa 6.72% to 7.60% 6.02% to 6.96%
A, Baa 6.95% to 7.91% 6.23% to 7.31%
Ba, C 9.8% 9.7%
Collateralized Mortgage
Obligations
10 Year 7.90% 6.94%
20 year 8.05% 7.17%
Additionally, information from Moody's Corporate Bond Survey and the Investment
Dealer's Digest indicates the corporate original issue Real Estate Mortgage
Investment Conduit (REMIC) yields from 1988 to 1995 ranged from 7% to 11.3% for
obligations with terms in excess of ten years. A yield difference of one to
three points was exhibited within multiple class REMIC issues where accrued
interest payments did not commence on the (higher yielding) security until
senior class notes were paid in full. A short term issuance collateralized by
elderly living properties exhibited a four point yield differential between
classes.
According to information from the Mortgage-Based Securities Letter, REMIC
issuances in 1994 have decreased substantially from the levels exhibited during
1992 and 1993. Reportedly, many REMIC underwriters and investors incurred
losses due to price corrections in the derivative mortgage securities market.
The price decline was believed to be attributable to several factors including
rising interest rates, increased volatility, average-life extension and lack of
liquidity. According to the Wall Street Journal, new issues of mortgage-backed
securities were down 57% in 1994 as compared to the prior year.
In addition to the previously noted yields on various market securities, we
have also considered mortgage rates associated with various types of commercial
real estate properties. This data is relevant in that it provides an
indication of rates of return associated with similar types of investments.
These statistics have been extracted from the December 29, 1995 and October 1,
1995 editions of the Investment Bulletin published by the American Council of
Life Insurance, is as follows:
<PAGE>
Averages
Contract Interest
Rate
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 7.83% 8.23%
Apartment 7.64% 8.13%
Office Building 7.98% 8.23%
Retail 7.79% 8.17%
Industrial 7.84% 8.21%
Other Commercial 7.73% 8.47%
Yield With
Fees
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 7.85% 8.24%
Apartment 7.67% 8.15%
Office Building 8.00% 8.24%
Retail 7.81% 8.18%
Industrial 7.85% 8.22%
Other Commercial 7.74% 8.51%
Maturity
(Years/Months)
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 11/06 11/02
Apartment 10/11 10/09
Office Building 10/0 09/07
Retail 13/05 10/06
Industrial 10/08 10/00
Other Commercial 11/04 12/02
Additionally, we have considered expected capitalization rates and internal
rates of return extracted from "Korpacz Real Estate Investor Surveys, First
Quarter 1996". For comparative purposes, we have also presented similar data
extracted from "Korpacz Real Estate Investor Surveys, Fourth Quarter 1995".
<PAGE>
National Market Indicators: First Quarter 1996
Retail Office
(National Regional (Central Business
Malls) District)
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.50% 10.00%-15.00% 12.10%
Free and Clear Equity Cap
Rate 6.25%-11.00% 8.11% 8.00%-12.50% 9.58%
Terminal Cap Rate 7.00%-11.00% 8.56% 8.25%-12.00% 9.62%
Office National
(National Suburban) Industrial
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.90% 9.00%-14.00% 11.27%
Free and Clear Equity Cap
Rate 8.00%-11.00% 9.47% 7.25%-13.00% 9.29%
Terminal Cap Rate 8.50%-12.00% 9.68% 8.00%-11.00% 9.51%
National
Apartment
Range Average
Free and Clear Equity IRR 10.50%-13.00% 11.38%
Free and Clear Equity Cap
Rate 7.50%-10.50% 8.97%
Terminal Cap Rate 8.00%-11.00% 9.29%
<PAGE>
National Market Indicators: Fourth Quarter 1995
Retail Office
(National Regional (Central Business
Malls) District)
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.55% 10.00%-15.00% 12.15%
Free and Clear Equity Cap
Rate 6.25%-11.00% 7.86% 7.50%-12.50% 9.52%
Terminal Cap Rate 7.00%-11.00% 8.45% 8.25%-12.00% 9.63%
Office National
(National Suburban) Industrial
Range Average Range Average
Free and Clear Equity IRR 10.00%-15.00% 12.04% 9.00%-14.00% 11.31%
Free and Clear Equity Cap
Rate 8.00%-11.50% 9.57% 7.25%-13.00% 9.36%
Terminal Cap Rate 8.50%-12.00% 9.75% 8.00%-11.00% 9.58%
National
Apartment
Range Average
Free and Clear Equity IRR 10.00%-13.00% 11.50%
Free and Clear Equity Cap
Rate 7.50%-10.50% 8.99%
Terminal Cap Rate 8.00%-11.00% 9.31%
Our discount rates have been selected based upon the returns exhibited on
alternative securities and real estate properties as previously presented, in
conjunction with the attributes of the subject assets.
Risk Measurement in Real Estate
As previously discussed, the primary components of risk exposure for fixed
income securities include interest rate risk, inflation risk, market risk,
liquidity risk and default risk. For real estate, these risks are similar and
can be segmented into two categories. The first is systematic risk which
includes all risks external to the property. The remaining risks can be
categorized as nonsystematic risk and includes all risks directly related to
the property. Generally, systematic risk affects the overall market as a whole
and is often referred to as market risk. However, nonsystematic risk is
generally more attributable to the property specifics. Nonsystematic risk can
be further broken down into risk relative to the immediate neighborhood or
local market with the residual risks being unique to the property.
<PAGE>
When viewing an investment in a single property, the systematic overall market
risk, the nonsystematic local market risk and the nonsystematic unique property
risks must be weighed in the derivation of an appropriate risk rate (discount
rate) to be applied to anticipated cash flows. The overall market risks would
include such factors which effect the market as a whole. Among these factors
would be the level of interest rates, the economic condition of the nation,
federal tax incentives related to real estate and the expected inflation rate.
Each of these factors can have a direct effect on real estate throughout the
nation.
Nonsystematic local market risks are those that effect a regional area or
neighborhood and are not part of the overall market risk. There are many types
of possible local market risks. Some examples of local market risk include
fluctuations in the local economy, changes in transportation systems, local
crime rates and over building. These local market risks may be severe enough
to override the effects of the overall market risk.
Property unique risks are those which effect the subject property in a manner
more specific than the local market risks. Many of the property unique risks
are similar to the local market risks but are more significant for the subject
property. Some examples of property specific risks would include dependence on
single industries or tenants, crime frequency on the property, changes in
immediate traffic patterns, changes in adjacent zoning or adjacent property
conditions and unanticipated capital improvement requirements. These property
specific risks may have a material impact on the property but may not be
reflected in the local market risks.
Investments in individual property would reflect three groups of risks
including the systematic overall market risks, the nonsystematic local market
risks and the nonsystematic property unique risks. However, modern portfolio
theory recognizes that through investment diversification, the nonsystematic
risks associated with the local market and the unique attributes of the
property can be reduced. Furthermore, with sufficient diversification, a
portfolio can virtually eliminate nonsystematic risk.
The benefits of portfolio diversification are reflected in the improvement of
the portfolio's return-risk ratio. The return-risk ratio measures the return
of the investment relative to the volatility of the return. Generally, the
volatility of return is measured by the standard deviation of the return over a
period of time. Therefore, the return-risk ratio is simply the return of the
investment divided by the standard deviation of the return.
As an example of the application of this ratio, assume that portfolio A invests
in only one type of property in one local market and experiences an average
annual return of 13% over fifteen years with a standard deviation of return of
17%. The return-risk ratio is computed to be 0.76 (13% divided by 17%).
Portfolio A's risk-return ratio can then be compared to the ratio of other
portfolios to evaluate the level of return relative to the risk taken.
To illustrate, assume portfolio B invests in a wide variety of property types
in a numerous geographical regions and only generated an annual return of 12%
over fifteen years. However, the standard deviation of return was only 13%.
The return-risk ratio is computed to be 0.86 (12% divided by 13%). Even though
portfolio A's return exceeded portfolio B's return, the superior return was not
enough to offset the increase in risk. Therefore, an investor would likely
prefer an investment in Portfolio B.
<PAGE>
It should be noted, however, that with the reduction in the volatility of
returns, modern portfolio theory also recognizes that there is a reduction in
the level of potential return. This is because that volatility generally
provides the opportunity for added returns. This is the basis for the axiom
that greater risk equals greater reward. However, an investor generally
requires that the increase in risk is offset by an increase in potential
return. Conversely, if an investor is looking for a lower risk, the investor
would expect lower returns.
In the instant case, the discount rates selected for the appraisal of
individual properties which are expected to be sold in the near future reflect
all the systematic and nonsystematic risks associated with each individual
property. The discount rates are derived considering overall market factors,
local market factors and property unique factors. However, for those
properties which are valued as real estate investments on the basis of their
cash flows, the discount rate applied reflects the benefits of reduced
nonsystematic risks through portfolio diversification. These benefits include
the offsetting of local market risks and property unique risks of each property
with the local market risks and property unique risks of the other properties
in the portfolio. As a result, the volatility of returns for each property is
offset by the volatility of returns of the other properties in the portfolio.
The discount rates applied to the latter category of properties are derived
from market data on portfolio returns, which reflect the dichotomies described
above.
<PAGE>
(2) The Present Value of the Return on Funds Advanced and the Return of
Principal
Schedule C lists one mortgage loan (Alzina Office Building) funded as of March
31, 1996, with total funds advanced of $4,415,034.
In order to determine the present value of the return on funds advanced, the
interest due in the loan in each year to maturity was calculated on the basis
of the average annual rate of return on funds advanced. This interest was
discounted to a current present value at a market rate of interest. After
reviewing various market rates in effect as of March 31, 1996, including those
set forth in (1) Discussion of Risk Rates, as well as others, and recognizing
the present rates of similar new mortgage loans, we have concluded that a rate
of 11.00% is commensurate for the risk of wrap-around mortgage loans in this
Fund.
The present value of the funds advanced is the present value of the principal
of the loan at maturity, discounted to a present value at 11.00%. This
information is summarized in Schedule C, which follows a later section of this
report.
The total present value of the principal and interest on the mortgage loan in
this Partnership, as of March 31, 1996, was:
$4,498,597
=========
<PAGE>
(3) The Present Value of the Equity Buildup and Accrued Interest
The value of the equity buildup for the wrap-around mortgage loans and accrued
interest is the present value of a known contract amount of monies to be
received at a specific future date. As the loans begin to mature, there is an
increasing amount of equity buildup and accrued interest actually earned and
less equity buildup and accrued interest still to be earned in the future. The
area of judgment in valuing the equity buildup and accrued interest is in the
selection of the discount rates commensurate with the risks. Because equity
buildup and accrued interest are contract amounts to be received the same as
cash interest received and repayment of principal, the same discount rate
applies to all items, i.e., 11.00% on equity buildup and 11.00% on additional
accrued interest, where applicable.
Schedule C (Loan Portfolio Summary) summarizes the present value of the equity
buildup and accrued interest for the loan, as of March 31, 1996. It indicates
the total amount of funds advanced for the loan and the equity buildup and
discounted accrued interest at 11.00%.
In certain loans the accrued interest payment is effected by the income kicker
wherein the loan agreement calls for the kicker income first to be applied
against accrued interest. The net effect is an increase in the present value
of the accrued interest of the loan as a result of its accelerated payment of
the accrued interest instead of payment at maturity.
Present Value of Equity Buildup $2,256,304
Present Value of Additional Accrued Interest 0
----------
Total $2,256,304
==========
<PAGE>
(4) The Present Value of the Income and Equity "Kickers"
On most of the loans Balcor Mortgage Advisors initially negotiated "kickers,"
or additional payments to Balcor Pension Investors - II, contingent upon the
achievement of certain levels of gross income and/or market value. In some
cases Balcor Pension Investors - II is to receive a percent of the gross income
over a specified amount of gross income to be achieved in the future. There is
no assurance that the achievement levels will be attained, nor is there any
assurance that the payments due will be received in whole and on a timely
basis. In other more predictable cases, the percentage share of gross income
may be collected on next year's revenues. Other "kickers" include situations
where Balcor Pension Investors - II is to receive a percentage of the proceeds
in a sale or refinancing of the property over a stated market or appraised
value.
In estimating the present value of the income kickers where they exist we have
estimated appropriate gross income for each loan subject to an income kicker
and projected the gross income at a compound rate of 4% to the maturity date of
the wrap-around mortgage loan unless a particular set of circumstances on a
mortgage loan dictate a lower growth rate. The annual projected gross income
was compared with the terms and conditions of the income kicker provision of
each loan and, where payments were due in future years, that amount was
discounted at 18.0% for wrap-around mortgage loans and 15.0% for first mortgage
loans to a present value. The risk rate of 18.0% for wrap-around mortgage
loans and 15.0% for first mortgage loans is commensurate with the ability of
the properties to achieve their income goals and for Balcor Pension Investors -
II to receive payment.
A different valuation methodology was used to determine the present value of
the equity kickers where they exist. Income was increased at 4% on the
properties unless a particular set of circumstances on a mortgage loan dictate
a lower growth rate. Taxes, insurance, utilities and other expenses were
increased at 4%. To compute the value of the property the resultant net cash
flow from each property was capitalized at 10.25%. The resultant values were
discounted at 18.0% and 15.0% to a present value. This risk rates represent
the degree of risk of the properties to achieve their projected market values
and for Balcor Pension Investors - II to receive payment.
The calculation of the present value of the income and equity kickers, as of
March 31, 1996, is as follows:
Present Value of Income Kickers $ 210,225
Present Value of Equity Kickers 620,375
--------
Total $830,600
=======
<PAGE>
BALCOR PENSION INVESTORS II SCHEDULE C
LOAN PORTFOLIO SUMMARY -------------
AS OF: 31-MAR-96
DISCOUNT RATES: WRAPS 11.00%
DATE DATE DISCOUNTING CURRENT DISCOUNTED
LOAN OF OF TERM FUNDS FUNDS
DEAL TYPE FUNDING MATURITY(IN QUARTERS) ADVANCED ADVANCED
- --------------------------------------------------------------------------
ALZINA O.B. WRAP 30-Jul-82 01-Jun-97 5.00 4,415,034 3,855,005
-----------------------
4,415,034 3,855,005
-------------
LESS: GP 10% SHARE
LESS: GP 5% SHARE (on Loans Valued at Funds Outstanding) 0
-------------
NET TO LIMITED PARTNERS 3,855,005
=============
DISCOUNT RATES: WRAPS 11.00% 11.00% 11.00%
DISCOUNTED DISCOUNTED
DEBT EQUITY DISCOUNTED
SERVICE BUILD-UP NOTES
------------------------------------
ALZINA O.B. 715,102 2,507,004 0
------------------------------------
715,102 2,507,004 0
LESS: GP 10% SHARE 71,510 250,700 0
LESS: GP 5% SHARE (on Loans
Valued at Funds Outstanding) ------------------------------------
NET TO LIMITED PARTNERS 643,592 2,256,304 0
====================================
DISCOUNT RATES: WRAPS 11.00% 18.00% 18.00%
DISCOUNTED DISCOUNTED DISCOUNTED TOTAL
ACCRUED INCOME EQUITY CURRENT
INTEREST KICKERS KICKERS VALUATION
----------------------------------------------
ALZINA O.B. 0 233,583 689,306 8,000,000
----------------------------------------------
0 233,583 689,306 8,000,000
LESS: GP 10% SHARE 0 23,358 68,931 414,500
LESS: GP 5% SHARE (on Loans 0
Valued at Funds Outstanding)----------------------------------------------
NET TO LIMITED PARTNERS 0 210,225 620,375 7,585,501
==============================================
<PAGE>
CONCLUSIONS OF VALUE OF THE NET INVESTMENT IN LOANS RECEIVABLE
The value of the Net Investment in Loans Receivable is the sum of the present
values of the various components of the loans described in the foregoing
sections of this report. Our conclusions are summarized as follow:
(1) The Present Value of the Return on Funds
Advanced and Return of Principal $4,498,597
(2) The Present Value of the Equity Buildup
and Accrued Interest 2,256,304
(3) The Present Value of the Income and Equity
Kickers 830,600
----------
Total Value of the Net Investment in
Loans Receivable as of March 31, 1996 $7,585,501
==========
<PAGE>
"VALUATION OF THE "REAL ESTATE ACQUIRED THROUGH FORECLOSURE"
Balcor Pension Investors - II began in 1982 as a Limited Partnership with an
investment objective to make mortgage loans. Because of the general decline in
the real estate market over the past several years, it was necessary for the
Partnership to acquire a number of the assets, secured by the mortgage loans,
through foreclosure or accepting the deed in lieu of foreclosure. As of March
31, 1996, the Partnership owned four Real Estate Assets Acquired Through
Foreclosure. Several have been sold or liquidated prior to this date.
In arriving at an estimate of the value of each asset a number of factors were
considered. Important to the analysis was the Partnership's policy on the
assets as to whether an asset would be retained until the maturity of the
Partnership or sold in the near-term. The decision to sell in the near-term
might be on the basis that there is no long-term potential for the asset to
materially increase in value or that substantial dollars might be necessary to
renovate and repair the asset. Also, the Partnership may have received an
offer to purchase the property for a price that would be difficult to refuse,
based on the factors known at this time. The decision to hold until the
maturity of the Partnership indicates it is to be considered as an investment
and the assumption that the asset will grow in value.
Schedule D-1 lists the four Real Estate Assets in Balcor Pension Investors - II
presently owned by the Partnership. The first column indicates the Asset
Present Value without regard to potential payments to the General Partner. The
remaining columns set forth the calculations to determine if their is Excess
Value, and, if so, what is due the General Partner. The last column is the
Partnership Asset Value, which is equal to the Asset Present Value minus the
General Partner Share of Excess. The Partnership Asset Value includes the
Underlying Mortgage, where applicable, since the underlying mortgage is
deducted later in Schedule E - Liabilities.
Schedule D-2 is a summary of the calculations of the Asset Present Value for
each real estate asset in Balcor Pension Investors - II. Cumberland Pines is
valued on the basis of its projected sales price in 1996, Parkway Distribution
on the basis of an offer, Hollowbrook on projected 1996 cash flow and Sherwood
Acres I & II on the basis of an appraisal.
In the quarter ended September 30, 1993, 205 Armstrong was sold for a gross
price of $775,000, netting the Partnership $407,000 after paying costs and the
underlying first mortgage. In January 1994 the underlying first mortgage of
$1,088,694 on Hollowbrook Apts. was paid off. On June 17, 1994, the underlying
first mortgage of approximately $2,300,000 on the Cumberland Pines Apartments
was paid off.
<PAGE>
SCHEDULE D-1
Real Estate Asset Summary
BALCOR PENSION INVESTORS II
ASSET
PRESENT LESS: LESS:
VALUE UNDERLYING FUNDS EXCESS
PROPERTY 31-Mar-96 MORTGAGE OUTSTANDING VALUE
- ----------------------------------------------------------------------
Cumberland Pines 9,200,000 0 5,112,586 4,087,414
Hollowbrook/Curry Ford 3,750,000 0 2,706,853 1,043,147
Parkway Distribution 6,000,000 701,029 6,948,769 (1,649,798)
Sherwood Acres I & II 15,500,000 11,395,376 2,500,997 1,603,627
-----------------------------------------------
34,450,000 12,096,405 17,269,205 5,084,390
GENERAL
PARTNER NET PARTNERSHIP
SHARE OF EXCESS ASSET
EXCESS VALUE
PROPERTY AT 10% VALUE 31-Mar-96
- -----------------------------------------------------------
Cumberland Pines 408,741 3,678,673 8,791,259
Hollowbrook/Curry Ford 104,315 938,832 3,645,685
Parkway Distribution 0 (1,649,798) 6,000,000
Sherwood Acres I & II 160,363 1,443,264 15,339,637
------------------------------------
673,419 4,410,971 33,776,581
<PAGE>
SCHEDULE D-2
Real Estate appraisal Projections
BALCOR PENSION INVESTORS II
REO-Discounted Cash Flow Analysis as of: 31-Mar-96
PROJECTION SOURCE: APPRAISAL PROJECTIONS
DISCOUNT RATES:
Net Cash Receipts 10.00%
Residual Value 10.50%
Sales Commission 2.50%(ON GROSS PRICE)
Quarter Factor (for formula reference) 1
ACTUAL ACTUAL Actual
1992 1993 1994
Net Cash Receipts
Reo Investments
Cumberland Pines NOI B4 TI/LC/Capital 0 0 0
Sale Value TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hollowbrook/
Curry Ford NOI B4 TI/LC/Capital 0 0 283,895
Sales Price TI/LC/Capital 0 0 158,850
------------------------------
Net Cash Receipts 0 0 125,044
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Parkway Distrib. NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sherwood Acres I&II NOI B4 TI/LC/Capital 0 0 0
Valued at Appraised
Value (2/93) TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS 0 0 125,044
<PAGE>
Budget Pro-ject Pro-ject
1995 1996 1997
Cumberland Pines NOI B4 TI/LC/Capital 0 0 0
Sale Value TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 0
Hollowbrook/
Curry Ford NOI B4 TI/LC/Capital 356,995 386,302 403,380
Sales Price TI/LC/Capital 96,364 100,845 57,600
------------------------------
Net Cash Receipts 260,631 285,457
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 4,312,350
Parkway Distrib. NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sherwood Acres I&II NOI B4 TI/LC/Capital 0 0 0
Valued at Appraised
Value (2/93) TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS 260,631 285,457 0<PAGE>
Pro-ject Pro-ject Pro-ject
1998 1999 2000
Cumberland Pines NOI B4 TI/LC/Capital 0 0 0
Sale Value TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hollowbrook/
Curry Ford NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Parkway Distrib. NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sherwood Acres I&II NOI B4 TI/LC/Capital 0 0 0
Valued at Appraised
Value (2/93) TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 0
TOTAL NCR FROM INVESTMENTS 0 0 0
<PAGE>
Pro-ject Pro-ject Pro-ject
2001 2002 2003
Net Cash Receipts
Reo Investments
Cumberland Pines NOI B4 TI/LC/Capital 0 0 0
Sale Value TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hollowbrook/
Curry Ford NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Parkway Distrib. NOI B4 TI/LC/Capital 0 0 0
Sales Price TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 0
Sherwood Acres I&II NOI B4 TI/LC/Capital 0 0 0
Valued at Appraised
Value (2/93) TI/LC/Capital 0 0 0
------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS 0 0 0
<PAGE>
Asset PV as of
31 Mar 96
Cumberland Pines NOI B4 TI/LC/Capital 0 NCR Present Value
Sale Value TI/LC/Capital 9,200,000 Residual Present Value
-----------
Net Cash Receipts 9,200,000 Sales Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hollowbrook/
Curry Ford NOI B4 TI/LC/Capital 0 NCR Present Value
Sales Price TI/LC/Capital 3,750,000 Residual Present Value
-----------
Net Cash Receipts 3,750,000 Sales Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Parkway Distrib. NOI B4 TI/LC/Capital 0 NCR Present Value
Sales Price TI/LC/Capital 6,000,000 Residual Present Value
-----------
Net Cash Receipts 6,000,000 Sales Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sherwood Acres I&II NOI B4 TI/LC/Capital 0 NCR Present Value
Valued at Appraised
Value (2/93) TI/LC/Capital 15,500,000 Residual Present Value
-----------
Net Cash Receipts 15,500,000 Sales Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS
Total Net Cash Receipts PV 0 Total NCR PV
Total Residual Value PV 34,450,000 Total Residual PV
-----------
TOTAL PRESENT VALUES 34,450,000 TOTAL PRESENT VALUES
<PAGE>
CALCULATION OF THE UNAMORTIZED PORTION
OF THE OFFERING EXPENSES
The unamortized portion of the offering expenses of Balcor Pension Investors -
II, as of March 31, 1996, is calculated on a straight line basis over the life
of the mortgage loan portfolio as follows:
Total Offering Expenses through March 31, 1996 - $8,190,158
---------
Quarterly Amortization based on 60 remaining quarters as of
December 31, 1982 - $136,503
--------
Unamortized Portion as of June 30, 1995 = $8,190,158 - 7,098,134
$1,092,024
==========
As of the quarter ended September 30, 1995, the termination date of the
fund was revised to December 31, 1996, or five remaining quarters.
Unamortized Portion as of March 31, 1996 = $1,092,024 - 546,012 =
$546,012
========
(3 Remaining Quarters)
<PAGE>
OTHER BALANCE SHEET ADJUSTMENTS IN ANTICIPATION OF DISSOLUTION
For the quarter ended December 31, 1993, and for valuation purposes only, a new
balance sheet adjustment was made. This adjustment continued in each
subsequent quarter until December 31, 1995. The balance sheet adjustment had
commenced with the allocation of an estimated portion of future cash flow to be
accrued for certain costs to be incurred relating to the dissolution and
termination of the Partnership. These anticipated costs were expected to be
comprised of legal fees, accounting fees and other administrative costs. For
the quarter ended December 31, 1995, the cumulative reserve amount was
$600,000, an amount unchanged from prior quarters. However, in the quarter
ended March 31, 1996 it became apparent that dissolution costs would be
minimal, so the balance sheet adjustment will no longer be made.
<PAGE>
CALCULATION OF THE VALUE OF A LIMITED PARTNERSHIP INTEREST
IN BALCOR PENSION INVESTORS - II
The calculation of the Value of a Limited Partnership Interest in Balcor
Pension Investors - II calls for the substitution of the value of the assets
appraised for the related accounting numbers. The following Schedule E, which
is Schedule B-1 modified for the values of the appraised assets, summarizes the
calculations.
SCHEDULE E
ADJUSTED BALANCE SHEET
BALCOR PENSION INVESTORS - II
AS OF MARCH 31, 1996
(UNAUDITED)
Assets
Cash and Cash Equivalent $2,871,834
Interest Receivable on Short-term
Investments 5,712
Accounts and Accrued Interest Receivable 31,047
Prepaid Expenses 19,428
Deferred Expenses, net of accumulated
amortization of $205,504 141,678
Interest Receivable on Wrap-around Notes
and First Mortgage 122,677
Escrow Deposits, Net 192,367
Investment in Real Estate (Cumberland Pines,
Hollowbrook, Parkway Distribution and
Sherwood Acres I & II) (2) 33,776,581
Net Investment in Loans Receivable
(Alzina O.B.) (1) 7,585,501
Unamortized Portion of Offering Expenses 546,012
-----------
Total Assets $45,292,837
===========
Liabilities
Total Liabilities, including Mortgage
Notes Payable of $12,096,405 (Parkway
Distribution Center and Sherwood
Acres I & II) $12,465,636
Partners Capital, adjusted for Value
(85,010 Limited Partnership Interests) 32,827,201
-----------
Total Liabilities and Partners' Capital $45,292,837
===========
(1) From Schedule C.
(2) From Schedule D-1.
<PAGE>
The Value of a Limited Partnership Interest in Balcor Pension Investors - II as
of March 31, 1996 is:
Partners' Capital, Adjusted for Value of the Assets
---------------------------------------------------
Number of Partnership Interests
$32,827,201
----------- = $386.16
85,010 =======
Rounded = $386.00
=======
<PAGE>
CALCULATION OF AN INTEREST IN THE EARLY
INVESTMENT INCENTIVE FUND ("FUND")
As described in an earlier section of this report, the Partnership Agreement
provides that, under certain terms and conditions, 2.5% of the cash flow
distributed to be set aside in the Early Investment Incentive Fund for payment,
on dissolution of the Partnership to those investors who subscribe for
Interests prior to December 31, 1981. The Partnership reports that 64,228
Limited Partnership Units qualify for the Fund.
The valuation is based on the sum of (1) the present value of the Early
Investors' 25% share in the General Partners' 10% share of certain designated
earnings of the Partnership, (2) the Early Investors Capital as of March 31,
1996, and (3) the present value of the future earnings from repurchased
interests.
General Partners' 10% Share of 3/31/96 Valuation $ 414,500
Early Investor 25% Share 103,625
Early Investor Capital @@ 3/31/96 3,193,459
Repurchased Interests Share of Future Earnings 320,785
----------
Total Projected Early Investor Fund $3,617,869
==========
Value Per Unit as of 3/31/96 $56.33
======
Rounded Value Per Unit as of 3/31/96 $56.00
======
