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SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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<S> <C>
[X] Preliminary Information Statement [ ] Confidential, for Use of
[ ] Definitive Information Statement the Commission Only (as
permitted by Rule 14c-5(d)(2))
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CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Information Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] 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:
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(4) Date Filed:
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CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
COLORADO CENTER, TOWER TWO
2000 SOUTH COLORADO BOULEVARD, SUITE 2-1000
DENVER, COLORADO 80222
INFORMATION STATEMENT
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WE ARE NOT ASKING FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
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This Information Statement is being furnished to limited partners of record
as of the close of business on January __, 2001 (the "Limited Partners") of
Consolidated Capital Institutional Properties, a California limited partnership
(the "Partnership"), in connection with the approval of amendments (the
"Amendments") to the Partnership's Agreement of Limited Partnership in order to
authorize the Partnership to, either directly or indirectly through a
single-purpose wholly-owned entity, own, sell, lease, finance, refinance,
develop, improve, manage, exchange and operate any real property and the
improvements thereon acquired as a result of any transaction under a Master Loan
with Consolidated Capital Equity Partners, L.P. ("CCEP") or any like-kind
exchange involving such property that is intended to qualify as an exchange
under Section 1031 of the Internal Revenue Code of 1986, as amended (the
"Code").
Currently, the Partnership's Agreement of Limited Partnership provides that
the Partnership can engage in the business of holding the Master Loan made to
CCEP, which is secured by mortgages, deeds of trust and related documents
encumbering the real property owned by CCEP. Through foreclosures or similar
proceedings under the Master Loan, the Partnership has owned The Loft Apartments
since 1990 and the Sterling Apartment Homes and Commerce Center since 1995. The
Partnership Agreement, does not contain any provisions relating to the ownership
of real property. The Amendments will add provisions for the Partnership
specifically authorizing the General Partner to finance, refinance, sell or
lease the real property owned by the Partnership.
The General Partner believes the Amendments provide significant advantages
to the Partnership. The Amendments will enable the Partnership to refinance debt
owed by the Partnership and secured by a mortgage on The Loft Apartments with a
new twenty-year loan (the "Refinancing"). The current loan to a third party
matures in December 2005. The Refinancing is expected to result in a cash
distribution to holders of units of limited partnership interest in the
Partnership (the "Units"). The Amendments will also make it possible for the
Partnership to fully realize the benefits of its exercise of any of its remedies
under the Master Loan by expressly allowing the Partnership to own, finance,
refinance, lease, operate and sell any real property acquired through exercise
of such remedies.
There may also be certain disadvantages to you with regard to the
Amendments. The Amendments will enable the General Partner to implement the
Refinancing, which will result in a mortgage on The Loft Apartments with a
maturity date beyond the current termination date of its Partnership loan and
which may delay recovery to you of your original investment in the Partnership.
Upon termination of the Partnership, the Partnership may transfer The Loft
Apartments to a single-purpose wholly-owned entity and distribute the interests
in such entity to the Partners of the Partnership. The General Partner of the
Partnership has substantial conflicts of interest with regard to the Amendments,
all as more fully described in the Information Statement.
The written consent of holders owning more than 50% of the outstanding
Limited Partnership Units is required to approve the Amendments. Affiliates of
ConCap Equities, Inc., the general partner of the Partnership, hold
approximately 62.64% of the Limited Partnership Units and have consented to the
Amendments by written consent. Accordingly, such Amendments have been approved.
However, under the Securities and Exchange Commission rules, the Amendments
cannot become effective until the 21st day after this Information Statement is
first mailed to the Limited Partners.
Very truly yours,
ConCap Equities, Inc.
By: ConCap Equities, Inc.
General Partner
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CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
COLORADO CENTER - TOWER TWO
2000 SOUTH COLORADO BOULEVARD, SUITE 2-1000
DENVER, COLORADO 80222
INFORMATION STATEMENT
This Information Statement is being furnished to limited partners (the
"Limited Partners") of record as of the close of business on January __, 2001
(the "Limited Partners"), of Consolidated Capital Institutional Properties, a
California limited partnership (the "Partnership"), in connection with the
adoption of certain amendments (the "Amendments") to the Partnership's Agreement
of Limited Partnership. The Amendments would authorize the Partnership to,
either directly or indirectly through a single-purpose wholly-owned subsidiary,
own, sell, lease, finance, refinance, develop, improve, manage, exchange and
operate any real property and the improvements thereon acquired as result of
transactions under the Master Loan with Consolidated Capital Equity Partners,
L.P. ("CCEP") or any like-kind exchange involving such property that is intended
to qualify as an exchange under Section 1031 of the Code.
Currently, the Partnership's Agreement of Limited Partnership provides that
the Partnership can engage in the business of holding the Master Loan made to
CCEP. The Master Loan is secured by mortgages, deeds of trust and related
documents encumbering the real property owned by CCEP. However, the Partnership
through foreclosures or similar proceedings acquired The Loft Apartments in
November 1990 and The Sterling Apartment Homes and Commerce Center in November
1995. The Partnership Agreement does not contain provisions dealing with the
ownership of real property, The Amendments would add provisions to the
Partnership Agreement specifically authorizing the General Partner to finance,
refinance, sell or lease the real property owned by the Partnership.
This Information Statement is being mailed to the Limited Partners,
commencing on or about December __, 2000, in connection with the previous
approval by the General Partner of the Amendments and the subsequent adoption of
the Amendments by the holders of a majority of the outstanding limited
partnership units (the "Units") of the Partnership by written consent in lieu of
a meeting. Affiliates of ConCap Equities, Inc., the general partner of the
Partnership, hold approximately 62.64% of the Units and have consented to the
Amendments by written consent and such Amendments have been approved.
Accordingly, all necessary partnership approvals in connection with the
Amendments herein have been obtained and this Information Statement is furnished
solely for the purpose of informing holders of Units, in the manner required
under the Securities and Exchange Act of 1934, of this partnership action before
it takes effect. However, under the Securities and Exchange Commission rules,
the Amendments cannot become effective until the 21st day after this Information
Statement is first mailed to the Limited Partners.
Only holders of Units of record at the close of business January __, 2001
are entitled to receive notice of the action taken by holders of a majority of
the outstanding Units. No response is being requested from you and you are
requested not to respond to the Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS INFORMATION STATEMENT FOR A
DESCRIPTION OF THE RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH
THE AMENDMENTS, INCLUDING THE FOLLOWING:
o The Amendments will expand the General Partner's powers and authority.
The Partnership's Agreement of Limited Partnership currently limits
the Partnership's activities to holding a Master Loan made to CCEP. As
a result of foreclosures or similar proceedings under the Master Loan,
the Partnership holds two properties. However, the Partnership
Agreement does not contain provisions
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relating to the ownership of real property. The Amendments add
provisions in the Partnership Agreement specifically allowing for the
General Partner to finance, refinance, sell, lease, develop, improve,
manage and operate any real property acquired by the Partnership
through the exercise of any of its remedies under the Master Loan and
to engage in like-kind exchanges of properties intended to qualify
under Section 1031 of the Internal Revenue Code.
o As a result of the proposed twenty-year refinancing of The Loft
Apartments, the increase in interest rates and the principal amount of
the Refinancing will result in increased monthly principal payments on
the underlying loan and will reduce future distributions of available
cash to Unitholders.
o The Master Loan matured in November 2000. CCEP has obtained new
ten-year mortgages on nine of its ten properties. In connection with
these new mortgages, the Partnership has agreed to seek to extend the
Partnership's term until 2020 within approximately the next 36 months.
If the term of the Partnership is not extended, the Partnership has
agreed to sell the Master Loan. Failure to extend the Partnership's
term or sell the Master Loan if the term of the Partnership is not
extended will constitute defaults under the new mortgages. Any such
sale may be to an affiliate of the General Partner. The Partnership's
Agreement of Limited Partnership requires the unanimous consent of all
of the Limited Partners to extend the Partnership's term and would
likely require the consent of Limited Partners holding a majority of
the Units to sell the Master Loan. Therefore, a sale of the Master
Loan is likely.
o There are no current plans by the Partnership to sell its properties.
Refinancing the mortgage debt of The Loft Apartments, as would be
allowed by the Amendments, may result in the transfer of The Loft
Apartments to a single-purpose wholly-owned subsidiary and the
distribution of the interest in such entity to the Partners of the
Partnership in connection with the termination of the Partnership.
o The General Partner and its affiliates have substantial conflicts of
interest with respect to the Amendments. Continuation of the
Partnership will result in the General Partner and its affiliates
continuing to receive management fees from the Partnership and CCEP.
Certain of such fees would not be payable if the Partnership was
liquidated. The combined fees (including reimbursement of expenses)
paid to the General Partner and its affiliates in 1999 were $784,000
by the Partnership and $1,520,000 by CCEP. The general partner of CCEP
is an affiliate of the General Partner. There are no current plans by
the Partnership or CCEP to change the existing management fee and
expense reimbursement arrangements. With the Amendments, management
fees and expense reimbursements are expected to continue on the
current basis until the Partnership is terminated.
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RISK FACTORS
The following sets forth the risks and disadvantages to you of the adoption
of the Amendments. You should carefully review these risks:
EXPANSION OF GENERAL PARTNER'S AUTHORITY. The Amendments will expand the
General Partner's powers and authority. The Partnership's Agreement of Limited
Partnership currently limits the Partnership's activities to owning the Master
Loan made to CCEP and does not contain any provisions relating to the ownership
of real property. As a result of foreclosures under the Master Loan, the
Partnership holds two properties. The Amendments will add provisions to the
Partnership Agreement specifically authorizing the General Partner to finance,
refinance, sell or lease real property owned by the Partnership. The Amendments
will also allow the Partnership to engage in like-kind exchanges of real
property intended to qualify as an exchange under Section 1031 of the Internal
Revenue Code.
INCREASED PRINCIPAL PAYMENTS ON LOAN MAY REDUCE FUTURE DISTRIBUTIONS. As a
result of the proposed twenty-year refinancing of The Loft Apartments, the
interest rate and the principal financed will increase. The Refinancing will
increase monthly payments as compared to the existing loan and reduce future
distributions of available cash to Unitholders.
CONFLICTS OF INTERESTS REGARDING THE MASTER LOAN. The Master Loan matured
in November 2000, but CCEP did not and will not have the liquid assets to repay
the Master Loan. Further, in connection with the recent refinancing of first
mortgages on six of CCEP's ten properties and the new first mortgages on three
of CCEP's properties, the Partnership agreed to extend its term to December 31,
2020 within approximately the next 36 months. If the Partnership's term is not
so extended, which extension would require the consent of all Limited Partners,
the Partnership has agreed to sell the Master Loan. Failure to extend the
Partnership term, or sell the Master Loan if the term is not so extended, will
constitute a default under CCEP's new mortgages. Any such sale of the Master
Loan to an affiliate of AIMCO may be at a lower price than what an unaffiliated
party may be willing to pay.
With regard to the Master Loan, the interests of CCEP may conflict with the
interests of the Partnership. The General Partner believes that the sale of all
of the properties securing the Master Loan would not provide enough net proceeds
to repay the Master Loan in full. Therefore, the General Partner will have to
foreclose on the properties secured by the Master Loan or extend the due date.
However, to avoid immediate foreclosure, the general partner of CCEP could seek
protection under the federal bankruptcy laws. The General Partner and the
general partner of CCEP are both indirect wholly-owned subsidiaries of AIMCO.
While the General Partner has fiduciary duties to the Limited Partners and to
its shareholder, the general partner of CCEP also has fiduciary duties to the
limited partners of CCEP and its shareholder. However, the agreement of limited
partnership of CCEP provides that the fiduciary duties owed to its limited
partners are subordinate to those owed to CCEP's creditors.
CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF
PROPERTIES. The General Partner is proposing to continue to operate the
Partnership and has no intention to liquidate it at the present time. Thus, the
Amendments and the Refinancing will reduce the likelihood that a Limited Partner
would receive the return of his or her investment in the Partnership through a
sale of any property or the property owned by CCEP. The prospectus, pursuant to
which the Partnership sold its Units in 1981, indicated that it was expected
that most properties held by CCEP would be sold within 10 years of their
acquisition, depending upon the performance of the property and the then current
real estate market and economic climate. It is not known when any property owned
by the Partnership or CCEP may be sold. There may be no way to liquidate your
investment in the Partnership in the future until all properties owned by the
Partnership and securing the Master Loan are sold. The General Partner of the
Partnership and the general partner of CCEP continually consider whether a
property should be sold or otherwise disposed of after considering the relevant
factors, including prevailing economic conditions, availability of favorable
financing and tax considerations, with a view to achieving maximum capital
appreciation for the Partnership or CCEP. At the current time the General
Partner and the general partner of CCEP believe that a sale of any property
would not be advantageous given market conditions, the condition of each
property, tax considerations and possible future appreciation in the value of
the property. In particular, the General Partner and the general partner of CCEP
considered the change in the local rental market, the potential for
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appreciation in the value of each property and the tax consequences to you and
your partners of a sale of a property. Further, the general partner of CCEP has
refinanced the mortgages on six of its ten properties and has incurred new
mortgages on three of its ten properties, all for terms not to exceed ten years.
The General Partner and the general partner of CCEP cannot predict when any
property will be sold or otherwise disposed of. You may not be able to exit from
the Partnership until a termination of the Partnership in December 31, 2011, or
if the termination date is extended, until such extended date.
LIKE-KIND EXCHANGES. If one of the Partnership's properties was to be
disposed of, the Amendments would allow the General Partner to engage in a
like-kind exchange of such real property for replacement property in
transactions in which the General Partner intends to meet the requirements of
Section 1031 of the Internal Revenue Code. While the General Partner currently
has no plans to engage in a like-kind exchange, any such transaction could be
subject to substantial risks, such as:
o the possibility that the like-kind exchange may not comply with
Section 1031, resulting in the Limited Partners' inability to defer
taxable gain on such exchange;
o the absence of any requirement to seek Limited Partners' approval to
engage in specific like-kind exchanges;
o the possibility that transfer, sales and/or other taxes may be imposed
on any like-kind exchange;
o the possibility that a like-kind replacement property may generate
income without the ability of depreciation and other deductions to
offset such income;
o the possibility that operations from any replacement property may not
generate any distributions; and
o the usual risk of owning and holding real property, such as
competition, the need to repair or upgrade the property, and the
desirability of the property to potential tenants.
SUBSTANTIAL CONFLICTS OF INTEREST OF GENERAL PARTNER; CONTINUATION OF
PAYMENT OF MANAGEMENT FEES. The General Partner and its affiliates have
substantial conflicts of interest with respect to the Amendments. Continuation
of the Partnership through its original termination date of 2011 will result in
the General Partner and its affiliates continuing to receive management fees
from the Partnership and CCEP. Certain of such fees would not be payable if the
Partnership was liquidated earlier. The combined partnership and property
management fees (including reimbursement for expenses) paid to the General
Partner and its affiliates in 1999 were $784,000 from the Partnership and
$1,520,000 from CCEP. There are no current plans by the Partnership to change
the existing management fee and expense reimbursement arrangements. With the
Amendments, management fees and expense reimbursements are expected to continue
until the Partnership is terminated.
GENERAL PARTNER'S PARENT COMPETES WITH THE PARTNERSHIP AND CCEP. The
General Partner and the general partner of CCEP are indirect wholly-owned
subsidiaries of AIMCO, which competes for tenants in the same markets as the
Partnership and CCEP. AIMCO may in the future acquire properties in general
market areas where the Partnership's and CCEP's properties are located.
AFFILIATES OF GENERAL PARTNER OWNING UNITS REPRESENT CONTROLLING BLOCK OF
VOTES AND HAVE CONSENTED TO AMENDMENTS. No consents of Limited Partners not
affiliated with AIMCO are needed to approve the Amendments. Affiliates of the
General Partner currently own approximately 62.64% of the outstanding Units.
Such affiliates have approved the Amendments. Thus, the Amendments have been
approved by the vote of holders of more than a majority of the Limited Partners
and have been approved.
NO ESTABLISHED MARKET. There is no established market for the Units. There
may be no way for you to liquidate your Units until CCEP sells its properties
and liquidates and until the Partnership sells its properties and liquidates.
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RECORD DATE; CONSENTS REQUIRED
The Partnership has fixed January __, 2001 as the Record Date for
determining Limited Partners entitled to receive this Information Statement and
for determining the number of votes necessary to consent to and approve the
Amendments. Approval of the Amendments requires the affirmative consent of
Limited Partners who own more than 50% of the Partnership's outstanding Units.
As of the Record Date, there were 199,052 Units issued and outstanding.
Accordingly, approval of the Amendments required the affirmative consent of
Limited Partners who own at least 99,527 Units. Affiliates of AIMCO owning
122,819.2 Units have consented to the Amendments. Therefore, the Amendments have
been approved by the Limited Partners and the Amendments, pursuant to Securities
and Exchange Commission rules, will become effective on the 21st date after this
Information Statement is first mailed to Limited Partners.
NO CONSENTS OR PROXIES TO APPROVE THE AMENDMENTS ARE BEING SOLICITED FROM
LIMITED PARTNERS AND LIMITED PARTNERS ARE REQUESTED NOT TO SEND ANY SUCH
CONSENTS OR PROXIES.
NO APPRAISAL RIGHTS
Limited Partners are not entitled to dissenters' appraisal rights under
California law or the Partnership's Agreement of Limited Partnership in
connection with the Amendments.
GENERAL PARTNER'S POSITION WITH REGARD TO THE AMENDMENTS
The General Partner believes that the Amendments are fair and in the best
interests of the Partnership and the Limited Partners who are not affiliated
with the General Partner. In making its determination, the General Partner
considered the fact that the current Partnership Agreement does not contain any
provisions relating to the ownership of real property. The Amendments will add
provisions to the Partnership Agreement authorizing the General Partner to sell,
finance, refinance, develop, improve, manage, exchange or operate any property
acquired through the exercise of the Partnership's remedies under the Master
Loan. The Amendments do not affect the requirement of Limited Partners' approval
for the sale of all or substantially all of the Partnership's assets within a
twelve-month period.
The General Partner has not retained an unaffiliated representative to act
on behalf of the Limited Partners in connection with the Amendments and the
proposals contained herein.
THE AMENDMENTS
The Amendments would specifically authorize the Partnership to, either
directly or indirectly through a single-purpose wholly-owned subsidiary, own,
sell, lease, finance, refinance, develop, improve, manage, and operate any real
property acquired pursuant to the Master Loan as well as engage in any other
activities and conduct such other business incidental to the foregoing, as the
General Partner may reasonably deem necessary or advisable. The Amendments would
also allow the Partnership to engage in like-kind exchanges which the General
Partner intended to qualify as an exchange under Section 1031 of the Code,
although the General Partner has no present plans or intentions to engage in
such exchanges. Therefore, the General Partner could exchange, on behalf of the
Partnership, real property for other real property or could sell real property
and buy other real property in transactions intended to qualify as like-kind
exchanges under Section 1031 of the Code.
The Amendments would also change the definition of "Surplus Funds" so that
such definition would include proceeds from the sale, leasing, financing or
refinancing of the Partnership's properties and thus allow the General Partner
to distribute amounts from such activities.
The text of the Amendments are set forth on Annex I hereto.
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THE REFINANCING
The Amendments will enable the Partnership to refinance the mortgage debt
secured by The Loft Apartments with a new twenty-year loan. The Refinancing is
expected to result in higher interest costs for the Partnership and an expected
cash distribution to Unitholders.
The following table sets forth the principal balance at June 30, 2000 of
the mortgage loans encumbering the Partnership's properties, the interest rates
on such loans, the required monthly payments due on such loans and the maturity
dates of such loans and the principal amounts due on such loans at maturity.
<TABLE>
<CAPTION>
Principal Principal
Balance at Monthly Maturity Balance at
Property 6/30/00 Interest Rate Payments Date Maturity
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<S> <C> <C> <C> <C> <C>
The Loft Apartments $ 4,307,257 6.95% $ 30,000 12/01/05 $ 3,903,000
Sterling Apartment Homes and
Commerce Center $22,620,387 6.77% $ 149,000 10/01/08 $19,975,000
</TABLE>
Further, your General Partner has budgeted approximately $3,843,794 for
capital improvements at the Partnership's properties during 2000. As of
September 30, 2000, the Partnership has completed $1,468,000 of capital
improvements at such properties. As a result, the General Partner has determined
to maintain a current reserve in an amount sufficient to satisfy anticipated
capital expenditures and debt service for the near future.
The existing debt of The Loft Apartments would be repaid with the proceeds
of a new loan expected to be in an original principal amount of approximately
$6,747,000. The new loan is expected to have a fixed interest rate equal to 200
to 205 basis points above the rate applicable to a 10-year Treasury Note at the
time the interest rate is fixed. From January 2000 to November 2000, the
interest rate applicable to 10-year Treasury Notes has ranged between 6.58% and
5.96%, and on December 8, 2000 was 5.34%. The exact interest rate will be
determined in the future. The new loan is expected to be non-recourse (with
customary exceptions for fraud, misappropriation of funds and environmental
liability), and a twenty-year amortization schedule, and will mature in twenty
years with a substantial balloon payment. The General Partner expects that the
new loan can be prepaid in full until 180 days prior to the maturity date, upon
payment of a prepayment penalty. For the first 15 years of the loan, it is
expected the prepayment penalty would be calculated based on a formula that
calculates yield maintenance or, if greater, 1% of the principal amount
outstanding. Thereafter, it is expected the prepayment penalty would be equal to
1% of the principal amount outstanding. The proposed lender is GMAC Commercial
Mortgage Corporation, who will sell the loan to Federal Home Loan Mortgage
Corporation, which is not affiliated with the Partnership or the General Partner
and its affiliates but which has made other mortgage loans on other properties
held by AIMCO and its affiliates, including CCEP. The proposed lender has
obtained an appraisal of The Loft Apartments of $10,400,000 on an unencumbered
basis.
The proceeds from the new loan would be used to repay the existing mortgage
debt of The Loft Apartments and related mortgage payoff costs (expected to be
approximately $4,408,673), to pay other transaction fees and expenses associated
with the Refinancing (expected to be approximately $2,169,652) and to pay
deferred maintenance in an amount to be determined. The remainder of the
proceeds (estimated to be approximately $1,375,000) would be distributed to the
holders of Units pro rata, including Units held by the General Partner's
affiliates. Based on estimated proceeds available for distribution and current
percentage interests in the Partnership, the General Partner and its affiliates
will receive $1,372,806 as part of the anticipated distribution from refinancing
proceeds.
Future cash distributions by the Partnership will continue to depend on the
levels of net cash generated from operations (including payments made on the
Master Loan), if any, cash reserves required as determined by the General
Partner, needed capital improvements and the timing of debt maturities,
refinancings and/or property sales. There can
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be no assurance that the Partnership will generate sufficient funds from
operations after required capital improvements are made to its properties
(budgeted to be $3,843,794 for 2000) to permit further distributions to the
Limited Partners in subsequent periods.
ALTERNATIVES CONSIDERED
In determining to Refinance the existing mortgage debt secured by The Loft
Apartments, the General Partner considered the following alternatives to the
proposed Refinancing.
One alternative would be to refinance the mortgage debt with a new loan
with a term which matures prior to the termination date of the Partnership.
Based on current market conditions and discussions with potential lenders, the
General Partner believes that interest costs associated with such a shorter term
borrowings would be less favorable than the costs associated with traditional
twenty year term mortgage loan. For instance, the interest rate for a 10-year
loan would currently be approximately 5.34% as of December 8, 2000.
A second alternative would be to continue the Partnership without any
refinancing. Although there can be no assurance, given current generally
improving rental market conditions, the General Partner believes that the
Partnership's operating performance will improve over the next twelve months.
The General Partner's belief is based on, among other things, planned capital
improvements to its properties, which the General Partner expects should improve
occupancy and rental rates. The mortgage loan for The Loft Apartments is due in
December 2005 and requires a balloon payment totaling $3,903,000. The Sterling
Apartment Homes and Commerce Center's mortgage debt matures in October 2008,
with a balloon payment of $19,975,000. If the Partnership is not able to repay a
mortgage loan when due, it would lose the property securing such loan through
foreclosure, be forced to sell the property at a distressed price or seek
expensive short-term balloon payment financing.
A third alternative would be to use the cash from the distributions
contemplated under "Possible Distributions" below to repay the existing
mortgage. However, if such funds were used to repay the mortgage, the amounts
distributable to the Partners would be substantially reduced. In addition, for
federal income tax purposes, to the extent a Partner's share of Partnership
liabilities is reduced, such reduction would be treated as a distribution of
cash by the Partnership to the Partner with a corresponding reduction in the
Partner's tax basis in its Partnership interest. A Partner would recognize
taxable income if the deemed cash distribution exceeds the Partner's tax basis
in its partnership interest. However, the General Partner has decided to
distribute such funds to the Partners at this time so the Partners can use such
funds as they desire.
The General Partner also considered a sale of The Loft Apartments, but
believes that a sale of such property at the current time would not be
advantageous given market conditions in Raleigh, North Carolina, the condition
of the property, the tax consequences to Limited Partners and possible future
appreciation in the value of the property. In particular, the General Partner
believes that a sale at this time would not adequately reflect the property's
future prospects. Improved performance of the property may make a sale of the
property in the future more viable and increase net proceeds to be distributed
to the Limited Partners. Continuation of the Partnership will allow investors to
participate in any improved performance and, possibly, increased net proceeds in
any future sale. In addition, the General Partner recognized that a sale of the
property would result in the recognition of taxable income to the Limited
Partners, and that net cash proceeds available for distributions to Limited
Partners following a sale may be insufficient to pay tax liabilities resulting
from a current sale of the property. See "Investment Objectives and Policies;
Sale or Financing of Investments" below. The General Partner recognized that the
proposed Refinancing includes a prepayment penalty, but does not believe such
penalty would prohibit or unduly restrict the Partnership's ability to sell the
property in the future and repay the debt prior to the expiration of the
extended term of the Partnership. The General Partner is not aware of any offers
within the last 18 months to purchase the properties.
No reports, opinions or appraisals relating to the properties have been
prepared in the last 18 months for the Partnership by the General Partner.
However, the General Partner has been informed that the lender of the proposed
new
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loan for The Loft Apartments obtained an independent appraisal of such property
at $_________ on an unencumbered basis.
In determining its offer price in a tender offer begun in August 2000, an
affiliate of the General Partner estimated the liquidation value of the Units to
be $421 per Unit. At that time, Robert A. Stanger & Co., Inc. determined the net
asset value, going concern value and liquidation value of the Partnership to be
$487, $470 and $448 per Unit, respectively.
THE MASTER LOAN
The Partnership was formed for the benefit of its Limited Partners to lend
funds to a predecessor of CCEP. The Partnership loaned funds to CCEP's
predecessor pursuant to a nonrecourse note with a participation interest (the
"Master Loan"). At September 30, 2000, the recorded investment in the Master
Loan was considered to be impaired under Statement of Financial Accounting
Standard No. 114 ("SFAS 114"), Accounting by Creditors for Impairment of a Loan.
The Partnership measures the impairment of the Master Loan based upon the fair
value of the collateral due to the fact that repayment of the Master Loan is
expected to be provided solely by the collateral. For the nine months ended
September 30, 2000, the Partnership recorded approximately $2,000,000 of
interest income based upon "Excess Cash Flow" generated (as defined in the terms
of the Master Loan).
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property, adjusted for market conditions, the
physical condition of the property and other factors, or by obtaining an
appraisal by an independent third party. This methodology has not changed from
that used in prior calculations performed by the General Partner in determining
the fair value of the collateral properties. There was no change in the
provision for impairment loss for the nine months ended September 30, 2000. The
General Partner evaluates the net realizable value on a semi-annual basis.
Interest, calculated on the accrual basis, due to the Partnership pursuant
to the terms of the Master Loan, but not recognized in the Partnership's
consolidated statements of operations due to the impairment of the Master Loan,
totaled approximately $29,681,000 for the nine months ended September 30, 2000.
Interest income is recognized on the cash basis as allowed under SFAS 114. At
September 30, 2000, and December 31, 1999, such cumulative unrecognized interest
totaling approximately $296,975,000 and $266,975,000, respectively, was not
included in the balance of the investment in the Master Loan on the
Partnership's balance sheet. In addition, nine of CCEP's ten properties are
collateralized by first mortgages totaling approximately $56,200,000 after the
new mortgages. The Master Loan is subordinated to these mortgages and this has
been taken into consideration in determining the fair value of the Master Loan.
During the nine months ended September 30, 2000, the Partnership received
approximately $4,708,000 in principal payments on the Master Loan. This amount
represents cash received on certain investments held by CCEP, which are required
to be transferred to the Partnership per the Master Loan Agreement.
On July 21, 2000, CCEP sold Shirewood Townhomes, one of the properties
which secured the Master Loan, to an unaffiliated third party, for net sales
proceeds of approximately $4,526,000 after payment of closing costs. CCEP
realized a gain on sale of approximately $4,526,000 which has been paid to the
Partnership under the Master Loan. The General Partner is currently evaluating
the Partnership's cash needs to determine what portion, if any, of the funds can
be distributed to the Partners in the near future.
On September 29, 2000, CCEP refinanced the mortgages encumbering Palm Lake
for $3,000,000, Tates Creek for $4,225,000 and The Dunes for $4,120,000, and
obtained new financing on Regency Oaks for $7,650,000 and Society Park for
$5,330,000, five of its investment properties located in Florida and Kentucky.
CCEP received net proceeds from these transactions of approximately $17,000,000.
On October 3, 2000, CCEP refinanced the mortgages encumbering Indian Creek for
$8,750,000 and Plantation Gardens for $9,700,000 and obtained new financing on
Silverado for $3,250,000, three of its investment properties located in Kansas,
Florida, and Texas, respectively. CCEP
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<PAGE> 11
received net proceeds from these transactions of approximately $9,600,000. On
October 11, 2000, CCEP refinanced the mortgage encumbering The Knolls for
$9,900,000, one of its investment properties located in Colorado. CCEP received
net proceeds of from this transaction of approximately $3,600,000. Approximately
$28,770,000 of the net proceeds from these transactions were paid to the
Partnership as payment on the Master Loan, which amount was then distributed to
the Partners in October, 2000.
In connection with the recent mortgages incurred by CCEP, the Partnership
also agreed to extend its term within approximately the next 36 months to at
least December 31, 2020. If the Partnership's term is not so extended, which
extension would require the consent of all Limited Partners, the Partnership has
agreed to sell the Master Loan. Failure to so extend the Partnership's term, or
sell the Mortgage Loan if the Partnership's term is not so extended ,will
constitute default under CCEP's new mortgages. Any such sale of the Master Loan
may be made to an affiliate of AIMCO and may be at a price lower that an
unaffiliated third party may pay. The sale of the Mortgage Loan may require the
approval of the Limited Partners holding a majority of the Units. CCEP has also
agreed to extend its term to 2020 or it will be in default under its mortgages.
Under CCEP's new mortgages, the Partnership can foreclose on the properties
securing the Master Loan as provided herein and have title to such properties
placed in the Partnership's name.
The Master Loan matured on November 15, 2000, and currently amounts to
approximately $359,812,000. as of September 30, 2000. However, CCEP does not
have the liquid assets to pay the Master Loan. Further, the General Partner
estimates that the net proceeds from a sale of the CCEP properties securing the
Master Loan would be substantially less than the amount due under the Master
Loan.
The General Partner is considering whether or not to extend the Master Loan
or to foreclose under the Master Loan on CCEP's properties.
TERM OF PARTNERSHIP
The prospectus pursuant to which the Partnership sold its Units in 1981
indicated that it was expected that most properties held by CCEP would be sold
within 10 years of acquisition, depending upon the performance of the property
and the then current real estate market and economic climate. It is not known
when any property owned by the Partnership or CCEP may be sold and until such
time the Partnership may continue in operation. Under the Partnership's
Agreement of Limited Partnership, the term of the Partnership will continue
until December 31, 2011, unless sooner terminated as provided in such Agreement
or by law. The Partnership has agreed with the lender of CCEP's nine new
mortgages that within the next 36 months it will either extend its partnership
term to 2020 or will sell the Master Loan. However, it requires the unanimous
consent of all of the Partnership's Limited Partners to extend the term. CCEP
terminates on July 24, 2011 unless sooner terminated under CCEP's agreement of
limited partnership or by law. However, CCEP has agreed to extend within the
next 18 months its partnership term through 2020.
The Agreement of Limited Partnership provides that the Partnership may be
terminated and dissolved upon the vote of Limited Partners who own more than 50%
of the outstanding Units. The Agreement further provides that, upon any such
termination, the General Partner shall liquidate the Partnership's assets as
promptly as possible, but in an orderly and businesslike manner so as not to
involve any undue sacrifice, and distribute the net proceeds therefrom to the
Partners as more fully provided in the Partnership Agreement.
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<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
In general, the General Partner regularly evaluates a sale of the
Partnership's properties by considering various factors, such as the
Partnership's financial position and real estate market conditions. The General
Partner monitors the properties' specific locale and sub-market conditions
(including stability of the surrounding neighborhood, evaluating current trends,
competition, new construction and economic changes. The General Partner oversees
each asset's operating performance and continuously evaluates the physical
improvement requirements. In addition, the financing structure for each property
(including any prepayment penalties), tax implications, availability of
attractive mortgage financing, and the investment climate are all considered.
Any of these factors, and possibly others, could potentially contribute to any
decision by the General Partner to sell, refinance, upgrade with capital
improvements or retain a particular property. If rental market conditions
improve, the level of distributions might increase over time. It is possible
that the resale market for properties could improve over time, making a sale of
the properties at some point in the future a more viable option than it is
currently. After taking into account the foregoing considerations, the General
Partner is not currently seeking a sale of The Loft Apartments or the Sterling
Apartment Homes and Commerce Center primarily because it expects the properties'
operating performance to improve in the near term. The Partnership expects to
spend approximately $3,843,794 for capital improvements at the properties in
2000 to repair and update the properties. Although there can be no assurance as
to future performance, the General Partner expects these expenditures to improve
the desirability of the properties to tenants. The General Partner does not
believe that a sale of the properties at the present time would adequately
reflect the properties' future prospects. Another significant factor considered
by the General Partner is the likely tax consequences of a sale of the
properties for cash. Such a transaction would likely result in tax liabilities
for many Limited Partners. The General Partner has not received any recent
indication of interest or offers to purchase the properties. For similar
reasons, the general partner of CCEP, which is an affiliate of the General
Partner, is not proposing to sell any of CCEP's properties which secure the
Master Loan. In fact, such general partner has recently caused new ten
year-mortgages with new loans similar to the Refinancing to be placed on nine of
CCEP's the ten properties.
CONFLICTS OF INTEREST
The General Partner has substantial conflicts of interest with respect to
the Amendments. An affiliate of the General Partner manages your Partnership's
properties and receives management fees and reimbursement of its expenses. In
addition, the General Partner receives fees and reimbursement of its expenses
for managing the Partnership. Further, the general partner of CCEP, which is an
affiliate of the General Partner, receives management fees for managing CCEP and
another affiliate of the Partnership and CCEP receives fees for managing CCEP's
residential properties. Therefore, the interests of the General Partner and its
affiliates in continuing the Partnership are different than those of the Limited
Partners who may desire to have the Partnership dissolved and liquidated more
quickly. The following table sets forth, for each of the years indicated,
compensation paid by the Partnership and CCEP to the General Partner and its
affiliates. The same compensation and distributions would have been paid for
such periods if the Amendments had been in place during the periods indicated,
and there are no current plans to change the Partnership's existing compensation
arrangements or distribution policy.
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<PAGE> 13
<TABLE>
<CAPTION>
The Partnership CCEP
--------------------------- ----------------------------------------------
Partnership Property Partnership Property Investment
Fees and Management Fees and Management Advisory
Year Expenses Fees Expenses Fees Fees
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1997 ..................... $ 87,000 $ 424,000 $ 565,000 $1,032,000 $ 182,000
1998 ..................... 543,000 485,000 346,000 1,042,000 174,000
1999 ..................... 252,000 532.000 373,000 968,000 179,000
2000(through September 30) 398,000 429,000 369,000* 744,000 134,000
</TABLE>
----------
* In addition $73,000 was accrued but not paid.
For the Partnership, "Partnership Fees and Expenses" also include amounts
paid for (i) reimbursement of accountable administrative expenses, (ii)
construction oversight costs, (iii) lease commissions and (iv) loan financing
commissions provided for in the Partnership Agreement.
Affiliates of the General Partner are entitled to receive 5% of gross
receipts from all of the Partnership properties for providing property
management services. Affiliates of CCEP's are entitled to receive 5% of gross
receipts from all of the residential properties for providing property
management services. Previously, affiliates of the General Partner were entitled
to receive varying percentages of gross receipts from all the Partnership's
commercial properties for providing property management services. Effective
October 1, 1998, these services for the commercial properties were provided by
an unrelated party.
CCEP is also subject to an Investment Advisory Agreement between it and an
affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP's properties. In addition, an
affiliate of the general partner of CCEP receives (i) reimbursements for
accountable administrative expenses, (ii) construction oversight costs, (iii)
lease commissions and (iv) sales commissions. The above amounts do not reflect
payments under the Master Loan. See "The Master Loan" above.
CCEP also paid its general partner, pursuant to the terms of the CCEP
Agreement of Limited Partnership a 1% fee, $562,000, in connection with the
refinancings of nine of its properties' mortgages.
The General Partner of the Partnership and the general partner of CCEP are
both indirect wholly-owned subsidiaries of AIMCO. Because AIMCO, the Partnership
and CCEP each invest in apartment properties, these properties may compete with
one another for tenants. Furthermore, Limited Partners should bear in mind that
AIMCO may in the future acquire properties in general market areas where the
Partnership's and CCEP's properties are located. It is believed that this
concentration of properties in a general market area will facilitate overall
operations through collective advertising efforts and other operational
efficiencies. In managing AIMCO's properties, AIMCO will attempt to reduce such
conflicts between competing properties by referring prospective customers to the
property considered to be most conveniently located for the customer's needs.
The Partnership's Agreement of Limited Partnership provides that the
General Partner is responsible for the management and operation of the
Partnership, subject to certain limitations set forth in the Partnership
Agreement. Such limitations include, but are not limited to (i) a prohibition on
related party agreements which except agreements that are cancellable without
penalty on not more than 60 days notice (except for the Master Loan); and (ii)
restrictions on the General Partner's ability to act on behalf of the
Partnership without the consent of the Limited Partners in connection with the
sale of all or substantially all of the Partnership's assets within a
twelve-month period. The General Partner is subject
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to the fiduciary duties it owes to the Partnership and the Limited Partners.
Beyond these provisions, there are no contractual restrictions on the General
Partner in dealing with the Partnership, either as a general partner or a
limited partner. Further, there are no other contractual restrictions on the
voting rights of the General Partner and its affiliates with respect to Units
held by such parties. Since the General Partner and its affiliates already own a
majority of the outstanding Units, they control the vote of the Limited Partners
on any matter with respect to which the Limited Partners are entitled to vote
and which requires a majority vote.
FIDUCIARY DUTIES; INDEMNIFICATION
California law requires a general partner to adhere to fiduciary duty
standards under which it owes its limited partners a duty of loyalty and a duty
of care. This generally prohibits a general partner from competing with a
partnership in the conduct of the partnership's business on behalf of a party
having an interest adverse to the partnership and requires the general partner
to exercise any right consistent with the obligation of good faith and fair
dealing and free of gross negligence, reckless conduct, intentional misconduct
or known violations of law. A partnership agreement (a) may not eliminate the
duty of loyalty, but, if not manifestly unreasonable, it may either identify
specific activities that do not violate the duty of loyalty or allow for all of
the partners (or some percentage identified in the partnership agreement) to
authorize or ratify, after full disclosure of all material facts, a specific act
or transaction that otherwise would violate that duty and (b) may contain
provisions releasing a partner from liability for actions taken in good faith
and in the honest belief that the actions are in the best interest of the
partnership, while indemnifying the partner against any good faith belief that
he or she has the power to act. Further, a partner does not violate such duties
because the partner's conduct furthers the partner's own interest.
The Partnership's Agreement of Limited Partnership provides that, except in
the case of negligence or misconduct, the General Partner and its affiliates or
agents acting on its behalf shall not be liable, responsible or accountable in
damages or otherwise to the Partnership (in any action, including a Partnership
derivative suit) or to any of the Limited Partners for doing any act or failing
to do any act, the effect of which may cause or result in loss or damage to the
Partnership, if done in good faith to promote the best interests of the
Partnership. The General Partner and its affiliates or agents shall be entitled
to be indemnified by the Partnership from the assets of the Partnership, or as
an expense of the Partnership, but not from the Limited Partners, against any
liability or loss, as a result of any claim or legal proceeding (whether or not
the same proceeds to judgment or is settled or otherwise brought to a
conclusion) relating to the performance or non-performance of any act concerning
the activities of the Partnership except in the case where the General Partner
or its affiliates or agents are guilty of bad faith, negligence, misconduct or
reckless disregard of duty, provided such act or omission was done in good faith
to promote the best interests of the Partnership. The indemnification shall
include the payment of reasonable attorneys' fees and other expenses (not
limited to taxable costs) incurred in settling or defending any claims,
threatened action or finally adjudicated legal proceedings.
The Partnership's Agreement of Limited Partnership provides that,
notwithstanding the foregoing, neither the General Partner nor any officer,
director, employee, agent, subsidiary or assign of the General Partner, its
affiliates, CCEP or of the Partnership shall be indemnified from any liability,
loss or damage incurred by them in connection with (i) any claim or settlement
involving allegations that the Securities Act of 1933 was violated by the
General Partner or by any such other person or entity unless: (a) the General
Partner or other persons or entities seeking indemnification are successful in
defending such action and (b) such indemnification is specifically approved by a
court of law which shall have been advised as to the current position of both
the Securities and Exchange Commission and the California Commissioner of
Corporations regarding indemnification for violations of securities law; or (ii)
any liability imposed by law, including liability for fraud, bad faith or
negligence.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain U.S. federal income tax consequences to
Limited Partners of the Refinancing is based upon current provisions of the
Code, Treasury Regulations, judicial opinions, published opinions of the U.S.
Internal Revenue Service (the "IRS") and other applicable authorities, all as in
effect as of the date of this information statement and all of which are subject
to change, possibly with retroactive effect. This summary is for general
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<PAGE> 15
information only and does not address all aspects of U.S. federal income
taxation that may be relevant in the particular circumstances of each Limited
Partner or to Limited Partners subject to special treatment under the Code
(including for example, financial institutions, broker-dealers, corporations,
foreign persons, Limited Partners subject to alternative minimum tax, and
tax-exempt organizations). In addition, this summary does not address any state,
local or foreign tax consequences. No opinion of counsel or ruling from the
Internal Revenue Service ("IRS") will be requested with respect to the U.S.
federal income tax consequences of the Refinancing and, as such, there can be no
assurance that the IRS will agree with the summary set forth herein.
EACH LIMITED PARTNER IS URGED TO CONSULT ITS TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE AMENDMENTS AND THE REFINANCING, INCLUDING THE
APPLICATION OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
In general, the Code provides that an increase in a partner's share of
partnership liabilities is treated as a cash contribution by such partner to the
partnership with a corresponding increase in the partner's tax basis in its
partnership interest. Conversely, to the extent a partner's share of partnership
liabilities is reduced, such reduction is treated as a distribution of cash by
the partnership to the partner with a corresponding reduction in the partner's
tax basis in its partnership interest.
As of June 30, 2000, the aggregate balance on the existing loan on The Loft
Apartments was $4,307,257. The principal amount of the new loan (part of which
will be used to satisfy the existing loans in full) will be $6,747,000, or
$2,439,743 more than the existing loans. Each Limited Partner's adjusted tax
basis in its Partnership interest will be increased by its pro rata share of
such excess, or approximately $12.26 per Unit. Following the completion of the
Refinancing, the Partnership anticipates making a pro rata cash distribution of
approximately $2,169,652, or $10.90 per Unit. As noted above, while this cash
distribution will reduce the adjusted tax basis of the Limited Partners'
interests in the Partnership, a Limited Partner will not recognize taxable gain
unless the cash it receives exceeds its adjusted tax basis.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, and
on February 26, 1999, Insignia Properties Trust merged into AIMCO. As a result
of these transactions, AIMCO acquired indirect ownership of the General Partner
and the general partner of CCEP.
Neither the General Partner nor any director or officer of the General
Partner owns any Units. The following table sets forth certain information
regarding Units of the Partnership owned by each person who is known by the
Partnership to own beneficially more than 5% of the Units as of January 1, 2001.
<TABLE>
<CAPTION>
Name and Address* of Amount and Nature of
Beneficial Owner Direct Owner Percent of Class
-------------------- -------------------- ----------------
<S> <C> <C>
AIMCO Properties L.P. 32,049(1) 16.1%
Cooper River Properties, LLC 11,366(2) 5.71%
Insignia Properties L.P. 50,572(3) 25.41%
Reedy River Properties, LLC 28,832(4) 14.48%
</TABLE>
----------
* Colorado Center, Tower Two
2000 South Colorado Boulevard, Suite 2-1000
Denver, Colorado 80222
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<PAGE> 16
(1) The Units may be deemed beneficially owned by AIMCO-GP, Inc. (which is the
general partner of AIMCO Properties, L.P.) and AIMCO (which owns AIMCO-GP,
Inc.)
(2) The Units may be deemed beneficially owned by AIMCO/IPT, Inc. and AIMCO.
Cooper River Properties, LCC is wholly owned by AIMCO/IPT, Inc. and AIMCO
owns AIMCO-IPT, Inc.
(3) The Units may be deemed beneficially owned by AIMCO/IPT, Inc. (which is the
general partner of Insignia Properties, L.P.) and AIMCO.
(4) The Units may be deemed beneficially owned by AIMCO Properties, L.P.,
AIMCO-GP, Inc. and AIMCO. Reedy River Properties, LCC is a wholly owned
subsidiary of AIMCO Properties, L.P.
AIMCO and its affiliates own approximately 62.64% of the outstanding Units.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
By: ConCap Equities, Inc.
General Partner
January __, 2001
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<PAGE> 17
ANNEX I
TEXT OF AMENDMENTS
TO THE LIMITED PARTNERSHIP AGREEMENT
OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
[Note: Additions are in italics, DELETED TEXT IN BOLD]
Section 1.04(u): (u) "Surplus Funds" shall mean the Partnership's share of the
net cash funds or proceeds resulting from the Partnership's receipt of (a)
principal and additional interest from the Participating Note issued by the Fee
Owner or (b) any funds from the sale, lease, financing or refinancing of any of
the Partnership's properties, both (i) after deduction of all expenses incurred
in connection therewith and (ii) less such amounts for working capital reserves
as the General Partner deems reasonably necessary for future Partnership
operations.
First paragraph of Section 1.05: PURPOSE OF PARTNERSHIP AND INVESTMENT
OBJECTIVES. The principal purpose of the Partnership is to lend funds in return
for the Participating Note with participations secured by deeds of trust on real
properties (including apartment buildings, shopping centers, industrial
projects, office buildings and other similar properties) as shall from time to
time be acquired by the Fee Owner and which offer the potential for (i)
preserving and protecting the Limited Partners' original Invested Capital; (ii)
providing quarterly distributions from interest received from the Fee Owner or
other sources; and (iii) providing special payments to the extent of additional
interest received from such Participating Note; and to engage in any and all
general business activities related to and incidental to those purposes;,
including, without limitation, the acquisition, ownership, improvement,
management, operation, lease, financing, refinancing, sale or exchange of any
real or personal property obtained (x) in connection with the exercise of any
remedy available to it under the Participating Note or the Master Loan Agreement
or (y) in a transaction (a "1031 Transaction") that is intended to be a
like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended, or any successor statute, at law or in equity (including, without
limitation, those properties commonly known as The Loft Apartments in Raleigh,
North Carolina and The Sterling Home and Commerce Center in Philadelphia,
Pennsylvania); provided, however, that the Partnership shall not own or lease
property jointly or in partnership with others, but it may transfer any such
property to a single-purpose wholly-owned subsidiary.
3. Powers and Duties of the General Partner
The fourth sentence of Section 2.01: "The General Partner shall have the
right, power and authority granted to General Partner hereunder or by law, or
both, to obligate and bind the Partnership and, on behalf and in the name of the
Partnership, to take such action as the General Partner deems necessary or
advisable, including, without limitation, making, executing and delivering loan
and other agreements;, leases, assignments and transfers and agreements to
purchase, sell, exchange, lease or otherwise deal with real or personal
property, escrow instructions, advances under the Participating Note, pledges,
deeds of trust;, mortgages and other security agreements;, promissory notes,
checks, drafts and other negotiable instruments;, and all other documents and
agreements which the General Partner deems reasonable or necessary in connection
with the loaning and investment of the Partnership's net proceeds resulting from
the Capital Contributions received and the management thereof, including,
without limitation, the acquisition, ownership, improvement, management,
operation, lease, financing, refinancing, exchange or sale of any real or
personal property (including the transfer of such property to a single-purpose
wholly-owned subsidiary of the Partnership) obtained (i) in connection with the
exercise of any remedy available to it under the Participating Note or the
Master Loan Agreement or (ii) in a 1031 Transaction, at law or in equity
(including, without limitation,
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<PAGE> 18
those properties commonly known as The Loft Apartments in Raleigh, North
Carolina and The Sterling Home and Commerce Center in Philadelphia,
Pennsylvania)."
The penultimate sentence of Section 2.01: The Partnership shall not be
permitted to purchase real property, directly or indirectly., but it may acquire
real property upon exercising any remedy under the Participating Note and the
Master Note Loan Agreement or in a 1031 Transaction.
16
