SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
Amendment No. 5
Real Estate Associates Limited V
(Name of the Issuer)
Real Estate Associates Limited V
National Partnership Investments Corp.
Casden Investment Corporation
Charles H. Boxenbaum
Bruce E. Nelson
Henry C. Casden
Alan I. Casden
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
75585108
(CUSIP Number of Class of Securities)
STEVEN A. FISHMAN, ESQ.
BATTLE FOWLER, LLP
75 EAST 55th STREET
NEW YORK, NEW YORK 10022
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf
of Person(s) Filing Statement)
This Statement is filed in connection with
(check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
-------------------------------------------------------
$1,571,673.00 $314.00
Transaction Valuation* Amount of filing fee
-------------------------------------------------------
* For purposes of calculating the filing fee only. The filing fee was
calculated in accordance with Rule 0-11 under the Securities Exchange Act of
1934, as amended, and equals 1/50 of one percent of the value of the cash
being paid in connection with the transaction.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
schedule and the date of its filing.
Amount Previously Paid: $314.00
Form or Registration No: Schedule 13E-3
Filing Party: Real Estate Associates Limited V
Date Filed: January 23, 1998
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This Rule 13e-3 Transaction Statement (the "Statement") relates to
the proposed sale of substantially all of the interests of Real Estate
Associates Limited V, a California limited partnership (the "Partnership"), in
the real estate assets of nineteen limited partnerships in which the Partnership
holds a limited partnership interest, to a real estate investment trust or its
designated affiliate (the "REIT") to be organized by Casden Properties, a
California general partnership, and certain of its affiliates.
The General Partners of the Partnership are National Partnership
Investments Corp., a California corporation ("NAPICO"), and National Partnership
Investments Associates II, a California limited partnership ("NPIA"). NAPICO is
a wholly-owned subsidiary of Casden Investment Corporation, the sole director
and stockholder of which is Mr. Alan I. Casden. The current members of NAPICO's
board of directors are Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden
and Alan I. Casden, each of whom is expected to become an officer and
shareholder of the REIT. Alan I. Casden is the general partner of Casden
Properties.
A preliminary consent solicitation statement (the "Consent
Solicitation Statement") with regard to the proposed sale has been filed with
the Securities and Exchange Commission contemporaneously herewith. The Consent
Solicitation Statement is attached hereto as Exhibit (d).
The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Consent
Solicitation Statement of the information required to be included in response to
the items of this Statement. The information in the Consent Solicitation
Statement, a copy of which is attached hereto as Exhibit (d), is hereby
expressly incorporated herein by reference in answer to the items in this
Statement, and the Cross Reference Sheet set forth below shows the location in
the Consent Solicitation Statement of the information required to be included in
response to the items of this Statement. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Consent
Solicitation Statement. The Consent Solicitation Statement will be completed
and, if appropriate, amended, prior to the time it is first sent or given to
limited partners of the Partnership. This Statement will be amended to reflect
such completion or amendment of the Consent Solicitation Statement.
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<PAGE>
Cross Reference Sheet
Item of Schedule 13E-3 Location in Consent Solicitation Statement
- - - ---------------------- ------------------------------------------
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) and (b) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT -- The
Partnership," "THE PARTNERSHIP --
General," "-- Market for Partnership
Interests and Related Security Holder
Matters."
(c) and (d) "The PARTNERSHIP -- Market for Partnership
Interests and Related Security Holder
Matters" and "-- Distribution History."
(e) Not Applicable.
(f) Not Applicable.
Item 2. Identity and Background.
This statement is being filed by the issuer and certain affiliates
of the issuer named in (b) below.
(a) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- The Partnership" and "THE PARTNERSHIP
-- General."
(b) Alan J. Casden
Chairman
Casden Properties Inc.
9090 Wilshire Boulevard, 3rd Floor
Beverly Hills, CA 90211
Henry C. Casden
President
Casden Properties Inc.
9090 Wilshire Boulevard, 3rd Floor
Beverly Hills, CA 90211
National Partnership Investments Corp., a
California corporation
9090 Wilshire Boulevard, Suite 201
Beverly Hills, CA 90211
Casden Investment Corporation, a
California corporation
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Charles H. Boxenbaum
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Bruce E. Nelson
9090 Wilshire Boulevard
Beverly Hills, CA 90211
(c)-(d) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- The Partnership" and "THE PARTNERSHIP
-- General."
3
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(e)-(f) During the past five years, neither the
Partnership nor any of the filing persons
has been (i) convicted in criminal
proceeding (excluding traffic violations
or similar misdemeanors) or (ii) a party
to a civil proceeding of a judicial or
administrative body of competent
jurisdiction, and, as a result of such
proceeding, was or is subject to a
judgment, decree or final order enjoining
further violation of, or prohibiting
activities subject to, federal or state
securities laws or finding any violation
of such laws, except as set forth under
"LEGAL PROCEEDINGS."
(g) All relevant persons are citizens of the
United States of America.
Item 3. Past Contracts, Transactions or Negotiations.
(a) Not Applicable.
(b) "The PARTNERSHIP -- Conflicts of
Interest."
Item 4. Terms of the Transaction.
(a)and (b) Outside Front Cover Page, "SUMMARY
OF CONSENT SOLICITATION STATEMENT -- The
Sale," "-- Conflicts of Interest," and
"THE SALE."
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT -- The
Sale," "-- Conflicts of Interest," and
"THE SALE."
Item 6. Source and Amount of Funds or Other Consideration.
(a) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- The Sale" and "THE SALE -- Source of
Funds."
(b) "THE SALE -- Transaction Costs."
(c)-(d) Not Applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT-- The
Sale," "--Potential Benefits of the Sale,"
"--Potential Adverse Effects of the Sale,"
"THE SALE," "CONFLICTS OF INTEREST" and
"FEDERAL INCOME TAX CONSEQUENCES." Each
filing person has adopted the analysis of
NAPICO, as managing general partner of the
Partnership, with respect to the purposes
for the Rule 13e-3 transaction, as set
forth in the above sections.
4
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(b) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT-- The
Sale," "--Potential Benefits of the Sale,"
"--Potential Adverse Effects of the Sale,"
"THE SALE," "CONFLICTS OF INTEREST" and
"FEDERAL INCOME TAX CONSEQUENCES." Each
filing person has adopted the analysis of
NAPICO, as managing general partner of the
Partnership, with respect to alternatives
and the reasons that alternative
transactions considered were rejected, as
set forth in the above-referenced
sections.
(c)-(d) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT-- The
Sale," "--Potential Benefits of the Sale,"
"--Potential Adverse Effects of the Sale,"
"THE SALE," "CONFLICTS OF INTEREST" and
"FEDERAL INCOME TAX CONSEQUENCES." Each
filing person has adopted the analysis of
NAPICO, as managing general partner of the
Partnership with respect to the reasons
for the structure of the Rule 13e-3
transaction and the reasons for
undertaking the transaction at this time.
Additionally, Each filing has adopted the
description provided by NAPICO, as
managing general partner of the
Partnership, with respect to the effects
(including the federal tax consequences)
of the Rule 13e-3 transaction on the
Partnership, its affiliates and other
security holders, as set forth in the
above-referenced sections.
Item 8. Fairness of the Transaction.
(a) "SUMMARY OF CONSENT SOLICITATION
STATEMENT-- Potential Benefits of the
Sale," "--Potential Adverse Effects of the
Sale," "--Third Party Opinion,"
"--Recommendations of the General
Partners," "--Conflicts of Interest" and
"THE SALE-- Fairness Opinion." Each filing
person reasonably believes that the Rule
13e-3 transaction is fair to unaffiliated
security holders. Each filing person has
adopted the analysis of NAPICO, as
managing general partner of the
Partnership with respect to the fairness
of the transaction to the limited partners
as set forth in the above-referenced
sections.
(b)-(f) "SUMMARY OF CONSENT SOLICITATION
STATEMENT-- Potential Benefits of the
Sale," "--Potential Adverse Effects of the
Sale," "--Third Party Opinion,"
"--Recommendations of the General
Partners," "--Conflicts of Interest" and
"THE SALE-- Fairness Opinion." Each filing
has adopted the analysis of NAPICO, as
managing general partner of the
Partnership with respect to the material
factors upon which the belief stated in
Item 8(a) is based, as described in the
above-referenced sections.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- Potential Benefits of the Sale," "--
Potential Adverse Effects of the Sale,"
"-- Third Party Opinion," "--
Recommendations of the General Partners,"
"-- Conflicts of Interest" and "THE SALE
-- Fairness Opinion."
Item 10. Interest in Securities of the Issuer.
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(a) "THE PARTNERSHIP--Market for Partnership
Interests and Related Security
Holder Matters."
(b) Not Applicable.
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
"SUMMARY OF CONSENT SOLICITATION STATEMENT
-- Conflicts of Interest" and "CONFLICTS
OF INTEREST."
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a)-(b) "SUMMARY OF THE CONSENT SOLICITATION
STATEMENT -- Recommendation of the General
Partners," "THE SALE -- Recommendation of
the General Partners" and "-- Fairness
Opinion."
Item 13. Other Provisions of the Transaction.
(a) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT --
Potential Adverse Effects of the Sale" and
"LIMITED PARTNERS CONSENT PROCEDURE -- No
Dissenters Rights of Appraisal."
(b)-(c) Not Applicable.
Item 14. Financial Information.
(a) "SELECTED FINANCIAL INFORMATION",
"INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and Annex B to Proxy Statement.
(b) Not Applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- Conflicts of Interest" and "CONFLICTS
OF INTEREST."
Item 16. Additional Information.
(a) Not Applicable.
Item 17. Material to be filed as Exhibits.
(a) Not Applicable.
(b) Fairness Opinion of Robert A. Stanger &
Co., Inc. (attached as Annex A to Exhibit
(d)).
(c) Not Applicable.
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(d) Preliminary copies of each of the Consent
Solicitation Statement, Letter to Limited
Partners and Form of Consent.
(e) Not Applicable.
(f) Not Applicable.
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SIGNATURES
After due 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: July 8, 1998
REAL ESTATE ASSOCIATES LIMITED V
By Its General Partners
NATIONAL PARTNERSHIP INVESTMENTS CORP.
By: /s/ Alan I. Casden
---------------------------
Alan I. Casden
Vice-Chairman
CASDEN INVESTMENT CORPORATION
By: /s/ Alan I. Casden
---------------------------
Alan I. Casden
Chairman
/s/ Henry C. Casden
---------------------------
Henry C. Casden
/s/ Alan I. Casden
---------------------------
Alan I. Casden
/s/ Charles H. Boxenbaum
---------------------------
Charles H. Boxenbaum
/s/ Bruce E. Nelson
---------------------------
Bruce E. Nelson
8
REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
___________ __, 1998
To the Limited Partners:
National Partnership Investments Corp., the managing general partner ("NAPICO"
or the "Managing General Partner") of Real Estate Associates Limited V (the
"Partnership"), is writing to recommend, and seek your consent to, (i) a
proposed sale of all of the interests of the Partnership (the "Real Estate
Interests") in the real estate assets of the seventeen limited partnerships
affiliated with the Partnership (the "Local Partnerships") to a real estate
investment trust or its designated affiliate (collectively referred to as the
"REIT") to be organized by Casden Properties, a California general partnership,
and certain of its affiliates (collectively referred to as "Casden"); and (ii)
certain amendments (the "Amendments") to the Partnership's Agreement of Limited
Partnership necessary to permit such sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation, the sole
director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden is also
a general partner of Casden Properties, the sponsor of the REIT and an affiliate
of the Partnership. Four of the current members of NAPICO's board of directors,
Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I. Casden, are
expected to become officers and shareholders of the REIT. Eighteen of the
nineteen Local Partnerships own a low income housing project that is subsidized
and/or has a mortgage note payable to or insured by an agency of the federal
government or a local housing agency. The remaining Local Partnership owns a
conventional multi-unit residential apartment complex. The properties owned by
the Local Partnerships are each referred to herein as a "Property". The
transactions by which the Partnership proposes to sell the Real Estate Interests
to the REIT and amend its Agreement of Limited Partnership are hereinafter
referred to as the "Sale". Limited Partners must separately approve the proposed
Sale and each of the proposed Amendments in order to allow consummation of the
Sale.
In evaluating the proposed Sale, the Limited Partners should note that:
o The Properties do not currently produce significant cash flow and
the Partnership has not made any distributions to date. The
Partnership's investment in the Properties was initially structured
primarily to obtain tax benefits, and not to provide cash
distributions. The Partnership has substantially fulfilled its
original objective of providing tax benefits to the Limited
Partners. The Partnership has generated net tax benefits equal to at
least 97.3% of each Limited Partner's equity investment since the
inception of the Partnership through December 31, 1997 (assuming a
Limited Partner claimed such deductions in accordance with the
passive loss transitional relief rules contained in the Tax Reform
Act of 1986 and in connection with property dispositions). As a
result of such changes to the tax law, most Limited Partners no
longer realize any material tax benefits from continuing to hold
their interests in the Partnership.
o Based upon a purchase price for the Real Estate Interests of
$44,670,614, which is payable $1,063,235 in cash and $43,607,379 by
assumption by the REIT of certain mortgage indebtedness, it is
anticipated that the Partnership will make a distribution to Limited
Partners of $2,042,603 in the aggregate or approximately $523 per
unit, which represents the net proceeds of the Sale plus
approximately $990,000 of the available cash reserves of the
Partnership. Each unit consists of two limited partnership
interests, which were sold at an original cost of $5,000 per unit.
The per unit distribution amount of $523 is anticipated to be
sufficient to pay any federal and state income taxes that would be
due in connection with the Sale, assuming (i) that Limited Partners
have
<PAGE>
suspended passive losses of $5,062 per unit from the Partnership;
(ii) that such losses are available to offset ordinary income taxed
at the 39.6% marginal federal rate; and (iii) federal and effective
state capital gains rates of 25% and 5%, respectively.
o The Managing General Partner believes that now may be an opportune
time for the Partnership to sell the Real Estate Interests, given
current conditions in the real estate and capital markets, which
have enabled the REIT to make the proposal to the Partnership
described in the enclosed materials.
o Robert A. Stanger & Co., Inc., a recognized independent investment
banking firm, has determined that, subject to the assumptions,
limitations and qualifications contained in its opinion, the
aggregate value ascribed to the Properties in connection with
determining the Purchase Price to be received by the Partnership for
the Real Estate Interests in the Sale is fair from a financial point
of view to the Limited Partners.
o The Managing General Partner believes that selling the Partnership's
entire portfolio of real estate assets in a single transaction (as
opposed to a series of individual sales) will enable the Partnership
to (i) reduce transaction expenses; and (ii) dispose of its
portfolio in an expedited time frame. It should be noted that the
Sale is conditioned upon, among other things, the consents of the
general partners of the Local Partnerships in which the REIT intends
to acquire interests. The Partnership will retain its interests in a
Property if the general partner for the Local Partnership holding
such Property does not approve the transfer.
o The Managing General Partner does not believe that it would be
feasible to market the portfolio of Properties to a third party
because the Partnership owns only limited partnership interests in
the 13 Local Partnerships. The general partners of 17 such Local
Partnerships are not affiliated with the Managing General Partner.
The remaining four Local Partnerships are each operated by
co-general partners, one of which is affiliated with the Managing
General Partner and one of which is not. The cooperation of the
local general partners is necessary to allow the Partnership to
effectuate a sale of the properties held by the Local Partnerships,
since a third party buyer would need to negotiate a buy-out of all
of the local general partners. The Partnership does not have the
power to compel a sale of such properties to a third party.
o Most of the Properties are subject to Housing Assistance Payments
Contracts under Section 8 of the United States Housing Act. Most of
these contracts will expire by the end of 2003 and the United States
Department of Housing and Urban Development will not renew them
under their current terms, which could ultimately have an adverse
economic and tax impact on Limited Partners.
There are certain risk factors that the Limited Partners should consider in
evaluating the proposed Sale, such as:
o The Partnership does not have the right to compel a sale of the
Properties. Accordingly, the Managing General Partner has not
marketed the Properties for sale to third parties.
o The terms of the Sale have not been negotiated at arm's-length.
o Casden is both an affiliate of the Managing General Partner and the
sponsor of the REIT and, as discussed in the enclosed materials,
would receive substantial benefits as a result of the Sale and the
successful formation and capitalization of the REIT that will not be
available to Limited Partners.
o It is possible that Limited Partners could earn a higher return on
their investment in the Partnership if the Partnership were to
retain ownership of the Properties, then market and sell the
Properties to third parties for a higher aggregate purchase price at
a later date.
o As a result of the Sale, the Partnership will not realize any
potential benefits of continuing to own the Properties.
-2-
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o The Sale will have a tax impact on Limited Partners. For Limited
Partners who have been able to use all of the passive losses
generated by the Partnership on a current basis, the Sale and the
distribution of available cash should result in a federal and state
income tax cost of approximately $1,410 per unit in excess of the
cash distribution. For Limited Partners who do not have sufficient
taxable income to be taxed at a 39.6% marginal rate or who have
other losses available to deduct against their taxable income and
therefore could not fully utilize their suspended passive losses to
offset their ordinary income, the sale could have a federal and
state tax cost in excess of cash distributions.
The REIT is to be formed by combining a substantial portion of Casden's
multi-family housing assets, which consist of real estate businesses and
property interests, with conventional and subsidized housing properties acquired
from several Casden-sponsored and/or managed partnerships and from third-party
sellers. Casden and certain officers and directors of NAPICO, including Alan I.
Casden, Henry C. Casden, Charles H. Boxenbaum and Bruce E. Nelson, will receive
a significant ownership interest in the REIT in exchange for Casden contributing
substantially all of its multi-family housing assets and businesses to the REIT.
The REIT proposes to acquire the Real Estate Interests for cash, which it plans
to raise in connection with a private placement of its equity securities. The
closing of the Sale is subject to, among other things, (i) the consummation of
such private placement by the REIT; (ii) the consents of the general partners of
the Local Partnerships in which the REIT intends to acquire interests; (iii) the
approval of the United States Department of Housing and Urban Development and
certain state and local housing finance agencies; and (iv) the consummation of a
minimum number of similar sales transactions with other Casden- affiliated
partnerships.
If the Limited Partners do not approve the Sale, the Partnership will most
likely retain its indirect ownership of the Properties.
We urge you to carefully read the enclosed Consent Solicitation Statement in
order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE APPROVAL REQUIRES
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF LIMITED
PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE. To be sure your vote is represented, please sign, date and
return the enclosed consent as promptly as possible.
The proposed Sale is fully described in the enclosed Consent Solicitation
Statement. Please read the enclosed materials carefully, then return your signed
consent form either by facsimile to MacKenzie Partners at (303) 705- 6171 or in
the enclosed envelope on or before ________ __, 1998.
If you have any questions, please do not hesitate to contact MacKenzie Partners,
the Partnership's consent solicitation agent, toll free at 800-322-2885 or
collect at 212-929-5500.
Very truly yours,
National Partnership Investments Corp.
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REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
________ __, 1998
CONSENT SOLICITATION STATEMENT
On the terms described in this Consent Solicitation Statement,
National Partnership Investments Corp., a California corporation and the
managing general partner ("NAPICO" or the "Managing General Partner") of Real
Estate Associates Limited V, a California limited partnership (the
"Partnership," or "REAL V"), is seeking the consent of the Limited Partners of
the Partnership to (i) the sale of all of the interests of the Partnership in
the real estate assets (the "Real Estate Interests") of seventeen limited
partnerships in which the Partnership holds a limited partnership interest (the
"Local Partnerships") to a real estate investment trust or its designated
affiliate (collectively referred to as the "REIT") to be organized by Casden
Properties, a California general partnership, and certain of its affiliates
(collectively referred to herein as "Casden") for a purchase price of
$44,670,614 (the "Purchase Price"), payable $1,063,235 in cash and $43,607,379
by assumption by the REIT of certain mortgage indebtedness; and (ii) certain
amendments to the Partnership's Agreement of Limited Partnership (the
"Amendments") necessary to permit such a sale.
Sixteen of the seventeen Local Partnerships own a low income housing
project that is subsidized and/or has a mortgage note payable to or insured by
an agency of the federal government or a local housing agency. The remaining
Local Partnership owns a conventional multi-unit residential apartment complex.
Pursuant to certain state housing finance statutes and regulations, certain of
the Local Partnerships are subject to limitations on distributions to the
Partnership. Such statutes and regulations require such Local Partnerships to
hold cash flows in excess of such distribution limitations in restricted reserve
accounts that may be used only for limited purposes.
Consents are also being sought from the limited partners of certain
other limited partnerships, the general partners of which are affiliated with
Casden (the Partnership and such other limited partnerships are hereinafter
collectively referred to as the "Casden Partnerships"), to allow the sale of
certain real estate assets owned by the Casden Partnerships to the REIT. The
transactions by which the Partnership proposes to sell the Real Estate Interests
to the REIT and amend its Agreement of Limited Partnership (the "Partnership
Agreement") are hereinafter referred to as the "Sale." The series of
transactions by which Casden proposes to form the REIT and acquire certain real
estate assets from the Casden Partnerships and others is hereinafter referred to
as the "REIT Transaction." The Sale and each of the proposed Amendments are
being submitted to the Limited Partners as separate resolutions. Limited
Partners must approve the proposed Sale and each of the proposed Amendments in
order to allow consummation of the Sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation,
the sole director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden
is also a general partner of Casden Properties, the sponsor of the REIT and an
affiliate of the Partnership. Four of the current members of NAPICO's board of
directors, Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I.
Casden, are expected to become officers, and shareholders of the REIT. See
"CONFLICTS OF INTEREST."
It is anticipated that the Partnership will make a distribution to
Limited Partners of approximately $523 per unit of limited partnership interest
from the net proceeds of the Sale plus approximately $990,000 of the available
cash of the Partnership.
The Sale is conditioned upon, among other things, (i) approval of a
majority in interest of the Limited Partners of the Partnership; (ii) the
consummation of a private placement of the REIT's equity securities; (iii) the
<PAGE>
consents of the general partners of the Local Partnerships in which the REIT
intends to acquire interests; (iv) the approval of the United States Department
of Housing and Urban Development ("HUD") and certain state housing finance
agencies; and (v) the consummation of a minimum number of real estate purchases
from the Casden Partnerships in connection with the REIT Transaction. If the
Partnership is unable to obtain the consent of a general partner of a particular
Local Partnership, then the Real Estate Interests relating to such Local
Partnership will be retained by the Partnership and will be excluded from the
Sale.
Under the Partnership Agreement and California law, Limited Partners
do not have dissenters' rights of appraisal. If the Sale is approved by a
majority in interest of the Limited Partners, and the other conditions to
consummation of the Sale are satisfied, all Limited Partners, both those voting
in favor of the Sale and those not voting in favor, will be entitled to receive
the resulting cash distributions.
The Managing General Partner has approved the Sale, has concluded
that the Sale, including the Aggregate Property Valuation (as defined herein)
and the Purchase Price for the Real Estate Interests, is fair to the Limited
Partners and recommends that the Limited Partners consent to the Sale. Limited
Partners should note, however, that the Managing General Partner's
recommendation is subject to inherent conflicts of interest. See "CONFLICTS OF
INTEREST."
National Partnership Investments Associates II, a California Limited
Partnership ("NPIA II"), is the non- managing General Partner of the
Partnership. Pursuant to an agreement between NAPICO and NPIA II, NAPICO is
responsible for the performance of any duties required to be performed by the
General Partners and has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA II has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement.
This Consent Solicitation Statement and the accompanying form of
Consent of Limited Partner are first being mailed to Limited Partners on or
about ________ __, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON ________ __, 1998, UNLESS EXTENDED
<PAGE>
TABLE OF CONTENTS
Page
----
I. SUMMARY OF CONSENT SOLICITATION STATEMENT.................................1
The Partnership.........................................................1
The Sale................................................................1
Potential Benefits of the Sale..........................................2
Potential Adverse Effects of the Sale...................................5
Amendments to Partnership Agreement.....................................7
Limited Partner Approval................................................8
ThirdParty Opinion......................................................8
Recommendation of the Managing General Partner..........................8
Conflicts of Interest...................................................9
Federal Income Tax Consequences........................................10
Summary Financial Information..........................................11
Transaction Expenses...................................................11
Voting Procedures......................................................11
II. THE PARTNERSHIP.........................................................12
General................................................................12
The Properties.........................................................14
Market for Partnership Interests and Related Security Holder Matters...15
Distribution History...................................................15
Regulatory Arrangements................................................15
Year 2000 Information..................................................17
Directors and Executive Officers of NAPICO.............................17
III. THE SALE...............................................................18
Background and Reasons for the Sale....................................18
Acquisition Agreement..................................................20
Arrangements with General Partners of the Local Limited Partnerships...21
Source of Funds........................................................21
Transaction Costs......................................................22
Distribution of Sale Proceeds; Accounting Treatment....................22
Conditions.............................................................23
Fairness Opinion.......................................................23
Alternatives to the Sale...............................................29
Recommendation of the Managing General Partner; Fairness...............31
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT.................................36
V. CONFLICTS OF INTEREST...................................................37
General................................................................37
Fiduciary Responsibility...............................................38
VI. SELECTED FINANCIAL INFORMATION..........................................39
VII. FEDERAL INCOME TAX CONSEQUENCES.........................................40
VIII.LEGAL PROCEEDINGS ......................................................41
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IX. LIMITED PARTNERS CONSENT PROCEDURE......................................42
Distribution of Solicitation Materials.................................42
Voting Procedures and Consents.........................................42
Completion Instructions................................................43
Withdrawal and Change of Election Rights...............................43
No Dissenters' Rights of Appraisal.....................................43
Solicitation of Consents...............................................43
X. IMPORTANT NOTE..........................................................44
ANNEXES
Annex A - Fairness Opinion of Robert A. Stanger & Co., Inc.
Annex B - The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
Annex C - The Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
Annex D - Proposed Amendments to the Partnership Agreement
Annex E - Legal Opinion of Battle Fowler LLP
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AVAILABLE INFORMATION
Real Estate Associates Limited V is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, consent solicitation
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, consent solicitation statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices,
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In
addition, the Commission maintains a site on the World Wide Web portion of the
Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov. Copies of the latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q may also be obtained from
NAPICO without charge. All requests should be made in writing to National
Partnership Investments Corp., 9090 Wilshire Boulevard, Suite 201, Beverly
Hills, California 90211; Attention: Investor Services; Telephone 800-666-6274.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
are incorporated by reference in this Consent Solicitation Statement:
Annual Report on Form 10-K of the Partnership for the fiscal year
ended December 31, 1997, and
Quarterly Report on Form 10-Q of the Partnership for the quarter
ended March 31, 1998.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Consent
Solicitation Statement to the extent that a statement contained herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.
No person is authorized to give any information or to make any
representation not contained in this Consent Solicitation Statement in
connection with the solicitation of proxies made hereby, and, if given or made,
any such information or representation should not be relied upon as having been
authorized by the Partnership or any other person. The delivery of this Consent
Solicitation Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of the Partnership since the date of this Consent Solicitation
Statement.
<PAGE>
I. SUMMARY OF CONSENT SOLICITATION STATEMENT
The following summary is intended to provide only highlights of the
materials contained in this Consent Solicitation Statement. This summary is not
intended to be a complete statement of all material features of the proposed
Sale and is qualified in its entirety by the more detailed information contained
herein. Cross references in the summary are to the indicated captions or
portions of this Consent Solicitation Statement.
The Partnership
Real Estate Associates Limited V is a California limited partnership,
the general partners of which are National Partnership Investments Corp., a
California corporation and National Partnership Investments Associates II, a
California limited partnership.
The Partnership holds limited partnership interests in nineteen local
limited partnerships, which in turn hold title to nineteen Properties. Eighteen
of the nineteen Local Partnerships own a low income housing project that is
subsidized and/or has a mortgage note payable to or insured by an agency of the
federal government or a local agency. The remaining Local Partnership owns a
conventional multi-unit residential apartment complex. Pursuant to certain state
housing finance statutes and regulations, certain of the Local Partnerships are
subject to limitations on the distributions to the Partnership. Such statutes
and regulations require such Local Partnerships to hold cash flows in excess of
such distribution limitations in restricted reserve accounts that may be used
only for limited purposes. The Properties are located in nine states. Nine of
the Properties are located in California, three are in Texas and there is one
Property in each of seven other states. See "THE PARTNERSHIP - The Properties."
The Partnership maintains offices at 9090 Wilshire Boulevard, Beverly
Hills, California 90211 (310-278-2191). The Partnership was organized as a
California limited partnership on May 7, 1982. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell all of the Real Estate Interests to
the REIT for cash. It is the intention of the Managing General Partner to
liquidate the Partnership as soon as practicable following consummation of the
Sale. The approval of the Limited Partners to dissolve the Partnership is not
required once all of the Partnership's interests in the Local Partnerships and
any other Partnership assets have been disposed of. However, two of the general
partners of the Local Partnerships have indicated that they will not agree to
transfer their general partnership interests in such partnerships, and if such
agreements are not obtained, REAL V may retain its limited partnership interests
in such partnerships indefinitely. The partnership agreements of the Local
Partnerships do not grant the limited partner of such partnerships (REAL V) the
right to compel a sale of the assets of such partnerships. Accordingly, the
timing of the final dissolution and winding up of the Partnership cannot be
determined with certainty at this time. The Partnership will continue to file
reports under the Securities and Exchange Act of 1934 until all of the
Properties have been sold and the proceeds from such sales have been
distributed. See "THE SALE."
The aggregate consideration for the Real Estate Interests of the
seventeen Local Partnerships the Managing General Partner currently anticipates
will be included in the Sale is $44,670,614, payable $1,063,235 in cash and
$43,607,379 by assumption by the REIT of certain mortgage indebtedness. The REIT
intends to raise the cash to be paid to the Partnership through a private
placement of approximately $250 million of its equity securities (the "Private
Placement"). The REIT intends to commence an initial public offering of its
equity securities subsequent to the consummation of the Sale.
The net proceeds of the Sale will be distributed to the Limited and
General Partners in accordance with the cash distribution provisions of the
Partnership Agreement. See "THE SALE--Distribution of Sale Proceeds" for a
summary of the cash distribution rules applicable to such distributions. Limited
Partners are expected to receive
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a distribution of approximately $523 in cash per unit, which represents the net
proceeds of the Sale plus approximately $990,000 of the available cash of the
Partnership. The units (the "Units"), each of which consists of two limited
partnership interests, were originally sold for $5,000 per Unit. All expenses of
the Sale will be borne by the Partnership.
The distribution is anticipated to be sufficient to pay any federal
and state income taxes that would be due in connection with the Sale, assuming
that Limited Partners have suspended passive losses of $5,062 per Unit from the
Partnership that could be deducted in full against such Limited Partners'
ordinary income that is taxed at a federal rate of 39.6% and an effective state
income tax rate of 5%. For such Limited Partners, the Sale and the distribution
of available cash should result, in addition to a cash distribution of $523 per
Unit, in a federal and state income tax benefit (i.e. the amount by which the
tax savings resulting from deducting the passive losses exceeds the tax payable
on the gain from the Sale) of $325 per Unit, assuming such Limited Partner has
sufficient taxable income taxed at federal tax rates of 39.6% on ordinary income
and 25% on long-term capital gain attributable to depreciation (and assuming an
effective 5% state tax). For Limited Partners who do not have sufficient taxable
income to be taxed at a 39.6% marginal federal rate or who have other losses
available to deduct against their taxable income and therefore could not fully
utilize such suspended passive losses to offset their ordinary income, the Sale
could result in a federal and state tax cost in excess of cash distributions.
For Limited Partners who have been able to use all of the passive losses
generated by the Partnership on a current basis, the Sale should result in a
federal and state income tax cost of approximately $1,410 per Unit in excess of
the cash distribution. For a discussion of the bases of these assumptions, see
"FEDERAL INCOME TAX CONSEQUENCES." Each Limited Partner is urged to consult his,
her or its own tax advisor for a more detailed explanation of the specific tax
consequences to such Limited Partner from the Sale.
NAPICO and NPIA II, the General Partners of the Partnership, will be
entitled to receive distributions in connection with the Sale of $20,632, in the
aggregate.
The Sale is conditioned upon (i) approval of a majority in interest
of the Limited Partners of the Partnership; (ii) the consummation of the Private
Placement; (iii) the consents of the general partners of the Local Partnerships
in which the REIT intends to acquire interests; (iv) the approval of HUD and
certain state housing finance agencies; and (v) the consummation of a minimum
number of real estate purchases from the Casden Partnerships in connection with
the REIT Transaction. See "THE PARTNERSHIP -- Regulatory Arrangements" and "THE
SALE -- Conditions."
Potential Benefits of the Sale
The Managing General Partner believes that the Sale achieves the
Partnership's investment objectives for the following reasons:
o Receipt of Cash. The Sale will result in a cash distribution of $523
per Unit to Limited Partners, which amount is anticipated to be
sufficient to pay any federal and state income taxes that would be
payable in connection with the Sale, assuming (i) that Limited
Partners have suspended passive losses of $5,062 per Unit from the
Partnership; (ii) that such losses are available to offset ordinary
income taxed at the 39.6% marginal federal rate; and (iii) federal
and state effective capital gains rates of 25% and 5%, respectively.
For a discussion of the bases of these assumptions, See "FEDERAL
INCOME TAX CONSEQUENCES." The Partnership has never made
distributions and, if the Sale is not completed, the Managing
General Partner does not anticipate that the Partnership will make
distributions in the near future.
o Opportune Time to Sell. The Managing General Partner believes that
now may be an opportune time for the Partnership to sell its
interests in the Properties, given current conditions in the real
estate and capital markets. Specifically, the Managing General
Partner believes that investor demand for the stock of certain
public real estate companies similar to the REIT has increased
significantly over
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the past several years. The Managing General Partner believes that
the current interest rate environment and the availability of
capital for real estate investment trusts will enable Casden to form
the REIT and make the proposal to the Partnership for the Sale,
which provides the Partnership with an opportunity to maximize the
value of the Properties. In addition, the Managing General Partner
took into account the potential impact of recent changes in laws and
policies relating to payments under Housing Assistance Payments
contracts under Section 8 of the United States Housing Act ("HAP
Contract"), which the Managing General Partner believes will result
in significant reductions in cash flow from the Properties. See " --
Resolving HUD Uncertainties," "THE PARTNERSHIP -- Regulatory
Arrangements" and "THE SALE -- Background and Reasons for the Sale."
o Third Party Fairness Opinion. The Managing General Partner has
determined that the 17 Properties owned by the Local Partnerships
that the REIT currently anticipates purchasing in connection with
the Sale have an aggregate value of $50,364,443 (the "Aggregate
Property Valuation"). Robert A. Stanger & Co., Inc. ("Stanger"), an
independent, nationally recognized real estate investment banking
firm, has been engaged by the Partnership to render an opinion (the
"Fairness Opinion") to the Partnership as to the fairness, from a
financial point of view, to Limited Partners of the Aggregate
Property Valuation utilized in connection with determining the
Purchase Price to be received by the Partnership for the Real Estate
Interests in the Sale. Stanger has conducted certain reviews
described herein and has concluded, subject to the assumptions,
qualifications and limitations contained in its opinion, that the
Aggregate Property Valuation utilized in connection with determining
the Purchase Price to be received for the Real Estate Interests in
the Sale is fair, from a financial point of view, to Limited
Partners. The Fairness Opinion addresses neither the adjustments
made to the Aggregate Property Valuation to determine the
distribution amount payable to Limited Partners in connection with
the Sale (including the allocation of the Aggregate Property
Valuation between the Limited Partners, General Partners and the
local general partners,) nor the Purchase Price itself. See "THE
SALE - Fairness Opinion."
o Eliminating the Risks of Real Estate Investing. Continued ownership
of the Properties subjects the Partnership to continued risks
inherent in real estate ownership, such as national and local
economic trends, supply and demand factors in the local property
market, the cost of operating and maintaining the physical condition
of the Properties and the cost and availability of financing for
prospective buyers of the Properties. No assurance can be given that
a prospective buyer would be willing to pay an amount equal to or
greater than the Purchase Price for the Properties in the future.
o Unattractiveness of Other Options. The Managing General Partner does
not believe that other alternatives available to the Partnership are
as attractive to the Partnership as the Sale.
One alternative considered by the Managing General Partner was
continued indirect ownership of the Properties by the Partnership.
However, the Partnership is not currently making distributions to
the Limited Partners and recent changes in laws and policies
relating to payments under HAP Contracts are expected to result in
significant reductions in cash flows from the Properties. Further,
the tax benefits resulting from continuing to own the Properties,
which remain available only to those Limited Partners currently able
to utilize passive losses (which can only be deducted against
passive income), are diminishing. The Managing General Partner does
not believe that the Partnership could realize the same benefits
anticipated to be received by the REIT through its acquisitions of
the Properties. The REIT expects to realize potential benefits from
acquisitions of the Real Estate Interests by also acquiring the
interests of the general partners of each of the Local Partnerships
and the right to manage each of the Properties, and the insured
mortgage indebtedness currently encumbering the Properties. The
Managing General Partner does not believe that the Partnership could
obtain access to the capital markets to make such acquisitions or
that such acquisitions would be consistent with the Partnership's
investment objectives.
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The Managing General Partner also considered marketing the
Properties to third parties in cooperation with the general partners
of the Local Partnerships; however, the Managing General Partner
does not believe that such alternative would be in the interests of
the Limited Partners, because the Managing General Partner believes,
based on the current uncertainties in the government subsidized
housing market, that it would be difficult to sell the Properties
and that such a sale would not result in a purchase price for the
Properties as high as the Purchase Price offered in connection with
the Sale. Furthermore, for a third party to acquire the Properties,
it would have to acquire not only the limited partnership interests
in the Local Partnerships owned by the Partnership, but also the
interests of each local general partner. The Partnership owns only
limited partnership interests in the Local Partnerships and does not
hold title to the Properties. As a result, the Managing General
Partner believes that marketing the Properties to third parties
would result in significant delays and uncertainties. There can be
no assurance, however, that a well-capitalized third party buyer
would not be willing to pay a price in excess of the Purchase Price
to acquire the Properties.
In determining the structure of the transaction, the Managing
General Partner took into account the fact that the Partnership owns
limited partnership interests in the Partnerships and does not
directly own the Properties. A Property may not be sold without the
participation of the general partner of the Local Partnership that
owns such Property. As a result, the simultaneous sale of the local
general partners' interests is necessary to enable the Partnership
to realize the value of its Real Estate Interests. This factor
limits the ability of the Partnership to market its interests to
third parties. Additionally, the amount required to be paid by a
purchaser (whether a third party buyer or the REIT) to purchase the
interests of the local general partners will have the effect of
reducing the amount of consideration that a buyer is willing to pay
for the Partnership's Real Estate Interests. The amounts that
affiliates of the Managing General Partner will pay to the
unaffiliated local general partners or co-general partners in
connection with the buyouts of such local general partners have been
determined in arm's-length negotiations. Two unaffiliated local
general partners have indicated that they will not agree to transfer
their general partner interests. The Managing General Partner
believes that, while the amount paid to the local general partners
affects the amount of distribution to Limited Partners and that the
buyout of the local general partners' interests will benefit the
REIT, the terms of these transactions are fair to the Partnership
and the Limited Partners.
Several of the options considered by the Managing General
Partner, including the reorganization of the Partnership as a real
estate investment trust, a rollup involving the Partnership and the
use of an "UPREIT" structure, would have (i) been prohibitively
expensive and logistically impractical; (ii) entailed compliance
with the rollup rules promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), which may have resulted in
significant delays, thereby potentially causing the Partnership to
miss the currently favorable market conditions for real estate
investment trusts; and (iii) resulted in the Limited Partners
receiving publicly traded securities rather than cash in exchange
for their Units. Such publicly traded securities would be subject to
the market risks generally applicable to equity securities. The
Managing General Partner believes that receipt of such securities
would be inconsistent with the Partnership's ultimate objective of
returning cash to the Limited Partners and winding up the business
of the Partnership. See "THE SALE -- Background and Reasons for the
Sale."
o Resolving HUD Uncertainty. Sixteen of the seventeen Properties are
subject to Housing Assistance Payments Contracts under Section 8 of
the United States Housing Act. The Managing General Partner
anticipates that, for the foreseeable future, rental rate increases
under such contracts will either not be permitted by HUD or will be
negligible and unlikely to exceed increases in operating expenses.
Most of these contracts will expire by the end of 2003 and HUD will
not renew them under their current terms. Under recently passed
legislation, in most cases project rents will be reduced and the
project mortgages restructured, which is expected to reduce the cash
flow from the Properties and could create
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adverse tax consequences to the Limited Partners. HUD has not yet
issued implementing regulations on the Section 8 restructuring
program, which creates additional uncertainty. Accordingly, the
Managing General Partner believes it may be beneficial to the
Limited Partners to avoid such uncertainties by approving the Sale
at this time. See "THE PARTNERSHIP -- Regulatory Arrangements" and
"THE SALE -- Background and Reasons for the Sale."
o Reduced Transaction Costs. The Partnership will not be required to
pay brokerage commissions in connection with the Sale, which would
typically be paid when selling real property to third parties. As a
result, the Sale is likely to produce a higher cash distribution to
Limited Partners than a comparable sale to an unaffiliated third
party. In addition, the Managing General Partner believes that
selling the Partnership's entire portfolio of real estate assets in
a single transaction (as opposed to a series of individual sales)
will enable the Partnership to dispose of its portfolio in an
expedited time frame and provide additional transaction cost
savings, although the Partnership will pay certain expenses, such as
the costs of structural and engineering inspections and costs
relating to proxy solicitation and fairness opinions which may be
higher than comparable expenses in a transaction with an
unaffiliated third party. See "THE SALE-- Transaction Costs" for a
schedule of the costs the Partnership is expected to incur in
connection with the Sale.
o Anticipated Tax Benefits/Tax Law Changes. Subsequent to the
formation of the Partnership, tax law changes reduced the tax
benefits anticipated to be received by Limited Partners by not
allowing Limited Partners to currently deduct many of the losses
generated by the Partnership against a Limited Partner's other
taxable income from non-passive sources. As a result, Limited
Partners may have a significant amount of suspended passive losses
available to reduce the tax impact of the taxable gain generated by
the Sale. If a Limited Partner has not utilized any of the passive
activity losses allocated to such Limited Partner in excess of those
amounts permitted under certain transitional rules, the Limited
Partner will have a net federal and state tax benefit of
approximately $325. Because passive losses are generally only
deductible against passive income after 1986, the Managing General
Partner does not have any basis for determining the amount of such
passive losses which have previously been utilized by Limited
Partners. The anticipated cash distribution of approximately $523
per Unit would be sufficient to pay the federal and state tax
liability arising from the Sale, assuming a federal capital gains
rate of 25%, the current capital gains rate and that Limited
Partners have suspended passive losses of $5,062 per Unit from the
Partnership (which is generally the amount of passive losses that a
Limited Partner would have had it not utilized any of its passive
losses and assuming an effective state tax rate of 5%, and would
result in a net benefit, including the federal and state income tax
benefit, of $848.
Potential Adverse Effects of the Sale
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
o Loss of Opportunity to Benefit from Future Events. It is possible
that the future performance of the Properties will improve or that
prospective buyers may be willing to pay more for the Properties in
the future. It is possible that Limited Partners might earn a higher
return on their investment if the Partnership retained ownership of
the Real Estate Interests. By approving the Sale, Limited Partners
will also be relinquishing certain current benefits of ownership of
the Properties, such as the ability to deduct tax losses generated
by the Partnership against other passive income. See "THE SALE --
Background and Reasons for the Sale."
o No Solicitation of Third Party Offers. The Managing General Partner
has not solicited any offers from third parties to acquire the Real
Estate Interests. There is no assurance that the Managing General
Partner would not be able to obtain higher or better offers for the
Real Estate Interests if such offers
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were to be solicited from independent third parties. The Partnership
does not have the power to unilaterally sell any of the Properties.
o Sale Not Negotiated at Arm's-Length. Affiliates of the General
Partners will possess a significant ownership interest in the REIT
and receive substantial other benefits from the formation of the
REIT and the Sale. The Purchase Price was not negotiated at
arm's-length. The Purchase Price was established by the Managing
General Partner and the Partnership did not retain an independent
financial or legal advisor to negotiate the terms of the Sale.
o Conflicts of Interest. In evaluating the proposed Sale, Limited
Partners should consider that Casden is both the sponsor of the REIT
and an affiliate of the Managing General Partner. If the REIT is
successfully formed and capitalized, the current owners of Casden
are likely to realize a substantial increase in the value and
liquidity of their investment in Casden Properties. The terms of the
Sale have been determined on behalf of the Partnership by officers
and directors of Casden who will directly benefit from the Sale.
Unlike Casden, the Limited Partners will not participate in the
REIT. It is anticipated that approximately 45% of the equity
securities of the REIT will be held by Casden and its affiliates
following the Private Placement, based on the terms of the Private
Placement as currently contemplated.
o Tax Consequences. The Sale will have a tax impact on Limited
Partners, producing a long-term capital gain of approximately $6,443
per Unit. It is not anticipated that the Sale will produce ordinary
income attributable to depreciation recapture. For Limited Partners
who have been able to use all of the passive losses generated by the
Partnership on a current basis, the Sale should result in a federal
and state income tax cost of approximately $1,410 per Unit in excess
of cash distributions. In addition, Limited Partners who have
available all of the suspended passive losses generated by the
Partnership, but whose ordinary income is not taxed at the 39.6%
marginal federal rate, may incur a federal income tax cost in excess
of the cash distribution made in connection with the Sale. For a
discussion of the tax impact of the Sale, and the Partnership's
assumptions and the bases therefor, see "CERTAIN FEDERAL TAX
CONSEQUENCES." THE SPECIFIC TAX IMPACT OF THE SALE ON LIMITED
PARTNERS SHOULD BE DETERMINED BY LIMITED PARTNERS IN CONSULTATION
WITH THEIR TAX ADVISORS.
o No Appraisals; Limits on Fairness Opinion. The Managing General
Partner has not obtained independent appraisals of the Properties to
determine their value. In addition, while the Fairness Opinion
addresses the fairness of the Aggregate Property Valuation utilized
in connection with determining the Purchase Price, it does not
address the fairness of the Purchase Price itself or the adjustments
to the Aggregate Property Valuation utilized to arrive at the
distributions to the Limited Partners that will result from the
Sale, including the allocation of the Aggregate Property Valuation
between the Limited Partners and the general partners of the Local
Partnerships, which affects the amount of the consideration to be
paid to the Limited Partners. See "THE SALE-- Fairness Opinion."
o No Dissenter's Rights. Under the Partnership Agreement and
California law, Limited Partners do not have dissenters' rights of
appraisal.
o Conditions to Sale. The Sale is subject to certain conditions in
addition to approval of the Sale by the Limited Partners, including
consummation of the Private Placement. Accordingly, even if the Sale
is approved by the Limited Partners and a purchase and sale
agreement is entered into, the consummation of the Sale could be
delayed for a significant period of time and it is possible that the
Sale may not be consummated. The execution of a purchase and sale
agreement in connection with the Sale could delay the time some or
all of the Properties could be sold to a third party if the Sale is
not consummated.
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o Uncertainty of Local General Partner Buyouts. While
affiliates of the Managing General Partner have entered into option
agreements with 13 of the 15 unaffiliated local general partners and
all four of the unaffiliated local co-general partners with respect
to the buyout of the interests in the Local Partnerships, there can
be no assurance that the Company will be able to successfully
complete buyouts from all of the unaffiliated general partners. If
any local general partners do not transfer their interests in their
respective Local Partnerships, REAL V will remain in existence and
will continue to operate in accordance with the terms of the
Partnership Agreement. As of the date of this Consent Solicitation
Statement, two of the local general partners have indicated that
they will not agree to transfer their general partnership interests.
If the Partnership retains its interest in any of the Local
Partnerships, the cash flows generated by any such Local
Partnerships are not likely to be adequate to meet the operating
expenses of the Partnership on an ongoing basis and the Partnership
may be required to retain a portion of its cash reserves to meet its
operating expenses. This could reduce the cash from the Sale
available for distribution to the Limited Partners. The Managing
General Partner intends to eventually dispose of the Partnership's
interests in such Local Partnerships, then wind up the affairs of
the Partnership, although the time frame for such activities cannot
be determined at this time. To the extent that the ultimate cost of
the buyouts of the local general partners exceeds the Managing
General Partner's current estimates of such cost, the distributions
to Limited Partners resulting from the Sale will be reduced. At the
time they consent to the Sale, the Limited Partners will not know
which of the Properties will ultimately be transferred in connection
with the Sale; nevertheless, consent to the Sale will be deemed
effective regardless of which Properties are ultimately included in
the Sale.
o Amendments to Partnership Agreement. In addition to approval of the
Sale, Limited Partners are also being asked to approve certain
amendments to the Partnership Agreement which are required to
consummate the Sale. For example, the Partnership Agreement
prohibits the Partnership from selling any Property or any interest
in a Property if the cash proceeds from such sale would be less than
the state and federal taxes applicable to such sale, calculated
using the maximum tax rates then in effect. The Managing General
Partner is seeking an amendment that modifies such prohibition to
allow the Partnership to assume, for purposes of calculating taxes
in connection with a sale of Properties, that all of the suspended
passive losses from the Partnership are available to Limited
Partners to offset ordinary income taxed at the 39.6% federal
marginal federal rate. By approving such amendment, the Limited
Partners are relinquishing a potential benefit conferred by the
terms of the Partnership Agreement.
Amendments to Partnership Agreement
Certain amendments to the Partnership Agreement are necessary in
connection with the consummation of the Sale.
The Partnership Agreement currently prohibits a sale of any of the
Properties to the General Partners or their affiliates. Accordingly, consent of
the Limited Partners is being sought for an amendment to the Partnership
Agreement that eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered
into between the Partnership and the General Partners or any affiliate of the
General Partners shall provide that it may be canceled at any time by the
Partnership without penalty upon 60 days' prior written notice (the "Termination
Provision"). It is the position of the Managing General Partner that the
Termination Provision does not apply to the Sale; nevertheless, the Managing
General Partner is seeking the approval of the Limited Partners to an amendment
to the Partnership Agreement that eliminates the Termination Provision in
connection with the Sale or any future disposition of Properties.
The Partnership Agreement also prohibits the Partnership from selling
any Property or any interest in a Property if the cash proceeds from such sale
would be less than the state and federal taxes applicable to such sale,
calculated using the maximum tax rates then in effect (the "Tax Requirement").
The Managing General Partner
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is seeking the approval of the Limited Partners to an amendment to the
Partnership Agreement that modifies the Tax Requirement so as to allow the
Partnership to calculate the aggregate net tax liability from a sale of a
Property or Properties by subtracting from the aggregate tax payable on the gain
from such sale the tax benefit resulting from the ability to deduct his, her or
its suspended passive losses against ordinary income, assuming that the Limited
Partner has sufficient ordinary income that would otherwise have been taxed at
the 39.6% marginal tax rate for federal income tax purposes to fully utilize
such losses at such rate, an effective state income tax rate of 5% and that such
suspended losses remain available. By approving such Amendment, the Limited
Partners are relinquishing a potential benefit conferred by the terms of the
Partnership Agreement. However, the Managing General Partner believes that it
would not be possible to find a buyer willing to purchase the Partnership's
portfolio of Properties under the conditions currently specified in the
Partnership Agreement, because compliance with such conditions would result in a
purchase price for the Properties substantially higher than their fair market
value.
The consent of Limited Partners holding a majority in interest of the
outstanding Units is required in order to amend the Partnership Agreement.
Limited Partners must approve the proposed Sale and each of the three proposed
Amendments in order to allow consummation of the Sale.
Limited Partner Approval
The Managing General Partner is seeking the consent of the Limited
Partners to the Sale and the Amendments. The Partnership Agreement requires the
prior consent of Limited Partners holding a majority of the outstanding Units (a
"Majority Vote") to any sale of all or substantially all of the Partnership's
assets, and to an amendment to the Partnership Agreement.
If the Limited Partners do not approve the Sale and the Amendments by
a Majority Vote, or the other conditions to the consummation of the Sale are not
met, there will be no change in its investment objectives, policies and
restrictions and the Partnership will continue to be operated in accordance with
the terms of the Partnership Agreement. The Partnership will bear the costs of
the consent solicitation process whether or not the Sale is approved or
ultimately consummated.
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent
real estate investment banking firm, an opinion that the Aggregate Property
Valuation utilized in connection with determining the Purchase Price to be
received by the Partnership for the Real Estate Interests in the Sale is fair to
the Limited Partners from a financial point of view. In the course of preparing
its Fairness Opinion, Stanger conducted such reviews as it deemed appropriate
and discussed its methodology, analysis and conclusions with the Managing
General Partner. The Managing General Partner has not obtained independent
appraisals to determine the value of the Properties. The Fairness Opinion, which
is subject to certain assumptions, qualifications and limitations, is attached
hereto as Exhibit A. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events. Stanger will be paid an aggregate fee by the
Casden Partnerships of up to approximately $455,000, plus $4,100 per property
owned by the Casden Partnerships that is evaluated by Stanger. The portion of
the fee allocable to the Partnership is approximately $27,800, plus $4,100 per
Property, or an aggregate of approximately $106,000. No portion of Stanger's fee
is contingent upon consummation of the Sale or completion of the REIT
Transaction. See "THE SALE -- Fairness Opinion" and "--Potential Adverse Effects
of the Sale--No Appraisals; Limits on Fairness Opinion."
Recommendation of the Managing General Partner
After a comprehensive review of various alternatives, the Managing
General Partner believes that the Sale is in the best interests of the Limited
Partners. The Managing General Partner believes that the current interest rate
environment and the availability of capital for real estate investment trusts
will enable Casden to form the REIT and make the proposal to the Partnership for
the Sale, which provides the Partnership with an opportunity to maximize
-8-
<PAGE>
the value of the Real Estate Interests. In addition, the Managing General
Partner reviewed (but did not specifically adopt) the Fairness Opinion. See "THE
SALE -- Alternatives to the Sale."
Based upon its analysis of the alternatives and its own business
judgment, the Managing General Partner believes that the terms of the Sale,
including the Aggregate Property Valuation and the Purchase Price for the Real
Estate Interests and the distributions to be made to the Limited Partners, are
fair from a financial point of view to the Limited Partners. Accordingly, the
Managing General Partner has approved the Sale and recommends that it be
approved by the Limited Partners. Limited Partners should note, however, that
the Managing General Partner's recommendation is subject to inherent conflicts
of interest. See "CONFLICTS OF INTEREST."
Conflicts of Interest
A number of conflicts of interest are inherent in the relationships
among the General Partners, the Casden Partnerships, Casden and the REIT, which
may, among other things, influence the recommendation of the Managing General
Partner. These conflicts include the following:
1. The terms of the Sale (including the Purchase Price) were established
by the REIT and the Managing General Partner (which are related parties)
without the participation of any independent financial or legal advisor.
There can be no assurance that arm's-length negotiations would not have
resulted in terms more favorable to the Limited Partners.
2. Although Stanger provided an independent opinion with respect to the
fairness of the Aggregate Property Valuation utilized in connection with
the determination of the Purchase Price, no independent financial or legal
advisor was engaged to represent the interests of the Limited Partners and
no third party appraisals of the Properties were obtained.
3. If the REIT Transaction is consummated, affiliates of the Managing
General Partner will receive substantial interests in the REIT in exchange
for the contribution of real property assets and the property management
operations of Casden, including direct or indirect interests in the
Managing General Partner. The Managing General Partner anticipates that it
will receive significant economic benefits as a result of receiving
interests in the REIT. Such interests are expected to enjoy greater
liquidity than the Managing General Partner's current interests in the
Partnership if the REIT successfully completes an initial public offering
following its initial formation as a private REIT. Unlike Casden, the
Limited Partners will not participate in the REIT. It is anticipated that
approximately 45% of the equity securities of the REIT will be held by
Casden and its affiliates following the Private Placement, based on the
terms of the Private Placement as currently contemplated.
4. It is anticipated that the return from the interests in the REIT to be
received by the Managing General Partner and its affiliates in connection
with the REIT Transaction, if it is successfully consummated, will exceed
the return such persons currently receive from the real estate assets and
businesses such persons will contribute or sell to the REIT.
5. The officers and employees of Casden and its affiliates will be
employed by the REIT. NAPICO will become a subsidiary of the REIT.
6. Affiliates of the Managing General Partner have entered into option
agreements with respect to the buyout of the interests in all of the Local
Partnerships held by the general partners of the Local Partnerships (other
than interests held by two local general partners who have indicated that
they will not accept the proposal made by the affiliates of the Local
General Partner). The Managing General Partner will benefit from such
buyouts because the interests of such local general partners will be
acquired by the REIT, but the costs of such buyouts will be indirectly
borne by the Limited Partners. The value attributed to the management fees
payable to the general partners of the four Local Partnerships affiliated
with the Managing General Partner was deducted
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from the Aggregate Property Valuation when determining the Purchase Price
payable to the Limited Partners. See "CONFLICTS OF INTEREST."
Federal Income Tax Consequences
Generally, the Sale will result in a gain to the Partnership and,
accordingly, to the Limited Partners, to the extent that the consideration
received by the Partnership with respect to the Sale, including the amount of
Partnership indebtedness of which the Partnership is relieved, exceeds its
adjusted basis in the Properties. The income tax calculations contained in this
Consent Solicitation Statement are based upon federal tax rates equal to 39.6%
for ordinary income, 25% for capital gain attributable to depreciation recapture
and 20% on other capital gains. In addition, such calculations assume that
Limited Partners have suspended passive losses of $5,062 per Unit from the
Partnership and that such losses are available to offset ordinary income taxed
at the 39.6% marginal federal rate. In light of the suitability standards that
Limited Partners met at the time of their original investment in the
Partnership, the Managing General Partner assumed for purposes of calculating
the tax liabilities resulting from the proposed Sale that each Limited Partner
will have taxable income in excess of $155,950 in 1998 (which is the income
level at which married taxpayers effectively become subject to a 39.6% marginal
rate). While the financial circumstances of the Limited Partners may vary
considerably, the Managing General Partner believes it is reasonable to assume
that the majority of the current Limited Partners will be in the highest federal
tax bracket in 1998. Limited Partners should consult their own tax advisors with
respect to their individual tax situations and as to the federal, state, local
and other tax consequences of the Sale. See "FEDERAL INCOME TAX CONSEQUENCES."
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Summary Financial Information
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994, and 1993 and for the three months ended March 31, 1998.
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10-K and Quarterly Report on Form 10-Q
attached hereto as Annex B and Annex C, respectively.
The selected historical financial and operating data of the
Partnership for the three-month period ended March 31, 1998 and March 31, 1997
are derived from unaudited consolidated financial statements of the Partnership
which, in the opinion of the Managing General Partner, include all adjustments
(consisting only of normal recurring items unless otherwise disclosed) necessary
for a fair presentation of the Partnership's financial position and results of
operations. The results set forth for the three-month period ended March 31,
1998 and March 31, 1997 are not necessarily indicative of results to be expected
for a full year.
<TABLE>
Three months ended
Year Ended December 31, March 31,
1997 1996 1995 1994 1993 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income.............................. $ 93,956 $ 65,261 $ 60,997 $ 44,640 $ 35,186 $ 26,852 $ 21,578
Operating Expenses........................... 609,379 352,803 348,213 350,438 371,425 164,538 93,355
Loss From Operations......................... (515,423) (287,542) (287,216) (305,798) (336,239) (137,686) (73,777)
Distributions From Limited Partnerships
Recognized as Income......................... 381,171 215,140 221,276 218,651 245,331 142,510 64,714
Equity in Income of Limited Partnerships 503,765 371,644 455,651 393,230 262,614 121,000 97,000
and amortization of acquisition costs........ ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net Income................................... $ 369,513 $ 299,242 $ 389,711 $ 306,083 $ 171,706 $ 125,825 $ 87,937
========== ========== ========== ========== ========== ========== ==========
Net Income allocated to Limited Partners..... $ 365,817 $ 296,249 $ 385,814 $ 303,022 $ 169,989 $ 124,565 $ 87,058
Net Income per Limited Partnership Interest.. $ 47 $ 38 $ 50 $ 39 $ 22 $ 16 $ 11
========== ========== ========== ========== ========== ========== ==========
Total assets................................. $3,795,448 $3,259,178 $2,979,971 $2,592,397 $2,255,550 $3,901,178 $3,340,152
========== ========== ========== ========== ========== ========== ==========
Investments in Limited Partnerships.......... $1,616,811 $1,305,672 $1,103,818 $ 884,383 $ 659,376 $1,688,790 $1,402,672
========== ========== ========== ========== ========== ========== ==========
Partners' Equity............................. $3,618,713 $3,249,200 $2,949,958 $2,560,247 $2,254,164 $3,744,537 $3,337,137
========== ========== ========== ========== ========== ========== ==========
Limited Partners' Equity..................... $3,739,871 $3,374,054 $3,077,805 $2,691,991 $2,388,969 $3,864,437 $3,461,112
Limited Partners' Equity per limited
partnership interest......................... $ 479 $ 432 $ 394 $ 345 $ 306 $ 495 $ 443
========== ========== ========== ========== ========== ========== ==========
</TABLE>
Transaction Expenses
The Partnership will bear its direct costs relating to the Sale,
including customary closing costs such as the seller's portion of title
insurance and escrow fees, and the costs incurred in connection with this
solicitation of consents. The aggregate amount of such costs is expected to be
approximately $537,000, which the Partnership expects to pay using cash
equivalents held by the Partnership. Transaction costs will be borne by the
Partnership whether or not the Sale is approved by the Limited Partners or
ultimately consummated. Costs incurred individually by the Casden Partnerships,
including accounting and legal fees, will be borne directly by such
partnerships.
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<PAGE>
Voting Procedures
This Consent Solicitation Statement outlines the procedures to be
followed by Limited Partners in order to consent to the Sale. A form of Consent
of Limited Partner (a "Consent") is attached hereto. These procedures must be
strictly followed in order for the instructions of a Limited Partner as marked
on such Limited Partner's Consent to be effective. The following is a summary of
certain of these procedures:
1. A Limited Partner may make his or her election on the Consent only
during the solicitation period commencing upon the date of delivery of
this Consent Solicitation Statement and continuing until the earlier of
(i) ___________, 1998 or such later date as may be determined by the
Managing General Partner and (ii) the date upon which the Managing General
Partner determines that a Majority Vote has been obtained (the
"Solicitation Period").
2. Limited Partners are encouraged to return a properly completed and
executed Consent to the Partnership prior to the expiration of the
Solicitation Period.
3. A Consent delivered by a Limited Partner may be changed prior to the
expiration of the Solicitation Period by delivering to the Partnership a
substitute Consent, properly completed and executed, together with a
letter indicating that the Limited Partner's prior Consent has been
revoked.
4. The Sale and each of the proposed Amendments are being submitted to the
Limited Partners as separate resolutions. Limited Partners must approve
the proposed Sale and each of the proposed Amendments in order to allow
consummation of the Sale.
5. A Limited Partner submitting a signed but unmarked Consent will be
deemed to have voted FOR the Partnership's participation in the Sale, and
the Amendments.
II. THE PARTNERSHIP
General
The Partnership is a limited partnership formed under the laws of the
State of California on May 7, 1982. On July 7, 1982, the Partnership offered
1,950 units consisting of 3,900 limited partnership interests and warrants to
purchase 3,900 additional limited partnership interests at $5,000 per unit
through an offering managed by E.F. Hutton & Company Inc., a predecessor of
Lehman Brothers Inc. On March 25, 1998, there were 7,808 limited partnership
interests in the Partnership outstanding.
The General Partners of the Partnership are NAPICO and NPIA II. The
business of the Partnership is conducted primarily by NAPICO. National
Partnership Investments Associates II, a California Limited Partnership ("NPIA
II"), is the non-managing General Partner of the Partnership. Pursuant to an
agreement between NAPICO and NPIA II, NAPICO has the primary responsibility for
the performance of any duties required to be performed by the General Partners
and, in general, has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA II has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement. The Partnership has no employees of its
own.
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden. Alan I. Casden is the sole
director and stockholder of Casden Investment Corporation and, accordingly,
controls NAPICO.
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<PAGE>
The original objectives of the Partnership were to own and operate
the Properties (and certain other real estate assets) for investment so as to
obtain (i) tax benefits for the Partners; (ii) reasonable protection for the
Partnership's capital investments; (iii) potential for appreciation, subject to
considerations of capital preservation; and (iv) potential for future cash
distributions from operations (on a limited basis), refinancing or sale of a
Property. The Partnership Agreement and the original related offering materials
do not contemplate a specific time frame over which the Partnership would
liquidate and wind up.
The Partnership holds limited partnership interests in nineteen Local
Partnerships, eighteen of which own a low income housing project that is
subsidized and/or has a mortgage note payable to or insured by agencies of the
federal or local government. The remaining Local Partnership owns a conventional
multi-unit residential apartment complex.
The Local Partnerships in which the Partnership has invested were, at
least initially, organized by private developers who acquired the sites, or
options thereon, and applied for applicable mortgage insurance and subsidies.
The Partnership became the principal limited partner in these Local Partnerships
pursuant to arm's-length negotiations with these developers, or others, who act
as general partners. As a limited partner, the Partnership's liability for
obligations of the Local Partnerships is limited to its investment. The general
partner of each Local Partnership retains responsibility for developing,
constructing, maintaining, operating and managing the Property.
The Local Partnerships generated approximately $574,000 in cash flow
to the Partnership in 1997, before Partnership expenses of approximately
$609,000 and interest income of approximately $94,000. At December 31, 1997, the
Partnership had a cash reserve of approximately $2,200,000, $1,000,000 of which
will be distributed to the Limited Partners and General Partners after
consummation of the Sale.
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<PAGE>
The Properties
During 1997, all of the Properties in which REAL V had invested were
substantially rented. The following is a schedule of the status, as of December
31, 1997, of the Properties owned by the Local Partnerships in which REAL V is a
limited partner.
<TABLE>
<CAPTION>
Percentage of
No. of Units Authorized for Rental Units Total Units
Name & Location Units Assistance under Section 8 Occupied Occupied
- - - --------------- -------------- --------------------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Bickerdike 140 140 139 99%
Chicago, IL
Canoga Park Apartments 14 14 14 100%
Canoga Park, CA
Castle Park Apartments 209 209 203 97%
Normandy, MO
Centennial Townhomes 88 88 83 94%
Fort Wayne, IN
Creekside Gardens 50 50 47 94%
Loveland, CO
Del Haven Manor 104 104 104 100%
Jackson, MS
Fox Run Apartments 70 70 67 96%
Orange, TX
Grandview Place Apartments 48 48 48 100%
Missoula, MT
Hamlin Estates 30 30 28 93%
Los Angeles, CA
Heritage Square 50 50 50 100%
Texas City, TX
North River Club Apartments 56 56 56 100%
Oceanside, CA
Palm Springs Senior 116 116 113 97%
Citizens Housing
Palm Springs, CA
Panorama City 14 14 14 100%
Los Angeles, CA
Panorama City II 13 13 13 100%
Los Angeles, CA
Pine Lake Terrace Apartments 111 None 110 99%
Garden Grove, CA
Plummer Village 75 74 75 100%
Los Angeles, CA
Ranger Apartments 50 50 48 96%
Ranger, TX
Richland Three Rivers 40 40 39 98%
Retirement Apartments
Richland, WA
Robert Farrell Manor 35 35 35 100%
Los Angeles, CA
---------- ------------ ---------- ---------
TOTALS 1,313 1,201 1,264 98%
</TABLE>
Each of the Properties is approximately 15 years old. Routine repair,
maintenance and capital expenditures made out of operating cash and reserves
maintained by the Local Partnerships amounted to approximately $1,350,000 and
$1,400,000 in the aggregate for the years ended December 31, 1996 and 1997,
respectively. Due to the age of the Properties, capital expenditures are
expected to increase progressively over the remaining useful lives of the
Properties.
-14-
<PAGE>
Market for Partnership Interests and Related Security Holder Matters
Limited partnership interests in the Partnership were sold through a
public offering managed by E.F. Hutton & Company Inc., a predecessor of Lehman
Brothers Inc., and are not traded on a national securities exchange or listed
for quotation on the Nasdaq Stock Market. There is no established trading market
for Units and it is not anticipated that any market will develop for the
purchase and sale of Units. Pursuant to the Partnership Agreement, Units may be
transferred only with the written consent of the Managing General Partner,
unless the proposed transfer is to a member of the family of the transferring
Limited Partner, a trust set up for the benefit of the Limited Partner's family,
or a corporation or other entity in which the Limited Partner has a majority
interest. On March 15, 1998, there were 1,450 registered holders of Units in the
Partnership. None of the Units are beneficially owned by Casden. One Unit is
beneficially owned by Bruce E. Nelson and two Units are owned by Charles H.
Boxenbaum.
The high and low purchase prices for Units in sales transactions
completed during the twelve-month period ending December 31, 1997 as compiled by
NAPICO were $250.00 and $132.50, respectively. No established trading market for
the Units was ever expected to develop and sales transactions for the Units have
been limited and sporadic.
The Managing General Partner monitors transfers of the Units (a)
because the admission of a substitute limited partner requires the consent of
the Managing General Partner under the Partnership Agreement, and (b) in order
to track compliance with safe harbor provisions under the Securities Act to
avoid treatment as a "publicly traded partnership" for tax purposes. While the
Partnership requests to be provided with the price at which a transfer is being
made, and the Partnership receives some information regarding the price at which
secondary sale transactions in the Units have been effectuated, the Managing
General Partner does not maintain comprehensive information regarding the
activities of all broker/dealers and others known to facilitate from time to
time, or on a regular basis, secondary sales of the Units. It should be noted
that some transactions may not be reflected on the records of the Partnership.
It is not known to what extent Unit sales transactions are between buyers and
willing sellers, each having access to relevant information regarding the
financial affairs of the Partnerships, expected value of their assets, and their
prospects for the future. Many Unit sales transactions are believed to be
distressed sales where sellers are highly motivated to dispose of the Units and
willing to accept substantial discounts from what might otherwise be regarded as
the fair value of the interest being sold, to facilitate the sales. The prices
paid recently for Units generally do not reflect the current market of the
Partnerships' assets, nor are they indicative of total return, since prior cash
distributions and tax benefits received by the original investor are not
reflected in the price. Nonetheless, notwithstanding these qualifications, the
Unit sales prices, to the extent that the reported data are reliable, are
indicative of the prices at which the Units have recently been sold. None of the
Unit sales transactions have involved Casden or its affiliates.
Distribution History
The Partnership has not made any distributions to Limited Partners
since its inception. The Partnership Agreement sets forth a procedure for
allocating distributions among the Limited Partners and General Partners. The
General Partners are entitled to receive 1% of the net cash flow from operations
to be distributed, reduced by any amount paid to the General Partners as an
annual management fee. The Limited Partners as a class are entitled to receive
the balance of the net cash flow from operations to be distributed. There are no
regulatory or legal restrictions on the Partnership's current or future ability
to pay dividends, although, pursuant to certain state housing finance statutes
and regulations, certain of the Local Partnerships are subject to limitations on
the distribution of dividends to the Partnership.
Regulatory Arrangements
Although each of the Local Partnerships in which the Partnership has
invested generally owns a Property that must compete in the market place for
tenants, interest subsidies and rent supplements from governmental
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<PAGE>
agencies make it possible to offer these dwelling units to eligible "low income"
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units in the area.
In order to stimulate private investment in low income housing, the
federal government and certain state and local agencies have provided
significant ownership incentives, including among others, interest subsidies,
rent supplements and mortgage insurance, with the intent of reducing certain
market risks and providing investors with certain tax benefits, plus limited
cash distributions and the possibility of long-term capital gains. There remain,
however, significant risks. The long-term nature of investments in government
assisted housing limits the ability of the Partnership to vary its portfolio in
response to changing economic, financial and investment conditions; such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages and other factors that have an impact on real
estate values. The Partnership's government assisted projects also require
greater management expertise and may have higher operating expenses than
conventional housing projects.
Section 8 of the United States Housing Act provides for the payment
of a federal rental subsidy for the benefit of low income families (the "Section
8 Program"). Pursuant to the Section 8 Program, the Partnership entered into
Housing Assistance Payments Contracts (the "HAP Contracts") with HUD or a state
or local administering agency as an agent of HUD, with respect to all of the
Properties except the Pine Lakes Terrace Apartments. Under the HAP Contracts,
which generally have from four to five years remaining, 1,201 apartment units at
eighteen of the Properties (which the Partnership has agreed to lease to low or
moderate income tenants) receive rental assistance payments from HUD. During
1996, the Local Partnerships received an aggregate of approximately $9,637,000
in rental assistance payments under the HAP Contracts. The eighteen Properties
subject to the HAP Contracts generally are subject to mortgage loans insured by
HUD's Federal Housing Administration ("FHA") and the HAP Contracts generally
provide for sufficient payments to make the payments due under the federally
insured mortgage loans.
Under recently adopted law and policy, HUD has determined not to
renew HAP contracts on a long term basis on the existing terms. In connection
with renewals of the HAP Contracts under such new law and policy, the amount of
rental assistance payments under renewed HAP Contracts will be based on market
rentals instead of above-market rentals, which was generally the case under
existing HAP Contracts. As a result, existing HAP Contracts that are renewed in
the future on projects insured by the FHA will not provide sufficient cash flow
to permit owners of properties to meet the debt service requirements of these
existing FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family Assisted
Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted
in October 1997, provides for the restructuring of mortgage loans insured by the
FHA with respect to properties subject to HAP Contracts that have been renewed
under the new policy. The restructured loans will be held by the current lender
or another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be no
assurance that the Partnership will be permitted to restructure its mortgage
indebtedness pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it were
eligible to participate in the MAHRAA program. It should be noted that there are
uncertainties as to the economic impact on the Partnership of the combination of
the reduced payments under the HAP Contracts and the restructuring of the
existing FHA-insured mortgage loans under MAHRAA. Accordingly, the Managing
General Partner is unable to predict with certainty their impact on the
Partnership's future cash flow.
Pursuant to the HAP Contracts, the Partnership cannot sell its
interests in a Property without the consent of HUD and, if applicable, the
appropriate state or local agency. The Managing General Partner is currently in
the process of seeking such consent. There is no assurance that HUD will provide
such approval.
Pursuant to certain state housing finance statutes and regulations,
certain of the Local Partnerships are subject to limitations on distributions to
the Partnership. Such statutes and regulations require such Local Partnerships
to hold cash flows in excess of such distribution limitations in restricted
reserve accounts that may be used only for limited purposes (the "Reserve
Accounts"). The Purchase Price was calculated without
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<PAGE>
attributing value to the Reserve Accounts. The Managing General Partner believes
that federal and state regulatory considerations limiting the availability of
the Reserve Accounts to the Partnership have the effect of substantially
reducing or eliminating entirely any value attributable to such Reserve
Accounts. However, it is possible that the REIT may in the future realize a
benefit from the release of funds held in the Reserve Accounts.
Year 2000 Information
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address the
issue and that the impact of the Year 2000 computer systems issue will not
materially affect the Partnership's future operating results or financial
condition.
Directors and Executive Officers of NAPICO
The Partnership is managed by NAPICO and has no directors or
executive officers of its own.
Biographical information for the directors and executive officers of
NAPICO with principal responsibility for the Partnership's affairs is presented
below. See "LEGAL PROCEEDINGS."
Alan I. Casden has served as Vice Chairman of the Board of Directors
of NAPICO since 1984. Mr. Casden has also served as Chairman and Chief Executive
Officer of Casden Properties and of The Casden Company since 1982 and 1985,
respectively. Mr. Casden has been involved in approximately $3.8 billion of real
estate financings and sales, and has been responsible for the development and
construction of approximately 90,000 multi-family apartment units and 10,000
single-family homes and condominiums. Mr. Casden has served as a member of the
Advisory Board of the National Multi-Family Housing Conference, the Multi-Family
Housing Council, the President's Council of the California Building Industry
Association and the Urban Land Institute. Mr. Casden currently serves on the
Visiting Committee to USC's Marshall School of Business. In 1988, Mr. Casden
received the "Distinguished Alumnus Award" from USC. He holds a bachelor of
science degree from USC. Mr. Casden is also Co-Chairman of the Board of Trustees
of the Simon Wiesenthal Center, an international human rights agency, and
building chairman for its $50 million Museum of Tolerance, which opened in Los
Angeles in 1993.
Henry C. Casden has served as a Director of NAPICO since February
1988 and as its Secretary since November 1994. Since 1988, Mr. Casden has served
as the President and Chief Operating Officer of The Casden Company as well as
the managing general partner of Casden Properties. From 1971 to February 1988,
Mr. Casden was engaged in the private practice of law in Los Angeles, including
as a named partner in his law firm. His practice was devoted principally to
counseling real estate developers, lenders and investors throughout the United
States. Mr. Casden is a member of the Board of Visitors of the University of San
Diego School of Law and the bar association of the District of Columbia. Mr.
Casden received his bachelor of arts degree from the University of California at
Los Angeles, and is a graduate of the University of San Diego Law School. Mr.
Casden is a member of the State Bar of California and has numerous professional
and philanthropic affiliations. Henry C. Casden and Alan I. Casden are brothers.
Charles H. Boxenbaum has served as Chairman of the Board of Directors
and Chief Executive Officer of NAPICO since 1966. He has been active in the real
estate industry since 1960. Prior to joining Sonnenblick- Goldman Corp. of
California, Mr. Boxenbaum was a real estate broker with the Beverly Hills firm
of Carl Rhodes Company. From 1966 to 1980, Mr. Boxenbaum was Chairman of the
Board and Chief Executive Officer of Sonnenblick-Goldman Corp. of California, a
firm specializing in mortgage brokerage. In 1978, the Sonnenblick Goldman Corp.
trade style was sold, and Mr. Boxenbaum purchased the outstanding stock and
changed the name of the firm to National Partnership Investments Corp. He is one
of the founders of and a past director of First Los Angeles Bank, organized in
November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of
Directors of the National Multi Housing Council. Mr. Boxenbaum received his
bachelor of arts degree from the University of Chicago.
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Bruce E. Nelson serves as President and a director of NAPICO. Mr.
Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operation of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments. From
February 1979 to October 1980, Mr. Nelson held the position of Associate General
Counsel at Western Consulting Group, Inc., private residential and commercial
real estate syndicators. Prior to that time Mr. Nelson was engaged in the
private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts
degree from the University of Wisconsin and is a graduate of the University of
Colorado School of Law. He is a member of the State Bar of California and is a
licensed real estate broker in California and Texas.
III. THE SALE
Background and Reasons for the Sale
In recent years, real estate investment activity by publicly owned
corporations and trusts, such as real estate investment trusts ("REIT
Entities"), has increased dramatically. REIT Entities have become a major source
of capital for the real estate market as well as one of its most prominent
purchasers of real property. A publicly-traded REIT Entity is organized as a
real estate company to own and operate a portfolio of properties, has access to
new capital and its shares can be sold or transferred in the public securities
markets.
During the Spring of 1997, the managers of NAPICO and Casden
Properties (which are affiliated entities), including Alan I. Casden, Henry C.
Casden, Charles H. Boxenbaum and Bruce E. Nelson, evaluated the financial
results and prospects of the Casden Partnerships and considered various
alternatives that might allow them to maximize the current value of the
Partnership's assets. Among other things, they considered (i) reorganizing the
Partnership as a REIT Entity, (ii) attempting a rollup of the Partnership and
certain other real estate holding limited partnerships, (iii) marketing the
Properties to third parties in cooperation with the general partners of the
Local Partnerships, and (iv) continued indirect ownership of the Properties
through the Partnership's limited partnership interests in the Local
Partnerships. The managers of NAPICO and Casden Properties also considered
forming a REIT Entity that would acquire the Properties held by the Local
Partnerships.
In May of 1997, NAPICO and Casden Properties invited Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and certain other investment
banking firms to make presentations regarding strategic alternatives available
to Casden Properties in light of favorable conditions in the real estate capital
markets. Following such presentations, the managers of Casden Properties decided
to form a REIT Entity.
On April 1, 1997, Casden Properties retained Battle Fowler LLP as its
legal counsel in connection with the potential formation of a REIT Entity and
the potential sales of the assets of the Casden Partnerships. On September 4,
1997, Casden Properties engaged DLJ to act as Casden Properties' financial
advisor in connection with the formation of a REIT Entity.
On November 21, 1997, following several days of interviews with
several investment banking firms, NAPICO selected Stanger to render a fairness
opinion in connection with the Sale and the other proposed sales involving the
Casden Partnerships. For a description of the terms of Stanger's engagement and
certain additional information concerning Stanger, see "-- Fairness Opinion."
The financial and legal advisors of NAPICO and Casden Properties
conferred regularly from June of 1997 through June of 1998 regarding the
structure and terms of the proposed REIT Transaction, including the Aggregate
Property Valuation and the Purchase Price to be offered for the Real Estate
Interests.
The Managing General Partner believes that it is in the best
interests of the Partnership to sell its interests in the Properties. The
Partnership is not currently realizing any material cash flow that is available
for distribution to the Limited Partners and does not anticipate realizing
sufficient cash flow in the future to enable it to make
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distributions to Limited Partners. Limited Partners realized an aggregate of
$830,392 in current passive activity rental losses in 1997. In addition, Limited
Partners realized approximately $293,000 in interest income generated by the
Partnership and the activities of the Local Partnerships in 1997. Assuming
Limited Partners are restricted from utilizing passive losses, the Limited
Partners will be liable for the taxes related to the Partnership's passive
activity rental income and portfolio interest income without any corresponding
cash distribution. In light of the limited cash flow currently generated by the
Properties, the fact that the Partnership owns limited partnership interests and
does not own the Properties directly and the potentially adverse consequences of
the recent changes in the laws and policies applicable to HAP Contracts, the
Managing General Partner does not believe that it would be feasible to market
the Real Estate Interests.
The REIT believes that there are certain benefits to the REIT not
available to the Partnership that the REIT may be able to realize as a result of
the acquisition of the Real Estate Interests held by the Partnership, the
general partner interests held by the local general partners, the insured
mortgage debt encumbering the Properties, and the other properties and
businesses of Casden. These potential benefits include (i) earning fee income by
performing the property management functions formerly performed by the local
general partners, (ii) acquiring and restructuring (under MAHRAA) the mortgage
indebtedness to which the Properties are subject, and (iii) realizing economies
of scale in connection with ownership and management of all of the Properties.
These benefits would not be available to the Partnership because it does not
have sufficient capital to buy out the local general partner interests and to
purchase the mortgage loans encumbering the Properties. Such activities would
also be inconsistent with the Partnership's original objectives.
Prior to the consummation of the Sale, the REIT intends to sell
approximately $250 million of its equity securities in the Private Placement.
The proceeds of the Private Placement will be used to finance the Sale and other
acquisitions of conventional and subsidized housing properties to be made in
connection with the REIT Transaction. The REIT intends to commence an initial
public offering of its equity securities subsequent to the consummation of the
Sale. Casden and its affiliates are expected to own approximately 45% of the
equity securities of the REIT upon completion of the Private Placement.
Subsequent to its initial public offering, the REIT intends to purchase and
restructure all insured mortgage indebtedness currently encumbering the
Properties, which the Managing General Partner believes will enhance the returns
associated with the ownership of the mortgages and the Properties.
In considering whether the Sale is in the interests of the
Partnership, the Managing General Partner also considered the effects of recent
changes in the law and policies relating to government-assisted housing. Under
MAHRAA, to the extent that rents are above market, as is the case with most of
the Properties, the amount of the HAP Contract payments will be reduced. While
MAHRAA also contemplates a restructuring of the mortgage loans to reduce the
current debt service on the mortgage loans, it is expected that the combination
of the reduced HAP Contract payments and the restructuring of the mortgage loans
will result in a significant reduction in the cash flow to the Local
Partnerships. In the case of two restructurings that are currently being
negotiated by affiliates of the Managing General Partner (involving Section 8
properties owned by partnerships other than the Partnership), the restructurings
proposed by HUD will significantly reduce the cash flow from these properties.
Furthermore, since the local general partners would control the restructuring
negotiations and most of the local general partners' income results from their
management fees, there can be no assurance that any restructuring negotiated by
local general partners would optimize cash flow to the Partnership or result in
any cash distributions to the Partnership. Moreover, there are a number of
uncertainties as to the restructuring process, including potential for adverse
tax consequences to the Limited Partners and the local general partners. As a
result, the Managing General Partner believes that it is unlikely that the
Limited Partners of the Partnership will benefit from any restructuring under
MAHRAA.
The Managing General Partner believes that the REIT, through its
potential access to the capital markets and its familiarity with the Properties,
is in a position to purchase the Properties on terms that are favorable to the
Partnership. The Managing General Partner believes that the current market for
securities issued by REIT Entities will provide the Partnership with an
opportunity to sell the Real Estate Interests to the REIT for a favorable price.
In addition, because any third party buyer attempting to purchase the Properties
would have to purchase not
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only the Real Estate Interests of the Partnership, but also the interests of
each of the local general partners, the Managing General Partner is not aware of
any sufficiently well-capitalized third parties engaged in the business of
acquiring government assisted housing projects that would be in a position to
acquire the Properties. Furthermore, a third party buyer would have to
investigate each of the Properties, and negotiate the terms of the buyout of
each of the local general partners, which would be an expensive and time
consuming process for the Partnership. As a result, the Managing General Partner
believes it is unlikely that there would be a third-party buyer for the
Properties. Limited Partners should note, however, that the Managing General
Partner's recommendation is subject to inherent conflicts of interest. See
"CONFLICTS OF INTEREST."
REAL V owns limited partnership interests in each of the Local
Partnerships that hold title to the real estate assets that the REIT has offered
to purchase. All but four of the general partners of such Local Partnerships are
unaffiliated with the General Partners of REAL V and the Partnership does not
control such unaffiliated local general partners. The partnership agreements of
the Local Partnerships do not grant the limited partner of such partnership
(REAL V) the right to remove the general partner or to compel a sale of the
assets of the partnership. As a result, the simultaneous buyout of the local
general partners is necessary in order to enable the Partnership to realize the
value of its Real Estate Interests. Accordingly, the amount required to be paid
by a purchaser (whether a third party buyer or the REIT) to purchase the
interests of the local general partners will have the effect of reducing the
amount of consideration that a buyer would be willing to pay for the
Partnership's Real Estate Interests. Currently, the REIT has entered into option
agreements to acquire the interests of 13 of the unaffiliated local general
partners. The purchase prices to be paid to these unaffiliated local general
partners for their interests have been determined as a result of arm's-length
negotiations with the local general partners. The Managing General Partner
believes that, although the amount paid to the local general partners reduces
the Purchase Price and amount of distribution to Limited Partners, and the
buyout of the local general partners' interests will benefit the REIT, the terms
of these transactions are fair to the Partnership and the Limited Partners. The
remaining two unaffiliated local general partners have indicated that they will
not agree to transfer their general partnership interests.
The Partnership will continue to file reports under the Securities
and Exchange Act of 1934 until all of the Properties have been sold and the
proceeds from such sales have been distributed.
Acquisition Agreement
If the Sale is approved by the Limited Partners, it is contemplated
that the Partnership or the Local Partnerships, as the case may be, will enter
into a purchase and sale agreement with a subsidiary partnership of the REIT
(the "Operating Partnership"). The purchase and sale agreement will set forth
the terms and conditions under which the Partnership and the REIT and the
Operating Partnership are obligated to proceed with the Sale and will set forth
certain other agreements of such parties with respect to the Sale.
Representations and Warranties. The Partnership will not make any
representations and warranties to the REIT and the Operating Partnership in the
purchase and sale agreement with respect to the Properties, and the Properties
will be sold "as is." See "-- Recommendation of the Managing General Partner;
Fairness."
Conditions. As described in detail below under the heading " --
Conditions" below, the purchase and sale agreement will include a number of
conditions to the REIT's obligation to consummate the Sale.
Amendment and Closing. The Partnership and the REIT or the Operating
Partnership may mutually agree to amend the terms of the purchase and sale
agreement in a manner which, in the good faith judgment of the Managing General
Partner (consistent with the Managing General Partner's fiduciary duty to the
Partnership and the Limited Partners), does not materially reduce the benefits
to be received by the Limited Partners from the Sale without resoliciting the
consent of the Limited Partners. If the Sale is approved by a Majority Vote of
the Limited Partners and the other conditions to the Sale and the REIT
Transaction are satisfied, it is anticipated that the Sale will be consummated
by August 31, 1998. If the closing does not occur by December 31, 1998 the
purchase and sale agreement will be terminated.
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Arrangements with General Partners of the Local Limited Partnerships
Affiliates of the Managing General Partner have entered into option
agreements with respect to buyouts of the interests in the Local Partnerships
held by the general partners of 17 of the 19 Local Partnerships, all but four of
whom are unaffiliated with Casden. As of the date of this Consent Solicitation
Statement, two of the unaffiliated local general partners have indicated that
they will not agree to transfer their general partnership interests. The four
affiliated local general partners are entities in which Casden owns a
controlling interest. The remaining two unaffiliated local general partners have
indicated that they will not agree to transfer their general partnership
interests. Except for the buyouts of the four affiliated local co-general
partners, the buyouts have been negotiated on an arms-length basis. The Managing
General Partner expects that the general partners of the Local Partnerships that
have agreed to sell their interests will be paid an aggregate of approximately
$5,693,829 for their interests in, and rights to manage, the Local Partnerships.
There can be no assurance that affiliates of the Managing General Partner will
be able to successfully complete buyouts from all of the unaffiliated general
partners of the Local Partnerships. To the extent that affiliates of the
Managing General Partner are unable to complete all such buyouts, there could be
an adverse impact on the operating results of the Partnership, depending on
which Properties are retained by the Partnership. If the Partnership retains its
interests in any of the Local Partnerships, the cash flows generated by the
remaining Property or Properties would be inadequate to meet operating expenses
of the Partnership and, accordingly, the Partnership may be required to utilize
a portion of the cash held by the Partnership in order to ensure that it has
adequate cash to meet operating expenses. In addition, the winding up of the
Partnership's business could be delayed, perhaps indefinitely. The make-up of
the Partnership after the Sale if less than all of the general partners of the
Local Partnerships approve the Sale cannot be determined at this time. To the
extent that the ultimate cost of such buyout exceeds the Managing General
Partner's current estimates of such cost, the distributions to Limited Partners
resulting from the sale will be reduced. To the extent that the cost of such
buyouts is less than the Managing General Partner's estimates, distributions to
Limited Partners will be increased.
In the case of four of the Local Partnerships, the general partners
of such partnerships are affiliates of the Managing General Partner. Each of the
affiliated general partners is directly or indirectly wholly owned by Alan
Casden, who indirectly owns 100% of the Common Stock of NAPICO. The Local
Partnerships in which affiliates of NAPICO are the general partners own 71 of
the 1,313 housing units in which the Partnership has invested, or 5.41%. An
aggregate of $255,600 in respect of future management fees payable to such
affiliates was deducted from the Aggregate Property Valuation utilized to
determine the Purchase Price. The amount deducted was determined by applying a
multiplier of 6.0 to the 1996 management fees received by the affiliated local
general partners, which is the same methodology the Managing General Partner
used when estimating the costs of buying out the unaffiliated local general
partners. Actual amounts paid to the unaffiliated local general partners varied
based upon the negotiations with such local general partners. No value was
attributed to the affiliated general partners' general partnership interests in
Local Partnerships.
Source of Funds
The REIT intends to raise the cash to be paid to the Partnership
through a private placement of approximately $250 million of its equity
securities.
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Transaction Costs
The Managing General Partner estimates that the Partnership's
transaction costs in connection with the Sale, which will be paid out of the
partnership cash reserves, will be as follows:
<TABLE>
<S> <C>
Accounting................................... $ 160,000
Legal........................................ 50,000
Escrow Costs (seller's portion).............. 25,000
Title Policies (seller's portion)............ 35,000
Structural and Engineering Reports........... 150,000
Stanger Fairness Opinion..................... 106,000
Consent Solicitation Costs................... 6,000
Miscellaneous Costs.......................... 5,000
--------------
Total........................................ $ 537,000
==============
</TABLE>
The General Partners will receive a distribution of approximately
$20,600 for their interests in the Partnership in connection with the Sale. The
General Partners are not entitled to receive fees in connection with the Sale.
Distribution of Sale Proceeds; Accounting Treatment
Following the Sale, and assuming that all of the Real Estate
Interests are sold, it is anticipated that the Partnership's affairs will be
wound up and the Partnership will be liquidated. After the payment of all
liabilities and expenses, the consideration to be paid to the Partnership for
the Properties will be allocated and distributed among Limited and General
Partners in accordance with the cash distribution rules set forth in the
Partnership Agreement. Pursuant to the Partnership Agreement, net liquidation
proceeds are distributable as follows:
o First, the General Partners are entitled to a liquidation fee equal
to the lesser of (a) 10% of the net proceeds to the Partnership from
the Sale, or (b) 1% of the Purchase Price (including the assumed
mortgage indebtedness), plus 3% of the net proceeds after deducting
an amount sufficient to pay all federal and state taxes applicable
to the Sale. No part of a liquidation fee will be paid, however,
unless the Limited Partners shall have first received an amount
equal to (i) the greater of (A) their aggregate capital
contributions, or (B) an amount sufficient to satisfy the cumulative
federal and state income tax liability, if any, arising from the
disposition of the Properties and all other assets disposed of to
date; less (ii) all amounts previously distributed to Limited
Partners. Because the above referenced conditions have not been met,
the General Partners will not be entitled to receive a liquidation
fee in connection with the Sale.
o Next, after allocating income from the Sale in an amount equal to
the sum of the negative adjusted capital account balances of all
Partners with such balances (computed after any distributions made
under the paragraph above), and after allocating 1% of the income in
excess thereof, 1% to the General Partners and 99% to the Limited
Partners as a class, distributions shall be made in accordance with
such Partners' positive capital account balances.
Based on the distribution priority in the Partnership Agreement, and
assuming (i) the net proceeds of the Sale are $1,063,235, and (ii) cash
available for distribution (after payment of expenses) of approximately
$1,000,000, the Limited Partners will be entitled to receive $2,042,603 ($523
per Unit). Assuming cash balances as of March 31, 1998, the Partnership would
retain working capital reserves after the Sale (and payment of transaction
costs) of approximately
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$600,000. NAPICO and NPIA II will be entitled to receive a distribution in
connection with the Sale of $20,632.
The Managing General Partner intends to liquidate the Partnership's
remaining assets and wind up its affairs as soon as practicable after the Sale.
The approval of the Limited Partners to dissolve the Partnership is not required
once all of the Partnership's interests in the Local Partnerships and any other
Partnership assets have been disposed of. However, two of the general partners
of the Local Partnerships have indicated that they will not agree to transfer
their general partnership interests in such partnerships, and REAL V may retain
its limited partnership interests in such partnerships indefinitely. The
partnership agreements of the Local Partnerships do not grant the limited
partner of such partnerships (REAL V) the right to compel a sale of the assets
of such partnerships. The timing of the final dissolution and winding up of the
Partnership cannot be determined with certainty at this time.
The purchase of the Real Estate Interests by the REIT is conditioned,
with respect to each of the Properties, on the general partner of the Local
Partnership owning such Property agreeing to transfer its general partnership
interests with respect to the Property. Under the partnership agreements of the
Local Partnerships, the assignment of the limited partnership interests in the
Local Partnership requires the consent of the local general partner. In
addition, the Managing General Partner does not believe that the REIT would
realize sufficient economic benefit from acquiring the Real Estate Interests
held by the Partnership unless it can simultaneously acquire the related general
partnership interests and the right to manage the Properties.
Conditions
In addition to the consent by Majority Vote of the Limited Partners,
the Purchase and Sale Agreement is expected to contain, among others, the
following conditions (which may be waived by the REIT) as conditions precedent
to the REIT's obligation to consummate the Sale:
o Subject to certain exceptions, no material adverse change shall have
occurred with respect to a Property that has a material adverse
effect on the value of the Properties as a whole;
o The Partnership shall have delivered to the REIT any required third
party consents to the Sale, including the consent of HUD, certain
state housing finance agencies, the general partners of the Local
Partnerships in which the REIT intends to acquire interests and the
holders of certain mortgages; and
o The REIT shall have consummated the Private Placement, which will be
conditioned upon, among other things, the transfer of a minimum
number of properties to the REIT by the Casden Partnerships and
third parties in connection with the REIT Transaction.
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by
NAPICO to conduct an analysis and to render an opinion as to whether the
Aggregate Property Valuation utilized in connection with determining the
Purchase Price to be paid to the Partnership for the Real Estate Interests in
the Sale is fair, from a financial point of view, to the Limited Partners.
NAPICO selected Stanger because of its experience in providing similar services
to other parties in connection with real estate merger and sale transactions and
Stanger's experience and reputation in connection with real estate partnerships
and real estate assets. No other investment banking firm was engaged to provide,
or has provided, any report, analysis or opinion relating to the fairness of the
Sale.
Stanger has advised the Managing General Partner that, subject to the
assumptions, limitations and qualifications contained in its Fairness Opinion,
the Aggregate Property Valuation utilized in connection with determining the
Purchase Price to be paid to the Partnership for the Real Estate Interests in
the proposed Sale is fair, from a financial point of view, to the Limited
Partners. The Fairness Opinion does not address adjustments made to the
Aggregate Property Valuation utilized to arrive at the distributions to the
Limited Partners that will result from
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the Sale, or the allocation of the Aggregate Property Valuation between the
Limited Partners and the general partners of the Local Partnerships, which
affects the ultimate amount of consideration to be paid to the Limited Partners.
In addition, the Fairness Opinion does not address the fairness of the Purchase
Price itself. The Purchase Price and the Aggregate Property Valuation were
determined solely by the General Partners. The fact that the Managing General
Partner applied its own methodology for determining the Aggregate Property
Valuation did not limit the methods and procedures followed by Stanger in
determining the fairness of the Aggregate Property Valuation itself. The
Managing General Partner used a valuation method that it believed to be a
reasonable basis for determining the Aggregate Property Valuation. Stanger
reviewed the fairness of the Aggregate Property Valuation determined by the
Managing General Partner, using methods and procedures selected by Stanger. The
Managing General Partner did not limit the method used by Stanger to review the
fairness of the Aggregate Property Valuation.
The full text of the Fairness Opinion, which contains a description
of the matters considered and the assumptions, limitations and qualifications
made, is set forth as Exhibit A hereto and should be read in its entirety. The
summary set forth herein does not purport to be a complete description of the
review performed by Stanger in rendering the Fairness Opinion. Arriving at a
fairness opinion is a complex process not necessarily susceptible to partial
analysis or amenable to summary description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. See
"-- Fairness Opinion -- Assumptions, Limitations and Qualifications." The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates
have provided information, research, investment banking and consulting services
to clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically held through partnerships, such
as real estate, oil and gas reserves, cable television systems and equipment
leasing assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
Summary of Materials Considered. In the course of Stanger's analysis
to render its opinion, Stanger reviewed: (i) a draft of this Consent
Solicitation Statement related to the Sale in substantially the form which will
be distributed to Limited Partners; (ii) the Partnership's annual reports on
Form 10-K for the fiscal years ending December 31, 1995, 1996 and 1997 and the
Partnership's quarterly report on Form 10-Q for the three month period ending
March 31, 1998 which reports the Partnership's management has indicated to be
the most current available financial statements; (iii) descriptive information
concerning the Properties provided by management, including location, number of
units and unit mix, age, and amenities; (iv) summary historical operating
statements for the Properties for 1995, 1996 and the ten months ending October
31, 1997; (v) operating budgets for the Properties for 1997 and forecasts for
1998 for each Property, as prepared by the Managing General Partner or the local
general partners; (vi) information prepared by management relating to the debt
and the HAP Contracts encumbering the Properties; (vii) information regarding
market rental rates and conditions for apartment properties in the general
market area of the Properties and other information relating to acquisition
criteria for apartment properties; and (viii) conducted other studies, analysis
and inquiries as Stanger deemed appropriate.
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In addition, Stanger discussed with management of the Partnership
and the Managing General Partner the market conditions for apartment properties,
conditions in the market for sales/acquisitions of properties similar to that
owned by the Local Partnerships, historical, current and projected operations
and performance of the Properties, the physical condition of the Properties
including any deferred maintenance, and other factors influencing the value of
the Properties. Stanger also performed site inspections of the Properties,
reviewed local real estate market conditions, and discussed with property
management personnel conditions in local apartment rental markets and market
conditions for sales and acquisitions of properties similar to the Properties.
Summary of Reviews. The following is a summary of the material
reviews conducted by Stanger in connection with and in support of its Fairness
Opinion. The summary of the opinion and reviews of Stanger set forth in this
Consent Solicitation Statement is qualified in its entirety by reference to the
full text of such opinion.
In preparing its Fairness Opinion, Stanger performed site inspections
of the Properties during December, 1997 through February, 1998. In the course of
the site visits, the physical facilities of the Properties were observed,
current rental and occupancy information for the Properties were obtained,
current local market conditions were reviewed, a sample of similar properties
were identified, and local property management personnel were interviewed
concerning the Properties and local market conditions. Stanger also reviewed and
relied upon information provided by the Partnership and the Managing General
Partner, including, but not limited to, financial schedules of historical and
current rental rates, occupancies, income, expenses, reserve requirements, cash
flow and related financial information; property descriptive information
including unit mix; and information relating to any required capital
expenditures and any deferred maintenance.
Stanger also reviewed historical operating statements for the
Properties for 1995, 1996 and the ten months ending October 31, 1997, the
operating budget for 1997 and operating forecasts for 1998 for each Property, as
prepared by the Managing General Partner or the local general partners, and
discussed with management the current and anticipated operating results of the
Properties.
In addition, Stanger interviewed management personnel of the
Partnership. Such interviews included discussions of conditions in the local
market, economic and development trends affecting the Properties, historical and
budgeted operating revenues and expenses and occupancies and the physical
condition of the Properties (including any deferred maintenance and other
factors affecting the physical condition of the improvements), projected capital
expenditures and building improvements, the terms of existing debt and the HAP
Contracts encumbering the Properties, and expectations of management regarding
the impact of various regulatory factors and proposed changes on the operating
results of the Properties.
Stanger also reviewed the acquisition criteria used by owners and
investors in the type of real estate owned by the Partnership, utilizing
available published information and information derived from interviews
conducted by Stanger with various real estate owners and investors.
Summary of Analysis. Based in part on the above reviews, Stanger then
performed a discounted cash flow analysis (a "DCF Analysis") of the Properties.
The DCF Analysis involved the following steps.
During its site visits to each Property, Stanger conducted local
market research, including the identification and assessment of relative quality
(e.g., condition, location amenities, etc.) of similar multi-family properties
in the competitive market area of each Property and the collection of rental
rate information for various apartment unit sizes (e.g., efficiency,
one-bedroom, two-bedroom, etc.) for such Properties. In addition, Stanger
reviewed information provided by the Managing General Partner and management of
the Properties concerning rental rates allowed for each type of apartment in
each Property subject to HUD rental rate restrictions (the "Subsidized
Properties") based on the HAP Contract.
Utilizing the above information, Stanger determined the gross
potential rent for each Property based on the number and type of apartment units
in each Property and (i) for Subsidized Properties, rents allowed for each type
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of unit under the existing HAP Contract ("Contract Rent"), and (ii) the
estimated market rental rates the Property would likely obtain based on review
of the rates charged at similar properties in the local market ("Market Rent").
The gross potential rent amounts based on Contract Rent and Market Rent data
were used in the DCF Analysis as described below.
Stanger also reviewed historical and budgeted gross income and income
from ancillary sources for each Property in the portfolio in light of market
trends and competitive conditions in each Property's local market. Stanger also
reviewed summary information concerning occupancy rates and any HAP contracts
encumbering the Properties, including contract rental rates for each unit size
and contract expiration date.
After assessing the above factors, Stanger estimated each Property's
effective gross income based upon unit mix, contract or market rental rates, as
appropriate, and estimates of ancillary income and occupancy. Contract Rents
were utilized for Subsidized Properties during the term of the HAP contract,
with a mark to market of rental rates upon expiration of the HAP Contract.
Expenses were estimated based on historical and budgeted operating expenses,
discussions with management, and certain industry expense information. Estimated
property operating expenses, including replacement reserves, were then deducted
from effective gross income to arrive at each Property's estimated net operating
income. Debt service payments relating to mortgage debt encumbering each of the
Properties were also considered in the "leveraged" discounted cash flow
analysis, as described below. Expenses relating solely to investor reporting and
other expenses not related to the properties were excluded from the analysis.
Stanger then discounted to present value the estimated cash flows
from the continued operation of each of the Properties during a holding period
equal to the term of the existing HAP Contracts, or ten years in the case of the
conventional property. In the case of Subsidized Properties subject to dividend
limitations, Stanger discounted cash flow amounts up to, but not exceeding, the
dividend limitation. Income and expense escalators utilized in the analysis were
based on parameters cited by investors, owners and managers of similar
properties, market factors, the relationship of Contract Rent and estimated
Market Rent, and historical and budgeted results for each Property. Based on the
relationship of Contract Rent and Market Rent for the Subsidized Properties,
income during the contract period was generally held flat for Subsidized
Properties or was escalated at a rate to provide sufficient income to pay
operating expenses and debt service. For the purpose of determining the
Subsidized Properties' residual value, as described below, estimated market
rental rates were generally escalated at 3% per annum. In the case of the
Conventional Property, the rental rate was effectively escalated at 3.1% per
year during the holding period. Effective expense escalators generally ranged
from approximately 2.5% to 3.0%.
As part of its DCF Analysis, Stanger then estimated the residual
values of the Properties. In the case of the Partnership's one conventional,
non-subsidized property (the "Conventional Property"), Stanger employed a direct
capitalization technique. The estimated net operating income after replacement
reserves in the eleventh year of operations was capitalized utilizing terminal
capitalization rates ranging from 9.5% to 10.0% and the resulting value was
reduced by estimated sales costs of 3%.
In the case of Subsidized Properties, Stanger evaluated the residual
Property value at the time of the existing HAP Contract expiration based upon
the assumption that whether or not the HAP Contract was renewed, rents at the
Property would be marked to market rates (i.e. where Contract Rent at the time
of expiration exceeded estimated Market Rent, it was assumed that Contract Rent
upon any contract renewal would be set at an amount equal to the estimated
market rent at the time of reversion). Stanger then evaluated estimated net
operating income (after replacement reserves) at the time of contract
expiration, with rents marked to market rates, to determine if such income would
be sufficient to service the existing mortgage debt encumbering the Subsidized
Property. Where existing mortgage debt could be prepaid at the time of contract
expiration, Stanger capitalized net operating income (after replacement
reserves) with rents marked to market at rates ranging from 9.0% to 11.0% to
estimate a free and clear residual value from which estimated expenses of sale
of 3% and, in the case of the leveraged discounted cash flow analysis, as
described below, anticipated debt balances were deducted to arrive at net
residual proceeds. Otherwise, any remaining equity cash flow after debt service
available was capitalized at rates ranging from 10.0% to 12.0% to determine a
residual equity value to be used in the Leveraged DCF Analysis.
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The resulting annual cash flows and the residual value, after
deduction of estimated costs of sale, for each Property were then discounted to
present value assuming (i) the Properties were free-and-clear of mortgage debt
(the "Free-and-Clear DCF Analysis") and, for Subsidized Properties, (ii) as
encumbered by existing debt (the "Leveraged DCF Analysis"). In the case of the
Leveraged DCF Analysis, debt service payments were deducted from annual cash
flows, and the resulting annual cash flows and residual equity value were
discounted to present value using the following distinct ranges of discount
rates: (i) Subsidized Properties: leveraged cash flow discount rates ranged from
9% to 11% and residual discount rates ranged from 12% to 15%; free-and-clear
discount rates for cash flow ranged from 8% to 10% and residual discount rates
ranged from 11% to 14%; (ii) Conventional Property: free-and-clear cash flow and
residual discount rates ranged from 11% to 12%. In the Leveraged DCF Analysis,
the resulting equity value was then added to outstanding debt to arrive at a
total estimated Property value.
Stanger observed that the range of estimated value of the portfolio
of Properties resulting from the Leveraged DCF Analysis was approximately
$48,380,000 to $49,520,000 and that the Aggregate Property Valuation of
$50,364,443 was above this range of value. Stanger also observed that the range
of estimated value of the portfolio of Properties resulting from the
Free-and-Clear DCF Analysis was $40,940,000 to $45,240,000 and that the
Aggregate Property Valuation was above this range of value. (The difference
between the value resulting from the Leveraged DCF Analysis and the
Free-and-Clear Analysis in part reflects the fact that the estimated value of
certain Properties is less than the debt currently encumbering those
Properties.)
Stanger concluded that the range of estimated value of the portfolio
of Properties resulting from the Free- and-Clear DCF Analysis and the Leveraged
DCF Analysis supported its opinion as to the fairness of the Aggregate Property
Valuation, from a financial point of view.
Due to the uncertainty in establishing many of the values cited
above, Stanger established a range of estimated values for each discounted cash
flow analysis. The estimated values are based in part on information provided to
Stanger in the context of rendering the fairness opinion, and there can be no
assurance that the same conditions analyzed by Stanger in arriving at the
estimates cited herein would exist at the time of consummation of the Sale. In
addition, the estimated values cited above are based on a variety of assumptions
that relate, among other things, to (i) each Property's revenues, expenses, and
cash flow; (ii) the capitalization rates that would be used by prospective
buyers when the existing HAP contracts expire and the Subsidized Properties are
sold; (iii) ranges of residual values of the Properties; (iv) selling costs; and
(v) appropriate discount rates to apply to estimated cash flows and residual
values in computing the discounted present value of such cash flows and residual
values. Actual results may vary from those utilized in the above analysis based
on numerous factors, including interest rate fluctuations, changes in
capitalization rates used by prospective purchasers, tax law changes,
supply/demand conditions for similar properties, changes in the availability of
capital, changes in the regulations or HUD's interpretations of existing and new
regulations relating to subsidized properties.
Conclusions. Stanger concluded, based upon its analysis of the
foregoing and the assumptions, qualifications and limitations stated below, as
of the date of the Fairness Opinion, that the Aggregate Property Valuation
utilized in connection with determining the Purchase Price to be paid to the
Partnership for the Real Estate Interests is fair to the Limited Partners from a
financial point of view.
Assumptions, Limitations and Qualifications. In rendering the
Fairness Opinion, Stanger relied upon and assumed, without independent
verification, the accuracy and completeness of all financial information and
data, and all other reports and information contained in this Consent
Solicitation Statement or that were provided, made available, or otherwise
communicated to Stanger by the Partnership, the Managing General Partner and/or
its affiliates, the Local Partnerships or the management of the Properties.
Stanger has not performed an independent appraisal, engineering study or
environmental study of the assets and liabilities of the Partnership. Stanger
relied upon the representations of the Managing General Partner and its
affiliates, the Local Partnerships and the management of the Properties
concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, and the terms and conditions of any debt and the HAP Contracts
encumbering the Properties. Stanger also relied upon the assurance of the
Partnership,
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Casden, the Managing General Partner and its affiliates, the Local Partnerships,
and the management of the Properties that any financial statements, budgets,
capital expenditure estimates, debt and HAP Contract information, value
estimates and other information contained in this Consent Solicitation Statement
or provided or communicated to Stanger were reasonably prepared and adjusted on
bases consistent with actual historical experience and reflect the best
currently available estimates and good faith judgments; that all distributions
under HAP Contracts with dividend limitations allowable cumulatively since the
time of the partnership's investments in each Local Partnership have been paid
in full to the Partnership; that no material changes have occurred in the value
of the Properties or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that the Partnership,
Casden, the General Partners and their affiliates, the Local Partnerships and
the management of the Properties are not aware of any information or facts that
would cause the information supplied to Stanger to be incomplete or misleading
in any material respect; that the highest and best use of the Properties is as
improved; and that all calculations were made in accordance with the terms of
the Partnership Agreement, Local Partnership agreements and the existing and
anticipated regulatory agreements. Additional specific assumptions relating to
Stanger's analysis are included in the subsection captioned "Summary of
Analysis" above.
Stanger was not requested to, and therefore did not: (i) select the
method of determining the Aggregate Property Valuation utilized in connection
with determining the Purchase Price in the Sale; (ii) make any recommendation to
the Partnership or its partners with respect to whether to approve or reject the
proposed Sale; or (iii) express any opinion as to (a) the tax consequences of
the proposed Sale to the Limited Partners, (b) the terms of the Partnership
Agreement, or the fairness of proposed Amendments to the Partnership Agreement,
or the terms of any agreements or contracts between the Partnership, any
affiliates of the General Partners and the Local Partnerships, (c) the Managing
General Partner's business decision to effect the proposed Sale, (d) any
adjustments made to the Aggregate Property Valuation to determine the Purchase
Price of the Real Estate Interests and the net amounts distributable to the
Limited Partners, including but not limited to, balance sheet adjustments to
reflect the Managing General Partner's estimate of the value of current and
projected net working capital balances and cash and reserve accounts (including
debt service and mortgage escrow amounts, operating and replacement reserves,
and surplus cash reserve amounts and additions) and the income therefrom of the
Partnership or the Local Partnerships, the Managing General Partner's
determination that no value should be ascribed to any reserves of the Local
Partnerships or cash flow from the Properties in excess of certain limitations
on distributions to the Partnership, the Managing General Partner's
determination of the value of any notes due to affiliates of the Managing
General Partner or management of the Local Partnerships, the allocation of the
Aggregate Property Valuation among the Local Partnerships, the amount of the
Aggregate Property Valuation ascribed to certain general partner and/or
management interests in the Local Partnerships and other expenses and fees
associated with the Sale, (e) the fairness of the buyout costs of certain
general partner and/or management interests in the Local Partnerships, the
allocation of such buyout costs among the Local Partnerships, or the amount of
any contingency reserves associated with such buyouts, (f) the Managing General
Partner's decision to deduct the face value of certain notes payable to
affiliates and/or management of the Local Partnerships in determining the
Purchase Price to be paid for the Real Estate Interests where the actual cost of
purchasing the notes is less than the face value of the notes, (g) the Purchase
Price to be paid for the Real Estate Interests, or (h) alternatives to the
proposed Sale.
Stanger is not expressing any opinion as to the fairness of any terms
of the proposed Sale other than the Aggregate Property Valuation utilized in
connection with determining the Purchase Price of the Real Estate Interests paid
to the Partnership. Stanger's opinion is based on business, economic, real
estate and capital market, and other conditions as of the date of its analysis
and addresses the proposed Sale in the context of information available as of
the date of its analysis. Events occurring after such date and before the
closing of the proposed Sale of the Real Estate Interests to the REIT could
affect the Properties or the assumptions used in preparing the Fairness Opinion.
Stanger has no obligation to update the Fairness Opinion on the basis of
subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not
engaged to, and consequently did not, prepare any written report or compendium
of its analysis for internal or external use beyond the analysis set forth in
Exhibit A.
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Compensation and Material Relationships. Stanger has been retained by
the Managing General Partner and its affiliates to provide fairness opinions to
the Partnership and the other Casden Partnerships included in the REIT
Transaction. Stanger will be paid an aggregate fee by the Casden Partnerships of
up to approximately $455,000, plus $4,100 per property reviewed. The portion of
the fee allocable to the Partnership is $27,800, plus $4,100 per Property, or an
aggregate of approximately $106,000. In addition, Stanger is entitled to
reimbursement for reasonable legal, travel and out-of-pocket expenses incurred
in making site visits and preparing the Fairness Opinion, subject to an
aggregate maximum of up to approximately $1,000, plus $600 per Property, and is
entitled to indemnification against certain liabilities, including certain
liabilities under federal securities laws. Stanger has not been engaged to and
has not provided services, and will not participate or otherwise be involved in
the REIT private placement. In addition, Stanger has not been approached or
engaged to provide any services in connection with a future public offering by
the REIT. No portion of Stanger's fee is contingent upon consummation of the
Sale or completion of the REIT Transaction.
Alternatives to the Sale
The following is a brief discussion of alternatives to the Sale
considered by the Managing General Partner and the possible benefits and
disadvantages of such alternatives:
Continuation of the Partnership. One alternative considered by the
Managing General Partner was the continuation of the Partnership in accordance
with its existing business plan and its Partnership Agreement. However, the
Partnership is not currently realizing material cash flow that is available for
distribution to the Limited Partners and does not anticipate realizing
sufficient cash flow in the future to enable it to make distributions to Limited
Partners. Limited Partners realized an aggregate of approximately $830,000 in
current passive activity rental losses for 1997. In addition, Limited Partners
realized approximately $293,000 in interest income generated by the Partnership
and the activities of the Local Partnership. Depreciation deductions that are
primarily responsible for generating losses realized by the Limited Partners
should continue to decline until the end of the depreciable lives of the
Properties, when taxable income to Limited Partners will exceed cash
distributions. Federal depreciation deductions for all of the Properties will no
longer be available after January 15, 1999. Furthermore, the Managing General
Partner does not believe that the Partnership would be able to realize the
potential benefits which the REIT anticipates may be available to it after
acquisition of the Real Estate Interests. These potential benefits require the
acquisition of (i) the partnership interests held by the local general partners,
(ii) the right to manage the Properties, and (iii) the insured mortgage
encumbering the Properties, and would require significant additional capital.
The Managing General Partner believes it will be impractical to seek additional
capital contributions from Limited Partners in order to recapitalize the
Partnership and that the Partnership could not access the capital markets.
Because there is no active trading market for the Units, and because there are
no apparent benefits from continued ownership of Units, Limited Partners may not
be able to liquidate their investment in the Units while the Partnership remains
in existence. Furthermore, the partnership agreements of the Local Partnerships
do not grant the limited partner of such partnerships (REAL V) the right to
remove the local general partner or to compel a sale of the assets of such Local
Partnership. Because there appears to be no market for the Properties and the
Partnership cannot compel a sale of the Properties, the Properties are likely to
remain under the control of the local general partners indefinitely if the Sale
is not consummated.
Marketing the Properties for Sale to Third Parties. The Managing
General Partner also considered marketing the Properties to third parties. The
portfolio of Properties can only be marketed in cooperation with the local
general partners. The Managing General Partner does not believe that such
alternative is viable or would be in the best interests of the Limited Partners,
because the Managing General Partner is not aware of any third party buyers
willing to purchase such a portfolio of Properties and believe that, even if
such a buyer could be identified, such a sale would be unlikely to result in a
purchase price for the Properties as high as the Purchase Price offered in
connection with the Sale. In light of the limited cash flow currently generated
by the Properties, the degree of control the local general partners exercise
over the Properties and the anticipated adverse consequences of the recent
changes in the laws and policies applicable to HAP Contracts, the Managing
General Partner does not believe that a favorable market for the Properties
currently exists. In addition, because REAL V owns limited partnership interests
in the Local Partnerships that hold title to the Properties and the general
partners of such Local Partnerships
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are generally unaffiliated with the General Partners of REAL V, the buyout of
the local general partners would be necessary for a third party to acquire the
Properties. The Managing General Partner believes it would be difficult to find
a single buyer for the Properties as a group, and that selling the Properties on
a Property-by-Property basis would involve an extensive negotiating process over
an extended period of time. During the continuation of such process, the
Partnership would continue to be responsible for all costs relating to the
Properties and the Partnership's ongoing administrative expenses and there would
likely be higher transaction costs, such as brokers' fees and attorneys' fees,
relating to sale of the Properties if they were sold individually. The Managing
General Partner has not received and has not been advised of any third party
offers or indications of interest for any of the Properties. The Managing
General Partner does not believe there are any third party buyers of low income
housing projects that would be able to match the Purchase Price offered by the
REIT for the portfolio of Properties. The Managing General Partner believes that
it is unlikely that third party buyers could be found to purchase the Real
Estate Interests at a higher price than the Purchase Price.
While the Managing General Partner has not consulted any real estate
brokers or other real estate professionals concerning potential purchasers for
the Real Estate Interests, based upon the Managing General Partner's experience
and familiarity with the market for low income housing, the Managing General
Partner does not believe that there are other potential bidders for the Real
Estate Interests at the Purchase Price. The Managing General Partner's
determination was based upon a number of factors, including the need for a
purchaser to negotiate the purchase of the Real Estate Interests with the
Partnership and enter into a transaction with the Partnership which would
require limited partner approval; the need for a purchaser to negotiate separate
transactions with each of the local general partners; the need for a purchaser
to have sufficient capital to purchase the interests of the local general
partners and the Partnership, and to purchase mortgage loans encumbering the
Properties and negotiate restructurings, which the Managing General Partner
believes is necessary to realize a return on the investment in the Properties;
and the impact of recent changes in the law and regulations of HUD relating to
HAP Contracts, which impacts the value of the Properties. As a result, the
General Partner believes that any transaction with a potential purchaser would
be time consuming, difficult to consummate and unlikely to result in a purchase
price higher than the Purchase Price. However, there can be no assurance that a
higher purchase price would not be received if the Properties were actively
marketed.
Rollup. The Managing General Partner considered combining the Casden
Partnerships into a new corporation that would qualify as a REIT entity. As a
result of such a transaction, the Limited Partners would have received shares of
stock in the REIT (or partnership interests convertible into REIT shares), which
would have been listed on a national stock exchange. Such a transaction would be
expected to (a) provide investors in the new entity with the opportunity to
liquidate their investment through the sale of the shares received in the
transaction, (b) permit distribution to investors of a simpler federal income
tax Form 1099-DIV (rather than Schedule K-1), and (c) provide investors with the
potential for receiving securities with a greater value than the proceeds they
will receive as a result of the Sale. Furthermore, such an entity would provide
increased asset diversification and, due to its size, improved access to capital
markets.
The Managing General Partner believes, however, that such a
transaction would have significant disadvantages. As a result of new legislation
and regulations, it believes that obtaining the necessary regulatory approvals
for a rollup would be very difficult, expensive and time-consuming. The Managing
General Partner was not confident that a rollup transaction could be completed
within a reasonably practical time period. Furthermore, the Managing General
Partner believes that there could be significant selling pressure on the
securities issued in connection with a rollup and that such selling pressure
might cause the price of the stock of the rollup entity to decline following
completion of the rollup transaction.
Another disadvantage of a rollup transaction is that the transaction
would cause the Limited Partners to incur a tax on the gain reflected in the
value of the stock of the new entity. The Managing General Partner determined
that Limited Partners would not be able to defer taxation through the use of an
UPREIT structure due to difficulties likely to be experienced in obtaining
approval from various states for the distribution of operating partnership
interests. Unless a Limited Partner sold all or a portion of the securities
received in the transaction, such Limited
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Partner would have no additional cash with which to pay the taxes which would
result from the completion of a rollup transaction. The need for cash to pay the
taxes on the transaction could cause downward pressure on the price of the
stock. In addition, a Limited Partner would incur brokerage commissions on the
sale of any securities received in a rollup transaction, thereby reducing the
net proceeds received in the transaction.
Reorganization into a REIT. The Managing General Partner considered
the advisability of reorganizing the Partnership as a corporation treated as a
real estate investment trust. If approved, such a transaction would have
provided some advantages to the Limited Partners. Such a reorganization would be
expected to (a) provide investors in the reorganized entity with liquidity, (b)
permit distribution to investors of a simpler federal income tax form 1099- DIV
(compared to Schedule K-1), and (c) potentially be formed tax free to the
Limited Partners. The Managing General Partner was advised that the
reorganization of the Partnership into a REIT has a number of significant
disadvantages. For example, the small size of the reorganized Partnership, the
lack of diversification, the degree of debt relative to equity, and the absence
of internalized, integrated management would result in limited markets for the
shares of the newly formed real estate investment trust. As a result, the
Managing General Partner was advised that it would be unlikely that the real
estate investment trust shares would perform well in the market. In addition,
the Managing General Partner believes that the size of the resulting real estate
investment trust would not enable it to access the capital markets on an
advantageous basis.
Recommendation of the Managing General Partner; Fairness
The recommendation of the Managing General Partner in favor of the
Sale is based upon its belief that the Sale is fair to the Limited Partners for,
among others, the following reasons: (a) its belief that the terms and
conditions of the Sale, including the Aggregate Property Valuation and the
Purchase Price, are fair to the Limited Partners of the Partnership; (b) its
belief that the alternatives available to the Partnership are not as attractive
to the Limited Partners as the Sale; (c) its belief that now may be an opportune
time for the Partnership to sell the Properties, given current conditions in the
real estate and capital markets; and (d) its belief that the Purchase Price
represents a higher amount than a third party would offer the Partnership for
the Real Estate Interests.
The Managing General Partner has not obtained real estate appraisals
to establish the fair market value of the Properties, but, based upon its
significant real estate experience, it believes that the Aggregate Property
Valuation utilized in connection with determining the Purchase Price is not less
than the fair market value of the Properties. In addition, Stanger has opined
that the Aggregate Property Valuation used in determining the Purchase Price for
the Real Estate Interests is fair to the Limited Partners from a financial point
of view.
The Purchase Price was determined by the Managing General Partner.
The Managing General Partner valued the Real Estate Interests using the
following methodology. For Local Partnerships with HAP Contracts with expiration
dates more than ten years in the future, the Managing General Partner determined
the value by taking the aggregate net operating income before interest expense
and management fees (as adjusted for dividend restrictions with respect to
Properties subject to dividend restrictions) for such Local Partnership for
1996, less capital expenditures, and applied a capitalization rate of 11%. For
Local Partnerships with HAP Contracts with expiration dates greater than six
years but less than ten years in the future, the Managing General Partner
followed the same procedure, but applied a capitalization rate of 12%. For Local
Partnerships with HAP Contracts expiring in six years or less, the Managing
General Partner calculated such Local Partnership's distributions for 1996 (or
in certain cases used a three year average where the General Partners did not
believe that the 1996 distributions were representative), added the management
fees payable to the general partner of such Local Partnership for 1996, assumed
that these distributions would be received for the balance of the term of the
HAP Contracts and discounted these future distributions at a discount rate of
10%. For the Local Partnership with no HAP Contract, the Managing General
Partner determined the value by taking the 1996 net operating income before
interest expense and management fees, less capital expenditures, applied a
capitalization rate of 9%, then deducted $3,500 per apartment unit in
consideration of deferred maintenance requirements. To the extent that capital
expenditures were less that $600 per apartment unit, which was the case for most
of the Properties, the Managing General Partner has increased the capital
expenditures for purposes of this calculation to $600 per apartment unit to
cover future repair and maintenance
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requirements. In selecting the capitalization rates, the Managing General
Partner took into account the expectation that cash flow would be significantly
reduced after expiration of the current HAP Contracts and used a higher
capitalization rate if the HAP Contracts expired earlier. With respect to the
Local Partnerships with HAP Contracts expiring in less than seven years, the
Managing General Partner assumed that the Properties would have no residual
value upon expiration of the respective HAP Contracts, due to the uncertainties
as to future cash flow following the expiration of the term of the HAP
Contracts.
Based on such assumptions, the Managing General Partner determined
that the 17 Properties owned by the Local Partnerships that the Managing General
Partner currently anticipates will be included in the Sale have an aggregate
value of $50,364,443 (the "Aggregate Property Valuation"). The Managing General
Partner subtracted from the Aggregate Property Valuation (i) $5,693,829 for the
aggregate estimated value of the general partnership interests in the Local
Partnerships (excluding the general partnership interests of the four local
general partners that are affiliates of the Managing General Partner) and the
local general partners' right to future management fees, including $255,600
attributable to the right to receive the future management fees payable to the
four local general partners affiliated with the General Partners (see "THE SALE
- - - -- Arrangements with General Partners of the Local Partnerships"), and (ii) the
outstanding mortgage indebtedness and related party indebtedness of the Local
Partnerships of $43,607,379. In no event was the valuation of any of the Real
Estate Interests with respect to any of the Local Partnerships reduced below
zero on account of such indebtedness. The amount of the Aggregate Property
Valuation allocated to the general partnership interests in the Local
Partnerships is based in part upon the anticipated cost of buying out the local
general partners. The ultimate cost to buy out the unaffiliated general partners
of the Local Partnerships will be determined in arms-length negotiations between
the Managing General Partner and the general partners of the Local Partnerships.
However, while the costs of such buyouts will be paid by the REIT and the
buyouts will benefit the REIT, a portion of such costs will be indirectly borne
by the Limited Partners. The calculations of the Managing General Partner
described above resulted in distributable cash out of the proceeds of the Sale
of $1,063,235.
The Managing General Partner believes that the method used to
determine the Purchase Price was reasonable in light of the fact that the
Partnership owns limited partnership interests in the Local Partnerships and
does not own the Properties directly, and that any sale of the Properties is
subject to the approval of the general partners of the Local Partnerships. In
addition, as discussed below, recent changes in HUD laws and policies are
expected to adversely impact the Partnership's cash flow and prospects.
Accordingly, the Managing General Partner believes that the Purchase
Price is fair and reasonable and exceeds the price that the Partnership would
likely receive if the Real Estate Interests were to be sold to a third party or
parties. It should be noted that, for purposes of calculating the value of the
Real Estate Interests, the Managing General Partner assumed that certain of the
Properties would have no residual values upon expiration of the respective HAP
Contracts applicable to such Properties, based on its belief that cash flow
after expiration of the HAP Contracts will be significantly reduced, as
discussed below. The Managing General Partner made the same assumption when
determining the capitalization rates used in its valuation calculations.
Different assumptions would likely have resulted in different valuations for the
Real Estate Interests.
In determining the valuation of the Real Estate Interests, no
adjustment was made for the amount by which the value of assets other than the
Properties exceeded liabilities other than mortgage indebtedness because the
Managing General Partner does not believe that these assets are material (other
than the Reserve Accounts referred to below). In addition, pursuant to certain
state housing finance statutes and regulations, certain of the Local
Partnerships are subject to limitations on the distributions of dividends to the
Partnership. Such statutes and regulations require such Local Partnerships to
hold cash flows in excess of such dividend limitations in Reserve Accounts that
may be used only for limited purposes. The Purchase Price was calculated without
attributing value to the Reserve Accounts. The Managing General Partner believes
that federal and state regulatory considerations limiting the availability of
the Reserve Accounts to the Partnership have the effect of substantially
reducing or eliminating entirely any value attributable to such Reserve
Accounts. Nonetheless, the REIT may be able to realize a benefit in the future
by obtaining a reduction in the amount required to be held in the Reserve
Accounts.
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The Managing General Partner relied on the following qualitative
factors in determining that the Sale is fair to the Limited Partners:
o The Properties do not currently produce significant cash flow and
the Partnership has not made distributions to date. The
Partnership's investment in the Properties was initially structured
primarily to obtain tax benefits, and not to provide cash
distributions. Due to changes in the tax laws pursuant to which
losses of the Partnership are treated as passive losses and can only
be deducted against passive income, most Limited Partners are not
realizing material tax benefits from continuing to own their limited
partnership interests. Accordingly Limited Partners are not
receiving material benefits from continuing to hold their interests
in the Partnership.
o Recent changes in HUD laws and policies are expected to adversely
affect the Partnership's cash flow and prospects. Under MAHRAA, to
the extent that rents are above market, as is the case with most of
the Properties, the amount of the HAP Contract payments will be
reduced. While MAHRAA also contemplates a restructuring of the
mortgage loans to reduce the current debt service on the mortgage
loans, it is expected that the combination of the reduced HAP
Contract payments and the restructuring of the mortgage loans will
result in a significant reduction in the cash flow to the Local
Partnerships. In the case of two restructurings that are currently
being negotiated by affiliates of the Managing General Partner
(involving Section 8 properties owned by partnerships other than the
Partnership), the restructurings proposed by HUD will significantly
reduce the cash flow from these properties. Furthermore, since the
local general partners would control the restructuring negotiations
and most of the local general partners' income results from their
management fees, there can be no assurance that any restructuring
negotiated by local general partners will optimize cash flow to the
Partnership. Moreover, there are a number of uncertainties as to the
restructuring process, including potential for adverse tax
consequences to the Limited Partners. The Managing General Partner
does not believe that the "market" rents generated by the Properties
after reduction of the HAP Contract payments under MAHRAA will be
materially in excess of the debt service and operating expenses on
such Properties after expiration of the applicable HAP Contracts and
accordingly do not expect the Properties to produce any significant
cash flow at such time. When determining the Purchase Price offered
for the Real Estate Interests, the Managing General Partner ascribed
no residual value to certain Properties. The Managing General
Partner believes that it is highly unlikely that the Limited
Partners of the Partnership will benefit from any restructuring
under MAHRAA.
o Due to the Partnership's limited current cash flow and the
uncertainties created by MAHRAA, the Managing General Partner does
not believe that the Properties could be sold to a third party on
terms comparable to those of the proposed Sale. In addition, REAL V
owns only limited partnership interests in the Local Partnerships
that hold title to the Properties and the general partners of such
unaffiliated Local Partnerships are unaffiliated with the Managing
General Partner of REAL V. As a result, the simultaneous buyout of
the local general partners is necessary in order to acquire the
Properties. Accordingly, it would be difficult for the Partnership
to seek a third party buyer for all of its Real Estate Interests.
The Managing General Partner did not quantify, reach independent
conclusions regarding or otherwise assign relative weights to the individual
qualitative factors listed above. Instead, the Managing General Partner
considered the diminishing prospects of the Partnership in light of the totality
of the circumstances. The Managing General Partner believes that each of the
factors considered supported their determination that the Sale is fair to the
Limited Partners.
The REIT has offered to purchase the Real Estate Interests because
the acquisition of such interests is an important component in the formation of
the REIT and such acquisition may assist the REIT in carrying out its strategy
of acquiring the FHA-insured mortgage loans encumbering the Properties and
generating cash flow in connection with such loans. The REIT intends to purchase
the local general partners' general partnership interests,
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including the right to manage the Properties. The REIT believes that acquisition
of the Real Estate Interests, the partnership interests of the local general
partners, the right to manage each of the Properties, and the insured mortgage
indebtedness currently encumbering the Properties will allow it to (i) earn fee
income through the property management functions formerly performed by the local
general partners and (ii) restructure the mortgage loans on the Properties on
terms more advantageous than could be obtained by the Partnership. The REIT's
greater access to the capital markets will allow it to take advantage of
opportunities to realize additional cash flow through the transactions referred
to in the preceding sentence that are unavailable to the Partnership and
inconsistent with the Partnership's original objectives. The Partnership's
investment objectives contemplated that the Partnership would dispose of its
Real Estate Interests and liquidate. The Partnership's investment objectives did
not contemplate the Partnership raising additional capital or acquiring
additional partnership interests or mortgage loans, which is necessary to
realize the potential benefits anticipated by the REIT.
The Managing General Partner also considered the fairness of the
terms of the Sale, including the allocation of the Aggregate Property Valuation
to the local general partners and the Purchase Price. REAL V owns limited
partnership interests in the Local Partnerships that hold title to the
Properties that the REIT has offered to purchase. The simultaneous buyout of the
local general partners is necessary in order to enable the Partnership to
realize the value of its Real Estate Interests. Accordingly, the amount required
to be paid by a purchaser (whether a third party buyer or the REIT) to purchase
the interests of the local general partners will have the effect of reducing the
amount of consideration which a buyer is willing to pay for the Partnership's
Real Estate Interests. The amounts that the Managing General Partner will pay to
the unaffiliated local general partners in connection with the buyouts of the 13
local general partners with whom a subsidiary of the REIT has entered into
option agreements have been determined in arms-length negotiations. The Managing
General Partner believes that the terms of such buyouts are fair to the
Partnership. The remaining two unaffiliated local general partners have
indicated that they will not agree to transfer their general partner interests.
Therefore, the Managing General Partner believes that, while the costs of the
local general partnership buyouts affect the amount of distribution to Limited
Partners and the buyout of the local general partners' interests will benefit
the REIT, the terms of these transactions are fair to the Partnership and the
Limited Partners. In addition, the Managing General Partner believes that the
amount to be distributed to the Limited Partners from the Sale is fair to the
Limited Partners. The distributions represent the Purchase Price plus $1,000,000
of cash held by the Partnership, less expenses that the Managing General Partner
believes are reasonable and customary.
Set forth below are estimates of the value of the Units based on
recent sale prices. It should be noted that the estimated values are based on
certain assumptions, including selling costs and other expenses, costs, offsets
and contingencies attributable to the sale of assets and liquidation of the
Partnership, and such estimates may not be a reliable basis for valuing the
Units. While the Managing General Partner believes it has a reasonable basis for
the assumptions made, it is unlikely that all of the assumptions employed by the
Managing General Partner will prove to be accurate in all material respects.
Such assumptions were selected to simplify the analysis and may not approximate
the actual experience of the Partnership. The estimated values of the Units
would have been different if the Managing General Partner had made different
assumptions. The original cost per Unit was $5,000.
The following table sets forth certain measures of value and permits
a comparison of these measures against the amount each Limited Partner would
receive per Unit from the Sale and subsequent liquidation of the Partnership:
Secondary Market Prices(2)
---------------------------------------------
Amount to be
Received from
Sale and
Liquidation(1) High(3) Low
- - - ---------------------- -------------------- -----------------
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$523.00 $250.00 $132.50
- - - ---------------------
(1) This amount is an estimate of the total amount expected to be distributed
per Unit to Limited Partners as a result of the liquidation of the
Partnership after the Sale. This amount includes the proceeds of the Sale
plus cash available for distribution. This amount will be distributed in
one or a series of distributions.
(2) Based on the high and low value of Unit sales made during the twelve
months ending December 31, 1997, as compiled by NAPICO. NAPICO has advised
that its methodology for compiling trade prices is as follows: Trade price
information reflects per Unit transaction prices for trades involving the
purchase of Units by third- party investors during the applicable period.
Firms supplying trade price data are instructed to provide information
only on those transactions whereby third-party investors acquired Units
from or through such firms. Due to commission and mark-ups, sellers of
Units typically receive less than the amounts paid for Units by buyers as
set forth in the table.
(3) Does not include a March 2, 1998 offer from Bond Purchase L.L.C. to
purchase up to 4.9% of the outstanding Units at a purchase price of
$615.00 per Unit
The Limited Partners, in reviewing these measures of value, should
carefully review the procedures that have been followed in computing these
measures and, in particular, should recognize the limitations of these measures
as indicators of the fair market value of the Units or of the assets of the
Partnerships, as the case may be.
Secondary and Market Prices for Units. The information in the table
above under the heading "Secondary Market Trades" shows the highest and lowest
Unit sale prices as reported to NAPICO by certain secondary market firms
involved in sales of the Units over the twelve-month period ended December 31,
1997. When gathering such data, NAPICO requests that the recorded prices per
Unit include any mark-ups for Units sold by the firms acting as principals in
the secondary market transactions and include any commissions charged by them
for facilitating the transactions, unless the firms acted as retail brokers.
No established market for the Units was ever expected to develop and
the secondary market transactions for the Units have been limited and sporadic.
It is not known to what extent the transactions in the secondary market are
between buyers and willing sellers, each having access to relevant information
regarding the financial affairs of the Partnerships, expected value of their
assets, and their prospects for the future. Many transactions in the secondary
market are believed to be distressed sales where sellers are highly motivated to
dispose of the Units and willing to accept substantial discounts from what might
otherwise be regarded as the fair value of the interest being sold, to
facilitate the sales. Secondary market prices generally do not reflect the
current market of the Partnerships' assets, nor are they indicative of total
return, because tax benefits received by original investors are not reflected in
such price. Nonetheless, notwithstanding these qualifications, the secondary
market prices, to the extent that the reported data are reliable, are indicative
of the prices at which the Units trade in the illiquid secondary markets.
On March 2, 1998, the Limited Partners received an offer from Bond
Purchase L.L.C. to purchase up to 4.9% of the outstanding Units at a purchase
price of $615.00 per Unit. On June 26, 1998, the Limited Partners received an
offer from Everest Management, LLC to purchase up to 3.0% of the outstanding
Units at a purchase price of $150 per Unit.
The Managing General Partner did not give any specific weight to any
one of the foregoing factors but viewed them in the aggregate in supporting its
fairness determination. The Managing General Partner recommends that the Sale be
approved by the Limited Partners. Limited Partners should note, however, that
the Managing General Partner's recommendation is subject to inherent conflicts
of interest. See "CONFLICTS OF INTEREST."
Other Measures of Value. The Managing General Partner has not
calculated a going concern value or a liquidation value of the Units. Due to the
anticipated reduction in HAP payments at the expiration of HAP Contracts, as
described above, and the uncertainties relating to the impact on cash flow of
the restructuring of the FHA-insured mortgage loans, the Partnership does not
believe there is a sufficient basis to estimate future cash flow from the
Properties and calculate going concern value. Similarly, due to the limited cash
flow from the Properties and the potential impact of the anticipated reductions
in payments under HAP Contracts, and the absence of future tax
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benefits from the Properties, the Partnership does not believe that there is a
sufficient market for estimating the fair market value of the Properties. The
Managing General Partner has not calculated an estimate of the liquidation
valueof the Units assuming that the Partnership's Properties were sold at their
book value. The net book value of the Properties (i.e. book value less mortgage
indebtedness) is less than zero, which is common with real estate that has been
held for an extended period. The book value of the real estate assets is based
upon the original cost of those assets, increased for capital expenditures and
reduced for accumulated depreciation, computed in accordance with generally
accepted accounting principles. The Managing General Partner did not obtain
appraisals of the Properties because, given the large number of Properties, the
nature of the Properties, the uncertainties resulting from the changes in law
and policy relating to payments under HAP Contracts, and the relatively small
value of each of the Properties, the Managing General Partner does not believe
that the benefits to be derived from such appraisals justified the expense to
the Partnership. The Managing General Partner does not believe that the price
that Limited Partners originally paid for their Units was relevant in
determining the Purchase Price for the Real Estate Interests and therefore gave
it no weight when determining the fairness of the proposed Sale.
The Units were offered primarily to provide tax benefits to Limited
Partners and only secondarily to provide return of capital or appreciation in
value. In addition, due to recent changes in HUD law and policies relating to
HAP Contracts, the potential future return from the Properties, and therefore
the economic value of the Properties themselves, has been materially reduced.
REAL V was originally structured to take advantage of opportunities provided by
the Internal Revenue Code and the United States Housing Act. Changes in the tax
code and the housing statutes have to a large extent eliminated such
opportunities and have adversely affected the economic value of the Properties.
In light of the current regulatory environment for tax-driven low-income housing
investments, the Managing General Partner does not believe that the 1982
offering price of the Units should be a material factor in calculating the
Purchase Price for the Real Estate Interests. Accordingly, the Managing General
Partner does not believe that the purchase price originally paid by Limited
Partners for their Units is relevant to the determination of the adequacy of the
Purchase Price on a sale of the Real Estate Interests.
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Certain amendments to the Partnership Agreement are necessary in
connection with the consummation of the Sale. The Partnership Agreement
currently prohibits a sale of any of the Properties or Real Estate Interests to
the General Partners or their affiliates. Accordingly, consent of the Limited
Partners is being sought for an amendment to the Partnership Agreement that
eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered
into between the Partnership and the General Partners or any affiliate of the
General Partners shall provide that it may be canceled at any time by the
Partnership without penalty upon 60 days' prior written notice. It is the
position of the Managing General Partner that the Termination Provision does not
apply to the Sale; nevertheless, the Managing General Partner is seeking
approval of the Limited Partners to an amendment to the Partnership Agreement
that eliminates the Termination Provision in connection with the Sale and any
future disposition of the Properties.
The Partnership Agreement also prohibits the Partnership from selling
any Property or any interest in a Property if the cash proceeds from such sale
would be less than the state and federal taxes applicable to such sale,
calculated using the maximum tax rates then in effect (the "Tax Requirement").
The Managing General Partner is seeking the approval of the Limited Partners to
an amendment to the Partnership Agreement that modifies the Tax Requirement so
as to allow the Partnership to calculate the aggregate net tax liability from a
sale of a Property or Properties by subtracting from the aggregate tax payable
on the gain from such sale the tax benefit resulting from the ability to deduct
his, her or its suspended passive losses against ordinary income, assuming that
the Limited Partner has not been able to use any of the passive losses on a
current basis and has sufficient ordinary income that would otherwise have been
taxed at the 39.6% marginal tax rate for federal income tax purposes to fully
utilize such losses at such rate, and assuming a state income tax rate of 5% and
that such suspended losses remain available. Assuming the approval of the
Limited Partners, those Limited Partner's who have been able to use all of the
passive losses generated by the Partnership on a current basis, the Sale should
result in a federal and state income tax cost of approximately $1,410 per Unit
in excess of the cash distribution. By approving such Amendment, the Limited
Partners are relinquishing a potential benefit conferred by the terms of the
Partnership Agreement. However, the Managing General Partner believes that it
would not be possible to find a buyer willing to purchase the Partnership's
portfolio of Properties under the conditions currently specified in the
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Partnership Agreement, because compliance with such conditions would result in a
purchase price for the Properties substantially higher than their fair market
value.
The consent of Limited Partners holding a majority of outstanding
Units is required in order to amend the Partnership Agreement. Limited Partners
must approve the proposed Sale and each of the three proposed Amendments in
order to allow consummation of the Sale.
V. CONFLICTS OF INTEREST
General
Due to the key role of affiliates of the Managing General Partner in
the organization of the REIT, and the relationships among the Managing General
Partner, the Casden Partnerships, Casden and Casden's directors and officers,
the Managing General Partner has certain conflicts of interest in recommending
the Sale to the Limited Partners. Some important conflicts are:
1. The terms of the Sale were established by the REIT and the
Managing General Partner, which are related parties. Accordingly, the terms and
conditions of the proposed Sale were not determined through arm's- length
negotiations. There can be no assurance that arm's-length negotiations would not
have resulted in terms more favorable to the Limited Partners.
2. Although the Managing General Partner is accountable to the
Partnership and the Limited Partners as fiduciaries and is obligated to exercise
good faith and fair dealing toward other members of the Partnership, and
although Stanger provided an independent opinion with respect to the fairness of
the Aggregate Property Valuation utilized in connection with determining the
Purchase Price, no independent financial or legal advisors were engaged to
determine the Purchase Price or to represent the interests of the Limited
Partners. There can be no assurance that the involvement of financial or legal
advisors, or other third parties, on behalf of the Limited Partners would not
have resulted in a higher Purchase Price or terms more favorable to the Limited
Partners.
3. If the REIT Transaction is consummated, affiliates of the Managing
General Partner will receive substantial interests in the REIT in exchange for
the contribution of real property assets and the property management operations
of Casden, including direct or indirect interests in the Managing General
Partner. The Managing General Partner anticipates that it will receive
significant economic benefits as a result of receiving interests in the REIT.
Such interests in the REIT are likely to enjoy greater liquidity than the
Managing General Partner's current interests in the Partnership if the REIT
successfully completes an initial public offering following its initial
formation as a private REIT. Unlike Casden and its affiliates, the Limited
Partners will not have the right to participate in the REIT. It is anticipated
that approximately 45% of the equity securities of the REIT will be held by
Casden and its affiliates following the Private Placement, based on the terms of
the Private Placement as currently contemplated.
4. It is anticipated that the return from the interests in the REIT
to be received by the Managing General Partner and its affiliates in connection
with the REIT Transaction will exceed the return such persons currently receive
from the real estate assets and business such persons will contribute or sell to
the REIT. The implied value of the REIT's securities (based on the pricing of
the REIT's securities in the Private Placement and in contemplated subsequent
public offerings, if consummated) that will be attributed to the other assets
being contributed to the REIT may exceed the Purchase Price paid by the REIT for
such interest in the Properties because of (i) the combination of real estate
assets and businesses and the resultant opportunities for enhanced access to
equity capital and financing alternatives that are likely to be available to the
REIT; (ii) the expected liquidity of the REIT's capital stock; (iii) the current
favorable public market valuation of real estate investment trusts; (iv) the
inclusion of certain real estate business and management companies owned by
affiliates of Casden in the REIT; and (v) the greater asset diversification of
the REIT, and other factors. Such realization of excess value is dependent on
economic, interest rate and real estate market trends, as well as market
conditions at the time of the formation of the REIT and the
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<PAGE>
Private Placement (and subsequent public offering) of its securities and, if
realized, will likely provide affiliates of the Managing General Partner with
significant economic benefits.
5. Substantially all of the officers and employees of Casden and its
affiliates will be employed as officers and employees of the REIT or its
subsidiaries. For their services as officers, directors or employees of the REIT
or its subsidiaries, such persons will be paid a salary and may be eligible to
participate in the REIT's bonus plan, option plan and other employee benefit
plans. In addition, through the REIT Transaction, the REIT will ensure
continuity of the business established by the Managing General Partner and its
affiliates. The Properties, if acquired by the REIT will continue to be managed
by the REIT's officers and employees for as long as the REIT continues to own
the Properties. In addition, unlike the Partnership, the REIT will have the
ability to reinvest proceeds from any future sale of the Properties. The REIT
will therefore afford ongoing employment opportunities for those persons
currently employed to assist with the administration and day-to-day operations
of the Properties and the REIT.
6. Affiliates of the Managing General Partner have entered into
option agreements with respect to the Local Partnerships held by the general
partners of the Local Partnerships. The value attributed to the management fees
payable to the general partners of the four Local Partnerships affiliated with
the General Partners was deducted from the Aggregate Property Valuation when
determining the Purchase Price payable to the Limited Partners. The right to
receive such management fees will be transferred to the REIT in connection with
the Sale, and affiliates of the Managing General Partner will have a substantial
interest in the REIT.
Fiduciary Responsibility
The Managing General Partner is accountable to the Partnership and
the Limited Partners as fiduciaries and consequently are obligated to exercise
good faith and fair dealing toward other members of the Partnership. The
Partnership Agreement provides that the Managing General Partner and its
officers, directors, employees, agents, affiliates, subsidiaries and assigns are
entitled to be indemnified for any claim, loss, expense, liability, action or
damage resulting from any act or omission performed or omitted by them pursuant
to the Partnership Agreement, but the Managing General Partner is not entitled
to be indemnified or held harmless for any act or omission constituting fraud,
negligence, breach of fiduciary duty or willful misconduct. In addition,
pursuant to the Partnership Agreement, the Managing General Partner has no
liability or obligation to the other partners or the Partnership for any
decision made or action taken in connection with the discharge of their duties
under the Partnership Agreement, if such decision or action was made or taken in
good faith.
If a claim is made against the Managing General Partner in connection
with its actions on behalf of the Partnership with respect to the Sale, the
Managing General Partner expects that it will seek to be indemnified by the
Partnership with respect to such claim. Any expenses (including legal fees)
incurred by the Managing General Partner in defending such claim shall be
advanced by the Partnership prior to the final disposition of such claim,
subject to the receipt by the Partnership of an undertaking by the Managing
General Partner to repay any amounts advanced if it is determined that the
Managing General Partner's actions constituted fraud, bad faith, gross
negligence, or failure to comply with any representation, condition or agreement
contained in the Partnership Agreement. As a result of these indemnification
rights, a Limited Partner's remedy with respect to claims against the Managing
General Partner relating to the Managing General Partner's involvement in the
sale of the Partnership's interest in the Properties to the REIT could be more
limited than the remedy which would have been available absent the existence of
these rights in the Partnership Agreement. A successful claim for
indemnification, including the expenses of defending a claim made, would reduce
the Partnership's assets by the amount paid.
VI. SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994, 1993 and for the three months ended March 31, 1998.
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The following information should be read in conjunction with the
Partnership's Annual Report on Form 10-K and the Partnership's Quarterly Report
on Form 10-Q attached hereto as Annexes B and C, respectively.
The selected historical financial and operating data of the
Partnership for the three-month period ended March 31, 1998 and March 31, 1997
are derived from unaudited consolidated financial statements of the Partnership
which, in the opinion of the Managing General Partner, include all adjustments
(consisting only of normal recurring items unless otherwise disclosed) necessary
for a fair presentation of the Partnership's financial position and results of
operations. The results set forth for the three-month period ended March 31,
1998 and March 31, 1997 are not necessarily indicative of results to be expected
for a full year.
<TABLE>
<CAPTION>
Three months ended
Year Ended December 31, March 31,
1997 1996 1995 1994 1993 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income........................... $ 93,956 $ 65,261 $ 60,997 $ 44,640 $ 35,186 $ 26,852 $ 21,578
Operating Expenses........................ 609,379 352,803 348,213 350,438 371,425 164,538 93,355
Loss From Operations...................... (515,423) (287,542) (287,216) (305,798) (336,239) (137,686) (73,777)
Distributions From Limited Partnerships
Recognized as Income...................... 381,171 215,140 221,276 218,651 245,331 142,510 64,714
Equity in Income of Limited Partnerships
and amortization of acquisition costs..... 503,765 371,644 455,651 393,230 262,614 121,000 97,000
---------- ---------- ---------- --------- ----------- ---------- ----------
Net Income................................ $ 369,513 $ 299,242 $ 389,711 $ 306,083 $ 171,706 $ 125,825 $ 87,937
========== ========== ========== ========== ========== ========== ==========
Net Income allocated to Limited Partners.. $ 365,817 $ 296,249 $ 385,814 $ 303,022 $ 169,989 $ 124,565 $ 87,058
Net Income per Limited Partnership Interest $ 47 $ 38 $ 50 $ 39 $ 22 $ 16 $ 11
========== ========== ========== ========== ========== ========== ==========
Total assets.............................. $3,795,448 $3,259,178 $2,979,971 $2,592,397 $2,255,550 $3,901,178 $3,340,152
========== ========== ========== ========== ========== ========== ==========
Investments in Limited Partnerships....... $1,616,811 $1,305,672 $1,103,818 $ 884,383 $ 659,376 $1,688,790 $1,402,672
========== ========== ========== ========== ========== ========== ==========
Partners' Equity.......................... $3,618,713 $3,249,200 $2,949,958 $2,560,247 $2,254,164 $3,744,537 $3,337,137
========== ========== ========== ========== ========== ========== ==========
Limited Partners' Equity.................. $3,739,871 $3,374,054 $3,077,805 $2,691,991 $2,388,969 $3,864,437 $3,461,112
Limited Partners' Equity per limited
partnership interest...................... $ 479 $ 432 $ 394 $ 345 $ 306 $ 495 $ 443
========== ========== ========== ========== ========== ========== ==========
</TABLE>
VII. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material tax consequences relating
to the proposed Sale and the distribution of approximately $523 per Unit.
However, each Limited Partner is urged to consult his, her or its own tax
advisor for a more detailed explanation of the specific tax consequences to such
Limited Partner from the Sale.
Upon consummation of the Sale, and subject to the passive activity
rules described below, each Limited Partner will recognize his, her or its share
of the taxable gain of the Partnership to the extent that the sum of (i) the
cash, plus (ii) the fair market value of any property received by the
Partnership on the Sale plus (iii) the outstanding principal amount of the
Partnership's nonrecourse indebtedness, exceeds the Partnership's adjusted basis
for the Properties. Gain realized by the Partnership on the Sale will generally
be a Section 1231 gain (i.e., long-term capital gain, except for the portion
thereof which is taxable as ordinary income due to depreciation recapture). A
Partner's
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share of gains and losses from Section 1231 transactions from all sources would
be netted and would be taxed as capital gains or constitute ordinary losses, as
the case may be. A net Section 1231 gain for a taxable year will be treated as
capital gain only to the extent such gain exceeds the net Section 1231 losses
for the five most recent prior taxable years not previously recaptured. Any gain
attributable to a Limited Partner's share of depreciation recapture will be
taxed at ordinary income rates.
The taxable income realized by each Limited Partner by reason of the
Sale should be characterized as income from a "passive activity" and may be
offset by a Limited Partner's available "passive activity losses" (including
suspended losses). Under the Tax Reform Act of 1986 (the "1986 Act") losses from
passive activities may only be offset against income from passive activities or
may be deducted in full when the taxpayer disposes of the passive activity from
which the loss arose. However, pursuant to a transitional rule contained in the
1986 Act, a certain percentage of losses from a passive activity which was held
by the taxpayer on the date of the enactment of the 1986 Act (i.e., October 22,
1986) and at all times thereafter was permitted to offset any type of income
during the years 1987 through 1990.
It is estimated that as a consequence of the Sale, each Limited
Partner will have taxable income equal to approximately $6,443 per Unit all of
which will constitute long-term capital gain. The income tax consequences of the
Sale to any Limited Partner depends in large part upon the amount of losses that
were allocated to such Limited Partner by the Partnership and the amount of such
losses which were applied by such Limited Partner to offset his or her taxable
income. If a Limited Partner has not utilized any of the passive activity losses
allocated to such Limited Partner in excess of those amounts permitted under the
transitional rule relief described above, the Limited Partner will have a net
federal and state tax benefit of approximately $325. Because passive losses are
only deductible against passive income after 1986 (subject to certain
transitional rules), the Managing General Partner does not have any basis for
determining the amount of such passive losses which have previously been
utilized by Limited Partners. The anticipated cash distribution of approximately
$523 per Unit would be sufficient to pay the federal and state tax liability
arising from the Sale, assuming a federal capital gains rate of 25% and assuming
an effective state tax rate of 5%, the current capital gains rate for the
portion of net section 1231 gain attributable to unrecaptured section 1250 gain
and that Limited Partners have suspended passive losses of $5,062 per Unit from
the Partnership (which is the amount of passive losses that a Limited Partner
would have it had it not utilized any of its passive losses (except to the
extent permitted under the transitional rule)) and assuming an effective state
tax rate of 5% and would result in a net benefit, after federal and state income
taxes, of $848. The net tax liability was calculated by deducting from the tax
payable on the gain from the sale (calculated at a federal tax rate of 25% since
all of the income is attributable to depreciation not recaptured as ordinary
income and taxed at capital gains rates), the tax benefit resulting from the
ability to deduct the suspended passive losses against ordinary income (which is
permitted following disposition of the passive activity) assuming that the
Limited Partner has sufficient ordinary income which would otherwise have been
taxed at the 39.6% marginal tax rate for federal income tax purposes to fully
utilize such losses at such rate, and assuming a state income tax rate of 5%. In
addition to assuming federal income tax rates, the calculation of income tax
liability of a Limited Partner assumes that such Limited Partner has no net
Section 1231 losses for the five most recent prior taxable years. If this latter
assumption is not applicable to a Limited Partner, the income tax liability of
such Limited Partner could increase because certain income would be taxed at
ordinary, instead of capital gains tax rates. Limited Partners are advised to
consult with their own tax advisors for specific application of the tax rules
where the above-described assumption is not applicable. The foregoing does not
take into consideration the effect of any local tax liabilities that may be
applicable to the Sale.
The Managing General Partner believes that there were reasonable
bases for the foregoing assumptions. In light of the suitability standards that
Limited Partners met at the time of their original investment in the Partnership
and the types of investors who would have invested in an investment primarily
intended to provide tax benefits, the Managing General Partner assumed for
purposes of calculating the tax liabilities resulting from the proposed Sale
that each Limited Partner will have taxable income in excess of $155,950 (which
is the income level at which married taxpayers filing joint returns effectively
become subject to a 39.6% marginal rate) in 1998. While the financial
circumstances of the Limited Partners may vary considerably, the Managing
General Partner believes it is reasonable
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to assume that the majority of the current Limited Partners will be in the
highest federal tax bracket in 1998. The Managing General Partner believes that
while state tax rates vary from state-to-state, the average state tax rate for
individuals who itemize deductions is approximately 5%. The Managing General
Partner calculated the tax benefit from the suspended passive losses at 44.6%
(39.6% federal rate plus a 5% effective state rate)
To the extent that a Limited Partner was able to utilize more passive
activity losses than were available under the transitional rules (e.g., because
such Limited Partner had passive income from other sources) to offset his, her
or its taxable income, the estimated federal income tax liability of such
Limited Partner would substantially increase. Thus, for example, if a Limited
Partner had no suspended passive activity losses to carry forward, it is
estimated that such Limited Partner would have a federal and state income tax
liability equal to approximately $1,933 per Unit, or $1,410 in excess of the
distribution of $523 per Unit. In addition, to the extent that a Limited Partner
does not have sufficient ordinary income taxed at a 39.6% marginal rate to fully
utilize the suspended passive losses against such income, the Limited Partner's
net tax benefits from the Sale would be reduced and the Limited Partner is
likely to be incur net tax costs in excess of the cash distributions which will
be received.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF LOSSES ANY LIMITED
PARTNER HAS APPLIED TO OFFSET HIS, HER OR ITS TAXABLE INCOME, THE MANAGING
GENERAL PARTNER CANNOT ESTIMATE THE INCOME TAX LIABILITY OF EACH LIMITED PARTNER
ARISING FROM THE SALE, THEREFORE, EACH LIMITED PARTNER SHOULD CONSULT HIS, HER
OR ITS TAX ADVISOR CONCERNING THE INCOME TAX CONSEQUENCES OF CONSENTING TO THE
SALE WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION.
VIII. LEGAL PROCEEDINGS
On June 25, 1997, the Securities and Exchange Commission (the
"Commission") entered into a consent decree with NAPICO, three members of
NAPICO's senior management and three affiliated entities (collectively, the
"NAPICO Affiliates") in connection with their alleged roles in two separate
series of securities laws violations. In connection therewith, certain NAPICO
Affiliates agreed to cease and desist from committing or causing securities law
violations. In addition, National Partnership Equities, Inc. ("NPEI"), a
brokerage firm affiliated with NAPICO, agreed to undergo a review of certain of
its policies and procedures and pay a $100,000 penalty. The NAPICO Affiliates
consented to the above sanctions and relief without admitting or denying the
Commission's findings.
The two series of securities law violations relate to the NAPICO
Affiliates' (i) satisfying the minimum offering threshold of a "part or none"
private placement by utilizing a subscription from a non-bona fide investor and
failing to disclose such violation in subsequent offering materials for such
private placement and (ii) failing to disclose in the periodic reports for
another of its programs the fact that such program's cash was used to pay the
expenses of properties not owned by such program that were managed by an
affiliate and failing to maintain adequate internal controls to detect such
violations.
IX. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about ________ __, 1998. Only Limited
Partners of record on ___________, 1998 (the "Record Date") will be given notice
of, and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and
the letter from the Managing General Partner, constitute the Solicitation
Materials to be distributed to the Limited Partners to obtain their votes for or
against the Sale. The Solicitation Period is the time frame during which Limited
Partners may vote for or against the Sale. The Solicitation Period will commence
upon the date of delivery of this Consent Solicitation Statement and
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will continue until the earlier of (i) _________, 1998 or such later date as may
be determined by the Managing General Partner and (ii) the date upon which the
Managing General Partner determines that a Majority Vote has been obtained. At
its discretion, the Managing General Partner may elect to extend the
Solicitation Period. Under no circumstances will the Solicitation Period be
extended beyond ______________, 1998. Any Consents delivered to the Partnership
prior to the termination of the Solicitation Period will be effective provided
that such Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale. Consent to the Sale will
also include consent to Amendments to the Partnership Agreement that (i)
eliminate a restriction against sales of Partnership assets to affiliates of the
Managing General Partner; (ii) eliminate the Termination Provision in connection
with the Sale and (iii) modify the Tax Requirement to allow the Partnership to
assume, for purposes of calculating taxes, that all of the passive losses from
the Partnership are available to Limited Partners.
The Consent included in the Solicitation Materials constitutes the
ballot to be used by Limited Partners in casting their votes for or against the
Sale. By marking this ballot, the Limited Partner may either vote "for,"
"against" or "abstain" as to the Partnership's participation in the Sale. Once a
Limited Partner has voted, he may not revoke his vote unless he submits a second
Consent, properly signed and completed, together with a letter indicating that
this prior Consent has been revoked, and such second Consent is received by
Gemisys Corporation (the "Tabulator") prior to expiration of the Solicitation
Period. See "Withdrawal and Change of Election Rights" below.
The Sale will not be completed unless it is approved by a Majority
Vote. See "THE SALE--Conditions" for a discussion of the other conditions
precedent to the Sale. BECAUSE APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST, FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE SALE.
Any Limited Partner who returns his Consent signed but does not
specify "for," "against" or "abstain" will be deemed to have voted "for" the
Sale.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of the Consent will be determined by the
Tabulator, whose determination will be final and binding. The Tabulator reserves
the absolute right to reject any or all Consents that are not in proper form or
the acceptance of which, in the opinion of the Managing General Partner's
counsel, would be unlawful. The Tabulator also reserves the right to waive any
irregularities or conditions of the Consent as to particular Units. Unless
waived, any irregularities in connection with the Consents must be cured within
such time as the Tabulator shall determine. The Partnership, the Managing
General Partner and the Tabulator shall be under no duty to give notification of
defects in such Consents or shall incur liabilities for failure to give such
notification. The delivery of the Consents will not be deemed to have been made
until such irregularities have been cured or waived.
Completion Instructions
Each Limited Partner is requested to complete and execute the Consent
in accordance with the instructions contained therein. For his Consent to be
effective, each Limited Partner must deliver his Consent to the Tabulator at any
time prior to the termination of the Solicitation Period to the Partnership at
the following address:
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Gemisys Corporation
7103 South Revere Parkway
3 Englewood, Colorado 80112
A pre-addressed stamped envelope for return of the Consent has been
included with the Solicitation Materials. Limited Partners may also telecopy an
executed copy of this Consent to the Tabulator at 303-705-6171. The Consents
will be effective only upon actual receipt by the Partnership. The method of
delivery of the Consent to the Partnership is at the election and risk of the
Limited Partner, but if such delivery is by mail it is suggested that the
mailing be made sufficiently in advance of _______ __, 1998 to permit delivery
to the Partnership on or before such date.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or
facsimile transmission notice of withdrawal or change in vote must be timely
received by the Tabulator at its address set forth under "Completion
Instructions" above and must specify the name of the person having executed the
Consent to be withdrawn or vote changed and the name of the registered holder if
different from that of the person who executed the Consent.
No Dissenters' Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners
do not have dissenters' rights of appraisal. If the Sale is approved by a
Majority Vote, and the other conditions to consummation of the Sale are
satisfied, all Limited Partners, both those voting in favor of the Sale and
those not voting in favor, will be entitled to receive the resulting cash
distributions.
Solicitation of Consents
The Managing General Partner and its officers, directors and
employees may assist in the solicitation of consents and in providing
information to Limited Partners in connection with any questions they may have
with respect to this Consent Solicitation Statement and the voting procedures.
Such persons and entities will be reimbursed by the Partnership for out of
pocket expenses in connection with such services. The Partnership may also
engage third parties to assist with the solicitation of Consents and pay fees
and reimburse the expenses of such persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE PROMPTLY.
If you have any questions about the consent procedure or require
assistance, please contact MacKenzie Partners, the Partnership's consent
solicitation agent, toll free at 800-322-2885 or collect at 212-929-5500.
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<PAGE>
X. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
_________ ___, 1998
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<PAGE>
REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
OF REAL ESTATE ASSOCIATES LIMITED V
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to Real Estate Associates
Limited V (the "Partnership") that, with respect to the transaction by which the
Partnership proposes to sell all of its real estate assets to a real estate
investment trust formed by affiliates of certain general partners of the
Partnership or to a subsidiary partnership of the REIT, the undersigned votes
all of his, her or its units of limited partnership interest as indicated below:
On the proposal to sell all of the interests of the Partnership in the real
estate assets of nineteen limited partnerships in which the Partnership holds a
limited partnership interest to a real estate investment trust or its affiliate
to be organized by Casden Properties, and to authorize the Managing General
Partner to take any and all actions that may be required in connection
therewith, including the execution on behalf of the Partnership of such
amendments, instruments and documents as shall be necessary to reflect the
transfer of the general and limited partnership interests and to authorize the
Managing General Partner to sell any remaining real estate interests not
transferred to such real estate investment trust or its affiliates pursuant to
the proposal without further consent of the Limited Partners.
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
eliminates a provision prohibiting the Partnership from selling any Property to
a General Partner or its affiliate.
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
eliminates a provision allowing the Partnership to cancel, upon 60 days' prior
written notice, any agreement entered into between the Partnership and a General
Partner or an affiliate of a General Partner.
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
modifies certain tax provisions so as to allow the Partnership to calculate the
tax liability from a sale of a Property by subtracting from the tax payable on
the gain from such sale the tax benefit resulting from the ability to deduct a
Limited Partner's suspended passive losses against ordinary income, assuming
that the Limited Partner has sufficient ordinary income that would otherwise
have been taxed at the 39.6% marginal tax rate for federal income tax purposes
to fully utilize such losses at such rate, and assuming a state income tax rate
of 5% and that such suspended losses remain available.
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
<PAGE>
The undersigned acknowledges receipt from the
Managing General Partner of the Consent
Solicitation Statement dated _________ __, 1998.
Dated: _____________, 199_ -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
Please sign exactly as name appears hereon. When
units are held by joint tenants, both should
sign. When signing as an attorney, as executor,
administrator, trustee or guardian, please give
full title of such. If a corporation, please sign
name by President or other authorized officer. If
a partnership, please sign in partnership name by
authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON ________
[__], 1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO
303-705-6171 OR BY USING THE ENCLOSED PREPAID ENVELOPE TO THE ADDRESS FIRST
WRITTEN ABOVE. IF YOU HAVE ANY QUESTIONS, PLEASE CALL 800-322-2885.
A LIMITED PARTNER SUBMITTING A SIGNED BUT UNMARKED CONSENT WILL BE
DEEMED TO HAVE VOTED FOR THE PARTNERSHIP'S PARTICIPATION IN THE SALE.
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<PAGE>
Annex A
FORM OF OPINION
Real Estate Associates Limited V
9090 Wilshire Boulevard
Beverly Hills, California 90211
Gentlemen:
You have advised us that Real Estate Associates Limited V (the
"Partnership"), National Partnership Investments Corp., and National Partnership
Investments Associates V, the general partners (the "General Partners") of the
Partnership, and Casden Properties and certain of its affiliates (the
"Company"), an affiliate of the General Partners, are contemplating a
transaction in which interests (the "Real Estate Interests") in certain real
estate assets listed in Exhibit 1 (the "Properties"), which are owned by the
Partnership through investments in certain local limited partnerships (the
"Local Partnerships"), will be sold to a newly formed real estate investment
trust or its designated affiliate to be organized by the Company (the "REIT"),
subject to, among other matters, the requisite approval of the limited partners
(the "Limited Partners") of the Partnership (the "Sale").
You have further advised us that in connection with the proposed Sale, the
value ascribed to the seventeen Properties to be sold (the "Aggregate Property
Valuation") will be $50,364,443. In addition, we have been advised that the
Aggregate Property Valuation will be utilized and adjusted by the General
Partners to reflect, among other things, various other assets and liabilities of
the Partnership and the Local Partnerships, the allocation of the Aggregate
Property Valuation among the Local Partnerships, amounts attributable to general
partner and management interests in the Local Partnerships or the General
Partners' estimate of the costs associated with the buyout thereof, and
transaction expenses to determine a net purchase price of the Real Estate
Interests to be acquired (the "Purchase Price").
In addition, you have advised us that certain of the Properties are subject
to restrictions on the amount of cash flow which can be distributed to investors
(the "Dividend Limitation") which limit annual dividend payments, and that the
Local Partnerships do not have any accrued but unpaid distribution balances
("Accrued Distributions") or other contractual or regulatory provisions which
would allow the Local Partnerships, and therefore the Partnership, to make
distributions in excess of the Dividend Limitation in future years.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
to the Partnership an opinion as to whether the Aggregate Property Valuation,
which is to be utilized in connection with determining the Purchase Price to be
paid for the Real Estate Interests in the
1
<PAGE>
Sale, is fair to the Limited Partners from a financial point of view.
In the course of our analysis for rendering this opinion, we have, among
other things:
o Reviewed a draft of the consent solicitation statement (the "Consent")
relating to the Sale in a form the Partnership's management has
represented to be substantially the same as will be distributed to the
Limited Partners;
o Reviewed the Partnership's annual reports on form 10-K filed with the
Securities and Exchange Commission for the years ended December 31,
1995, 1996 and 1997, and quarterly reports on form 10-Q for the period
ending March 30, 1998, which the Partnership's management has
indicated to be the most current financial statements;
o Reviewed descriptive information concerning the Properties, including
location, number of units and unit mix, age, and amenities;
o Reviewed summary historical operating statements for the Properties,
as made available by the General Partners, for the years ended
December 31, 1995, 1996, and 1997;
o Reviewed 1998 operating budgets for the Properties prepared by the
Partnership's or the Local Partnerships' management;
o Discussed with management of the Partnership and the Managing General
Partner the market conditions for apartment properties; conditions in
the market for sales/acquisitions of properties similar to those owned
by the Local Partnerships; historical, current and projected
operations and performance of the Properties; the physical condition
of the Properties including any deferred maintenance; and other
factors influencing the value of the Properties;
o Performed site visits of the Properties;
o Reviewed data concerning, and discussed with property management
personnel, local real estate rental market conditions in the market of
each Property, and reviewed available information relating to
acquisition criteria for income-producing properties similar to the
Properties;
o Reviewed information provided by management relating to debt
encumbering the Properties and Housing Assistance Program contract
provisions pertaining to the Properties;
o Conducted such other studies, analyses, inquiries and investigations
as we deemed
2
<PAGE>
appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information, management reports and data, and all other reports and information
that were provided, made available or otherwise communicated to us by the
Partnership, the Company, the General Partners and their affiliates, the Local
Partnerships or management of the Properties. We have not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of the Partnership. We have relied upon the representations of
the Partnership, the Company, the General Partners and their affiliates, the
Local Partnerships and management of the Properties concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditure and replacement reserve requirements, and the terms and
conditions of any debt or regulatory agreements encumbering the Properties. We
have also relied upon the assurance of the Partnership, the Company, and the
General Partners and their affiliates, and management of the Properties that any
financial statements, budgets, forecasts, capital expenditure, and replacement
reserve estimates, debt and regulatory agreement summaries, value estimates and
other information contained in the Consent or otherwise provided or communicated
to us were reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; that no material changes have occurred in the value of the Properties
or other information reviewed between the date such information was provided and
date of this letter; that the Partnership, the Company, the General Partners and
their affiliates, the Local Partnerships and the management of the Properties
are not aware of any information or facts that would cause the information
supplied to us to be incomplete or misleading in any material respect; that the
highest and best use of each of the Properties is as improved; and that all
calculations and projections were made in accordance with the terms of the
Partnership and Local Partnership Agreements and the existing and anticipated
regulatory agreements.
We have not been requested to, and therefore did not: (1) select the method
of determining the Aggregate Property Valuation or the Purchase Price to be paid
for the Real Estate Interests in the Sale; (ii) make any recommendation to the
Partnership or its partners with respect to whether to approve or reject the
proposed Sale; of (iii) express any opinion as to (a) the tax consequences of
the proposed Sale to the Limited Partners, (b) the terms of the Partnership
Agreement, the fairness of the proposed amendments to the Partnership Agreement,
or the terms of any agreements or contracts between the Partnership, the
Company, any affiliates of the General Partners, and the Local Partnerships, (c)
the General Partners' business decision to effect the proposed Sale, (d) any
adjustments made to the Aggregate Property Valuation to determine the Purchase
Price to be paid for the Real Estate Interests and the net amounts distributable
to the partners, including but not limited to, balance sheet adjustments to
reflect the General Partners' estimate of the value of current and projected net
working capital balances and cash and reserve accounts of the Partnership and
the Local Partnerships (including debt service and mortgage escrow amounts,
operating and replacement reserves, and surplus cash reserve amounts and
additions) and the income therefrom, the General Partners' determination that no
3
<PAGE>
value should be ascribed to any reserves of the Local Partnerships or the cash
flow from the Properties in excess of certain limitations on dividends to the
Partnership, the General Partners' determination of the value of any notes due
to affiliates of the General Partners or management of the Local Partnerships,
the allocation of the Aggregate Property Valuation among the Local Partnerships,
the amount of Aggregate Property Valuation ascribed to certain general partner
and/or management interests in the Local Partnerships, and other expenses and
fees associated with the Sale, (e) the fairness of the buyout cost of certain
general partner and/or management interests in the Local Partnerships or the
allocation of such buyout costs among the Local Partnerships, or the amount of
any contingency reserves associated with such buyouts, (f) the General Partners'
decision to deduct the face value of certain notes payable to affiliates and/or
management of the Local Partnerships in determining the Purchase Price to be
paid for the Real Estate Interests where the actual cost of purchasing the notes
is less than the face value of the notes, (g) the Purchase Price to be paid for
the Real Estate Interests, or (h) alternatives to the proposed Sale, including
but not limited to continuing to operate the Partnership as a going concern. We
are not expressing any opinion as the fairness of any terms of the proposed Sale
other than the Aggregate Property Valuation utilized in connection with
determining the Purchase Price to be paid for the Real Estate Interests.
Our opinion addresses only the aggregate value of the Properties and is
based on business, economic, real estate and capital market, and other
conditions as they existed and could be evaluated as of the date of our analysis
and addresses the proposed Sale in the context of information available as of
the date of our analysis. Events occurring after that date could affect the
Properties and the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Aggregate Property Valuation utilized in connection with
determining the Purchase Price to be paid for the Real Estate Interests in the
Sale is fair to the Limited Partners from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised the Partnership and the General Partners that our entire analysis must
be considered as a whole and that selecting portions of our analysis and the
factors considered by us, without considering all analyses and facts, could
create an incomplete view of the evaluation process underlying this opinion.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
____________________, 1998
4
<PAGE>
EXHIBIT 1
LISTING OF PROPERTIES
Property Location
---------------------------------------------------------------------
Canoga Park Apartments Canoga Park, CA
Castle Park Apartments Normandy, MO
Centennial Townhouses Fort Wayne, IN
Creekside Gardens Loveland, CO
Del Haven Manor Jackson, MS
Fox Run Apartments Orange, TX
Grandview Place Apartments Missoula, MT
Hamlin Estates Los Angeles, CA
Heritage Square Texas City, TX
North River Club Apartments Oceanside, CA
Palm Springs Senior Palm Springs, CA
Panorama City Los Angeles, CA
Panorama City II Los Angeles, CA
Pine Lake Terrace Apartments Garden Grove, CA
Plummer Village Los Angeles, CA
Ranger Apartments (aka Gholson Ranger, TX
Hotel)
Robert Farrell Manor Los Angeles, CA
5
<PAGE>
Annex D
PROPOSED AMENDMENTS
TO THE PARTNERSHIP AGREEMENT
Set forth below is the text of the proposed Amendments to the Partnership
Agreement for which the consent of the Limited Partners is being sought in
connection with the Sale.
Section 9.3(d) of the Partnership Agreement is amended to read as follows:
"(d) the Partnership will not sell any Project or Project
Interest, except pursuant to exempted sales to qualified tenant
groups, if the cash proceeds from the sale of any Project or
Project Interest, or any Projects or Project Interests sold in a
single transaction, would be less than the Aggregate Net Tax
Liability (as defined below), and upon any sale or refinancing
the Partnership shall not reinvest any proceeds thereof prior to
distributing to the Partners from the proceeds sufficient cash
to pay the Aggregate Net Tax Liability, and in no event will the
Partnership reinvest such proceeds. For purposes hereof, the
Aggregate Net Tax Liability shall equal the aggregate state and
federal taxes payable on the sale of any Project or Projects or
any Project Interest or Project Interests (assuming the maximum
federal income tax rate then in effect and an effective state
income tax rate of 5%) minus the aggregate tax benefit resulting
from the ability of the Limited Partners to deduct the suspended
passive losses that become
<PAGE>
deductible as a result of such sale against ordinary income;
assuming that all such suspended passive losses in excess of
passive losses which could be deducted prior to 1987 and during
the period from 1987 to 1990 under certain transition rules
provided under the Tax Reform Act of 1986 remain available and
that the Limited Partner has sufficient ordinary income that
would otherwise have been taxed at the 39.6% marginal tax rate
for federal income tax purposes to fully utilize such losses at
such rate and assuming an effective state income tax rate of
5%."
Section 9.3(k) of the Partnership Agreement is amended to read as follows:
"(k) the Partnership will not sell or lease any Project or
Project Interest to the General Partners or their affiliates;
provided that the foregoing shall not apply to any sale of
Project Interests made in connection with the proposed Sale
described in the Definitive Consent Solicitation Statement of
the Partnership dated May __, 1998."
Section 9.1(h) of the Partnership Agreement is amended to read as follows:
"(h) to enter into and carry out agreements of any kind,
provided that all contracts with the General Partners or their
affiliates must provide for termination by the Partnership on 60
days written notice, without penalty, and to do any and all
other acts and things necessary, proper, convenient, or
advisable to effectuate and carry out the purposes of the
Partnership. The limitation
<PAGE>
contained in the proviso in the preceding sentence shall not
apply to any agreement entered into in connection with the
proposed Sale."
<PAGE>
Annex E
July __, 1998
Real Estate Associates Limited V
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Re: Amendments to the Agreement of Limited Partnership of
Real Estate Associates Limited V
Dear Sir or Madam:
We have acted as counsel to Real Estate Associates Limited V,
a California limited partnership (the "Partnership"), in connection with the
amendments to the Partnership's Restated Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") of the Partnership, the form of which
is attached hereto as Exhibit A (the "Amendments").
In rendering this opinion, we have examined originals or
copies of the following:
(i) The Partnership Agreement as certified by an
officer of National Partnership Investments
Corp. ("NAPICO"), the managing general partner
of the Partnership;
(ii) The **[Certificate of Limited Partnership of the
Partnership]** (the "Certificate of Limited
Partnership"), as certified by the Secretary of
State of the State of California and by an officer
of NAPICO;
(iii) An Agreement dated June 1, 1984 between NAPICO and
National Partnership Investments Associates II (the
"General Partners' Agreement") as certified by an
officer of NAPICO;
<PAGE>
(iv) The Definitive Consent Solicitation Statement of
the Partnership dated July __, 1998 ("Consent
Solicitation Statement"); and
(v) The Amendments.
The documents listed above are collectively referred to as the
"Documents".
In rendering this opinion we have made the following
assumptions, each as you have agreed, without any investigation or independent
verification: (i) the genuineness of all signatures of all persons executing any
or all of the Documents; (ii) the authenticity and completeness of all
documents, certificates and instruments submitted to us as originals; (iii) the
conformity with the originals of all documents, certificates and instruments
submitted to us as copies; (iv) the legal capacity to sign of all individuals
executing such documents, certificates and instruments; and (v) there are no
oral modifications or written agreements or understandings which limit, modify
or otherwise alter the terms, provisions, and conditions of, or relate to, the
transactions contemplated by the Documents.
As to matters of fact relevant to this opinion, as you have
agreed we have relied without independent investigation on, and assumed the
accuracy and completeness of, the certificate of an officer of NAPICO (referred
to herein as the "Officer's Certificate"). As you have agreed, we have not made
an investigation as to, and have not independently verified, the facts
underlying the matters covered by such Officer's Certificate.
We also have assumed, without any investigation or independent
verification, (a) the due authorization, execution, acknowledgment as indicated
thereon, and delivery of the Documents, and the validity and enforceability
thereof against all parties thereto, (b) that each party is validly existing,
has full power, authority and legal right to execute and deliver the Documents
to which it is a party and to carry out the transactions contemplated
thereunder, and that each is duly qualified and in good standing in each
jurisdiction where qualification is required, (c) that each party has complied
with any order, rule, and regulation or law which may be applicable to such
party with regard to any aspect of the transactions contemplated by the
Documents, (d) that in accordance with the Officer's Certificate, pursuant to
the General Partners' Agreement, NAPICO has the power to make all decisions
pursuant to the Partnership Agreement to be made by the General Partners of the
Partnership and (e) that all actions taken by NAPICO in connection with the
Consent Solicitation Statement have been duly authorized by all necessary
corporate action on the part of NAPICO.
2
<PAGE>
Our opinions are limited to the California Uniform
Limited Partnership Act.
We express no opinion except as expressly set forth below and
no other opinions shall be implied. We express no opinion as to state and
federal laws, rules, regulations, principles and requirements (collectively
"laws") in the following areas: securities or "Blue Sky" laws, including without
limitation, any opinions with respect to the compliance of the Consent
Solicitation Statement with the securities laws, or laws of fiduciary duty. We
disclaim any obligation to update any of the opinions expressed herein for
events (including changes of law or fact) occurring after the date hereof.
We have not reviewed and our opinion does not extend to any
agreements, documents or instruments other than those which we have expressly
acknowledged herein examining.
Based upon and subject to the foregoing, we are of the opinion
that the Amendments, if duly approved by the limited partners of the Partnership
pursuant to the Consent Solicitation Statement, will not violate the Partnership
Agreement or the California Uniform Limited Partnership Act.
This opinion is solely for the benefit of the addressee in
connection with the transaction contemplated by the Consent Solicitation
Statement, and is not to be relied upon in any other context nor quoted in whole
or in part, nor otherwise referred to.
Sincerely,
3
<PAGE>
