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. 1
Real Estate Associates Limited V
(Name of the Issuer)
Real Estate Associates Limited V
National Partnership Investments Corp.
National Partnership Investments Associates II
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
677188.3
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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 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. NAPICO is the general partner of NPIA.
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.
677188.3
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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 Securityholder Matters" and "-- Distribution History."
(e) Not Applicable.
(f) Not Applicable.
Item 2.Identity and Background.
(a)-(d) "SUMMARY OF CONSENT SOLICITATION STATEMENT -- The Partnership"
and "THE PARTNERSHIP -- General."
(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."
677188.3
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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)-(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."
Item 8. Fairness of the Transaction.
(a)-(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."
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.
(a)-(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.
677188.3
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(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."
(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.
(d) Preliminary copies of each of the Consent Solicitation
Statement, Letter to Limited Partners and Form of Consent.
(e) Not Applicable.
(f) Not Applicable.
677188.3
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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: March 26, 1998
REAL ESTATE ASSOCIATES LIMITED V
By Its General Partners
NATIONAL PARTNERSHIP INVESTMENTS CORP.
By: /s/ Bruce E. Nelson
-----------------------------------
Bruce E. Nelson
President
NATIONAL PARTNERSHIP INVESTMENTS ASSOCIATES II
By National Partnership Investments Corp., its General
Partner
By: /s/ Bruce E. Nelson
---------------------------------
Bruce E. Nelson
President
CASDEN INVESTMENT CORPORATION
By: /s/ Alan I. Casden
-----------------------------------
Alan I. Casden
President
/s/ Bruce E. Nelson
------------------------------------------
Bruce E. Nelson
/s/ Charles H. Boxenbaum
------------------------------------------
Charles H. Boxenbaum
/s/ Henry C. Casden
------------------------------------------
Henry C. Casden
/s/ Alan I. Casden
------------------------------------------
Alan I. Casden
677188.3
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Exhibit (d)
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 ("NAPICO") and National
Partnership Investments Associates II, a California limited partnership
("NPIA"), the general partners of Real Estate Associates Limited V, a California
limited partnership (the "Partnership," or "REAL V"), are 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
nineteen 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 $45,111,546 (the "Purchase Price"), payable $1,571,673 in cash and
$43,539,873 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 sale.
Eighteen of the nineteen Local Partnerships own a low income housing
project (each of which is referred to herein as a "Property"). 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. Three of the current members of NAPICO's board of
directors, Charles H. Boxenbaum, Henry C. Casden and Alan I. Casden, are
expected to become officers, directors and shareholders of the REIT. See
"CONFLICTS OF INTEREST."
It is anticipated that the Partnership will make a distribution to Limited
Partners of approximately $652 per unit of limited partnership interests in the
Partnership from the net proceeds of the Sale plus approximately $1,000,000 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
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 a consent to the Sale from 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.
656661.17
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The General Partners have approved the Sale, have 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
recommend that the Limited Partners consent to the Sale. Limited Partners should
note, however, that the General Partners' recommendation is subject to inherent
conflicts of interest. See "CONFLICTS OF INTEREST."
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
656661.17
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Page
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TABLE OF CONTENTS
-----------------
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.................................................7
Third-Party Opinion......................................................8
Recommendation of the General Partners...................................8
Conflicts of Interest....................................................8
Federal Income Tax Consequences..........................................9
Transaction Expenses....................................................10
Voting Procedures.......................................................10
II. THE PARTNERSHIP.........................................................11
General.................................................................11
The Properties..........................................................13
Market for Partnership Interests and Related Security Holder Matters....14
Distribution History....................................................14
Regulatory Arrangements.................................................14
Year 2000 Information...................................................16
Directors and Executive Officers of NAPICO..............................16
III. THE SALE...............................................................17
Background and Reasons for the Sale.....................................17
Acquisition Agreement...................................................19
Arrangements with General Partners of the Local Limited Partnerships....20
Source of Funds.........................................................20
Transaction Costs.......................................................20
Distribution of Sale Proceeds; Accounting Treatment.....................21
Conditions..............................................................21
Fairness Opinion........................................................22
Alternatives to the Sale................................................27
Recommendation of the General Partners; Fairness........................29
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT.................................34
V. CONFLICTS OF INTEREST....................................................34
General.................................................................34
Fiduciary Responsibility................................................36
VI. SELECTED FINANCIAL INFORMATION..........................................36
VII. CONSEQUENCES........................................37
VIII. LEGAL PROCEEDINGS ....................................................39
656661.17
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Page
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IX. LIMITED PARTNERS CONSENT PROCEDURE.......................................39
Distribution of Solicitation Materials...................................39
Voting Procedures and Consents...........................................40
Completion Instructions..................................................40
Withdrawal and Change of Election Rights.................................41
No Dissenters' Rights of Appraisal.......................................41
Solicitation of Consents.................................................41
X. IMPORTANT NOTE............................................................42
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, 1996. Annex C - The Partnership's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
656661.17
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<PAGE>
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. Statements contained in this
Consent Solicitation Statement as to the contents of any agreement or other
document that are referenced herein are not necessarily complete, and each such
statement is qualified in its entirety by reference to the full text of such
agreement or document, copies of which may be obtained from NAPICO without
charge. In addition, 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:
(a) Annual Report on Form 10-K of the Partnership for the fiscal year ended
December 31, 1996; and
(b) Quarterly Report on Form 10-Q of the Partnership for the quarter ended
September 30, 1997.
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.
656661.17
-v-
<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 agencies of the
federal or local government. 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 General Partners to liquidate the
Partnership as soon as practicable following consummation of the Sale. 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. See "THE
SALE."
The aggregate consideration for the Sale is $45,111,546, payable $1,571,673
in cash and $43,539,873 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 a distribution of approximately $652 in cash per unit, which
represents the net proceeds of the Sale plus approximately $1,000,000 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 $4,672 per Unit from the
Partnership that could be deducted in full against such Limited Partners'
ordinary income that is taxed at a federal
656661.17
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<PAGE>
rate of 39.6% and an effective state income tax rate of 5%. For such Limited
Partners, the Sale should result, in addition to a cash distribution of $652 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 $81 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 $1,427 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 will be entitled to receive distributions in connection
with the Sale of $25,717 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 General Partners believe 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 $652
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 $4,672 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 General Partners do not anticipate that
the Partnership will make distributions in the near future.
o Opportune Time to Sell. The General Partners believe 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 General Partners believe that investor
demand for the stock of certain public real estate companies similar
to the proposed REIT has increased significantly over the past several
years. The General Partners believe 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
General Partners took into account the potential impact of recent
changes in laws and policies relating to payments under HAP Contracts,
which the General Partners believe 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."
656661.17
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<PAGE>
o Third Party Fairness Opinion. The General Partners have determined
that the Properties owned by the Local Partnerships that the REIT
proposes to purchase have an aggregate value of $50,427,866 (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, 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 General Partners do not believe
that other alternatives available to the Partnership are as attractive
to the Partnership as the Sale.
One alternative considered by the General Partners 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 are available only to
those Limited Partners able to currently utilize passive losses (which
can only be deducted against passive income), are diminishing. The
General Partners do not believe that the Partnership could realize the
same benefits anticipated to be received by the REIT through its
acquisition 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 General Partners do 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.
The General Partners also considered marketing the Properties to third
parties in cooperation with the general partners of the Local
Partnerships; however, the General Partners do not believe that such
alternative would be in the interests of the Limited Partners, because
the General Partners believe, based on the current uncertainties in
the government subsidized housing market, that it would be difficult
to sell the Properties and do not believe that such a sale would
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 General Partners believe 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.
Several of the options considered by the General Partners, 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 General Partners believe 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. Eighteen of the nineteen Properties are
subject to Housing Assistance Payments Contracts under Section 8 of
the United States Housing Act. The General Partners anticipate 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 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
General Partners believe 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 General Partners believe 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 expects
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 $81. Because passive
losses are generally only deductible against passive income after
1986, the General Partners do not have any basis for determining the
amount of such passive losses which have previously been utilized by
Limited
656661.17
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<PAGE>
Partners. The anticipated cash distribution of approximately $652 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 $4,672 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 $733.
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 Properties. 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 General Partners have not
solicited any offers from third parties to acquire the Real Estate
Interests. There is no assurance that the General Partners would not
be able to obtain higher or better offers if such offers were to be
solicited from independent third parties.
o Sale Not Negotiated at Arms-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 General Partners 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 General Partners. 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 51% 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 $6,676 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 $1,427 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
656661.17
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<PAGE>
SHOULD BE DETERMINED BY LIMITED PARTNERS IN CONSULTATION WITH THEIR
TAX ADVISORS.
o No Appraisals; Limits on Fairness Opinion. The General Partners have
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.
o Uncertainty of Local General Partner Buyouts. The General Partners are
currently in the process of attempting to negotiate a buyout of the
interests in the Local Partnerships held by the general partners of
the Local Partnerships. All but three of the general partners of the
Local Partnerships are unaffiliated with Casden and the buyouts with
the unaffiliated local general partners are being negotiated on an
arms-length basis. There can be no assurance that the General Partners
will be able to successfully complete buyouts from all of the
unaffiliated general partners on acceptable terms. If any local
general partners do not consent to the transfer of 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 General Partners intend 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
General Partners' 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 General Partners are seeking an
amendment that modifies such prohibition to allow the Partnership
656661.17
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<PAGE>
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 General Partners that the Termination
Provision does not apply to the Sale; nevertheless, the General Partners are
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 General
Partners are 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, and assuming a state income tax rate of 5%. By
approving such Amendment, the Limited Partners are relinquishing a potential
benefit conferred by the terms of the Partnership Agreement. However, the
General Partners believe 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 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.
Limited Partner Approval
The General Partners are 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
656661.17
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<PAGE>
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 General Partners. The General
Partners have 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. See
"THE SALE--Fairness Opinion" and "--Potential Adverse Effects of the Sale--No
Appraisals; Limits on Fairness Opinion."
Recommendation of the General Partners
After a comprehensive review of various alternatives, the General Partners
believe that the Sale is in the best interests of the Limited Partners. See "THE
SALE--Alternatives to the Sale." The General Partners believe 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 Real Estate Interests. In addition, the General
Partners reviewed (but did not specifically adopt) the Fairness Opinion.
Based upon their analysis of the alternatives and their own business
judgment, the General Partners believe that 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, is fair from a financial point
of view to the Limited Partners. Accordingly, the General Partners have approved
the Sale and recommend that it be approved by the Limited Partners. Limited
Partners should note, however, that the General Partners' 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 General Partners. These
conflicts include the following:
1. The terms of the Sale (including the Purchase Price) were established by
the REIT and the General Partners (which are related parties) without the
participation of any independent financial or legal advisor. There can be no
assurance that arms-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 General
Partners 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 General Partners. The
General Partners anticipate that they will receive significant economic benefits
as a result of receiving interests in the REIT. Such interests are expected
656661.17
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<PAGE>
to enjoy greater liquidity than the General Partners' 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
51% 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 General Partners and their 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 General Partners are currently in the process of
attempting to negotiate a buyout of the interests in the Local Partnerships held
by the general partners of the Local Partnerships. The General Partners 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. To the extent that the ultimate cost of such
buyouts exceeds the General Partners' current estimates of such cost, the
distributions to Limited Partners resulting from the Sale could be reduced. In
addition, the value attributed to the management fees payable to the general
partners of the three Local Partnerships affiliated with the General Partners
was deducted 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 $4,672 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 General Partners 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
General Partners believe 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."
Summary Financial Information
The following table sets forth selected historical financial and operating
data of the Partnership for the nine months ended September 30, 1997 and
September 30, 1996 and the fiscal years ended December 31, 1996, 1995, 1994,
1993 and 1992.
The selected historical financial and operating data of the Partnership for
the nine months ended September 30, 1997 and September 30, 1996 are derived from
unaudited financial statements of the Partnership which, in the opinion of the
General Partners, include all adjustments (consisting only of normal recurring
items unless otherwise
656661.17
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<PAGE>
disclosed) necessary for a fair presentation of the Partnership's financial
position and results of operations. The results set forth for the nine months
ended September 30, 1997 and September 30, 1996 are not necessarily indicative
of results to be expected for a full year.
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10- K and its Quarterly Report on Form 10-Q
attached hereto as Annexes B and C, respectively.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss From Operations............... $(287,542) $(287,216) $(305,798) $ (336,239) $(289,477) $(278,003) $ (211,381)
Distributions From Limited
Partnerships Recognized as Income.. 215,140 221,276 218,651 245,331 220,731 404,783 197,297
Equity in Income of Limited
Partnerships and amortization of
acquisition costs.................. 371,644 455,651 393,230 262,614 252,969 291,000 375,000
Net Income......................... $ 299,242 $ 389,711 $ 306,083 $ 171,706 184,223 $ 417,780 $ 360,916
Net Income allocated to Limited
Partners........................... $ 296,249 $ 385,814 $ 303,022 $ 169,989 $ 182,381 $ 413,107 $ 357,306
Net Income per Limited Partnership
Interest........................... $ 38 $ 50 $ 39 $ 22 $ 23 $ .54 $ .46
Total assets....................... $3,259,178 $2,979,971 $2,592,397 $ 2,255,550 $2,091,002 $3,707,273 $ 3,311,448
Investments in Limited Partnerships $1,305,672 $1,103,818 $ 884,383 $ 659,376 $ 653,364 $1,475,659 $ 1,339,185
</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
$429,000, which the Partnership expects to pay using cash equivalents held by
the Partnership. The 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.
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 General
Partners and (ii) the date upon which the General Partners determine that a
Majority Vote has been obtained (the "Solicitation Period").
656661.17
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<PAGE>
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 of the
Partnership outstanding.
The General Partners of the Partnership are NAPICO and NPIA. The business
of the Partnership is conducted primarily by the General Partners. 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. Charles H. Boxenbaum and an unrelated individual are the
limited partners of NPIA. NAPICO is the general partner of NPIA.
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 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 Partnership is limited to its investment. The general
partner of each Local Partnership retains responsibility for developing,
constructing, maintaining, operating and managing the Property.
656661.17
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<PAGE>
The Local Partnerships generated approximately $574,000 in cash flow to the
Partnership in 1997, before Partnership expenses of approximately $500,000. The
Partnership currently has a cash reserve of approximately $2,200,000, $1,000,000
of which will be distributed to the Limited Partners after consummation of the
Sale.
656661.17
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<PAGE>
The Properties
During 1996, 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, 1996, 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 140 140 134 96%
Chicago, IL
Canoga Park Apartments 14 14 14 100%
Canoga Park, CA
Castle Park Apartments 209 209 199 95%
Normandy, MO
Centennial Townhomes 88 88 86 98%
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 66 94%
Orange, TX
Grandview Place Apartments 48 48 48 100%
Missoula, MT
Hamlin Estates 30 30 30 100%
Los Angeles, CA
Heritage Square 50 50 49 98%
Texas City, TX
North River Club Apartments 56 56 55 98%
Oceanside, CA
Palm Springs Senior 116 116 110 95%
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 99 89%
Garden Grove, CA
Plummer Village 75 74 74 99%
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 and
maintenance and capital expenditures made out of operating cash and reserves
maintained by the Local Partnerships amounted to approximately $1,900,000 in the
aggregate for the year ended December 31, 1996. Due to the age of the
Properties, capital expenditures are expected to increase progressively over the
remaining useful lives of the Properties.
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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 General Partners, 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.
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 General Partners monitor transfers of the Units (a) because the
admission of a substitute limited partner requires the consent of the General
Partners 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 General Partners do
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. These
distribution rules were described in detail in the disclosure documents. 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 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.
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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
of local administering agency as 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 General
Partners are 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 General Partners are 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 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
restricted reserve accounts that may be used only for limited purposes (the
"Reserve Accounts"). The Purchase Price was calculated without attributing value
to the Reserve Accounts. The General Partners believe that federal and state
regulatory considerations limiting the availability of the Reserve Accounts to
the Partnership have the effect of substantially reducing or eliminating
656661.17
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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, the Board of Trustees of American University 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 1975. 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.
656661.17
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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, Casden Properties 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 March 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 General Partners believe 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
656661.17
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Limited Partners and does not anticipate realizing sufficient cash flow in the
future to enable it to make distributions to Limited Partners. Limited Partners
will realize an aggregate of approximately $830,000 in current passive activity
rental losses for 1997. In addition, Limited Partners will realize approximately
$293,000 in interest income for 1997. Assuming Limited Partners are restricted
from utilizing passive losses, the Limited Partners will be liable for the taxes
related to the 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 General
Partners do not believe that it would be feasible to market the Real Estate
Interests.
The REIT believes that there are certain benefits not available to the
Partnership that it 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 51% 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 General Partners believe 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
General Partners 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 General Partners (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 General
Partners believe that it is unlikely that the Limited Partners of the
Partnership will benefit from any restructuring under MAHRAA.
The General Partners believe 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
General Partners believe that the current market for securities issued by REIT
Entities will provide the Partnership with an opportunity to sell the Properties
to the REIT for a favorable price. In addition, because any third party buyer
attempting to purchase the Properties would have to purchase not only the Real
Estate Interests of
656661.17
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the Partnership, but also the interests of each of the local general partners,
the General Partners are 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 General Partners believe it is unlikely that there would be a
third-party buyer for the Properties. Limited Partners should note, however,
that the General Partners' recommendation is subject to inherent conflicts of
interest. See "CONFLICTS OF INTEREST."
REAL V owns limited partnership interests in the Local Partnerships that
hold title to the real estate assets that the REIT has offered to purchase. All
but three of the general partners of such Local Partnerships are unaffiliated
with the General Partners of REAL V. 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
which a buyer is willing to pay for the Partnership's Real Estate Interests. The
amounts that the General Partners propose to pay to the unaffiliated local
general partners in connection with the buyouts of such local general partners
are being determined as a result of arms-length negotiations. The General
Partners believe that the terms of such buyouts are fair to the Partnership.
Therefore, the General Partners believe that, while 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.
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."
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 General Partners
(consistent with the General Partners' 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 _____________, 1998. If the
closing does not occur by December 31, 1998 the purchase and sale agreement will
be terminated.
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<PAGE>
Arrangements with General Partners of the Local Limited Partnerships
The General Partners are currently in the process of structuring and
negotiating buyouts of the interests in the Local Partnerships held by the
general partners of the Local Partnerships, all of whom are unaffiliated with
Casden. Such buyouts are being negotiated on an arms-length basis. The General
Partners expect that the general partners of the Local Partnerships will be paid
an aggregate of approximately $5,316,000 for their interests in, and rights to
manage, the Local Partnerships. There can be no assurance that the General
Partners will be able to successfully complete buyouts from all of the
unaffiliated general partners of the Local Partnerships on acceptable terms. To
the extent that the General Partners 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 reduce the distribution resulting from the Sale to the Limited
Partners of 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 buyouts exceeds the General Partners'
current estimates of such cost, the distributions to Limited Partners resulting
from the Sale will be reduced. 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.
In the case of three of the Local Partnerships, the general partners of
such partnerships are affiliates of the General Partners. An aggregate of
$205,200 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 on the same basis used when
calculating buyout offers to unaffiliated local general partners. No value was
attributed to the affiliated general partners' 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.
Transaction Costs
The General Partners estimate that the Partnership's transaction costs in
connection with the Sale will be as follows:
Accounting............................................ $100,000
Legal................................................. 50,000
Escrow Costs (seller's portion)....................... 25,000
Title Policies (seller's portion)..................... 35,000
Structural and Engineering Reports.................... 100,000
Stanger Fairness Opinion.............................. 108,000
Consent Solicitation Costs............................ 6,000
Miscellaneous Costs................................... 5,000
---------
Total................................................. $429,000
========
The General Partners will receive a distribution of approximately $25,700
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. 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 $1,571,673, and (ii) cash
available for distribution (after payment of expenses) of approximately
$1,000,000, the Limited Partners will be entitled to receive $2,545,956 ($652
per Unit). The Partnership will retain working capital reserves after the Sale
(and payment of transaction costs) of approximately $770,000. NAPICO and NPIA
will be entitled to receive a distribution in connection with the Sale of
$25,717.
The General Partners intend 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.
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;
656661.17
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<PAGE>
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;
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; and
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by the
Partnership 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. The
Partnership 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 General Partners 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 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 General Partners
selected the method of determining the Aggregate Property Valuation did not
limit the methods and procedures followed by Stanger in rendering the Fairness
Opinion.
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.
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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 and 1996 and the
Partnership's quarterly report on Form 10-Q for the period ended September 30,
1997, 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 nine months ending September 30, 1997; (v)
operating budgets for the Properties for 1997 and forecasts for 1998 for each
Property, as prepared by the 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.
In addition, Stanger discussed with management of the Partnership and the
General Partners the market conditions for apartment properties, conditions in
the market for sales/acquisitions of properties similar to that owned by the
Partnership, 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 certain 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 and January and 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 General
Partners, 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 rentable square footage; 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 nine months ending September 30, 1997, the operating
budget for 1997 and operating forecasts for 1998 for each Property, as prepared
by the 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
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(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 General Partners 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 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 of 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 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 was generally held flat for Subsidized Properties or was escalated at a
rate to provide sufficient income to pay operating expenses and
656661.17
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debt service. In the case of the Conventional Property, the rental rate was
escalated at 3% per year during the holding period. Effective expense escalators
generally ranged from 2.89% to 3.0%.
As part of its DCF Analysis, Stanger then estimated the residual value 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 [9.0%] to [10.0%].
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 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 __% to
__% to estimate a free and clear residual value. Any remaining equity cash flow
after debt service available was capitalized at rates ranging from % to % to
determine a residual equity value to be used in the Leveraged DCF Analysis.
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 $_____ to $_____ and
that the Aggregate Property Valuation of $51,910,04 was [within/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
$_____ to $_____ 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
656661.17
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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 General Partners and/or their 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 General Partners and their affiliates, the Local Partnerships and the
management of the Properties concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure
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, Casden, the General Partners and their affiliates, the Local
Partnerships, and the management of the Properties that any financial
statements, projections, budgets, capital expenditure estimates, mortgage 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 and
projections were made in accordance with the terms of the existing and
anticipated regulatory agreements.
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; (iii) make any recommendation to the
Partnership or its partners with respect to whether to approve or reject the
proposed Sale; or (iv) 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 and any
affiliates of the General Partners, (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 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 General Partners' 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 General
Partners' determination that no value should be ascribed to any cash flow from
the Properties in excess of certain limitations on dividends to the Partnership,
the amount of the Aggregate Property Valuation ascribed to certain general
partner and/or management
656661.17
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interests in the Local Partnerships and other expenses and fees associated with
the Sale, or (e) 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 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.
Compensation and Material Relationships. Stanger has been retained by the
General Partners and their 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 of up to approximately $490,000, plus
$4,100 per property by the Casden Partnerships, a portion of which is payable
upon consummation of the REIT Transaction. The portion of the fee allocable to
the Partnership is $27,700, plus $4,100 per Property. 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.
Alternatives to the Sale
The following is a brief discussion of alternatives to the Sale considered
by the General Partners and the possible benefits and disadvantages of such
alternatives:
Continuation of the Partnership. One alternative considered by the General
Partners 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
will realize an aggregate of approximately $830,000 in current passive activity
rental losses for 1997. 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. Depreciation
deductions for most of the Properties will cease to be available within 1-3
years. Furthermore, the General Partners do 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 General Partners believe 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 may be no market
for the Properties and the
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Partnership cannot cause 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 General Partners
also considered marketing the Properties to third parties. The portfolio of
Properties can only be marketed in cooperation with the local general partners.
The General Partners do not believe that such alternative is viable or would be
in the best interests of the Limited Partners, because the General Partners are
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 General Partners do 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 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 General Partners believe 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. There have
been no third party offers for any of the Properties over the last year and the
General Partners do 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 General Partners believe 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. However, there can be no
assurance that a higher purchase price would not be received if the Properties
were actively marketed.
Rollup. The General Partners 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 General Partners believe, however, that such a transaction would have
significant disadvantages. As a result of new legislation and regulations, they
believe that obtaining necessary regulatory approvals for a rollup would be very
difficult, expensive and time-consuming. The General Partners were not confident
that a rollup transaction could be completed within a reasonably practical time
period. Furthermore, the General Partners believe 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 General Partners 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 Partner would have no additional cash with which to
pay the taxes which would result from the completion of a rollup transaction.
The
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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 General Partners 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 General Partners were 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
General Partners were advised that it would be unlikely that the real estate
investment trust shares would perform well in the market. In addition, the
General Partners believe 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 General Partners; Fairness
The recommendation of the General Partners in favor of the Sale is based
upon their belief that the Sale is fair to the Limited Partners for, among
others, the following reasons: (a) their 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) their belief that the
alternatives available to the Partnership are not as attractive to the Limited
Partners as the Sale; (c) their 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) their belief that the Purchase Price represents a
higher amount than a third party would offer the Partnership for the Properties.
The General Partners have not obtained real estate appraisals to establish
the fair market value of the Properties, but, based upon their significant real
estate experience, they believe 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 General Partners. The General
Partners 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 or no HAP Contracts, the General Partners 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 seven to ten years in the future, the
General Partners followed the same procedure, but applied a capitalization rate
of 12%. For Local Partnerships with HAP Contracts expiring in less than seven
years, the General Partners 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%. In selecting the capitalization rates, the General
Partners took into account the likelihood 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
General Partners 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.
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Based on such assumptions, the General Partners determined that the
Properties owned by the Local Partnerships had an aggregate value of $50,427,866
(the "Aggregate Property Valuation"). The General Partners subtracted from the
Aggregate Property Valuation (i) $5,316,320 for the aggregate estimated value of
the general partnership interests in the Local Partnerships and the local
general partners' right to future management fees, including $205,200
attributable to the right to receive the future management fees payable to the
three 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 $43,539,873. 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 General Partners 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 General Partners described
above resulted in distributable cash out of the proceeds of the Sale of
$1,571,673.
The General Partners believe 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 General Partners believe 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 General Partners assumed that certain of the Properties would
have no residual values upon expiration of the respective HAP Contracts
applicable to such Properties, based on their belief that cash flow after
expiration of the HAP Contracts will be significantly reduced, as discussed
below. The General Partners made the same assumption when determining the
capitalization rates used in their 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 General
Partners do 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 General Partners believe that 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.
The General Partners 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
656661.17
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<PAGE>
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 General Partners (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 General Partners do
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
General Partners ascribed no residual value to certain Properties. The
General Partners believe 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 General Partners do 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
General Partners 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 General Partners did not quantify, reach independent conclusions
regarding or otherwise assign relative weights to the individual qualitative
factors listed above. Instead, the General Partners considered the diminishing
prospects of the Partnership in light of the totality of the circumstances. The
General Partners believe that each of the factors considered supported their
determination that the Sale was 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, 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
that are unavailable to the Partnership and inconsistent with the Partnership's
original objectives.
The General Partners 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
656661.17
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<PAGE>
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 General Partners propose to pay to
the unaffiliated local general partners in connection with the buyouts of such
local general partners will be determined in arms-length negotiations. The
General Partners believe that the terms of such buyouts are fair to the
Partnership. Therefore, the General Partners believe that, while the amount paid
to the local general partners affects 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 General Partners believe 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 General Partners believe 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 General Partners believe they have a reasonable basis for the
assumptions made, it is unlikely that all of the assumptions employed by the
General Partners 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 General Partners 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 High Low
Received from -----------------------------------------
Sale and
Liquidation(1)
- - -----------------------------------------------------------------
$652.00 $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.
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.
656661.17
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<PAGE>
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.
The General Partners did not give any specific weight to any one of the
foregoing factors but viewed them in the aggregate in supporting their fairness
determination. The General Partners recommend that the Sale be approved by the
Limited Partners. Limited Partners should note, however, that the General
Partners' recommendation is subject to inherent conflicts of interest. See
"CONFLICTS OF INTEREST."
Other Measures of Value. The General Partners have 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 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 General Partners
have not calculated an estimate of the liquidation value of 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 General Partners 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 General Partners did not believe that the benefits to be derived from such
appraisals justified the expense to the Partnership. The General Partners did
not believe that the price that Unitholders 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.
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 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.
656661.17
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<PAGE>
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
General Partners that the Termination Provision does not apply to the Sale;
nevertheless, the General Partners are 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 General
Partners are 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, and assuming a state income tax rate of 5%. By
approving such Amendment, the Limited Partners are relinquishing a potential
benefit conferred by the terms of the Partnership Agreement. However, the
General Partners believe 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 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 General Partners in the
organization of the REIT, and the relationships among the General Partners, the
Casden Partnerships, Casden and Casden's directors and officers, the General
Partners have 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 General
Partners, which are related parties. Accordingly, the terms and conditions of
the proposed Sale were not determined through arms-length negotiations. There
can be no assurance that arms-length negotiations would not have resulted in
terms more favorable to the Limited Partners.
2. Although the General Partners are accountable to the Partnership and the
Limited Partners as fiduciaries and are 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 General
Partners 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 General Partners. The
General Partners anticipate that they
656661.17
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<PAGE>
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 General Partners' 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 51% 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 General Partners and their 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 Private Placement
(and subsequent public offering) of its securities and, if realized, will likely
provide affiliates of the General Partners 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, 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 General Partners and their 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. The General Partners are currently in the process of structuring a
buyout of the interests in the Local Partnerships held by the general partners
of the Local Partnerships. There can be no assurance that the General Partners
will be able to successfully complete the buyouts from such unaffiliated general
partners on acceptable terms. To the extent that the ultimate cost of such
buyouts exceeds the General Partners' current estimates of such cost, the
distributions to Limited Partners resulting from the Sale will be reduced. In
addition, the value attributed to the management fees payable to the general
partners of the three 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 General Partners will have a substantial interest in the REIT.
Fiduciary Responsibility
The General Partners are 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 General Partners and their 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
656661.17
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<PAGE>
General Partners are 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 General
Partners have 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 General Partners in connection with their
actions on behalf of the Partnership with respect to the Sale, the General
Partners expect that they will seek to be indemnified by the Partnership with
respect to such claim. Any expenses (including legal fees) incurred by the
General Partners 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 General Partners to repay any amounts
advanced if it is determined that the General Partners' 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 General Partners relating to the General Partners'
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 nine months ended September 30, 1997 and
September 30, 1996 and the fiscal years ended December 31, 1996, 1995, 1994,
1993 and 1992.
The selected historical financial and operating data of the Partnership for
the nine months ended September 30, 1997 and September 30, 1996 are derived from
unaudited financial statements of the Partnership which, in the opinion of the
General Partners, 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 nine months ended September 30, 1997 and September 30, 1996 are
not necessarily indicative of results to be expected for a full year.
656661.17 3/27/98 10:33a
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<PAGE>
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10- K and its Quarterly Report on Form 10-Q
attached hereto as Annexes B and C, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Loss From Operations............... $ (287,542) $ (287,216) $ (305,798) $ (336,239) $ (289,477)
Distributions From Limited
Partnerships Recognized as Income.. 215,140 221,276 218,651 245,331 220,731
Equity in Income of Limited
Partnerships and amortization of
acquisition costs.................. 371,644 455,651 393,230 262,614 252,969
Net Income......................... $ 299,242 $ 389,711 $ 306,083 $ 171,706 184,223
Net Income allocated to Limited
Partners........................... $ 296,249 $ 385,814 $ 303,022 $ 169,989 $ 182,381
Net Income per Limited Partnership
Interest........................... $ 38 $ 50 $ 39 $ 22 $ 23
Total assets....................... $ 3,259,178 $ 2,979,971 $ 2,592,397 $ 2,255,550 $ 2,091,002
Investments in Limited Partnerships $ 1,305,672 $ 1,103,818 $ 884,383 $ 659,376 $ 653,364
Nine Months Ended
September 30
<C> <C>
1997 1996
Loss From Operations............... (278,003) $ (211,381)
Distributions From Limited
Partnerships Recognized as Income.. 404,783 197,297
Equity in Income of Limited
Partnerships and amortization of
acquisition costs.................. 291,000 375,000
Net Income......................... 417,780 $ 360,916
Net Income allocated to Limited
Partners........................... 413,107 $ 357,306
Net Income per Limited Partnership
Interest........................... .54 $ .46
Total assets....................... 3,707,273 $ 3,311,448
Investments in Limited Partnerships 1,475,659 $ 1,339,185
</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 $652 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
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
656661.17
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<PAGE>
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 $6,676 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 $81. Because passive losses are
only deductible against passive income after 1986 (subject to certain
transitional rules), the General Partners do 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 $652 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 for
the portion of net section 1231 gain attributable to unrecaptured section 1250
gain and that Limited Partners have suspended passive losses of $4,672 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 $733. 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 General Partners believe 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 General Partners 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 General Partners believe it is
reasonable to assume that the majority of the current Limited Partners will be
in the highest federal tax bracket in 1998. The General Partners believe that
while state tax rates vary from state-to-state, the average state tax rate for
individuals who itemize deductions is approximately 5%. The General Partners
calculated the tax benefit from the suspended passive losses at 44.6% (39.6%
federal rule plus 5% 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 $2,079 per Unit, or $1,427 in excess of the
distribution of $652 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
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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 GENERAL PARTNERS
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 General Partners, 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 will continue until
the earlier of (i) _________, 1998 or such later date as may be determined by
the General Partners and (ii) the date upon which the General Partners determine
that a Majority Vote has been obtained. At their discretion, the General
Partners 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.
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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 General
Partners; (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 The
Herman Group (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
Tabulators, whose determination will be final and binding. The Tabulators
reserve 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 General Partners'
counsel, would be unlawful. The Tabulators also reserve 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 Tabulators shall determine. The Partnership, the General
Partners and the Tabulators 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:
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 Partnership at ______________. 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.
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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 General Partners and their 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:
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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
NATIONAL PARTNERSHIP INVESTMENTS CORP.
By:
Bruce E. Nelson
President
NATIONAL PARTNERSHIP INVESTMENTS ASSOCIATES II
By: National Partnership Investments Corp., its General Partner
By:
Bruce E. Nelson
President
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