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. 2
Real Estate Associates Limited V
(Name of the Issuer)
Real Estate Associates Limited V
National Partnership Investments Corp.
Casden Investment Corporation
Charles H. Boxenbaum
Bruce E. Nelson
Henry C. Casden
Alan I. Casden
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
75585108
(CUSIP Number of Class of Securities)
STEVEN A. FISHMAN, ESQ.
BATTLE FOWLER, LLP
75 EAST 55th STREET
NEW YORK, NEW YORK 10022
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This Statement is filed in connection with
(check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
- - - --------------------------------------------------------------------------------
Calculation of Filing Fee
$1,571,673.00 $314.00
Transaction Valuation* Amount of filing fee
- - - --------------------------------------------------------------------------------
* For purposes of calculating the filing fee only. The filing fee was
calculated in accordance with Rule 0-11 under the Securities Exchange Act of
1934, as amended, and equals 1/50 of one percent of the value of the cash
being paid in connection with the transaction.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
schedule and the date of its filing.
Amount Previously Paid: $314.00
Form or Registration No: Schedule 13E-3
Filing Party: Real Estate Associates Limited V
Date Filed: January 23, 1998
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 (the "REIT") to be organized by Casden Properties, a
California general partnership, and certain of its affiliates.
The General Partners of the Partnership are National Partnership
Investments Corp., a California corporation ("NAPICO"), and National Partnership
Investments Associates II, a California limited partnership ("NPIA"). NAPICO is
a wholly-owned subsidiary of Casden Investment Corporation, the sole director
and stockholder of which is Mr. Alan I. Casden. The current members of NAPICO's
board of directors are Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden
and Alan I. Casden, each of whom is expected to become an officer and
shareholder of the REIT. Alan I. Casden is the general partner of Casden
Properties.
A preliminary consent solicitation statement (the "Consent Solicitation
Statement") with regard to the proposed sale has been filed with the Securities
and Exchange Commission contemporaneously herewith. The Consent Solicitation
Statement is attached hereto as Exhibit (d).
The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Consent
Solicitation Statement of the information required to be included in response to
the items of this Statement. The information in the Consent Solicitation
Statement, a copy of which is attached hereto as Exhibit (d), is hereby
expressly incorporated herein by reference in answer to the items in this
Statement, and the Cross Reference Sheet set forth below shows the location in
the Consent Solicitation Statement of the information required to be included in
response to the items of this Statement. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Consent
Solicitation Statement. The Consent Solicitation Statement will be completed
and, if appropriate, amended, prior to the time it is first sent or given to
limited partners of the Partnership. This Statement will be amended to reflect
such completion or amendment of the Consent Solicitation Statement.
677188.3 4/27/98 2:49p
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Cross Reference Sheet
<TABLE>
Item of Schedule 13E-3 Location in Consent Solicitation Statement
Item 1. Issuer and Class of Security Subject to the Transaction.
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(a) and (b) Outside Front Cover Page, "SUMMARY OF CONSENT SOLICITATION
STATEMENT -- The Partnership," "THE PARTNERSHIP -- General," "--
Market for Partnership Interests and Related Security Holder Matters."
(c) and (d) "The PARTNERSHIP -- Market for Partnership Interests and Related Security
Holder Matters" and "-- Distribution History."
(e) Not Applicable.
(f) Not Applicable.
Item 2.Identity and Background.
This statement is being filed by the issuer and certain affiliates of the issuer named in (b) below.
(a) "SUMMARY OF CONSENT SOLICITATION STATEMENT -- The Partnership"
and "THE PARTNERSHIP -- General."
(b) Alan J. Casden
Chairman
Casden Properties Inc.
9090 Wilshire Boulevard, 3rd Floor
Beverly Hills, CA 90211
Henry C. Casden
President
Casden Properties Inc.
9090 Wilshire Boulevard, 3rd Floor
Beverly Hills, CA 90211
National Partnership Investments Corp., a California corporation
9090 Wilshire Boulevard, Suite 201
Beverly Hills, CA 90211
Casden Investment Corporation, a California corporation
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Charles H. Boxenbaum
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Bruce E. Nelson
9090 Wilshire Boulevard
Beverly Hills, CA 90211
(c)-(d) "SUMMARY OF CONSENT SOLICITATION STATEMENT -- The Partnership"
and "THE PARTNERSHIP -- General."
677188.3
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(e)-(f) During the past five years, neither the Partnership nor any of the filing persons has
been (i) convicted in criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction, and, as a result of such proceeding, was or is
subject to a judgment, decree or final order enjoining further violation of, or
prohibiting activities subject to, federal or state securities laws or finding any
violation of such laws, except as set forth under "LEGAL PROCEEDINGS."
(g) All relevant persons are citizens of the United States of America.
Item 3. Past Contracts, Transactions or Negotiations.
(a) Not Applicable.
(b) "The PARTNERSHIP -- Conflicts of Interest."
Item 4.Terms of the Transaction.
(a) and (b) Outside Front Cover Page, "SUMMARY
OF CONSENT SOLICITATION STATEMENT -- The
Sale," "-- Conflicts of Interest," and
"THE SALE."
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT -- The
Sale," "-- Conflicts of Interest," and
"THE SALE."
Item 6. Source and Amount of Funds or Other Consideration.
(a) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- The Sale" and "THE SALE -- Source of
Funds."
(b) "THE SALE -- Transaction Costs." (c)-(d) Not Applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a)-(d) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT -- The
Sale," "-- Potential Benefits of the
Sale," "-- Potential Adverse Effects of
the Sale," "THE SALE," "CONFLICTS OF
INTEREST" and
"FEDERAL INCOME TAX CONSEQUENCES." Each
filing person participated in the
consideration of the alternatives to the
Sale described under the above-referenced
captions.
677188.3
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Item 8. Fairness of the Transaction.
(a) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- Potential Benefits of the Sale," "--
Potential Adverse Effects of the Sale,"
"-- Third Party Opinion," "--
Recommendations of the General Partners,"
"-- Conflicts of Interest" and "THE SALE
-- Fairness Opinion." Additionally, each
filing parties believes that the
transaction is fair to the limited
partners for the reasons set forth in the
above referenced sections.
(b)-(f) "SUMMARY OF CONSENT SOLICITATION STATEMENT
-- Potential Benefits of the Sale," "--
Potential Adverse Effects of the Sale,"
"-- Third Party Opinion," "--
Recommendations of the General Partners,"
"-- Conflicts of Interest" and "THE SALE
-- Fairness Opinion."
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) "THE PARTNERSHIP--Market for Partnership Interests and Related Security
Holder Matters."
(b) Not Applicable.
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's Securities.
"SUMMARY OF CONSENT SOLICITATION STATEMENT -- Conflicts of
Interest" and "CONFLICTS OF INTEREST."
Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction.
(a)-(b) "SUMMARY OF THE CONSENT SOLICITATION STATEMENT --
Recommendation of the General Partners,"
"THE SALE -- Recommendation of the General
Partners" and "-- Fairness Opinion."
Item 13. Other Provisions of the Transaction.
(a) Outside Front Cover Page, "SUMMARY OF
CONSENT SOLICITATION STATEMENT --
Potential Adverse Effects of the Sale" and
"LIMITED PARTNERS CONSENT PROCEDURE -- No
Dissenters Rights of Appraisal."
(b)-(c) Not Applicable.
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Item 14. Financial Information.
(a) "SELECTED FINANCIAL INFORMATION", "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and Annex B to Proxy Statement.
(b) Not Applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b) "SUMMARY OF CONSENT SOLICITATION STATEMENT -- Conflicts of
Interest" and "CONFLICTS OF INTEREST."
Item 16. Additional Information.
(a) Not Applicable.
Item 17. Material to be filed as Exhibits.
(a) Not Applicable.
(b) Fairness Opinion of Robert A. Stanger & Co., Inc. (attached as Annex A to Exhibit
(d)).
(c) Not Applicable.
(d) Preliminary copies of each of the Consent
Solicitation Statement, Letter to Limited
Partners and Form of Consent.
(e) Not Applicable.
(f) Not Applicable.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this Statement is true, complete and correct.
Dated: April 27, 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 CORP.
By: /s/ Bruce E. Nelson
----------------------------------------
Bruce E. Nelson
President
CASDEN INVESTMENT CORPORATION
By: /s/ Alan I, Casden
----------------------------------------
Alan I. Casden
President
/s/ Henry C. Casden
----------------------------------------
Henry C. Casden
/s/ Alan I. Casden
----------------------------------------
Alan I. Casden
/s/ Charles H. Boxenbaum
----------------------------------------
Charles H. Boxenbaum
/s/ Bruce E. Nelson
----------------------------------------
Bruce E. Nelson
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Exhibit (d)
677188.3
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REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
___________ __, 1998
To the Limited Partners:
National Partnership Investments Corp., the managing general partner ("NAPICO"
or the "Managing General Partner") of Real Estate Associates Limited V (the
"Partnership"), is writing to recommend, and seek your consent to, (i) a
proposed sale of all of the interests of the Partnership (the "Real Estate
Interests") in the real estate assets of the nineteen limited partnerships
affiliated with the Partnership (the "Local Partnerships") to a real estate
investment trust or its designated affiliate (collectively referred to as the
"REIT") to be organized by Casden Properties, a California general partnership,
and certain of its affiliates (collectively referred to as "Casden"); and (ii)
certain amendments (the "Amendments") to the Partnership's Agreement of Limited
Partnership necessary to permit such sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation, the sole
director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden is also
a general partner of Casden Properties, the sponsor of the REIT and an affiliate
of the Partnership. Four of the current members of NAPICO's board of directors,
Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I. Casden, are
expected to become officers and shareholders of the REIT. Eighteen of the
nineteen Local Partnerships own a low income housing project that is subsidized
and/or has a mortgage note payable to or insured by agencies of the federal
government or a local housing agency. The remaining Local Partnership owns a
conventional multi-unit residential apartment complex. The properties owned by
the Local Partnerships are each referred to herein as a "Property". The
transactions by which the Partnership proposes to sell the Real Estate Interests
to the REIT and amend its Agreement of Limited Partnership are hereinafter
referred to as the "Sale". Limited Partners must separately approve the proposed
Sale and each of the proposed Amendments in order to allow consummation of the
Sale.
In evaluating the proposed Sale, the Limited Partners should note that:
o The Properties do not currently produce significant cash flow and the
Partnership has not made any distributions to date. The Partnership's
investment in the Properties was initially structured primarily to obtain
tax benefits, and not to provide cash distributions. The Partnership has
substantially fulfilled its original objective of providing tax benefits to
the Limited Partners. The Partnership has generated tax deductions equal to
at least 97.3% to each Limited Partner's equity investment since the
inception of the Partnership (assuming a Limited Partner claimed such
deductions in accordance with the passive loss transitional relief rules
contained in the Tax Reform Act of 1986 and in connection with property
dispositions). As a result of such changes to the tax law, most Limited
Partners no longer realize any material tax benefits from continuing to
hold their interests in the Partnership.
o Based upon a purchase price for the Real Estate Interests of $45,111,546,
which is payable $1,571,673 in cash and $43,539,873 by assumption by the
REIT of certain mortgage indebtedness, it is anticipated that the
Partnership will make a distribution to Limited Partners of $2,545,956 in
the aggregate or approximately $652 per unit, which represents the net
proceeds of the Sale plus approximately $1,000,000 of the available cash
reserves of the Partnership. Each unit consists of two limited partnership
interests, which were sold at an original cost of $5,000 per unit. The per
unit distribution amount of $652 is anticipated to be sufficient to pay any
federal and state income taxes that would be due in connection with the
Sale, assuming (i) that Limited Partners have suspended passive losses of
$4,672 per unit from the Partnership; (ii) that
656661.19
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such losses are available to offset ordinary income taxed at the 39.6%
marginal federal rate; and (iii) federal and effective state capital gains
rates of 25% and 5%, respectively.
o The Managing General Partner believes that now may be an opportune time for
the Partnership to sell the Real Estate Interests, given current conditions
in the real estate and capital markets, which have enabled the REIT to make
the proposal to the Partnership described in the enclosed materials.
o Robert A. Stanger & Co., Inc., a recognized independent investment banking
firm, has determined that, subject to the assumptions, limitations and
qualifications contained in its opinion, the aggregate value ascribed to
the Properties in connection with determining the Purchase Price to be
received by the Partnership for the Real Estate Interests in the Sale is
fair from a financial point of view to the Limited Partners.
o The Managing General Partner believes that selling the Partnership's entire
portfolio of real estate assets in a single transaction (as opposed to a
series of individual sales) will enable the Partnership to (i) reduce
transaction expenses; and (ii) dispose of its portfolio in an expedited
time frame. It should be noted that the Sale is conditioned upon, among
other things, the consents of the general partners of the Local
Partnerships in which the REIT intends to acquire interests. The
Partnership will retain its interests in a Property if the general partner
for the Local Partnership holding such Property does not approve the
transfer.
o The Managing General Partner does not believe that it would be feasible to
market the portfolio of Properties to a third party because the Partnership
owns only limited partnership interests in the Local Partnerships. The
general partners of such Local Partnerships are generally not affiliated
with the Managing General Partner. As a result, the cooperation of such
local general partners is necessary to allow the Partnership to effectuate
a sale of the properties held by the Local Partnerships, since a third
party buyer would need to negotiate a buy-out of all of the local general
partners. The Partnership does not have the power to compel a sale of such
properties to a third party.
o Most of the Properties are subject to Housing Assistance Payments Contracts
under Section 8 of the United States Housing Act. Most of these contracts
will expire by the end of 2003 and the United States Department of Housing
and Urban Development will not renew them under their current terms, which
could ultimately have an adverse economic and tax impact on Limited
Partners.
There are certain risk factors that the Limited Partners should consider in
evaluating the proposed Sale, such as:
o The Partnership does not have the right to compel a sale of the Properties.
Accordingly, the Managing General Partner has not marketed the Properties
for sale to third parties.
o The terms of the Sale have not been negotiated at arm's length.
o Casden is both an affiliate of the Managing General Partner and the sponsor
of the REIT and, as discussed in the enclosed materials, would receive
substantial benefits as a result of the Sale and the successful formation
and capitalization of the REIT that will not be available to Limited
Partners.
o It is possible that Limited Partners could earn a higher return on their
investment in the Partnership if the Partnership were to retain ownership
of the Properties, then market and sell the Properties to third parties for
a higher aggregate purchase price at a later date.
o As a result of the Sale, the Partnership will not realize any potential
benefits of continuing to own the Properties.
656661.19
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o The Sale will have a tax impact on Limited Partners. For Limited Partners
who have been able to use all of the passive losses generated by the
Partnership on a current basis, the Sale should result in a federal and
state income tax cost of approximately $1,427 per Unit in excess of the
cash distribution. For Limited Partners who do not have sufficient taxable
income to be taxed at a 39.6% marginal rate or who have other losses
available to deduct against their taxable income and therefore could not
fully utilize their suspended passive losses to offset their ordinary
income, the sale could have a federal and state tax cost in excess of cash
distributions.
The REIT is to be formed by combining a substantial portion of Casden's
multi-family housing assets, which consist of real estate businesses and
property interests, with conventional and subsidized housing properties acquired
from several Casden-sponsored and/or managed partnerships and from third-party
sellers. Casden and certain officers and directors of NAPICO, including Alan I.
Casden, Henry C. Casden, Charles H. Boxenbaum and Bruce E. Nelson, will receive
a significant ownership interest in the REIT in exchange for Casden contributing
substantially all of its multi-family housing assets and businesses to the REIT.
The REIT proposes to acquire the Real Estate Interests for cash, which it plans
to raise in connection with a private placement of its equity securities. The
closing of the Sale is subject to, among other things, (i) the consummation of
such private placement by the REIT; (ii) the consents of the general partners of
the Local Partnerships in which the REIT intends to acquire interests; (iii) the
approval of the United States Department of Housing and Urban Development and
certain state housing finance agencies; and (iv) the consummation of a minimum
number of similar sales transactions with other Casden-affiliated partnerships.
If the Limited Partners do not approve the Sale, the Partnership will most
likely retain ownership of the Properties.
We urge you to carefully read the enclosed Consent Solicitation Statement in
order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE APPROVAL REQUIRES
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF LIMITED
PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE. To be sure your vote is represented, please sign, date and
return the enclosed consent as promptly as possible.
The proposed Sale is fully described in the enclosed Consent Solicitation
Statement. Please read the enclosed materials carefully, then return your signed
consent form either by facsimile to ______________ or in the enclosed envelope
on or before ________ __, 1998.
If you have any questions, please do not hesitate to contact MacKenzie Partners,
the Partnership's consent solicitation agent, at 212-929-5500.
Very truly yours,
National Partnership Investments Corp.
656661.19
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REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
________ __, 1998
CONSENT SOLICITATION STATEMENT
On the terms described in this Consent Solicitation Statement, National
Partnership Investments Corp., a California corporation and the managing general
partner ("NAPICO" or the "Managing General Partner") of Real Estate Associates
Limited V, a California limited partnership (the "Partnership," or "REAL V"), is
seeking the consent of the Limited Partners of the Partnership to (i) the sale
of all of the interests of the Partnership in the real estate assets (the "Real
Estate Interests") of 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 that is subsidized and/or has a mortgage note payable to or insured by
agencies of the federal government or a local housing agency. The remaining
Local Partnership owns a conventional multi-unit residential apartment complex.
Pursuant to certain state housing finance statutes and regulations, certain of
the Local Partnerships are subject to limitations on 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. Consents
are also being sought from the limited partners of certain other limited
partnerships, the general partners of which are affiliated with Casden (the
Partnership and such other limited partnerships are hereinafter collectively
referred to as the "Casden Partnerships"), to allow the sale of certain real
estate assets owned by the Casden Partnerships to the REIT. The transactions by
which the Partnership proposes to sell the Real Estate Interests to the REIT and
amend its Agreement of Limited Partnership (the "Partnership Agreement") are
hereinafter referred to as the "Sale." The series of transactions by which
Casden proposes to form the REIT and acquire certain real estate assets from the
Casden Partnerships and others is hereinafter referred to as the "REIT
Transaction." The Sale and each of the proposed Amendments are being submitted
to the Limited Partners as separate resolutions. Limited Partners must approve
the proposed Sale and each of the proposed Amendments in order to allow
consummation of the Sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation, the
sole director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden is
also a general partner of Casden Properties, the sponsor of the REIT and an
affiliate of the Partnership. Four of the current members of NAPICO's board of
directors, Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I.
Casden, are expected to become officers, and shareholders of the REIT. See
"CONFLICTS OF INTEREST."
It is anticipated that the Partnership will make a distribution to Limited
Partners of approximately $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
656661.19
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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.
The Managing General Partner has approved the Sale, has concluded that the
Sale, including the Aggregate Property Valuation (as defined herein) and the
Purchase Price for the Real Estate Interests, is fair to the Limited Partners
and recommends that the Limited Partners consent to the Sale. Limited Partners
should note, however, that the Managing General Partner's recommendation is
subject to inherent conflicts of interest. See "CONFLICTS OF INTEREST."
National Partnership Investments Associates II, a California Limited
Partnership ("NPIA II"), is the non-managing General Partner of the Partnership.
Pursuant to an agreement between NAPICO and NPIA II, NAPICO is responsible for
the performance of any duties required to be performed by the General Partners
and has sole and final discretion to manage and control the business of the
Partnership and make all decisions relating thereto. NPIA II has not
participated in the management of the Partnership, or in decisions made by the
Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement.
This Consent Solicitation Statement and the accompanying form of Consent of
Limited Partner are first being mailed to Limited Partners on or about ________
__, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON ________ __, 1998, UNLESS EXTENDED
656661.19
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TABLE OF CONTENTS
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Page
I. SUMMARY OF CONSENT SOLICITATION STATEMENT.....................................................................1
The Partnership..............................................................................................1
The Sale.....................................................................................................1
Potential Benefits of the Sale...............................................................................2
Potential Adverse Effects of the Sale........................................................................5
Amendments to Partnership Agreement..........................................................................7
Limited Partner Approval.....................................................................................8
Third-Party Opinion..........................................................................................8
Recommendation of the Managing General Partner...............................................................9
Conflicts of Interest........................................................................................9
Federal Income Tax Consequences.............................................................................10
Transaction Expenses........................................................................................11
Voting Procedures...........................................................................................11
II. THE PARTNERSHIP.............................................................................................12
General.....................................................................................................12
The Properties..............................................................................................14
Market for Partnership Interests and Related Security Holder Matters........................................15
Distribution History........................................................................................15
Regulatory Arrangements.....................................................................................15
Year 2000 Information.......................................................................................17
Directors and Executive Officers of NAPICO..................................................................17
III. THE SALE...................................................................................................18
Background and Reasons for the Sale.........................................................................18
Acquisition Agreement.......................................................................................20
Arrangements with General Partners of the Local Limited Partnerships........................................21
Source of Funds.............................................................................................21
Transaction Costs...........................................................................................22
Distribution of Sale Proceeds; Accounting Treatment.........................................................22
Conditions..................................................................................................23
Fairness Opinion............................................................................................23
Alternatives to the Sale....................................................................................29
Recommendation of the Managing General Partner; Fairness....................................................31
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT.....................................................................36
V. CONFLICTS OF INTEREST........................................................................................37
General.....................................................................................................37
Fiduciary Responsibility....................................................................................38
VI. SELECTED FINANCIAL INFORMATION..............................................................................39
VII. FEDERAL INCOME TAX CONSEQUENCES............................................................................40
VIII. LEGAL PROCEEDINGS ........................................................................................41
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IX. LIMITED PARTNERS CONSENT PROCEDURE..........................................................................42
Distribution of Solicitation Materials......................................................................42
Voting Procedures and Consents..............................................................................42
Completion Instructions.....................................................................................43
Withdrawal and Change of Election Rights....................................................................43
No Dissenters' Rights of Appraisal..........................................................................43
Solicitation of Consents....................................................................................43
X. IMPORTANT NOTE...............................................................................................44
ANNEXES
Annex A - Fairness Opinion of Robert A. Stanger & Co., Inc.
Annex B - The Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
</TABLE>
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AVAILABLE INFORMATION
Real Estate Associates Limited V is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, consent solicitation
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, consent solicitation statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices,
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In
addition, the Commission maintains a site on the World Wide Web portion of the
Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov. Copies of the latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q may also be obtained from
NAPICO without charge. All requests should be made in writing to National
Partnership Investments Corp., 9090 Wilshire Boulevard, Suite 201, Beverly
Hills, California 90211; Attention: Investor Services; Telephone 800-666-6274.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership are
incorporated by reference in this Consent Solicitation Statement:
Annual Report on Form 10-K of the Partnership for the fiscal year ended
December 31, 1997.
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.
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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 remaining Local Partnership owns a conventional
multi-unit residential apartment complex. Pursuant to certain state housing
finance statutes and regulations, certain of the Local Partnerships are subject
to limitations on the distributions 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 Properties are located in nine states. Nine
of the Properties are located in California, three are in Texas and there is one
Property in each of seven other states. See "THE PARTNERSHIP -- The Properties."
The Partnership maintains offices at 9090 Wilshire Boulevard, Beverly
Hills, California 90211 (310-278-2191). The Partnership was organized as a
California limited partnership on May 7, 1982. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell all of the Real Estate Interests to the
REIT for cash. It is the intention of the Managing General Partner to liquidate
the Partnership as soon as practicable following consummation of the Sale. The
approval of the Limited Partners to dissolve the Partnership is not required
once all of the Partnership's interests in the Local Partnerships and any other
Partnership assets have been disposed of. However, two of the general partners
of the Local Partnerships have indicated that they will not agree to transfer
their general partnership interests in such partnerships, and if such agreements
are not obtained, REAL V may retain its limited partnership interests in such
partnerships indefinitely. The partnership agreements of the Local Partnerships
do not grant the limited partner of such partnerships (REAL V) the right to
compel a sale of the assets of such partnerships. Accordingly, the timing of the
final dissolution and winding up of the Partnership cannot be determined with
certainty at this time. The Partnership will continue to file reports under the
Securities and Exchange Act of 1934 until all of the Properties have been sold
and the proceeds from such sales have been distributed. See "THE SALE."
The aggregate consideration for the Real Estate Interests of the seventeen
Local Partnerships the Managing General Partner currently anticipates will be
included in the Sale is $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
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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 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 II, the General Partners, 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 Managing General Partner believes that the Sale achieves the
Partnership's investment objectives for the following reasons:
o Receipt of Cash. The Sale will result in a cash distribution of $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 Managing General
Partner does not anticipate that the Partnership will make distributions in
the near future.
o Opportune Time to Sell. The Managing General Partner believes that now may
be an opportune time for the Partnership to sell its interests in the
Properties, given current conditions in the real estate and capital
markets. Specifically, the Managing General Partner believes that investor
demand for the stock of certain public real estate companies similar to the
proposed REIT has increased significantly over the past several years. The
Managing General Partner believes that the current interest rate
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environment and the availability of capital for real estate investment
trusts will enable Casden to form the REIT and make the proposal to the
Partnership for the Sale, which provides the Partnership with an
opportunity to maximize the value of the Properties. In addition, the
Managing General Partner took into account the potential impact of recent
changes in laws and policies relating to payments under HAP Contracts,
which the Managing General Partner believes will result in significant
reductions in cash flow from the Properties. See "___Resolving HUD
Uncertainties," "THE PARTNERSHIP -- Regulatory Arrangements" and "THE SALE
-- Background and Reasons for the Sale."
o Third Party Fairness Opinion. The Managing General Partner has determined
that the 17 Properties owned by the Local Partnerships that the REIT
currently anticipates purchasing in connection with the Sale have an
aggregate value of $50,427,866 (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
(including the allocation of the Aggregate Property Valuation between the
Limited Partners, General Partners and the local general partners,) nor the
Purchase Price itself. See "THE SALE - Fairness Opinion."
o Eliminating the Risks of Real Estate Investing. Continued ownership of the
Properties subjects the Partnership to continued risks inherent in real
estate ownership, such as national and local economic trends, supply and
demand factors in the local property market, the cost of operating and
maintaining the physical condition of the Properties and the cost and
availability of financing for prospective buyers of the Properties. No
assurance can be given that a prospective buyer would be willing to pay an
amount equal to or greater than the Purchase Price for the Properties in
the future.
o Unattractiveness of Other Options. The Managing General Partner does not
believe that other alternatives available to the Partnership are as
attractive to the Partnership as the Sale.
One alternative considered by the Managing General Partner was continued
indirect ownership of the Properties by the Partnership. However, the
Partnership is not currently making distributions to the Limited Partners
and recent changes in laws and policies relating to payments under HAP
Contracts are expected to result in significant reductions in cash flows
from the Properties. Further, the tax benefits resulting from continuing to
own the Properties, which are available only to those Limited Partners able
to currently utilize passive losses (which can only be deducted against
passive income), are diminishing. The Managing General Partner does not
believe that the Partnership could realize the same benefits anticipated to
be received by the REIT through its 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 Managing General Partner does not believe that the Partnership could
obtain access to the capital markets to make such acquisitions or that such
acquisitions would be consistent with the Partnership's investment
objectives.
656661.19
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<PAGE>
The Managing General Partner also considered marketing the Properties to
third parties in cooperation with the general partners of the Local
Partnerships; however, the Managing General Partner does not believe that
such alternative would be in the interests of the Limited Partners, because
the Managing General Partner believes, based on the current uncertainties
in the government subsidized housing market, that it would be difficult to
sell the Properties and 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 Managing General Partner believes that
marketing the Properties to third parties would result in significant
delays and uncertainties. There can be no assurance, however, that a
well-capitalized third party buyer would not be willing to pay a price in
excess of the Purchase Price to acquire the Properties.
In determining the structure of the transaction, the Managing General
Partner took into account the fact that the Partnership owns limited
partnership interests in the Local Partnerships and does not directly own
the Properties. A Property may not be sold without the participation of the
general partner of the Local Partnership that owns such Property. As a
result, the simultaneous sale of the local general partners' interests is
necessary to enable the Partnership to realize the value of its Real Estate
Interests. This factor limited the ability of the Partnership to market its
interests to third parties. Additionally, the amount required to be paid by
a purchaser (whether a third party buyer or the REIT) to purchase the
interests of the local general partners will have the effect of reducing
the amount of consideration that a buyer is willing to pay for the
Partnership's Real Estate Interests. The amounts that affiliates of the
Managing General Partner will pay to the unaffiliated local general
partners in connection with the buyouts of such local general partners is
being determined in arms-length negotiations. Therefore, the Managing
General Partner believes 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.
Several of the options considered by the Managing General Partner,
including the reorganization of the Partnership as a real estate investment
trust, a rollup involving the Partnership and the use of an "UPREIT"
structure, would have (i) been prohibitively expensive and logistically
impractical; (ii) entailed compliance with the rollup rules promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), which
may have resulted in significant delays, thereby potentially causing the
Partnership to miss the currently favorable market conditions for real
estate investment trusts; and (iii) resulted in the Limited Partners
receiving publicly traded securities rather than cash in exchange for their
Units. Such publicly traded securities would be subject to the market risks
generally applicable to equity securities. The Managing General Partner
believes that receipt of such securities would be inconsistent with the
Partnership's ultimate objective of returning cash to the Limited Partners
and winding up the business of the Partnership. See "THE SALE -- Background
and Reasons for the Sale."
o Resolving HUD Uncertainty. Eighteen of the nineteen Properties are subject
to Housing Assistance Payments Contracts under Section 8 of the United
States Housing Act. The Managing General Partner 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
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Managing General Partner believes it may be beneficial to the Limited
Partners to avoid such uncertainties by approving the Sale at this time.
See "THE PARTNERSHIP - Regulatory Arrangements" and "THE SALE - Background
and Reasons for the Sale."
o Reduced Transaction Costs. The Partnership will not be required to pay
brokerage commissions in connection with the Sale, which would typically be
paid when selling real property to third parties. As a result, the Sale is
likely to produce a higher cash distribution to Limited Partners than a
comparable sale to an unaffiliated third party. In addition, the Managing
General Partner believes that selling the Partnership's entire portfolio of
real estate assets in a single transaction (as opposed to a series of
individual sales) will enable the Partnership to dispose of its portfolio
in an expedited time frame and provide additional transaction cost savings,
although the Partnership will pay certain expenses, such as the costs of
structural and engineering inspections and costs relating to proxy
solicitation and fairness opinions which may be higher than comparable
expenses in a transaction with an unaffiliated third party. See "THE SALE--
Transaction Costs" for a schedule of the costs the Partnership is expected
to incur in connection with the Sale.
o Anticipated Tax Benefits/Tax Law Changes. Subsequent to the formation of
the Partnership, tax law changes reduced the tax benefits anticipated to be
received by Limited Partners by not allowing Limited Partners to currently
deduct many of the losses generated by the Partnership against a Limited
Partner's other taxable income from non-passive sources. As a result,
Limited Partners may have a significant amount of suspended passive losses
available to reduce the tax impact of the taxable gain generated by the
Sale. If a Limited Partner has not utilized any of the passive activity
losses allocated to such Limited Partner in excess of those amounts
permitted under certain transitional rules, the Limited Partner will have a
net federal and state tax benefit of approximately $81. Because passive
losses are generally only deductible against passive income after 1986, the
Managing General Partner does not have any basis for determining the amount
of such passive losses which have previously been utilized by Limited
Partners. The anticipated cash distribution of approximately $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 Managing General Partner has not
solicited any offers from third parties to acquire the Real Estate
Interests. There is no assurance that the Managing General Partner would
not be able to obtain higher or better offers for the Real Estate Interests
if such offers were to be solicited from independent third parties. The
Partnership does not have the power to unilaterally sell any of the
Properties.
656661.19
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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 Managing General Partner and the Partnership did not
retain an independent financial or legal advisor to negotiate the terms of
the Sale.
o Conflicts of Interest. In evaluating the proposed Sale, Limited Partners
should consider that Casden is both the sponsor of the REIT and an
affiliate of the Managing General Partner. If the REIT is successfully
formed and capitalized, the current owners of Casden are likely to realize
a substantial increase in the value and liquidity of their investment in
Casden Properties. The terms of the Sale have been determined on behalf of
the Partnership by officers and directors of Casden who will directly
benefit from the Sale. Unlike Casden, the Limited Partners will not
participate in the REIT. It is anticipated that approximately 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 SHOULD BE DETERMINED BY LIMITED PARTNERS IN
CONSULTATION WITH THEIR TAX ADVISORS.
o No Appraisals; Limits on Fairness Opinion. The Managing General Partners
has not obtained independent appraisals of the Properties to determine
their value. In addition, while the Fairness Opinion addresses the fairness
of the Aggregate Property Valuation utilized in connection with determining
the Purchase Price, it does not address the fairness of the Purchase Price
itself or the adjustments to the Aggregate Property Valuation utilized to
arrive at the distributions to the Limited Partners that will result from
the Sale, including the allocation of the Aggregate Property Valuation
between the Limited Partners and the general partners of the Local
Partnerships, which affects the amount of the consideration to be paid to
the Limited Partners. See "THE SALE - Fairness Opinion."
o No Dissenter's Rights. Under the Partnership Agreement and California law,
Limited Partners do not have dissenters' rights of appraisal.
o Conditions to Sale. The Sale is subject to certain conditions in addition
to approval of the Sale by the Limited Partners, including consummation of
the Private Placement. Accordingly, even if the Sale is approved by the
Limited Partners and a purchase and sale agreement is entered into, the
consummation of the Sale could be delayed for a significant period of time
and it is possible that the Sale may not be consummated. The execution of a
purchase and sale agreement in connection with the Sale could delay the
time some or all of the Properties could be sold to a third party if the
Sale is not consummated.
o Uncertainty of Local General Partner Buyouts. The Managing General Partner
is currently in the process of attempting to negotiate a buyout of the
interests in the Local Partnerships held by the general
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partners of the Local Partnerships. All but four 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 Managing General
Partner 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 Managing General
Partner intends to eventually dispose of the Partnership's interests in
such Local Partnerships, then wind up the affairs of the Partnership,
although the time frame for such activities cannot be determined at this
time. To the extent that the ultimate cost of the buyouts of the local
general partners exceeds the Managing General Partner's current estimates
of such cost, the distributions to Limited Partners resulting from the Sale
will be reduced. At the time they consent to the Sale, the Limited Partners
will not know which of the Properties will ultimately be transferred in
connection with the Sale; nevertheless, consent to the Sale will be deemed
effective regardless of which Properties are ultimately included in the
Sale.
o Amendments to Partnership Agreement. In addition to approval of the Sale,
Limited Partners are also being asked to approve certain amendments to the
Partnership Agreement which are required to consummate the sale. For
example, the Partnership Agreement prohibits the Partnership from selling
any Property or any interest in a Property if the cash proceeds from such
sale would be less than the state and federal taxes applicable to such
sale, calculated using the maximum tax rates then in effect. The Managing
General Partner is seeking an amendment that modifies such prohibition to
allow the Partnership to assume, for purposes of calculating taxes in
connection with a sale of Properties, that all of the suspended passive
losses from the Partnership are available to Limited Partners to offset
ordinary income taxed at the 39.6% federal marginal federal rate. By
approving such amendment, the Limited Partners are relinquishing a
potential benefit conferred by the terms of the Partnership Agreement.
Amendments to Partnership Agreement
Certain Amendments to the Partnership Agreement are necessary in connection
with the consummation of the Sale.
The Partnership Agreement currently prohibits a sale of any of the
Properties to the General Partners or their affiliates. Accordingly, consent of
the Limited Partners is being sought for an amendment to the Partnership
Agreement that eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered into
between the Partnership and the General Partners or any affiliate of the General
Partners shall provide that it may be canceled at any time by the Partnership
without penalty upon 60 days' prior written notice (the "Termination
Provision"). It is the position of the Managing General Partner that the
Termination Provision does not apply to the Sale; nevertheless, the Managing
General Partner is seeking the approval of the Limited Partners to an amendment
to the Partnership Agreement that eliminates the Termination Provision in
connection with the Sale or any future disposition of Properties.
The Partnership Agreement also prohibits the Partnership from selling any
Property or any interest in a Property if the cash proceeds from such sale would
be less than the state and federal taxes applicable to such sale,
656661.19
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calculated using the maximum tax rates then in effect (the "Tax Requirement").
The Managing General Partner is seeking the approval of the Limited Partners to
an amendment to the Partnership Agreement that modifies the Tax Requirement so
as to allow the Partnership to calculate the aggregate net tax liability from a
sale of a Property or Properties by subtracting from the aggregate tax payable
on the gain from such sale the tax benefit resulting from the ability to deduct
his, her or its suspended passive losses against ordinary income, assuming that
the Limited Partner has 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 Managing General Partner believes that it would not be possible to find a
buyer willing to purchase the Partnership's portfolio of Properties under the
conditions currently specified in the Partnership Agreement, because compliance
with such conditions would result in a purchase price for the Properties
substantially higher than their fair market value.
The consent of Limited Partners holding a majority 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 Managing General Partner is seeking the consent of the Limited Partners
to the Sale and the Amendments. The Partnership Agreement requires the prior
consent of Limited Partners holding a majority of the outstanding Units (a
"Majority Vote") to any sale of all or substantially all of the Partnership's
assets, and to an amendment to the Partnership Agreement.
If the Limited Partners do not approve the Sale and the Amendments by a
Majority Vote, or the other conditions to the consummation of the Sale are not
met, there will be no change in its investment objectives, policies and
restrictions and the Partnership will continue to be operated in accordance with
the terms of the Partnership Agreement. The Partnership will bear the costs of
the consent solicitation process whether or not the Sale is approved or
ultimately consummated.
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent real
estate investment banking firm, an opinion that the Aggregate Property Valuation
utilized in connection with determining the Purchase Price to be received by the
Partnership for the Real Estate Interests in the Sale is fair to the Limited
Partners from a financial point of view. In the course of preparing its Fairness
Opinion, Stanger conducted such reviews as it deemed appropriate and discussed
its methodology, analysis and conclusions with the Managing General Partner. The
Managing General Partner has not obtained independent appraisals to determine
the value of the Properties. The Fairness Opinion, which is subject to certain
assumptions, qualifications and limitations, is attached hereto as Exhibit A.
Stanger has no obligation to update the Fairness Opinion on the basis of
subsequent events. Stanger will be paid an aggregate fee by the Casden
Partnerships of up to approximately $455,000, plus $4,100 per property owned by
the Casden Partnerships that is evaluated by Stanger. The portion of the fee
allocable to the Partnership is $27,800, plus $4,100 per Property, or an
aggregate of approximately $102,000. No portion of Stanger's fee is contingent
upon consummation of the Sale or completion of the REIT Transaction. See "THE
SALE--Fairness Opinion" and "--Potential Adverse Effects of the Sale--No
Appraisals; Limits on Fairness Opinion."
Recommendation of the Managing General Partner
After a comprehensive review of various alternatives, the Managing General
Partner believes that the Sale is in the best interests of the Limited Partners.
See "THE SALE--Alternatives to the Sale." The Managing General Partner believes
that the current interest rate environment and the availability of capital for
real estate investment
656661.19
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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 Managing
General Partner reviewed (but did not specifically adopt) the Fairness Opinion.
Based upon their analysis of the alternatives and their own business
judgment, the Managing General Partner believes 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 Managing
General Partner has approved the Sale and recommend that it be approved by the
Limited Partners. Limited Partners should note, however, that the Managing
General Partner's recommendation is subject to inherent conflicts of interest.
See "CONFLICTS OF INTEREST."
Conflicts of Interest
A number of conflicts of interest are inherent in the relationships among
the General Partners, the Casden Partnerships, Casden and the REIT, which may,
among other things, influence the recommendation of the Managing General
Partner. These conflicts include the following:
1. The terms of the Sale (including the Purchase Price) were established by
the REIT and the Managing General Partner (which are related parties)
without the participation of any independent financial or legal advisor.
There can be no assurance that 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 Managing
General Partner will receive substantial interests in the REIT in exchange
for the contribution of real property assets and the property management
operations of Casden, including direct or indirect interests in the General
Partners. The Managing General Partner anticipates that it will receive
significant economic benefits as a result of receiving interests in the
REIT. Such interests are expected to enjoy greater liquidity than the
Managing General Partner's current interests in the Partnership if the REIT
successfully completes an initial public offering following its initial
formation as a private REIT. Unlike Casden, the Limited Partners will not
participate in the REIT. It is anticipated that approximately 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 Managing General Partner and its affiliates in connection
with the REIT Transaction, if it is successfully consummated, will exceed
the return such persons currently receive from the real estate assets and
businesses such persons will contribute or sell to the REIT.
5. The officers and employees of Casden and its affiliates will be employed
by the REIT. NAPICO will become a subsidiary of the REIT.
6. Affiliates of the Managing General Partner 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
Managing General Partner will benefit from such buyouts because the
interests of such local general partners will be acquired by the REIT, but
the costs of such buyouts will be indirectly borne by the Limited Partners.
To the extent that the ultimate cost of such buyouts exceeds the Managing
General Partner's current estimates of such cost, the distributions to
Limited Partners resulting from the Sale could be reduced. In addition, the
656661.19
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value attributed to the management fees payable to the general partners of
the four Local Partnerships affiliated with the Managing General Partner
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 Managing General Partner assumed for purposes of calculating
the tax liabilities resulting from the proposed Sale that each Limited Partner
will have taxable income in excess of $155,950 in 1998 (which is the income
level at which married taxpayers effectively become subject to a 39.6% marginal
rate). While the financial circumstances of the Limited Partners may vary
considerably, the Managing General Partner believes it is reasonable to assume
that the majority of the current Limited Partners will be in the highest federal
tax bracket in 1998. Limited Partners should consult their own tax advisors with
respect to their individual tax situations and as to the federal, state, local
and other tax consequences of the Sale. See "FEDERAL INCOME TAX CONSEQUENCES."
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Summary Financial Information
The following table sets forth selected historical financial and operating
data of the Partnership for the fiscal years ended December 31, 1997, 1996,
1995, 1994, and 1993.
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10- K attached hereto as Annex B.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
-------- --------- --------- -------- --------
Interest Income......................................$ 93,956$ 65,261$ 60,997 $ 44,640 $ 35,186
Operating Expenses................................... 609,379 352,803 348,213 350,438 371,425
Loss From Operations................................. (515,423) (287,542) (287,216) (305,798) (336,239)
Distributions From Limited Partnerships
Recognized as Income................................. 381,171 215,140 221,276 218,651 245,331
Equity in Income of Limited Partnerships
and amortization of acquisition costs................ 503,765 371,644 455,651 393,230 262,614
Net Income...........................................$ 369,513 $ 299,242 $ 389,711 $ 306,083 $ 171,706
Net Income allocated to Limited Partners.............$ 365,817 $ 296,249 $ 385,814 $ 303,022 $ 169,989
Net Income per Limited Partnership Interest..........$ 47 $ 38 $ 50 $ 39 $ 22
Total assets.........................................$ 3,795,448 $ 3,259,178 $ 2,979,971 $ 2,592,397 $2,255,550
Investments in Limited Partnerships..................$ 1,616,811 $ 1,305,672 $ 1,103,818 $ 884,383 $ 659,376
Partners' Equity.....................................$ 3,618, 713 $ 3,249,200 $ 2,949,958 $ 2,560,247 $ 2,254,164
Limited Partners' Equity.............................$ 3,739,871 $ 3,374,054 $ 3,077,805 $ 2,691,991 $ 2,388,969
Limited Partners' Equity per limited
partnership interest.................................$ 479 $ 432 $ 394 $ 345 $ 306
</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
$423,000, which the Partnership is expected 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 Managing
General Partner and (ii) the date upon which the Managing General Partner
determines that a Majority Vote has been obtained (the "Solicitation
Period").
656661.19
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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 II. The
business of the Partnership is conducted primarily by NAPICO. National
Partnership Investments Associates II, a California Limited Partnership ("NPIA
II"), is the non-managing General Partner of the Partnership. Pursuant to an
agreement between NAPICO and NPIA II, NAPICO has the primary responsibility for
the performance of any duties required to be performed by the General Partners
and, in general, has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA II has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement. The Partnership has no employees of its
own.
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden. Alan I. Casden is the sole
director and stockholder of Casden Investment Corporation and, accordingly,
controls NAPICO.
The original objectives of the Partnership were to own and operate the
Properties (and certain other real estate assets) for investment so as to obtain
(i) tax benefits for the Partners; (ii) reasonable protection for the
Partnership's capital investments; (iii) potential for appreciation, subject to
considerations of capital preservation; and (iv) potential for future cash
distributions from operations (on a limited basis), refinancing or sale of a
Property. The Partnership Agreement and the original related offering materials
do not contemplate a specific time frame over which the Partnership would
liquidate and wind up.
The Partnership holds limited partnership interests in nineteen Local
Partnerships, eighteen of which own a low income housing project that is
subsidized and/or has a mortgage note payable to or insured by agencies of the
federal or local government. The remaining Local Partnership owns a conventional
multi-unit residential apartment complex.
656661.19
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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 maintaining,
operating and managing the Property.
The Local Partnerships generated approximately $574,000 in cash flow to the
Partnership in 1997, before Partnership expenses of approximately $423,000. 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.
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The Properties
During 1997, all of the Properties in which REAL V had invested were
substantially rented. The following is a schedule of the status, as of December
31, 1997, of the Properties owned by the Local Partnerships in which REAL V is a
limited partner.
<TABLE>
<S> <C> <C> <C> <C>
Percentage of
No. of Units Authorized for Rental - Units Total Units
Name & Location Units Assistance under Section 8 Occupied Occupied
- - - --------------- ---------- ----------------------------- ----------- --------------
Bickerdike 140 140 139 99%
Chicago, IL
Canoga Park Apartments 14 14 14 100%
Canoga Park, CA
Castle Park Apartments 209 209 203 97%
Normandy, MO
Centennial Townhomes 88 88 83 94%
Fort Wayne, IN
Creekside Gardens 50 50 47 94%
Loveland, CO
Del Haven Manor 104 104 104 100%
Jackson, MS
Fox Run Apartments 70 70 67 96%
Orange, TX
Grandview Place Apartments 48 48 48 100%
Missoula, MT
Hamlin Estates 30 30 28 93%
Los Angeles, CA
Heritage Square 50 50 50 100%
Texas City, TX
North River Club Apartments 56 56 56 100%
Oceanside, CA
Palm Springs Senior 116 116 113 97%
Citizens Housing
Palm Springs, CA
Panorama City 14 14 14 100%
Los Angeles, CA
Panorama City II 13 13 13 100%
Los Angeles, CA
Pine Lake Terrace Apartments 111 None 110 99%
Garden Grove, CA
Plummer Village 75 74 75 100%
Los Angeles, CA
Ranger Apartments 50 50 48 96%
Ranger, TX
Richland Three Rivers 40 40 39 98%
Retirement Apartments
Richland, WA
Robert Farrell Manor 35 35 35 100%
Los Angeles, CA
--------------- --------------- -------------- -----------------
TOTALS 1,313 1,201 1,264 98%
</TABLE>
Each of the Properties is approximately 15 years old. Routine repair 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.
656661.19
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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. One Unit is
benefically owned by Bruce E. Nelson and two Units are owned by Charles H.
Boxenbaum.
The high and low purchase prices for Units in sales transactions completed
during the twelve-month period ending December 31, 1997 as compiled by NAPICO
were $250.00 and $132.50, respectively. No established trading market for the
Units was ever expected to develop and sales transactions for the Units have
been limited and sporadic.
The 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. The General
Partners are entitled to receive 1% of the net cash flow from operations to be
distributed, reduced by any amount paid to the General Partners as an annual
management fee. The Limited Partners as a class are entitled to receive the
balance of the net cash flow from operations to be distributed. There are no
regulatory or legal restrictions on the Partnership's current or future ability
to pay dividends, although, pursuant to certain state housing finance statutes
and regulations, certain of the Local Partnerships are subject to limitations on
the distribution of dividends to the Partnership.
Regulatory Arrangements
Although each of the Local Partnerships in which the Partnership has
invested generally owns a Property that must compete in the market place for
tenants, interest subsidies and rent supplements from governmental 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.
656661.19
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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 Managing General Partner is currently in the process of
seeking such consent. There is no assurance that HUD will provide such approval.
Pursuant to certain state housing finance statutes and regulations, certain
of the Local Partnerships are subject to limitations on 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 Managing General Partner believes that federal and
state regulatory considerations limiting the availability of the Reserve
Accounts to the Partnership have the effect of substantially
656661.19
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reducing or eliminating entirely any value attributable to such Reserve
Accounts. However, it is possible that the REIT may in the future realize a
benefit from the release of funds held in the Reserve Accounts.
Year 2000 Information
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address the
issue and that the impact of the Year 2000 computer systems issue will not
materially affect the Partnership's future operating results or financial
condition.
Directors and Executive Officers of NAPICO
The Partnership is managed by NAPICO and has no directors or executive
officers of its own.
Biographical information for the directors and executive officers of NAPICO
with principal responsibility for the Partnership's affairs is presented below.
See "LEGAL PROCEEDINGS."
Alan I. Casden has served as Vice Chairman of the Board of Directors of
NAPICO since 1984. Mr. Casden has also served as Chairman and Chief Executive
Officer of Casden Properties and of The Casden Company since 1982 and 1985,
respectively. Mr. Casden has been involved in approximately $3.8 billion of real
estate financings and sales, and has been responsible for the development and
construction of approximately 90,000 multi-family apartment units and 10,000
single-family homes and condominiums. Mr. Casden has served as a member of the
Advisory Board of the National Multi-Family Housing Conference, the Multi-Family
Housing Council, the President's Council of the California Building Industry
Association and the Urban Land Institute. Mr. Casden currently serves on the
Visiting Committee to USC's Marshall School of Business. In 1988, Mr. Casden
received the "Distinguished Alumnus Award" from USC. He holds a bachelor of
science degree from USC. Mr. Casden is also Co-Chairman of the Board of Trustees
of the Simon Wiesenthal Center, an international human rights agency, and
building chairman for its $50 million Museum of Tolerance, which opened in Los
Angeles in 1993.
Henry C. Casden has served as a Director of NAPICO since February 1988 and
as its Secretary since November 1994. Since 1988, Mr. Casden has served as the
President and Chief Operating Officer of The Casden Company as well as the
managing general partner of Casden Properties. From 1971 to February 1988, Mr.
Casden was engaged in the private practice of law in Los Angeles, including as a
named partner in his law firm. His practice was devoted principally to
counseling real estate developers, lenders and investors throughout the United
States. Mr. Casden is a member of the Board of Visitors of the University of San
Diego School of Law and the bar association of the District of Columbia. Mr.
Casden received his bachelor of arts degree from the University of California at
Los Angeles, and is a graduate of the University of San Diego Law School. Mr.
Casden is a member of the State Bar of California and has numerous professional
and philanthropic affiliations. Henry C. Casden and Alan I. Casden are brothers.
Charles H. Boxenbaum has served as Chairman of the Board of Directors and
Chief Executive Officer of NAPICO since 1966. He has been active in the real
estate industry since 1960. Prior to joining Sonnenblick- Goldman Corp. of
California, Mr. Boxenbaum was a real estate broker with the Beverly Hills firm
of Carl Rhodes Company. From 1966 to 1980, Mr. Boxenbaum was Chairman of the
Board and Chief Executive Officer of Sonnenblick-Goldman Corp. of California, a
firm specializing in mortgage brokerage. In 1978, the Sonnenblick Goldman Corp.
trade style was sold, and Mr. Boxenbaum purchased the outstanding stock and
changed the name of the firm to National Partnership Investments Corp. He is one
of the founders of and a past director of First Los Angeles Bank, organized in
November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of
Directors of the National Multi Housing Council. Mr. Boxenbaum received his
bachelor of arts degree from the University of Chicago.
656661.19
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Bruce E. Nelson serves as President and a director of NAPICO. Mr. Nelson
joined NAPICO in 1980 and became President in February 1989. He is responsible
for the operation of all NAPICO sponsored limited partnerships. Prior to that he
was primarily responsible for the securities aspects of the publicly offered
real estate investment programs. Mr. Nelson is also involved in the
identification, analysis, and negotiation of real estate investments. From
February 1979 to October 1980, Mr. Nelson held the position of Associate General
Counsel at Western Consulting Group, Inc., private residential and commercial
real estate syndicators. Prior to that time Mr. Nelson was engaged in the
private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts
degree from the University of Wisconsin and is a graduate of the University of
Colorado School of Law. He is a member of the State Bar of California and is a
licensed real estate broker in California and Texas.
III. THE SALE
Background and Reasons for the Sale
In recent years, real estate investment activity by publicly owned
corporations and trusts, such as real estate investment trusts ("REIT
Entities"), has increased dramatically. REIT Entities have become a major source
of capital for the real estate market as well as one of its most prominent
purchasers of real property. A publicly-traded REIT Entity is organized as a
real estate company to own and operate a portfolio of properties, has access to
new capital and its shares can be sold or transferred in the public securities
markets.
During the Spring of 1997, the managers of NAPICO and Casden Properties
(which are affiliated entities), including Alan I. Casden, Henry C. Casden,
Charles H. Boxenbaum and Bruce E. Nelson, evaluated the financial results and
prospects of the Casden Partnerships and considered various alternatives that
might allow them to maximize the current value of the Partnership's assets.
Among other things, they considered (i) reorganizing the Partnership as a REIT
Entity, (ii) attempting a rollup of the Partnership and certain other real
estate holding limited partnerships, (iii) marketing the Properties to third
parties in cooperation with the general partners of the Local Partnerships, and
(iv) continued indirect ownership of the Properties through the Partnership's
limited partnership interests in the Local Partnerships. The managers of NAPICO
and Casden Properties also considered forming a REIT Entity that would acquire
the Properties held by the Local Partnerships.
In May of 1997, NAPICO and Casden Properties invited Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and certain other investment banking
firms to make presentations regarding strategic alternatives available to Casden
Properties in light of favorable conditions in the real estate capital markets.
Following such presentations, the managers of Casden Properties decided to form
a REIT Entity.
On April 1, 1997, Casden Properties retained Battle Fowler LLP as its legal
counsel in connection with the potential formation of a REIT Entity and the
potential sales of the assets of the Casden Partnerships. On September 4, 1997,
Casden Properties engaged DLJ to act as Casden Properties' financial advisor in
connection with the formation of a REIT Entity.
On November 21, 1997, following several days of interviews with several
investment banking firms, NAPICO selected Stanger to render a fairness opinion
in connection with the Sale and the other proposed sales involving the Casden
Partnerships. For a description of the terms of Stanger's engagement and certain
additional information concerning Stanger, see "-- Fairness Opinion."
The financial and legal advisors of NAPICO and Casden Properties conferred
regularly from June of 1997 through 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.
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The Managing General Partner believes that it is in the best interests of
the Partnership to sell its interests in the Properties. The Partnership is not
currently realizing any material cash flow that is available for distribution to
the Limited Partners and does not anticipate realizing sufficient cash flow in
the future to enable it to make 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 Partner does not believe that it would be feasible to market the Real
Estate Interests.
The Managing General Partner believes that there are certain benefits to
the REIT 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 Managing General Partner believes will enhance the returns
associated with the ownership of the mortgages and the Properties.
In considering whether the Sale is in the interests of the Partnership, the
Managing General Partner also considered the effects of recent changes in the
law and policies relating to government-assisted housing. Under MAHRAA, to the
extent that rents are above market, as is the case with most of the Properties,
the amount of the HAP Contract payments will be reduced. While MAHRAA also
contemplates a restructuring of the mortgage loans to reduce the current debt
service on the mortgage loans, it is expected that the combination of the
reduced HAP Contract payments and the restructuring of the mortgage loans will
result in a significant reduction in the cash flow to the Local Partnerships. In
the case of two restructurings that are currently being negotiated by affiliates
of the 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 Managing
General Partner believe that it is unlikely that the Limited Partners of the
Partnership will benefit from any restructuring under MAHRAA.
The Managing General Partner believes that the REIT, through its potential
access to the capital markets and its familiarity with the Properties, is in a
position to purchase the Properties on terms that are favorable to the
Partnership. The Managing General Partner believes that the current market for
securities issued by REIT Entities
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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 the Partnership, but also the interests of each of the local
general partners, the Managing General Partner is not aware of any sufficiently
well-capitalized third parties engaged in the business of acquiring government
assisted housing projects that would be in a position to acquire the Properties.
Furthermore, a third party buyer would have to investigate each of the
Properties, and negotiate the terms of the buyout of each of the local general
partners, which would be an expensive and time consuming process for the
Partnership. As a result, the Managing General Partner believes it is unlikely
that there would be a third-party buyer for the Properties. Limited Partners
should note, however, that the Managing General Partner's recommendation is
subject to inherent conflicts of interest. See "CONFLICTS OF INTEREST."
REAL V owns limited partnership interests in each of the Local Partnerships
that hold title to the real estate assets that the REIT has offered to purchase.
All but four of the general partners of such Local Partnerships are unaffiliated
with the General Partners of REAL V and the Partnership does not control such
unaffiliated local general partners. The partnership agreements of the Local
Partnerships do not grant the limited partner of such partnership (REAL V) the
right to remove the general partner or to compel a sale of the assets of the
partnership. As a result, the simultaneous buyout of the local general partners
is necessary in order to enable the Partnership to realize the value of its Real
Estate Interests. Accordingly, the amount required to be paid by a purchaser
(whether a third party buyer or the REIT) to purchase the interests of the local
general partners will have the effect of reducing the amount of consideration
that a buyer would be willing to pay for the Partnership's Real Estate
Interests. Currently, the REIT has entered into agreements or agreements in
principle or is in the process of negotiating agreements as to the buyout of the
interests of 17 of the local general partners. The purchase prices to be paid to
the unaffiliated local general partners for their interests has been determined
as a result of arm's-length negotiations with the local general partners. The
Managing General Partner believes that, although the amount paid to the local
general partners reduces the Purchase Price and amount of distribution to
Limited Partners, and the buyout of the local general partners' interests will
benefit the REIT, the terms of these transactions are fair to the Partnership
and the Limited Partners.
The Partnership will continue to file reports under the Securities and
Exchange Act of 1934 until all of the Properties have been sold and the proceeds
from such sales have been distributed.
Acquisition Agreement
If the Sale is approved by the Limited Partners, it is contemplated that
the Partnership or the Local Partnerships, as the case may be, will enter into a
purchase and sale agreement with a subsidiary partnership of the REIT (the
"Operating Partnership"). The purchase and sale agreement will set forth the
terms and conditions under which the Partnership and the REIT and the Operating
Partnership are obligated to proceed with the Sale and will set forth certain
other agreements of such parties with respect to the Sale.
Representations and Warranties. The Partnership will not make any
representations and warranties to the REIT and the Operating Partnership in the
purchase and sale agreement with respect to the Properties, and the Properties
will be sold "as is."
Conditions. As described in detail below under the heading " - Conditions"
below, the purchase and sale agreement will include a number of conditions to
the REIT's obligation to consummate the Sale.
Amendment and Closing. The Partnership and the REIT or the Operating
Partnership may mutually agree to amend the terms of the purchase and sale
agreement in a manner which, in the good faith judgment of the Managing General
Partner (consistent with the 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
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and the other conditions to the Sale and the REIT Transaction are satisfied, it
is anticipated that the Sale will be consummated by August 31, 1998. If the
closing does not occur by December 31, 1998 the purchase and sale agreement will
be terminated.
Arrangements with General Partners of the Local Limited Partnerships
Affiliates of the Managing General Partner 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 but four of whom are
unaffiliated with Casden. The four affiliated local general partners are
entities in which Casden owns a controlling interest. Except for the buyouts of
the four affiliated local general partners, the buyouts are being negotiated on
an arms-length basis. The Managing General Partner expects 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 affiliates of the Managing General Partner 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
affiliates of the Managing General Partner are unable to complete all such
buyouts, there could be an adverse impact on the operating results of the
Partnership, depending on which Properties are retained by the Partnership. If
the Partnership retains its interests in any of the Local Partnerships the cash
flows generated by the remaining Property or Properties would be inadequate to
meet operating expenses of the Partnership and, accordingly, the Partnership may
be required to 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 Managing General
Partner's 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 four of the Local Partnerships, the general partners of such
partnerships are affiliates of the Managing General Partner. Each of the
affiliated general partners is directly or indirectly wholly owned by Alan
Casden, who indirectly owns 100% of the Common Stock of NAPICO. The Local
Partnerships in which affiliates of NAPICO are the general partners own 57 of
the 1,313 housing units in which the Partnership has invested, or 4.34%. 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' general
partnership interests in Local Partnerships.
Source of Funds
The REIT intends to raise the cash to be paid to the Partnership through a
private placement of approximately $250 million of its equity securities.
656661.19
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Transaction Costs
The Managing General Partner estimates that the Partnership's transaction
costs in connection with the Sale will be as follows:
Accounting................................................$ 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.................................. 102,000
Consent Solicitation Costs................................ 6,000
Miscellaneous Costs....................................... 5,000
-----------
Total.....................................................$ 423,000
=======
The General Partners will receive a distribution of approximately $25,700
for their interests in the Partnership in connection with the Sale. The General
Partners are not entitled to receive fees in connection with the Sale.
Distribution of Sale Proceeds; Accounting Treatment
Following the Sale, and assuming that all of the Real Estate Interests are
sold, it is anticipated that the Partnership's affairs will be wound up and the
Partnership will be liquidated. After the payment of all liabilities and
expenses, the consideration to be paid to the Partnership for the Properties
will be allocated and distributed among Limited and General Partners in
accordance with the cash distribution rules set forth in the Partnership
Agreement. Pursuant to the Partnership Agreement, net liquidation proceeds are
distributable as follows:
o First, the General Partners are entitled to a liquidation fee equal to
the lesser of (a) 10% of the net proceeds to the Partnership from the Sale,
or (b) 1% of the Purchase Price (including the assumed mortgage
indebtedness), plus 3% of the net proceeds after deducting an amount
sufficient to pay all federal and state taxes applicable to the Sale. No
part of a liquidation fee will be paid, however, unless the Limited
Partners shall have first received an amount equal to (i) the greater of
(A) their aggregate capital contributions, or (B) an amount sufficient to
satisfy the cumulative federal and state income tax liability, if any,
arising from the disposition of the Properties and all other assets
disposed of to date; less (ii) all amounts previously distributed to
Limited Partners. 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 II
will be entitled to receive a distribution in connection with the Sale of
$25,717.
The Managing General Partner intends to liquidate the Partnership's
remaining assets and wind up its affairs as soon as practicable after the Sale.
The approval of the Limited Partners to dissolve the Partnership is not required
once all of the Partnership's interests in the Local Partnerships and any other
Partnership assets have been disposed
656661.19
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of. However, two of the general partners of the Local Partnerships have
indicated that they will not agree to transfer their general partnership
interests in such partnerships, and REAL V may retain its limited partnership
interests in such partnerships indefinitely. The partnership agreements of the
Local Partnerships do not grant the limited partner of such partnerships (REAL
V) the right to compel a sale of the assets of such partnerships. The timing of
the final dissolution and winding up of the Partnership cannot be determined
with certainty at this time.
The purchase of the Real Estate Interests by the REIT is conditioned, with
respect to each of the Properties, on the general partner of the Local
Partnership owning such Property agreeing to transfer its general partnership
interests with respect to the Property. Under the partnership agreements of the
Local Partnerships, the assignment of the limited partnership interests in the
Local Partnership requires the consent of the local general partner. In
addition, the Managing General Partner does not believe that the REIT would
realize sufficient economic benefit from acquiring the Real Estate Interests
held by the Partnership unless it can simultaneously acquire the related general
partnership interests and the right to manage the Properties.
Conditions
In addition to the consent by Majority Vote of the Limited Partners, the
Purchase and Sale Agreement is expected to contain, among others, the following
conditions (which may be waived by the REIT) as conditions precedent to the
REIT's obligation to consummate the Sale:
o Subject to certain exceptions, no material adverse change shall have
occurred with respect to a Property that has a material adverse effect on
the value of the Properties as a whole;
o The Partnership shall have delivered to the REIT any required third party
consents to the Sale, including the consent of HUD, certain state housing
finance agencies, the general partners of the Local Partnerships in which
the REIT intends to acquire interests and the holders of certain mortgages;
and
o The REIT shall have consummated the Private Placement, which will be
conditioned upon, among other things, the transfer of a minimum number of
properties to the REIT by the Casden Partnerships and third parties in
connection with the REIT Transaction.
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by NAPICO to
conduct an analysis and to render an opinion as to whether the Aggregate
Property Valuation utilized in connection with determining the Purchase Price to
be paid to the Partnership for the Real Estate Interests in the Sale is fair,
from a financial point of view, to the Limited Partners. NAPICO selected Stanger
because of its experience in providing similar services to other parties in
connection with real estate merger and sale transactions and Stanger's
experience and reputation in connection with real estate partnerships and real
estate assets. No other investment banking firm was engaged to provide, or has
provided, any report, analysis or opinion relating to the fairness of the Sale.
Stanger has advised the Managing General Partner that, subject to the
assumptions, limitations and qualifications contained in its Fairness Opinion,
the Aggregate Property Valuation utilized in connection with determining the
Purchase Price to be paid to the Partnership for the Real Estate Interests in
the proposed Sale is fair, from a financial point of view, to the Limited
Partners. The Fairness Opinion does not address adjustments made to the
Aggregate Property Valuation utilized to arrive at the distributions to the
Limited Partners that will result from the Sale, or the allocation of the
Aggregate Property Valuation between the Limited Partners and the general
partners of the Local Partnerships, which affects the ultimate amount of
consideration to be paid to the Limited Partners. In addition, the Fairness
Opinion does not address the fairness of the Purchase Price itself. The Purchase
Price and the Aggregate Property Valuation were determined solely by the General
Partners. The fact that the Managing General Partner applied its own methodology
for determining the Aggregate Property Valuation did not limit the
656661.19
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methods and procedures followed by Stanger in determining the fairness of the
Aggregate Property Valuation itself. The Managing General Partner used a
valuation method that it believed to be a reasonable basis for determining the
Aggregate Property Valuation. Stanger reviewed the fairness of the Aggregate
Property Valuation determined by the Managing General Partner, using methods and
procedures selected by Stanger. The Managing General Partner did not limit the
method used by Stanger to review the fairness of the Aggregate Property
Valuation.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Exhibit A hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. See
"- Fairness Opinion - Assumptions, Limitations and Qualifications." The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates have
provided information, research, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion, Stanger reviewed: (i) a draft of this Consent Solicitation
Statement related to the Sale in substantially the form which will be
distributed to Limited Partners; (ii) the Partnership's annual reports on Form
10-K for the fiscal years ending December 31, 1995, 1996 and 1997, 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 or the local general partners; (vi) information
prepared by management relating to the debt and the HAP Contracts encumbering
the Properties; (vii) information regarding market rental rates and conditions
for apartment properties in the general market area of the Properties and other
information relating to acquisition criteria for apartment properties; and
(viii) conducted other studies, analysis and inquiries as Stanger deemed
appropriate.
In addition, Stanger discussed with management of the Partnership and the
Managing General Partner the market conditions for apartment properties,
conditions in the market for sales/acquisitions of properties similar to that
owned by the 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
656661.19
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conditions, and discussed with property management personnel conditions in local
apartment rental markets and market conditions for sales and acquisitions of
properties similar to the Properties.
Summary of Reviews. The following is a summary of the material reviews
conducted by Stanger in connection with and in support of its Fairness Opinion.
The summary of the opinion and reviews of Stanger set forth in this Consent
Solicitation Statement is qualified in its entirety by reference to the full
text of such opinion.
In preparing its Fairness Opinion, Stanger performed site inspections of
the Properties during December, 1997 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
Managing General Partner, including, but not limited to, financial schedules of
historical and current rental rates, occupancies, income, expenses, reserve
requirements, cash flow and related financial information; property descriptive
information including unit mix; and information relating to any required capital
expenditures and any deferred maintenance.
Stanger also reviewed historical operating statements for the Properties
for 1995, 1996 and the nine months ending September 30, 1997, the operating
budget for 1997 and operating forecasts for 1998 for each Property, as prepared
by the Managing General Partner, and discussed with management the current and
anticipated operating results of the Properties.
In addition, Stanger interviewed management personnel of the Partnership.
Such interviews included discussions of conditions in the local market, economic
and development trends affecting the Properties, historical and budgeted
operating revenues and expenses and occupancies and the physical condition of
the Properties (including any deferred maintenance and other factors affecting
the physical condition of the improvements), projected capital expenditures and
building improvements, the terms of existing debt and the HAP Contracts
encumbering the Properties, and expectations of management regarding the impact
of various regulatory factors and proposed changes on the operating results of
the Properties.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by the Partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Summary of Analysis. Based in part on the above reviews, Stanger then
performed a discounted cash flow analysis (a "DCF Analysis") of the Properties.
The DCF Analysis involved the following steps.
During its site visits to each Property, Stanger conducted local market
research, including the identification and assessment of relative quality (e.g.,
condition, location amenities, etc.) of similar multi-family properties in the
competitive market area of each Property and the collection of rental rate
information for various apartment unit sizes (e.g., efficiency, one-bedroom,
two-bedroom, etc.) for such Properties. In addition, Stanger reviewed
information provided by the Managing General Partner and management of the
Properties concerning rental rates allowed for each type of apartment in each
Property subject to HUD rental rate restrictions (the "Subsidized Properties")
based on the HAP Contract.
Utilizing the above information, Stanger determined the gross potential
rent for each Property based on the number and type of apartment units in each
Property and (i) for Subsidized Properties, rents allowed for each type 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.
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Stanger also reviewed historical and budgeted gross income and income from
ancillary sources for each Property in the portfolio in light of market trends
and competitive conditions in each Property's local market. Stanger also
reviewed summary information concerning occupancy rates and any HAP contracts
encumbering the Properties, including contract rental rates for each unit size
and contract expiration date.
After assessing the above factors, Stanger estimated each Property's
effective gross income based upon unit mix, contract or market rental rates, as
appropriate, and estimates of ancillary income and occupancy. Contract Rents
were utilized for Subsidized Properties during the term of the HAP contract,
with a mark to market of rental rates upon expiration of the HAP Contract.
Expenses were estimated based on historical and budgeted operating expenses,
discussions with management, and certain industry expense information. Estimated
property operating expenses, including replacement reserves, were then deducted
from effective gross income to arrive at each Property's estimated net operating
income. Debt service payments relating to mortgage debt encumbering each of the
Properties were also considered in the "leveraged" discounted cash flow
analysis, as described below. Expenses relating solely to investor reporting and
other expenses not related to the properties were excluded from the analysis.
Stanger then discounted to present value the estimated cash flows from the
continued operation of each of the Properties during a holding period equal to
the term of the existing HAP Contracts, or ten years in the case of the
conventional property. In the case of Subsidized Properties subject to dividend
limitations, Stanger discounted cash flow amounts up to, but not exceeding, the
dividend limitation. Income and expense escalators utilized in the analysis were
based on parameters cited by investors, owners and managers of similar
properties, market factors, the relationship of Contract Rent and estimated
Market Rent, and historical and budgeted results for each Property. Based on the
relationship of Contract Rent and Market Rent for the Subsidized Properties,
income during the contract period was generally held flat for Subsidized
Properties or was escalated at a rate to provide sufficient income to pay
operating expenses and debt service. For the purpose of determining the
Subsidized Properties' residual value, as described below, estimated market
rental rates were generally escalated at 3% per annum. In the case of the
Conventional Property, the rental rate was escalated at 3.1% per year during the
holding period. Effective expense escalators generally ranged from approximately
2.5% to 3.0%.
As part of its DCF Analysis, Stanger then estimated the residual values of
the Properties. In the case of the Partnership's one conventional,
non-subsidized property (the "Conventional Property"), Stanger employed a direct
capitalization technique. The estimated net operating income after replacement
reserves in the eleventh year of operations was capitalized utilizing terminal
capitalization rates ranging from 9.5% to 10.0% and the resulting value was
reduced by estimated sales costs of 3%.
In the case of Subsidized Properties, Stanger evaluated the residual
Property value at the time of the existing HAP Contract expiration based upon
the assumption that whether or not the HAP Contract was renewed, rents at the
Property would be marked to market rates (i.e. where Contract Rent at the time
of expiration exceeded estimated Market Rent, it was assumed that Contract Rent
upon any contract renewal would be set at an amount equal to the estimated
market rent at the time of reversion). Stanger then evaluated estimated net
operating income (after replacement reserves) at the time of contract
expiration, with rents marked to market rates, to determine if such income would
be sufficient to service the existing mortgage debt encumbering the Subsidized
Property. Where existing mortgage debt could be prepaid at the time of contract
expiration, Stanger capitalized net operating income (after replacement
reserves) with rents marked to market at rates ranging from 9.0% to 11.0% to
estimate a free and clear residual value from which estimated expenses of sale
of 3% and, in the case of the leveraged discounted cash flow analysis, as
described below, anticipated debt balances were deducted to arrive at net
residual proceeds. Otherwise, any remaining equity cash flow after debt service
available was capitalized at rates ranging from 10.0% to 12.0% to determine a
residual equity value to be used in the Leveraged DCF Analysis.
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
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"Leveraged DCF Analysis"). In the case of the Leveraged DCF Analysis, debt
service payments were deducted from annual cash flows, and the resulting annual
cash flows and residual equity value were discounted to present value using the
following distinct ranges of discount rates: (i) Subsidized Properties:
leveraged cash flow discount rates ranged from 9% to 11% and residual discount
rates ranged from 12% to 15%; free-and-clear discount rates for cash flow ranged
from 8% to 10% and residual discount rates ranged from 11% to 14%; (ii)
Conventional Property: free-and-clear cash flow and residual discount rates
ranged from 11% to 12%. In the Leveraged DCF Analysis, the resulting equity
value was then added to outstanding debt to arrive at a total estimated Property
value.
Stanger observed that the range of estimated value of the portfolio of
Properties resulting from the Leveraged DCF Analysis was approximately
$48,280,000 to $49,200,000 and that the Aggregate Property Valuation of
$50,427,866 was above this range of value. Stanger also observed that the range
of estimated value of the portfolio of Properties resulting from the
Free-and-Clear DCF Analysis was $38,700,000 to $42,780,000 and that the
Aggregate Property Valuation was above this range of value. (The difference
between the value resulting from the Leveraged DCF Analysis and the
Free-and-Clear Analysis in part reflects the fact that the estimated value of
certain Properties is less than the debt currently encumbering those
Properties.)
Stanger concluded that the range of estimated value of the portfolio of
Properties resulting from the Free- and-Clear DCF Analysis and the Leveraged DCF
Analysis supported its opinion as to the fairness of the Aggregate Property
Valuation, from a financial point of view.
Due to the uncertainty in establishing many of the values cited above,
Stanger established a range of estimated values for each discounted cash flow
analysis. The estimated values are based in part on information provided to
Stanger in the context of rendering the fairness opinion, and there can be no
assurance that the same conditions analyzed by Stanger in arriving at the
estimates cited herein would exist at the time of consummation of the Sale. In
addition, the estimated values cited above are based on a variety of assumptions
that relate, among other things, to (i) each Property's revenues, expenses, and
cash flow; (ii) the capitalization rates that would be used by prospective
buyers when the existing HAP contracts expire and the Subsidized Properties are
sold; (iii) ranges of residual values of the Properties; (iv) selling costs; and
(v) appropriate discount rates to apply to estimated cash flows and residual
values in computing the discounted present value of such cash flows and residual
values. Actual results may vary from those utilized in the above analysis based
on numerous factors, including interest rate fluctuations, changes in
capitalization rates used by prospective purchasers, tax law changes,
supply/demand conditions for similar properties, changes in the availability of
capital, changes in the regulations or HUD's interpretations of existing and new
regulations relating to subsidized properties.
Conclusions. Stanger concluded, based upon its analysis of the foregoing
and the assumptions, qualifications and limitations stated below, as of the date
of the Fairness Opinion, that the Aggregate Property Valuation utilized in
connection with determining the Purchase Price to be paid to the Partnership for
the Real Estate Interests is fair to the Limited Partners from a financial point
of view.
Assumptions, Limitations and Qualifications. In rendering the Fairness
Opinion, Stanger relied upon and assumed, without independent verification, the
accuracy and completeness of all financial information and data, and all other
reports and information contained in this Consent Solicitation Statement or that
were provided, made available, or otherwise communicated to Stanger by the
Partnership, the Managing General Partner and/or its affiliates, the Local
Partnerships or the management of the Properties. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of the Partnership. Stanger relied upon the representations of
the Managing General Partner and its affiliates, the Local Partnerships and the
management of the Properties concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, and the terms and conditions of any debt and
the HAP Contracts encumbering the Properties. Stanger also relied upon the
assurance of the Partnership, Casden, the Managing General Partners and its
affiliates, the Local Partnerships, and the management of the Properties that
any financial statements, budgets, capital expenditure estimates, mortgage debt
and HAP Contract
656661.19
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information, value estimates and other information contained in this Consent
Solicitation Statement or provided or communicated to Stanger were reasonably
prepared and adjusted on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith judgments; that
all distributions under HAP Contracts with dividend limitations allowable
cumulatively since the time of the partnership's investments in each Local
Partnership have been paid in full to the Partnership; that no material changes
have occurred in the value of the Properties or other information reviewed
between the date of such information provided and the date of the Fairness
Opinion; that the Partnership, Casden, the General Partners and their
affiliates, the Local Partnerships and the management of the Properties are not
aware of any information or facts that would cause the information supplied to
Stanger to be incomplete or misleading in any material respect; that the highest
and best use of the Properties is as improved; and that all calculations were
made in accordance with the terms of the existing and anticipated regulatory
agreements. Additional specific assumptions relating to Stanger's analysis are
included in the subsection captioned "Summary of Analysis" above.
Stanger was not requested to, and therefore did not: (i) select the method
of determining the Aggregate Property Valuation utilized in connection with
determining the Purchase Price in the Sale; (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 Managing General Partner's estimate of
the value of current and projected net working capital balances and cash and
reserve accounts (including debt service and mortgage escrow amounts, operating
and replacement reserves, and surplus cash reserve amounts and additions) and
the income therefrom of the Partnership or the Local Partnerships, the Managing
General Partner's determination that no value should be ascribed to any 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 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
Managing General Partner and its affiliates to provide fairness opinions to the
Partnership and the other Casden Partnerships included in the REIT Transaction.
Stanger will be paid an aggregate fee by the Casden Partnerships of up to
approximately $455,000, plus $4,100 per property reviewed. The portion of the
fee allocable to the Partnership is $27,800, plus $4,100 per Property, or an
aggregate of approximately $102,000. In addition, Stanger is entitled to
reimbursement for reasonable legal, travel and out-of-pocket expenses incurred
in making site visits and preparing the Fairness Opinion, subject to an
aggregate maximum of up to approximately $1,000, plus $600 per Property, and is
entitled to indemnification against certain liabilities, including certain
liabilities under federal securities laws. Stanger has not been engaged to and
has not provided services, and will not participate or otherwise be involved in
the REIT private
656661.19
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placement. In addition, Stanger has not been approached or engaged to provide
any services in connection with a future public offering by the REIT. No portion
of Stanger's fee is contingent upon consummation of the Sale or completion of
the REIT Transaction.
Alternatives to the Sale
The following is a brief discussion of alternatives to the Sale considered
by the Managing General Partner and the possible benefits and disadvantages of
such alternatives:
Continuation of the Partnership. One alternative considered by the Managing
General Partner was the continuation of the Partnership in accordance with its
existing business plan and its Partnership Agreement. However, the Partnership
is not currently realizing material cash flow that is available for distribution
to the Limited Partners and does not anticipate realizing sufficient cash flow
in the future to enable it to make distributions to Limited Partners. Limited
Partners 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. Federal
depreciation deductions for all of the Properties will no longer be available
after January 15, 1999. Furthermore, the Managing General Partner does not
believe that the Partnership would be able to realize the potential benefits
which the REIT anticipates may be available to it after acquisition of the Real
Estate Interests. These potential benefits require the acquisition of (i) the
partnership interests held by the local general partners, (ii) the right to
manage the Properties, and (iii) the insured mortgage encumbering the
Properties, and would require significant additional capital. The Managing
General Partner believes it will be impractical to seek additional capital
contributions from Limited Partners in order to recapitalize the Partnership and
that the Partnership could not access the capital markets. Because there is no
active trading market for the Units, and because there are no apparent benefits
from continued ownership of Units, Limited Partners may not be able to liquidate
their investment in the Units while the Partnership remains in existence.
Furthermore, the partnership agreements of the Local Partnerships do not grant
the limited partner of such partnerships (REAL V) the right to remove the local
general partner or to compel a sale of the assets of such Local Partnership.
Because there appears to be no market for the Properties and the Partnership
cannot compel a sale of the Properties, the Properties are likely to remain
under the control of the local general partners indefinitely if the Sale is not
consummated.
Marketing the Properties for Sale to Third Parties. The Managing General
Partner also considered marketing the Properties to third parties. The portfolio
of Properties can only be marketed in cooperation with the local general
partners. The Managing General Partner does not believe that such alternative is
viable or would be in the best interests of the Limited Partners, because the
Managing General Partner is not aware of any third party buyers willing to
purchase such a portfolio of Properties and believe that, even if such a buyer
could be identified, such a sale would be unlikely to result in a purchase price
for the Properties as high as the Purchase Price offered in connection with the
Sale. In light of the limited cash flow currently generated by the Properties,
the degree of control the local general partners exercise over the Properties
and the anticipated adverse consequences of the recent changes in the laws and
policies applicable to HAP Contracts, the Managing General Partner does not
believe that a favorable market for the Properties currently exists. In
addition, because REAL V owns limited partnership interests in the Local
Partnerships that hold title to the Properties and the general partners of such
Local Partnerships are generally unaffiliated with the General Partners of REAL
V, the buyout of the local general partners would be necessary for a third party
to acquire the Properties. The Managing General Partner believes it would be
difficult to find a single buyer for the Properties as a group, and that selling
the Properties on a Property-by-Property basis would involve an extensive
negotiating process over an extended period of time. During the continuation of
such process, the Partnership would continue to be responsible for all costs
relating to the Properties and the Partnership's ongoing administrative expenses
and there would likely be higher transaction costs, such as brokers' fees and
attorneys' fees, relating to sale of the Properties if they were sold
individually. The Managing General Partner has not received and has not been
advised of any third party offers or indications of interest for any of the
Properties.
656661.19
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The Managing General Partner does not believe there are any third party
buyers of low income housing projects that would be able to match the Purchase
Price offered by the REIT for the portfolio of Properties. The Managing General
Partner believes that it is unlikely that third party buyers could be found to
purchase the Real Estate Interests at a higher price than the Purchase Price.
While the Managing General Partner has not consulted any real estate
brokers or other real estate professionals concerning potential purchasers for
the Real Estate Interests, based upon the Managing General Partner's experience
and familiarity with the market for low income housing, the Managing General
Partner does not believe that there are other potential bidders for the Real
Estate Interests at the Purchase Price. The Managing General Partner's
determination was based upon a number of factors, including the need for a
purchaser to negotiate the purchase of the Real Estate Interests with the
Partnership and enter into a transaction with the Partnership which would
require limited partner approval; the need for a purchaser to negotiate separate
transactions with each of the local general partners; the need for a purchaser
to have sufficient capital to purchase the interests of the local general
partners and the Partnership, and to purchase mortgage loans encumbering the
Properties and negotiate restructurings, which the Managing General Partner
believes is necessary to realize a return on the investment in the Properties;
and the impact of recent changes in the law and regulations of HUD relating to
HAP Contracts, which impacts the value of the Properties. As a result, the
General Partner believes that any transaction with a potential purchaser would
be time consuming, difficult to consummate and unlikely to result in a purchase
price higher than the Purchase Price. However, there can be no assurance that a
higher purchase price would not be received if the Properties were actively
marketed.
Rollup. The Managing General Partner considered combining the Casden
Partnerships into a new corporation that would qualify as a REIT entity. As a
result of such a transaction, the Limited Partners would have received shares of
stock in the REIT (or partnership interests convertible into REIT shares), which
would have been listed on a national stock exchange. Such a transaction would be
expected to (a) provide investors in the new entity with the opportunity to
liquidate their investment through the sale of the shares received in the
transaction, (b) permit distribution to investors of a simpler federal income
tax Form 1099-DIV (rather than Schedule K-1), and (c) provide investors with the
potential for receiving securities with a greater value than the proceeds they
will receive as a result of the Sale. Furthermore, such an entity would provide
increased asset diversification and, due to its size, improved access to capital
markets.
The Managing General Partner believes, however, that such a transaction
would have significant disadvantages. As a result of new legislation and
regulations, they believe that obtaining necessary regulatory approvals for a
rollup would be very difficult, expensive and time-consuming. The Managing
General Partner was not confident that a rollup transaction could be completed
within a reasonably practical time period. Furthermore, the Managing General
Partner believes that there could be significant selling pressure on the
securities issued in connection with a rollup and that such selling pressure
might cause the price of the stock of the rollup entity to decline following
completion of the rollup transaction.
Another disadvantage of a rollup transaction is that the transaction would
cause the Limited Partners to incur a tax on the gain reflected in the value of
the stock of the new entity. The Managing General Partner determined that
Limited Partners would not be able to defer taxation through the use of an
UPREIT structure due to difficulties likely to be experienced in obtaining
approval from various states for the distribution of operating partnership
interests. Unless a Limited Partner sold all or a portion of the securities
received in the transaction, such Limited Partner would have no additional cash
with which to pay the taxes which would result from the completion of a rollup
transaction. The need for cash to pay the taxes on the transaction could cause
downward pressure on the price of the stock. In addition, a Limited Partner
would incur brokerage commissions on the sale of any securities received in a
rollup transaction, thereby reducing the net proceeds received in the
transaction.
Reorganization into a REIT. The Managing General Partner considered the
advisability of reorganizing the Partnership as a corporation treated as a real
estate investment trust. If approved, such a transaction would have
656661.19
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provided some advantages to the Limited Partners. Such a reorganization would be
expected to (a) provide investors in the reorganized entity with liquidity, (b)
permit distribution to investors of a simpler federal income tax form 1099- DIV
(compared to Schedule K-1), and (c) potentially be formed tax free to the
Limited Partners. The Managing General Partner was advised that the
reorganization of the Partnership into a REIT has a number of significant
disadvantages. For example, the small size of the reorganized Partnership, the
lack of diversification, the degree of debt relative to equity, and the absence
of internalized, integrated management would result in limited markets for the
shares of the newly formed real estate investment trust. As a result, the
Managing General Partner was advised that it would be unlikely that the real
estate investment trust shares would perform well in the market. In addition,
the Managing General Partner believes that the size of the resulting real estate
investment trust would not enable it to access the capital markets on an
advantageous basis.
Recommendation of the Managing General Partner; Fairness
The recommendation of the Managing General Partner in favor of the Sale is
based upon its belief that the Sale is fair to the Limited Partners for, among
others, the following reasons: (a) 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 Managing General Partner has not obtained real estate appraisals to
establish the fair market value of the Properties, but, based upon its
significant real estate experience, it believes that the Aggregate Property
Valuation utilized in connection with determining the Purchase Price is not less
than the fair market value of the Properties. In addition, Stanger has opined
that the Aggregate Property Valuation used in determining the Purchase Price for
the Real Estate Interests is fair to the Limited Partners from a financial point
of view.
The Purchase Price was determined by the Managing General Partner. The
Managing General Partner valued the Real Estate Interests using the following
methodology. For Local Partnerships with HAP Contracts with expiration dates
more than ten years in the future, the Managing General Partner determined the
value by taking the aggregate net operating income before interest expense and
management fees (as adjusted for dividend restrictions with respect to
Properties subject to dividend restrictions) for such Local Partnership for
1996, less capital expenditures, and applied a capitalization rate of 11%. For
Local Partnerships with HAP Contracts with expiration dates greater than six
years but less than ten years in the future, the Managing General Partner
followed the same procedure, but applied a capitalization rate of 12%. For Local
Partnerships with HAP Contracts expiring in six years or less, the Managing
General Partner calculated such Local Partnership's distributions for 1996 (or
in certain cases used a three year average where the General Partners did not
believe that the 1996 distributions were representative), added the management
fees payable to the general partner of such Local Partnership for 1996, assumed
that these distributions would be received for the balance of the term of the
HAP Contracts and discounted these future distributions at a discount rate of
10%. For the Local Partnership with no HAP Contract, the Managing General
Partner determined the value by taking the aggregate net operating income before
interest expense and management fees, less capital expenditures, applied a
capitalization rate of 9%, then deducted $3,500 per apartment unit in
consideration of deferred maintenance requirements. In selecting the
capitalization rates, the Managing General Partner took into account the
expectation that cash flow would be significantly reduced after expiration of
the current HAP Contracts and used a higher capitalization rate if the HAP
Contracts expired earlier. With respect to the Local Partnerships with HAP
Contracts expiring in less than seven years, the Managing General Partner
assumed that the Properties would have no residual value upon expiration of the
respective HAP Contracts, due to the uncertainties as to future cash flow
following the expiration of the term of the HAP Contracts.
Based on such assumptions, the Managing General Partner determined that the
17 Properties owned by the Local Partnerships that the Managing General Partner
currently anticipates will be included in the Sale have an
656661.19
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aggregate value of $50,427,866 (the "Aggregate Property Valuation"). The
Managing General Partner subtracted from the Aggregate Property Valuation (i)
$5,316,320 for the aggregate estimated value of the general partnership
interests in the Local Partnerships (excluding the general partnership interests
of the four local general partners that are affiliates of the Managing General
Partner) and the local general partners' right to future management fees,
including $205,200 attributable to the right to receive the future management
fees payable to the four local general partners affiliated with the General
Partners (see "THE SALE - Arrangements with General Partners of the Local
Partnerships"), and (ii) the outstanding mortgage indebtedness and related party
indebtedness of the Local Partnerships of $43,539,873. 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 Managing General Partner and the general partners of
the Local Partnerships. However, while the costs of such buyouts will be paid by
the REIT and the buyouts will benefit the REIT, a portion of such costs will be
indirectly borne by the Limited Partners. The calculations of the Managing
General Partner described above resulted in distributable cash out of the
proceeds of the Sale of $1,571,673.
The Managing General Partner believes that the method used to determine the
Purchase Price was reasonable in light of the fact that the Partnership owns
limited partnership interests in the Local Partnerships and does not own the
Properties directly, and that any sale of the Properties is subject to the
approval of the general partners of the Local Partnerships. In addition, as
discussed below, recent changes in HUD laws and policies are expected to
adversely impact the Partnership's cash flow and prospects.
Accordingly, the Managing General Partner believes that the Purchase Price
is fair and reasonable and exceeds the price that the Partnership would likely
receive if the Real Estate Interests were to be sold to a third party or
parties. It should be noted that, for purposes of calculating the value of the
Real Estate Interests, the Managing General Partner assumed that certain of the
Properties would have no residual values upon expiration of the respective HAP
Contracts applicable to such Properties, based on its belief that cash flow
after expiration of the HAP Contracts will be significantly reduced, as
discussed below. The Managing General Partner made the same assumption when
determining the capitalization rates used in its valuation calculations.
Different assumptions would likely have resulted in different valuations for the
Real Estate Interests.
In determining the valuation of the Real Estate Interests, no adjustment
was made for the amount by which the value of assets other than the Properties
exceeded liabilities other than mortgage indebtedness because the Managing
General Partner does not believe that these assets are material (other than the
Reserve Accounts referred to below). In addition, pursuant to certain state
housing finance statutes and regulations, certain of the Local Partnerships are
subject to limitations on the distributions of dividends to the Partnership.
Such statutes and regulations require such Local Partnerships to hold cash flows
in excess of such dividend limitations in Reserve Accounts that may be used only
for limited purposes. The Purchase Price was calculated without attributing
value to the Reserve Accounts. The Managing General Partner believes that
federal and state regulatory considerations limiting the availability of the
Reserve Accounts to the Partnership have the effect of substantially reducing or
eliminating entirely any value attributable to such Reserve Accounts.
Nonetheless, the REIT may be able to realize a benefit in the future by
obtaining a reduction in the amount required to be held in the Reserve Accounts.
The Managing General Partner relied on the following qualitative factors in
determining that the Sale is fair to the Limited Partners:
o The Properties do not currently produce significant cash flow and the
Partnership has not made distributions to date. The Partnership's
investment in the Properties was initially structured primarily to obtain
tax benefits, and not to provide cash distributions. Due to changes in the
tax laws pursuant to which losses of the Partnership are treated as passive
losses and can only be deducted against passive income, most Limited
656661.19
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Partners are not realizing material tax benefits from continuing to own
their limited partnership interests. Accordingly Limited Partners are not
receiving material benefits from continuing to hold their interests in the
Partnership.
o Recent changes in HUD laws and policies are expected to adversely affect
the Partnership's cash flow and prospects. Under MAHRAA, to the extent that
rents are above market, as is the case with most of the Properties, the
amount of the HAP Contract payments will be reduced. While MAHRAA also
contemplates a restructuring of the mortgage loans to reduce the current
debt service on the mortgage loans, it is expected that the combination of
the reduced HAP Contract payments and the restructuring of the mortgage
loans will result in a significant reduction in the cash flow to the Local
Partnerships. In the case of two restructurings that are currently being
negotiated by affiliates of the Managing General Partner (involving Section
8 properties owned by partnerships other than the Partnership), the
restructurings proposed by HUD will significantly reduce the cash flow from
these properties. Furthermore, since the local general partners would
control the restructuring negotiations and most of the local general
partners' income results from their management fees, there can be no
assurance that any restructuring negotiated by local general partners will
optimize cash flow to the Partnership. Moreover, there are a number of
uncertainties as to the restructuring process, including potential for
adverse tax consequences to the Limited Partners. The Managing General
Partner does not believe that the "market" rents generated by the
Properties after reduction of the HAP Contract payments under MAHRAA will
be materially in excess of the debt service and operating expenses on such
Properties after expiration of the applicable HAP Contracts and accordingly
do not expect the Properties to produce any significant cash flow at such
time. When determining the Purchase Price offered for the Real Estate
Interests, the Managing General Partner ascribed no residual value to
certain Properties. The Managing General Partner believes that it is highly
unlikely that the Limited Partners of the Partnership will benefit from any
restructuring under MAHRAA.
o Due to the Partnership's limited current cash flow and the uncertainties
created by MAHRAA, the Managing General Partner does not believe that the
Properties could be sold to a third party on terms comparable to those of
the proposed Sale. In addition, REAL V owns only limited partnership
interests in the Local Partnerships that hold title to the Properties and
the general partners of such unaffiliated Local Partnerships are
unaffiliated with the 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 Managing General Partner did not quantify, reach independent
conclusions regarding or otherwise assign relative weights to the individual
qualitative factors listed above. Instead, the Managing General Partner
considered the diminishing prospects of the Partnership in light of the totality
of the circumstances. The Managing General Partner 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 Managing General Partner believes that acquisition
by the REIT of the Real Estate Interests, the partnership interests of the local
general partners, the right to manage each of the Properties, and the insured
mortgage indebtedness currently encumbering the Properties will allow it to (i)
earn fee income through the property management functions formerly performed by
the local general partners and (ii) restructure the mortgage loans on the
Properties on terms more advantageous than could be obtained by the Partnership.
The REIT's greater access to the capital markets will allow it to take advantage
of opportunities to realize additional cash flow through the transactions
referred to in the preceding sentence that are unavailable to the Partnership
and inconsistent with the Partnership's original objectives. The Partnership's
investment objectives contemplated that the Partnership would dispose of its
Real Estate Interests and liquidate. The Partnership's
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investment objectives did not contemplate the Partnership raising additional
capital or acquiring additional partnership interests or mortgage loans, which
is necessary to realize the potential benefits anticipated by the REIT.
The Managing General Partner also considered the fairness of the terms of
the Sale, including the allocation of the Aggregate Property Valuation to the
local general partners and the Purchase Price. REAL V owns limited partnership
interests in the Local Partnerships that hold title to the Properties that the
REIT has offered to purchase. The simultaneous buyout of the local general
partners is necessary in order to enable the Partnership to realize the value of
its Real Estate Interests. Accordingly, the amount required to be paid by a
purchaser (whether a third party buyer or the REIT) to purchase the interests of
the local general partners will have the effect of reducing the amount of
consideration which a buyer is willing to pay for the Partnership's Real Estate
Interests. The amounts that the Managing General Partner proposes 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 Managing
General Partner believes that the terms of such buyouts are fair to the
Partnership. Therefore, the Managing General Partner believes 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 Managing General Partner believes
that the amount to be distributed to the Limited Partners from the Sale is fair
to the Limited Partners. The distributions represent the Purchase Price plus
$1,000,000 of cash held by the Partnership, less expenses that the Managing
General Partner believes are reasonable and customary.
Set forth below are estimates of the value of the Units based on recent
sale prices. It should be noted that the estimated values are based on certain
assumptions, including selling costs and other expenses, costs, offsets and
contingencies attributable to the sale of assets and liquidation of the
Partnership, and such estimates may not be a reliable basis for valuing the
Units. While the Managing General Partner believes it has a reasonable basis for
the assumptions made, it is unlikely that all of the assumptions employed by the
Managing General Partner will prove to be accurate in all material respects.
Such assumptions were selected to simplify the analysis and may not approximate
the actual experience of the Partnership. The estimated values of the Units
would have been different if the Managing General Partner had made different
assumptions. The original cost per Unit was $5,000.
656661.19
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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.
Secondary and Market Prices for Units. The information in the table above
under the heading "Secondary Market Trades" shows the highest and lowest Unit
sale prices as reported to NAPICO by certain secondary market firms involved in
sales of the Units over the twelve-month period ended December 31, 1997. When
gathering such data, NAPICO requests that the recorded prices per Unit include
any mark-ups for Units sold by the firms acting as principals in the secondary
market transactions and include any commissions charged by them for facilitating
the transactions, unless the firms acted as retail brokers.
No established market for the Units was ever expected to develop and the
secondary market transactions for the Units have been limited and sporadic. It
is not known to what extent the transactions in the secondary market are between
buyers and willing sellers, each having access to relevant information regarding
the financial affairs of the Partnerships, expected value of their assets, and
their prospects for the future. Many transactions in the secondary market are
believed to be distressed sales where sellers are highly motivated to dispose of
the Units and willing to accept substantial discounts from what might otherwise
be regarded as the fair value of the interest being sold, to facilitate the
sales. Secondary market prices generally do not reflect the current market of
the Partnerships' assets, nor are they indicative of total return, because tax
benefits received by original investors are not reflected in such price.
Nonetheless, notwithstanding these qualifications, the secondary market prices,
to the extent that the reported data are reliable, are indicative of the prices
at which the Units trade in the illiquid secondary markets.
On March 2, 1998, the Limited Partners received an offer from Bond Purchase
L.L.C. to purchase up to 4.9% of the outstanding Units at a purchase price of
$615.00 per Unit.
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The Managing General Partner did not give any specific weight to any one of
the foregoing factors but viewed them in the aggregate in supporting its
fairness determination. The Managing General Partner recommends that the Sale be
approved by the Limited Partners. Limited Partners should note, however, that
the Managing General Partner's recommendation is subject to inherent conflicts
of interest. See "CONFLICTS OF INTEREST."
Other Measures of Value. The Managing General Partner has not calculated a
going concern value or a liquidation value of the Units. Due to the anticipated
reduction in HAP payments at the expiration of HAP Contracts, as described
above, and the uncertainties relating to the impact on cash flow of the
restructuring of the FHA-insured mortgage loans, the Partnership does not
believe there is a sufficient basis to estimate future cash flow from the
Properties and calculate going concern value. Similarly, due to the limited cash
flow from the Properties and the potential impact of the anticipated reductions
in payments under HAP Contracts, and the absence of future tax benefits from the
Properties, the Partnership does not believe that there is a sufficient market
for estimating the fair market value of the Properties. The Managing General
Partner has not calculated an estimate of the liquidation 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 Managing General Partner did not obtain appraisals of
the Properties because, given the large number of Properties, the nature of the
Properties, the uncertainties resulting from the changes in law and policy
relating to payments under HAP Contracts, and the relatively small value of each
of the Properties, the Managing General Partner does not believe that the
benefits to be derived from such appraisals justified the expense to the
Partnership. The Managing General Partner does not believe that the price that
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. The Units were offered
primarily to provide tax benefits to Limited Partners and only secondarily to
provide return of capital or appreciation in value. In addition, due to recent
changes in HUD law and policies relating to HAP Contracts, the potential future
return from the Properties, and therefore the economic value of the Properties
themselves, has been materially reduced. REAL V was originally structured to
take advantage of opportunities provided by the Internal Revenue Code and the
United States Housing Act. Changes in the tax code and the housing act have to a
large extent eliminated such opportunities and have adversely affected the
economic value of the Properties. In light of the current regulatory environment
for tax-driven low-income housing investments, the Managing General Partner does
not believe that the 1982 offering price of the Units should be a material
factor in calculating the Purchase Price for the Real Estate Interests.
Accordingly, the Managing General Partner does not believe that the purchase
price originally paid by Limited Partners for their Units is relevant to the
determination of the adequacy of the Purchase Price on a sale of the Real Estate
Interests.
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Certain Amendments to the Partnership Agreement are necessary in connection
with the consummation of the Sale. The Partnership Agreement currently prohibits
a sale of any of the Properties to the General Partners or their affiliates.
Accordingly, consent of the Limited Partners is being sought for an amendment to
the Partnership Agreement that eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered into
between the Partnership and the General Partners or any affiliate of the General
Partners shall provide that it may be canceled at any time by the Partnership
without penalty upon 60 days' prior written notice. It is the position of the
Managing General Partner that the Termination Provision does not apply to the
Sale; nevertheless, the Managing General Partner is seeking approval of the
Limited Partners to an amendment to the Partnership Agreement that eliminates
the Termination Provision in connection with the Sale and any future disposition
of the Properties.
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The Partnership Agreement also prohibits the Partnership from selling any
Property or any interest in a Property if the cash proceeds from such sale would
be less than the state and federal taxes applicable to such sale, calculated
using the maximum tax rates then in effect (the "Tax Requirement"). The Managing
General Partner is seeking the approval of the Limited Partners to an amendment
to the Partnership Agreement that modifies the Tax Requirement so as to allow
the Partnership to calculate the aggregate net tax liability from a sale of a
Property or Properties by subtracting from the aggregate tax payable on the gain
from such sale the tax benefit resulting from the ability to deduct his, her or
its suspended passive losses against ordinary income, assuming that the Limited
Partner has 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
Managing General Partner believes that it would not be possible to find a buyer
willing to purchase the Partnership's portfolio of Properties under the
conditions currently specified in the Partnership Agreement, because compliance
with such conditions would result in a purchase price for the Properties
substantially higher than their fair market value.
The consent of Limited Partners holding a majority 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 Managing
General Partner has certain conflicts of interest in recommending the Sale to
the Limited Partners. Some important conflicts are:
1. The terms of the Sale were established by the REIT and the Managing
General Partner, which are related parties. Accordingly, the terms and
conditions of the proposed Sale were not determined through 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 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.
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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 Managing General Partner is 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 Managing General
Partner 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 Managing General Partner's 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 four Local Partnerships affiliated with the General
Partners was deducted from the Aggregate Property Valuation when determining the
Purchase Price payable to the Limited Partners. The right to receive such
management fees will be transferred to the REIT in connection with the Sale, and
affiliates of the 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 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
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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 fiscal years ended December 31, 1997, 1996,
1995, 1994, and 1993.
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
Managing General Partner, include all adjustments (consisting only of normal
recurring items unless otherwise disclosed) necessary for a fair presentation of
the Partnership's financial position and results of operations. The results set
forth for the 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>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------- ------- ------- ------ --------
Interest Income......................................$ 93,956 $ 65,261 $ 60,997 $ 44,640 $ 35,186
Operating Expenses................................... 609,379 352,803 348,213 350,438 371,425
Loss From Operations................................. (515,423) (287,542) (287,216) (305,798)
Distributions From Limited Partnerships
Recognized as Income................................. 381,171 215,140 221,276 218,651 245,331
Equity in Income of Limited Partnerships
and amortization of acquisition costs................ 503,765 371,644 455,651 393,230 262,614
Net Income...........................................$ 369,513 $ 299,242 $ 389,711 $ 306,083 $ 171,706
Net Income allocated to Limited Partners.............$ 365,817 $ 296,249$ 385,814 $ 303,022 $ 169,989
Net Income per Limited Partnership Interest..........$ 47 $ 38$ 50 $ 39 $ 22
Total assets.........................................$ 3,795,448 3,259,178$ 2,979,971 $ 2,592,397 $ 2,255,550
Investments in Limited Partnerships..................$ 1,616,811 $ 1,305,672$ 1,103,818 $ 884,383 $ 659,376
Partners' Equity.....................................$ 3,618,713 $ 3,249,200$ 2,949,958 $ 2,560,247 $ 2,254,164
Limited Partners' Equity.............................$ 3,739,871 $ 3,374,054 $ ,077,805 $ 2,691,991 $ 2,388,969
Limited Partners' Equity per limited
partnership interest.................................$ 479 $ 432 $ 394 $ 345 $ 306
</TABLE>
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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 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 Managing General Partner does not have any basis for
determining the amount of such passive losses which have previously been
utilized by Limited Partners. The anticipated cash distribution of approximately
$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
656661.19
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increase because certain income would be taxed at ordinary, instead of capital
gains tax rates. Limited Partners are advised to consult with their own tax
advisors for specific application of the tax rules where the above-described
assumption is not applicable. The foregoing does not take into consideration the
effect of any local tax liabilities that may be applicable to the Sale.
The Managing General Partner believes that there were reasonable bases
for the foregoing assumptions. In light of the suitability standards that
Limited Partners met at the time of their original investment in the Partnership
and the types of investors who would have invested in an investment primarily
intended to provide tax benefits, the Managing General Partner assumed for
purposes of calculating the tax liabilities resulting from the proposed Sale
that each Limited Partner will have taxable income in excess of $155,950 (which
is the income level at which married taxpayers filing joint returns effectively
become subject to a 39.6% marginal rate) in 1998. While the financial
circumstances of the Limited Partners may vary considerably, the Managing
General Partner believes it is reasonable to assume that the majority of the
current Limited Partners will be in the highest federal tax bracket in 1998. The
Managing General Partner believes that while state tax rates vary from
state-to-state, the average state tax rate for individuals who itemize
deductions is approximately 5%. The 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 such income, the Limited Partner's
net tax benefits from the Sale would be reduced and the Limited Partner is
likely to be incur net tax costs in excess of the cash distributions which will
be received.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF LOSSES ANY LIMITED
PARTNER HAS APPLIED TO OFFSET HIS, HER OR ITS TAXABLE INCOME, THE MANAGING
GENERAL PARTNER CANNOT ESTIMATE THE INCOME TAX LIABILITY OF EACH LIMITED PARTNER
ARISING FROM THE SALE, THEREFORE, EACH LIMITED PARTNER SHOULD CONSULT HIS, HER
OR ITS TAX ADVISOR CONCERNING THE INCOME TAX CONSEQUENCES OF CONSENTING TO THE
SALE WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION.
VIII. LEGAL PROCEEDINGS
On June 25, 1997, the Securities and Exchange Commission (the
"Commission") entered into a consent decree with NAPICO, three members of
NAPICO's senior management and three affiliated entities (collectively, the
"NAPICO Affiliates") in connection with their alleged roles in two separate
series of securities laws violations. In connection therewith, certain NAPICO
Affiliates agreed to cease and desist from committing or causing securities law
violations. In addition, National Partnership Equities, Inc. ("NPEI"), a
brokerage firm affiliated with NAPICO, agreed to undergo a review of certain of
its policies and procedures and pay a $100,000 penalty. The NAPICO Affiliates
consented to the above sanctions and relief without admitting or denying the
Commission's findings.
The two series of securities law violations relate to the NAPICO
Affiliates' (i) satisfying the minimum offering threshold of a "part or none"
private placement by utilizing a subscription from a non-bona fide investor and
failing to disclose such violation in subsequent offering materials for such
private placement and (ii) failing to disclose in the periodic reports for
another of its programs the fact that such program's cash was used to pay the
expenses of properties not owned by such program that were managed by an
affiliate and failing to maintain adequate internal controls to detect such
violations.
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IX. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about ________ __, 1998. Only Limited
Partners of record on ___________, 1998 (the "Record Date") will be given notice
of, and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and the
letter from the Managing General Partner, constitute the Solicitation Materials
to be distributed to the Limited Partners to obtain their votes for or against
the Sale. The Solicitation Period is the time frame during which Limited
Partners may vote for or against the Sale. The Solicitation Period will commence
upon the date of delivery of this Consent Solicitation Statement and will
continue until the earlier of (i) _________, 1998 or such later date as may be
determined by the Managing General Partner and (ii) the date upon which the
Managing General Partner determines that a Majority Vote has been obtained. At
its discretion, the Managing General Partner may elect to extend the
Solicitation Period. Under no circumstances will the Solicitation Period be
extended beyond ______________, 1998. Any Consents delivered to the Partnership
prior to the termination of the Solicitation Period will be effective provided
that such Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale. Consent to the Sale will
also include consent to Amendments to the Partnership Agreement that (i)
eliminate a restriction against sales of Partnership assets to affiliates of the
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 "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
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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.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or facsimile transmission notice of withdrawal or change in
vote must be timely received by the Tabulator at its address set forth under
"Completion Instructions" above and must specify the name of the person having
executed the Consent to be withdrawn or vote changed and the name of the
registered holder if different from that of the person who executed the Consent.
No Dissenters' Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners do
not have dissenters' rights of appraisal. If the Sale is approved by a Majority
Vote, and the other conditions to consummation of the Sale are satisfied, all
Limited Partners, both those voting in favor of the Sale and those not voting in
favor, will be entitled to receive the resulting cash distributions.
Solicitation of Consents
The Managing General Partner and its officers, directors and employees
may assist in the solicitation of consents and in providing information to
Limited Partners in connection with any questions they may have with respect to
this Consent Solicitation Statement and the voting procedures. Such persons and
entities will be reimbursed by the Partnership for out of pocket expenses in
connection with such services. The Partnership may also engage third parties to
assist with the solicitation of Consents and pay fees and reimburse the expenses
of such persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE
PROMPTLY.
656661.19
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If you have any questions about the consent procedure or require
assistance, please contact MacKenzie Partners, the Partnership's consent
solicitation agent, at 212-929-5500.
X. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
_________ ___, 1998
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<PAGE>
REAL ESTATE ASSOCIATES LIMITED V
9090 Wilshire Boulevard
Beverly Hills, California 90211
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
OF REAL ESTATE ASSOCIATES LIMITED V
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to Real Estate Associates
Limited V (the "Partnership") that, with respect to the transaction by which the
Partnership proposes to sell all of its real estate assets to a real estate
investment trust formed by affiliates of certain general partners of the
Partnership or to a subsidiary partnership of the REIT, the undersigned votes
all of his, her or its units of limited partnership interest as indicated below:
On the proposal to sell all of the interests of the Partnership in the real
estate assets of nineteen limited partnerships in which the Partnership holds a
limited partnership interest to a real estate investment trust or its affiliate
to be organized by Casden Properties, and to authorize the Managing General
Partner to take any and all actions that may be required in connection
therewith, including the execution on behalf of the Partnership of such
amendments, instruments and documents as shall be necessary to reflect the
transfer of the general and limited partnership interests and to authorize the
Managing General Partner to sell any remaining real estate interests not
transferred to such real estate investment trust or its affiliates pursuant to
the proposal without further consent of the Limited Partners.
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
eliminates a provision prohibiting the Partnership from selling any Property to
a General Partner or its affiliate.
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
eliminates a provision allowing the Partnership to cancel, upon 60 days' prior
written notice, any agreement entered into between the Partnership and a General
Partner or an affiliate of a General Partner.
FOR AGAINST ABSTAIN
/ / / / / /
On the proposal to approve an amendment to the Partnership Agreement that
modifies certain tax provisions so as to allow the Partnership to calculate the
tax liability from a sale of a Property by subtracting from the tax payable on
the gain from such sale the tax benefit resulting from the ability to deduct a
Limited Partner's suspended passive losses against ordinary income, assuming
that the Limited Partner has sufficient ordinary income that would otherwise
have been taxed at the 39.6% marginal tax rate for federal income tax purposes
to fully utilize such losses at such rate, and assuming a state income tax rate
of 5%.
FOR AGAINST ABSTAIN
/ / / / / /
656661.19
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<PAGE>
The undersigned acknowledges receipt from the
Managing General Partner of the Consent Solicitation
Statement dated _________ __, 1998.
Dated: _____________, 199_ _______________________________
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
Please sign exactly as name appears hereon. When
units are held by joint tenants, both should sign.
When signing as an attorney, as executor,
administrator, trustee or guardian, please give full
title of such. If a corporation, please sign name by
President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON _______ [__], 1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO
OR BY USING THE ENCLOSED PREPAID ENVELOPE TO THE ADDRESS FIRST WRITTEN ABOVE,
ATTENTION: _____________. IF YOU HAVE ANY QUESTIONS, PLEASE CALL 212-929-5500.
A LIMITED PARTNER SUBMITTING A SIGNED BUT UNMARKED CONSENT WILL BE
DEEMED TO HAVE VOTED FOR THE PARTNERSHIP'S PARTICIPATION IN THE SALE.
656661.19
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