<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
SCHEDULE 14D-1
(Amendment No. 2)
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
_____________________
BALCOR REALTY INVESTORS - 83
(Name of Subject Company)
WALTON STREET CAPITAL ACQUISITION CO., L.L.C.
WIG 83 PARTNERS
FMG ACQUISITION I, L.L.C.
INSIGNIA FINANCIAL GROUP, INC.
(Bidders)
LIMITED PARTNERSHIP INTERESTS
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
_____________________
Edward J. Schneidman
John R. Sagan
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
================================================================================
<PAGE> 2
Amendment No. 2 to Schedule 14D-1
This Amendment No. 2 to Schedule 14D-1 amends the Schedule 14D-1 filed by
Walton Street Capital Acquisition Co., L.L.C., a Delaware limited liability
company (the "Purchaser"), with the Commission on November 16, 1995, as amended
by Amendment No. 1 filed with the Commission on November 21, 1995. All
capitalized terms used herein but not otherwise defined have the meanings
ascribed to such terms in the Offer to Purchase dated November 16, 1995 (the
"Offer to Purchase"), the First Supplement to the Offer to Purchase dated
December 5, 1995 (the "First Supplement") and the related Letter of Acceptance
(the "Letter of Acceptance," as each may be supplemented or amended from time
to time, which together constitute the "Offer").
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) The information set forth in "Introduction" and "Certain
Information Concerning the Purchaser" of the First Supplement is incorporated
herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in "Certain Information Concerning the
Purchaser" and "Background of the Offer" of the First Supplement is
incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in "Source and Amount of Funds" of the
First Supplement is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in "Purpose and Effects of the Offer"
and "Future Plans" of the First Supplement is incorporated herein by reference.
ITEM 6. INTERESTS IN SECURITIES OF THE SUBJECT COMPANY.
The information set forth in the "Background of the Offer" of the First
Supplement is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the "Introduction," "Purpose and Effects of
the Offer" and "Future Plans" of the First Supplement is incorporated herein by
reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in "Certain Information Concerning the
Purchaser" of the First Supplement is incorporated herein by reference.
This incorporation by reference herein of the above referenced financial
information does not constitute an admission that such information is material
to a decision by a Limited Partner whether to sell, tender or hold Interests
being sought in this tender offer.
Since neither the Purchaser nor Lambal Investors, L.P. is subject to the
periodic reporting requirements of the Exchange Act and since audited financial
statements of the Purchaser and Lambal Investors, L.P. are not
<PAGE> 3
available or obtainable without unreasonable cost or expense, the financial
statements of the Purchaser and Lambal Investors, L.P. included in the Offer to
Purchase are unaudited.
ITEM 10. ADDITIONAL INFORMATION.
(b) The information set forth in "Certain Information Concerning the
Purchaser" of the First Supplement is incorporated herein by reference.
(f) Reference is hereby made to the First Supplement, a copy of which is
attached hereto as Exhibit (a)(7), and which is incorporated herein in its
entirety by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
99.(a)(7) First Supplement to the Offer to Purchase dated December 5,
1995.
99.(a)(8) Letter to Limited Partners dated December 5, 1995.
<PAGE> 4
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: December 5, 1995. WALTON STREET CAPITAL ACQUISITION
CO., L.L.C.
By: /s/ NEIL BLUHM
-----------------------------------
Neil Bluhm
Manager
By: /s/ IRA SCHULMAN
-----------------------------------
Ira Schulman
Manager
By: /s/ WILLIAM ABRAMS
-----------------------------------
William Abrams
Manager
By: /s/ JEFFREY QUICKSILVER
-----------------------------------
Jeffrey Quicksilver
Manager
WIG 83 PARTNERS
By: Walton Street Capital Acquisition
Co., L.L.C.
By: /s/ IRA SCHULMAN
-----------------------------------
Ira Schulman
Managing Principal
FMG ACQUISITION I, L.L.C.
By: /s/ JEFFREY GOLDBERG
-----------------------------------
Jeffrey Goldberg
In his capacity as Manager
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ FRANK GARRISON
-----------------------------------
Frank Garrison
Executive Managing Director
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
- ------- ----------- -------------
<S> <C> <C>
99.(a)(7) First Supplement to the Offer to Purchase dated December 5, 1995 . . . . . . . . . . 6
99.(a)(8) Letter to Limited Partners dated December 5, 1995 . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 1
EXHIBIT 99.(a)(7)
First Supplement to the
Offer to Purchase for Cash
Up To 33,752 Limited Partnership Interests
of
BALCOR REALTY INVESTORS - 83
at
$136 NET PER LIMITED PARTNERSHIP INTEREST
by
WALTON STREET CAPITAL ACQUISITION CO., L.L.C.
***************************************************************************
* *
* THE OFFER, PRORATION PERIOD, AND WITHDRAWAL RIGHTS WILL EXPIRE AT *
* 12:00 MIDNIGHT, EASTERN STANDARD TIME, ON DECEMBER 15, 1995, UNLESS *
* THE OFFER IS EXTENDED. *
* *
***************************************************************************
The Purchaser hereby supplements and amends its offer to purchase up
to 45% of the outstanding Interests of the Partnership, outstanding as of the
Expiration Date, at the Purchase Price, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated November 16,
1995 (the "Offer to Purchase"), in this First Supplement to the Offer to
Purchase (the "First Supplement") and in the related Letter of Acceptance, as
each may be supplemented or amended from time to time (which together
constitute the "Offer"). Unless the context otherwise requires, capitalized
terms used in this First Supplement but not defined herein shall have the
meanings ascribed to them in the Offer to Purchase.
The purposes of this First Supplement are (1) to describe a new joint
venture relationship between the Purchaser and an affiliate of Insignia
Financial Group, Inc. ("Insignia") and (2) to provide other updated information
relating to the Offer to Limited Partners.
LIMITED PARTNERS WHO HAVE PREVIOUSLY TENDERED THEIR INTERESTS PURSUANT
TO THE OFFER AND WHO WISH TO HAVE THEIR INTERESTS PURCHASED PURSUANT TO THE
OFFER NEED NOT TAKE ANY FURTHER ACTION TO TENDER THEIR INTERESTS.
The Offer to Purchase is not conditioned upon any minimum number of
Interests being tendered. A Limited Partner may tender any or all Interests
owned by such Limited Partner. To the extent a Limited Partner currently holds
a fractional Interest, such fractional Interest may be tendered pursuant to the
Offer if the Limited Partner is tendering all of such Limited Partner's
Interests, otherwise, tenders of fractional Interests will not be accepted.
In addition to those factors set forth in the Offer to Purchase,
Limited Partners are urged to consider the following factors:
* PURCHASE PRICE IS BELOW ESTIMATED LIQUIDATION VALUE. As
disclosed in the Offer to Purchase, the Purchase Price ($136)
is below the Purchaser's estimate of the net asset value of
the Partnership's assets on a per Interest basis ($210)
assuming such assets were to be sold today, and the Purchase
Price is also below the net distributable value determined
under the Balcor Current Liquidation Analysis and the Balcor
Scheduled Liquidation Analysis. As discussed in this First
Supplement, the Purchase Price is also below Insignia's
estimate of the Partnership's net liquidation value of $217
per Interest.
* CONFLICT OF INTEREST. The Purchaser is making the Offer with
a view to making a profit. Accordingly, there may be a
conflict between the desire of the Purchaser to purchase
Interests at a low price and the desire of the Limited
Partners to sell their Interests at a high price.
<PAGE> 2
* CERTAIN RESTRICTIONS ON TRANSFER. The Partnership Agreement
restricts transfers of Interests if a transfer would cause a
termination of the Partnership for federal income tax
purposes, which occurs if 50% or more of the total Interests
in Partnership capital and profits are transferred within a
twelve- month period. If the Purchaser is successful in
purchasing 45% of the Interests, and taking into account the
sales of Interests on the secondary market and private
transactions during the twelve-month period prior to and after
the Offer, the ability to transfer Interests could be
restricted for up to twelve months following the Offer.
* POTENTIAL VOTING POWER. Limited Partners cannot participate
in the management or control of the Partnership's business,
and cannot control either the timing or amount of cash
distributions, or the timing or terms of a sale of the
Partnership's assets, except insofar as the Limited Partners
are entitled to vote as permitted by the Partnership
Agreement. If the maximum number of Interests sought are
tendered and accepted for payment pursuant to the Offer, the
Purchaser will own approximately 45% of the outstanding
Interests and could be in a position to influence
significantly decisions of the Partnership on which Limited
Partners are entitled to vote. This could effectively (i)
prevent non- tendering Limited Partners from taking actions
they desire but that the Purchaser opposes and (ii) enable the
Purchaser to take action desired by the Purchaser but opposed
by the non-tendering Limited Partners. Matters upon which
Limited Partners are entitled to vote under the Partnership
Agreement are: (1) amendment of the Partnership Agreement; (2)
dissolution of the Partnership; (3) removal of the general
partner or a successor general partner; (4) election of a new
general partner upon the withdrawal of the general partner or
a successor general partner; and (5) approval or disapproval
of the sale of all or substantially all of the assets of the
Partnership. Although the Purchaser has no current intention
with regard to any of these matters, it will vote the
Interests acquired pursuant to the Offer in its Interest,
which may, or may not, be in the best interests of
non-tendering Limited Partners.
* POTENTIAL CONFLICTS OF INSIGNIA. Due to the fact that an
affiliate of Insignia is employed by the Partnership as
property manager for the Properties, Insignia will have
conflicting interests in deciding how to vote on future
extraordinary transactions affecting the Partnership as a
result of the fact that a liquidation or sale of the
Partnership's assets would result in a decrease or elimination
of the property management fees paid to such affiliate. In
addition, Walton Street has agreed with Insignia that,
subject to any fiduciary duties it may have, Walton Street
will, and will cause certain of its affiliates to, use their
reasonable efforts to cause Insignia or one of its affiliates
to continue to be engaged as the property manager for the
Properties. As a result, it may be more difficult to replace
the affiliate of Insignia as the property manager.
* PARTNERSHIP TERM. The Partnership was originally formed in
1981. In the Partnership's Form 10-K for the year ended
December 31, 1994, the General Partner states "it has become
necessary for the Registrant [Partnership] to retain ownership
of many of its properties for longer than the holding period
originally described in the prospectus. The General Partner
examines the operations of each property and each local market
in conjunction with the Registrant's long-term dissolution
strategy when determining the optimal time to sell each of the
Registrant's properties." In its statement on Schedule 14D-9
(as defined herein), the General Partner reported that it
"intends to conduct an orderly liquidation of those assets
over the next two to three year period." The Offer provides
Limited Partners with an opportunity to liquidate their entire
investment sooner than otherwise might be possible.
* LACK OF LIQUIDITY. The Offer provides Limited Partners with
what may be their best opportunity to receive cash today for
their Interests. The alternative to the Offer is for a
Limited Partner to continue to hold the Interests in the
expectation of uncertain proceeds to be received at an unknown
time in the future.
The following information supplements and amends the Offer to Purchase
and should be read in conjunction therewith. Please call the Information
Agent/Depositary for another copy of the Offer to Purchase. In addition,
questions or requests for assistance should be directed to the Information
Agent/Depositary at the address and telephone number set forth below and on the
back cover of the Offer to Purchase.
The Herman Group, Inc.
13760 Noel Road, Suite 320
Dallas, Texas 75240
(800) 747-2979
<PAGE> 3
INTRODUCTION
The "Introduction" to the Offer to Purchase is hereby supplemented and
amended by the following:
JOINT VENTURE WITH INSIGNIA AFFILIATE. On November 20, 1995, the
Purchaser entered into agreements relating to the Partnership and the Offer
with an affiliate of Insignia, pursuant to which, as contemplated in Item 2 of
the Offer to Purchase, the Purchaser has assigned its right to purchase
Interests tendered pursuant to the Offer to a newly-formed joint-venture
partnership that is owned 75% by the Purchaser and 25% by FMG Acquisition I,
L.L.C. ("FMG"), which is a wholly-owned subsidiary of Insignia. The Purchaser
is the managing general partner of this joint-venture partnership. The purpose
and business of the joint-venture partnership are limited to the business of
acquiring, holding for investment and disposing, or otherwise realizing the
value, of the Interests and to conduct any other activities necessary or
incidental to such purposes. Copies of these agreements have been filed as
Exhibits (c)(1) and (c)(2) to Amendment No. 1 to the Purchaser's Tender Offer
Statement on Schedule 14D-1 filed with the Commission on November 21, 1995.
Your attention is directed to Item 7 of the Offer to Purchase for directions on
how to obtain copies of these agreements. As disclosed in Item 2 of the Offer
to Purchase, the Purchaser remains obligated under the Offer to pay for
Interests validly tendered and accepted for payment. As discussed in greater
detail below, an affiliate of Insignia acts as the property manager for the
Properties.
THE OFFER
ITEM 1. TERMS OF THE OFFER; NUMBER OF INTERESTS; PRORATION
Item 1 of the Offer to Purchase is hereby amended by the following:
If proration of tendered Interests is required, because of the
difficulty of determining the number of Interests validly tendered and not
withdrawn, the Purchaser may not be able to announce the final results of such
proration until at least approximately seven business days after the Expiration
Date. Subject to the Purchaser's obligation under Rule 14e-1(c) under the
Exchange Act to pay Limited Partners the Purchase Price in respect of Interests
tendered or return those Interests promptly after the termination or withdrawal
of the Offer, the Purchaser does not intend to pay for any Interests accepted
for payment pursuant to the Offer until the final proration results are known.
Notwithstanding any such delay in payment, no interest will be paid on the
Purchase Price.
ITEM 6. FEDERAL INCOME TAX CONSIDERATIONS
Item 6 of the Offer to Purchase is hereby supplemented to include the
following:
As was disclosed in the Offer to Purchase, if a Limited Partner sells
all of his or her Interests (and such Interests have not been aggregated for
purposes of the passive loss rules with activities not currently being sold),
any passive loss recognized on the sale and any suspended passive activity
losses from the Partnership (to the extent not used to offset any gain
recognized on the sale) will no longer be subject to the passive activity loss
limitation, and therefore should be deductible by such Limited Partner from his
or her other income, subject to any other applicable limitations (including
at-risk limitations and tax basis limitations). Your attention is directed to
Item 6 in the Offer to Purchase for a complete discussion of this and other
federal income tax considerations applicable to Limited Partners.
ITEM 7. PURPOSE AND EFFECT OF THE OFFER
Item 7 of the Offer to Purchase is hereby supplemented to include the
following:
As disclosed in the Offer to Purchase, the Purchaser is acquiring the
Interests for investment purposes and does not intend to change current
management or the operation of the Partnership and has no current plans for any
extraordinary transaction involving the Partnership. If the Purchaser's plans
with respect to the Partnership change in the future, the ability of the
Purchaser to influence actions on which Limited Partners have a right to vote
will depend on the Limited Partners' response to the Offer (i.e., the number of
Interests tendered). If the Purchaser acquires only a few Interests pursuant
to the Offer, it would not be in a position to influence matters over which
Limited Partners have
<PAGE> 4
a right to vote. Conversely, if the Purchaser is successful in acquiring 45%
of the Interests pursuant to the Offer, it will be in a position to exert
significant control over matters on which Limited Partners have a right to
vote.
As described above, the Purchaser has entered into a new joint venture
relationship with an affiliate of Insignia. This relationship is in the form
of a partnership called WIG 83 Partners ("WIGP"). Pursuant to the terms of the
Agreement of Partnership of WIG 83 Partners, dated as of November 20, 1995 (a
copy of which has been filed as Exhibit (c)(1) to Amendment No. 1 to the
Purchaser's Tender Offer Statement on Schedule 14D-1 filed with the Commission
on November 21, 1995) (the "Joint-Venture Agreement"), WIGP shall vote the
Interests acquired pursuant to the Offer, or otherwise acquired by WIGP, as
directed by the Purchaser and FMG in proportion to their respective percentage
interests in WIGP. However, with respect to any matter presented to Limited
Partners relating to the removal or replacement of a general partner of the
Partnership, WIGP may not vote the Interests in favor of any such removal or
replacement without the prior written consent of FMG, unless the replacement is
WIGP, the Purchaser, FMG or one of their respective affiliates.
ITEM 8. FUTURE PLANS
Item 8 of the Offer to Purchase is hereby supplemented to include the
following:
As stated in the Offer to Purchase, the Purchaser does not intend to
change current management of the Partnership, although such plans could change
in the future. In addition, under the terms of the Partnership Agreement,
Limited Partners do not have the direct right to remove or replace the property
manager for the Properties. Pursuant to an agreement between Walton Street
Capital L.L.C. ("Walton Street") and Insignia dated as of November 20, 1995 (a
copy of which has been filed as Exhibit (c)(2) to Amendment No. 1 to the
Purchaser's Tender Offer Statement on Schedule 14D-1 filed with the Commission
on November 21, 1995), Walton Street agreed that it will not and it will cause
certain of its affiliates not to (a) directly or indirectly terminate, seek to
terminate, cause the termination of, reduce the compensation then payable
under, or otherwise interfere in any way with any contract between the
Partnership and Insignia and certain of its affiliates, unless Insignia or its
affiliates has engaged in conduct with respect to such contract that
constitutes gross negligence, intentional misconduct or fraud or a material
breach of such contract; or (b) instigate, encourage or assist any Limited
Partner of the Partnership or any other third party to do any of the foregoing.
In addition, if at any time Walton Street or certain of its affiliates becomes
the general partner of, or otherwise controls, the Partnership, then Walton
Street, subject to its fiduciary duties, will, and will cause certain of its
affiliates to, use their reasonable efforts to cause Insignia or one of its
affiliates to continue to be engaged as the property manager for the
Properties.
ITEM 10. CERTAIN INFORMATION CONCERNING THE PURCHASER
Item 10 of the Offer to Purchase is hereby supplemented to include the
following:
Set forth in the table below is the name and the present principal
occupations or employment and the name, principal business and address of any
corporation or other organization in which such occupation or employment is
conducted, and the five-year employment history of the manager and executive
officer of FMG. The principal business address of FMG and the business address
of the person identified below is One Insignia Financial Plaza, Greenville,
South Carolina 29602. The person identified below is a United States citizen.
2
<PAGE> 5
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment and
Name Five-Year Employment History
---- ----------------------------
<S> <C>
Jeffrey L. Goldberg Jeffrey L. Goldberg has been the sole Manager and President of FMG since
its organization in June 1995. In addition, Mr. Goldberg has been Managing
Director -- Investment Banking of Insignia since July 1994 and served as
Managing Director -- Asset Management of Insignia from January 1991 until
July 1994. Since April 1990, Mr. Goldberg has been an officer of
Metropolitan Asset Group, Ltd. ("MAG") a real estate investment banking
firm, and is currently an Executive Vice President. From July 1989 until
March 1990, Mr. Goldberg was employed in the Mergers and Acquisitions Group
of Drexel Burnham Lambert Incorporated, an investment banking firm.
</TABLE>
Set forth in the table below are the name and the present principal
occupations or employment and the name, principal business and address of any
corporation or other organization in which such occupation or employment is
conducted, and the five-year employment history of each of the directors and
executive officers of Insignia. Insignia owns its interest in FMG through its
wholly-owned subsidiary Insignia Capital Corporation, a passive investment
company with no significant operations of its own. Unless otherwise indicated,
each person identified below is employed by Insignia. The principal business
address of Insignia and, unless otherwise indicated, the business address of
each person identified below, is One Insignia Financial Plaza, Greenville,
South Carolina 29602. Directors are identified by an asterisk. All persons
identified below are United States citizens.
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment and
Name Five-Year Employment History
---- ----------------------------
<S> <C>
Andrew L. Farkas* Andrew L. Farkas has been a director of Insignia since its inception in
July 1990, and has been Chairman and Chief Executive Officer of Insignia
since January 1991. Prior to August 1993, Mr. Farkas was the sole director
of Insignia. Mr. Farkas has been the president and sole director and
stockholder of MAG since January 1983.
John F. Jacques* John F. Jacques has been a director of Insignia since August 1993 and with
102 Woodmont Boulevard the Office of the Chairman of Insignia since January 1992. From January
Suite 400 1969 until December 1991, Mr. Jacques was the Chief Executive Officer of
Nashville, TN 37205 Jacques-Miller, Inc., a real estate syndication firm that sold
substantially all of its assets to Metropolitan Asset Enhancement, L.P., a
limited partnership in which Insignia has a limited partnership interest
("MAE"), in December 1991.
Robin L. Farkas* Robin L. Farkas has been a director of Insignia since August 1993. Mr.
Farkas is the retired Chairman of the Board and Chief Executive Officer of
Alexander's Inc., a real estate company. He served in that capacity from
1984 until 1993. Alexander's Inc. filed a petition under Chapter 11 of the
Federal Bankruptcy Code in May 1992. He is also a director of Refac
Technology Development Corporation and of Greenman Bros. Inc.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment and
Name Five-Year Employment History
---- ----------------------------
<S> <C>
Merril M. Halpern* Merril M. Halpern has been a director of Insignia since August 1993. Mr.
c/o Charterhouse Halpern has been Chairman of the Board of Directors and co-chief executive
535 Madison Avenue officer of Charterhouse Group International, Inc. ("Charterhouse"), a
New York, NY 10022 privately-owned investment firm which, among other things, actively engages
in making private equity investments in a broad range of industrial and
service companies located primarily in the United States, for more than the
past five years. Mr. Halpern is also a director of Charter Power Systems,
Inc., Del Monte Foods, Inc., Microwave Power Devices, Inc., International
Exhaust Holdings and Dreyer's Grand Ice Cream, Inc.
Robert G. Koen* Robert G. Koen has been a director of Insignia since August 1993. Since
125 West 55th Street January 1991, Mr. Koen has been a partner in the law firm LeBoeuf, Lamb,
New York, NY 10019 Greene & MacRae, which represents Insignia or certain of its affiliates
from time to time. From February 1984 until January 1991, Mr. Koen was a
partner in the law firm of Fulbright & Jaworski (formerly Reavis &
McGrath).
Michael Lipstein* Michael Lipstein has been a director of Insignia since August 1993. Mr.
110 East 59th Street Lipstein is, and for more than the past five years has been, self-employed
New York, NY 10022 in the real estate business, including ownership, management, and lending.
Buck Mickel* Buck Mickel has been a director of Insignia since August 1993. Mr. Mickel
Fluor/Daniel has been Chairman of the Board and Chief Executive Officer of RSI Holdings,
301 N. Main Street a company offering distribution of outdoor equipment, for more than the
Greenville, SC 29601 past five years. Mr. Mickel is also a director of Fluor Corporation, The
Liberty Corporation, NationsBank Corporation, Emergent Group, Inc., Delta
Woodside Industries, Inc., Duke Power Company, and Textile Hall
Corporation.
John A. Sprague* John A. Sprague has been a director of Insignia since August 1993. Mr.
30 Rockefeller Plaza Sprague is the general partner of Jupiter Partners L.P., an investment
Suite 4525 firm. From January 1993 until February 1994, Mr. Sprague was an
New York, NY 10112 independent investor. From prior to March 1989 to December 31, 1992, Mr.
Sprague served as General Partner of Forstmann Little & Co., an investment
firm. Mr. Sprague is also a director of Heartland Wireless Communications,
Inc. In March 1995, a class action complaint was filed against Aldila,
Inc., of which Mr. Sprague is a former director, alleging certain
securities violations. No answer has been filed at this time.
Thomas R. Shuler Thomas R. Shuler has been Managing Director -- Residential Property
Management of Insignia since March 1991 and Executive Managing Director of
Insignia and President of Insignia Management Services, a division of
Insignia, since July 1994. From January 1983 until March 1991, Mr. Shuler
was President of the Management Division of Hall Financial Group, Inc., a
property management organization located in Dallas, Texas.
Frank M. Garrison Frank M. Garrison has been Executive Managing Director of Insignia and
102 Woodmont Boulevard President of Insignia Financial Services, a division of Insignia, since
Suite 400 July 1994, and was Managing Director -- Investment Banking of Insignia from
Nashville, TN 37205 January 1993 to July 1994. From January 1992 to December 1992, Mr.
Garrison was the Senior Vice President of Investment Banking. From January
1991 to December 1991, Mr. Garrison was employed by Donelson Ventures
Holdings, L.P., a limited partnership engaged in real estate investing
activities. From January 1989 to December 1990, he was an employee of
Jacques-Miller, Inc.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment and
Name Five-Year Employment History
---- ----------------------------
<S> <C>
Henry Horowitz Henry Horowitz has been Managing Director -- Commercial Property Management
of Insignia since January 1993. From January 1987 to January 1993, Mr.
Horowitz was the Chief Executive Officer of First Resource Realty, Inc., a
commercial property management organization that Insignia acquired in
January 1993.
James A. Aston James A. Aston has been with the Office of the Chairman since July 1994.
From January 1991 to July 1994, Mr. Aston was Managing Director --
Investment Banking of Insignia.
William H. Jarrard, Jr. William H. Jarrard, Jr. has been Managing Director -- Partnership
Administration of Insignia since January 1991 and Managing Director --
Partnership Administration and Asset Management since July 1994. Mr.
Jarrard was employed by U.S. Shelter in a similar capacity for three years
prior to his joining Insignia.
Jeffrey L. Goldberg Jeffrey L. Goldberg has been Managing Director -- Investment Banking of
Insignia since July 1994 and served as Managing Director -- Asset
Management of Insignia from January 1991 until July 1994. Since April
1990, Mr. Goldberg has been an officer of MAG, currently an Executive Vice
President. From July 1989 until March 1990, Mr. Goldberg was employed in
the Mergers and Acquisitions Group of Drexel Burnham Lambert Incorporated,
an investment banking firm.
John M. Beam, Jr. John M. Beam, Jr. has been President of Insignia's mortgage banking
affiliate, Insignia Mortgage and Investment Company, since January 1991.
From January 1988 until December 1990, Mr. Beam was employed by U.S.
Shelter as President of its mortgage banking division.
Ronald Uretta Ronald Uretta has been Insignia's Chief Financial Officer and Treasurer
since January 1992. He also served as Secretary of Insignia from January
1992 to June 1994. Since September 1990, Mr. Uretta has also served as the
Chief Financial Officer and Controller of MAG. From May 1988 until
September 1990, Mr. Uretta was a self-employed financial consultant.
Albert H. Gossett Albert H. Gossett has been Vice President and Chief Information Officer of
Insignia since January 1991 and Senior Vice President and Chief Information
Officer of Insignia since July 1994. From May 1979 until December 1990,
Mr. Gossett was employed by U.S. Shelter as Director of Management
Information Systems.
S. Richard Sargent S. Richard Sargent has been Senior Vice President -- Human Resources of
Insignia since July 1994. From May 1989 until June 1994, Mr. Sargent was
employed as Vice President, Human Resources of Guilford Mills, Inc., a
manufacturer of knitted textile products, in Greensboro, North Carolina.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment and
Name Five-Year Employment History
---- ----------------------------
<S> <C>
John K. Lines John K. Lines has been General Counsel of Insignia since June 1994 and
General Counsel and Secretary since July 1994. From May 1993 until June
1994, Mr. Lines was employed as Assistant General Counsel and Vice
President of Ocwen Financial Corporation, a thrift holding company in West
Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was
employed as Senior Attorney of Banc One Corporation, a bank holding company
in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was
employed as an associate with the law firm of Squire Sanders & Dempsey in
Columbus, Ohio.
Neil Kreisel Neil Kreisel has been an Executive Managing Director of Insignia and
c/o Kreisel Company, Inc. President of Insignia Management Services -- New York, Inc., a subsidiary
331 Madison Avenue of Insignia, since September 1995. For more than the past five years,
New York, NY 10017 Mr. Kreisel has been President and Chief Executive Officer of Kreisel
Company, Inc.
</TABLE>
ITEM 11. BACKGROUND OF THE OFFER
Item 11 of the Offer to Purchase is hereby supplemented to include the
following:
The liquidation analyses provided by Balcor to affiliates of the
Purchaser, as described in the Offer to Purchase, were based on several
assumptions. The assumption used in the Balcor Current Liquidation Analysis
which the Purchaser believes is material is a property specific capitalization
rate (applied to the net income generated by the Properties to derive the value
of those Properties) of between 9.5% and 10.5%. The assumptions used in the
Balcor Scheduled Liquidation Analysis which the Purchaser believes are material
were (i) a rate of growth in rental revenues of 3.5% per year, (ii) a cost of
sale of the Properties of 2% of the sale price, (iii) a property specific
capitalization rate of between 9.5% and 10.5% and (iv) a discount rate of 12%
(used to value projected future cash receipts). The Purchaser believes the
discount rate of 12% is optimistic for highly leveraged properties such as the
Properties.
DISCUSSIONS BETWEEN THE PURCHASER AND INSIGNIA. On the evening
preceding the commencement of the Offer, Mr. Bluhm, as a courtesy to Insignia
on account of its relationship with the Partnership, informed Insignia that the
Purchaser was commencing the Offer. On the evening of November 16, 1995,
Insignia contacted the Purchaser to explore the possibility of Insignia's
participation in the Offer. Insignia was interested in participating in the
Offer principally because Insignia believed that (i) an investment in the
Interests at the price offered by the Purchaser represented an attractive
investment opportunity and (ii) Insignia's participation in the Offer
potentially could enhance Insignia's ability to participate in any possible
future management decisions with respect to the Partnership, particularly
insofar as such decisions might affect IMG's status as property manager for the
Properties or the terms of its engagement in such capacity. After extensive
negotiations over the course of the following four days, the parties entered
into the two agreements described above on November 20, 1995.
CERTAIN INFORMATION REGARDING FMG AND INSIGNIA. FMG is a
recently-formed Delaware limited liability company and a wholly-owned
subsidiary of Insignia. FMG has not engaged in any business activity other
than in connection with the Offer and has no significant assets or liabilities
at the present time. Upon consummation of the Offer, FMG's only significant
assets will be its general partner interest in WIGP and it is anticipated that
it will have no significant liabilities. The principal executive offices of
FMG and Insignia are located at One Insignia Financial Plaza, Greenville, South
Carolina 29602.
Insignia is a full service real estate service organization which
performs property management, asset management, investor services, partnership
administration, mortgage banking, real estate brokerage services, and real
estate investment banking services for various ownership entities, including
approximately 900 limited partnerships having approximately 260,000 limited
partners. Insignia believes it is the largest manager of multifamily
residential properties in the United
6
<PAGE> 9
States, managing approximately 208,000 units of multifamily residential housing
similar to those owned by the Partnership. In addition, Insignia, through its
subsidiary Insignia Management Services--New York, Inc., purchased the
residential property management business of Douglas Elliman-Gibbons & Ives and
all of the outstanding stock of Kreisel Company, Inc.; as a result of this
purchase, Insignia also manages approximately 54,000 units of multifamily
residential housing at 299 properties. Insignia also is a significant manager
of commercial property, managing approximately 64,000,000 square feet of retail
and commercial space. These properties are located in approximately 500 cities
and 48 states. Insignia is a public company whose stock is listed on the New
York Stock Exchange, Inc. It specializes in asset value maximization in
securitized real estate entities such as the Partnership.
Insignia is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith is required to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. Certain information, as
of particular dates, concerning Insignia's business, principal physical
properties, capital structure, material pending legal proceedings, operating
results, financial condition, directors and officers (including their
remuneration and stock options granted to them), the principal holders of
Insignia's securities, any material interests of such persons in transactions
with Insignia and certain other matters is required to be disclosed in proxy
statements and annual reports distributed to Insignia's shareholders and filed
with the Commission. Such reports, proxy statements and other information may
be inspected and copied at the Commission's public reference facilities.
Set forth below is certain consolidated financial information with
respect to Insignia and its consolidated subsidiaries for its fiscal years
ended December 31, 1994 and 1993 and its fiscal third quarters ended September
30, 1995 and 1994. More comprehensive financial and other information is
included in Insignia's Annual Report on Form 10-K for the year ended December
31, 1994 (including management's discussion and analysis of financial condition
and results of operations) and in other reports and documents filed by Insignia
with the Commission. The financial information set forth below is qualified in
its entirety by reference to such reports and documents filed with the
Commission and the financial statements and related notes contained therein.
INSIGNIA FINANCIAL GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
($ in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
1995 1994 1994 1993
----------- ----------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Total Revenues . . . . . . . . . . . . . . $89,177 $50,443 $75,566 $52,577
Income Before Taxes and
Extraordinary Item . . . . . . . . . . . 8,840 8,808 12,101 8,074
Net Income . . . . . . . . . . . . . . . . 5,304 5,286 7,261 4,670
<CAPTION>
As of September 30, As of December 31,
1995 1994 1994 1993
----------- ----------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents . . . . . . . . $ 27,643 $33,153 $36,596 $34,005
Receivables . . . . . . . . . . . . . . . 27,738 11,833 13,572 8,428
Total Assets . . . . . . . . . . . . . 226,988 96,553 174,272 88,835
Accounts Payable . . . . . . . . . . . . . 1,832 2,682 3,478 1,948
Accrued and Sundry Liabilities . . . . . . 24,394 12,085 18,790 14,208
Long-term Debt . . . . . . . . . . . . . . 97,119 5,084 73,198 1,139
Total Liabilities . . . . . . . . . . . 123,345 19,851 95,466 17,295
Redeemable Convertible Preferred Stock . . 15,000 -- -- --
Minority Interest of Consolidated
Subsidiaries . . . . . . . . . . . . . . . . 2,688 -- -- --
Shareholders' Equity . . . . . . . . . 85,955 76,702 78,806 71,540
</TABLE>
7
<PAGE> 10
None of FMG, Insignia or any of their respective affiliates owns any
Interests.
Except as otherwise set forth herein, none of FMG, Insignia or, to the
best of FMG's and Insignia's knowledge, any of the persons listed above, or any
affiliate of the foregoing (i) beneficially owns or has a right to acquire any
Interests, (ii) has effected any transaction in the Interests, or (iii) has any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of the Partnership, including, but not limited to,
contracts, arrangements, understandings or relationships concerning the
transfer or voting thereof, joint ventures, loan or option arrangements, puts
or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies.
INSIGNIA'S RELATIONSHIP WITH THE PARTNERSHIP AND BALCOR. On November
4, 1994, Insignia acquired substantially all of the assets of Allegiance Realty
Group, Inc. ("Allegiance"). Those assets included property management
contracts including the property management interests for the Properties.
Insignia assigned the management contracts for the Properties to Insignia
Management Group, Inc. ("IMG"), an affiliate of FMG and Insignia. The purchase
agreement between Insignia and Allegiance contains non-compete provisions
prohibiting Allegiance, its affiliate Balcor, an affiliate of the General
Partner, and other affiliates from providing property management services to
any Balcor owned or controlled property subject to the acquisition for a period
of five years and from providing property management services to any non-Balcor
owned or controlled property for a period of three years. In addition, if
during the five years beginning with 1995, either (i) the management agreements
with respect to Balcor owned or controlled properties are terminated without
cause and Balcor or its affiliates subsequently receive financial consideration
for entering into property management agreements or selling or transferring
property management agreements with respect to such properties or (ii) Balcor
sells or disposes of control of the general partner interest in such property
owners (or if Balcor or any of its parents is sold) and, in either case, as a
result thereof, Insignia suffers a loss of more than 5% of aggregate annual
management fees from such properties, then Insignia is entitled to compensation
from Balcor in the form of a retroactive decrease in the purchase price.
Pursuant to this arrangement, the Partnership has paid IMG property management
fees for property management services and for reimbursement of certain expenses
since November 1994. Property management fees paid to IMG by the Partnership
amounted to $103,343 for the period from November 4 to December 31, 1994 and
$576,784 during the nine months ended September 30, 1995.
CONFLICTING INTERESTS WITH RESPECT TO THE PARTNERSHIP. As a general
partner of WIGP, FMG will be permitted to direct the vote of 25% of the
Interests acquired by WIGP pursuant to the Offer. As such, FMG will have
conflicting interests in deciding how to vote on future extraordinary
transactions affecting the Partnership (such as sales of the Partnership's
assets or liquidation of the Partnership) as a result of the fact that a
liquidation or sale of the Partnership's assets would result in a decrease or
elimination of the property management fees paid to FMG's affiliate. In
addition, FMG is participating in the Offer with a view to making a profit.
Accordingly, there is a conflict between the desire of FMG to acquire Interests
at a low price and the desire of the Limited Partners to sell their Interests
at a high price.
OPERATING BUDGETS OF THE PARTNERSHIP'S PROPERTIES. In its capacity as
property manager, IMG prepares and has access to the operating budgets of the
Partnership's properties. IMG has provided FMG with the Partnership's fiscal
1995 operating budgets for the Properties. A summary of the operating budgets
for the Properties for fiscal 1995, as compared to the unaudited results of
operations for the first ten months of fiscal 1995, is set forth in the table
below. The budgeted amounts provided below are figures that were not computed
in accordance with generally accepted accounting principles ("GAAP"). Budgeted
operating results of operations for a particular fiscal year may differ
significantly in certain respects from the audited operating results for a
particular year. In particular, items that are categorized as capital
expenditures for purposes of preparing the operating budgets may be
re-categorized as expenses when the financial statements are audited and
presented in accordance with GAAP. Therefore, the summary operating budgets
presented for fiscal 1995 should not necessarily be considered as indicative of
what the audited operating results for fiscal 1995 will be. Furthermore, any
estimate of the future performance of a business, such as the Partnership's
business, is forward-looking and based on numerous assumptions, some of which
inevitably will prove to be incorrect. For this reason, it is probable that
the Partnership's future operating results will differ from those projected in
the operating budget, and those differences may be material. As a result, such
information should not be relied on by Limited Partners.
8
<PAGE> 11
<TABLE>
<CAPTION>
Fiscal 1995 1995
1995 First Ten Months First Ten Months
Budgeted Budgeted Actual
--------------- ------------------- ------------------
<S> <C> <C> <C>
Total Income . . . . . . . . . . . . . . . . . . $13,917,294 $11,529,985 $11,599,706
Total Expenses . . . . . . . . . . . . . . . . . $ 6,068,661 $ 6,103,957 $ 5,348,181
Net Operating Income . . . . . . . . . . . . . . $ 7,848,633 $ 5,426,028 $ 6,251,525
</TABLE>
INSIGNIA'S ESTIMATE OF GROSS REAL ESTATE VALUE. In estimating the
gross real estate value of the Properties, Insignia utilized the capitalization
of income approach. The estimate of the gross real estate value of the
Properties prepared by Insignia does not purport to be an estimate of the
aggregate fair market value of the Interests themselves, nor should it be
viewed as such by Limited Partners. As used in this First Supplement in
connection with Insignia's analysis, "net operating income" is calculated
before depreciation amortization, debt service payments and certain capital
expenditure items. Insignia did not prepare any estimates of the values of the
Properties based upon any other valuation method.
DEER OAKS APARTMENTS. In estimating the value of this property,
Insignia reviewed the net operating income generated by the property through
October 1995 of $626,701 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$752,041. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $500 per apartment unit (or an aggregate of $122,000),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third- party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $38,596, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $668,637 was then capitalized at a 10% rate, resulting in
an estimated gross property value of $6,686,372.
DESERT SANDS APARTMENTS. In estimating the value of this property,
Insignia reviewed the net operating income generated by the property through
October 1995 of $1,150,299 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$1,380,359. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $300 per apartment unit (or an aggregate of $123,600),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third- party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $15,449, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $1,272,208 was then capitalized at a 10% rate, resulting in
an estimated gross property value of $12,722,080.
EAGLE CREST APARTMENTS-PHASE I. In estimating the value of this
property, Insignia reviewed the net operating income generated by the property
through October 1995 of $804,414 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$965,297. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $400 per apartment unit (or an aggregate of $118,400),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third-party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $27,639, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $874,536 was then capitalized at a 10% rate, resulting in
an estimated gross property value of $8,745,360.
SPRINGS POINTE VILLAGE APARTMENTS. In estimating the value of this
property, Insignia reviewed the net operating income generated by the property
through October 1995 of $1,659,778 and then annualized that amount, resulting
in forecasted net operating income for the year ending December 31, 1995 of
$1,991,734. Insignia then adjusted that annualized net operating income amount
to reduce it by (i) $500 per apartment unit (or an aggregate of $242,000),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third-party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) $25,261, representing Insignia's estimate of an appropriate adjustment in
respect of annual real estate tax costs. The adjusted net operating income of
$1,724,472 was then capitalized at a 10% rate, resulting in an estimated gross
property value of $17,244,722.
9
<PAGE> 12
WALNUT RIDGE APARTMENTS -- PHASE I. In estimating the value of this
property, Insignia reviewed the net operating income generated by the property
through October 1995 of $829,453 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$995,344. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $400 per apartment unit (or an aggregate of $152,000),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third-party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $41,134, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $884,478 was then capitalized at a 10.5% rate, resulting in
an estimated gross property value of $8,423,600.
WALNUT RIDGE APARTMENTS -- PHASE II. In estimating the value of this
property, Insignia reviewed the net operating income generated by the property
through October 1995 of $757,656 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$909,187. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $400 per apartment unit (or an aggregate of $129,600),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third-party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $36,548, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $816,135 was then capitalized at a 10.5% rate, resulting in
an estimated gross property value of $7,772,714.
SANDRIDGE APARTMENTS-PHASE II. In estimating the value of this
property, Insignia reviewed the net operating income generated by the property
through October 1995 of $428,645 and then annualized that amount, resulting in
forecasted net operating income for the year ending December 31, 1995 of
$514,374. Insignia then adjusted that annualized net operating income amount
to (i) reduce it by $300 per apartment unit (or an aggregate of $58,800),
representing Insignia's estimate of recurring capital improvement requirements
and the adjustment that would be imputed by a third-party purchaser in
underwriting the operating expenses of the property for valuation purposes, and
(ii) increase it by $24,786, representing Insignia's estimate of an appropriate
adjustment in respect of annual real estate tax costs. The adjusted net
operating income of $480,360 was then capitalized at an 10.5% rate, resulting
in an estimated gross property value of $4,574,857.
Based on the individual estimates of the gross values of the
Properties described above, Insignia estimates that the current aggregate gross
real estate value of the Properties is $66,169,705 (the "Gross Real Estate
Value Estimate").
Although there are several other methods of estimating the value of
real estate of this type, Insignia believes that this approach represents a
reasonable method of estimating the aggregate gross value of the Properties
(without taking into account the costs of disposing of the Properties), subject
to the substantial uncertainties inherent in any estimate of value. The use of
other assumptions, however, particularly as to the applicable capitalization
rate, could produce substantially different results. Insignia did not solicit
any offers or inquiries from prospective buyers of the Properties in preparing
Insignia's estimates of their fair market values, and the actual amounts for
which the Properties might be sold could be significantly higher or
significantly lower than Insignia's estimates.
The Gross Real Estate Value Estimate does not take into account (i)
the debt encumbering the Properties or the other liabilities of the
Partnership, (ii) cash and other assets held by the Partnership, (iii) real
estate transaction costs that would be incurred on a sale of the Properties,
such as brokerage commissions and other selling and closing expenses, (iv)
timing considerations or (v) costs associated with winding up the Partnership.
For this reason, Insignia considers the Gross Real Estate Value Estimate to be
less meaningful in evaluating the Purchase Price offered by the Purchaser than
its pro forma estimate of the net liquidation value per Interest described
below.
INSIGNIA'S PRO FORMA ESTIMATE OF NET LIQUIDATION VALUE PER INTEREST.
Insignia's analysis was performed in the context of evaluating a purchase of
Interests, which are a relatively illiquid investment, and not in the context
of purchasing the Partnership's underlying assets or assuming any of its
liabilities. Consequently, Insignia does not believe that the per-Interest
amount which might be distributed to Limited Partners following a future sale
of all the Properties necessarily reflects the present fair value of an
Interest. Conversely, the realizable value of the Partnership's assets clearly
is a relevant factor in determining the price a prudent purchaser would offer
for Interests. In considering this factor, Insignia made a pro forma estimate
of the amount per Interest a Limited Partner might receive in a theoretical
orderly liquidation (which may not be realistically possible, particularly in
the near term, due to real estate market conditions, the general difficulty of
disposing of real estate in a short period of time and other general economic
factors) of the
10
<PAGE> 13
Properties, based on the Gross Real Estate Value Estimate calculated by
Insignia and the other considerations described below.
In estimating the pro forma net liquidation value per Interest,
Insignia adjusted its Gross Real Estate Value Estimate of $66,169,705 to
reflect the Partnership's net current assets. Specifically, Insignia deducted
from this amount $38,620,856, the difference between the Partnership's
liabilities and current assets as shown on the Partnership's unaudited balance
sheet at September 30, 1995. Insignia then deducted from that amount
$11,249,737, representing (i) the cash distribution of $71.50 per Interest made
to Limited Partners in October 1995, (ii) Insignia's estimate of the penalties
the Partnership would incur as a result of prepaying the debt encumbering the
Properties, and (iii) a reserve equal to 7% of the Gross Real Estate Value
Estimate (which represents Insignia's estimate of the probable costs of
brokerage commissions, real estate transfer taxes and other disposition
expenses, as well as operating and administrative costs that would be incurred
by the Partnership during the liquidation process). The result, $16,299,112,
represents Insignia's pro forma estimate of the aggregate net liquidation
proceeds (before provision for the costs described in the following sentence)
which could be realized on an orderly liquidation of the Properties, based on
the assumptions implicit in the calculations described above. Insignia did not
deduct any amounts in respect of the legal and other costs which Insignia
expects would be incurred in a liquidation, including costs of negotiating
purchase and sale contracts, possibly conducting a consent solicitation in
order to obtain the Limited Partners' approvals for the sales as may be
required by the Partnership Agreement, and winding up the Partnership, because
of the difficulty of estimating those amounts.
To complete its pro forma estimate of the amount of the theoretical
liquidation proceeds that would be distributable per Interest, Insignia divided
its estimate of the aggregate net liquidation proceeds of $16,299,112 by the
75,005 Interests reported as outstanding by the Partnership in its Report on
Form 10-Q for the period ended September 30, 1995 filed with the Commission.
The resulting estimated pro forma liquidation value was $217 per Interest,
before provision for the legal and other costs of liquidating the Partnership
described in the preceding paragraph.
Insignia's pro forma liquidation analysis described above is merely
theoretical and does not itself reflect the value of the Interests because (i)
there is no assurance that any such liquidation in fact will occur in the
foreseeable future and (ii) any liquidation in which the estimated fair market
values described above might be realized would take an extended period of time
(at least a year, and quite possibly significantly longer), during which time
the Partnership and its partners would continue to be exposed to the risk of
fluctuations in asset values because of changing market conditions and other
factors. For any property sales in which the Partnership is required to
indemnify the buyer for matters arising after the closing, a portion of the
sales proceeds could be held by the Partnership until all possible claims were
satisfied, further extending the delay in the receipt by the Limited Partners
of liquidation proceeds. Because of these factors, Insignia believes the
actual current value of the Interests is substantially less than the amount of
the hypothetical liquidating distribution. Conversely, there is a substantial
likelihood that the value realized in an orderly liquidation could be higher
than the numbers referred to above. A reduction in either operating expenses
or capital expenditures from the levels reflected in the property operating
statements for the ten months ended October 31, 1995 would result in a higher
liquidation value under the method described above. Similarly, a higher
liquidation value would result if a buyer applied a lower capitalization rate
to the applicable net operating income, reflecting a willingness to accept a
lower rate of return on its investment. Furthermore, the analysis described
above is based on a series of assumptions, some of which may not be correct.
Accordingly, this analysis should be viewed merely as indicative of Insignia's
approach to valuing Interests and not as any way predictive of the likely
result of any future transactions.
ALEX. BROWN LIQUIDATION ANALYSIS. The General Partner reported in its
statement on Schedule 14D-9 filed with the Commission on November 30, 1995 (the
"Schedule 14D-9") that its financial advisor, Alex. Brown & Sons Incorporated
("Alex Brown"), had provided to the General Partner a report on the theoretical
value per Interest in a liquidation of the Partnership within one year. Alex
Brown's analysis is stated to be "based on (a) historical and anticipated net
operating income for 1995 data provided to us [Alex Brown] by you [the General
Partner]; (b) capitalization assumptions prepared by us based in part upon
relevant real-estate profiles provided to us by you; and, (c) on site visits of
properties and interviews with property managers at a sample of properties we
deemed appropriate." Based on that analysis, Alex Brown states in its report
that in its opinion the liquidation value per Interest is between $299 and
$349. Alex Brown's report states: "THE VALUATION STATED HEREIN DOES NOT
CONSTITUTE A RECOMMENDATION TO THE HOLDERS OF THE UNITS, NOR ARE WE [ALEX
BROWN] EXPRESSING ANY OPINION ON THE FAIRNESS OR ADEQUACY OF THE OFFER." Both
Walton and Insignia believe that the range of values suggested in Alex Brown's
report is too high. Because neither Alex Brown's report nor the Schedule 14D-9
contains any explanation of the methodology used by Alex Brown, neither Walton
nor Insignia is able to determine the basis for the discrepancies between the
respective ranges of values estimated
11
<PAGE> 14
by each of them, on the one hand, and by Alex Brown, on the other hand.
Furthermore, Alex Brown's report expressly assumes an "orderly liquidation over
twelve months" of the Partnership's assets. This assumption is inconsistent
with the statements made by the General Partner in the Schedule 14D-9 to the
effect that the General Partner "intends to conduct an orderly liquidation of
those assets over the next two to three year period." Even the General
Partner's projection of a liquidation over two to three years is further
qualified in the Schedule 14D-9 by the statement that "the timing of the
liquidation may be lengthened or shortened in response to changing market
conditions, economic factors, interest rates and unforeseen events."
ITEM 13. SOURCE AND AMOUNT OF FUNDS
Item 13 of the Offer to Purchase is hereby supplemented to include the
following:
The Purchaser is simultaneously making tender offers for limited
partnership interests in eight other partnerships affiliated with the
Partnership. If the Purchaser is successful in purchasing the maximum number
of limited partnership interests sought in each of the nine tender offers, it
will be required to pay a total of approximately $36.5 million to purchase such
interests and pay related transaction costs. Pursuant to the terms of the
Joint-Venture Agreement, the Purchaser will assign its right to purchase
tendered interests to WIGP, and will fund the total amount necessary to
purchase Interests tendered pursuant to the Offer. The Purchaser and FMG have
agreed to contribute, in proportion to their respective percentage interests in
WIGP, the funds necessary to make such purchases. Currently, the Purchaser has
a 75% interest in WIGP and FMG has a 25% interest. The members of the
Purchaser have sufficient net worth and liquid resources to fund the
Purchaser's share of WIGP's obligations with respect to all nine tender offers.
FMG will obtain its funds from Insignia, and Insignia in turn has committed to
fund such amount. Insignia will use its working capital and other existing
liquid resources to meet its commitment. For financial information concerning
Insignia, see "Item 11. Background of the Offer," above. In addition,
Insignia is currently engaged in discussions with certain other entities
concerning minority equity investments in FMG by such entities. As disclosed
in Item 2 of the Offer to Purchase, the Purchaser remains obligated under the
Offer to pay for Interests validly tendered and accepted for payment. The
contributions required of such members and their partners will be made prior to
the closing of each tender offer, and an escrow of such amounts is not expected
to be arranged in advance of the closing.
ITEM 14. CONDITIONS OF THE OFFER
Condition (h) in Item 14 of the Offer to Purchase is amended to read
as follows:
(h) the failure to occur of any necessary approval or
authorization by any federal or state authorities necessary to consummation of
the purchase of all or any part of the Interests to be acquired hereby, which
in the reasonable judgment of the Purchaser in any such case, regardless of the
circumstances (including any action of the Purchaser) giving rise thereto,
makes is inadvisable to proceed with such purchase or payment; or
WALTON STREET CAPITAL ACQUISITION CO., L.L.C.
December 5, 1995
12
<PAGE> 1
EXHIBIT 99.(a)(8)
Walton Street Capital Acquisition Co., L.L.C.
900 North Michigan Avenue
Chicago, IL 60611
December 5, 1995
To Limited Partners of Balcor Realty Investors - 83:
On November 16, 1995, Walton Street Capital Acquisition Co., L.L.C.
(the "Purchaser") commenced a tender offer for up to 45% of the outstanding
limited partnership interests (the "Interests") in Balcor Realty Investors -83
(the "Partnership").
On November 20, 1995, the Purchaser reported that an affiliate of
Insignia Financial Group, Inc. ("Insignia") entered into a partnership with the
Purchaser. Insignia currently manages all of the Partnership's properties.
Insignia is one of the largest full service real estate organizations in the
U.S. and it performs services for approximately 900 limited partnerships.
Insignia believes it is the largest manager of multifamily residential
properties in the U.S. As a result of its relationship as property manager,
Insignia was able to perform a detailed liquidation analysis of the properties
and believes the Partnership's pro forma liquidation value is $217 per Interest
(the Purchaser's previously disclosed net asset value is $210 per Interest).
Limited Partners are urged to consider all of the factors set forth in
the Offer to Purchase, as supplemented by the First Supplement enclosed
herewith, including the following which are relevant to the valuation of
Interests:
. As disclosed in the Offer to Purchase, the Purchaser believes
that the fair value of an Interest should be less than the
estimated net asset value on a per Interest basis, for reasons
such as lack of liquidity, uncertainty as to future timing and
amount of distributions, the Limited Partners' lack of control
over the Partnership and certain tax considerations. The
Purchase Price ($136) is below the Purchaser's estimate of the
net asset value of the Partnership's assets on a per Interest
basis ($210), and it is also below Insignia's estimated net
liquidation value ($217) and the net distributable value
determined under certain historical liquidation analyses
prepared by the General Partner.
. The Purchaser is making the Offer with a view to making a
profit. Accordingly, there may be a conflict between the
desire of the Purchaser to purchase Interests at a low price
and the desire of the Limited Partners to sell their
Interest(s) at a high price. The Purchaser expects to profit
on this investment over a period of several years. The
Purchaser is prepared to accept the risk inherent in the
ownership of interests in real estate and the uncertainties
therein. The actual performance of the Partnership is subject
to a significant number of factors, many of which are beyond
the control of the Limited Partners and the General Partner.
. In general, acceptance of the Offer will constitute a taxable
event to you. Depending upon your specific tax situation, a
sale of all of your Interest(s) might enable you to utilize
previously nondeductible passive losses to generate additional
savings for federal income tax purposes. Each Limited Partner
should consult his or her own tax advisor
<PAGE> 2
as to the particular tax consequences to such Limited Partner
of selling or not selling Interests pursuant to the Offer.
. The General Partner reported that it hired Alex, Brown & Sons
Incorporated ("Alex Brown") to provide a range of liquidation
valuations. Alex Brown's liquidation valuation per Interest,
based upon historical data supplied by the General Partner and
visits to only a sample of the properties, is between $299 and
$349. In addition to other qualifications, Alex Brown's
letter to the Partnership specifically states: "THE VALUATION
STATED HEREIN DOES NOT CONSTITUTE A RECOMMENDATION TO THE
HOLDERS OF THE UNITS, NOR ARE WE [ALEX BROWN] EXPRESSING ANY
OPINION ON THE FAIRNESS OR ADEQUACY OF THE OFFER." The
Purchaser and Insignia do not agree with Alex Brown's range of
values for the Interests.
. Alex Brown's liquidation valuation assumes an "orderly
liquidation over twelve months" of the Partnership's assets.
This assumption is inconsistent with the General Partner's
November 30, 1995 response to the Offer in which the General
Partner indicated an orderly liquidation over the next two to
three years although "the timing of the liquidation may be
lengthened or shortened in response to changing market
conditions, economic factors, interest rates and unforeseen
events." The Partnership was originally formed in 1981. In
the Partnership's Form 10-K for the year ended December 31,
1994, the General Partner states "it has become necessary for
the [Partnership] to retain ownership of many of its
properties for longer than the holding period for the assets
originally described in the prospectus."
. NEITHER THE GENERAL PARTNER NOR ALEX BROWN HAS MADE AN OFFER
TO PURCHASE YOUR INTEREST(S).
. THE OFFER REPRESENTS THE MOST CERTAIN WAY IN WHICH A LIMITED
PARTNER MAY REALIZE IMMEDIATE CASH FROM HIS OR HER
INTEREST(S). Thus, Limited Partners who desire liquidity may
wish to accept the Offer rather than wait for uncertain cash
distributions at an unknown time in the future. Those Limited
Partners who choose to accept the Offer will have the benefit
of a certain sale and therefore avoid the future expenses and
complications in filing complex income tax returns which
result from an ownership of the Interest(s).
THE OFFER EXPIRES ON DECEMBER 15, 1995. In the event you would like
to discuss this decision in greater detail, please call our Information Agent
(The Herman Group) at the toll free number (800) 747-2979. Knowledgeable
agents are available to answer any questions you may have. Our wishes for a
safe and enjoyable holiday season are with you.
WALTON STREET CAPITAL ACQUISITION CO., L.L.C.
