<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
CONSENT SOLICITATION STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] CONFIDENTIAL, FOR USE OF
Check the appropriate box: COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[_] Preliminary Consent Solicitation Statement
[X] Definitive Consent Solicitation Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONAM REALTY PENSION INVESTORS, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAMES OF PERSONS FILING CONSENT SOLICITATION STATEMENT, IF OTHER THAN THE
REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Units
of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies: 96,490
Units
(3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $1,140 has been calculated in accordance with Rule 0-11 under
the Exchange Act and is equal to 1/50 of 1% of $5,700,000 (the
aggregate amount of the cash to be distributed to security holders).
(4) Proposed maximum aggregate value of transaction: $5,700,000
(5) Total fee paid: $1,140
[X] Fee paid previously with preliminary materials: $1,200
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CONAM REALTY PENSION INVESTORS, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
December 16, 1998
Dear Limited Partner,
We are writing to inform you of an opportunity to liquidate your investment
in ConAm Realty Pension Investors, L.P. (the "Partnership") through the sale
of the remaining property (the "Property") of the Partnership for $5,800,000
to a Delaware limited liability company (the "Purchaser") to be formed if the
sale is approved by the Limited Partners. Shortly after the sale of the
Property, it is anticipated that the Partnership would be liquidated and net
proceeds from the sale, together with certain cash from operations, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. Two pension funds advised by Lend Lease Real
Estate Investments, Inc. ("Lend Lease"), which is unaffiliated with the
General Partner, will each own a 45.5% interest in the Purchaser, and ConAm
DOC Affiliates LLC, an affiliate of the General Partner, will own a 9%
interest in the Purchaser. In addition, ConAm Management Corporation, an
affiliate of the General Partner which will not be a member of the Purchaser,
will act as the initial property manager for the Purchaser if the sale is
approved. See "THE PROPOSALS--The Purchaser" in the enclosed Consent
Solicitation Statement.
The accompanying materials discuss the proposed sale and certain related
matters in detail, but we would like to summarize our reasons for recommending
that you consent to the sale.
. The General Partner believes that current market conditions are favorable
for the sale of the Property.
. If the sale is consummated, aggregate distributions to the Limited
Partners following the sale, including a distribution in respect of the
sale and a final distribution upon the anticipated liquidation of the
Partnership, are estimated to be $68.14 per Unit. This compares
favorably with a price of $40 per Unit offered in a recent tender offer
made by a party unaffiliated with the General Partner. See "MARKET FOR
THE UNITS" in the enclosed Consent Solicitation Statement.
. The purchase price for the Property is greater than the value of the
Property set forth in an appraisal of the Property commissioned by the
prospective lender for the Purchaser and greater than that offered by
two other prospective purchasers. See "THE PROPOSALS--Background of the
Sale" in the enclosed Consent Solicitation Statement.
. The sale of the Property will permit the Partnership to liquidate, thus
eliminating (i) the fixed costs associated with maintaining a public
limited partnership and (ii) the annual filing and reporting of Schedule
K-1 tax information by the Limited Partners.
. The Partnership expects to recognize a tax loss from the sale of the
Property. The Partnership estimates that this tax loss will equal
approximately $0.71 per Unit. See "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE SALE."
Following for your consideration are some potential disadvantages to the
sale of the Property:
. An affiliate of the General Partner will own a 9% interest in the
Purchaser in consideration of a pro rata cash contribution to the
Purchaser, and the General Partner will have other relationships with
the Purchaser. See "THE PROPOSALS--The Purchaser."
. The purchase price for the Property is less than the fair market value
of the Property set forth in an independent, annual appraisal of the
Property made in the ordinary course of the Partnership's business. See
"SPECIAL FACTORS--Independent Appraisal" and "THE PROPOSALS--Background
of the Sale" in the enclosed Consent Solicitation Statement.
. The General Partner negotiated the terms of the sale with Lend Lease,
including the consideration to be received.
<PAGE>
. The Partnership will not benefit from possible improvements in economic
and market conditions, if any, which might be expected to produce
increased cash flow and potentially enhance the sales price of the
Property.
. Limited Partners will not be afforded appraisal rights or dissenters'
rights in connection with the sale.
Under the terms of the Partnership Agreement, the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, certain affiliated transactions between the
General Partner and the Partnership are prohibited. Because the Purchaser may
be deemed to be an "affiliate" of the General Partner (under the Partnership
Agreement), the General Partner is also seeking to amend the Partnership
Agreement to permit such a sale, which requires the approval of a majority in
interest of the Limited Partners.
The accompanying materials contain a complete discussion of the purchase
price under the heading "SPECIAL FACTORS--Fairness of the Sale," together with
a discussion of all of the disadvantages and conflicts of interest arising in
connection with the sale under the heading "THE PROPOSALS--Conflicts of
Interest of the General Partner."
We have considered several alternatives to this transaction. After carefully
weighing the facts and circumstances associated with the transaction as well
as with alternative courses of action, we have concluded that the proposed
sale of the Property is the best alternative for the Limited Partners. Our
conclusions are set forth in the section of the Consent Solicitation Statement
entitled "SPECIAL FACTORS--Alternatives Considered to the Sale." It is
anticipated that distributions to the Limited Partners of net proceeds from
the sale, together with certain cash from operations, will occur within 30
days after the closing date of the sale.
If the Limited Partners fail to approve the sale and the amendment, the
Partnership will attempt to obtain financing for the Property and utilize the
loan proceeds to implement certain capital improvements, establish reserves
for future capital improvements and make a tax-deferred distribution to the
Limited Partners. This course of action would enable the Partnership to take
advantage of future appreciation, if any, in the value of the Property, but
could also increase the risk of loss of the Property because of debt service
and might adversely affect the timing and amount of future distributions to
Limited Partners. See "THE PROPOSALS--Failure to Approve the Sale."
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT IN ITS
ENTIRETY. WE REQUEST THAT YOU APPROVE THE SALE AND THE AMENDMENT BY SIGNING
AND RETURNING THE ENCLOSED CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE PRIOR TO JANUARY 15, 1999. YOUR VOTE IS IMPORTANT. PLEASE SIGN AND
DATE THE ENCLOSED CONSENT AND RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN BE
COUNTED.
If you have questions regarding the proposed sale or need assistance in
completing and returning your consent card, you may call the Partnership's
Solicitation Agent, D.F. King & Co., Inc., at (800) 735-3591 (toll-free).
Sincerely,
CONAM PROPERTY SERVICES III, LTD.,
General Partner
By: Continental American
Development, Inc.,
the General Partner
By: /s/ Daniel J. Epstein
_____________________________
Daniel J. Epstein
President and Chief Executive
Officer
<PAGE>
CONAM REALTY PENSION INVESTORS, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Solicitation Statement") is being
furnished to limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in ConAm Realty Pension Investors, L.P., a New
York limited partnership (the "Partnership"), in connection with the
solicitation of written consents ("Consents") by ConAm Property Services III,
Ltd. (the "General Partner") to proposals (the "Proposals") to (i) sell the
remaining income-producing, multi-family residential real property, and all
intangible and personal property relating thereto (collectively, the
"Property"), of the Partnership to a Delaware limited liability company, which
will be named DOC Investors, L.L.C. and formed if the Proposals are approved
(the "Purchaser"), in the manner described under the section of this
Solicitation Statement entitled "THE PROPOSALS" (the "Sale") and (ii) enact an
amendment (the "Amendment") to the Partnership's Amended and Restated
Certificate and Agreement of Limited Partnership (the "Partnership Agreement")
to permit the Sale to an "affiliate" of the General Partner as presently
defined in the Partnership Agreement. The full text of the proposed Amendment
is set forth in Appendix A attached hereto. If the Sale is approved by the
Limited Partners but the Amendment is not, the General Partner will have no
authority to consummate the Sale, and the Sale will not occur.
There is no assurance that the Sale will be consummated. However, assuming
the Sale is consummated, it is anticipated that an initial distribution to
Limited Partners of net proceeds from the Sale, together with certain cash
from operations, will aggregate approximately $66.59 per Unit and will occur
within 30 days after the closing date of the Sale. A final distribution of
cash from contingent reserves of up to $1.55 per Unit will be made upon
liquidation of the Partnership, approximately six months after the
consummation of the Sale. See "THE PROPOSALS--Description of the Partnership."
The Partnership expects to recognize a tax loss from the Sale of the Property.
The Partnership estimates that this tax loss will equal approximately $0.71
per Unit. See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
While the General Partner, an affiliate of which will own a 9% interest in
the Purchaser, negotiated the terms of the Sale, including the consideration
to be received, holders of a majority of the outstanding Units must consent to
the Proposals for the transaction to proceed. Limited Partners will not be
afforded appraisal rights or dissenters' rights in connection with the Sale.
This Solicitation Statement and the accompanying consent card are first
being mailed to Limited Partners on or about December 16, 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 UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS DECEMBER 16, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 3
ACTION BY CONSENT.......................................................... 6
General.................................................................. 6
Matters to be Considered................................................. 6
Record Date.............................................................. 7
Action by Consent........................................................ 7
SPECIAL FACTORS............................................................ 8
Reasons for the Sale..................................................... 8
Alternatives Considered to the Sale...................................... 9
Effects of the Sale...................................................... 10
Fairness of the Sale..................................................... 11
Independent Appraisal.................................................... 13
THE PROPOSALS.............................................................. 14
Description of the Partnership........................................... 14
The Purchaser............................................................ 14
Description of the Property to be Sold................................... 15
Indebtedness on the Property............................................. 15
Purchaser's Valuation.................................................... 15
General Partner's Valuation.............................................. 16
Background of the Sale................................................... 16
Conflicts of Interest of the General Partner............................. 19
Failure to Approve the Sale.............................................. 20
Terms of the Purchase Agreement.......................................... 20
The Amendment............................................................ 23
Indemnification.......................................................... 23
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE.............. 24
General.................................................................. 24
Capital Gains and Losses................................................. 25
Passive Loss Limitations................................................. 25
Certain State Income Tax Considerations.................................. 26
Tax Conclusion........................................................... 26
DISTRIBUTIONS.............................................................. 26
NO APPRAISAL RIGHTS........................................................ 26
MARKET FOR THE UNITS....................................................... 26
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 27
YEAR 2000 INFORMATION...................................................... 27
VOTING PROCEDURES.......................................................... 27
AVAILABLE INFORMATION...................................................... 28
APPENDIX A--THE PROPOSED AMENDMENT......................................... A-1
APPENDIX B--FORM OF CONSENT OF LIMITED PARTNER............................. B-1
</TABLE>
ANNEX 1--FORM 10-K
ANNEX 2--FORM 10-Q
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
SOLICITATION STATEMENT. REFERENCES ARE MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
SOLICITATION STATEMENT. UNLESS OTHERWISE DEFINED HEREIN, TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS
SOLICITATION STATEMENT. LIMITED PARTNERS ARE URGED TO READ THIS SOLICITATION
STATEMENT IN ITS ENTIRETY.
THE PARTNERSHIP
CONAM REALTY PENSION INVESTORS, L.P.
The Partnership owns one residential property: Oaktree Village Apartments
("Oaktree"), a 160-unit apartment complex located in Jacksonville, Florida. The
principal offices of the Partnership are located at 1764 San Diego Avenue, San
Diego, California 92110-1906, and its telephone number is (619) 297-6771.
The proposed transaction contemplates the Sale of the Partnership's remaining
real property asset, which is the only material asset currently owned by the
Partnership. The Partnership will retain no interests in any real property
following the Sale, and the General Partner anticipates liquidating the
Partnership within six months after consummation of the Sale.
THE PURCHASER
If the Proposals are approved, DOC Investors, L.L.C. ( the "Purchaser") will
be formed as a Delaware limited liability company in which two pension funds
(the "Pension Funds") advised by Lend Lease Real Estate Investments, Inc.
("Lend Lease"), which is unaffiliated with the General Partner, will each own a
45.5% interest and in which ConAm DOC Affiliates LLC, an affiliate of the
General Partner, will own a 9% interest. The principal offices of the Purchaser
will be located at 1764 San Diego Avenue, San Diego, CA 92110-1906.
THE PROPOSALS
THE SALE
Upon the approval of a majority in interest of the Limited Partners pursuant
to this Solicitation Statement, the Property may be sold to the Purchaser for a
purchase price of $5,800,000 in cash, subject to certain adjustments at closing
(the "Purchase Price"), as described under "THE PROPOSALS--Terms of the
Purchase Agreement." After the payment of expenses of the Sale, there will be
approximately $5,700,000 of net proceeds from the Sale available for
distribution.
THE AMENDMENT
The Partnership Agreement provides that the General Partner has no authority
to sell any Partnership property to the General Partner or an "affiliate" of
the General Partner. An affiliate of the General Partner will own a 9% interest
in the Purchaser, will have a right of first offer and certain buy/sell rights
with respect to the property of and interests in the Purchaser, and will be
entitled to receive, under certain circumstances, a percentage of the
Purchaser's profits in excess of such affiliate's percentage ownership interest
in the Purchaser. In addition, an affiliate of the General Partner which will
not be a member of the Purchaser, ConAm Management Corporation ("ConAm
Management"), will serve as the initial property manager for the Purchaser. The
3
<PAGE>
following charts set forth the proposed relationship among the General Partner,
ConAm Management, and, when formed, the Purchaser.
[CHART APPEARS HERE]
- --------
* RPI Real Estate Services, Inc. sold its co-general partner interest in the
Partnership to the General Partner effective July 1, 1997. See "THE
PROPOSALS--Background of the Sale."
Taken together, these relationships might cause the Purchaser to be an
"affiliate" of the General Partner under the terms of the Partnership
Agreement. In order to permit the Sale, the General Partner proposes to amend
the Partnership Agreement to permit proposed sales of Partnership properties to
"affiliates" of the General Partner, if such proposed sales are approved by the
Limited Partners. See "THE PROPOSALS--The Amendment" and "SPECIAL FACTORS--
Effects of the Sale."
FAIRNESS OF THE SALE AND CERTAIN CONFLICTS OF INTEREST
The General Partner has carefully considered the Sale and has concluded that
the Sale is in the best interests of the Partnership and the Limited Partners.
This conclusion is supported by (i) an appraisal commissioned by the
prospective lender for the Purchaser in the course of obtaining financing for
the Sale and (ii) comparisons with other offers for the Property received by
the General Partner within the last year. See "SPECIAL FACTORS--Fairness of the
Sale" and "THE PROPOSALS--Background of the Sale." However, the Purchase Price
is less than the value for the Property as set forth in an appraisal of the
Property rendered by an independent real estate valuation advisory firm, Bach
Realty Advisors, Inc. (the "Appraiser"), as of November 30, 1997. See "SPECIAL
FACTORS--Independent Appraisal." In addition, there are certain factors,
including conflicts of interest, described in this Solicitation Statement that
Limited Partners should consider when determining the fairness of the Sale. In
particular, (i) the Purchase Price was negotiated by the General Partner, an
affiliate of which will have a 9% interest in the Purchaser, without the
benefit of an independent representative to negotiate on behalf of the Limited
Partners, (ii) the General Partner affiliate owning 9% of the Purchaser may,
under certain circumstances, be entitled to receive an additional 18% of the
profits of the Purchaser, and will have an option to purchase additional
interests in the Purchaser and a right of first offer with respect to sales of
the Purchaser's property, and (iii) another affiliate of the General Partner
will serve as the initial property manager for the Purchaser. See "THE
PROPOSALS--Conflicts of Interest of the General Partner" and "SPECIAL FACTORS--
Effects of the Sale."
4
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SECURITY OWNERSHIP AND VOTING THEREOF
As of the Record Date, an affiliate of the General Partner owned a total of
20 Units (approximately 0.0207% of the then-outstanding Units). This affiliate
intends to consent to the Proposals. See "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF."
CONSUMMATION OF THE SALE
The material terms of the Agreement for Purchase and Sale and Joint Escrow
Instructions (the "Purchase Agreement") have been negotiated between Lend Lease
and the General Partner. If the Limited Partners approve the Proposals, the
Purchase Agreement will be executed and delivered. Assuming the requisite
approval of the Limited Partners is obtained promptly, the consummation of the
Sale is expected to occur during January 1999 and is required to occur no later
than February 1, 1999, unless extended by the mutual agreement of the parties
(the "Closing Date"). See "THE PROPOSALS--Terms of the Purchase Agreement."
NO APPRAISAL RIGHTS
If the Sale is approved by Limited Partners owning a majority in interest of
the outstanding Units, dissenting Limited Partners will not have appraisal
rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The General Partner expects that the Limited Partners will recognize a tax
loss of approximately $0.71 per Unit from the Sale. The Sale will result in the
allocation of taxable losses among the Limited Partners. See "CERTAIN FEDERAL
AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
DISTRIBUTION OF NET SALE PROCEEDS
Net proceeds from the Sale, together with certain cash from operations,
aggregating approximately $66.59 per Unit, are expected to be distributed to
the Limited Partners within 30 days after the Closing Date of the Sale. A final
distribution of cash from contingent reserves of up to $1.55 per Unit will be
made upon liquidation of the Partnership, approximately six months after the
consummation of the Sale. The General Partner intends to waive any right it may
have to receive distributions of net proceeds from the Sale.
TERMINATION OF CONSENT SOLICITATION
Consents must be received by mail or facsimile before January 15, 1999, at
5:00 P.M., Pacific Standard Time, unless such date or time is extended for an
aggregate of up to an additional 40 days in the sole discretion of the General
Partner or unless the necessary vote to approve the Proposals is received
earlier.
RECORD DATE; UNITS ENTITLED TO CONSENT
Limited Partners of record at the close of business on December 10, 1998 (the
"Record Date") are entitled to approve the Proposals by written Consent. At
such date there were outstanding 96,490 Units, each of which will entitle the
record owner thereof to one vote.
PURPOSE OF THE ACTION
Written Consents are being solicited to approve the Proposals, which consist
of the Sale and the Amendment.
SOLICITATION AGENT
The Partnership has retained D.F. King & Co., Inc. (the "Solicitation Agent")
to assist in the solicitation of Consents. Completed, signed consent cards must
be returned to the Solicitation Agent by mail or facsimile before the
Expiration Date. If you have any questions, please call the Solicitation Agent
at (800) 735-3591 (toll-free).
VOTE REQUIRED
The Proposals must be approved by Limited Partners holding a majority of all
outstanding Units. If the Sale is approved but the Amendment is not, the
General Partner will have no authority to consummate the Sale, and the Sale
will not occur.
5
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ACTION BY CONSENT
GENERAL
This Solicitation Statement is being furnished on behalf of the Partnership
to the Limited Partners of the Partnership in connection with the solicitation
of Consents by ConAm Property Services III, Ltd., as the General Partner.
This Solicitation Statement and accompanying consent card are first being
mailed to Limited Partners on or about December 16, 1998.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve (i) the Sale of the Property to the
Purchaser pursuant to the Purchase Agreement and (ii) since the Purchaser may
be an "affiliate" of the General Partner under the Partnership Agreement, the
Amendment of the Partnership Agreement to permit proposed sales of Partnership
properties to "affiliates" of the General Partner, if such proposed sales are
approved by the Limited Partners. If the Proposals are approved by the Limited
Partners, and the Sale is consummated, there will be approximately $5,700,000
of net proceeds from the Sale, after the payment of expenses of the Sale. The
following table sets forth the calculations used in determining the estimated
initial distribution from the net proceeds from the Sale, together with
certain cash from operations, assuming a Sale as of November 30, 1998:
ESTIMATED NET CASH AVAILABLE BEFORE CONTINGENT RESERVES
<TABLE>
<CAPTION>
NET NET CASH
PROCEEDS FROM
FROM SALE OPERATIONS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Gross Purchase Price.............................................. $5,800,000
Estimated Transaction Costs (1)................................... (100,000)
----------
Net Sale Proceeds................................................. 5,700,000
Repayment of Secured Debt......................................... 0
Prepayment Penalties.............................................. 0
----------
Net Distributable Proceeds from
Sale............................................................. 5,700,000 $5,700,000
Other Available Cash (2).......................................... $920,697 920,697
Less: General Partner Portion
(5%)............................................................. (46,035) (46,035)
---------- -------- ----------
Net Cash Available Before Contingent Reserves..................... 5,700,000 874,662 6,574,662
========== ======== ==========
Net Cash Available Before Contingent Reserves, per Unit
(96,490 Units)................................................... $ 68.14
==========
Net Asset Value Per Unit at 11/30/97.............................. $ 67.08
==========
ESTIMATED INITIAL DISTRIBUTION TO LIMITED PARTNERS
<CAPTION>
PER
UNIT
------
<S> <C> <C>
Net Cash Available Before Contingent Reserves (from above)........ $6,574,662 $68.14
Less: Contingent Reserves (3)..................................... (150,000) $(1.55)
---------- ------
Net Initial Distribution to Limited Partners...................... $6,424,662 $66.59
========== ======
</TABLE>
- --------
(1) Includes estimated costs of consent solicitation and Sale which are
anticipated to be paid prior to the initial distribution.
(2) Includes cash balance at 9/30/98, adjusted for projected cash flow from
10/01/98-11/30/98, refund of security deposits, General Partner
recontribution of previous sale and refinance distributions, and costs
incurred in the final administration and liquidation of the
6
<PAGE>
Partnership. "General Partner recontribution of previous sale and refinance
distributions" refers to $275,825 required pursuant to the terms of the
Partnership Agreement to be recontributed to the Partnership by the general
partners in respect of distributions to the General Partner of proceeds
from prior sales and/or refinancings of Partnership property. See "THE
PROPOSALS--Description of the Partnership."
(3) Represents a reserve for costs related to the consent solicitation not
paid prior to the initial distribution and for unanticipated costs related
to the Sale and liquidation of the Partnership. Any unused portion of this
reserve will be distributed upon liquidation of the Partnership.
Of the $68.14 total potential distribution per Unit, approximately $66.59
will be distributed within 30 days of the consummation of the Sale, and the
remaining $1.55 will be retained to cover contingencies related to the Sale
and the expenses of the Partnership's winding-up and liquidation. This
additional reserve equal to $1.55 per Unit will be distributed to Limited
Partners, to the extent available, upon liquidation of the Partnership, which
is expected to occur within six months of the consummation of the Sale.
The Partnership Agreement provides that, following consummation of the Sale,
the General Partner is entitled to receive an initial distribution equal to 1%
of the net proceeds from the Sale. Pursuant to this provision, approximately
$57,000 of net proceeds from the Sale would be distributable to the General
Partner. However, if the Sale is consummated, the General Partner intends to
waive any right it may have to receive any portion of this distribution.
THE GENERAL PARTNER PROPOSES THAT THE LIMITED PARTNERS TAKE THE FOLLOWING
ACTIONS BY CONSENT:
APPROVE THE SALE OF THE PARTNERSHIP'S RESIDENTIAL PROPERTY KNOWN AS
OAKTREE VILLAGE APARTMENTS, TOGETHER WITH ALL INTANGIBLE AND PERSONAL
PROPERTY NECESSARY TO THE OPERATION THEREOF, TO THE PURCHASER, PURSUANT TO
A CERTAIN PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE PURCHASER AND
THE PARTNERSHIP, AND APPROVE THE AMENDMENT OF THE PARTNERSHIP AGREEMENT TO
PERMIT PROPOSED SALES OF PARTNERSHIP PROPERTIES TO "AFFILIATES" OF THE
GENERAL PARTNER, IF SUCH PROPOSED SALES ARE APPROVED BY THE LIMITED
PARTNERS.
WHILE THE GENERAL PARTNER, AN AFFILIATE OF WHICH WILL OWN A 9% INTEREST
IN THE PURCHASER, NEGOTIATED THE TERMS OF THE SALE, INCLUDING THE
CONSIDERATION TO BE RECEIVED, HOLDERS OF A MAJORITY OF THE OUTSTANDING
UNITS MUST CONSENT TO THE PROPOSALS FOR THE TRANSACTION TO PROCEED.
RECORD DATE
The close of business on December 10, 1998 has been fixed by the General
Partner as the Record Date for determining the Limited Partners entitled to
receive notice of the solicitation of Consents and to give their consent to
the Proposals. As of the Record Date, there were 96,490 issued and outstanding
Units entitled to vote held of record by 5,142 holders.
ACTION BY CONSENT
Under the terms of the Partnership Agreement the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, the sale of Partnership properties to the
General Partner or its affiliates is prohibited, unless the Partnership
Agreement is amended with the approval of a majority in interest of the
Limited Partners to permit such sales. Such approval will be obtained through
the solicitation of written Consents from Limited Partners, and no meeting of
Limited Partners will be held to vote on these matters. Consents must be
received by January 15, 1999, at 5:00 P.M., Pacific Standard Time, unless such
date or time is extended for an aggregate of up to an additional 40 days in
the sole discretion of the General Partner or unless the necessary vote to
approve the Proposals is received earlier (the "Expiration Date"). A vote
"for" or "against" either of the Proposals may be revoked by the person giving
it at any time before the Expiration Date
7
<PAGE>
by sending a written notice of revocation or a later-dated Consent containing
different instructions to the Solicitation Agent before such date. Any written
notice of revocation or subsequent Consent should be sent to the Solicitation
Agent at the address that appears on the back cover of this Solicitation
Statement.
In addition to solicitation by use of the mails, officers, directors and
employees of the General Partner or its affiliates, or the Solicitation Agent,
may solicit Consents in person or by telephone, facsimile or other means of
communication. Such officers, directors and employees will not receive
additional compensation for such services but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements have
been made with custodians, nominees and fiduciaries for the forwarding of
Consent solicitation materials to beneficial owners of Units held of record by
such custodians, nominees and fiduciaries, and the Partnership will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Partnership has hired the Solicitation
Agent to assist in the solicitation of the Consents, and will pay an estimated
fee of $1,750 plus the usual and customary fees and expenses associated with
such solicitation assistance. All costs and expenses of the solicitation of
Consents, including the costs of preparing and mailing this Solicitation
Statement, will be borne by the Partnership, whether or not the required
Consents are received and the Sale is consummated. The aggregate expenses
anticipated to be incurred by the Partnership relating to this solicitation
are expected to be approximately $113,564 and are detailed in the following
table:
<TABLE>
<S> <C>
Filing fees..................................................... $ 1,140
Legal fees...................................................... 65,000
Accounting fees................................................. 3,000
Solicitation fees............................................... 8,790
Printing fees................................................... 35,634
--------
$113,564
========
</TABLE>
SPECIAL FACTORS
REASONS FOR THE SALE
The General Partner's decision to proceed with the Sale at this time is
based upon the belief that current market conditions are favorable for the
Sale; that the Purchase Price is attractive; and that the Pension Funds and
Lend Lease are highly likely to consummate the transaction. The General
Partner has also considered: (a) the amount likely to be distributed to the
Limited Partners if the Sale were to occur; (b) the business risks to which
the Partnership would be exposed if the Sale were not to occur; and (c) the
elimination of (i) the fixed costs associated with maintaining a public
limited partnership and (ii) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners.
If the Sale is consummated, aggregate distributions to the Limited Partners
following the Sale, including a distribution in respect of the Sale and a
final distribution upon the anticipated liquidation of the Partnership, are
estimated to be $68.14 per Unit. This compares favorably with a price of $40
per Unit offered in a recent tender offer made by a party unaffiliated with
the General Partner. See "MARKET FOR THE UNITS."
If the Sale does not occur, the Partnership will attempt to obtain financing
for the Property and utilize any loan proceeds to implement certain capital
improvements, establish reserves for future capital improvements and make a
tax-deferred distribution to the Limited Partners. The Partnership might then
take advantage of any future property appreciation through a future sale of
the Property to the Purchaser or otherwise. However, such a course of action
could also increase the risk of loss of the Property due to any failure to
make debt service payments and might also adversely affect the timing and
amount of future distributions to Limited Partners. See "THE PROPOSALS--
Failure to Approve the Sale."
As indicated in the Partnership's annual reports to Limited Partners and
Form 10-Ks, the annual third party cost of administration of the Partnership
was $140,805 for 1995, $160,625 for 1996 and $215,461 for 1997.
8
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These administrative costs are incurred irrespective of the number of
properties owned by the Partnership and cover the annual audit, preparation of
the Partnership's tax return, transfer agent fees and investor services and
public reporting fees. In addition, the Limited Partners incur individual
costs associated with the preparation of appropriate schedules for their tax
returns.
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions and (ii) a lack of appraisal rights for dissenting Limited
Partners. See "--Fairness of the Sale."
ALTERNATIVES CONSIDERED TO THE SALE
Continued Ownership of the Property. The decision to sell the Property at
this time took into account the General Partner's opinion concerning the
limited prospects for capital appreciation of the Property, unless significant
additional investments are made in the Property. The General Partner
considered retaining the Property for a longer period with the expectation of
achieving greater capital appreciation. However, due to the fact that the
Property is aging, the General Partner believes that the Partnership will need
to expend significant funds for capital improvements and maintenance costs in
order for the Property to compete in its market in the future. The
improvements would involve ongoing replacement of carpeting and appliances and
ongoing exterior maintenance, including painting, roof replacement, heating
and air conditioning refurbishment, repaving of common areas and access roads,
and ongoing repairs to plumbing, electrical systems and building exteriors.
The General Partner estimates that the average cost of these improvements in
1999, 2000 and 2001 would approximate $170,000 per year.
While the General Partner believes that the Partnership could borrow funds
in order to finance these improvements, the General Partner does not believe
that leveraging the Property would be in the best interests of the
Partnership, if another alternative such as the Sale is feasible. Leveraging
the Property would increase the risk of loss and significantly decrease net
cash flow, resulting in an indefinite suspension of distributions to the
Limited Partners. Such a plan of action also would subject the Limited
Partners to the continued risks of ownership of the Property and prolong the
fixed costs associated with maintaining a public limited partnership,
including the administrative burden of annual filing and reporting of Schedule
K-1 tax information.
Tender Offer. From time to time, the Limited Partners have been approached
by investors seeking to acquire Units. Based on analyses of these proposals
and general market information as to other tender offers for real estate
limited partnership interests, the General Partner has concluded that such
tender offers are generally made at prices that reflect a significant discount
from the net asset value of the Units. For instance, those tender offers
during the past three years of which the General Partner is aware have been
made at prices that reflect approximately 41% to 72% of the net asset value of
the Units. The General Partner has consistently recommended that the Limited
Partners decline a tender offer on terms that reflect such a significant
discount from net asset value.
The General Partner has considered the possibility of making a tender offer
itself for all or a portion of the outstanding Units of the Partnership.
However, the General Partner determined that the purchase of less than a
controlling interest in the Partnership would be difficult to finance at a
fair approximation of the net asset value of the Units. Accordingly, the
General Partner decided not to pursue a tender offer for the Units.
Consolidation. The General Partner also considered a consolidation of the
Partnership with certain other partnerships for which its affiliates act as
general partner. Such a consolidation would have involved the merger of the
Partnership into, or the sale of the Partnership's interests in the Property
to, a newly-formed entity, pursuant to which the Limited Partners would
receive securities in the surviving entity. Although the General Partner did
not perform any specific financial analysis in the context of evaluating the
merits of this alternative,
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<PAGE>
it rejected this alternative because it would not necessarily provide the
Limited Partners with improved liquidity and might continue to subject the
Limited Partners to the market and other risks associated with the ownership
of securities which might not have an active trading market. In addition,
there has been significant negative publicity regarding such "roll-up"
transactions, and recently enacted legislation on both the federal and state
levels as well as increased regulation of such transactions have made this
alternative expensive and time consuming.
Other Sales. See "THE PROPOSALS--Background of the Sale" for a discussion of
other proposals to purchase the Property received by the General Partner.
Conclusion. After considering all of the foregoing alternatives, the General
Partner concluded that it is in the best interests of the Partnership and the
Limited Partners to proceed with the Sale to the Purchaser for the Purchase
Price. The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions and (ii) a lack of appraisal rights for dissenting Limited
Partners. See "--Fairness of the Sale."
EFFECTS OF THE SALE
Partnership. The Sale, if consummated, would effect a dissolution of the
Partnership under the Partnership Agreement and New York law. Accordingly, an
initial distribution to Limited Partners of net proceeds from the Sale,
together with certain cash from operations, would be followed by a liquidation
distribution of cash from contingent reserves approximately six months after
consummation of the Sale. Any taxable income or loss realized by the
Partnership in connection with the Sale or liquidation will be passed through
to the partners of the Partnership, in accordance with federal and state tax
law and the Partnership Agreement. The Partnership will not experience any
income tax effects in respect of such transactions. See "CERTAIN FEDERAL AND
STATE INCOME TAX CONSEQUENCES OF THE SALE."
Affiliates of the Partnership. Continental American Development, Inc.
("CADI") is the general partner of the General Partner. The shareholders of
CADI are substantially identical to the partners of Continental American
Properties, Ltd. ("CAPL"), which is the managing member of ConAm DOC
Affiliates LLC ("ConAm DOC"), the prospective owner of a 9% interest in the
Purchaser. In addition, the shareholders of CADI are identical to the
shareholders of ConAm Management, which will act as the initial property
manager for the Purchaser if the Proposals are approved. As a result, the Sale
is subject to various conflicts of interest.
The General Partner anticipates benefiting from the Sale to the Purchaser
because ConAm DOC, an affiliate of the General Partner, will own a 9% interest
in the Purchaser and will benefit on any returns the Purchaser receives from
its investment in the Property. The Purchaser will buy the Property with a
view to generating a positive return on its investment, whether from operating
the Property, selling the Property or ultimately selling
interests in the Purchaser. Achieving this investment objective is possible,
because the Pension Funds are willing to invest funds in capital improvements
and other items necessary to enhance the value of the Property and potentially
increase the revenues generated by the Property. In addition, the Purchaser
would likely be able to borrow on more favorable terms than the Partnership if
it purchases additional properties and is therefore able to cross-
collateralize any loans with all of such properties, something the Partnership
is not in a position to do.
As further benefits of the Sale to the General Partner, ConAm DOC might
have, under certain circumstances and at certain times, an option to purchase
additional interests in the Purchaser and will have a right of first offer
with respect to the Purchaser's property. See "THE PROPOSALS--The Purchaser."
As a result of the Sale and subsequent liquidation of the Partnership, the
General Partner (i) will recognize a tax loss of $416,619, (ii) expects to
receive $46,035 as its pro rata share of the cash reserves, excluding net
proceeds from the Sale, and (iii) will be required to recontribute $275,825 to
the Partnership. The recontribution represents distributions previously made
to the General Partner in respect of refinancings or sales of the
Partnership's properties. As previously discussed, the General Partner intends
to waive any right it may have to receive any distributions of net proceeds
from the Sale.
10
<PAGE>
As a result of the Sale, the General Partner will retain without
modification its current interest in the net book value and net earnings of
the Partnership. No affiliate of the General Partner will obtain any interest
in the net book value and net earnings of the Partnership as a result of the
Sale.
Limited Partners. It is anticipated that, shortly after the Sale, the net
proceeds from the Sale, together with certain cash from operations, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. This initial distribution to Limited Partners of
net proceeds from the Sale and certain cash from operations will aggregate
approximately $66.59 per Unit and will occur within 30 days after the Closing
Date. A final distribution of cash from contingent reserves of up to $1.55 per
Unit will be made upon the subsequent liquidation of the Partnership,
approximately six months after the consummation of the Sale. The Sale will
thus eliminate (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners. The Sale and liquidation will also
have certain income tax consequences to the Limited Partners. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions and (ii) a lack of appraisal rights for dissenting Limited
Partners. See "--Fairness of the Sale."
FAIRNESS OF THE SALE
The General Partner and its affiliates believe that the Sale is fair and
reasonable as to both price and structure and is in the best interests of the
Limited Partners and the Partnership and has, therefore, approved the Sale.
Because (i) the Purchase Price was negotiated by the General Partner, an
affiliate of which will have a 9% interest in the Purchaser, without the
benefit of an independent representative to negotiate on behalf of the Limited
Partners, (ii) the General Partner affiliate owning 9% of the Purchaser may,
under certain circumstances, be entitled to receive an additional 18% of the
profits of the Purchaser, and will have an option to purchase additional
interests in the Purchaser and a right of first offer with respect to sales of
the Purchaser's property, and (iii) another affiliate of the General Partner
will serve as the initial property manager for the Purchaser, the General
Partner has economic and other interests which are in conflict with the
interests of the Limited Partners. These interests of the General Partner may
conflict with its fiduciary obligations to the Limited Partners. The General
Partner believes, however, that it has fulfilled its fiduciary obligations to
the Partnership and that the Sale is fair to the Limited Partners. See "THE
PROPOSALS--Conflicts of Interest of the General Partner."
IN REACHING ITS DETERMINATION THAT THE SALE IS SUBSTANTIVELY AND
PROCEDURALLY FAIR, THE GENERAL PARTNER CONSIDERED THE FOLLOWING FACTORS WITH
RESPECT TO THE SALE. NEITHER CONAM DOC NOR CAPL HAS PERFORMED OR INTENDS TO
PERFORM AN INDEPENDENT ANALYSIS OF THE SUBSTANTIVE AND/OR PROCEDURAL FAIRNESS
OF THE SALE TO LIMITED PARTNERS. BOTH CONAM DOC AND CAPL, IN PUBLICLY-
AVAILABLE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, HAVE EXPLICITLY
ADOPTED THE FOLLOWING PROCEDURAL AND SUBSTANTIVE FAIRNESS ANALYSIS OF THE
GENERAL PARTNER:
(i) The General Partner believes that the Purchase Price represents a
fair price for the Property. For the reasons described in "--Independent
Appraisal," the General Partner relied during initial negotiations with
Lend Lease on the Independent Appraisal (as defined below) as
representative of a fair price for the Property. As negotiations for the
Sale continued, Lend Lease and the General Partner learned of a lower value
which had been attributed to the Property by the prospective lender for the
Purchaser. See "THE PROPOSALS--Background of the Sale." Upon learning of
this lower value, the Purchaser was able to negotiate a decrease in the
purchase offer from the value set forth in the Independent Appraisal to the
Purchase Price, which is nonetheless higher than the value set forth in the
lender appraisal. See "THE PROPOSALS--Background of the Sale." In addition,
the Purchase Price exceeds two offers for the Property which were made to
the General Partner prior to or during negotiations with Lend Lease. See
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<PAGE>
"THE PROPOSALS--Background of the Sale." Because the Purchase Price is in
excess of certain market indicators of the current fair market value for
the Property, the General Partner believes that the Sale is fair and in the
best interests of the Limited Partners.
(ii) The General Partner believes that current market conditions are
favorable for the Sale, because fair market values have generally
appreciated over the last few years. However, recent volatility and
uncertainty in the global capital markets is having (and is likely to
continue to have) an adverse effect on the financing of real estate
acquisitions. Therefore, in the General Partner's opinion, future
appreciation is unlikely in the near term and there is increased risk in
holding real estate generally. In addition, retention of the Property will
continue to subject the Partnership to the risks inherent in the ownership
of property, such as fluctuations in occupancy rates, operating expenses
and rental rates, which in turn may be affected by general and local
economic conditions, the supply and demand for properties of the type owned
by the Partnership and federal and local laws and regulations affecting the
ownership and operation of real estate. Therefore, the General Partner has
determined that the Sale is more advantageous to the Limited Partners than
retaining the Property at the present time.
(iii) Due to the age and physical condition of the Property, the General
Partner anticipates a need for expenditures averaging approximately
$170,000 per year in 1999, 2000 and 2001 if the Partnership continues to
hold the Property. These improvements would involve the ongoing replacement
of carpeting and appliances and ongoing exterior maintenance, including
painting, roof replacement, heating and air conditioning refurbishment,
repaving of common areas and access roads, and ongoing repairs to plumbing,
electrical systems and building exteriors. While higher rents might be
obtained if such improvements are made, distributions might need to be
reduced because of debt service. Given that continued long-term investment
in the Property would thus subject the Limited Partners to the risk of
reduced distributions, in addition to the increased risk of holding real
estate generally, the General Partner believes that the Sale is in the best
interests of the Limited Partners.
(iv) The form of the Purchase Agreement, described under "THE PROPOSALS--
Terms of the Purchase Agreement," contains several favorable provisions
which are not customarily found in third party agreements, including:
limited representations and warranties; limited survivability of
representations and warranties; sale of the Property on an "as is" basis;
lack of due diligence conditions precedent to closing; and lack of any
financing contingencies relating to the Sale. Because these favorable
provisions have the effect of limiting the prospective and other risks
inherent in a sale of real property, the General Partner has determined
that the Proposals are a fair opportunity to submit to the Limited Partners
for approval.
(v) The Sale will accelerate distributions to the Limited Partners,
thereby permitting them to liquidate their investments. At present, there
is no established public trading market for the Units and liquidity is
limited to (a) sporadic sales which occur within an informal secondary
market or (b) tender offers for Units, both of which are generally at a
substantial discount to net asset value and often involve only a limited
number of Units.
(vi) The Sale will permit the Partnership to liquidate, thus eliminating
(a) the fixed costs associated with maintaining a public limited
partnership and (b) the annual filing and reporting of Schedule K-1 tax
information by the Limited Partners.
(vii) Consummation of the Sale is subject to approval of the Proposals by
a majority in interest of the Limited Partners. Given this procedural
safeguard, the General Partner has determined that offering the Limited
Partners the option of liquidating their investment at or above a current
appraised value is preferable to subjecting the Limited Partners to the
increased risk associated with making additional capital investments and
continuing to hold properties in an already competitive market.
THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTY PURSUANT TO THE SALE
ARE AS FOLLOWS:
(i) The Partnership will not benefit from improvements in economic and
market conditions, if any, which might be expected to produce increased
cash flow and potentially enhance the sales price of the
Property.
12
<PAGE>
(ii) Limited Partners will not be afforded appraisal rights or
dissenters' rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
(iii) The Purchase Price was negotiated by the General Partner, an
affiliate of which will have an interest in the Purchaser, without the
benefit of an independent committee or representative to negotiate the
terms of the Sale on behalf of the Limited Partners, and the Purchase Price
is less than the value established by the Independent Appraisal.
(iv) The form of the Purchase Agreement contains provisions that may be
less advantageous to the Partnership than those found in many third party
agreements, in that (a) the purchase of the Property by the Purchaser is
subject to the concurrent approval by the limited partners of five public
limited partnerships (the "Affiliated Partnerships") of which affiliates of
the General Partner are the general partners of the sale of their
respective properties to the Purchaser and (b) the Purchaser may terminate
the Purchase Agreement if, due to condemnation or casualty, the Purchaser
is entitled to terminate the purchase agreements with respect to any two or
more properties owned by the Affiliated Partnerships.
INDEPENDENT APPRAISAL
Each year, in the ordinary course of Partnership business, the General
Partner commissions an appraisal of the fair market value of the Partnership's
properties. For the past four years, the Appraiser has rendered these
appraisals for properties of the Partnership, as well as those of the
Affiliated Partnerships. These appraisals have included appraisals of the
Property and 13 other properties (together with the Property, the "RI
Portfolio") which are owned by the Affiliated Partnerships and are currently
proposed to be sold to the Purchaser. The General Partner retains the
Appraiser based upon its reputation as a real estate valuation advisory firm
with experience in the valuation of real property assets similar to those
comprising the RI Portfolio. The Appraiser was originally selected by the
former co-general partner of the Partnership based upon the principal's 30
years of experience as an appraiser and real estate executive with several
national real estate appraisal and research companies and the principal's
familiarity with the markets where the Property is located.
In March 1998, the Appraiser delivered its independent appraisals to the
General Partner (the "Independent Appraisal") that, as of November 30, 1997,
based on the Appraiser's review and subject to the limitations described
below, the value of Oaktree was $6,000,000. The Independent Appraisal does not
constitute a recommendation to any Limited Partner as to whether such Limited
Partner should approve the Sale.
In appraising the Property, the Appraiser obtained pertinent property data
regarding income and expense figures and tenant rent rolls and conducted
inspections of the Property. Additionally, the Appraiser conducted research
either personally or through associates to obtain information concerning
current market rental rates, construction trends, the sale of comparable
improved properties, anticipated investor returns, appropriate operating
expenses and the supply and demand of competitive apartment projects in the
general and immediate area. The value of the Property was determined by the
Appraiser using both the sales comparison approach and the income approach to
value.
The Appraiser used an actual sales price for eight apartment sales from May
1996 to August 1997 in order to implement the sales comparison approach. The
Appraiser implemented the income approach under the direct capitalization
model and the discounted cash flow model. The Appraiser's assumptions under
the direct capitalization model included: a capitalization rate of 9.0%;
current market rents; stabilized vacancy rate of 5%; other income based on
historical collections; operating expenses based upon historical actuals and
comparable projects; a replacement reserve allowance of $300 per unit per
year; and a reduction for deferred maintenance of $138,000. The Appraiser's
assumptions under the discounted cash flow model included: a terminal
capitalization rate of 10.0%; a discount rate of 12.0%; a 4% cost of sale; a
10-year holding period; income growth rate of 2% in 1998 and 4% thereafter; a
vacancy rate of 5% throughout the holding period; operating expense growth
rate of 4% per year; and a replacement reserve of $300 per unit per year,
increasing by 4% per year.
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The Appraiser estimated the leased fee market value for Oaktree to be
$6,000,000. This estimate was made after investigating the appropriate real
estate market and applying the Appraiser's experience with and knowledge of
similar real estate properties. The estimated value assumes an all cash, "as
is" basis and a minimum of six to twelve months to market and sell the
Property, but does not take into consideration any potential costs which might
be incurred in the course of the marketing and sale of the Property.
The Independent Appraisal was made in accordance with the accepted
techniques, standards, methods and procedures of the Appraisal Institute and
was certified by the Appraiser. LIMITED PARTNERS SHOULD NOTE, HOWEVER, THAT
APPRAISALS ARE ONLY ESTIMATES OF CURRENT VALUE AND ACTUAL VALUES REALIZABLE
UPON SALE MAY BE SIGNIFICANTLY DIFFERENT. While the Appraiser may have a
conflict of interest in that it has prepared appraisals of properties for the
Affiliated Partnerships, it has not rendered appraisals for any other
affiliates of the General Partner. The General Partner has not commissioned
any appraisals of the Property other than the Independent Appraisal, because
the General Partner believes that appraisals by the Appraiser accurately
reflect the fair market value of the properties appraised. This determination
is supported by certain offers received for the Property by the General
Partner. See "THE PROPOSALS--Background of the Sale." While the General
Partner considered the Independent Appraisal in negotiating the terms of the
Sale, the Independent Appraisal was not determinative of the Purchase Price.
The Independent Appraisal is available for inspection and copying at the
principal executive offices of the General Partner during its regular business
hours by any interested Limited Partner or such Limited Partner's
representative who has been so designated in writing. In addition, the
Independent Appraisal has been filed as an exhibit to the Partnership's
Schedule 13E-3 in respect of the Sale, which is a publicly-available filing
with the Securities and Exchange Commission. See "AVAILABLE INFORMATION."
THE PROPOSALS
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on January 23, 1984 to engage in the business of
investing in multi-family, residential rental properties by making equity
participating loans secured by first mortgages or deeds of trust on such
properties. The Partnership originally invested in five equity participating
mortgage loans, one of which was repaid in December 1987, and another of which
was repaid in March 1998. In the three other equity participating loans funded
by the Partnership, the borrowers defaulted, and the Partnership obtained
title to the properties which secured such loans through foreclosure or deeds
in lieu of foreclosure. As a result, the Partnership became an owner and
operator of these properties. During its fiscal year ended November 30, 1997,
the Partnership sold two of the properties to purchasers unaffiliated with the
Partnership. The Partnership currently owns only the remaining property,
Oaktree, which was acquired by the Partnership in 1997. The Partnership will
retain no interests in real property after the Sale. See "--Description of the
Property to be Sold."
The Partnership was structured as a self-liquidating partnership with a
finite life, which would distribute its cash flow during its operating stage
and its proceeds from loan repayments and property sales during its
liquidating stage, whereupon the Partnership would be liquidated and
dissolved.
THE PURCHASER
Prior to the Sale, the Purchaser will be formed as a Delaware limited
liability company in which the Pension Funds will each own a 45.5% interest
and in which ConAm DOC, an affiliate of the General Partner, will own a 9%
interest.
Under the proposed limited liability company agreement of the Purchaser (the
"LLC Agreement"), ConAm DOC will be the administrative member of the Purchaser
and will have the obligation and responsibility to
14
<PAGE>
manage and conduct the day-to-day business and affairs of the Purchaser.
However, because significant decisions (each, a "Major Decision") can be made
only by or with the approval of 66 2/3% of the membership interests in the
Purchaser, Lend Lease and the Pension Funds will effectively control the
Purchaser. Major Decisions include: the approval or amendment of property
budgets; the sale, lease, refinancing, or encumbrance of the Property; the
acquisition of any real property in addition to the Property; the making of
capital improvements to the Property; the admission of a new member of the
Purchaser; entering into any contract with an affiliate of any member; the
issuance or sale of equity or debt securities of the Purchaser; the
consummation of any business combination involving the Purchaser; the filing
of any petition in bankruptcy with respect to the Purchaser; the selection or
replacement of a property manager; and the distribution of net cash flow or
capital proceeds.
Under the proposed LLC Agreement, the Purchaser will enter into a two-year
property management agreement with ConAm Management, an affiliate of the
General Partner. ConAm Management is required to manage the daily operations
of the Property and will receive a management fee of 3.5% of the Property's
gross collected monthly revenues. If the Purchaser elects in its sole
discretion to retain ConAm Management beyond the initial two-year term, the
management fee will be reduced to 3% of the Property's gross collected monthly
revenues. If the Purchaser sells the Property during the year following the
initial two-year term, ConAm Management will be entitled to a termination fee
equal to the management fee otherwise payable in respect of the Property for
the remainder of that year.
The proposed LLC Agreement provides that, following the two-year anniversary
of the effective date of the LLC Agreement (or at any prior time if the
members of the Purchaser are unable to reach a consensus on any Major Decision
within a 30-day period), any member of the Purchaser, including any affiliate
of the General Partner which is a member of the Purchaser, may make an offer
for the other members' interests in the Purchaser. Each other member may elect
to either sell its interests in the Purchaser for the stated price or make an
offer to purchase the other members' interests in the Purchaser for the stated
price. Accordingly, ConAm DOC might have, under certain circumstances and at
certain times, an option to purchase additional interests in the Purchaser.
At any time following the two-year anniversary of the effective date of the
LLC Agreement, the Pension Funds will be able to solicit offers for the sale
of the Property. In such a case, the Pension Funds will have to provide ConAm
DOC with the exclusive opportunity to negotiate a purchase of the Property for
a 30-day period. If the parties are unable to reach an agreement as to such a
purchase, the Pension Funds will then be able, without the consent of ConAm
DOC, to cause the Purchaser to sell the Property to a third party.
DESCRIPTION OF THE PROPERTY TO BE SOLD
Oaktree is a 160-unit apartment community located in southeast Jacksonville,
Florida, approximately eight miles from downtown. The property had an average
occupancy rate of 95% during the first six months of 1998 and 93.4% in 1997.
The Jacksonville apartment market has experienced strong competition lately,
particularly in the area near Oaktree. Recently, average occupancy rates have
declined, although average monthly rents have increased modestly.
INDEBTEDNESS ON THE PROPERTY
There is currently no indebtedness on the Property.
PURCHASER'S VALUATION
The Purchase Price for the Property is $5,800,000, which is less than the
appraised value of the Property as of November 30, 1997, but greater than the
value of $5,625,750 set forth in an appraisal commissioned by the prospective
lender for the Purchaser (after deducting a sales commission normally paid by
the seller but not applicable to the Sale). See "SPECIAL FACTORS--Independent
Appraisal" and "--Background of the Sale." The Purchase Price was derived
through negotiations between Lend Lease and the General Partner. See "--
Background of the Sale." Lend Lease, acting on behalf of the Purchaser,
considered a number of factors,
15
<PAGE>
including the preceding twelve months of net operating income of the Property,
the age, condition and location of the Property, and the significant costs
necessary to appropriately manage properties this age and undertake the
capital improvements necessary to position the Property to meet competition
from newer properties.
The Purchase Price is not subject to adjustment based on the results of Lend
Lease's due diligence investigation on behalf of the Pension Funds. In
addition, because the Property is being sold on an "as is" basis, it is more
likely that the Partnership will receive and retain the full amount of the
Purchase Price without further adjustment. The Partnership has a high degree
of confidence in the Purchaser's ability to consummate the Sale, because Lend
Lease will have completed its due diligence investigation and will have
deposited $100,000 earnest money into escrow prior to consummation of the
Sale. However, for a discussion of certain disadvantages of the Sale, see
"SPECIAL FACTORS--Fairness of the Sale" and "--Terms of the Purchase
Agreement."
GENERAL PARTNER'S VALUATION
The General Partner has not prepared a formal valuation with respect to the
proposed Sale. The General Partner has relied on the Independent Appraisal,
the value set forth in an appraisal commissioned by the prospective lender for
the Purchaser, prior offers for the Property and its general familiarity with
and experience in the Property's market to establish that the Purchase Price
is a fair price for the Property. See "SPECIAL FACTORS--Independent Appraisal"
and "--Background of the Sale."
BACKGROUND OF THE SALE
Under the terms of the Partnership Agreement, the General Partner has the
sole responsibility for the management of Partnership business. While the
Partnership was not established primarily to obtain title to properties,
various defaults on equity participating loans held by the Partnership and
secured by first mortgages or deeds of trust caused the Partnership to become
the owner and operator of certain properties. See "--Description of the
Partnership."
In 1994, the General Partner and RPI Real Estate Services, Inc., the then
co-general partners of the Partnership (the "General Partners"), determined,
in their business judgment, that it was an appropriate time to begin exploring
a means of converting the Partnership's interests in its properties to either
cash or marketable securities. This determination was based, in significant
part, upon their belief that the consummation of a sale or a "roll-up"
transaction would be consistent with (i) the Limited Partners' desire for
liquidity, (ii) the fact that a longer holding period could subject the
Limited Partners to risks associated with changing interest rates and property
valuations, and (iii) the aging nature of the properties, which would require
increasingly larger commitments of funds to address on-going capital
expenditures and keep the properties competitive in their respective markets.
In 1994, the General Partners concluded that a "roll-up" of the Limited
Partners' interests with those of the Affiliated Partnerships was not in the
best interests of the Limited Partners. See "SPECIAL FACTORS--Alternatives
Considered to the Sale--Consolidation." Therefore, the decision was made to
begin marketing selected properties for sale. This decision was based upon the
General Partners' belief that the real estate capital markets were improving,
particularly in the multi-family sector. Pension funds, real estate investment
trusts and other institutional buyers had increased their purchasing activity
as compared to the early 1990's when these same institutional buyers were
largely out of the market. Lower interest rates had also improved the market
for selling properties, as entrepreneurial buyers who required debt financing
to purchase properties were able to borrow funds at more advantageous interest
rates. Further, with respect to the Partnership's properties, local real
estate market conditions were improving, resulting in improved operating
performances of certain properties and enhanced prospects for selling certain
properties at attractive prices.
Based upon the improvement in the real estate capital markets and certain of
the local real estate markets, the General Partners concluded that it would
then be easier to identify buyers for certain of the Partnership's properties
and that the offers might be at more favorable capitalization rates than were
previously available.
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Evaluating the effects to the Limited Partners of an immediate sale and the
prospects for near-term appreciation, the General Partners made an assessment
of each of the Partnership's properties and its local market. In accordance
with this assessment, certain properties were identified for sale and
subsequently sold. See "--Description of the Partnership."
From time to time, the General Partners have received unsolicited
indications of interest in one or more of the remaining properties owned by
the Partnership, including the Property. The General Partners did not pursue
these indications of interest for a variety of reasons. For instance, in some
cases, the General Partners could not obtain adequate information regarding
the proposed buyer and its sources of financing. In other cases,
investigations as to the proposed buyer's purchase criteria, return
requirements, sources of capital, experience in the relevant real estate
markets, and timelines did not indicate that the proposed buyer was a
realistic potential purchaser. Finally, certain indications of interest were
not pursued because the General Partners believed that market conditions and,
therefore, prices, were likely to improve over the near-term.
In October 1997 and July 1998, respectively, an equity real estate
investment trust (the "REIT") and a real estate investment fund (the "Fund"),
parties unrelated to the General Partners, each expressed an interest in
acquiring the Property and certain other properties owned by the Affiliated
Partnerships. The REIT and the Fund were familiar with these properties and
their respective locations within their respective trade areas. The REIT offer
included two properties which are no longer part of the RI Portfolio. Based on
the General Partner's understanding of the allocation of the REIT's offer, the
REIT offer for the RI Portfolio was $111,600,000, which was equal to the
appraised value of the RI Portfolio as of December 31, 1996. As to the
Partnership, this would have resulted in a purchase price for the Property of
$5,700,000. The Fund offer indicated that the aggregate value of the RI
Portfolio was $115,650,000, which equaled the value set forth in the
Independent Appraisal, but, in consideration of the purported advantages to
the seller of a single transaction over an asset-by-asset sale, including the
avoidance of seller-paid brokerage commissions (estimated by the Fund to be 4%
or more of the purchase price) and reduced legal fees and related closing
costs, the Fund's offer for the RI Portfolio was $104,085,000. As to the
Partnership, this would have resulted in a purchase price for the Property of
$5,400,000. In any event, these offers were not accepted because, in the
opinion of the General Partner and its affiliates, they either did not reflect
the value of the Property at the time they were made and/or they were subject
to significant due diligence, underwriting and other contingencies.
Neither the General Partner, the Partnership nor any of their affiliates
have received any other offers for the RI Portfolio or the Partnership's
property. Due to, among other things, the protracted timelines, contingencies
and administrative costs associated with sales of individual properties,
continued individual sales of RI Portfolio properties have not been pursued by
the General Partner and its affiliates subsequent to the REIT and Fund offers.
Effective July 1, 1997, the General Partner purchased the co-general partner
interest of RPI Real Estate Services, Inc. for $250,000 in cash. Subsequent to
this acquisition, the General Partner has considered alternative disposition
strategies for the Property in light of the following:
(i) Due to previous sales of Partnership properties, the Partnership
currently owns only one Property, resulting in a disproportionate amount of
fixed costs associated with maintaining a public limited partnership;
(ii) The General Partner believes that the appropriate strategy for the
continued ownership of the Property is the implementation of a physical
refurbishment program, which would result in capital expenditures that
would likely be unattractive to the Limited Partners, because they would
result in the suspension or reduction of cash distributions; and
(iii) Oaktree is part of an integrated apartment community, the other
properties of which are owned by Affiliated Partnerships, making a sale of
the Property on a stand-alone basis difficult.
In mid-February 1998, ConAm Management, an affiliate of the General Partner,
acquired Alliance Residential Management, Inc., a Phoenix-based property
management company ("Alliance"). At the time of the
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acquisition, Alliance was managing property in Phoenix on behalf of Lend
Lease, advisor to the Pension Funds. Shortly after the acquisition of
Alliance, Steve Walker, a Pension Fund senior portfolio manager at Lend Lease,
telephoned Jim Krohn, the former owner of Alliance, who was at that time a
newly-appointed officer at ConAm Management. During this telephone
conversation, Mr. Walker asked to be introduced to the principals of ConAm
Management, for the purpose of familiarizing himself with Lend Lease's new
property manager and exploring whether any further mutually beneficial
business relationships could be established between the two parties and/or
their affiliates.
On March 13, 1998, Mr. Krohn and J. Bradley Forrester, President of ConAm
Management and Vice President of the general partner of the General Partner,
flew to Atlanta to meet with Messrs. Ray D'Ardenne, Don Miller, Ted Klinck,
and Walker of Lend Lease. During this meeting, Messrs. Forrester and Krohn
presented the Lend Lease principals with general information about ConAm
Management and the multi-family real estate holdings of its affiliates,
including the RI Portfolio. The Lend Lease principals responded to this
presentation by expressing Lend Lease's desire to acquire well-located
multi-family properties where there was the opportunity to add value through
physical refurbishment and repositioning. At that time, Mr. D'Ardenne
expressed a possible interest in acquiring a small portfolio of multi-family
residential housing properties from ConAm Management's affiliates. While, as
described above, the General Partner and its affiliates had been contemplating
a sale of the RI Portfolio for some time, no formal presentations, proposals
or solicitations for an offer relating to the RI Portfolio were made to the
Lend Lease principals on that date.
On March 16, Mr. Forrester sent Mr. Klinck at Lend Lease an informational
package relating to the RI Portfolio. The package included information
relating to the locations of the properties, the number of units at each
property, a brief financial overview, and lists of amenities. Over the next
few days, Mr. Forrester continued to send information concerning the RI
Portfolio to Mr. Klinck. Subsequently, Mr. Klinck called Mr. Forrester and
expressed Lend Lease's interest in pursuing the acquisition of the RI
Portfolio. The General Partner believes that, during this time, Lend Lease
representatives may have made site visits to certain of the properties
comprising the RI Portfolio. The General Partner and its affiliates did not
consider retaining an independent advisor to represent the interests of the
Limited Partners in any prospective sale of the Property, because they
determined that that the Independent Appraisal would provide adequate
assurance that a fair offer would be presented to the Limited Partners for
approval.
In late March and early April, the parties continued to exchange information
relating to the RI Portfolio. At the request of Mr. Klinck, Mr. Forrester
began to deliver more detailed financial reports and other information to Mr.
Klinck, in order to assist Lend Lease in its development of an offer. During
this time, Mr. Klinck and Mr. Forrester discussed the relative merits of
having affiliates of the General Partner contribute up to $5 million to the
purchase price of the RI Portfolio and provide property management services to
the RI Portfolio after the
proposed sale. Through this alignment of interests, Lend Lease believed that
the underwriting risks inherent in the purchase of real estate properties and
the risks associated with the ongoing management of the Property would be
reduced. The General Partner believes that this reduction of risk to Lend
Lease is reflected in the fact that the Purchase Price is greater than the
amounts offered by others.
During the following weeks, Lend Lease performed its own financial analysis
of the RI Portfolio and made several visits to the RI Portfolio property
sites. Also during this time, numerous telephone conversations took place
between Mr. Klinck and Mr. Forrester. Mr. Forrester informed Mr. Klinck that
if Lend Lease was not prepared to pay at least the appraised value of the RI
Portfolio, then the General Partner would not be interested in making a sale.
In arriving at this determination, the General Partner considered the original
Unit price of $500 and concluded that a sale at the appraised value of the
Property, when taken together with all prior distributions with respect to the
Units, would provide the Limited Partners with a return of capital in excess
of their original investment. Mr. Klinck made several counteroffers for the RI
Portfolio at prices below the appraised value, but the General Partner refused
to consider a sale at those prices. During the same period, Mr. Klinck
attempted to negotiate a break-up fee of $250,000, to become payable to Lend
Lease if the proposed sale of the RI Portfolio did not close due to a lack of
approval by the limited partners of the Partnership or any Affiliated
Partnership. The General Partner refused to make these concessions.
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On May 22, 1998, Mr. Klinck sent a proposed term sheet to Mr. Forrester,
including a proposed purchase offer for the RI Portfolio. On June 10, 1998,
Messrs. Klinck, Walker and Joe Thomas from Lend Lease met with Messrs.
Epstein, Dupree, Svatos and Tilley to discuss the transaction in general. On
July 7 and 8, 1998, Mr. Forrester and Michael Johnson, a regional vice
president of ConAm Management, went to Jacksonville, Florida to present the RI
Portfolio properties in that area to Messrs. Walker, Thomas and Klinck and
representatives of the Pension Funds. On July 28 and 29, 1998, a similar
meeting took place in Phoenix, Arizona. Over the next few months, Mr.
Forrester continued to send information on the RI Portfolio to Mr. Klinck,
including city maps, rental brochures, market summaries, occupancy
information, floor and site plans, management report summaries, operating
statements, rent rolls, location maps, memos regarding capital improvements
and management biographies.
During late July, the parties continued to negotiate the Purchase Price. In
arriving at the purchase offer contained in the proposed term sheet, Lend
Lease had performed independent evaluations of the historical financial
performance of the properties, the current and anticipated local real estate
market conditions affecting the properties, and the existing physical
condition of the properties. Lend Lease's purchase offer was less than the
value set forth in the Independent Appraisal, and the proposed purchase
agreement contained provisions obligating the Partnership to make additional
expenditures for capital improvements prior to closing (or credit the purchase
price for any unexpended amounts). As a result of the late July telephonic
negotiations between Mr. Klinck and Mr. Forrester, the purchase offer was
increased to the value set forth in the Independent Appraisal. In late August
and early September, the parties agreed to eliminate the obligation to make
additional expenditures for capital improvements.
In the course of evaluating financing options for the proposed acquisition,
the prospective lender to the Purchaser had an independent appraisal of the RI
Portfolio prepared (the "Lender Appraisal"). The Lender Appraisal indicated
that the appraised value of the Property was $5,770,000. After deducting a
sales commission of 2.5%, or $144,250, normally paid by the seller but not
applicable to the Sale, the Lender Appraisal indicated that the value of the
Property was $5,625,750, which is less than the value of $6,000,000 set forth
in the Independent Appraisal. During late October 1998, Mr. Forrester had
numerous telephone conversations with Mr. Klinck in which Mr. Klinck sought a
reduction in the purchase offer and Mr. Forrester sought to have the purchase
offer remain at $6,000,000. As a result of these discussions, the purchase
offer was reduced from $6,000,000 to the Purchase Price of $5,800,000. This
brought the aggregate amount offered by the Purchaser for the RI Portfolio to
$117,900,000.
Thereafter, the parties finalized the material terms of the proposed LLC
Agreement, the property management agreement for ConAm Management, and the
Purchase Agreement. The definitive Purchase Agreement will be executed and
delivered immediately after the Proposals are approved by the Limited
Partners.
CONFLICTS OF INTEREST OF THE GENERAL PARTNER
The Sale contemplates that the properties will be sold to an entity in which
an affiliate of the General Partner will own a 9% interest. Because of this
ownership interest, the General Partner has a conflict with the interests of
the Limited Partners, and the interests of the General Partner may conflict
with its fiduciary obligation to the Limited Partners. The General Partner
believes, however, that the Sale is fair to the Limited Partners. The General
Partner believes that the fairness factors enumerated in
"SPECIAL FACTORS--Fairness of the Sale," and the fact that the Sale requires the
approval of the Limited Partners, provide sufficient procedural safeguards to
minimize the effects of the potential conflicts of interest inherent in any such
transaction. Nevertheless, Limited Partners should consider the following
factors when examining the Sale: (i) In consideration of a pro rata cash capital
contribution to the Purchaser, an affiliate of the General Partner, ConAm DOC,
will own a 9% interest in the Purchaser, and consequently, the General Partner
faces direct conflicts of interest in negotiating the Sale. Furthermore, ConAm
DOC has the potential to receive up
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to an additional 18% of the profits of the Purchaser after pro rata
distributions of profits to members of the Purchaser have resulted in
recoupment by such members of their aggregate capital contributions and
payment of cumulative returns of 15% per annum on their previously
unrecovered capital contributions.
(ii) No independent committee or representative has been appointed or
retained to negotiate the terms of the Sale on behalf of the Limited
Partners.
(iii) The Partnership has in the past and is currently being represented
by legal counsel who has also represented and is currently representing the
General Partner and certain of its affiliates in various matters, and the
Limited Partners will not be represented by separate legal counsel.
(iv) As an equity participant in the Purchaser, an affiliate of the
General Partner will benefit from any future cash flow attributable to, and
any future appreciation of, the Property if the Sale is approved.
Furthermore, if the Sale is approved, ConAm Management, an affiliate of the
General Partner which will not be a member of the Purchaser, will be party
to a property management agreement relating to the Property. ConAm
Management might not have otherwise obtained this contract if it were not
an affiliate of the General Partner. Finally, the General Partner and its
affiliates will benefit from the Sale as discussed in "SPECIAL FACTORS--
Effects of the Sale."
FAILURE TO APPROVE THE SALE
The General Partner believes that consummation of the Sale is the preferable
course of action at this time. If the Limited Partners fail to approve the
Proposals, however, the Partnership will attempt to obtain financing for the
Property and utilize any loan proceeds to implement certain capital
improvements. The Partnership might then take advantage of any future property
appreciation through a future sale of the Property to the Purchaser or
otherwise (subject to any necessary amendment to the Partnership Agreement to
permit such sale, which might require the consent of the Limited Partners).
There is no assurance that the General Partner could arrange for an
alternative sale of the Property at an appropriate price or on terms
acceptable to the Partnership. Such a course of action could also increase the
risk of loss of the Property due to any failure to make debt service payments
and might also adversely affect the timing and amount of future distributions
to Limited Partners.
The General Partner believes that a financing of the Property at 75% of the
Lender Appraisal could generate $4,327,500 in loan proceeds. After deducting
financing costs and reserves for capital expenditures required to maintain the
competitive position of the Property, the General Partner expects that the
Partnership would make a tax-deferred distribution of approximately $39.20 per
Unit, as compared to an expected distribution of $68.14 per Unit from net
proceeds from the Sale and the subsequent liquidation of the Partnership.
If the Property was leveraged to the extent set forth above at a 7% interest
rate, the annual debt service of $345,492 related to the financing might
result in the suspension of distributions or might affect the timing and
amount of future distributions. Furthermore, under current lending practices,
the loan would include provisions that could result in material prepayment
penalties if the loan was repaid prior to its maturity. Furthermore, pursuant
to the Partnership Agreement, the General Partner would be entitled to 1% of
the loan proceeds or approximately $38,211. Consequently, the General Partner
believes that the Sale is the preferable course of action at this time.
TERMS OF THE PURCHASE AGREEMENT
The following is a summary of the material terms of the proposed Purchase
Agreement. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE IS MADE
TO THE FORM OF PURCHASE AGREEMENT, WHICH IS AVAILABLE UPON REQUEST PURSUANT TO
THE PROCEDURES SET FORTH IN THE SECTION OF THIS SOLICITATION STATEMENT
ENTITLED "AVAILABLE INFORMATION." The Purchase Agreement will not be executed
unless the Limited Partners approve the Proposals. Capitalized terms used but
not defined in this summary of material terms have the meaning ascribed to
them in the form of the Purchase Agreement.
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Structure of the Sale. The Partnership holds title to the Property. In order
to effectuate the Sale, the Partnership will transfer title and deliver the
deeds and other documents of transfer to the Purchaser on the Closing Date.
Purchase Price. The Purchase Price for the Property will be $5,800,000,
payable by the Purchaser on the Closing Date and subject to certain
adjustments at closing. The Purchase Price will be paid in cash and is
expected to be paid out of proceeds from third party financing and capital
contributions made to the Purchaser. It is anticipated that the third party
financing will be provided by the Federal National Mortgage Association
("FNMA"). FNMA would be financing 65% of the aggregate purchase price for the
RI Portfolio under a $100,000,000 Master Credit Facility (the "Proposed
Facility") secured by the RI Portfolio. The Proposed Facility would have a
five-year term and a minimum borrowing base of $50,000,000. All loans under
the Proposed Facility would be cross-collateralized and cross-defaulted, and
the Proposed Facility would require a minimum of five properties in three
geographically distinct areas. For these reasons, a similar financing facility
is not available to the Partnership.
It is expected that borrowings under the Proposed Facility will bear a
variable interest rate of 0.52% plus the effective interest rate at which FNMA
is able to sell mortgage-backed securities collateralized by outstanding
borrowings. The General Partner estimates that the effective interest rate
would be 5.74% if borrowings were outstanding at this time. The Pension Funds
intend to cause the Purchaser to enter into an interest rate swap agreement
with a commercial bank that will effectively fix the interest rate for five
years at approximately 6%.
The Proposed Facility will require the Purchaser to pay a prepayment penalty
if outstanding borrowings are repaid within the first three years. The
Purchaser has no plans to refinance or repay the Proposed Facility prior to
the earlier of its maturity date or the sale by it of any or all of the RI
Portfolio.
Condition of the Property; Review of the Property. The Purchaser will
purchase the Property on an "As Is," "Where-Is" and "With All Faults" basis
with limited representations by the Partnership as to the condition of the
Property or its fitness for any purpose. Lend Lease, on behalf of the Pension
Funds, has undertaken an extensive due diligence review of the Property.
Unlike purchasers in many third party purchase agreements, Lend Lease will
complete its due diligence prior to execution of the Purchase Agreement, and
as such, satisfaction with the due diligence investigation will not be a
condition precedent to closing.
Conditions Precedent to Closing. The obligation of the Purchaser to close
under the Purchase Agreement will be subject to the concurrent approval by the
limited partners of the Affiliated Partnerships of the sale of their
respective properties to the Purchaser. There will be customary closing
conditions for real estate transactions, including issuance of appropriate
title policies.
Casualty to or Condemnation of the Property. If the Property or any portion
thereof is damaged by fire or other casualty on or before the Closing Date,
and the cost of repairing such damage equals or exceeds the greater of
$400,000 or 5% of the Purchase Price, then the Purchaser may elect to
terminate the Purchase Agreement. Further, if all or any material portion of
the Property is taken by eminent domain (or is a subject of a pending or
contemplated taking which has not been consummated) before the Closing Date,
then the Purchaser will have the right to terminate the Purchase Agreement. In
the event of a fire or other casualty where the damage is less than $400,000
or 5% of the Purchase Price, or if the condemnation does not affect a material
portion of the Property, the Purchaser will be required to proceed with the
closing without adjustment to the Purchase Price and will be entitled to
receive, as applicable, an assignment of the proceeds of any insurance in the
event of a fire or other casualty or an assignment of any award for such
taking in the event of a condemnation.
The purchase agreements relating to the properties of the Affiliated
Partnerships will contain provisions substantially similar to those outlined
above with respect to the rights of the Purchaser to terminate such purchase
agreements as a result of condemnation or destruction of the applicable
properties. While, as a general rule, the Purchaser will be able to terminate
the Purchase Agreement if any one of the sales to the Purchaser by the
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Affiliated Partnerships is terminated, the Purchase Agreement will provide
that the Purchaser may terminate the Purchase Agreement in the case of
condemnation or destruction of the properties of the Affiliated Partnerships
only if two or more of such properties are condemned or destroyed. For
purposes of the foregoing determination, properties which comprise an
integrated apartment community will be counted as a single property. Because
the Property is part of an integrated apartment community, the Purchase
Agreement permits the Purchaser to terminate the Purchase Agreement if,
because of condemnation or destruction, the Purchaser is entitled to terminate
the purchase agreements with respect to the other property or properties
comprising such integrated apartment community, irrespective of whether there
has been condemnation or destruction of the Property or any other properties
of the Affiliated Partnerships.
Representations and Warranties and Physical Due Diligence Conditions. Unlike
many third party agreements, the Purchase Agreement will not require the
Partnership to make substantial representations and warranties concerning the
condition or operation of the Property, or other similar matters, such as
environmental studies or engineering. The Purchase Agreement also will not
provide the purchaser with a typical period to perform due diligence
investigations at the Property or with a basis on which to refuse to close the
Sale based directly on the outcome of any due diligence investigation, since
such due diligence investigations will have been completed prior to execution
of the Purchase Agreement. Further, any representations and warranties made by
the Partnership pursuant to the Purchase Agreement will survive for a period
of only six months after the closing, which is a shorter period of time than
that found in many third party agreements.
Default and Damages. The Purchase Agreement will provide that the
Purchaser's recourse for any uncured breach ("Default") by the Partnership on
or prior to the Closing Date of any matter related to the Purchase Agreement
will be either to (i) seek from the escrow holder the return of the earnest
money deposit made on behalf of the Purchaser and any documents which have
been deposited with the escrow holder on behalf of the Purchaser and to seek
reimbursement from the Partnership for the reasonable and documented out-of-
pocket expenses incurred in connection with Lend Lease's due diligence
investigation (such as environmental and engineering studies) and other
transaction costs, but in no event an amount in excess of 1/4% of the Purchase
Price, or (ii) seek specific performance of the Partnership's obligations
under the Purchase Agreement.
In the event of the Purchaser's Default with respect to the Purchase
Agreement or the purchase agreements relating to the properties of the
Affiliated Partnerships, the Partnership's sole remedy will be to retain, as
liquidated damages, the earnest money deposit for the Property. Further, in
the event the Purchaser objects or fails to cooperate with the release of such
earnest money deposit held by the escrow holder, the Partnership will also
have all of the remedies otherwise available to the Partnership at law or in
equity.
Pro-rations and Costs. All items of income and expense for the Property,
such as collected rents and real estate taxes, will be apportioned and
adjusted between the Partnership and the Purchaser to the Closing Date. The
Partnership and the Purchaser will each pay one-half of any third party escrow
fees from the transaction, with the Partnership paying any documentary
transfer and stamp taxes in connection with the recordation of the applicable
deed and the Purchaser paying the premiums and other costs for title
insurance, including any endorsements requested by the Purchaser or its
lender.
Comparison to Third Party Agreements. The Purchase Agreement relating to the
Sale will contain several provisions which are not customarily found in
combination with each other in many third party agreements.
Provisions which may be more advantageous to the Partnership than those
found in many third party agreements include the following: the lack of due
diligence conditions precedent to closing; lack of a financing contingency;
limited representations and warranties; limited survivability of
representations and warranties; and sale of the Property on an "as is" basis.
Provisions which may be less advantageous to the Partnership than those
found in many third party agreements include the condition precedent to
closing of concurrent approval by the limited partners of the Affiliated
Partnerships of the sale of their respective properties to the Purchaser and
the ability of the Purchaser
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to terminate the Purchase Agreement if, due to condemnation or casualty, the
Purchaser is entitled to terminate the purchase agreements with respect to any
two or more properties owned by the Affiliated Partnerships.
THE AMENDMENT
The Partnership Agreement prohibits sales of property to the General Partner
or an "affiliate" of the General Partner. "Affiliate" is defined in relevant
part as any person "that, directly or indirectly, is the beneficial owner of
10% or more of any class of equity securities of, or otherwise has a
substantial beneficial interest in," another person. While the Pension Funds
will own 91% of the Purchaser and will effectively control the Purchaser, an
affiliate of the General Partner will (i) own a 9% interest in the Purchaser,
(ii) have a right of first offer and certain buy/sell rights under the
proposed LLC Agreement and (iii) have the potential to receive up to an
additional 18% of the profits of the Purchaser after pro rata distributions of
profits to members of the Purchaser have resulted in recoupment by such
members of their aggregate capital contributions and payment of cumulative
returns of 15% per annum on their previously unrecovered capital
contributions. An affiliate of the General Partner which will not be a member
of the Purchaser will serve as the initial property manager for the Purchaser.
The foregoing factors might cause the Purchaser to be an "affiliate" of the
General Partner under the terms of the Partnership Agreement. In order to
permit the Sale, the General Partner proposes to amend the Partnership
Agreement to permit proposed sales of Partnership properties to "affiliates"
of the General Partner, if such proposed sales are approved by the Limited
Partners. The proposed Amendment requires the approval of a majority in
interest of the Limited Partners. The full text of the proposed Amendment is
set forth in Appendix A hereto.
INDEMNIFICATION
If a claim is made against the General Partner in connection with its
actions on behalf of the Partnership with respect to the Sale, the General
Partner expects that it will seek to be indemnified by the Partnership with
respect to such claim. The Partnership Agreement provides that, except in the
case of fraud, negligence, misconduct or other breach of fiduciary duty to the
Partnership or any Partner, the General Partner will not be liable,
responsible or accountable in damages or otherwise to the Partnership or any
of the Limited Partners for any liabilities or other obligations imposed on,
incurred by or asserted against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of,
any action or inaction on the part of the Partnership or on the part of the
General Partner as a general partner of the Partnership. However, the General
Partner will not be indemnified from any liability, loss, or damage incurred
by it in connection with any claim or settlement involving allegations that
any state securities law or the Securities Act of 1933, as amended, was
violated by the General Partner unless the General Partner is successful in
defending such action and such indemnification is specifically approved by a
court of law which has been advised as to the current position of both the
Securities Exchange Commission and the California Commissioner of Corporations
regarding indemnification for violations of securities laws.
As a result of these indemnification rights, a Limited Partner's remedy with
respect to claims against the General Partner relating to its involvement in
the Sale could be more limited than the remedy which might have been available
absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification would reduce the amount of Partnership
cash available for distributions to the Limited Partners by an amount
equivalent to that paid to the General Partner under such a claim.
23
<PAGE>
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
GENERAL
The Sale, if approved, will have certain tax implications to the Limited
Partners that must be considered. The following summarizes the material
estimated federal income tax consequences to Limited Partners arising from the
Sale and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, court decisions and published
positions of the Internal Revenue Service (the "Service"), each as in effect
on the date of this Solicitation Statement. There can be no assurance that the
Service will agree with the conclusions stated herein or that future
legislation or administrative changes or court decisions will not
significantly modify the federal or state income tax law regarding the matters
described herein, potentially with retroactive effect. This summary is not
intended to, and should not, be considered an opinion respecting the federal
or state income tax consequences of the Sale.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the
partnership's items of income, gain, loss, deduction and credit (hereinafter
referred to as "income or loss") in accordance with the partnership agreement.
If the allocation of income or loss in the partnership agreement does not have
"substantial economic effect" as defined in Code Section 704(b), the law
requires the partnership's income or loss to be allocated in accordance with
the partners' economic interests in the partnership. The distribution of cash
attributable to partnership income is generally not a separate taxable event.
For tax purposes, the Partnership will realize and recognize gain or loss,
in some cases, for each building which is part of the Property. The amount of
gain for tax purposes recognized with respect to an asset, if any, will be an
amount equal to the excess of the amount realized (i.e., cash or consideration
received reduced by the expenses of the Sale) over the Partnership's adjusted
tax basis for such asset. Conversely, the amount of loss recognized with
respect to an asset, if any, will be an amount equal to the excess of the
Partnership's adjusted tax basis over the amount realized by the Partnership
for such asset. The "adjusted tax basis" of an asset is its cost (including
nondeductible capital expenditures made by the Partnership at the time of
purchase) or other basis with certain additions or subtractions, including (i)
additions for the cost of capital expenditures such as improvements,
betterments, commissions and other nondeductible charges and (ii) subtractions
for depreciation and amortization.
Each Limited Partner must report his or her allocable share of these gains
and losses in the Limited Partner's taxable year in which or with which the
Partnership's fiscal year in which the Property is sold ends. Each
Limited Partner's allocable share of any Section 1245 gain, Section 1231 gain,
Section 1250 gain or loss and Partnership net taxable income or loss from
operations will be reflected on his or her applicable Schedule K-1 (as
determined in accordance with the allocation provisions contained in the
Partnership Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to separately
state, and partners are required to account separately for, their distributive
share of all gains and losses. Accordingly, each Limited Partner's allocable
share of any Section 1231 gain or loss and depreciation recapture realized by
the Partnership as a result of the Sale would be reportable by such Limited
Partner on his or her individual tax return. Section 1231 gains are those
gains arising from the sale or exchange of "Section 1231 Property" which means
(i) depreciable assets used in a trade or business or (ii) real property used
in a trade or business and held for more than one year. Conversely, Section
1231 losses are those losses arising from the sale or exchange of Section 1231
Property. If Section 1231 losses exceed Section 1231 gains, such losses would
be treated as ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable year exceed certain
Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses will be
treated as long-term capital gains. However, Section 1231 gains will be
treated as ordinary income to the extent of prior Section 1231 losses from any
source that were treated as ordinary in any of the previous five years.
24
<PAGE>
Under Sections 1245 and 1250 of the Code, a portion of the amount allowed as
depreciation expense with respect to Section 1231 Property may be "recaptured"
as ordinary income upon sale or other disposition rather than as long-term
capital gains ("Section 1245 gains" and "Section 1250 gains," respectively).
The Partnership does not anticipate that it would have material amounts of
Section 1245 or Section 1250 gains as a result of the Sale.
The Partnership Agreement provides that distributions from the Sale will be
made:
(i) First, 99% to the Limited Partners and 1% to the General Partner
until each Limited Partner has received an amount equal to his Adjusted
Capital Value (as defined in the Partnership Agreement);
(ii) Second, and subject to certain reductions, 99% to the Limited
Partners and 1% to the General Partner until each Limited Partner has
received an amount equal to a 12% cumulative annual return with respect to
his Adjusted Capital Value, which amount shall be calculated commencing
with the first anniversary date of the last Additional Closing Date (as
defined in the Partnership Agreement) (but in no event less than a 6%
cumulative annual return with respect to the Limited Partner's Adjusted
Capital Value calculated from the date of the Limited Partner's admission
to the Partnership); and
(iii) Third, the balance 85% to the Limited Partners and 15% to the
General Partner.
The General Partner expects that the Limited Partners will recognize a tax
loss from the Sale of approximately $0.71 per Unit. Accordingly, there will be
no federal income tax liability as a result of the Sale and liquidation to
Limited Partners who acquired their Units in the public offering. Taxable loss
for each fiscal year is allocated 99% to the Limited Partners and 1% to the
General Partner. The expected distribution to the Limited Partners from net
proceeds from the Sale and certain cash from operations, together with the
planned distribution upon liquidation, is anticipated to be approximately
$68.14 per Unit.
After allocating income or loss to the Partners, with the concomitant tax
basis adjustments, the distribution of proceeds from the Sale will reduce each
Limited Partner's federal income tax basis in its Unit. To the extent that the
amount of the distribution is in excess of that basis, such excess will be
taxed as a long-term or short-term capital gain depending on a Limited
Partner's holding period. To the extent that the distribution received is less
than that basis, the remaining basis, representing a Partner's share of the
Partnership syndication cost incurred at the inception of the Partnership, may
represent a tax benefit in connection with the termination of such Partner's
partnership interest. Limited Partners are encouraged to consult their
respective tax advisors with respect to the foregoing.
CAPITAL GAINS AND LOSSES
Net long-term capital gains allocated to individuals, trusts and estates
from the Sale will be taxed at a maximum rate of 20% (except that the rate
will be 25% on that portion of the gain which is equal to the amount of real
estate depreciation not recaptured as ordinary income under Section 1250),
while ordinary income will be taxed at a maximum rate of up to 39.6%. The
amount of net capital loss that can be utilized to offset income will be
limited to the sum of net capital gains from other sources recognized by the
Limited Partner during the tax year, plus $3,000 ($1,500 in the case of a
married individual filing a separate return). The excess amount of such net
long-term capital loss may be carried forward and utilized in subsequent years
subject to the same limitations.
PASSIVE LOSS LIMITATIONS
Limited Partners who are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules. A
Limited Partner's allocable share of Partnership income or loss is treated as
derived from a passive activity, except to the extent of the Partnership's
portfolio income. Portfolio income includes such items as interest and
dividends. A Limited Partner's allocable share of any Partnership loss
realized on the Sale will be characterized as passive activity loss, and the
liquidation of the Partnership will permit the deduction of any previously
deferred passive losses, if any, allocated to the Limited Partners.
25
<PAGE>
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Limited Partners in all the state tax jurisdictions in
which they are subject to tax. Accordingly, the following is a general summary
of certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Limited Partner will depend
upon the provisions of the state tax laws to which the Limited Partner is
subject. The Partnership will generally be treated as engaged in business in
the state in which the Property is located, and the Limited Partners would
generally be treated as doing business in that state and therefore subject to
tax in that state. Most states modify or adjust the taxpayer's federal taxable
income to arrive at the amount of income potentially subject to state tax.
Resident individuals generally pay state tax on 100% of such state-modified
income, while corporations and other taxpayers generally pay state tax only on
that portion of state-modified income assigned to the taxing state under the
state's own apportionment and allocation rules.
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Limited Partners of the Sale and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Limited Partners and to certain
other categories of Limited Partners, such as non-United States persons,
corporations, insurance companies, subchapter S corporations, partnerships or
financial institutions. It also does not address local or foreign tax
consequences of the Sale. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE SALE TO
THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
DISTRIBUTIONS
Since its inception on January 23, 1984, the Partnership has made quarterly
distributions aggregating $304.68 per Unit and returns of capital of $414.00
per Unit. The Partnership has made distributions averaging $1.88 per Unit
during each of the last eight fiscal quarters. With the projected distribution
of $68.14 per Unit upon liquidation of the Partnership, Limited Partners will
have received aggregate distributions of approximately $286.82 per Unit and a
full return of their initial investment of $500.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the outstanding Units on the Record
Date consent to the Proposals, such approval will bind all Limited Partners.
The Partnership Agreement and the New York Uniform Limited Partnership Act,
under which the Partnership is governed, do not give rights of appraisal or
similar rights to Limited Partners who dissent from the consent of the
majority in approving or disapproving the Proposals. Accordingly, dissenting
Limited Partners do not have the right to have their Units appraised or to
have the value of their Units paid to them if they disapprove of the action of
a majority in interest of the Limited Partners.
MARKET FOR THE UNITS
The General Partner has no knowledge of a formal, established public trading
market for the Units and believes that secondary sales activity for the Units
is limited and sporadic. Due to the fact that the Units are not listed on any
exchange or quoted on NASDAQ, privately negotiated sales and sales through
intermediaries are the primary means available to a Limited Partner to
liquidate an investment in the Units. While some information is available
through private publications regarding the prices at which such secondary
sales transactions in the Units have been made, these publications expressly
disclaim the accuracy and reliability of the information regarding such
trades. Accordingly, the General Partner does not believe that such
information is of comparative value in analyzing the distributions to be made
in connection with the Sale. No sales of Units were made by or to affiliates
of the Partnership during the last two years.
26
<PAGE>
In addition to informal secondary market sales, investors have periodically
sought to acquire Units by means of a tender offer for outstanding Units.
However, such tender offers generally involve only a limited number of Units,
are held open only for a limited time, and are available only on a limited
basis. Furthermore, those tender offers during the past three years of which
the General Partner is aware have been made at approximately 41% to 72% of the
net asset value of the Units. In particular, during the last six months, one
tender offer for outstanding Units was made by a party unaffiliated with the
General Partner for the price of $40 per Unit. The estimated aggregate
distribution to the Limited Partners following consummation of the Sale and
the anticipated liquidation of the Partnership, equal to $68.14 per Unit,
compares favorably with the price of $40 per Unit represented by this recent
tender offer.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 96,490 Units issued and outstanding and
entitled to vote held of record by 5,142 Limited Partners. At the Record Date,
Daniel J. Epstein, Chairman and Chief Executive Officer of ConAm Management,
owned 20 Units (approximately 0.0207% of the outstanding Units). Mr. Epstein
intends to consent to the Proposals. No person is known by the Partnership to
be the beneficial owner of more than 5% of the Units.
YEAR 2000 INFORMATION
The Partnership has assessed the potential impact of the "Year 2000"
computer systems issue on its operations. If the Sale is consummated, the
Partnership will liquidate prior to January 1, 2000, and no Year 2000 issues
will be presented.
In the event that the Sale is not consummated, the Partnership has relied on
the efforts of ConAm Management, which has been retained by the Partnership to
manage the business and financial operations of the Property, to resolve any
potential Year 2000 issues. In the course of providing property management
services for the Partnership, ConAm Management retained a third party
consultant to modify all applicable software to provide for 4-digit year
fields. The General Partner believes that the modifications undertaken by
ConAm Management are sufficient to address any potential Year 2000 problems
and that the impact of the Year 2000 issue will not materially affect the
Partnership's operating results or financial condition if the Sale is not
consummated. Accordingly, neither ConAm Management nor the Partnership has
taken any further actions with respect to the Year 2000 issue.
VOTING PROCEDURES
Each Limited Partner is entitled to one (1) vote for each Unit owned of
record by such Limited Partner on the Record Date. Approval of the Proposals
requires the affirmative consent of Limited Partners holding a majority in
interest of the Units. A duly executed consent card on which a consent or an
indication of withholding consent is not indicated will be deemed a consent to
the Proposals. A vote "for" or "against" either of the Proposals may be
revoked by written notice of revocation or by a later-dated consent containing
different instructions at any time on or before the Expiration Date.
This Solicitation Statement is accompanied by a separate consent card.
Consent cards should be completed, signed and returned by the Expiration Date
to the Solicitation Agent at the address specified below or by facsimile
transmission of the front and back of the card to the number specified below.
A self-addressed, prepaid envelope for return of the consent card is included
with this Solicitation Statement.
By Mail: By Facsimile:
D.F. King & Co., Inc. (212) 809-8839
77 Water Street
20th Floor
New York, NY 10005
For Information Call:
(800) 735-3591
(TOLL-FREE)
27
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should be available at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed on the World Wide Web through the Commission's
Internet address at "http://www.sec.gov."
The following documents, which have been filed with the Commission, contain
important information about the Partnership and its financial condition and
are annexed hereto as Annex 1 and Annex 2, respectively:
(i) The Partnership's Annual Report on Form 10-K, as amended and restated
for the year ended November 30, 1997 (Commission File No. 0-13330) (the
"Form 10-K").
(ii) The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1998 (Commission File No. 0-13330) (the "Form 10-
Q").
The Commission permits the Partnership to "incorporate by reference"
information into this Solicitation Statement, which means that the Partnership
can disclose important information to Limited Partners by referring them to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be a part of this Solicitation
Statement, except for any information superseded by information in this
Solicitation Statement.
The Partnership hereby incorporates by reference the Form 10-K, all reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act that it may file
or has already filed with the Commission between November 30, 1997 and the
date of action by Consent, other than those delivered in connection herewith,
and the financial information contained in Part I of the Form 10-Q.
A Limited Partner of the Partnership may obtain from the Partnership or the
Commission any of the documents incorporated by reference. Documents
incorporated by reference are available from the Partnership without charge,
excluding all exhibits unless such exhibits have been specifically
incorporated by reference in the document incorporated by reference in this
Solicitation Statement. Limited Partners may obtain documents incorporated by
reference in this Solicitation Statement, or a copy of the Partnership
Agreement or the form of Purchase Agreement, by written or oral request, by
first class mail or other equally prompt means within one business day of
receipt of such request, from ConAm Property Services III, Ltd., 1764 San
Diego Avenue, San Diego, California 92110-1906, telephone number (619) 297-
6771.
If you would like to request documents from the Partnership, please do so by
January 8, 1999 in order to ensure receipt before action by Consent.
San Diego, California
December 16, 1998
CONAM PROPERTY SERVICES III, LTD.,
General Partner
By: Continental American
Development, Inc.,
the General Partner
By: /s/ DANIEL J. EPSTEIN
---------------------------------
Daniel J. Epstein
President and Chief Executive
Officer
28
<PAGE>
APPENDIX A
THE PROPOSED AMENDMENT
Set forth below is the provision of the Partnership Agreement that would be
modified by the proposed Amendment. The following is qualified in its entirety
by reference to the form of Amendment, a copy of which can be obtained without
charge from the Solicitation Agent.
IF THE PROPOSED AMENDMENT IS ADOPTED, THE FOLLOWING SECTION WILL BE MODIFIED
AS FOLLOWS (underlines indicate where text has been added):
11. RIGHTS, DUTIES AND LIABILITY OF GENERAL PARTNERS.
....
d. Limitations on General Partners' Authority. The General Partners shall
have no authority to do any act prohibited by law, nor shall the General
Partners have any authority to:
....
(xi) Permit the Partnership to purchase or lease property in which a
General Partner or any Affiliate has an interest or sell any Property to a
General Partner or any Affiliate, except as otherwise provided herein or
--
unless such transaction is specifically approved by Limited Partners owning
---------------------------------------------------------------------------
a majority of the Units outstanding at that time.
------------------------------------------------
[The remainder of Section 11 is unaffected.]
A-1
<PAGE>
APPENDIX B
FORM OF CONSENT OF LIMITED PARTNER
CONAM REALTY PENSION INVESTORS, L.P.
CONSENT OF LIMITED PARTNER
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF CONAM REALTY PENSION
INVESTORS, L.P. (THE "PARTNERSHIP") BY CONAM PROPERTY SERVICES III, LTD., THE
GENERAL PARTNER OF THE PARTNERSHIP. The General Partner recommends a vote
"FOR" the Proposals, as defined in the accompanying Consent Solicitation
Statement. A vote "FOR" the Proposals also will constitute your consent to all
actions necessary to consummate all transactions with respect to the Proposals
contemplated by the Consent Solicitation Statement. All capitalized terms used
herein without definition have the meanings assigned to them in the Consent
Solicitation Statement.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF
NO INSTRUCTIONS ARE INDICATED, YOU WILL BE DEEMED BY YOUR SIGNATURE BELOW TO
HAVE CONSENTED TO THE PROPOSALS AS RECOMMENDED BY THE GENERAL PARTNER.
PLEASE MARK THE APPROPRIATE BOX WITH RESPECT TO EACH PROPOSAL:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
With the General Partner's recommendation to
approve the Sale of the Property (as set
forth in "ACTION BY CONSENT--Matters to be
Considered), the undersigned votes all of the
undersigned's Units: [_] [_] [_]
With the General Partner's recommendation to
amend the Partnership Agreement to permit
sales of Partnership property to affiliates
of the General Partner, including the Sale
(as set forth in Appendix A to the Consent
Solicitation Statement), the undersigned
votes all of the undersigned's Units: [_] [_] [_]
</TABLE>
IF THE SALE IS APPROVED BUT THE AMENDMENT OF THE PARTNERSHIP AGREEMENT IS
NOT, THE GENERAL PARTNER WILL HAVE NO AUTHORITY TO CONSUMMATE THE SALE, AND
THE SALE WILL NOT OCCUR. If the Amendment of the Partnership Agreement is
approved but the Sale is not, the General Partner anticipates amending the
Partnership Agreement in accordance with Appendix A to the Consent
Solicitation Statement.
The undersigned acknowledges receipt from the General Partner of the Consent
Solicitation Statement dated December 16, 1998 pertaining to the Proposals.
Dated:_________________, 199__ _______________________________
Signature
_______________________________
Print Name
_______________________________
Signature (if held jointly)
_______________________________
Print Name
_______________________________
Title
B-1
<PAGE>
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT, PRIOR TO 5:00 P.M. PACIFIC
STANDARD TIME ON JANUARY 15, 1999 (UNLESS SUCH TIME IS EXTENDED PURSUANT TO
THE CONSENT SOLICITATION STATEMENT), BY FACSIMILE TO (212) 809-8839 OR BY
MAIL, USING THE ENCLOSED PRE-PAID ENVELOPE, TO D.F. KING & CO., INC., WALL
STREET STATION, P.O. BOX 411, NEW YORK, NY 10269-0069. IF YOU NEED ASSISTANCE
IN FILLING OUT THIS CONSENT, PLEASE CALL THE SOLICITATION AGENT AT (800) 735-
3591.
B-2
<PAGE>
Annex 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-13330
CONAM REALTY PENSION INVESTORS
formerly known as
HUTTON/CONAM REALTY PENSION INVESTORS
(Exact name of registrant as specified in its charter)
New York 0-13330 11-2673854
State or other jurisdiction Commission IRS Employer
of incorporation File Number Identification No.
1764 San Diego Avenue
San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (619) 297-6771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference
to the Partnership's Annual Report to Unitholders for the fiscal
year ended November 30, 1997.
<PAGE>
PART I
Item 1. Business
(a) General Description of Business and Objectives
ConAm Realty Pension Investors, (formerly known as Hutton/ConAm Realty Pension
Investors), (the "Partnership") is a New York limited partnership formed on
January 23, 1984. ConAm Property Services III, Ltd. ("CPS III"), a California
limited partnership, and RPI Real Estate Services, Inc. ("RPI"), a Delaware
corporation, were the original co-general partners of the Partnership since its
inception. On October 8, 1997, CPS III acquired RPI's co-general partner
interest in the Partnership effective July 1, 1997, pursuant to a Purchase
Agreement between CPS III and RPI dated August 29, 1997. As a result, CPS III
now serves as the sole general partner of the Partnership. In conjunction with
this transaction, the name of the Partnership was changed from Hutton/ConAm
Realty Pension Investors to ConAm Realty Pension Investors.
<PAGE>
The Partnership was organized to engage in the business of investing in
multifamily residential rental properties by making equity participating loans
secured by first mortgages or deeds of trust on such properties. The
Partnership originally invested in five equity participating mortgage loans,
one of which was repaid in December 1987. Three of the borrowers defaulted
under the equity participating loans and the Partnership obtained title to the
properties which secured such loans through foreclosure or deeds in lieu of
foreclosure. As a result, the Partnership became an owner and operator of the
properties. During its fiscal year ended November 30, 1997, the Partnership
sold two of the properties, Chaparosa Apartments in Irving, Texas and Bryn
Athyn Apartments in Raleigh, North Carolina, to purchasers unaffiliated with
the Partnership for sale prices of $6.0 million and $9.2 million, respectively.
See Item 7 and Note 4 to the Financial Statements, included in the
Partnership's Annual Report to Unitholders for the fiscal year ended November
30, 1997, which is filed as an exhibit under Item 14 for additional information
regarding these property sales. Information regarding the Partnership's two
remaining investments in property is set forth below.
(1) On September 28, 1984, the Partnership funded an equity participating loan
in the amount of $4,475,250 to Southridge Partners I, ("Southridge"), a
privately offered New York limited partnership, whose general partners are
affiliates of RPI and CPS III, in connection with the purchase by
Southridge of Oaktree Village ("Oaktree"), a 160-unit apartment complex
located in Jacksonville, Florida. On September 19, 1997, the Partnership
obtained legal title to Oaktree through a deed in lieu of foreclosure. As
a result, Oaktree is now recorded as a real estate investment rather than
a mortgage loan investment on the Partnership's balance sheet. For more
information on the defaulted loan and the transfer of ownership of Oaktree
to the Partnership, reference is made to Item 7 and Note 4 to the financial
statements, included in the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1997, which is filed as an exhibit under
Item 14.
(2) On December 21, 1984, the Partnership funded an equity participating loan
in the amount of $5,200,650 to Southridge, in connection with the purchase
by Southridge of Park View Village ("Park View"), a 184-unit apartment
complex located in Winter Park (a suburb of Orlando), Florida. On
September 19, 1997, the Partnership and Southridge signed a definitive
agreement to modify the terms of the loan secured by Park View, which
among other things, allowed for an extension of the maturity date of the
loan and a conditional deferral of debt service payments. Reference is
made to Item 7 and Note 4 to the financial statements, included in the
Partnership's Annual Report to Unitholders for the fiscal year ended
November 30, 1997, which is filed as an exhibit under Item 14, for more
information on the Park View Loan.
Funds held as working capital are invested in bank certificates of deposit,
unaffiliated money market funds or other highly liquid short-term investments
where there is appropriate safety of principal in accordance with the
Partnership's investment objectives and policies.
<PAGE>
The Partnership's principal investment objectives with respect to its interests
in real property are:
(1) To participate in the capital appreciation of the various
properties in which it invests;
(2) To provide quarterly cash distributions;
(3) To preserve and protect the capital appreciation of the
properties in which it invests; and
(4) To provide increased cash distributions as the cash flow from
the properties increases.
Distribution of income is the Partnership's objective during its operational
phase, while preservation and appreciation of capital are the Partnership's
longer term objectives. Future economic conditions in the United States as a
whole and, in particular, in the localities in which the Partnership's
investment properties are located, will be important factors to attaining the
Partnership's investment objectives, especially with regard to achievement of
capital appreciation.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
Competition
The Partnership's real property investment and the property securing the
Partnership's outstanding mortgage loan are subject to competition from similar
types of properties in the vicinities in which they are located and such
competition has increased since the Partnership's inception due principally to
the addition of the newly constructed apartment complexes offering increased
residential and recreational amenities. The investment properties have also
been subject to competition from condominiums and single-family properties
especially during periods of low mortgage interest rates. The Partnership
competes with other real estate owners, developers and financiers in the rental
and leasing of its properties and the properties securing its outstanding
mortgage loans by offering competitive rental rates and, if necessary, leasing
incentives. In some cases, the Partnership may compete with other properties
owned by partnerships affiliated with the General Partner.
For information with respect to market conditions in the areas where the
Partnership's properties are located, please refer to Item 2 below.
Employees
The Partnership has no employees. Services are provided by CPS III, ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS III, as well
as Service Data Corporation and First Data Investor Services Group, both
unaffiliated companies. ConAm Management provides property management services
with respect to Park View pursuant to an agreement with Southridge, as the
property owner. In addition, the Partnership has entered into a management
agreement with ConAm Management pursuant to which ConAm Management provides
property management services with respect to Oaktree Village. First Data
Investor Services Group had been retained by the Partnership to provide all
accounting and investor communication functions, while Service Data Corporation
provides transfer agent services. Effective December 1, 1997, the accounting
functions of the Partnership have been transferred to the firm of Brock,
Tibbetts, and Snell, an unaffiliated company located in San Diego, California.
See Item 13 of this report and Note 7 to the Financial Statements included in
the Partnership's Annual Report to Unitholders for the fiscal year ended
November 30, 1997, which is filed as an exhibit under Item 14, for a further
description of the service and management agreements between the Partnership
and affiliated entities.
Item 2. Properties
Below is a description of Oaktree Village, which is owned by the Partnership,
and Park View, which secures the Partnership's remaining mortgage loan, and a
discussion of current market conditions in the areas where the properties are
located. For information on the acquisition of the properties and terms of the
mortgage loans, reference is made to Note 4 to the Financial Statements
<PAGE>
included in the Partnership's Annual Report to Unitholders for the fiscal year
ended November 30, 1997, which is filed as an exhibit under Item 14. The
appraised value of the Partnership's real estate investment is incorporated by
reference to the Partnership's Annual Report to Unitholders for the fiscal year
ended November 30, 1997. Average occupancy rates at each property are
incorporated by reference to Item 7.
Oaktree Village - Jacksonville, Florida
This 160-unit apartment complex is situated in southeast Jacksonville,
approximately 8 miles from the central business district, in the
Baymeadows/Deerwood community. The Southeast submarket, where Oaktree Village
is located, has experienced notable population growth and limited new
construction in recent years, resulting in strong occupancy for area apartment
complexes. A local survey of the Southeast submarket reported an average
apartment occupancy rate of 96% as of the fourth quarter of 1997. Given the
strong market conditions, several apartment projects are in the planning or
construction phase. During 1997, 2,791 new units were permitted for
construction with an additional 2,000 units permitted to be built in 1998. This
new construction is expected to soften the market by outpacing population and
job growth and will continue to affect the region for the next several months,
as new units become available. While vacancy rates remained low in 1997, the
use of rental concessions in the Jacksonville submarket has recently increased
to attract and retain tenants in anticipation of the new competition.
Park View Village - Winter Park, Florida
This 184-unit apartment complex is located in metropolitan Orlando,
approximately 10 miles northeast of the central business district. The North
Orlando/Winter Park/Maitland submarket, where the property is located,
experienced average occupancy of approximately 99% as of November 30, 1997,
slightly above levels seen in Metro Orlando. New construction in the submarket
continues at a healthy pace, with a net of 412 units added between September
1995 and September 1996, but population growth has kept pace with the new units
coming on line. Over the past five years, the submarket has shown moderate
growth and the average rent per square foot also has increased moderately.
During 1997 the Partnership initiated a renovation project that includes
replacement of balconies, replacing wood siding with vinyl, stair replacement
where required and a complete exterior painting. The renovation project is
scheduled to be completed by the third quarter of 1998 at an estimated
aggregate cost of $400,000.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended November 30, 1997, no matter
was submitted to a vote of security holders through the solicitation of proxies
or otherwise.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
As of November 30, 1997, the number of Unitholders of record was 5,251.
No established public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future.
Distributions of adjusted cash from operations are determined by the General
Partner on a quarterly basis, with distributions occurring approximately 45
days after the close of each fiscal quarter. The Partnership has paid
quarterly cash distributions since the initial closing of its public offering
in February 1984. Information on cash distributions paid by the Partnership
for the past two fiscal years is incorporated by reference to the Partnership's
Annual Report to Unitholders for the fiscal year ended November 30, 1997, which
<PAGE>
is filed as an exhibit under Item 14. Reference is made to Item 7 for a
discussion of the General Partner's expectations for future cash distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended November 30, 1997, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At November 30, 1997, the Partnership's investment portfolio consisted of: (1)
a mortgage loan funded to Southridge Partners I ("Southridge") which is secured
by Park View Village, an apartment property; and (2) an apartment property,
Oaktree Village, which was acquired by the Partnership on September 19, 1997 in
lieu of foreclosure. As discussed below, the Partnership completed the sales
of Chaparosa Apartments on August 6, 1997, and Bryn Athyn Apartments on
September 22, 1997.
Given the improvement in the performance of multifamily real estate and the
improvement in the real estate capital markets which has increased demand by
potential buyers, it was determined that it is in the best interest of the
Partnership to attempt to sell its remaining properties over the next few
years. In keeping with this objective, on August 6, 1997, the Partnership
closed on the sale of Chaparosa Apartments. The property sold for net sales
proceeds of $5,689,996 to Apple Residential Income Trust, Inc., which is
unaffiliated with the Partnership. In addition, on September 22, 1997 the
Partnership sold Bryn Athyn to SCA North Carolina Limited Partnership, which is
unaffiliated with the Partnership, for net sales proceeds of $8,886,566. Both
selling prices were determined by arm's length negotiations between the
Partnership and the respective buyers.
As a result of these sales, on October 31, 1997, the Partnership paid a special
cash distribution in the amount of $150.00 per Unit which represented
substantially all of the net proceeds from the sales. The General Partners
also declared a cash distribution of $2.50 per Unit for the quarter ended
November 30, 1997 which was paid to the limited partners on January 15, 1998.
Including these distributions, cumulative cash distributions total $660.68 per
original $500 Unit. Future quarterly cash distributions from operations may be
reduced, or suspended, to reflect the corresponding reduction in the
Partnership's cash flow as a result of the sales of Chaparosa and Bryn Athyn.
Additionally, future cash distributions will now be dependent on the operations
of Oaktree Village which, as discussed below, was deeded to the Partnership by
the borrower in September 1997, and the Partnership's mortgage loan investment
in Park View Village, the terms of which were modified, as detailed below. In
addition, the Partnership is aware that Southridge is attempting to refinance
the Park View property with an unaffiliated lender.
On January 22, 1997, the Partnership delivered notice of default to Southridge
with respect to the Partnership's loans on Park View Village and Oaktree
Village (the "Loans"). The Partnership indicated, among other things, that the
Loans were in default due to, without limitation, the failure of Southridge to
make: i) the payment of minimum interest due on January 1, 1997; ii) the
required monthly deferred minimum interest payments during 1996 and; iii) the
required contingent interest payments for the first three quarters of 1996 as
required by each of the loan documents. Additionally, the Partnership
indicated that the Loans were in default due to Southridge's failure to
adequately maintain, preserve and protect the condition of Park View Village
and Oaktree Village. The Partnership demanded payment of the amounts due from
Southridge with respect to each of the Loans, however, the Partnership did not
accelerate payment of the outstanding balance of the Loans.
On February 21, 1997, the Partnership executed a Letter of Intent ("LOI") with
Southridge, whereby Southridge's default on the Loans would be resolved. The
LOI called for the borrower to deed over Oaktree Village to the Partnership and
modify the terms of the Park View Village note. On September 19, 1997,
definitive agreements consistent with the terms of the LOI were signed. As a
result, Oaktree Village was deeded to the Partnership. Oaktree's appraised
value as of November 30, 1996, as determined by an independent appraisal, was
<PAGE>
$5.7 million. The Park View Village note was modified to provide for an
extension of the maturity date to June 30, 1999, the deferral of debt service
payments for the lesser of twelve months commencing January 1, 1997, or until a
capital improvement reserve account is fully funded with an agreed upon amount,
and the inclusion of a discounted payoff option for the borrower during the
extension periods. The payoff option enables the borrower to pay off the $5.2
million outstanding principal balance of the Park View Village note and any
accrued interest, which totaled approximately $2.3 million at November 30,
1997, for $5.65 million.
Effective December 1, 1996, the Park View Village and Oaktree Village notes
receivable were placed on non-accrual status. The Partnership did not receive
interest payments in the amount of $727,353 that were due from Southridge with
respect to the loans on Park View Village and Oaktree Village during fiscal
1997.
At November 30, 1997, the Partnership had cash and cash equivalents of
$1,029,577 which were invested in unaffiliated money market funds, compared
with $1,818,059 at November 30, 1996. The decrease is primarily attributable
to cash distributions paid by the Partnership in 1997, the decline in rental
income due to the sale of Chaparosa and Bryn Athyn and the reduction in
interest income relating to the Partnership's mortgage loan investments. Net
cash provided by operating activities also declined as a result of the
Partnership not receiving interest payments in 1997 from Southridge with
respect to the Park View and Oaktree loans.
Interest receivable, net of valuation allowance, declined from $1,674,100 at
November 30, 1996 to $449,350 at November 30, 1997. The decrease is primarily
attributable to the foreclosure on the Oaktree loan, which eliminated interest
receivable relating to the Oaktree loan.
Distribution Payable decreased from $507,842 at November 30, 1996 to $253,921
at November 30, 1997. The decrease is due to the General Partner's decision to
reduce cash distributions due to the decrease in cash flow generated from the
Partnership's mortgage loan investments and to reflect declining cash flow as a
result of property sales.
Accounts payable and accrued expenses declined from $263,985 at November 30,
1996, to $183,988 at November 30, 1997. The decrease is primarily attributable
to the decrease in real estate tax accruals resulting from the sales of Bryn
Athyn and Chaparosa.
Results of Operations
1997 versus 1996
Partnership operations for the year ended November 30, 1997 generated net
income of $7,222,388 compared with net income of $1,697,893 for fiscal 1996.
The increase in net income is primarily due to the net gain of $1,718,692
recognized from the sale of Chaparosa and the net gain of $4,651,799 recognized
from the sale of Bryn Athyn, partially offset by lower rental revenues in 1997
as a result of these sales. Excluding the gains on the sales of Chaparosa and
Bryn Athyn, the Partnership generated income from operations of $851,898 for
the fiscal year ended November 30, 1997.
Rental income totaled $2,244,670 for the fiscal year ended November 30, 1997
compared with $2,573,226 for fiscal 1996. The decrease is primarily
attributable to the sales of Chaparosa and Bryn Athyn. Mortgage interest
income during fiscal 1997 declined from fiscal 1996 due to the non-accrual of
interest income in fiscal 1997. The Partnership did not recognize a recovery
of valuation allowance in 1997 as compared to a recovery of valuation allowance
of $550,000 on the Oaktree loan during 1996. The recovery of valuation
allowance in 1996 was attributable to an increase in the fair market value of
Oaktree, as determined by an independent appraisal conducted in November 1996.
Interest and other income totaled $203,285 for the fiscal year ended November
30, 1997 compared to $85,423 in fiscal 1996. The increase is due to the
Partnership maintaining higher average cash balances in 1997 compared to 1996,
primarily due to the previously undistributed sales proceeds from the Chaparosa
and Bryn Athyn sales.
<PAGE>
Total expenses for the year ended November 30, 1997 were $1,614,954 compared
with $2,353,732 for fiscal 1996. The provision for losses for the year ended
November 30, 1997 was $0 compared with $450,000 for the year ended November 30,
1996. The decrease is attributable to the Park View Village note being placed
on non-accrual status effective December 1, 1996. While the fair market value
of Park View increased during 1996, as determined by an independent appraiser,
the Partnership recorded a $450,000 loss provision for the year ended December
31, 1996 to reflect the carrying value of the Park View loan at the discount
payoff amount.
Property operating expenses decreased slightly to $1,329,354 for the year ended
November 30, 1997, compared with $1,388,362 for fiscal 1996. The decrease was
a result of the sales of Bryn Athyn and Chaparosa Apartments during fiscal 1997
and a reduction in repairs and maintenance expenses relating to Bryn Athyn and
Chaparosa Apartments during fiscal 1997 prior to being sold. This decrease was
partially offset by an increase in property operating expenses related to the
Partnership's ownership of Oaktree Village Apartments after the foreclosure in
September 1997.
General and administrative expenses increased from $160,625 for the year ended
November 30, 1996 to $215,461 for fiscal 1997. The increase is primarily due
to higher legal fees, engineering consulting fees, and partnership
administrative expenses in the 1997 period. During the 1997 period, certain
expenses incurred by RPI, its affiliates, and an unaffiliated third party
service provider in servicing the Partnership, which were voluntarily absorbed
by affiliates of RPI in prior periods, were reimbursable to RPI and their
affiliates.
1996 versus 1995
Partnership operations for the year ended November 30, 1996 generated net
income of $1,697,893 compared with net income of $1,188,552 for fiscal 1995.
The increase is primarily due to an increase in rental income, and a $550,000
recovery of valuation allowance in 1996, partially offset by an increase in
the provision for losses on the Partnership's mortgage loan investments.
Rental income totaled $2,573,226 for the year ended November 30, 1996 compared
with $2,431,302 for fiscal 1995. This increase is attributable to higher
rental rates at the Partnership's wholly-owned properties and increased
occupancy at Bryn Athyn. Mortgage interest income during fiscal 1996 was
unchanged from fiscal 1995. The Partnership recognized a recovery of valuation
allowance of $550,000 on the Oaktree loan during 1996. This was attributable
to an increase in the fair market value of Oaktree, as determined by an
independent appraisal conducted in November 1996. Interest and other income
totaled $85,423 for the fiscal year ended November 30, 1996 compared to
$100,829 in fiscal 1995. The decrease is the result of a reduction in interest
rates and the Partnership maintaining lower cash balances in 1996 compared to
1995.
Total expenses for the year ended November 30, 1996 were $2,353,732 compared
with $2,186,555 for fiscal 1995. The provision for losses for the year ended
November 30, 1996 was $450,000 compared with $300,000 for the year ended
November 30, 1995. While the fair market value of Park View increased during
1996, as determined by an independent appraiser, the Partnership recorded a
$450,000 loss provision for the year ended December 31, 1996 to reflect the
carrying value of the Park View loan at the discount payoff amount. The
provision for loss in 1995 was related to the Park View loan.
Property operating expenses increased slightly to $1,388,362 for the year ended
November 30, 1996 compared with $1,375,079 for fiscal 1995. The increase is
attributable to higher repairs and maintenance expenses at Bryn Athyn,
partially offset by a decline in repairs and maintenance expenses and real
estate taxes at Chaparosa.
General and administrative expenses increased from $140,805 for the year ended
November 30, 1995 to $160,625 for fiscal 1996. The increase is primarily due to
higher audit fees, engineering consulting fees, and partnership administrative
expenses in the 1996 period, partially offset by lower legal fees.
<PAGE>
For the years ended November 30, 1997, 1996 and 1995, average occupancy levels
at the Partnership's properties and at the properties securing the
Partnership's equity participating loans were as follows:
<TABLE>
<S> <C> <C> <C>
Investments in Real Estate 1997 1996 1995
Properties:
Oaktree Village Apartments 93% 96% 96%
Bryn Athyn Apartments _ 97% 96%
Chaparosa Apartments _ 97% 97%
Mortgage Loan Investments:
Park View Village 99% 97% 95%
</TABLE>
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129, "Disclosure
of Information about Capital Structure," SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." These statements, which are effective for fiscal years
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Partnership's reported financial
position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1996, which is filed as an exhibit under
Item 14. Supplementary Data is incorporated by reference to pages F-1 to F-3
of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P.
that it was changing accounting firms and engaged KPMG Peat Marwick LLP.
Coopers & Lybrand L.L.P.'s report on the financial statements for the years
ended December 31, 1996 and December 31, 1995 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. There have been no disagreements with Coopers & Lybrand
L.L.P. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope procedure.
The decision to change accountants was approved by ConAm Property Services III,
Ltd. and RPI Real Estate Services, Inc., the General Partners of the
Partnership at that time.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. CPS III, the General Partner of
the Partnership, manages and controls the affairs of the Partnership and has
general responsibility and authority in all matters affecting its business.
CPS III is a California limited partnership organized on August 30, 1982. The
sole general partner of CPS III is Continental American Development, Inc.
("ConAm Development"). The names and positions held by the directors and
executive officers of ConAm Development are set forth below. There are no
family relationships between any officers or directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development. and a general partner of Continental American Properties, Ltd.
("ConAm"), an affiliate of ConAm Services, since their inception. He is also
Chairman and Chief Executive Officer of ConAm Management. Prior to that time
Mr. Epstein was Vice President and a Director of American Housing Guild, which
he joined in 1969. At American Housing Guild, he was responsible for the
formation of the Multi-Family Division and directed its development and
property management activities. Mr. Epstein holds a Bachelor of Science degree
in Engineering from the University of Southern California.
E. Scott Dupree, 47, is a Senior Vice President and general counsel of ConAm
Management responsible for negotiation, documentation, review and closing of
acquisition, sale and financing proposals. Mr. Dupree also acts as principal
legal advisor on general legal matters ranging from issues and contracts
involving the management company to supervision of litigation and employment
issues. Prior to joining ConAm Management in 1985, he was corporate counsel to
Trusthouse Forte, Inc., a major international hotel and restaurant corporation.
Mr. Dupree holds a B.A. from United States International University and a Juris
Doctorate degree from the University of San Diego.
Robert J. Svatos, 39, is a Senior Vice President and is the Chief Financial
Officer of ConAm Management since 1988. His responsibilities include the
accounting, treasury and data processing functions of the organization. Prior
to joining ConAm Management in 1988, he was the Chief Financial Officer for
AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr.
Svatos holds an M.B.A. in Finance from the University of San Diego and a
Bachelor's of Science degree in Accounting from the University of Illinois. He
is a Certified Public Accountant.
Ralph W. Tilley, 43, is a Senior Vice President and Treasurer of ConAm
Management. He is responsible for the financial aspects of syndications and
acquisitions, the company's asset management portfolio and risk management
activities. Prior to joining ConAm Management in 1980, he was a senior
accountant with KPMG Peat Marwick LLP, specializing in real estate. He holds a
Bachelor's of Science degree in Accounting from San Diego State University and
is a Certified Public Accountant.
J. Bradley Forrester, 40, is the President of ConAm Management. He is
currently responsible for overseeing all aspects of the operations of the firm.
His primary focus is on new business related activities including property
acquisitions, property development and rehabilitation, and the acquisition of
other property management companies. Prior to joining ConAm, Mr. Forrester
served as Senior Vice President - Commercial Real Estate for First Nationwide
Bank in San Francisco, where he was responsible for a $2 billion problem asset
portfolio including bank-owned real estate and non-performing commercial real
estate loans. His past experience includes significant involvement in real
estate development and finance, property acquisitions and dispositions and
owner's representation matters. Prior to entering the real estate profession,
he worked for KPMG Peat Marwick LLP in Dallas, Texas. Mr. Forrester holds a
Bachelor of Science degree in Accounting from Louisiana State University. He
received his CPA certification in the state of Texas.
Item 11. Executive Compensation
Neither the General Partner nor any of its directors or executive officers
received any compensation from the Partnership. See Item 13 below with respect
to a description of certain costs of the General Partner reimbursed by the
Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1997, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Neither the General Partner nor any of its directors or executive officers owns
any Units.
<PAGE>
Item 13. Certain Relationships and Related Transactions
RPI and CPS III received a total of $196,981 as the General Partners' allocable
share of Net Cash from Operations and net sales proceeds with respect to the
fiscal year ended November 30, 1997, pursuant to the Certificate and Agreement
of Limited Partnership of the Partnership. Pursuant to the Certificate and
Agreement of Limited Partnership of the Partnership, for the fiscal year ended
November 30, 1997, $109,105 of the Partnership's income was allocated to RPI
and CPS III. For a description of the share of Net Cash from Operations and
the allocation of income and loss to which the General Partner and former
co-General Partner are entitled, reference is made to Note 7 to the Financial
Statements included in the Partnership's Annual Report to Unitholders for the
fiscal year ended November 30, 1997, which is filed as an exhibit under Item
14.
The Partnership has entered into a property management agreement with ConAm
Management pursuant to which ConAm Management has assumed direct responsibility
for day to day management of Oaktree Village. The services include the
supervision of leasing, rent collection, maintenance, budgeting, employment of
personnel, payment of operating expenses, strategic asset management, etc. For
such services, ConAm Management is entitled to receive a property management
fee equal to 5% of gross revenues. A summary of property management fees
earned by ConAm Management during the past three fiscal years is incorporated
herein by reference to Note 7 to the Financial Statements included in the
Partnership's Annual Report to Unitholders for the fiscal year ended November
30, 1997, which is filed as an exhibit under Item 14.
Southridge, the owner of Park View, has entered into a property management
agreement with ConAm Management pursuant to which ConAm Management has assumed
direct responsibility for day to day management of Park View Village. For such
services, during the twelve months ended November 30, 1997, ConAm Management
earned property management fees aggregating $98,130 from Southridge.
Pursuant to Section 11(g) of Registrant's Certificate and Agreement of Limited
Partnership, the General Partner may be reimbursed by the Partnership for
certain of its costs. A summary of amounts paid to the General Partners or
their affiliates during the past three fiscal years is incorporated by
reference to Note 7 to the Financial Statements included in the Partnership's
Annual Report to Unitholders for the fiscal year ended November 30, 1997, which
is filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C>
(a)(1) Financial Statements: Page
Balance Sheets - November 30, 1997 and 1996 ......................... (1)
Statements of Operations - For the years ended
November 30, 1997, 1996 and 1995 .................................. (1)
Statements of Partners' Capital - For the years ended
November 30, 1997, 1996 and 1995 .................................. (1)
Statements of Cash Flows - For the years ended
November 30, 1997, 1996 and 1995 .................................. (1)
Notes to the Financial Statements ................................... (1)
Independent Auditors' Report ........................................ (1)
Report of Former Independent Accountants ............................ (1)
(a)(2) Financial Statement Schedule:
</TABLE>
Schedule III - Real Estate and Accumulated Depreciation ....... F-1
Independent Auditors' Report .................................. F-2
Report of Former Independent Accountants ...................... F-3
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1997, filed as an
exhibit under Item 14.
<PAGE>
(a)(3) Exhibits
(4)(A) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to Exhibit A to the Prospectus of
Registrant dated June 24, 1983, contained in Amendment No. 3 to
Registration Statement No. 2-79116 of Registrant filed June 21, 1983).
(B) Subscription Agreement and Signature Page (included as, and incorporated
herein by reference to, Exhibit 3.1 to Amendment No. 2 to Registration
Statement No. 2-79116 of Registrant filed (June 13, 1983).
(10)(A) Loan Documents (Loan Commitment; Promissory Note; and Mortgage,
Assignment of Rents and Security Agreement) relating to Oaktree
Village, between the Registrant and Southridge Partners I, and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(A) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended November 30, 1984 (the "1984 Annual Report")).
(B) Loan Documents (Loan Commitment; Promissory Note; and Deed of Trust,
Assignment of Rents and Security Agreement) relating to Chaparosa
Apartments, between the Registrant and Southridge Partners I, and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(B) to the 1984 Annual Report).
(C) Loan Documents (Loan Commitment; Promissory Note; and Mortgage,
Assignment of Rents and Security Agreement) relating to Park View
Village (formerly Park View Estates), between the Registrant and
Southridge Partners I, and the exhibits thereto (included as, and
incorporated herein by reference to, Exhibit(10)(C) to the 1984 Annual
Report).
(D) Conveyance Documents relating to Chaparosa Apartments dated
January 31, 1992 (included as, and incorporated herein by reference to,
Exhibit (10)(F) to the Registrant's Annual Report on Form 10-K filed
on February 27, 1992 for the fiscal year ended November 30, 1991).
(E) Property Management Agreement between Hutton/ConAm Realty Pension
Investors and Con Am Management Corporation for the Bryn Athyn
property (included as, and incorporated herein by reference to,
Exhibit 10-E to the Registrant's 1993 Annual Report on Form 10-K
filed on February 28, 1994).
(F) Property Management Agreement between Hutton/ConAm Realty Pension
Investors and Con Am Management Corporation for the Chaparosa
property (included as, and incorporated herein by reference, to Exhibit
10-F to the Registrant's 1993 Annual Report on Form 10-K filed on
February 28, 1994).
(G) Note and Modification Agreement between Southridge Partners I and
Hutton/ConAm Realty Pension Investors dated November 23, 1993
for Park View Village (included as, and incorporated herein by
reference to, Exhibit 10-G to the Registrant's 1993 Annual
Report on Form 10-K filed on February 28, 1994).
(H) Note and Modification Agreement between Southridge Partners I and
Hutton/ConAm Realty Pension Investors dated November 23, 1993
for Oaktree Village (included as, and incorporated herein by
reference to, Exhibit 10-H to the Registrant's 1993 Annual
Report on Form 10-K filed on February 28, 1994).
(13) Annual Report to Unitholders for the fiscal year ended
November 30, 1997.
(27) Financial Data Schedule
(99) Portions of the Prospectus of the Registrant dated June 24, 1983
(included as, and incorporated herein by reference to, Exhibit 28
to the Registrant's 1987 Annual Report on Form 10-K for the fiscal
year ended November 30, 1987).
(b) Reports on Form 8-K
On December 1, 1997, the Partnership filed a Form 8-K reporting
the change in Partnership's Certifying Accountants.
On August 15, 1997, the Partnership filed a Form 8-K disclosing the
sale of Chaparosa Apartments.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 2, 1998
BY: ConAm Property Services III, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /s/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and
Principal Executive Officer
Date: March 2, 1998
BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: March 2, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: March 2, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 2, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
<PAGE>
Exhibit 13
ConAm Realty Pension Investors
1997 Annual Report
ConAm Realty Pension Investors
ConAm Realty Pension Investors is a New York limited
partnership formed in 1984 to finance investments for
certain types of residential real estate by making
equity participating loans and equity convertible
loans. At November 30, 1997, the Partnership's
portfolio consisted of an apartment property, Oaktree
Village, located in Jacksonville, Florida, and a
mortgage loan secured by Park View Village, an
apartment property located in Winter Park, Florida.
Provided below is a comparison of average occupancy
levels for the years ended November 30, 1997 and 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Occupancy
Property Location 1997 1996
Park View Village* Winter Park, FL 99% 97%
Oaktree Village Jacksonville, FL 93% 96%
</TABLE>
* The Partnership holds a mortgage interest in this
property.
Contents
1 Message to Investors
3 Financial Highlights
4 Financial Statements
7 Notes to the Financial Statements
14 Independent Auditors' Report and
Report of Former Independent Accountants
16 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
<PAGE>
Message to Investors
1997 was an eventful year for the Partnership, with significant developments
occurring with all of the Partnership's wholly-owned properties and mortgage
investments. In this report, we review these developments and discuss our
strategies with the Partnership's remaining two investments. We have also
included an update on operations at each of the properties and financial
highlights for the year.
Cash Distributions
The Partnership paid cash distributions totaling $160.00 per Unit for the year
ended November 30, 1997, including the fourth quarter distribution of $2.50 per
Unit, which was credited to your brokerage account or sent directly to you on
January 15, 1998. Since inception, the Partnership has paid distributions
totaling $660.68 per original $500 Unit, including $356.00 per Unit in return
of capital payments. The level of future distributions will be evaluated on a
quarterly basis and will depend on the Partnership's operating results and
future cash needs.
Property Sales
The Partnership completed the sales of Chaparosa and Bryn Athyn Apartments in
1997. The Partnership sold Chaparosa Apartments on August 6, 1997, and Bryn
Athyn Apartments on September 22, 1997, resulting in net sales proceeds of
$5,689,996 and $8,887,000 respectively. The Partnership paid a special cash
distribution of $150.00 per Unit from the proceeds of both sales on October 31,
1997.
Park View Village
As reported in previous correspondence, on September 19, 1997, the Partnership
and the borrower of the mortgage loan secured by Park View Village signed a
definitive agreement to modify the defaulted mortgage loan. As a result, the
Park View Village note was modified to provide for an extension of the maturity
date to June 30, 1999, the deferral of debt service payments for the lesser of
twelve months commencing January 1, 1997, or until a capital improvement
reserve account is fully funded with an agreed upon amount, and the inclusion
of a discounted payoff option for the borrower during the extension period. The
payoff option enables the borrower to pay off the $5.2 million outstanding
principal balance of the Park View Village note and any accrued interest, which
totaled approximately $2.3 million at November 30, 1997, for $5.65 million. The
Partnership expects that the loan modification and the temporary deferral of
debt service payments will enable the borrower to maintain consistent interest
payments to the Partnership in the future. In addition, although the loan was
extended to June 30, 1999, the Partnership is aware that the borrower is
currently attempting to refinance the loan with the Partnership, with an
unaffiliated lender, to take advantage of the discounted payoff option.
<PAGE>
Oaktree Village
As a result of the agreement signed on September 19, 1997, and to resolve the
borrower's default on the loan secured by the property, Oaktree Village was
deeded to the Partnership. Oaktree's appraised value as of November 30, 1997,
as determined by an independent appraisal, was $6.0 million, an increase from
$5.7 million a year earlier. After acquiring Oaktree Village, the Partnership
completed several interior and exterior repairs, including carpet replacement
and roof repairs, to increase the property's marketability and allow it to
remain competitive in the market. Oaktree Village reported an average
occupancy level of 93% in 1997. In 1997, the Jacksonville market experienced a
significant increase in new construction and the issuance of new construction
permits, partially due to its 1996 ranking as one of the fastest growing labor
markets in the country. This new construction is expected to soften the market
by outpacing population and job growth and will continue to affect the region
for the next several months, as new units become available. While vacancy
rates remained low in 1997, the use of rental concessions in the Jacksonville
submarket has recently increased to attract and retain tenants in anticipation
of the new competition.
The General Partner is continuing to evaluate the sale potential
of Oaktree Village and other options with respect to the property. One of
these options includes refinancing the loan secured by the property in order to
return capital to the limited partners on a tax-free basis and lock in a
favorable fixed interest rate. This would also potentially enhance the future
marketability of Oaktree Village, while enabling the Partnership to take
advantage of possible future property appreciation. The Partnership's ability
to sell the property is dependent upon a variety of factors, many of which are
not within the Partnership's control. There can be no assurance that the
property can be sold, that a particular price will be achieved, or that the
property can be sold within a specific time frame. We will keep you apprised of
our sales efforts in future correspondence.
Outlook
In the coming year, we will continue to maximize the performance of Oaktree
Village. We will also monitor operations at Park View Village, and the
borrower's refinancing efforts, as they affect the Partnership's mortgage loan
investment. We will keep you apprised of significant developments in future
reports.
Very truly yours,
/s/ Daniel J. Epstein
President
Continental American Development, Inc.
General Partner of ConAm Property
Services III, Ltd.
March 2, 1998
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected Financial Data
<S> <C> <C> <C> <C> <C>
For the periods ended November 30, 1997 1996 1995 1994 1993
Dollars in thousands, except for
per unit data
- -------------------------------------------------------------------------------
Total Income $ 3,194 $ 4,052 $ 3,375 $ 3,230 $ 3,272
Income from Operations 852 1,698 1,189 452 1,157
Net Income 7,222 1,698 1,189 452 1,157
Net Cash Provided by
Operating Activities 544 1,929 1,880 1,733 1,768
Total Assets at Year End 12,705 21,466 21,818 22,650 23,813
Income from Operations per
Limited partnership unit* 8.36 16.58 11.55 4.30 11.45
Net Income per
Limited Partnership unit* 73.72 16.58 11.55 4.30 11.45
Distributions per
Limited Partnership unit* 160.00 20.00 20.00 18.00 10.00
- -------------------------------------------------------------------------------
</TABLE>
* 96,490 units outstanding
<PAGE>
<TABLE>
<CAPTION>
Cash Distributions
Per Limited Partnership Unit
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
First Quarter $ 2.50 $ 5.00 $ 5.00
Second Quarter 2.50 5.00 5.00
Third Quarter 2.50 5.00 5.00
Fourth Quarter 2.50 5.00 5.00
Special Distribution* 150.00 _ _
Total $160.00 $20.00 $ 20.00
- -------------------------------------------------------------------------------
</TABLE>
* On October 31, 1997 the Partnership paid a special cash distribution in the
amount of $150.00 per unit, from the net proceeds of the sale of Chaparosa
and Bryn Athyn Apartments.
Quarterly cash distributions were reduced in 1997 due to the decrease in net
cash provided by operating activities, primarily due to the sales of Chaparosa
and Bryn Athyn.
<TABLE>
<CAPTION>
Balance Sheets At November 30, At November 30,
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in real estate:
Properties:
Land 1,200,000 857,669
Buildings and Improvements 4,800,000 4,986,459
6,000,000 5,844,128
Less accumulated depreciation (27,943) (1,567,164)
--------- ---------
5,972,057 4,276,964
Mortgage loan investments 5,200,650 9,675,900
11,172,707 13,952,864
Property held for disposition _ 3,971,304
Cash and cash equivalents 1,029,577 1,818,059
Interest receivable - deferred, net of
valuation allowance of $1,399,890 in 1997
and $2,145,176 in 1996 449,350 1,674,100
Other assets 53,504 49,827
- -------------------------------------------------------------------------------
Total Assets $12,705,138 $21,466,154
- -------------------------------------------------------------------------------
Liabilities and Partners' Capital
Liabilities:
Distributions payable $253,921 $507,842
Accounts payable and accrued expenses 183,988 263,985
Due to general partners and affiliates 4,339 11,094
Deferred income - loan modification fees 897 19,794
Security deposits 33,625 72,620
- -------------------------------------------------------------------------------
Total Liabilities 476,770 875,335
- -------------------------------------------------------------------------------
Partners' Capital:
General Partners 186,621 274,497
Limited Partners (96,490 Units outstanding) 12,041,747 20,316,322
- -------------------------------------------------------------------------------
Total Partners' Capital 12,228,368 20,590,819
Total Liabilities and Partners' Capital $12,705,138 $21,466,154
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
For the years ended November 30, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $ 2,244,670 $ 2,573,226 $ 2,431,302
Mortgage interest _ 822,452 822,452
Recovery of valuation allowance _ 550,000 _
Interest and other income 203,285 85,423 100,829
Loan modification fees 18,897 20,524 20,524
-----------------------------------
Total Income 2,466,852 4,051,625 3,375,107
- -------------------------------------------------------------------------------
Expenses
Property operating 1,329,354 1,388,362 1,375,079
Provision for losses _ 450,000 300,000
Depreciation and amortization 70,139 354,745 370,671
General and administrative 215,461 160,625 140,805
-----------------------------------
Total Expenses 1,614,954 2,353,732 2,186,555
- -------------------------------------------------------------------------------
Income from operations 851,898 1,697,893 1,188,552
Gain on sale of properties 6,370,490 _ _
- -------------------------------------------------------------------------------
Net Income $7,222,388 $1,697,893 $1,188,552
- -------------------------------------------------------------------------------
Net Income Allocated:
To the General Partners $109,105 $ 98,234 $ 74,254
To the Limited Partners 7,113,283 1,599,659 1,114,298
- -------------------------------------------------------------------------------
$7,222,388 $1,697,893 $1,188,552
- -------------------------------------------------------------------------------
Per limited partnership unit
(96,490 Units outstanding):
Income from operations $8.36 $16.58 $11.55
Gain on sale of properties 65.36 _ _
Net Income $73.72 $16.58 $11.55
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Partners' Capital
For the years ended November 30, 1997, 1996 and 1995
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 30, 1994 $305,145 $21,461,965 $21,767,110
Net Income 74,254 1,114,298 1,188,552
Distributions ($20.00 per Unit) (101,568) (1,929,800) (2,031,368)
- -------------------------------------------------------------------------------
Balance at November 30, 1995 $277,831 $20,646,463 $20,924,294
Net Income 98,234 1,599,659 1,697,893
Distributions ($20.00 per Unit) (101,568) (1,929,800) (2,031,368)
- -------------------------------------------------------------------------------
Balance at November 30, 1996 $274,497 $20,316,322 $20,590,819
Net Income 109,105 7,113,283 7,222,388
Distributions ($160.00 per Unit) (196,981) (15,387,858) (15,584,839)
- -------------------------------------------------------------------------------
Balance at November 30, 1997 $186,221 $12,041,747 $12,228,368
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For the years ended November 30, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $7,222,388 $1,697,893 $1,188,552
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 70,139 354,745 370,671
Gain on sale of properties (6,370,490) _ _
Deferred income - loan
modification fees (18,897) (20,524) (20,524)
Recovery of valuation allowance _ (550,000) _
Provision for losses _ 450,000 300,000
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Other assets (3,677) (4,467) 9,087
Accounts payable and accrued expenses (310,007) (5,552) 25,033
Due to general partners and affiliates (6,755) 651 610
Security deposits (38,995) 6,568 6,182
-------------------------------------
Net cash provided by operating activities 543,706 1,929,314 1,879,611
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net proceeds from sale of properties 14,576,562 _ _
Additions to real estate (69,990) (59,850) _
-------------------------------------
Net cash provided by (used for)
investing activities 14,506,572 (59,850) _
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions (15,838,760) (2,031,368) (2,031,368)
-------------------------------------
Net cash used for financing activities (15,838,760) (2,031,368) (2,031,368)
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (788,482) (161,904) (151,757)
Cash and cash equivalents,
beginning of period 1,818,059 1,979,963 2,131,720
- -------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $1,029,577 $1,818,059 $1,979,963
- -------------------------------------------------------------------------------
</TABLE>
Supplemental Disclosure of Non-Cash Investing Activities:
On September 19, 1997, the Partnership obtained legal title to Oaktree Village
through a deed in lieu of foreclosure. The Oaktree Village real estate
investment has been recorded at its fair value ($6,000,000) which includes the
net carrying amount ($5,700,000) of its mortgage loan investment and interest
receivable-deferred, net of valuation allowance ($745,286), assumed accounts
payable and accrued expenses ($230,010) and settlement costs associated with
the acquisition of $69,990.
<PAGE>
Notes to the Financial Statements
November 30, 1997, 1996 and 1995
1. Organization
ConAm Realty Pension Investors, (formerly Hutton/ConAm Realty Pension
Investors) (the "Partnership") was organized as a limited partnership under the
laws of the State of New York pursuant to a Certificate and Agreement of
Limited Partnership (the "Partnership Agreement") dated January 23, 1984, as
amended on January 26, 1984. The Partnership was formed for the purpose of
financing investments in certain types of residential real estate by making
equity participating loans and equity convertible loans. The general partners
of the Partnership were RPI Real Estate Services Inc. ("RPI"), an affiliate of
Lehman Brothers Inc. (see below), and ConAm Property Services III, Ltd. ("CPS
III"), an affiliate of Continental American Properties, Ltd (the "General
Partners"). On October 8, 1997, CPS III acquired RPI's co-general partner
interest in the Partnership pursuant to a Purchase Agreement between CPS III
and RPI dated August 29, 1997. As a result, CPS III now serves as the sole
general partner of the Partnership. In conjunction with this transaction, the
name of the Partnership was changed from Hutton/ConAm Realty Pension Investors
to ConAm Realty Pension Investors. The Partnership will continue until
December 31, 2010 unless sooner terminated pursuant to the terms of the
Partnership Agreement.
2. Significant Accounting Policies and Practices
Mortgage Loan Investments and Interest Receivable - The Partnership reviews, on
a periodic basis, the loans in its portfolio. An allowance for losses is
established when the carrying value of a loan, including deferred interest,
exceeds its fair value (see Note 5). The fair value of the Partnership's loans
are determined by independent appraisals which are performed annually and
include a discounting of estimated future cash flows.
Accounting for Mortgage Loan Receivable - In May 1993, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" ("FAS 114"), as amended by FAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which states that a loan is considered impaired and a provision
for credit losses is required if it is probable that all amounts of principal
and interest due will not be collected. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted
at the loan's effective interest rate, except that collateral dependent loans
are measured for impairment based on the observable market value or fair value
of the collateral less estimated selling costs. Effective December 1, 1995,
the Partnership adopted FAS 114.
Impairment of Long-Lived Assets - Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("FAS 121") requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate.
Investments in Real Estate - Investments in real estate consist of properties
acquired through foreclosure proceedings or acceptance of a deed in lieu of
foreclosure, and troubled loans. Such properties are recorded at fair market
value at the date of foreclosure. As of November 30, 1997, real estate
investments consisted of Oaktree Village, located in Jacksonville, Florida. As
of November 30, 1996 real estate investments consisted of the Bryn Athyn
Apartment complex located in Raleigh, North Carolina ("Bryn Athyn") and the
Chaparosa Apartment complex located in Irving, Texas.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. Leases are generally for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful life of the property (27.5 years). Maintenance and repairs are
<PAGE>
charged to operations as incurred. Costs incurred for significant betterments
and improvements are capitalized and depreciated over their estimated useful
lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
Loan Placement Costs - Costs incurred in connection with investments are
recorded as assets and amortized over the applicable loan periods. These costs
have been fully amortized.
Loan Modification Fees - Loan modification fees are deferred and recognized over
the applicable extended loan periods, pursuant to the terms of the loan
modification (see Note 4).
Interest Income - The Partnership recognizes interest income based upon terms of
the respective mortgages. The Park View Village Mortgage Loan was restructured
in 1997 (see Note 4) to allow deferral of debt services payments until certain
events have transpired. No interest income was accrued in the current fiscal
year (see Note 5).
Income Taxes - No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' federally insured
limits. The Partnership invests its available cash and cash equivalents with
high credit quality federally insured financial institutions.
Use of Estimates - Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net distributable cash, as defined, is
to be distributed, 95% to the limited partners and 5% to the General Partners
until each limited partner has received an amount equal to a 12% non-cumulative
annual return on their adjusted capital value (as defined). The balance, if
any, is to be distributed 90% to the limited partners and 10% to the General
Partners. Effective July 1, 1997, all General Partner distributions were made
solely to CPS III.
Net loss and all depreciation for any fiscal year are to be allocated 99% to
the limited partners and 1% to the General Partners.
Net income before depreciation is to be allocated as follows:
(a) To the extent that net income before depreciation does not exceed the amount
of net distributable cash distributable to the partners with respect to such
fiscal year, net income before depreciation is to be allocated among the
partners, pro rata in accordance with the amount of net distributable cash
distributable to each partner with respect to such fiscal year to the extent
thereof; and
(b) To the extent that net income before depreciation exceeds the amount of net
distributable cash distributable to the partners with respect to such fiscal
year, such excess is to be allocated (1) first, 100% to the General
Partners, pro rata, in an amount equal to the excess, if any, of the General
Partners' deficits, if any, in their capital accounts, over an amount equal
to 1% of the aggregate capital contributions to the Partnership as reduced
<PAGE>
by the amount of the General Partners' capital contributions, and (2)
second, 99% to the limited partners and 1% to the General Partners.
For the year ended November 30, 1997, net income before depreciation did not
exceed the amount of net distributable cash. For the year ended November 30,
1996, net income before depreciation exceeded the amount of net distributable
cash by $21,270. For the year ended November 30, 1995, net income before
depreciation did not exceed the amount of net distributable cash. Pursuant to
the Partnership Agreement and as described in (a) above, net income before
depreciation was allocated among the partners pro rata in accordance with the
amount of net distributable cash distributable to each partner.
All residual proceeds are to be distributed 99% to the limited partners and 1%
to the General Partners until each limited partner has received an amount equal
to their adjusted capital value and a 12% cumulative annual return on his
adjusted capital value. The balance, if any, is to be distributed 85% to the
limited partners and 15% to the General Partners. Distributions of residual
proceeds were $14,619,697 in fiscal 1997.
Generally, all gain from sales of investments is to be allocated 99% to the
limited partners and 1% to the General Partners until any negative capital
account balances have been eliminated and each limited partner has received an
amount equal to their adjusted capital value and an amount equal to the excess
of a 12% cumulative annual return on their adjusted capital value over the
amount of any net distributable cash and residual proceeds distributed to such
limited partner. The balance, if any, is to be allocated 85% to the limited
partners and 15% to the General Partners.
4. Mortgage Loan Investments and Investments in Real Estate
Three loans which totaled $15,525,900 were funded to an affiliate, Southridge
Partners I ("Southridge"), a New York limited partnership. The RPI Real Estate
Services Inc. general partner in the Partnership and the GP Real Estate
Services II Inc. general partner in Southridge are both wholly-owned
subsidiaries of Lehman Brothers. CPS III is also an affiliate of ConAm Real
Property Services Corporation, a General Partner of Southridge.
The first loan was funded on September 28, 1984 in the amount of $4,475,250 in
connection with the purchase of Oaktree Village, a 160-unit apartment complex
located in Jacksonville, Florida. The second loan was funded on October 30,
1984 in the amount of $5,850,000 in connection with the purchase of Chaparosa
Apartments, a 170-unit apartment complex located in Irving, Texas. The third
loan was funded on December 21, 1984 in the amount of $5,200,650 in connection
with the purchase of Park View Village, a 184-unit apartment complex located in
Winter Park, Florida.
Originally, each loan was evidenced by a promissory note bearing interest at a
stated rate of 14% per annum collateralized by a first mortgage or trust deed
on the property, due at the earlier of (i) 10 years from the date of funding or
(ii) sale of the property. Each of the loans was payable in fixed monthly
installments of interest only at the rate of 11% per annum with the
differential of 3% paid monthly out of net cash flow, if available. Any
differential interest not paid monthly was to itself bear interest at the rate
of 14%, compounded semi-annually and became due together with the outstanding
principal upon maturity of the loan. In addition to stated interest, the
Partnership would receive contingent interest on each of the Southridge loans
equal to 25% of net cash flow, payable quarterly, and 30% of any appreciation
in value upon the sale of the project.
In connection with the three investments in equity participating first mortgage
loans, the Partnership earned loan origination fees of $465,777, representing
3% of the principal amounts loaned to Southridge. The Partnership incurred loan
placement costs of $504,185 of which $465,777 was paid to the General Partners
for loan placement fees.
During the first quarter of the fiscal year ended November 30, 1988, the
General Partners accepted a request for modification of each of the Southridge
loans submitted by the borrower. Effective April 1, 1988, stated interest was
lowered from 14% to 12% and current interest was lowered from 11% to 8.5%. The
additional interest of 3.5% was payable monthly from any excess cash flow
calculated on a monthly basis. To the extent that stated interest exceeded
<PAGE>
monthly installments, such amounts were deferred until the maturity of the
principal and accrued interest at 12% compounded semi-annually. As
consideration for reducing the stated and current interest, final additional
interest, as defined, was increased from 30% to 35% of appreciation in value,
as defined, upon the sale of the project. All other terms and conditions
remained as originally stated.
On November 20, 1985, the Partnership funded an equity participating loan in
the amount of $5,900,000 to Bryn Athyn Investors, Ltd., a Texas limited
partnership unaffiliated with the Partnership, in connection with its purchase
of Bryn Athyn, a 172-unit apartment complex located in Raleigh, North Carolina.
In July 1989, the Partnership obtained ownership of the property through a
foreclosure sale. As a result, Bryn Athyn was recorded as a real estate
investment rather than a mortgage loan investment on the Partnership's balance
sheet.
On September 22, 1997, the Partnership closed the sale of the Bryn Athyn
Apartments to SCA North Carolina Limited Partnership, an unaffiliated company,
for net proceeds totaling $8,886,567 and a gain on sale of approximately $4.65
million.
As of November 30, 1991, the Partnership reclassified its Chaparosa loan
investment into an in-substance real estate investment, at its book value of
approximately $4,169,017. On January 31, 1992, the Partnership obtained legal
title to Chaparosa through a deed in lieu of foreclosure. As of such date, the
Chaparosa real estate investment was recorded in the amount of $3,645,728 and
reflected all final adjustments regarding its acquisition.
On August 6, 1997, the Partnership closed the sale of the Chaparosa Apartments
to Apple Residential Income Trust, Inc., an unaffiliated company, for net
proceeds totaling $5,689,996 and a gain on sale of approximately $1.72 million.
During the second quarter of the fiscal year ended November 30, 1993, the
General Partners agreed to modify the two remaining mortgage loans with Park
View Village and Oaktree Village (the "Loans") with Southridge retroactive to
March 1, 1993. The terms of the modification provided for a three-year
extension of the maturity dates through September 30, 1997 and December 31,
1997 for Oaktree Village and Park View Village, respectively. The stated
interest rate on the Loans was reduced to 8.5%, with excess cash flow generated
by the properties on a monthly basis through 1993 to be applied first to
accrued and unpaid interest and then to principal. Beginning in 1994, excess
cash flow is calculated on an annual basis. In addition, interest ceased to
accrue on the cumulative deferred interest. In consideration the Partnership
earned a loan modification fee equal to 2% of the original loan balance. One
half of the fee, $96,759 was paid at the closing, and the other half will be
due upon either the sale or refinancing of the properties to the extent there
are net proceeds available after repayment of the outstanding debt balance and
selling costs.
On January 22, 1997, the Partnership delivered notice of default to Southridge
with respect to the Partnership's Loans on Park View Village and Oaktree
Village, respectively. The Partnership indicated, among other things, that
the Loans are in default due to, without limitation, the failure of Southridge
to make the payment of minimum interest due on January 1, 1997 and due to its
failure to make the required minimum monthly deferred interest payments during
1996 and the required contingent interest payments for the first three quarters
of 1996 (collectively the "Current Amounts Due") as required by each of the
loan documents. The Partnership had demanded payment of the Current Amounts Due
from Southridge with respect to each of the Loans, however, the Partnership has
not accelerated payment of the outstanding balance of the Loans.
On February 21, 1997, the General Partners executed a Letter of Intent ("LOI")
with Southridge, whereby, Southridge's default status on the Loans would be
resolved. The LOI required the borrower to deed over Oaktree Village to the
Partnership and to modify the terms of the Park View Village note. On
September 19, 1997, definitive agreements were signed consistent with the terms
of the LOI. As a result, Oaktree Village was deeded to the Partnership.
Oaktree's appraised value as of November 30, 1996, as determined by an
independent appraisal, was $5.7 million. In addition, accounts payable and
accrued expenses of $230,010 were assumed and settlement costs associated with
<PAGE>
the foreclosure of $69,990 were paid. During the year ended November 30, 1997,
the property was appraised for $6,000,000.
The Park View Village note was modified to provide for an extension of the
maturity date to June 30, 1999, the deferral of debt service payments for the
lesser of twelve months commencing January 1, 1997, or until a capital
improvement reserve account is fully funded with an agreed upon amount, and the
inclusion of a discounted payoff option for the borrower during the extension
periods. The payoff option enables the borrower to pay off the $5.2 million
outstanding principal balance of the Park View Village note and any accrued
interest, which totaled approximately $2.3 million at November 30, 1997, for
$5.65 million. See note 5 for further discussion.
Summarized financial information pertaining to the borrower of the
Partnership's Mortgage Loan Investment in Park View Village for the calendar
years ended December 31, 1997 and 1996, and the Oaktree Village loan in 1996,
is as follows:
<TABLE>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating property, net of
accumulated depreciation $ 4,800,000 $ 8,400,000
Total assets 5,100,000 10,100,000
Total liabilities 9,100,000 15,800,000
Rental Income 1,300,000 2,200,000
Net income (loss) from operations 300,000 (560,000)
- -------------------------------------------------------------------------------
</TABLE>
5. Interest Receivable and Valuation Allowance
For the years ended November 30, 1997 and 1996, the Park View mortgage loan
investment along with related interest receivable and valuation allowance are
carried at the discounted payoff amount, $5,650,000. The Partnership recorded
a loss provision for the year ended November 30, 1996 of $450,000 to reduce the
net carrying amount of the mortgage loan investment to the discount payoff
amount of $5,650,000 ($5,200,650 of principal and $449,350 of interest
receivable).
For the years ended November 30, 1997 and 1996, the Oaktree mortgage loan
investment, along with related interest receivable and valuation allowance are
carried at $0 and $4,475,250, respectively. For the year ended November 30,
1996, as a result of the increase in the fair value of Oaktree Village, as
determined by an independent appraiser, the Partnership recorded a $550,000
recovery of the valuation allowance.
Effective December 1, 1996, the mortgage loan investments were placed on a
non-accrual status, whereby the accrual of interest was discontinued. During
fiscal 1997, interest income on the mortgage loan investments of $727,353 was
not accrued.
The following summarizes the (recovery) provision for valuation allowance for
the fiscal years ending November 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - beginning of period $2,145,176 $2,245,176 $1,945,176
Provision for interest income _ 450,000 300,000
Recovery of valuation allowance _ (550,000) _
Charge-off related to Oaktree
Village foreclosure (745,286) _ _
Balance - end of period $1,399,890 $2,145,176 $2,245,176
- -------------------------------------------------------------------------------
</TABLE>
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the fair values be disclosed for
the Partnership's financial instruments. The carrying amount of cash and cash
equivalents, distributions payable, accounts payable and accrued expenses, due
to general partners and affiliates and security deposits are reasonable
estimates of other fair values due to the short-term nature of those
instruments.
<PAGE>
The combined carrying amount of the mortgage loan investment and the interest
receivable-deferred, net of valuation allowance is equal to the fair value of
the Park View Village property, which collateralizes the loan, as determined by
an independent property appraisal firm.
7. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and affiliates for the years ended November 30, 1997, 1996 and
1995, and the unpaid portion at November 30, 1997:
<TABLE>
<CAPTION>
Earned and
Unpaid at
November 30, Earned
1997 1997 1996 1995
<S> <C> <C> <C> <C>
RPI Real Estate Inc. and affiliates:
Out-of-pocket expenses $ 4,339 $ 2,067 $3,520 $ 1,331
ConAm and affiliates:
Property operating salaries _ 221,468 240,930 249,649
Property management fees _ 115,451 128,970 121,781
Total $ 4,339 $338,986 $373,420 $372,761
</TABLE>
Total mortgage interest income consisted of $822,452 in 1996 and 1995, earned
from mortgages to Southridge. No mortgage interest income was accrued in 1997.
See further discussion in Note 5.
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net income for financial statement
purposes to net income for federal income tax purposes for the years ended
November 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per financial statements $ 7,222,388 $ 1,697,893 $ 1,188,552
Depreciation deducted for tax purposes
(in excess of) less than depreciation
expense per financial statements (214,088) 4,040 4,691
Gain on sale of Bryn Athyn and Chaparosa
Apartments per financial statements in
excess of gain for tax purposes (218,940) _ _
Loss on foreclosure on Oaktree Village
Apartments for tax purposes in excess
of loss per financial statements (149,472) _ _
(Recovery) provision for loan losses not
deductible for tax purposes _ (100,000) 300,000
Loan modification fees, recognized
when received for tax purposes (8,897) (20,524) (20,524)
-------------------------------------
Taxable net income (unaudited) $ 6,630,991 $ 1,581,409 $ 1,472,719
- ------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of November
30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per financial statements $12,228,368 $20,590,819 $20,924,294
Adjustment for cumulative difference
between tax basis net income and net
income per financial statements 6,561,710 7,163,107 7,279,591
-------------------------------------
Partners' capital per tax
return (unaudited) $18,790,078 $27,753,926 $28,203,885
- ---------------------------------------------------------------------------------
</TABLE>
At November 30, 1997, the tax basis of the Partnership's assets was
$19,265,951, and the tax basis of the Partnership's liabilities was $475,873.
9. Distributions Paid
Distributions, per the statements of partners' capital, are recorded on the
accrual basis, which recognize specific record dates for payments within each
fiscal year. The statements of cash flows recognize actual cash distributions
paid during the fiscal year. The following table discloses the annual
differences as presented in the financial statements:
<TABLE>
<CAPTION>
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid November 30,
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $ 507,842 $15,584,839 $15,838,760 $ 253,921
1996 507,842 2,031,368 2,031,368 507,842
1995 507,842 2,031,368 2,031,368 507,842
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Pension Investors:
We have audited the accompanying balance sheet of ConAm Realty Pension Investors
(a New York limited partnership) (formerly Hutton/ConAm Realty Pension
Investors) as of November 30, 1997, and the related statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of ConAm Realty Pension
Investors as of November 30, 1997, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Diego, California
February 20, 1998
<PAGE>
Report of Former Independent Accountants
To the Partners of
ConAm Realty Pension Investors.:
We have audited the balance sheet of ConAm Realty Pension Investors (formerly
Hutton/ConAm Realty Pension Investors), a New York limited partnership as of
November 30, 1996 and the related statements of operations, partners' capital
and cash flows for each of the two years in the period ended November 30, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ConAm Realty Pension
Investors, a New York limited partnership, as of November 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the two
years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, the Partnership adopted the
provisions of Statements of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", in 1996.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and Determination of Net
Asset Value Per Unit at November 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Partnership's
Share of
November 30,
1997 Appraised
Property Date of Acquisition Value (2)
- ---------------------------------------------------------------------------
<S> <C> <C>
Oaktree Village 9-19-97 6,000,000 (1)
Mortgage Loan Investment:
Park View Village 5,200,650 (3)
----------
11,200,650
Cash and cash equivalents 1,029,577
Interest receivable, net of valuation allowance 449,350 (3)
Other assets 53,504
----------
12,733,081
Less:
Total liabilities net of deferred income
on loan and modification fees of $896 (475,873)
----------
Partnership Net Asset Value (2) 12,257,208
----------
Net Asset Value Allocated:
Limited Partners 12,068,580
General Partners 188,628
----------
12,257,208
Net Asset Value Per Unit ----------
(96,490 units outstanding) $125.08
- ---------------------------------------------------------------------------
</TABLE>
(1) This represents the November 30, 1997 Appraised Value which was
determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale or
refinancing of the property underlying the Partnership's first
mortgage loan investment, and the subsequent repayment of these
loans by the respective borrowers, and a hypothetical sale of the
Oaktree Apartments based upon its value as a rental property as
determined by an independent property appraisal firm, and the
distribution of the proceeds of such sale, combined with the
Partnership's cash after liquidation of the Partnership's
liabilities, to the Partners.
(3) The mortgage loan investment of Park View Village and interest
receivable, net of valuation allowance, is carried at the Discount
Payoff Amount of $5,650,000, which is less than the appraised value
of the underlying property at November 30, 1997.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different.
A significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units
of the Partnership could be sold is likely to be significant. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions of law
requiring valuations of Units should consider all relevant factors, including,
but not limited to Net Asset Value per Unit, in determining the fair market
value of the investment in the Partnership for such purposes.
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1997
<TABLE>
<CAPTION>
Residential Property: Oaktree Village
Property Owned: Apartments
- -----------------------------------------------------------------------------
<S> <C>
Location Jacksonville, FL
Construction date 09-28-84
Acquisition date 09-19-97
Life on which depreciation
in latest income statements
is computed 25 years
Encumbrances _
Initial cost to Partnership:
Land $1,200,000
Buildings and
Improvements $4,800,000
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements $ _
Gross amount at which
carried at close of period:
Land $1,200,000
Buildings and
Improvements 4,800,000
----------
6,000,000
Accumulated depreciation $ (27,943)
- -----------------------------------------------------------------------------
</TABLE>
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes
is $36,364.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in Real Estate:
Beginning of period $10,509,852 $10,450,002 $10,450,002
Additions 6,000,000 59,850 _
Disposals (10,509,852) _ _
- ----------------------------------------------------------------------------
End of period $6,000,000 $10,509,852 $10,450,002
- ----------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $2,261,584 $1,906,839 $1,536,168
Additions 70,139 354,745 370,671
Dispositions (2,303,780) _ _
- ----------------------------------------------------------------------------
End of period $27,943 $2,261,584 $1,906,839
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Pension Investors:
Under date of February 20, 1998, we reported on the balance sheet of ConAm
Realty Pension Investors (a New York limited partnership) (formerly Hutton/ConAm
Realty Pension Investors) as of November 30, 1997, and the related statements of
operations, partners' capital, and cash flows for the year then ended, as
contained in the 1997 annual report to Unitholders. These financial statements
and our report thereon are incorporated by reference in the 1997 annual report
on Form 10-K. In connection with our audit of the aforementioned financial
statements, we also have audited the related financial statement schedule. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Diego, California
February 20, 1998
<PAGE>
Report of Former Independent Accountants
Our report on the financial statements of ConAm Realty Pension Investors
(formerly Hutton/ConAm Realty Pension Investors), a New York Limited
Partnership, has been incorporated by reference in this Form 10-K from the
Annual Report to Unitholders of ConAm Realty Pension Investors for the year
ended November 30, 1996. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule
listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Annex 2
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1998
or
----- Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER: 0-13330
CONAM REALTY PENSION INVESTORS
------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
New York 11-2673854
-------- ----------
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION
1764 San Diego Avenue
San Diego, CA 92110 Attn. Robert J. Svatos 92110-1906
- - -------------------------------------- ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
(619) 297-6771
--------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
CONAM REALTY PENSION INVESTORS
<TABLE>
<CAPTION>
BALANCE SHEETS AT AUGUST 31, AT NOVEMBER 30,
1998 1997
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in real estate:
Properties:
Land $ 1,200,000 $ 1,200,000
Buildings and improvements 4,816,989 4,800,000
-----------------------------------
6,016,989 6,000,000
Less accumulated depreciation (172,283) (27,943)
-----------------------------------
5,844,706 5,972,057
Mortgage loan investment - 5,200,650
-----------------------------------
5,844,706 11,172,707
Cash and cash equivalents 779,436 1,029,577
Interest receivable - deferred, net of valuation allowance
of $1,399,890 in 1997 - 449,350
Other assets 295,326 53,504
- - -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,919,468 $ 12,705,138
- - -------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Distribution payable $ - $ 253,921
Accounts payable and accrued expenses 161,080 183,988
Due to general partner and affiliates 4,826 4,339
Deferred income - loan modification fees - 897
Security deposits 27,584 33,625
-----------------------------------
Total Liabilities 193,490 476,770
-----------------------------------
Partners' Capital:
General Partner 132,102 186,621
Limited Partners (96,490 Units outstanding) 6,593,876 12,041,747
-----------------------------------
Total Partners' Capital 6,725,978 12,228,368
- - -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 6,919,468 $ 12,705,138
- - -------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
1998 1997 1998 1997
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental $ 282,583 $ 572,813 $ 833,016 $1,920,909
Mortgage interest - 205,613 133,525 616,839
Interest and other income - 41,237 20,759 78,419
Loan modification fees - 5,181 13,898 15,443
-----------------------------------------------------------------------
Total Income 282,583 824,844 1,001,198 2,631,610
- - ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 211,738 338,487 502,303 1,006,607
Provision for losses - 205,613 - 616,839
Depreciation 48,170 - 144,340 42,196
General and administrative 48,617 47,765 153,453 173,733
-----------------------------------------------------------------------
Total Expenses 308,525 591,865 800,096 1,839,375
- - ---------------------------------------------------------------------------------------------------------------------
Income (Loss) from operations (25,942) 232,979 201,102 792,235
Gain on sale of property - 1,718,692 - 1,718,692
- - ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (25,942) $1,951,671 $ 201,102 $2,510,927
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ (259) $ 29,674 $ 2,011 $ 55,580
To the Limited Partners (25,683) 1,921,997 199,091 2,455,347
- - ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (25,942) $1,951,671 $ 201,102 $2,510,927
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(96,490 UNITS OUTSTANDING) $ (0.27) $ 19.92 $ 2.06 $ 25.45
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1997 $ 186,621 $ 12,041,747 $ 12,228,368
Net income 2,011 199,091 201,102
Distributions (56,530) (5,646,962) (5,703,492)
- - ----------------------------------------------------------------------------------------------------------------------
BALANCE AT AUGUST 31, 1998 $ 132,102 $ 6,593,876 $ 6,725,978
- - ----------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED AUGUST 31, 1998 1998 1997
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 201,102 $ 2,510,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses - 616,839
Depreciation 144,340 42,196
Gain on sale of property - (1,718,692)
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Interest receivable - deferred, net 449,350 (616,839)
Other assets (241,822) (3,677)
Accounts payable and accrued expenses (22,908) (139,681)
Due to general partner and affiliates 487 (40)
Deferred income - loan modification fees (897) (15,394)
Security deposits (6,041) (44,030)
---------------------------------
Net cash provided by operating activities 523,611 631,609
- - --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property - 5,689,996
Additions to buildings and improvements (16,989) -
Collection of mortgage loan receivable 5,200,650 -
---------------------------------
Net cash provided by investing activities 5,183,661 5,689,996
- - --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES-
Distributions (5,957,413) (1,015,684)
- - --------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (250,141) 5,305,921
Cash and cash equivalents, beginning of period 1,029,577 1,818,059
- - --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 779,436 $ 7,123,980
- - --------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
The unaudited interim financial statements should be read in conjunction with
the Partnership's 1997 Annual Report.
The unaudited interim financial statements include all normal and recurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of financial position as of August 31, 1998 and the results of
operations for the three and nine months ended August 31, 1998 and 1997, cash
flows for the nine months ended August 31, 1998 and 1997, and the statement of
partners' capital for the nine months ended August 31, 1998. Results of
operations for the periods are not necessarily indicative of the results to be
expected for the full year.
The following significant events have occurred subsequent to fiscal year 1997,
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a) (5).
On March 19, 1998 ConAm Realty Pension Investors received $5,673,011 as final
payment in full of its mortgage loan and interest receivable, from Southridge
Partners I, a New York limited partnership. This payment included all principal
($5,200,650) and interest ($472,361) due in accordance with the loan
modification agreement.
On March 19, 1998, the general partner declared a special cash distribution of
$58.00 per Unit regarding the proceeds received from the repayment of the above
mentioned mortgage loan investment. The distribution was paid on March 27, 1998.
<PAGE>
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1998, the Partnership had cash and cash equivalents of $779,436
which were invested in money market funds, compared with $1,029,577 at November
30, 1997. The decrease in cash and cash equivalents reflects cash distributions
to partners exceeding cash provided by operating and investing activities during
the first three quarters of fiscal 1998. The increase in other assets is
primarily attributable to amounts due from the state of North Carolina regarding
an overpayment of non-resident withholdings and to an increase in a deposit
required by the Internal Revenue Service. The Partnership expects sufficient
cash to be generated from operations to meet its current operating expenses.
On March 19, 1998, the General Partner declared a special cash distribution of
the net proceeds received from the collection of the mortgage loan and interest
receivable from Southridge Partners I. The distribution was $58.00 per Unit and
was paid on March 27, 1998. The General Partner has suspended distributions this
quarter to make significant capital improvements and increase reserves. The
General Partner will determine the amount of future quarterly distributions
based on the Partnership's available cash flow and future cash needs.
RESULTS OF OPERATIONS
Partnership operations for the three and nine months ended August 31, 1998
generated net loss of ($25,942) and net income of $201,102 respectively,
compared with net income of $1,951,671 and $2,510,927, respectively, for the
corresponding periods in fiscal 1997. The decrease for the three month period is
primarily attributable to a non-recurring gain on sale of the Chaparosa
Apartments recognized in August, 1997. The decrease for the nine month period is
primarily attributable to reduced rental income resulting from the sales of two
properties, Bryn Athyn and Chaparosa Apartments, in September, 1997 and August,
1997, respectively, partially offset by a reduction in property operating
expenses.
Rental income totaled $282,583 and $ 833,016 for the three and nine months ended
August 31, 1998 compared with $572,813 and $1,920,909 for the corresponding
periods in fiscal 1997. The decrease for the three and nine-months periods is
due to the net effect of the sale of Bryn Athyn and Chaparosa Apartments, offset
by the acquisition through a deed in lieu of foreclosure of Oaktree Village
Apartments in September, 1997.
Mortgage interest income totaled $0 and $133,525 for the three and nine months
ended August 31, 1998 compared with $0 and $0, net of provision for losses of
$205,613 and $616,839, for the corresponding periods in fiscal 1997. The
increase is attributable to the collection of interest income earned and of the
Partnership's mortgage loan investment during the six months ended May 31, 1998.
Property operating expenses for the three and nine months ended August 31, 1998
totaled $211,738 and $502,303 compared with $338,487 and $1,006,607 for the
corresponding periods in fiscal 1997. The decrease is attributable to the net
effect resulting from the sales of Bryn Athyn and Chaparosa Apartments, and the
acquisition through a deed in lieu of foreclosure of Oaktree Village Apartments.
During the first nine months of fiscal 1998 and 1997, average occupancy levels
at the Partnership's properties and at the properties securing the Partnership's
loans were as follows:
<TABLE>
<CAPTION>
Investments in Real Estate 1998 1997
-------------------------- ---- ----
<S> <C> <C>
Oaktree Village Apartments 95% -
Bryn Athyn Apartments - 97%
Chaparosa Apartments - 97%
</TABLE>
<PAGE>
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable
ITEMS 6 Exhibits and reports on Form 8-K
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K
On April 6, 1998, ConAm Realty Pension Investors filed a Form 8-K
regarding the collection of $5,673,011 on March 19, 1998 as final
payment in full of its mortgage loan and interest receivable,
from Southridge Partners I, a New York limited partnership. This
payment included all principal ($5,200,650) and interest
($472,361) due in accordance with the loan modification
agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONAM PROPERTY SERVICES III, LTD.
General Partner of ConAm Realty Pension Investors
BY: CONTINENTAL AMERICAN DEVELOPMENT, INC.
GENERAL PARTNER
Date: October 13, 1998 BY:/s/ DANIEL J. EPSTEIN
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Daniel J. Epstein
Director, President, and Principal
Executive Officer
Date: October 13, 1998 BY:/s/ ROBERT J. SVATOS
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Robert J. Svatos
Vice President and Director
