SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy 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 [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
......................REAL ESTATE ASSOCIATES LIMITED VI.........................
(Name of registrant as specified in its charter)
................................................................................
(Name of person(s) filing proxy statement if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
...................................................................
2) Aggregate number of securities to which transaction applies:
...................................................................
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):
...................................................................
4) Proposed maximum aggregate value of transaction:
...................................................................
5) Total fee paid:
...................................................................
[ ] Fee paid previously with preliminary materials.
[ ] 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:
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REAL ESTATE ASSOCIATES LIMITED VI
9090 Wilshire Boulevard
Beverly Hills, California 90211
August 5, 1998
To the Limited Partners:
National Partnership Investments Corp., the managing general partner ("NAPICO"
or the "Managing General Partner") of Real Estate Associates Limited VI (the
"Partnership" or "REAL VI"), is writing to recommend, and seek your consent to,
(i) the sale of the interests of the Partnership (the "Real Estate Interests")
in the real estate assets of thirteen of the thirty-four partnerships affiliated
with the Partnership to a real estate investment trust or its designated
affiliate (collectively referred to as the "REIT") to be organized by Casden
Properties, a California general partnership, and certain of its affiliates
(collectively referred to as "Casden"); and (ii) certain amendments
(the"Amendments") to the Partnership's Agreement of Limited Partnership
necessary to permit such sale. The transactions by which the Partnership
proposes to sell the Real Estate Interests to the REIT and amend its Agreement
of Limited Partnership are hereinafter referred to as the "Sale." The thirteen
limited partnerships expected to transfer real estate assets in connection with
the Sale are hereinafter referred to as the "Local Partnerships."
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation, the sole
director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden is also
a general partner of Casden Properties, the sponsor of the REIT and an affiliate
of the Partnership. Four of the current members of NAPICO's board of directors,
Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I. Casden, are
expected to become officers and shareholders of the REIT. Ten of the thirteen
Local Partnerships each own a low income housing project that is subsidized
and/or has a mortgage note payable to or insured by an agency of the federal
government or a local housing agency. The remaining three Local Partnerships
each own a conventional multi-unit residential apartment complex. The properties
owned by the thirteen Local Partnerships are each referred to herein as a
"Property." Limited Partners must separately approve the proposed Sale and each
of the proposed Amendments in order to allow consummation of the Sale. The
Partnership will remain in existence after consummation of the proposed Sale and
will retain direct or indirect interests in twenty property-owning limited
partnerships.
In evaluating the proposed Sale, the Limited Partners should note that:
o The Properties do not currently produce significant cash flow and the
Partnership has not made any distributions to date. The Partnership's
investment in the Properties was initially structured primarily to
obtain tax benefits, and not to provide cash distributions. The
Partnership has substantially fulfilled its original objective of
providing tax benefits to the Limited Partners. The Partnership has
generated net tax benefits equal to at least 91.1% of each Limited
Partner's equity investment since the inception of the Partnership
through December 31, 1990 (assuming a Limited Partner claimed such
deductions in accordance with the passive loss transitional relief
rules contained in the Tax Reform Act of 1986 and in connection with
property dispositions). As a result of such changes to the tax law,
most Limited Partners no longer realize any material tax benefits from
continuing to hold their interests in the Partnership.
o Based upon a purchase price for the Real Estate Interests of
$53,277,802, which is payable $1,397,081 in cash and $51,880,721 by
assumption by the REIT of certain mortgage and related party
indebtedness, it is anticipated that the Partnership will make an
aggregate distribution to Limited Partners of $2,769,110, or
approximately $330 per unit. The per unit distribution amount
represents a net distribution of $1,383,110 from the proceeds of the
Sale plus approximately $1,386,000 of the available cash reserves of
the Partnership. The distribution of the available cash of the
Partnership is being made out of net proceeds
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of the sales of two properties by the Partnership in 1996 and 1997.
These amounts are distributable whether or not the Sale is approved by
the Limited Partners. Each unit consists of two limited partnership
interests and warrants to purchase two additional interests, which were
sold at an original cost of $5,000 per unit. The per unit distribution
amount of $330 is anticipated to be sufficient to pay any federal and
state income taxes that would be due in connection with the Sale,
assuming (i) that Limited Partners have suspended passive losses of
$2,214 per unit from the Partnership; (ii) that such losses are
available to offset ordinary income taxed at the 39.6% marginal federal
rate; and (iii) federal and effective state capital gains rates of 25%
and 5%, respectively.
o The Managing General Partner believes that now may be an opportune time
for the Partnership to sell the Real Estate Interests, given current
conditions in the real estate and capital markets, which have enabled
the REIT to make the proposal to the Partnership described in the
enclosed materials.
o Robert A. Stanger & Co., Inc., a recognized independent investment
banking firm, has determined that, subject to the assumptions,
limitations and qualifications contained in its opinion, the aggregate
value ascribed to the Properties in connection with determining the
Purchase Price to be received by the Partnership for the Real Estate
Interests in the Sale is fair from a financial point of view to the
Limited Partners.
o The Managing General Partner believes that selling the Real Estate
Interests in a single transaction (as opposed to a series of individual
sales) will enable the Partnership to (i) reduce transaction expenses;
and (ii) dispose of a significant portion of its portfolio in an
expedited time frame. It should be noted that the Sale is conditioned
upon, among other things, the consents of the general partners of the
Local Partnerships. The Managing General Partner will retain its
interests in a Property if the general partner for the Local
Partnership holding such Property does not agree to sell its interests
in the Property.
o The Managing General Partner does not believe that it would be feasible
to market the Properties to a third party because the Partnership owns
only limited partnership interests in the Local Partnerships. The
general partners of such Local Partnerships are generally not
affiliated with the Managing General Partner. As a result, the
cooperation of a local general partner is necessary to allow the
Partnership to effectuate a sale of a Property, since a third party
buyer would need to negotiate a buy-out of the local general partner of
such Property. The Partnership does not have the power to compel a sale
of Property or Properties to a third party.
o Ten of the thirteen Properties are subject to Housing Assistance
Payments Contracts under Section 8 of the United States Housing Act.
Most of these contracts will expire by the end of 2003 and the United
States Department of Housing and Urban Development will not renew them
under their current terms, which could ultimately have an adverse
economic and tax impact on Limited Partners.
There are certain risk factors that the Limited Partners should consider in
evaluating the proposed Sale, such as:
o The Partnership does not have the right to compel a sale of the
Properties. Accordingly, the Managing General Partner has not marketed
the Properties for sale to third parties.
o The terms of the Sale have not been negotiated at arm's-length.
o Casden is both an affiliate of the Managing General Partner and the
sponsor of the REIT and, as discussed in the enclosed materials, would
receive substantial benefits as a result of the Sale and the successful
formation and capitalization of the REIT that will not be available to
Limited Partners.
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o It is possible that Limited Partners could earn a higher return on
their investment in the Partnership if the Partnership were to retain
ownership of the Properties, then market and sell the Properties to
third parties for a higher aggregate purchase price at a later date.
o As a result of the Sale, the Partnership will not realize any potential
benefits of continuing to own the Properties.
o The Sale will have a tax impact on Limited Partners. For Limited
Partners who have been able to use all of the passive losses generated
by the Partnership on a current basis, the Sale will result in a
federal and state income tax cost of approximately $820 per unit in
excess of the cash distribution of $330. For Limited Partners who do
not have sufficient taxable income to be taxed at a 39.6% marginal
rate, or who have other losses available to deduct against their
taxable income and therefore could not fully utilize their suspended
passive losses to offset their ordinary income, the sale could have a
federal and state tax cost in excess of cash distributions.
The REIT is to be formed by combining a substantial portion of Casden's
multi-family housing assets, which consist of real estate businesses and
property interests, with conventional and subsidized housing properties acquired
from several Casden-sponsored and/or managed partnerships and from third-party
sellers. Casden and certain officers and directors of NAPICO, including Alan I.
Casden, Henry C. Casden, Charles H. Boxenbaum and Bruce E. Nelson, will receive
a significant ownership interest in the REIT in exchange for Casden contributing
substantially all of its multi-family housing assets and businesses to the REIT.
The REIT proposes to acquire the Real Estate Interests for cash, which it plans
to raise in connection with a private placement of its equity securities. The
closing of the Sale is subject to, among other things, (i) the consummation of
such private placement by the REIT; (ii) the consents of the general partners of
the Local Partnerships in which the REIT intends to acquire interests; (iii) the
approval of the United States Department of Housing and Urban Development and
certain state and local housing finance agencies; and (iv) the consummation of a
minimum number of similar sales transactions with other Casden- affiliated
partnerships.
If the Limited Partners do not approve the Sale, the Partnership will most
likely retain its indirect ownership of the Properties.
We urge you to carefully read the enclosed Consent Solicitation Statement in
order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE APPROVAL REQUIRES
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF LIMITED
PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE. To be sure your vote is represented, please sign, date and
return the enclosed consent as promptly as possible.
The proposed Sale is fully described in the enclosed Consent Solicitation
Statement. Please read the enclosed materials carefully, then return your signed
consent form either by facsimile at 303-705-6171 or in the enclosed envelope on
or before September 10, 1998.
If you have any questions, please do not hesitate to contact MacKenzie Partners,
the Partnership's consent solicitation agent, toll free at 800-322-2885 or
collect at 212-929-5500.
Very truly yours,
National Partnership Investments Corp.
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REAL ESTATE ASSOCIATES LIMITED VI
9090 Wilshire Boulevard
Beverly Hills, California 90211
August 5, 1998
CONSENT SOLICITATION STATEMENT
On the terms described in this Consent Solicitation Statement,
National Partnership Investments Corp. the managing general partner ("NAPICO" or
the "Managing General Partner"), of Real Estate Associates Limited VI, a
California limited partnership (the "Partnership") or ("REAL VI"), is seeking
the consent of the Limited Partners of the Partnership to (i) the sale of the
interests of the Partnership (the "Real Estate Interests") in the real estate
assets of thirteen of the thirty-four partnerships in which the Partnership
holds a limited partnership interest, to a real estate investment trust or its
designated affiliate (collectively referred to as the "REIT") to be organized by
Casden Properties, a California general partnership, and certain of its
affiliates (collectively referred to herein as "Casden"), for a purchase price
of $53,277,802 (the "Purchase Price"), payable $1,397,081 in cash and
$51,880,721 by assumption by the REIT of certain mortgage and related party
indebtedness; and (ii) certain amendments to the Partnership's Agreement of
Limited Partnership (the "Amendments") necessary to permit such a sale. The
thirteen limited partnerships expected to transfer real estate assets in
connection with the Sale are hereinafter referred to as the "Local
Partnerships."
Ten of the thirteen Local Partnerships each own a low income housing
project that is subsidized and/or has a mortgage note payable to or insured by
an agency of the federal government or a local housing agency. The remaining
three Limited Partnerships each own a conventional multi-unit residential
apartment complex. The properties owned by the thirteen Local Partnerships are
each referred to herein as a "Property." Pursuant to certain state housing
finance statutes and regulations, certain of the Local Partnerships are subject
to limitations on distributions to the Partnership. Such statutes and
regulations require such Local Partnerships to hold cash flows in excess of such
distribution limitations in restricted reserve accounts that may be used only
for limited purposes.
Consents are also being sought from the limited partners of certain
other limited partnerships, the general partners of which are affiliated with
Casden (the Partnership and such other limited partnerships are hereinafter
collectively referred to as the "Casden Partnerships"), to allow the sale of
certain real estate assets owned by the Casden Partnerships to the REIT. The
transactions by which the Partnership proposes to sell the Real Estate Interests
to the REIT and amend its Agreement of Limited Partnership (the "Partnership
Agreement") are hereinafter referred to as the "Sale." The series of
transactions by which Casden proposes to form the REIT and acquire certain real
estate assets from the Casden Partnerships and others is hereinafter referred to
as the "REIT Transaction." The Partnership will remain in existence after
consummation of the proposed Sale and will retain direct or indirect interests
in a total of twenty property-owning limited partnerships. The Sale and each of
the proposed Amendments are being submitted to the Limited Partners as separate
resolutions. Limited Partners must approve the proposed Sale and each of the
proposed Amendments in order to allow consummation of the Sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation,
the sole director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden
is also a general partner of Casden Properties, the sponsor of the REIT and an
affiliate of the Partnership. Four of the current members of NAPICO's board of
directors, Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I.
Casden, are expected to become officers and shareholders of the REIT. See
"CONFLICTS OF INTEREST."
It is anticipated that the Partnership will make a distribution to
Limited Partners of approximately $330 per unit of limited partnership interest
from the net proceeds of the Sale and approximately $1,386,000 of the available
cash of the Partnership. The distribution of the available cash of the
Partnership is being made out of net proceeds
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of the sales of two properties by the Partnership in 1996 and 1997. These
amounts are distributable whether or not the Sale is consummated.
The Sale is conditioned upon, among other things, (i) approval of a
majority in interest of the Limited Partners of the Partnership; (ii) the
consummation of a private placement of the REIT's equity securities; (iii) the
consents of the general partners of the Local Partnerships in which the REIT
intends to acquire interests; (iv) the approval of the United States Department
of Housing and Urban Development ("HUD") and certain state housing finance
agencies; and (v) the consummation of a minimum number of real estate purchases
from the Casden Partnerships in connection with the REIT Transaction. If the
Partnership is unable to obtain the consent of a general partner of a particular
Local Partnership, then the Real Estate Interests relating to such Local
Partnership will be retained by the Partnership and will be excluded from the
Sale.
Under the Partnership Agreement and California law, Limited Partners do
not have dissenters' rights of appraisal. If the Sale is approved by a majority
in interest of the Limited Partners, and the other conditions to consummation of
the Sale are satisfied, all Limited Partners, both those voting in favor of the
Sale and those not voting in favor, will be entitled to receive the resulting
cash distributions.
The Managing General Partner has approved the Sale, has concluded that
the Sale, including the Aggregate Property Valuation (as defined herein) and the
Purchase Price for the Real Estate Interests, is fair to the Limited Partners
and recommends that the Limited Partners consent to the Sale. Limited Partners
should note, however, that the Managing General Partner's recommendation is
subject to inherent conflicts of interest. See "CONFLICTS OF INTEREST."
National Partnership Investments Associates, a California Limited
Partnership ("NPIA"), is the non- managing General Partner of the Partnership.
Pursuant to an agreement between NAPICO and NAPIA, NAPICO is responsible for the
performance of any duties required to be performed by the General Partners and
has sole and final discretion to manage and control the business of the
Partnership and make all decisions relating thereto. NPIA has not participated
in the management of the Partnership, or in decisions made by the Partnership in
connection with the proposed Sale. NPIA has not taken a position with respect to
the Sale nor has it participated in the preparation of this Consent Solicitation
Statement.
This Consent Solicitation Statement and the accompanying form of
Consent of Limited Partner are first being mailed to Limited Partners on or
about August 6, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON SEPTEMBER 10, 1998, UNLESS EXTENDED.
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TABLE OF CONTENTS
<TABLE>
Page
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I. SUMMARY OF CONSENT SOLICITATION STATEMENT..............................................................-1-
The Partnership........................................................................................-1-
The Sale...............................................................................................-1-
Potential Benefits of the Sale.........................................................................-2-
Potential Adverse Effects of the Sale..................................................................-5-
Amendments to Partnership Agreement....................................................................-7-
Limited Partner Approval...............................................................................-8-
Third-Party Opinion....................................................................................-8-
Recommendation of the Managing General Partner.........................................................-9-
Conflicts of Interest..................................................................................-9-
Federal Income Tax Consequences.......................................................................-10-
Summary Financial Information.........................................................................-11-
Transaction Expenses..................................................................................-12-
Voting Procedures.....................................................................................-12-
II. THE PARTNERSHIP.......................................................................................-12-
General...............................................................................................-12-
The Properties........................................................................................-14-
Market for Partnership Interests and Related Security Holder Matters..................................-16-
Distribution History..................................................................................-16-
Regulatory Arrangements...............................................................................-17-
Year 2000 Information.................................................................................-18-
Directors and Executive Officers of NAPICO............................................................-18-
III. THE SALE..............................................................................................-19-
Background and Reasons for the Sale...................................................................-19-
Acquisition Agreement.................................................................................-21-
Arrangements with General Partners of the Local Limited Partnerships..................................-22-
Source of Funds.......................................................................................-23-
Transaction Costs.....................................................................................-23-
Distribution of Sale Proceeds; Accounting Treatment...................................................-23-
Conditions............................................................................................-24-
Fairness Opinion......................................................................................-24-
Alternatives to the Sale..............................................................................-30-
Recommendation of the Managing General Partner; Fairness..............................................-32-
Post-Sale Operations of the Partnership...............................................................-37-
Historical and Pro Forma Financial Information........................................................-37-
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT...............................................................-45-
V. CONFLICTS OF INTEREST.................................................................................-45-
General...............................................................................................-45-
Fiduciary Responsibility..............................................................................-47-
VI. SELECTED FINANCIAL INFORMATION........................................................................-48-
</TABLE>
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VII. FEDERAL INCOME TAX CONSEQUENCES.......................................................................-49-
VIII. LEGAL PROCEEDINGS.....................................................................................-50-
IX. LIMITED PARTNERS CONSENT PROCEDURE....................................................................-51-
Distribution of Solicitation Materials................................................................-51-
Voting Procedures and Consents........................................................................-51-
Completion Instructions...............................................................................-52-
Withdrawal and Change of Election Rights..............................................................-52-
No Dissenters' Rights of Appraisal....................................................................-52-
Solicitation of Consents..............................................................................-52-
X. IMPORTANT NOTE........................................................................................-53-
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ANNEXES
Annex A - Fairness Opinion of Robert A. Stanger & Co., Inc.
Annex B - The Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
Annex C - The Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998. Annex D - Text of Proposed Amendments to the
Partnership Agreement.
Annex E - Legal Opinion of Battle Fowler LLP
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AVAILABLE INFORMATION
Real Estate Associates Limited VI is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, consent solicitation
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, consent solicitation statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices,
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In
addition, the Commission maintains a site on the World Wide Web portion of the
Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov. Copies of the latest Annual
Report on Form 10-K and Quarterly Report on Form 10-Q may also be obtained from
NAPICO without charge. All requests should be made in writing to National
Partnership Investments Corp., 9090 Wilshire Boulevard, Suite 201, Beverly
Hills, California 90211; Attention: Investor Services; Telephone 800-666-6274.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
are incorporated by reference in this Consent Solicitation Statement:
Annual Report on Form 10-K of the Partnership for the fiscal year ended
December 31, 1997, and
Quarterly Report on Form 10-Q of the Partnership for the quarter ended
March 31, 1998.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Consent
Solicitation Statement to the extent that a statement contained herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.
No person is authorized to give any information or to make any
representation not contained in this Consent Solicitation Statement in
connection with the solicitation of proxies made hereby, and, if given or made,
any such information or representation should not be relied upon as having been
authorized by the Partnership or any other person. The delivery of this Consent
Solicitation Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of the Partnership since the date of this Consent Solicitation
Statement.
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I. SUMMARY OF CONSENT SOLICITATION STATEMENT
The following summary is intended to provide only highlights of the
materials contained in this Consent Solicitation Statement. This summary is not
intended to be a complete statement of all material features of the proposed
Sale and is qualified in its entirety by the more detailed information contained
herein. Cross references in the summary are to the indicated captions or
portions of this Consent Solicitation Statement.
The Partnership
Real Estate Associates Limited VI is a California limited partnership,
the general partners of which are National Partnership Investments Corp., a
California corporation ("NAPICO") and National Partnership Investments
Associates, a California limited partnership ("NPIA").
The Partnership holds limited partnership interests in twenty-seven
real estate holding limited partnerships and a general partnership interest in
one general partnership. REAL VI also holds a general partnership interest in
Real Estate Associates III ("REA III") which in turn holds limited partnership
interests in an additional six real estate holding limited partnerships. A
majority of the thirty-four real estate holding partnerships in which the
Partnership holds a direct or indirect interest hold title to a low income
housing project that is subsidized and/or has a mortgage note payable to or
insured by an agency of the federal government or a local housing agency.
Pursuant to certain state housing finance statutes and regulations, certain of
those limited partnerships are subject to limitations on distributions to the
Partnership. Such statutes and regulations require such Local Partnerships to
hold cash flows in excess of such distribution limitations in restricted reserve
accounts that may be used only for limited purposes. The thirty-four properties
indirectly held by the Partnership are located in fourteen states and Puerto
Rico. See "THE PARTNERSHIP -- The Properties."
The Partnership maintains offices at 9090 Wilshire Boulevard, Beverly
Hills, California 90211 (310-278-2191). The Partnership was organized as a
California limited partnership on October 12, 1982. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell its interests in thirteen of the
thirty-four property-owning partnerships to the REIT for cash and the assumption
of certain mortgage indebtedness. See "THE SALE." The Partnership will remain in
existence after consummation of the proposed Sale and will retain direct or
indirect interests in a total of twenty-one property-owning limited partnerships
with an aggregate of 1,157 apartment units.
The aggregate consideration for the Real Estate Interests that the
Managing General Partner currently anticipates will be included in the Sale is
$53,277,802, payable $1,397,081 in cash and $51,880,721 by assumption by the
REIT of certain mortgage and related party indebtedness. The REIT intends to
raise the cash to be paid to the Partnership through a private placement of
approximately $250 million of its equity securities (the "Private Placement").
The REIT intends to commence an initial public offering of its equity securities
subsequent to the consummation of the Sale.
The net proceeds of the Sale will be distributed to the Limited and
General Partners in accordance with the cash distribution provisions of the
Partnership Agreement. See "THE SALE--Distribution of Sale Proceeds" for a
summary of the cash distribution rules applicable to such distributions. Limited
Partners are expected to receive a distribution of approximately $330 in cash
per unit, which represents distributions out of the net proceeds of the Sale
plus approximately $1,386,000 of the available cash of the Partnership. The
distribution of the available cash of the Partnership is being made out of net
proceeds of the sales of two properties by the Partnership in 1996 and 1997.
These amounts are distributable whether or not the Sale is consummated. The
limited partnership interests were originally sold as units consisting of two
limited partnership interests and
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warrants to purchase two additional interests, and were sold at an original cost
of $5,000 per unit (the "Units"). All expenses of the Sale will be borne by the
Partnership.
The distribution is anticipated to be sufficient to pay any federal
and state income taxes that would be due in connection with the Sale, assuming
that Limited Partners have suspended passive losses of $2,214 per Unit from the
Partnership that could be deducted in full against such Limited Partners'
ordinary income and that such income is taxed at a federal marginal rate of
39.6% and an effective state income tax rate of 5%. For such Limited Partners,
the Sale should result in a cash distribution of $167 per Unit in excess of the
federal and state income tax cost (i.e. the amount by which tax savings
resulting from deducting the passive losses exceeds the tax payable on the gain
from the Sale) of $163 per Unit, assuming such Limited Partner has sufficient
taxable income taxed at federal tax rates of 39.6% on ordinary income and 25% on
long-term capital gain attributable to depreciation (and assuming an effective
5% state tax). For Limited Partners who do not have sufficient taxable income to
be taxed at a 39.6% marginal federal rate or who have other losses available to
deduct against their taxable income and therefore could not fully utilize such
suspended passive losses to offset their ordinary income, the Sale could result
in a federal and state tax cost in excess of cash distributions. For Limited
Partners who have been able to use all of the passive losses generated by the
Partnership on a current basis, the Sale will result in a federal and state
income tax costs of approximately $1,150 per Unit or $820 in excess of the cash
distribution. While the distribution of the cash held by the Partnership will
currently provide cash to pay a portion of the tax liability and will not be
currently taxable, the distribution of cash will increase the amount by which
the Limited Partners' capital accounts are negative and will increase the
taxable gain Limited Partners will realize in the future on disposition of the
Partnership's remaining assets or a Limited Partner's interest in the
Partnership and the tax payable by a Limited Partner at such time. For a
discussion of the bases of these assumptions, see "FEDERAL INCOME TAX
CONSEQUENCES." Each Limited Partner is urged to consult his, her or its own tax
advisor for a more detailed explanation of the specific tax consequences to such
Limited Partner from the Sale.
NAPICO and NPIA, the General Partners of the Partnership, will be
entitled to receive distributions in connection with the Sale of $27,971 in the
aggregate, including $14,000 from the Partnership distributing cash on hand.
The Sale is conditioned upon, (i) approval of a majority in interest of
the Limited Partners of the Partnership; (ii) the consummation of the Private
Placement; (iii) the consents of the general partners of the Local Partnerships
in which the REIT intends to acquire interests; (iv) the approval of HUD and
certain state housing finance agencies; and (v) the consummation of a minimum
number of real estate purchases from the Casden Partnerships in connection with
the REIT Transaction. See "THE PARTNERSHIP -- Regulatory Arrangements" and "THE
SALE -- Conditions."
Potential Benefits of the Sale
The Managing General Partner believes that the Sale achieves the
Partnership's investment objectives for the following reasons:
o Receipt of Cash. The Sale will result in a cash distribution of
$330 per Unit to Limited Partners, which includes a distribution
of the net proceeds from the sale and a distribution of $1,386,000
from available cash reserves, which amount is anticipated to be
sufficient to pay any federal and state income taxes that would be
payable in connection with the Sale, assuming (i) that Limited
Partners have suspended passive losses of $2,214 per Unit from the
Partnership; (ii) that such losses are available to offset
ordinary income taxed at the 39.6% marginal federal rate and (iii)
federal and state effective capital gains rates of 25% and 5%,
respectively. The distribution of the available cash of the
Partnership is being made out of net proceeds of the sales of two
properties by the Partnership in 1996 and 1997. These amounts are
distributable whether or not the Sale is consummated. For
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<PAGE>
a discussion of the bases of these assumptions, See "FEDERAL
INCOME TAX CONSEQUENCES." The Partnership has never made
distributions from operations and, if the Sale is not completed,
the Managing General Partner does not anticipate that the
Partnership will make distributions from operations in the
foreseeable future.
o Opportune Time to Sell. The Managing General Partner believes that
now may be an opportune time for the Partnership to sell its
interests in the Properties, given current conditions in the real
estate and capital markets. Specifically, the Managing General
Partner believes that investor demand for the stock of certain
public real estate companies similar to the REIT has increased
significantly over the past several years. The Managing General
Partner believes that the current interest rate environment and
the availability of capital for real estate investment trusts will
enable Casden to form the REIT and make the proposal to the
Partnership for the Sale, which provides the Partnership with an
opportunity to maximize the value of the Properties. In addition,
the Managing General Partner took into account the potential
impact of recent changes in laws and policies relating to payments
under Housing Assistance Payments Contracts under Section 8 of the
United States Housing Act ("HAP Contracts"), which the Managing
General Partner believes will result in significant reductions in
cash flow from the Properties. See "- Resolving HUD
Uncertainties," "THE PARTNERSHIP - Regulatory Arrangements" and
"THE SALE - Background and Reasons for the Sale."
o Third Party Fairness Opinion. The Managing General Partner has
determined that the Properties that the REIT currently anticipates
purchasing in connection with the Sale have an aggregate value of
$70,894,912 (the "Aggregate Property Valuation"). Robert A.
Stanger & Co., Inc. ("Stanger"), an independent, nationally
recognized real estate investment banking firm, has been engaged
by the Partnership to render an opinion (the "Fairness Opinion")
to the Partnership as to the fairness, from a financial point of
view, to Limited Partners of the Aggregate Property Valuation
utilized in connection with determining the Purchase Price by the
Partnership for the Real Estate Interests in the Sale. Stanger has
conducted certain reviews described herein and has concluded,
subject to the assumptions, qualifications and limitations
contained in its opinion, that the Aggregate Property Valuation
utilized in connection with determining the Purchase Price for the
Real Estate Interests in the Sale is fair, from a financial point
of view, to Limited Partners. The Fairness Opinion addresses
neither the adjustments made to the Aggregate Property Valuation
to determine the distribution amount payable to Limited Partners
in connection with the Sale, (including the allocation of the
Aggregate Property Valuation between the Limited Partners, General
Partners and the local general partners,) nor the Purchase Price
itself. See "THE SALE - Fairness Opinion."
o Reducing the Risks of Real Estate Investing. Continued ownership
of the Properties subjects the Partnership to continued risks
inherent in real estate ownership, such as national and local
economic trends, supply and demand factors in the local property
market, the cost of operating and maintaining the physical
condition of the Properties and the cost and availability of
financing for prospective buyers of the Properties. No assurance
can be given that a prospective buyer would be willing to pay an
amount equal to or greater than the Purchase Price for the
Properties in the future.
o Unattractiveness of Other Options. The Managing General Partner
does not believe that other alternatives available to the
Partnership are as attractive to the Partnership as the Sale.
One alternative considered by the Managing General Partner
was continued indirect ownership of the Properties by the
Partnership. However, the Partnership is not currently making
distributions to the Limited Partners and recent changes in laws
and policies relating to payments under HAP Contracts are expected
to result in significant reductions in cash flows from the
Properties. Further,
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<PAGE>
the tax benefits resulting from continuing to own the Properties,
which are available only to those Limited Partners currently able
to utilize passive losses (which can only be deducted against
passive income), are diminishing. The Managing General Partner
does not believe that the Partnership could realize the same
benefits anticipated to be received by the REIT through its
acquisition of the Properties. The REIT expects to realize
potential benefits from its acquisition of the Real Estate
Interests by also acquiring the partnership interests of the
general partners of the Local Partnerships and the right to manage
the Properties, and the insured mortgage indebtedness currently
encumbering the Properties. The Managing General Partner does not
believe that the Partnership could obtain the financing necessary
to make such acquisitions or that such acquisitions would be
consistent with the Partnership's investment objectives.
Accordingly the Managing General Partner believes that it is
necessary for the Partnership to dispose of its interests in all
of the local limited partnerships and its sales of the Real Estate
Interests pursuant to the Sale furthers this goal.
The Managing General Partner also considered marketing the
Properties to third parties in cooperation with the general
partners of the Local Partnerships; however, the Managing General
Partner does not believe that such alternative would be in the
interests of the Limited Partners, because the Managing General
Partner believes, based on the current uncertainties in the
government subsidized housing market, that it would be difficult
to sell the Properties and that such a sale would not result in a
purchase price for the Properties as high as the Purchase Price
offered in connection with the Sale. Furthermore, for a third
party to acquire the Properties, it would have to acquire not only
the limited partnership interests in the Local Partnerships owned
by the Partnership, but also the interests of each local general
partner. The Partnership owns only limited partnership interests
in the Local Partnerships and does not hold title to the
Properties. As a result, the Managing General Partner believes
that marketing the Properties to third parties would result in
significant delays and uncertainties. There can be no assurance,
however, that a well-capitalized third party buyer would not be
willing to pay a price in excess of the Purchase Price to acquire
the Properties.
In determining the structure of the transaction, the
Managing General Partner took into account the fact that the
Partnership owns limited partnership interests in the Local
Partnerships and does not directly own the Properties. A Property
may not be sold without the participation of the general partner
of the Local Partnership that owns such Property. As a result, the
simultaneous sale of the local general partners' interests is
necessary to enable the Partnership to realize the value of its
Real Estate Interests. This factor limits the ability of the
Partnership to market its interests to third parties.
Additionally, the amount required to be paid by a purchaser
(whether a third party buyer or the REIT) to purchase the
interests of the local general partners will have the effect of
reducing the amount of consideration that a buyer is willing to
pay for the Partnership's Real Estate Interests. The amounts that
affiliates of the Managing General Partner will pay to the
unaffiliated local general partners in connection with the buyouts
of such local general partners have been determined in
arm's-length negotiations with the nine unaffiliated local general
partners with whom the REIT has entered into option agreements.
Therefore, the Managing General Partner believes that, while the
amount paid to the local general partners affects the amount of
distribution to Limited Partners and that the buyout of the local
general partners' interests will benefit the REIT, the terms of
these transactions are fair to the Partnership and the Limited
Partners.
Several of the options considered by the Managing General
Partner, including the reorganization of the Partnership as a real
estate investment trust, a rollup involving the Partnership and
the use of an "UPREIT" structure, would have (i) been
prohibitively expensive and logistically impractical; (ii)
entailed compliance with the rollup rules promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), which
may have resulted in significant delays, thereby potentially
causing the Partnership to miss the currently favorable market
conditions for real estate
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<PAGE>
investment trusts; and (iii) resulted in the Limited Partners
receiving publicly traded securities rather than cash in exchange
for their Units. Such publicly traded securities would be subject
to the market risks generally applicable to equity securities. The
Managing General Partner believes that receipt of such securities
would be inconsistent with the Partnership's ultimate objective of
returning cash to the Limited Partners and winding up the business
of the Partnership. See "THE SALE -- Background and Reasons for
the Sale."
o Resolving HUD Uncertainty. Ten of the Properties are subject to
Housing Assistance Payments Contracts under Section 8 of the
United States Housing Act. The Managing General Partner
anticipates that, for the foreseeable future, rental rate
increases under such HAP Contracts will either not be permitted by
HUD or will be negligible and unlikely to exceed increases in
operating expenses. Most of these HAP Contracts will expire by the
end of 2003 and HUD will not renew them under their current terms.
Under recently passed legislation, in most cases project rents
will be reduced and the project mortgages restructured, which is
expected to reduce the cash flow from the Properties and could
create adverse tax consequences to the Limited Partners. HUD has
not yet issued implementing regulations on the Section 8
restructuring program, which creates additional uncertainty.
Accordingly, the Managing General Partner believes it may be
beneficial to the Limited Partners to reduce such uncertainties by
approving the Sale at this time. See "THE PARTNERSHIP - Regulatory
Arrangements" and "THE SALE - Background and Reasons for the
Sale."
o Reduced Transaction Costs. The Partnership will not be required to
pay brokerage commissions in connection with the Sale, which would
typically be paid when selling real property to third parties. As
a result, the Sale is likely to produce a higher cash distribution
to Limited Partners than a comparable sale to an unaffiliated
third party. In addition, the Managing General Partner believes
that selling a significant portion of the Partnership's portfolio
of real estate assets in a single transaction (as opposed to a
series of individual sales) will enable the Partnership to dispose
of a significant portion of its portfolio in an expedited time
frame and provide additional transaction cost savings, although
the Partnership will pay certain expenses, such as the costs of
structural and engineering inspections and costs relating to proxy
solicitation and fairness opinions which may be higher than
comparable expenses in a transaction with an unaffiliated third
party. See "THE SALE -- Transaction Costs" for a schedule of the
costs the Partnership is expected to incur in connection with the
Sale.
o Anticipated Tax Benefits/Tax Law Changes. Subsequent to the
formation of the Partnership, tax law changes reduced the tax
benefits anticipated to be received by Limited Partners by not
allowing Limited Partners to currently deduct many of the losses
generated by the Partnership against a Limited Partner's other
taxable income from non-passive sources. As a result, Limited
Partners may have a significant amount of suspended passive losses
available to reduce the tax impact of the taxable gain generated
by the Sale. If a Limited Partner has not utilized any of the
passive activity losses allocated to such Limited Partner in
excess of those amounts permitted under certain transitional
rules, the Limited Partner will have a net federal and state tax
liability of approximately $163. Because passive losses are
generally only deductible against passive income after 1986, the
Managing General Partner does not have any basis for determining
the amount of such passive losses which have previously been
utilized by Limited Partners. The anticipated cash distribution of
approximately $330 per Unit would be sufficient to pay the federal
and state tax liability arising from the Sale, assuming a federal
capital gains rate of 25%, the current capital gains rate and that
Limited Partners have suspended passive losses of $2,214 per Unit
from the Partnership (which is generally the amount of passive
losses that a Limited Partner would have had it not utilized any
of its passive losses) and assuming an effective state tax rate of
5%. It should be noted that, while the distribution of the cash
held by the Partnership will currently provide cash to pay the tax
liability and will not
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<PAGE>
be currently taxable, the distribution of cash will increase the
amount by which the Limited Partners' capital accounts are
negative and will increase the taxable gain Limited Partners will
realize in the future on disposition of the Partnership's
remaining assets or a Limited Partner's interest in the
Partnership and the tax payable by a Limited Partner at such time.
Potential Adverse Effects of the Sale
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
o Loss of Opportunity to Benefit from Future Events. It is possible
that the future performance of the Properties will improve or that
prospective buyers may be willing to pay more for the Properties
in the future. It is possible that Limited Partners might earn a
higher return on their investment if the Partnership retained
ownership of the Real Estate Interests. By approving the Sale,
Limited Partners will be relinquishing certain current benefits of
ownership of the Real Estate Interests, such as the ability to
deduct tax losses generated by the Partnership against other
passive income. See "THE SALE -- Background and Reasons for the
Sale."
o No Solicitation of Third Party Offers. The Managing General
Partner has not solicited any offers from third parties to acquire
the Real Estate Interests. There is no assurance that the Managing
General Partner would not be able to obtain higher or better
offers for the Real Estate Interests if such offers were to be
solicited from independent third parties. The Partnership does not
have the power to unilaterally sell any of the Properties.
o Sale Not Negotiated at Arm's-Length. Affiliates of the Managing
General Partner will possess a significant ownership interest in
the REIT and receive substantial other benefits from the formation
of the REIT and the Sale. The Purchase Price was not negotiated at
arm's- length. The Purchase Price was established by the Managing
General Partner and the Partnership did not retain an independent
financial or legal advisor to negotiate the terms of the Sale.
o Conflicts of Interest. In evaluating the proposed Sale, Limited
Partners should consider that Casden is both the sponsor of the
REIT and an affiliate of the Managing General Partner. If the REIT
is successfully formed and capitalized, the current owners of
Casden are likely to realize a substantial increase in the value
and liquidity of their investment in Casden Properties. The terms
of the Sale have been determined on behalf of the Partnership by
officers and directors of Casden who will directly benefit from
the Sale. Unlike Casden, the Limited Partners will not participate
in the REIT. It is anticipated that approximately 45% of the
equity securities of the REIT will be held by Casden and its
affiliates following the Private Placement, based on the terms of
the Private Placement as currently contemplated.
o Tax Consequences. The Sale will have a tax impact on Limited
Partners, producing a long-term capital gain of approximately
$3,809 per Unit. In addition, the Sale will produce ordinary
income attributable to depreciation recapture of approximately $17
per Unit. A substantial portion of the cash distributions to pay
tax liability is provided by distribution of $1,400,000 of the
Partnership's available cash reserves. While the distribution of
the cash held by the Partnership will currently provide cash to
pay a portion of the tax liability and will not be currently
taxable, the distribution of cash will increase the amount by
which the Limited Partners' capital accounts are negative and will
increase the taxable gain Limited Partners will realize in the
future on disposition of the Partnership's remaining assets or a
Limited Partner's interest in the Partnership and the tax payable
by a Limited Partner at such time. For Limited Partners who have
been able to use all of the
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<PAGE>
passive losses generated by the Partnership on a current basis,
the Sale should result in a federal and state income tax cost of
approximately $1,150 per Unit or $820 in excess of the cash
distribution. In addition, Limited Partners who have available all
of the suspended passive losses generated by the Partnership, but
whose ordinary income is not taxed at the 39.6% marginal federal
rate, may incur a federal income tax cost in excess of the cash
distribution made in connection with the Sale. For a discussion of
the tax impact of the Sale, and the Partnership's assumptions and
the bases therefor, see "FEDERAL TAX CONSEQUENCES." THE SPECIFIC
TAX IMPACT OF THE SALE ON LIMITED PARTNERS SHOULD BE DETERMINED BY
LIMITED PARTNERS IN CONSULTATION WITH THEIR TAX ADVISORS.
o No Appraisals; Limits on Fairness Opinion. The Managing General
Partner has not obtained independent appraisals of the Properties
to determine their value. In addition, while the Fairness Opinion
addresses the fairness of the Aggregate Property Valuation
utilized in connection with determining the Purchase Price, it
does not address the fairness of the Purchase Price itself or the
adjustments made to the Aggregate Property Valuation to arrive at
the distributions to the Limited Partners that will result from
the Sale. Such adjustments include the allocation of the Aggregate
Property Valuation between the Limited Partners and the general
partners of the Local Partnerships, which affects the amount of
the consideration to be paid to the Limited Partners. See "THE
SALE - Fairness Opinion."
o No Dissenter's Rights. Under the Partnership Agreement and
California law, Limited Partners do not have dissenters' rights of
appraisal.
o Conditions to Sale. The Sale is subject to certain conditions in
addition to approval of the Sale by the Limited Partners,
including consummation of the Private Placement. Accordingly, even
if the Sale is approved by the Limited Partners and a purchase and
sale agreement is entered into, the consummation of the Sale could
be delayed for a significant period of time and it is possible
that the Sale may not be consummated. If a purchase and sale
agreement is executed in connection with the Sale, it will impede
the Partnership's ability to sell some or all of the Properties to
a third party.
o Uncertainty of Local General Partner Buyouts. While affiliates of
the Managing General Partner have entered into option agreements
with nine of the ten unaffiliated local general partners with
respect to the buyout of the interests in the Local Partnerships,
there can be no assurance that the Company will be able to
successfully complete buyouts from all such unaffiliated general
partners on acceptable terms which in turn could reduce the cash
from the Sale available for distribution to the Limited Partners.
To the extent that the ultimate cost of the buyouts of the local
general partners exceeds the Managing General Partner's current
estimates of such cost, the distributions to Limited Partners
resulting from the Sale will be reduced. To the extent that the
cost of such buyouts is less than the Managing General Partners
estimates, distributions to Limited Partners will be increased. At
the time they consent to the Sale, the Limited Partners will not
know which of the Properties will ultimately be transferred in
connection with the Sale; nevertheless, consent to the Sale will
be deemed effective regardless of which Properties are ultimately
included in the Sale.
o Amendments to Partnership Agreement. In addition to approval of
the Sale, Limited Partners are also being asked to approve certain
amendments to the Partnership Agreement which are required to
consummate the Sale. For example, the Partnership Agreement
prohibits the Partnership from selling any Property or any
interest in a Property if the cash proceeds from such sale would
be less than the state and federal taxes applicable to such sale,
calculated using the maximum tax rates then in effect. The
Managing General Partner is seeking an amendment that eliminates
such prohibition to allow the Partnership to sell the Properties
although such tax requirement is not met. By
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<PAGE>
approving such amendment, the Limited Partners are relinquishing a
potential benefit conferred by the terms of the Partnership
Agreement.
Amendments to Partnership Agreement
Certain amendments to the Partnership Agreement are necessary in
connection with the consummation of the Sale.
The Partnership Agreement currently prohibits a sale of any of the
Properties to the Managing General Partner or its affiliates. Consent of the
Limited Partners is being sought for an amendment to the Partnership Agreement
that eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered into
between the Partnership and the Managing General Partner or any affiliate of the
Managing General Partner shall provide that it may be canceled at any time by
the Partnership without penalty upon 60 days' prior written notice (the
"Termination Provision"). It is the position of the Managing General Partner
that the Termination Provision does not apply to the Sale; nevertheless, the
Managing General Partner is seeking the approval of the Limited Partners to an
amendment to the Partnership Agreement that eliminates the Termination Provision
in connection with the Sale or any future disposition of Properties.
The Partnership Agreement also prohibits the Partnership from selling
any Property or any interest in a Property if the cash proceeds from such sale
would be less than the state and federal taxes applicable to such sale,
calculated using the maximum tax rates then in effect (the "Tax Requirement").
The Managing General Partner is seeking the approval of the Limited Partners to
an amendment to the Partnership Agreement that eliminates the Tax Requirement so
as to allow the Partnership to sell the Properties although such Tax Requirement
is not met.
By approving the Amendments, the Limited Partners are relinquishing
potential benefits conferred by the terms of the Partnership Agreement. However,
the Managing General Partner believes that as a result of (i) recent legislation
relating to government-assisted housing, which is expected to reduce the cash
flow from the Properties and create possible adverse tax consequences to owners
of the Properties, and (ii) the substantial negative capital accounts which most
Limited Partners have which will result in recognition of significant gain on a
sale of the Real Estate Interests or the Properties, the Tax Requirement would
prevent sales of Properties or Real Estate Interests which are in the best
interests of the Limited Partners.
The consent of Limited Partners holding a majority in interest of the
outstanding Units is required in order to amend the Partnership Agreement.
Limited Partners must approve the Sale and each of the three proposed Amendments
in order to allow consummation of the Sale.
Limited Partner Approval
The Managing General Partner is seeking the consent of the Limited
Partners to the Sale and the Amendments. The Partnership Agreement requires the
prior consent of Limited Partners holding a majority in interest of the
outstanding Units (a "Majority Vote") to an amendment to the Partnership
Agreement.
If the Limited Partners do not approve the Sale and the Amendments by a
Majority Vote, or the other conditions to the consummation of the Sale are not
met, there will be no change in its investment objectives, policies and
restrictions and the Partnership will continue to be operated in accordance with
the terms of the Partnership Agreement. The Partnership will bear the costs of
the consent solicitation process whether or not the Sale is approved or
ultimately consummated.
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<PAGE>
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent
real estate investment banking firm, an opinion that the Aggregate Property
Valuation utilized in connection with determining the Purchase Price to be
received by the Partnership for the Real Estate Interests in the Sale is fair to
the Limited Partners from a financial point of view. In the course of preparing
its Fairness Opinion, Stanger conducted such reviews as it deemed appropriate
and discussed its methodology, analysis and conclusions with the Managing
General Partner. The Managing General Partner has not obtained independent
appraisals to determine the value of the Properties. The Fairness Opinion, which
is subject to certain assumptions, qualifications and limitations, is attached
hereto as Exhibit A. Stanger has no obligation to update the Fairness Opinion on
the basis of subsequent events. Stanger will be paid an aggregate fee by the
Casden Partnerships of up to approximately $455,000, plus $4,100 per property
owned by the Casden Partnerships that is evaluated by Stanger. The portion of
the fee allocable to the Partnership is approximately $27,800, plus $4,100 per
property evaluated by Stanger, or an aggregate of approximately $81,100. No
portion of Stanger's fee is contingent upon consummation of the Sale or
completion of the REIT Transaction. See "THE SALE -- Fairness Opinion" and
"--Potential Adverse Effects of the Sale--No Appraisals; Limits on Fairness
Opinion."
Recommendation of the Managing General Partner
After a comprehensive review of various alternatives, the Managing
General Partner believes that the Sale is in the best interests of the Limited
Partners. The Managing General Partner believes that the current interest rate
environment and the availability of capital for real estate investment trusts
will enable Casden to form the REIT and make the proposal to the Partnership for
the Sale, which provides the Partnership with an opportunity to maximize the
value of the Real Estate Interests. In addition, the Managing General Partner
reviewed (but did not specifically adopt) the Fairness Opinion. See "THE SALE --
Alternatives to the Sale."
Based upon its analysis of the alternatives and its own business
judgment, the Managing General Partner believes that the terms of the Sale,
including the Aggregate Property Valuation and the Purchase Price for the Real
Estate Interests and the distributions to be made to the Limited Partners, are
fair from a financial point of view to the Limited Partners. Accordingly, the
Managing General Partner has approved the Sale and recommends that it be
approved by the Limited Partners. Limited Partners should note, however, that
the Managing General Partner's recommendation is subject to inherent conflicts
of interest. See "CONFLICTS OF INTEREST."
Conflicts of Interest
A number of conflicts of interest are inherent in the relationships
among the General Partners, the Casden Partnerships, Casden and the REIT, which
may, among other things, influence the recommendation of the Managing General
Partner. These conflicts include the following:
1. The terms of the Sale (including the Purchase Price) were
established by the REIT and the Managing General Partner (which are related
parties) without the participation of any independent financial or legal
advisor. There can be no assurance that arm's-length negotiations would not have
resulted in terms more favorable to the Limited Partners. In addition, the
Properties to be included in the Sale were determined by the REIT and the
Managing General Partner.
2. Although Stanger provided an independent opinion with respect to the
fairness of the Aggregate Property Valuation utilized in connection with the
determination of the Purchase Price, no independent financial or legal advisor
was engaged to represent the interests of the Limited Partners and no third
party appraisals of the Properties were obtained.
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<PAGE>
3. If the REIT Transaction is consummated, affiliates of the Managing
General Partner will receive substantial interests in the REIT in exchange for
the contribution of real property assets and the property management operations
of Casden, including direct or indirect interests in the Managing General
Partner. The Managing General Partner anticipates that it will receive
significant economic benefits as a result of receiving interests in the REIT.
Such interests are expected to enjoy greater liquidity than the Managing General
Partner's current interests in the Partnership if the REIT successfully
completes an initial public offering following its initial formation as a
private REIT. Unlike Casden, the Limited Partners will not participate in the
REIT. It is anticipated that approximately 45% of the equity securities of the
REIT will be held by Casden and its affiliates following the Private Placement,
based on the terms of the Private Placement as currently contemplated.
4. It is anticipated that the return from the interests in the REIT to
be received by the Managing General Partner and its affiliates in connection
with the REIT Transaction, if it is successfully consummated, will exceed the
return such persons currently receive from the real estate assets and businesses
such persons will contribute or sell to the REIT.
5. The officers and employees of Casden and its affiliates will be
employed by the REIT. NAPICO will become a subsidiary of the REIT. See
"CONFLICTS OF INTEREST."
6. Affiliates of the Managing General Partner have entered into option
agreements for the buyout of the interests in all of the Local Partnerships held
by the general partners of such Local Partnerships. The Managing General Partner
will benefit from such buyouts because the interests of such local general
partners will be acquired by the REIT, but the costs of such buyouts will be
indirectly borne by the Limited Partners. The value attributed to the management
fees payable to the ten local general partners that are unaffiliated with the
Managing General Partner were included in the Aggregate Property Valuation when
determining the Purchase Price payable to the Limited Partners. See "CONFLICTS
OF INTEREST."
Federal Income Tax Consequences
Generally, the Sale will result in a gain to the Partnership and,
accordingly, to the Limited Partners, to the extent that the consideration
received by the Partnership with respect to the Sale, including the amount of
Partnership indebtedness of which the Partnership is relieved, exceeds its
adjusted basis in the Properties. The income tax calculations contained in this
Consent Solicitation Statement are based upon federal tax rates equal to 39.6%
for ordinary income, 25% for capital gain attributable to depreciation recapture
and an effective state tax rate of 5%. In addition, such calculations assume
that Limited Partners have suspended passive losses of $2,214 per Unit from the
Partnership and that such losses are available to offset ordinary income taxed
at the 39.6% marginal federal rate. In light of the suitability standards that
Limited Partners met at the time of their original investment in the
Partnership, the Managing General Partner assumed for purposes of calculating
the tax liabilities resulting from the proposed Sale that each Limited Partner
will have taxable income in excess of $155,950 in 1998 (which is the income
level at which married taxpayers effectively become subject to a 39.6% marginal
rate). While the financial circumstances of the Limited Partners may vary
considerably, the Managing General Partner believes it is reasonable to assume
that the majority of the current Limited Partners will be in the highest federal
tax bracket in 1998. Limited Partners should consult their own tax advisors with
respect to their individual tax situations and as to the federal, state, local
and other tax consequences of the Sale. See "FEDERAL INCOME TAX CONSEQUENCES."
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Summary Financial Information
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994 and 1993, and for the three months ended March 31, 1998 and
1997.
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10-K and the Partnership's Quarterly Report
on Form 10-Q, which are attached hereto as Annexes B and C, respectively.
The selected historical financial and operating data of the Partnership
for the three-month periods ended March 31, 1998 and March 31, 1997 are derived
from unaudited consolidated financial statements of the Partnership which, in
the opinion of the Managing General Partner, include all adjustments (consisting
only of normal recurring items unless otherwise disclosed) necessary for a fair
presentation of the Partnership's financial position and results of operations.
The results set forth for the three-month periods ended March 31, 1998 and March
31, 1997 are not necessarily indicative of results to be expected for a full
year.
<TABLE>
<CAPTION>
Year Ended December 31, Three months Ended
March 31,
-------------------------------------------------- ------------------
1997 1996 1995 1994 1993 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenues $1,070,895 $1,211,516 $2,715,123 $2,680,834 $2,696,843 $274,405 $263,374
Rental Expenses 1,090,966 1,386,758 2,961,159 2,919,354 2,802,417 277,332 294,530
--------- --------- --------- --------- --------- ------- -------
Loss from Rental Operations (20,071) 175,242 (246,036) (238,520) (105,574) (2,927) (31,156)
Interest Income 299,009 165,591 168,911 221,268 71,954 63,216
76,323
Operating Expenses 1,431,960 1,295,090 1,476,162 1,331,328 1,494,860 426,080 337,460
--------- --------- --------- --------- --------- ------- -------
Loss From Operations (1,153,022)(1,304,741) (1,553,287)(1,348,580)(1,528,480) (352,684) (305,400)
Distributions From Limited 499,540 597,425 347,163 500,498 247,782 70,800 70,800
Partnerships Recognized as Income
Gain on Foreclosure - 1,902,022 - - 4,095,110 - -
Equity in Income of Limited
Partnerships and amortization of
acquisition costs 625,025 603,934 415,526 33,356 (111,547) 182,000 149,000
--------- --------- --------- --------- --------- ------- -------
Net Income (Loss) $(28,457) $1,798,690 $ (790,598) $(414,726) $2,702,865 $(99,884) $(85,600)
======== ========== ========= ========= ========== ======== ========
Net Income (Loss)
allocated to Limited Partners $(28,172) $1,780,654 $(782,692) $(410,579) $2,675,836 $(98,885) $(84,744)
======== ========== ========= ========= ========== ======== ========
Net Income (Loss) per
Limited Partnership Interest $ (2) $ 107 $ (47) $ (24) $ 159 $ (6) $ (5)
Total Assets $15,726,187$15,286,368 $18,337,139$18,725,681$18,810,269 $15,789,517$15,301,479
======== ========== ========= ========= ========== ======== ========
Investments in Limited Partnerships $5,885,699 $6,051,522 $5,619,146 $5,213,864 $5,032,639 $6,012,451 $6,100,502
======== ========== ========= ========= ========== ======== ========
Partners' Deficiency $(1,156,894$(1,128,437 $(2,927,077)$(2,136,479$(1,721,753)$(1,256,778)$(1,214,037)
======== ========== ========= ========= ========== ======== ========
Limited Partners' Deficiency $(794,136) $(765,963) $(2,546,617)$(1,763,925$(1,353,346) $(893,021) $(850,707)
======== ========== ========= ========= ========== ======== ========
Limited Partners' Deficiency
per Limited Partnership Interest $ (47) $ (46) $ (152) $ (105) $ (81) $ (53) $ (51)
======== ========== ========= ========= ========== ======== ========
</TABLE>
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<PAGE>
Transaction Expenses
The Partnership will bear its direct costs relating to the Sale,
including customary closing costs such as the seller's portion of title
insurance and escrow fees, and the costs incurred in connection with this
solicitation of consents. The aggregate amount of such costs is expected to be
approximately $427,100 which the Partnership expects to pay using cash
equivalents held by the Partnership. Transaction costs will be borne by the
Partnership as incurred whether or not the Sale is approved by the Limited
Partners or ultimately consummated. Costs incurred individually by the Casden
Partnerships, including accounting and legal fees, will be borne directly by
such partnerships.
Voting Procedures
This Consent Solicitation Statement outlines the procedures to be
followed by Limited Partners in order to consent to the Sale. A form of Consent
of Limited Partner (a "Consent") is attached hereto. These procedures must be
strictly followed in order for the instructions of a Limited Partner as marked
on such Limited Partner's Consent to be effective. The following is a summary of
certain of these procedures:
1. A Limited Partner may make his or her election on the Consent only
during the solicitation period commencing upon the date of delivery of this
Consent Solicitation Statement and continuing until the earlier of (i) September
10, 1998 or such later date as may be determined by the Managing General Partner
and (ii) the date upon which the Managing General Partner determines that a
Majority Vote has been obtained (the "Solicitation Period").
2. Limited Partners are encouraged to return a properly completed and
executed Consent in the enclosed envelope prior to the expiration of the
Solicitation Period.
3. A Consent delivered by a Limited Partner may be changed prior to the
expiration of the Solicitation Period by delivering to the Partnership a
substitute Consent, properly completed and executed, together with a letter
indicating that the Limited Partner's prior Consent has been revoked.
4. The Sale and each of the proposed Amendments are being submitted to
the Limited Partners as separate resolutions. Limited Partners must approve the
proposed Sale and each of the proposed Amendments in order to allow consummation
of the Sale.
5. A Limited Partner submitting a signed but unmarked Consent will be
deemed to have voted FOR the Partnership's participation in the Sale, and the
Amendments.
II. THE PARTNERSHIP
General
The Partnership is a limited partnership formed under the laws of the
State of California on October 12, 1982. On April 22, 1983 the Partnership
offered 4,200 Units consisting of 8,400 limited partnership interests and
warrants to purchase a maximum of 8,400 additional limited partnership interests
at $5,000 per Unit through an offering managed by an affiliate of the
predecessor of Lehman Brothers Inc. As of September 30, 1997 there were 16,790
limited partnership interests in the Partnership (8,395 Units) outstanding. Ten
limited partnership interests have been abandoned.
The Managing General Partner of the Partnership is NAPICO. The business
of the Partnership is conducted primarily by NAPICO. NPIA is the non-managing
General Partner of the Partnership. Pursuant to
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<PAGE>
an agreement between NAPICO and NPIA, NAPICO has the primary responsibility for
the performance of any duties required to be performed by the General Partners
and, in general, has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA has not taken a
position with respect to the Sale or participated in the preparation of this
Consent Solicitation Statement. The Partnership has no employees of its own.
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden. Alan I. Casden is the sole
director and stockholder of Casden Investment Corporation and, accordingly,
controls NAPICO.
The original objectives of the Partnership were to own and operate the
Properties (and certain other real estate assets) for investment so as to obtain
(i) tax benefits for the Partners; (ii) reasonable protection for the
Partnership's capital investments; (iii) potential for appreciation, subject to
considerations of capital preservation; and (iv) potential for future cash
distributions from operations (on a limited basis), refinancings or sales of
assets.
The Partnership holds limited partnership interests in twenty-seven
real estate holding limited partnerships and a general partnership interest in
one general partnership. REAL VI also holds a general partnership interest in
REA III, which in turn holds limited partnership interests in an additional six
real estate holding limited partnerships. A majority of the thirty-four real
estate holding partnerships in which the Partnership holds a direct or indirect
interest each own a low income housing project that is subsidized and/or has a
mortgage note payable to or insured by an agency of the federal government or a
local housing agency. The remaining local limited partnerships each own a
conventional multi-unit residential apartment complex.
The Local Partnerships in which the Partnership has invested were, in
general, organized by private developers who acquired the sites, or options
thereon, and applied for applicable mortgage insurance and subsidies. The
Partnership became the principal limited partner in these real estate holding
limited partnerships pursuant to arm's-length negotiations with these
developers, or others, who act as general partners. As a limited partner, the
Partnership's liability for obligations of the real estate holding limited
partnerships is limited to its investment. The general partners of such
partnerships retain responsibility for developing, constructing, maintaining,
operating and managing the properties.
The thirty-four real estate holding partnerships generated
approximately $1,460,000 in cash flow to the Partnership in 1997, before
Partnership expenses of approximately $1,133,000 and interest income of
approximately $299,000. At December 31, 1997, the Partnership has a cash reserve
of approximately $6,612,000, approximately $1,400,000 of which will be
distributed to the Limited and General Partners after consummation of the Sale.
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<PAGE>
The Properties
During 1997, all of the Properties in which REAL VI had invested were
substantially rented. The following is a schedule of the status, as of December
31, 1997, of the Properties in which REAL VI holds an interest. Asterisks denote
properties to be included in the Sale.
<TABLE>
<CAPTION>
Units Authorized
for Rental
No. Assistance Units Percentage
Name & Location of Units under Section 8 Occupied Total Units
--------------- -------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Boynton Terrace 89 89 89 100%
Boynton Beach, Fl
Cady Brook Apts. 40 None 39 98%
Charlton, MA
Cassidy Village 98 50 92 94%
Columbus, Ohio
Century Plaza 120 120 120 100%
Hampton, VA
City Heights Senior* 151 150 151 100%
Wilkes-Barre, PA
Crockett Manor 38 38 38 100%
Trenton, TN
Denny Place* 17 4 16 94%
Los Angeles, CA
Eastridge Apts.* 96 65 92 96%
Bristol, VA
Echo Valley Apts.* 100 100 90 90%
Warwick, RI
Filmore I 32 32 31 97%
Phoenix, AZ
Grant-Ko Enterprises 40 None 38 95%
Platteville, WI
Hemet Estates* 80 80 78 98%
Riverside County, CA
Hudson Street Apartments* 41 41 41 100%
Pasadena, CA
Hummelstown Manor 51 50 51 100%
Hummelstown, PA
Kentucky Manor 48 None 46 96%
Oak Grove, KY
Lonsdale Housing 131 131 131 100%
Providence RI
Mariner's Cove* 500 100 480 96%
San Diego, CA
Marshall Plaza II 40 40 40 100%
Lorain, Ohio
Marshall Plaza II 50 48 49 98%
Lorain, Ohio
Mulberry Towers* 206 205 206 100%
Scranton, PA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Units Authorized
for Rental
No. Assistance Units Percentage
Name & Location of Units under Section 8 Occupied Total Units
--------------- -------- --------------- -------- -----------
<S> <C> <C> <C> <C>
New-Bel-Mo 34 None 28 82%
Monticello, WI
Oakridge Apts. II 48 0 48 100%
Biloxi, MS
Oakwood Manor 34 34 31 91%
Milan, TN
Park Place 126 125 125 99%
Ewing, NJ
Park Place Apts.* 60 60 58 97%
Cleveland, TX
Parkesedge Elderly Apts. 45 45 45 100%
Parkesedge, PA
Penneco II 76 76 65 86%
Johnstown, PA
Sauk-Ko Enterprises 30 None 26 87%
Baraboo, WI
Sol 413 12 12 12 100%
Old San Juan, PR
Valley Oaks Senior* 50 None 50 100%
Gault, CA
Victory Square* 81 81 81 100%
Canton, Ohio
Villas de Orocovix 41 41 41 100%
Orocovix, PR
Willow Wood* 19 4 19 100%
Los Angeles, CA
Peppertree* 136 None 1 97%
--- ---- -- ---
Cypress, CA
TOTALS 2,760 1,829 2,679 95%
===== ===== ===== ==
</TABLE>
Each of the Properties is approximately fourteen years old. Routine
repair and maintenance and capital expenditures made out of operating cash and
reserves maintained by the local limited partnerships amounted to approximately
$2,474,000 in the aggregate for the year ended December 31, 1997. Due to the age
of the Properties, capital expenditures are expected to increase progressively
over the remaining useful lives of the Properties.
The real estate holding limited partnership that owns the Boynton
Terrace Apartments has entered into an option agreement with an unrelated third
party pursuant to which such third party has the right to purchase the Boynton
Terrace Apartments for an aggregate purchase price of $6,291,778, which shall
consist of a cash payment of $1,352,490 and the assumption of the existing
mortgage of $4,939,288. The purchase is subject to certain conditions, including
approval of an application for low income housing tax credits by the Florida
Housing Finance Agency. If the Boynton Terrace sale is approved by the Limited
Partners and the required regulatory applications are granted, affiliates of the
Managing General Partner and the unrelated third party purchaser will hold a
significant equity stake in the entity that will take title to the Boynton
Terrace Apartments. The Managing General Partner intends to seek the approval of
the Limited Partners of the Partnership to the proposed sale of the Boynton
Terrace Apartments prior to December 31, 1998.
-15-
<PAGE>
Market for Partnership Interests and Related Security Holder Matters
Limited partnership interests in the Partnership were sold through a
public offering managed by E.F. Hutton & Co. Inc., predecessor of Lehman
Brothers Inc., and are not traded on national securities exchange or listed for
quotation on the Nasdaq Stock Market. There is no established trading market for
Units and it is not anticipated that any market will develop for the purchase
and sale of the Units. Pursuant to the Partnership Agreement, Units may be
transferred only with the written consent of the Managing General Partner,
unless the proposed transfer is to a member of the family of the transferring
Limited Partner, a trust set up for the benefit of the Limited Partner's family,
or a corporation or other entity in which the Limited Partner has a majority
interest. At December 31, 1997, there were 3,631 registered holders of Units in
REAL VI. None of the Units are beneficially owned by Casden.
The high and low purchase prices for Units in sales transactions
completed during the twelve-month period ending December 31, 1997 as compiled by
NAPICO were $250.03 to $1.00 per Unit, respectively. No established trading
market for the Units was ever expected to develop and the sales transactions for
the Units have been limited and sporadic. When considering secondary market
prices for the Units, Limited Partners should note that the proposed Sale is for
only 13 of the 34 properties owned by the Partnership and that Limited Partners
will continue to own their Units after consummation of the Sale. The Partnership
will continue to hold interests in twenty properties after the Sale.
The Managing General Partner monitors transfers of the Units (a)
because the admission of a substitute limited partner requires the consent of
the Managing General Partner under the Partnership Agreement, and (b) in order
to track compliance with safe harbor provisions under the Securities Act to
avoid treatment as a "publicly traded partnership" for tax purposes. While the
Partnership requests to be provided with the price at which a transfer is being
made, and the Partnership receives some information regarding the price at which
secondary sale transactions in the Units have been effectuated, the Managing
General Partner does not maintain comprehensive information regarding the
activities of all broker/dealers and others known to facilitate from time to
time, or on a regular basis, secondary sales of the Units. It should be noted
that some transactions may not be reflected on the records of the Partnership.
It is not known to what extent Unit sales transactions are between buyers and
willing sellers, each having access to relevant information regarding the
financial affairs of the Partnerships, expected value of their assets, and their
prospects for the future. Many Unit sales transactions are believed to be
distressed sales where sellers are highly motivated to dispose of the Units and
willing to accept substantial discounts from what might otherwise be regarded as
the fair value of the interest being sold, to facilitate the sales. The prices
paid recently for Units may not reflect the current market of the Partnerships'
assets, nor are they indicative of total return, since prior cash distributions
and tax benefits received by the original investor are not reflected in the
price. Nonetheless, notwithstanding these qualifications, the Unit sales prices,
to the extent that the reported data are reliable, are indicative of the prices
at which the Units have recently been sold. None of the Unit sales transactions
have involved Casden or its affiliates.
Distribution History
The Partnership has not made any distributions from operations to
Limited Partners since its inception. The Partnership Agreement sets forth a
procedure for allocating distributions among the Limited Partners and General
Partners. The General Partners are entitled to receive 1% of the net cash flow
from operations to be distributed, reduced by any amount paid to the General
Partners as an annual management fee. The Limited Partners as a class are
entitled to receive the balance of the net cash flow from operations to be
distributed. There are no regulatory or legal restrictions on the Partnership's
current or future ability to pay distributions, although, pursuant to certain
state housing finance statutes and regulations, certain of the Local
Partnerships are subject to limitations on the distributions to the Partnership.
-16-
<PAGE>
Regulatory Arrangements
Although each of the Local Partnerships in which the Partnership has
invested generally owns a Property that must compete in the market place for
tenants, interest subsidies and rent supplements from governmental agencies make
it possible to offer many of these dwelling units to eligible "low income"
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units in the area.
In order to stimulate private investment in low income housing, the
federal government and certain state and local agencies have provided
significant ownership incentives, including among others, interest subsidies,
rent supplements and mortgage insurance, with the intent of reducing certain
market risks and providing investors with certain tax benefits, plus limited
cash distributions and the possibility of long-term capital gains. There remain,
however, significant risks. The long-term nature of investments in government
assisted housing limits the ability of the Partnership to vary its portfolio in
response to changing economic, financial and investment conditions; such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages and other factors that have an impact on real
estate values. The Partnership's government assisted projects also require
greater management expertise and may have higher operating expenses than
conventional housing projects.
Section 8 of the United States Housing Act provides for the payment of
a federal rental subsidy for the benefit of low income families (the "Section 8
Program"). Pursuant to the Section 8 Program, the Partnership entered into
Housing Assistance Payments Contracts (the "HAP Contracts") with HUD or a state
or local administering agency as agent of HUD, with respect to 10 of the 13
Properties. Under the HAP Contracts, which generally have from one to fifteen
years remaining, 955 of the apartment units at the ten Properties to be included
in the Sale (which the Partnership has agreed to lease to low or moderate income
tenants) receive rental assistance payments from HUD. During 1997, the 34 real
estate holding partnerships received an aggregate of approximately $5,471,300 in
rental assistance payments under the HAP Contracts. The 34 properties held by
such partnerships are generally subject to mortgage loans insured by HUD's
Federal Housing Administration ("FHA") and the HAP Contracts generally provide
for sufficient payments to make the payments due under the federally insured
mortgage loans.
Under recently adopted law and policy, HUD has determined not to renew
HAP contracts on a long term basis on the existing terms. In connection with
renewals of the HAP Contracts under such new law and policy, the amount of
rental assistance payments under renewed HAP Contracts will be based on market
rentals instead of above-market rentals, which was generally the case under
existing HAP Contracts. As a result, existing HAP Contracts that are renewed in
the future on projects insured by the FHA will not provide sufficient cash flow
to permit owners of properties to meet the debt service requirements of these
existing FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family Assisted
Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted
in October 1997, provides for the restructuring of mortgage loans insured by the
FHA with respect to properties subject to HAP Contracts that have been renewed
under the new policy. The restructured loans will be held by the current lender
or another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be no
assurance that the Partnership will be permitted to restructure its mortgage
indebtedness pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it were
eligible to participate in the MAHRAA program. It should be noted that there are
uncertainties as to the economic impact on the Partnership of the combination of
the reduced payments under the HAP Contracts and the restructuring of the
existing FHA-insured mortgage loans under MAHRAA. Accordingly, the Managing
General Partner is unable to predict with certainty their impact on the
Partnership's future cash flow.
-17-
<PAGE>
Pursuant to the HAP Contracts, the Partnership cannot sell its
interests in a Property without the consent of HUD and, if applicable, the
appropriate state or local agency. The Managing General Partner is currently in
the process of seeking such consent. There is no assurance that HUD will provide
such approval.
Pursuant to certain state housing finance statutes and regulations,
certain of the Local Partnerships are subject to limitations on the
distributions of dividends to the Partnership. Such statutes and regulations
require such Local Partnerships to hold cash flows in excess of such
distribution limitations in restricted reserve accounts that may be used only
for limited purposes (the "Reserve Accounts"). The Purchase Price was calculated
without attributing value to the Reserve Accounts. The Managing General Partner
believes that federal and state regulatory considerations limiting the
availability of the Reserve Accounts to the Partnership have the effect of
substantially reducing or eliminating entirely any value attributable to such
Reserve Accounts. However, it is possible that the REIT may in the future
realize a benefit from the release of funds held in the Reserve Accounts.
Year 2000 Information
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address the
issue and that the impact of the Year 2000 computer systems issue will not
materially affect the Partnership's future operating results or financial
condition.
Directors and Executive Officers of NAPICO
The Partnership is managed by NAPICO and has no directors or executive
officers of its own.
Biographical information for the directors and executive officers of
NAPICO with principal responsibility for the Partnership's affairs is presented
below. See "LEGAL PROCEEDINGS."
Alan I. Casden has served as Vice Chairman of the Board of Directors of
NAPICO since 1984. Mr. Casden has also served as Chairman and Chief Executive
Officer of Casden Properties and of The Casden Company since 1982 and 1985,
respectively. Mr. Casden has been involved in approximately $3.8 billion of real
estate financings and sales, and has been responsible for the development and
construction of approximately 90,000 multi-family apartment units and 10,000
single-family homes and condominiums. Mr. Casden has served as a member of the
Advisory Board of the National Multi-Family Housing Conference, the Multi-Family
Housing Council, the President's Council of the California Building Industry
Association and the Urban Land Institute. Mr. Casden currently serves on the
Visiting Committee to USC's Marshall School of Business. In 1988, Mr. Casden
received the "Distinguished Alumnus Award" from USC. He holds a bachelor of
science degree from USC. Mr. Casden is also Co-Chairman of the Board of Trustees
of the Simon Wiesenthal Center, an international human rights agency, and
building chairman for its $50 million Museum of Tolerance, which opened in Los
Angeles in 1993.
Henry C. Casden has served as a Director of NAPICO since February 1988
and as its Secretary since November 1994. Since 1988, Mr. Casden has served as
the President and Chief Operating Officer of The Casden Company as well as the
managing general partner of Casden Properties. From 1971 to February 1988, Mr.
Casden was engaged in the private practice of law in Los Angeles, including as a
named partner in his law firm. His practice was devoted principally to
counseling real estate developers, lenders and investors throughout the United
States. Mr. Casden is a member of the Board of Visitors of the University of San
Diego School of Law and the bar association of the District of Columbia. Mr.
Casden received his bachelor of arts degree from the University of California at
Los Angeles, and is a graduate of the University of San Diego Law School. Mr.
-18-
<PAGE>
Casden is a member of the State Bar of California and has numerous professional
and philanthropic affiliations. Henry C. Casden and Alan I. Casden are brothers.
Charles H. Boxenbaum has served as Chairman of the Board of Directors
and Chief Executive Officer of NAPICO since 1966. He has been active in the real
estate industry since 1960. Prior to joining Sonnenblick- Goldman Corp. of
California, Mr. Boxenbaum was a real estate broker with the Beverly Hills firm
of Carl Rhodes Company. From 1966 to 1980, Mr. Boxenbaum was Chairman of the
Board and Chief Executive Officer of Sonnenblick-Goldman Corp. of California, a
firm specializing in mortgage brokerage. In 1978, the Sonnenblick Goldman Corp.
trade style was sold, and Mr. Boxenbaum purchased the outstanding stock and
changed the name of the firm to National Partnership Investments Corp. He is one
of the founders of and a past director of First Los Angeles Bank, organized in
November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of
Directors of the National Multi Housing Council. Mr. Boxenbaum received his
bachelor of arts degree from the University of Chicago.
Bruce E. Nelson serves as President and a director of NAPICO. Mr.
Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operation of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments. From
February 1979 to October 1980, Mr. Nelson held the position of Associate General
Counsel at Western Consulting Group, Inc., private residential and commercial
real estate syndicators. Prior to that time Mr. Nelson was engaged in the
private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts
degree from the University of Wisconsin and is a graduate of the University of
Colorado School of Law. He is a member of the State Bar of California and is a
licensed real estate broker in California and Texas.
III. THE SALE
Background and Reasons for the Sale
In recent years, real estate investment activity by publicly owned
corporations and trusts, such as real estate investment trusts ("REIT
Entities"), has increased dramatically. REIT Entities have become a major source
of capital for the real estate market as well as one of its most prominent
purchasers of real property. A publicly-traded REIT Entity is organized as a
real estate company to own and operate a portfolio of properties, has access to
new capital and its shares can be sold or transferred in the public securities
markets.
During the Spring of 1997, the managers of NAPICO and Casden Properties
(which are affiliated entities), including Alan I. Casden, Henry C. Casden,
Charles H. Boxenbaum and Bruce E. Nelson, evaluated the financial results and
prospects of the Casden Partnerships and considered various alternatives that
might allow them to maximize the current value of the Partnership's assets.
Among other things, they considered (i) reorganizing the Partnership as a REIT
Entity, (ii) attempting a rollup of the Partnership and certain other real
estate holding limited partnerships, (iii) marketing the Properties to third
parties in cooperation with the general partners of the Local Partnerships, and
(iv) continued indirect ownership of the Properties through the Partnership's
limited partnership interests in the Local Partnerships. The managers of NAPICO
and Casden Properties also considered forming a REIT Entity that would acquire
the Properties held by the Local Partnerships.
In May of 1997, NAPICO and Casden Properties invited Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") and certain other investment banking
firms to make presentations regarding strategic alternatives available to Casden
Properties in light of favorable conditions in the real estate capital markets.
Following such presentations, the managers of Casden Properties decided to form
a REIT Entity.
-19-
<PAGE>
On April 1, 1997, Casden Properties retained Battle Fowler LLP as its
legal counsel in connection with the potential formation of a REIT Entity and
the potential sales of the assets of the Casden Partnerships. On September 4,
1997, Casden Properties engaged DLJ to act as Casden Properties' financial
advisor in connection with the formation of a REIT Entity.
On November 21, 1997, following several days of interviews with several
investment banking firms, NAPICO selected Stanger to render a fairness opinion
in connection with the Sale and the other proposed sales involving the Casden
Partnerships. For a description of the terms of Stanger's engagement and certain
additional information concerning Stanger, see "-- Fairness Opinion."
The financial and legal advisors of NAPICO and Casden Properties
conferred regularly from June of 1997 through June of 1998 regarding the
structure and terms of the proposed REIT Transaction, including the Aggregate
Property Valuation and the Purchase Price to be offered for the Real Estate
Interests.
The Managing General Partner believes that it is in the best interests
of the Partnership to sell its interests in the Properties. Accordingly, the
Managing General Partner believes that it is necessary for the partnership to
dispose of its interests in all of the local limited partnerships and its sales
of the Real Estate Interests pursuant to the Sale furthers this goal. The
Partnership is not currently realizing any material cash flow that is available
for distribution to the Limited Partners and does not anticipate realizing
sufficient cash flow in the future to enable it to make distributions to Limited
Partners. Limited Partners did not realize current passive activity rental
losses in 1997. However, the Limited Partners realized approximately $97 per
Unit in interest income in 1997. Assuming Limited Partners are restricted from
utilizing passive losses, the Limited Partners will be liable for the taxes
related to the Partnership's passive activity rental income and portfolio
interest income without any corresponding cash distribution. In light of the
limited cash flow currently generated by the Properties, the fact that the
Partnership owns limited partnership interests and does not own the Properties
directly and the potentially adverse consequences of the recent changes in the
laws and policies applicable to HAP Contracts, the Managing General Partner does
not believe that it would be feasible to market the Real Estate Interests.
The REIT believes that there are certain benefits not available to the
Partnership that the REIT may be able to realize as a result of the acquisition
of the Real Estate Interests held by the Partnership, the general partner
interests held by the local general partners, the insured mortgage debt
encumbering the Properties, and the other properties and businesses of Casden.
These potential benefits include (i) earning fee income by performing the
property management functions formerly performed by the local general partners,
(ii) acquiring and restructuring (under MAHRAA) the mortgage indebtedness to
which the Properties are subject, and (iii) realizing economies of scale in
connection with ownership and management of all of the Properties. These
benefits would not be available to the Partnership because it does not have
sufficient capital to buy out the local general partner interests and to
purchase the mortgage loans encumbering the Properties. Such activities would
also be inconsistent with the Partnership's original objectives.
Prior to the consummation of the Sale, the REIT intends to sell
approximately $250 million of its equity securities in the Private Placement.
The proceeds of the Private Placement will be used to finance the Sale and other
acquisitions of conventional and subsidized housing properties to be made in
connection with the REIT Transaction. The REIT intends to commence an initial
public offering of its equity securities subsequent to the consummation of the
Sale. Casden and its affiliates are expected to own approximately 45% of the
equity securities of the REIT upon completion of the Private Placement.
Subsequent to its initial public offering, the REIT intends to purchase and
restructure all insured mortgage indebtedness currently encumbering the
Properties, which the Managing General Partner believes will enhance the returns
associated with the ownership of the mortgages and the Properties.
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In considering whether the Sale is in the interests of the Partnership,
the Managing General Partner also considered the effects of recent changes in
the law and policies relating to government-assisted housing. Under MAHRAA, to
the extent that rents are above market, as is the case with most of the
subsidized Properties, the amount of the HAP Contract payments will be reduced.
While MAHRAA also contemplates a restructuring of the mortgage loans to reduce
the current debt service on the mortgage loans, it is expected that the
combination of the reduced HAP Contract payments and the restructuring of the
mortgage loans will result in a significant reduction in the cash flow to the
Local Partnerships. In the case of two restructurings that are currently being
negotiated by affiliates of the Managing General Partner (involving Section 8
properties owned by partnerships other than the Partnership), the restructurings
proposed by HUD will significantly reduce the cash flow from these properties.
Furthermore, since the local general partners would control the restructuring
negotiations and most of the local general partners' income results from their
management fees, there can be no assurance that any restructuring negotiated by
local general partners would optimize cash flow to the Partnership or result in
any cash distributions to the Partnership. Moreover, there are a number of
uncertainties as to the restructuring process, including potential for adverse
tax consequences to the Limited Partners and the local general partners. As a
result, the Managing General Partner believes that it is unlikely that the
Limited Partners of the Partnership will benefit from any restructuring under
MAHRAA.
The Managing General Partner believes that the REIT, through its
potential access to the capital markets and its familiarity with the Properties,
is in a position to purchase the Properties on terms that are favorable to the
Partnership. The Managing General Partner believes that the current market for
securities issued by REIT Entities will provide the Partnership with an
opportunity to sell the Real Estate Interests to the REIT for a favorable price.
In addition, because any third party buyer attempting to purchase the Properties
would have to purchase not only the Real Estate Interests, but also the
interests of each of the local general partners, the Managing General Partner is
not aware of any sufficiently well-capitalized third parties engaged in the
business of acquiring government assisted housing projects that would be in a
position to acquire the Properties. Furthermore, a third party buyer would have
to investigate each of the Properties, and negotiate the terms of the buyout of
each of the local general partners, which would be an expensive and time
consuming process for the Partnership. As a result, the Managing General Partner
believes it is unlikely that there would be a third-party buyer for the
Properties. Limited Partners should note, however, that the Managing General
Partner's recommendation is subject to inherent conflicts of interest. See
"CONFLICTS OF INTEREST."
REAL VI owns, either directly or indirectly through REA III, limited
partnership interests in the Local Partnerships that hold title to the real
estate assets that the REIT has offered to purchase. All but three of the
general partners of such Local Partnerships are unaffiliated with the General
Partners of REAL VI and the Partnership does not control such unaffiliated local
general partners. The partnership agreements of the Local Partnerships do not
grant the limited partner of such partnership the right to remove the general
partner or to compel a sale of the assets of the partnership. As a result, the
simultaneous buyout of the local general partners is necessary in order to
enable the Partnership to realize the value of its Real Estate Interests.
Accordingly, the amount required to be paid by a purchaser (whether a third
party buyer or the REIT) to purchase the interests of the local general partners
will have the effect of reducing the amount of consideration which a buyer is
willing to pay for the Partnership's Real Estate Interests. Currently, the REIT
has entered into option agreements to acquire the interests of the unaffiliated
local general partners. The purchase prices to be paid to these unaffiliated
local general partners for their interests have been determined as a result of
arm's-length negotiations with the local general partners. The Managing General
Partner believes that, although the amount paid to the local general partners
reduces the Purchase Price and amount of distribution to Limited Partners, and
the buyout of the local general partners' interests will benefit the REIT, the
terms of these transactions are fair to the Partnership and the Limited
Partners.
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Acquisition Agreement
If the Sale is approved by the Limited Partners, it is contemplated
that the Partnership or the Local Partnerships, as the case may be, will enter
into a purchase and sale agreement with a subsidiary partnership of the REIT
(the "Operating Partnership"). The purchase and sale agreement will set forth
the terms and conditions under which the Partnership and the REIT and the
Operating Partnership are obligated to proceed with the Sale and will set forth
certain other agreements of such parties with respect to the Sale.
Representations and Warranties. The Partnership will not make any
representations and warranties to the REIT and the Operating Partnership in the
purchase and sale agreement with respect to the Properties, and the Properties
will be sold "as is."
Conditions. As described in detail below under the heading " -
Conditions" below, the purchase and sale agreement will include a number of
conditions to the REIT's obligation to consummate the Sale.
Amendment and Closing. The Partnership and the REIT or the Operating
Partnership may mutually agree to amend the terms of the purchase and sale
agreement in a manner which, in the good faith judgment of the Managing General
Partner (consistent with the Managing General Partner's fiduciary duty to the
Partnership and the Limited Partners), does not materially reduce the benefits
to be received by the Limited Partners from the Sale without resoliciting the
consent of the Limited Partners. If the Sale is approved by a Majority Vote of
the Limited Partners and the other conditions to the Sale and the REIT
Transaction are satisfied, it is anticipated that the Sale will be consummated
by September 30, 1998. If the closing does not occur by December 31, 1998 the
purchase and sale agreement will be terminated.
Arrangements with General Partners of the Local Limited Partnerships
Affiliates of the Managing General Partner have entered into option
agreements for the buyouts of the interests in the Local Partnerships held by
the general partners of twelve of the thirteen Local Partnerships, all but three
of whom are unaffiliated with Casden. The three affiliated local general
partners are entities in which Casden owns a controlling interest. Except for
the buyouts of the three affiliated local general partners, the buyouts have
been negotiated on an arm's-length basis. The Managing General Partner expects
that the general partners of the Local Partnerships will be paid an aggregate of
approximately $17,617,110 for their interests in, and rights to manage, the
Local Partnerships. There can be no assurance that the Managing General Partner
will be able to successfully complete buyouts from all of the unaffiliated
general partners of the Local Partnerships. To the extent that affiliates of the
Managing General Partner are unable to complete all such buyouts, there could be
an adverse impact on the operating results of the Partnership, depending on
which Properties are retained by the Partnership. The make-up of the Partnership
after the Sale if less than all of the general partners of the Local
Partnerships approve the Sale cannot be determined at this time. To the extent
that the ultimate cost of such buyouts exceeds the Managing General Partner's
current estimates of such cost, the distributions to Limited Partners resulting
from the Sale will be reduced. To the extent that the cost of such buyouts is
less than the Managing General Partner's estimates, distributions to Limited
Partners will be increased.
In the case of three of the Local Partnerships, the general partners of
such partnerships are affiliates of the Managing General Partner. Each of the
affiliated general partners is directly or indirectly wholly owned by Alan
Casden, who indirectly owns 100% of the common stock of NAPICO. The Local
Partnerships in which affiliates that are subject to the sale of NAPICO are the
general partners own 100 of the 1,537 housing units in which the Partnership has
invested that are to be included in the sale, or approximately 6%. An aggregate
of $71,748 in respect of future management fees payable to such affiliates was
deducted from the Aggregate Property Valuation utilized to determine the
Purchase Price. The amount deducted was determined by applying a multiplier of
6.0 to the 1996 management fees received by the affiliated local general
partners, which is the same
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methodology the Managing General Partner used when estimating the costs of
buying out the unaffiliated local general partners. Actual amounts paid to the
unaffiliated local general partners varied based upon the negotiations with such
local general partners. No value was attributed to the affiliated general
partners' general partnership interests in Local Partnerships.
As part of its purchase of the partnership interests and management
contracts of the general partners of the Local Partnerships, the REIT has also
simultaneously negotiated the purchase of certain promissory notes held by such
local general partners (the "Notes") based on an implied valuation below the
face value of the Notes. The Notes, which have an aggregate face value of
$8,688,362 including accrued and unpaid interest, were issued by the Local
Partnerships or the Partnership. In most cases, the Notes are secured by the
Partnership's interests in the relevant Local Partnership. Most of the Notes
will mature within the next three years. The Partnership is not expected to have
sufficient resources to satisfy all of the Notes as they come due. In connection
with its calculation of the Purchase Price, the Managing General Partner
deducted the face values of the Notes from the Aggregate Property Valuation,
because the Notes represent payments due to the local general partners before
any distributions from the Local Partnerships to the Partnership may be made out
of the proceeds of a sale of the Properties. See "THE SALE -- Recommendation of
the Managing General Partner; Fairness."
Source of Funds
The REIT intends to raise the cash to be paid to the Partnership
through a private placement of approximately $250 million of its equity
securities.
Transaction Costs
The Managing General Partner estimates that the Partnership's
transaction costs in connection with the Sale, will be as follows:
<TABLE>
<S> <C>
Accounting............................................. $ 135,000
Legal.................................................. 50,000
Escrow Costs (seller's portion)........................ 25,000
Title Policy (seller's portion)........................ 35,000
Structural and Engineering Reports..................... 90,000
Stanger Fairness Opinion............................... 81,100
Consent Solicitation Costs............................. 6,000
5,000
Miscellaneous Costs.................................... ---------
Total.................................................. $ 427,100
==========
</TABLE>
The General Partners will receive a distribution of approximately
$27,971 for their interests in the Partnership in connection with the Sale
including $14,000 from the Partnership distributing cash on hand. The General
Partners are not entitled to receive fees in connection with the Sale.
Distribution of Sale Proceeds; Accounting Treatment
After the payment of all liabilities and expenses, the consideration
to be paid to the Partnership for the Properties will be allocated and
distributed among Limited and General Partners in accordance with the cash
distribution rules set forth in the Partnership Agreement. Pursuant to the
Partnership Agreement, net distribution proceeds are distributable as follows:
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First, the General Partners will be entitled to a fee equal to the
lesser of (a) 10% of the net proceeds to the Partnership from the Sale, or (b)
1% of the Purchase Price (including the assumed mortgage indebtedness), plus 3%
of the net proceeds after deducting an amount sufficient to pay all federal and
state taxes applicable to the Sale. No part of the fee will be paid, however,
unless the Limited Partners shall have first received an amount equal to (i) the
greater of (A) their aggregate capital contributions, or (B) an amount
sufficient to satisfy the cumulative federal and state income tax liability, if
any, arising from the disposition of the Properties and all other assets
disposed of to date; less (ii) all amounts previously distributed to Limited
Partners. Because the above-referenced conditions have not been met, the General
Partners will not be entitled to receive a fee in connection with the Sale.
Next, after allocating income from the Sale in an amount equal to the
sum of the negative adjusted capital account balances of all Partners with such
balances (computed after any distributions made under the paragraph above), and
after allocating 1% of the income in excess thereof, 1% to the General Partners
and 99% to the Limited Partners as a class, distributions shall be made in
accordance with such Partners' positive capital account balances.
Based on the distribution priority in the Partnership Agreement, and
assuming (i) the net proceeds of the Sale are $1,397,081 and (ii) cash available
for distribution (after payment of expenses) of approximately $1,400,000, the
Limited Partners will be entitled to receive $2,769,110 in cash or $330 per
Unit. Based on March 31, 1998 balances, the Partnership will retain cash
reserves after the Sale (and payment of transaction costs and distribution of
cash) of approximately $4,700,000. NAPICO and NPIA will be entitled to receive a
distribution in connection with the Sale of $27,971, including $14,000 from the
Partnership distributing cash on hand.
The purchase of the Real Estate Interests by the REIT is conditioned,
with respect to each of the Properties, on the general partner of the Local
Partnership owning such Property agreeing to transfer its general partnership
interests in such Local Partnership. Under the partnership agreements of the
Local Partnerships, the assignment of the limited partnership interests in the
Local Partnership requires the consent of the local general partner. In
addition, the Managing General Partner does not believe that the REIT would
realize sufficient economic benefit from acquiring the Real Estate Interests
held by the Partnership unless it can simultaneously acquire the related general
partnership interests and the right to manage the Properties.
Conditions
In addition to the consent by Majority Vote of the Limited Partners,
the Purchase and Sale Agreement is expected to contain, among others, the
following conditions (which may be waived by the REIT) as conditions precedent
to the REIT's obligation to consummate the Sale or the acquisition of a
particular Property:
o Subject to certain exceptions, no material adverse change shall
have occurred with respect to a Property;
o The Partnership shall have delivered to the REIT any required
third party consents to the Sale, including the consent of HUD,
certain state housing finance agencies, the general partners of
the Local Partnerships in which the REIT intends to acquire
interests and the holders of certain mortgages; and
o The REIT shall have consummated the Private Placement, which will
be conditioned upon, among other things, the transfer of a minimum
number of properties to the REIT by the Casden Partnerships and
third parties in connection with the REIT Transaction.
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Fairness Opinion
Stanger, an independent investment banking firm, was engaged by NAPICO
to conduct an analysis and to render an opinion as to whether the Aggregate
Property Valuation utilized in connection with determining the Purchase Price to
be paid to the Partnership for the Real Estate Interests in the Sale is fair,
from a financial point of view, to the Limited Partners. NAPICO selected Stanger
because of its experience in providing similar services to other parties in
connection with real estate merger and sale transactions and Stanger's
experience and reputation in connection with real estate partnerships and real
estate assets. No other investment banking firm was engaged to provide, or has
provided, any report, analysis or opinion relating to the fairness of the Sale.
Stanger has advised the Managing General Partner that, subject to the
assumptions, limitations and qualifications contained in its Fairness Opinion,
the Aggregate Property Valuation utilized in connection with determining the
Purchase Price to be paid to the Partnership for the Real Estate Interests in
the proposed Sale is fair, from a financial point of view, to the Limited
Partners. The Fairness Opinion does not address adjustments made to the
Aggregate Property Valuation utilized to arrive at the distributions to the
Limited Partners that will result from the Sale, or the allocation of the
Aggregate Property Valuation between the Limited Partners and the general
partners of the Local Partnerships, which affects the ultimate amount of
consideration to be paid to the Limited Partners. In addition, the Fairness
Opinion does not address the fairness of the Purchase Price itself. The Purchase
Price and the Aggregate Property Valuation were determined solely by the General
Partners. The fact that the Managing General Partner applied its own methodology
for determining the Aggregate Property Valuation did not limit the methods and
procedures followed by Stanger in determining the fairness of the Aggregate
Property Valuation itself. The Managing General Partner used a valuation method
that it believed to be a reasonable basis for determining the Aggregate Property
Valuation. Stanger reviewed the fairness of the Aggregate Property Valuation
determined by the Managing General Partner, using methods and procedures
selected by Stanger. The Managing General Partner did not limit the method used
by Stanger to review the fairness of the Aggregate Property Valuation.
The full text of the Fairness Opinion, which contains a description of
the matters considered and the assumptions, limitations and qualifications made,
is set forth as Exhibit A hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. See
"- Fairness Opinion - Assumptions, Limitations and Qualifications." The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates have
provided information, research, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets
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<PAGE>
typically held through partnerships, such as real estate, oil and gas reserves,
cable television systems and equipment leasing assets. Stanger was selected
because of its experience and reputation in connection with real estate
partnerships, real estate assets and mergers and acquisitions.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion, Stanger reviewed: (i) a draft of this Consent Solicitation
Statement related to the Sale in substantially the form which will be
distributed to Limited Partners; (ii) the Partnership's annual reports on Form
10-K for the fiscal years ending December 31, 1995, 1996 and 1997, and the
Partnership's quarterly report on Form 10-Q for the three-month period ended
March 31, 1998, which reports the Partnership's management has indicated to be
the most current available financial statements; (iii) descriptive information
concerning the Properties provided by management, including location, number of
units and unit mix, age, and amenities; (iv) summary historical operating
statements for the Properties for 1995, 1996 and 1997; (v) operating budgets for
the Properties for 1998, as prepared by the Managing General Partner or the
local general partners; (vi) information prepared by management relating to the
debt, HAP Contracts or other regulatory agreements encumbering the Properties;
(vii) information regarding market rental rates and conditions for apartment
properties in the general market area of the Properties and other information
relating to acquisition criteria for apartment properties; and (viii) conducted
other studies, analysis and inquiries as Stanger deemed appropriate.
In addition, Stanger discussed with management of the Partnership and
the Managing General Partner the market conditions for apartment properties,
conditions in the market for sales/acquisitions of properties similar to those
owned by the Local Partnerships, historical, current and projected operations
and performance of the Properties, the physical condition of the Properties
including any deferred maintenance, and other factors influencing value of the
Properties. Stanger also performed site inspections of the Properties, reviewed
local real estate market conditions, and discussed with property management
personnel conditions in local apartment rental markets and market conditions for
sales and acquisitions of properties similar to the Properties.
Summary of Reviews. The following is a summary of the material reviews
conducted by Stanger in connection with and in support of its Fairness Opinion.
The summary of the opinion and reviews of Stanger set forth in this Consent
Solicitation Statement is qualified in its entirety by reference to the full
text of such opinion.
In preparing its Fairness Opinion, Stanger performed site inspections
of the Properties from December 1997 through April 1998. In the course of the
site visits, the physical facilities of the Properties were observed, current
rental and occupancy information for the Properties were obtained, current local
market conditions were reviewed, a sample of similar properties were identified,
and local property management personnel were interviewed concerning the
Properties and local market conditions. Stanger also reviewed and relied upon
information provided by the Partnership and the Managing General Partner,
including, but not limited to, financial schedules of historical and current
rental rates, occupancies, income, expenses, reserve requirements, cash flow and
related financial information; property descriptive information including unit
mix; and information relating to any required capital expenditures and any
deferred maintenance.
Stanger also reviewed historical operating statements for the
Properties for 1995, 1996 and 1997, the forecast for 1998 for each Property, as
prepared by the Managing General Partner and discussed with management the
current and anticipated operating results of the Properties.
In addition, Stanger interviewed management personnel of the
Partnership. Such interviews included discussions of conditions in the local
market, economic and development trends affecting the Properties, historical and
budgeted operating revenues and expenses and occupancies and the physical
condition of the Properties (including any deferred maintenance and other
factors affecting the physical condition of the improvements), projected capital
expenditures and building improvements, the terms of existing debt, HAP
Contracts or other
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<PAGE>
regulatory agreements encumbering the Properties, and expectations of management
regarding the impact of various regulatory factors and proposed changes on the
operating results of the Properties.
Stanger also reviewed the acquisition criteria used by owners and
investors in the type of real estate owned by the Partnership, utilizing
available published information and information derived from interviews
conducted by Stanger with various real estate owners and investors.
Summary of Analysis. Based in part on the above reviews, Stanger then
performed a discounted cash flow analysis (a "DCF Analysis") of the Properties.
The DCF Analysis involved the following steps.
During its site visits to each Property, Stanger conducted local market
research, including the identification and assessment of relative quality (e.g.,
condition, location amenities, etc.) of similar multi-family properties in the
competitive market area of each Property and the collection of rental rate
information for various apartment unit sizes (e.g., efficiency, one-bedroom,
two-bedroom, etc.) for such Properties. In addition, Stanger reviewed
information provided by the Managing General Partner and management of the
Properties concerning rental rates allowed for each type of apartment in each
Property subject to HUD or other rental rate restrictions (the "Subsidized
Properties") based on the HAP Contract.
Utilizing the above information, Stanger determined the gross potential
rent for each Property based on the number and type of apartment units in each
Property and (i) for Subsidized Properties, rents allowed for each type of unit
under the existing HAP Contract or other regulatory agreement ("Contract Rent"),
and (ii) the estimated market rental rates the Property would likely obtain
based on review of the rates charged at similar properties in the local market
("Market Rent"). The gross potential rent amounts based on Contract Rent and
Market Rent data were used in the DCF Analysis as described below.
Stanger also reviewed historical and budgeted gross income and income
from ancillary sources for each Property in the portfolio in light of market
trends and competitive conditions in each Property's local market. Stanger also
reviewed summary information concerning occupancy rates and any HAP contracts or
other regulatory agreements encumbering the Properties, including contract
rental rates for each unit size and contract expiration date.
After assessing the above factors, Stanger estimated each Property's
effective gross income based upon unit mix, contract or market rental rates, as
appropriate, and estimates of ancillary income and occupancy. Contract Rents
were utilized for Subsidized Properties during the term of the HAP contract or
other regulatory agreement, with a mark to market of rental rates upon
expiration of the HAP Contract or other regulatory agreement. Expenses were
estimated based on historical and budgeted operating expenses, discussions with
management, and certain industry expense information. Estimated property
operating expenses, including replacement reserves, were then deducted from
effective gross income to arrive at each Property's estimated net operating
income. Debt service payments relating to debt encumbering each of the
Properties were also considered in the "leveraged" discounted cash flow
analysis, as described below. Expenses relating solely to investor reporting and
other expenses not related to the properties were excluded from the analysis.
Stanger then discounted to present value the estimated cash flows from
the continued operation of each of the Properties during a holding period equal
to the term of the existing HAP Contracts or other regulatory agreements, or ten
years in the case of the conventional property or where the regulatory agreement
did not economically affect the property rental rates. In the case of Subsidized
Properties subject to distribution limitations, Stanger discounted cash flow
amounts up to, but not exceeding, the distribution limitation. Income and
expense escalators utilized in the analysis were based on parameters cited by
investors, owners and managers of similar properties, market factors, the
relationship of Contract Rent and estimated Market Rent, and historical and
budgeted results for each Property. Based on the relationship of Contract Rent
and Market Rent for the
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Subsidized Properties, income during the contract period was generally held flat
for Subsidized Properties or was escalated at a rate to provide sufficient
income to pay operating expenses and debt service. For the purpose of
determining the Subsidized Properties' residual value, as described below,
estimated market rental rates were generally escalated at 3% per annum. In the
case of the Conventional Property, the rental rate was escalated at 3.0% per
year during the holding period. Effective expense escalators generally ranged
from approximately 2.5% to 3.0%.
As part of its DCF Analysis, Stanger then estimated the residual values
of the Properties. In the case of the Partnership's conventional, non-subsidized
property (the "Conventional Property"), Stanger employed a direct capitalization
technique. The estimated net operating income after replacement reserves in the
eleventh year of operations was capitalized utilizing terminal capitalization
rates ranging from 11.0% to 11.5% and the resulting value was reduced by
estimated sales costs of 3%.
In the case of Subsidized Properties, Stanger evaluated the residual
Property value at the time of the existing HAP Contract or other regulatory
agreement expiration or at the end of the ten-year holding period for Subsidized
Properties for which the regulatory agreement had no economic impact on the
Property's rental income based upon the assumption that whether or not the HAP
Contract or other regulatory agreement was renewed, rents at the Property would
be marked to market rates (i.e. where Contract Rent at the time of expiration
exceeded estimated Market Rent, it was assumed that Contract Rent upon any
contract renewal would be set at an amount equal to the estimated market rent at
the time of reversion).
Stanger then evaluated estimated net operating income (after
replacement reserves) at the time of contract expiration or, where applicable,
at the end of the ten-year holding period, with rents marked to market rates, to
determine if such income would be sufficient to service the existing debt
encumbering the Subsidized Property. Where existing debt could be prepaid at the
time of contract expiration or, where applicable, at the end of the ten-year
holding period, Stanger capitalized net operating income (after replacement
reserves) with rents marked to market at rates ranging from 9.0% to, in the case
of a property subject to a ground lease, 13.0% to estimate a free and clear
residual value from which estimated expenses of sale of 3% and, in the case of
the leveraged discounted cash flow analysis, as described below, anticipated
debt balances were deducted to arrive at net residual proceeds. Otherwise, any
remaining equity cash flow after debt service available was capitalized at rates
ranging from 10.0% to 12.0% to determine a residual equity value to be used in
the Leveraged DCF Analysis.
The resulting annual cash flows and the residual value, after deduction
of estimated costs of sale, for each Property were then discounted to present
value assuming (i) the Properties were free-and-clear of mortgage debt (the
"Free-and-Clear DCF Analysis") and, for Subsidized Properties, (ii) as
encumbered by existing debt (the "Leveraged DCF Analysis"). In the case of the
Leveraged DCF Analysis, debt service payments were deducted from annual cash
flows, and the resulting annual cash flows and residual equity value were
discounted to present value using the following distinct ranges of discount
rates: (i) Subsidized Properties: leveraged cash flow discount rates ranged from
9% to, in the case of a property subject to a ground lease, 15% and residual
discount rates ranged from 12% to 15%; free-and-clear discount rates for cash
flow ranged from 8% to 12.25% and residual discount rates ranged from 11% to
14%; (ii) Conventional Property: free-and-clear cash flow and residual discount
rates ranged from 11.5% to 12.5%. In the Leveraged DCF Analysis, the resulting
equity value was then added to outstanding debt to arrive at a total estimated
Property value.
Stanger observed that the range of estimated value of the portfolio of
Properties resulting from the Leveraged DCF Analysis was $67,660,000 to
$69,590,000 and that the Aggregate Property Valuation of $70,894,912 was above
this range of value. Stanger also observed that the range of estimated value of
the portfolio of Properties resulting from the Free-and-Clear DCF Analysis was
$50,570,000 to $53,910,000 and that the Aggregate Property Valuation was above
this range of value. (The difference between the value resulting
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from the Leveraged DCF Analysis and the Free-and-Clear Analysis in part reflects
the fact that the estimated value of certain Properties is less than the debt
currently encumbering those Properties.)
Stanger concluded that the range of estimated value of the portfolio of
Properties resulting from the Free- and-Clear DCF Analysis and the Leveraged DCF
Analysis supported its opinion as to the fairness of the Aggregate Property
Valuation, from a financial point of view.
Due to the uncertainty in establishing many of the values cited above,
Stanger established a range of estimated values for each discounted cash flow
analysis. The estimated values are based in part on information provided to
Stanger in the context of rendering the fairness opinion, and there can be no
assurance that the same conditions analyzed by Stanger in arriving at the
estimates cited herein would exist at the time of consummation of the Sale. In
addition, the estimated values cited above are based on a variety of assumptions
that relate, among other things, to (i) each Property's revenues, expenses, and
cash flow; (ii) the capitalization rates that would be used by prospective
buyers when the existing HAP contracts or other regulatory agreements expire and
the Subsidized Properties are sold; (iii) ranges of residual values of the
Properties; (iv) selling costs; and (v) appropriate discount rates to apply to
estimated cash flows and residual values in computing the discounted present
value of such cash flows and residual values. Actual results may vary from those
utilized in the above analysis based on numerous factors, including interest
rate fluctuations, changes in capitalization rates used by prospective
purchasers, tax law changes, supply/demand conditions for similar properties,
changes in the availability of capital, changes in the regulations or HUD's
interpretations of existing and new regulations relating to subsidized
properties.
Conclusions. Stanger concluded, based upon its analysis of the
foregoing and the assumptions, qualifications and limitations stated below, as
of the date of the Fairness Opinion, that the Aggregate Property Valuation
utilized in connection with determining the Purchase Price to be paid to the
Partnership for the Real Estate Interests is fair to the Limited Partners from a
financial point of view.
Assumptions, Limitations and Qualifications. In rendering the Fairness
Opinion, Stanger relied upon and assumed, without independent verification, the
accuracy and completeness of all financial information and data, and all other
reports and information contained in this Consent Solicitation Statement or that
were provided, made available, or otherwise communicated to Stanger by the
Partnership, the Managing General Partner and/or its affiliates, the Local
Partnerships or the management of the Properties. Stanger has not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of the Partnership. Stanger relied upon the representations of
the Managing General Partner and its affiliates, the Local Partnerships and the
management of the Properties concerning, among other things, any environmental
liabilities, deferred maintenance and estimated capital expenditure and
replacement reserve requirements, and the terms and conditions of any debt, HAP
Contracts, other regulatory agreements or ground leases encumbering the
Properties. Stanger also relied upon the assurance of the Partnership, Casden,
the Managing General Partner and its affiliates, the Local Partnerships, and the
management of the Properties that any financial statements, budgets, capital
expenditure estimates, debt and HAP Contract regulatory agreement and ground
lease information, value estimates and other information contained in this
Consent Solicitation Statement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; that all distributions under HAP Contracts or other regulatory
agreements with distribution limitations allowable cumulatively since the time
of the partnership's investments in each Local Partnership have been paid in
full to the Partnership; that no material changes have occurred in the value of
the Properties or other information reviewed between the date of such
information provided and the date of the Fairness Opinion; that the Partnership,
Casden, the Managing General Partner and its affiliates, the Local Partnerships
and the management of the Properties are not aware of any information or facts
that would cause the information supplied to Stanger to be incomplete or
misleading in any material respect; that the highest and best use of the
Properties is as improved; and that all calculations were made in accordance
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with the terms of the Partnership Agreement, the Local Partnership agreements,
ground leases and the existing and anticipated regulatory agreements. Additional
specific assumptions relating to Stanger's analysis are included in the
subsection captioned "Summary of Analysis" above.
Stanger was not requested to, and therefore did not: (i) select the
method of determining the Aggregate Property Valuation utilized in connection
with determining the Purchase Price in the Sale; (ii) make any recommendation to
the Partnership or its partners with respect to whether to approve or reject the
proposed Sale; or (iii) express any opinion as to (a) the tax consequences of
the proposed Sale to the Limited Partners, (b) the terms of the Partnership
Agreement, or the fairness of proposed Amendments to the Partnership Agreement,
or the terms of any agreements or contracts between the Partnership, any
affiliates of the Managing General Partner and the Local Partnerships, (c) the
Managing General Partner's business decision to effect the proposed Sale, (d)
any adjustments made to the Aggregate Property Valuation to determine the
Purchase Price of the Real Estate Interests and the net amounts distributable to
the Limited Partners, including but not limited to, balance sheet adjustments to
reflect the Managing General Partner's estimate of the value of current and
projected net working capital balances and cash and reserve accounts (including
debt service and mortgage escrow amounts, operating and replacement reserves,
and surplus cash reserve amounts and additions) and the income therefrom of the
Partnership or the Local Partnerships, the Managing General Partner's
determination that no value should be ascribed to any reserves of the Local
Partnerships or the cash flow from the Properties in excess of certain
limitations on distributions to the Partnership, the Managing General Partner's
determination of the value of any notes due to affiliates of the Managing
General Partner or management of the Local Partnerships, the allocation of the
Aggregate Property Valuation among the Local Partnerships, the amount of the
Aggregate Property Valuation ascribed to certain general partner and/or
management interests in the Local Partnerships and other expenses and fees
associated with the Sale (e) the fairness of the buyout costs of certain general
partner and/or management interests in the Local Partnerships, the allocation of
such buyout costs among the Local Partnerships, or the amount of any contingency
reserves associated with such buyouts or with the transfer of partnership
interests of one of the Local Partnerships, (f) the Managing General Partner's
decision to deduct the face value of certain notes payable to affiliates and/or
management of the Local Partnerships in determining the Purchase Price to be
paid for the Real Estate Interests where the actual cost of purchasing the notes
may be less than the face value of the notes, (g) the Purchase Price to be paid
for the Real Estate Interests, or (h) alternatives to the proposed Sale.
Stanger is not expressing any opinion as to the fairness of any terms
of the proposed Sale other than the Aggregate Property Valuation utilized in
connection with determining the Purchase Price of the Real Estate Interests paid
to the Partnership. Stanger's opinion is based on business, economic, real
estate and capital market, and other conditions as of the date of its analysis
and addresses the proposed Sale in the context of information available as of
the date of its analysis. Events occurring after such date and before the
closing of the proposed Sale of the Real Estate Interests to the REIT could
affect the Properties or the assumptions used in preparing the Fairness Opinion.
Stanger has no obligation to update the Fairness Opinion on the basis of
subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not
engaged to, and consequently did not, prepare any written report or compendium
of its analysis for internal or external use beyond the analysis set forth in
Exhibit A.
Compensation and Material Relationships. Stanger has been retained by
the Managing General Partner and its affiliates to provide fairness opinions to
the Partnership and the other Casden Partnerships included in the REIT
Transaction. Stanger will be paid an aggregate fee by the Casden Partnerships of
up to approximately $455,000, plus $4,100 per property reviewed. The portion of
the fee allocable to the Partnership is approximately $27,800, plus $4,100 per
property reviewed by Stanger, or an aggregate of approximately $81,100. In
addition, Stanger is entitled to reimbursement for reasonable legal, travel and
out-of-pocket expenses incurred in making site visits and preparing the Fairness
Opinion, subject to an aggregate maximum of up to approximately $1,000,
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plus $600 per Property, and is entitled to indemnification against certain
liabilities, including certain liabilities under federal securities laws.
Stanger has not been engaged to and has not provided services, and will not
participate or otherwise be involved in the REIT private placement. In addition,
Stanger has not been approached or engaged to provide any services in connection
with a future public offering by the REIT. No portion of Stanger's fee is
contingent upon consummation of the Sale or completion of the REIT Transaction.
Alternatives to the Sale
The following is a brief discussion of alternatives to the Sale
considered by the Managing General Partner and the possible benefits and
disadvantages of such alternatives:
Continuation of the Partnership. One alternative considered by the
Managing General Partner was the continuation of the Partnership in accordance
with its existing business plan and its Partnership Agreement. However, the
Partnership is not currently realizing material cash flow that is available for
distribution to the Limited Partners and does not anticipate realizing
sufficient cash flow in the future to enable it to make distributions to Limited
Partners. Limited Partners will realize an aggregate of approximately $1,303,596
in current passive activity rental losses for 1997. Federal depreciation
deductions that are primarily responsible for generating losses realized by the
Limited Partners should continue to decline until the end of the depreciable
lives of the Properties, when taxable income to Limited Partners will exceed
cash distributions. Federal depreciation for all of the Properties will cease to
be available within one year. Furthermore, the Managing General Partner does not
believe that the Partnership would be able to realize the potential benefits
which the REIT anticipates may be available to it after acquisition of the Real
Estate Interests. These potential benefits require the acquisition of (i) the
partnership interests held by the local general partners, (ii) the right to
manage the Properties, and (iii) the insured mortgage encumbering the
Properties, which would require the Partnership to raise significant additional
capital. The Managing General Partner believes it will be impractical to seek
additional capital contributions from Limited Partners in order to recapitalize
the Partnership and that the Partnership could not access the capital markets.
Because there appears to be no active trading market for the Units, and because
there are no apparent benefits from continued ownership of Units, Limited
Partners may not be able to liquidate their investment in the Units while the
Partnership remains in existence. Furthermore, the partnership agreements of the
Local Partnerships do not grant the limited partner of such partnerships (REAL
VI) the right to remove the local general partner or to compel a sale of the
assets of such Local Partnership. Because there appears to be no market for the
Properties and the Partnership cannot cause a sale of the Properties, the
Properties are likely to remain under the control of the local general partners
indefinitely if the Sale is not consummated.
Marketing the Properties for Sale to Third Parties. The Managing
General Partner also considered marketing the Properties to third parties. The
Properties can only be marketed in cooperation with the local general partners.
The Managing General Partner does not believe that such alternative is viable or
would be in the best interests of the Limited Partners, because the Managing
General Partner is not aware of any third party buyers willing to purchase such
a portfolio of Properties and believes that, even if such a buyer could be
identified, such a sale would be unlikely to result in a purchase price for the
Properties as high as the Purchase Price offered in connection with the Sale. In
light of the limited cash flow currently generated by the Properties, the degree
of control the local general partners exercise over the Properties and the
anticipated adverse consequences of the recent changes in the laws and policies
applicable to HAP Contracts, the Managing General Partner does not believe that
a favorable market for the Properties currently exists. In addition, because
REAL VI owns limited partnership interests in the Local Partnerships that hold
title to the Properties and the general partners of such Local Partnerships are
generally unaffiliated with the Managing General Partner of REAL VI, the buyout
of the local general partners would be necessary for a third party to acquire
the Properties. The Managing General Partner believes it would be difficult to
find a single buyer for the Properties as a group, and that selling the
Properties on a Property-by-Property basis would involve an extensive
negotiating process over
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an extended period of time. During the continuation of such process, the
Partnership would continue to be responsible for all costs relating to the
Properties and the Partnership's ongoing administrative expenses and there would
likely be higher transaction costs, such as brokers' fees and attorneys' fees,
relating to sale of the Properties if they were sold individually. The Managing
General Partner has received inquiries in the past concerning certain of the
conventional Properties, none of which have resulted in a firm offer. The
Managing General Partner has not received and has not been advised of any bona
fide third party offers or indications of interest for any of the Properties and
the Managing General Partner does not believe there are any third party buyers
of low income housing projects that would be able to match the Purchase Price
offered by the REIT for the portfolio of Properties. The Managing General
Partner believes that it is unlikely that third party buyers could be found to
purchase the Real Estate Interests at a higher price than the Purchase Price.
While the Managing General Partner has not consulted any real estate
brokers or other real estate professionals concerning potential purchasers for
the Real Estate Interests, based upon the Managing General Partner's experience
and familiarity with the market for low income housing, the Managing General
Partner does not believe that there are other potential bidders for the Real
Estate Interests at the Purchase Price. The Managing General Partner's
determination was based upon a number of factors, including the need for a
purchaser to negotiate the purchase of the Real Estate Interests with the
Partnership and enter into a transaction with the Partnership which would
require limited partner approval; the need for a purchaser to negotiate separate
transactions with each of the local general partners; the need for a purchaser
to have sufficient capital to purchase the interests of the local general
partners and the Partnership, and to purchase mortgage loans encumbering the
Properties and negotiate restructurings, which the Managing General Partner
believes is necessary to realize a return on the investment in the Properties;
and the impact of recent changes in the law and regulations of HUD relating to
HAP Contracts, which impacts the value of the Properties. As a result, the
General Partner believes that any transaction with a potential purchaser would
be time consuming, difficult to consummate and unlikely to result in a purchase
price higher than the Purchase Price. However, there can be no assurance that a
higher purchase price would not be received if the Properties were actively
marketed.
Rollup. The Managing General Partner considered combining the Casden
Partnerships into a new corporation that would qualify as a REIT entity. As a
result of such a transaction, the Limited Partners would have received shares of
stock in the REIT (or partnership interests convertible into REIT shares), which
would have been listed on a national stock exchange. Such a transaction would be
expected to (a) provide investors in the new entity with the opportunity to
liquidate their investment through the sale of the shares received in the
transaction, (b) permit distribution to investors of a simpler federal income
tax Form 1099-DIV (rather than Schedule K-1), and (c) provide investors with the
potential for receiving securities with a greater value than the proceeds they
will receive as a result of the Sale. Furthermore, such an entity would provide
increased asset diversification and, due to its size, improved access to capital
markets.
The Managing General Partner believes, however, that such a transaction
would have significant disadvantages. As a result of new legislation and
regulations, it believes that obtaining the necessary regulatory approvals for a
rollup would be very difficult, expensive and time-consuming. The Managing
General Partner was not confident that a rollup transaction could be completed
within a reasonably practical time period. Furthermore, the Managing General
Partner believes that there could be significant selling pressure on the
securities issued in connection with a rollup and that such selling pressure
might cause the price of the stock of the rollup entity to decline following
completion of the rollup transaction.
Another disadvantage of a rollup transaction is that the transaction
would cause the Limited Partners to incur a tax on the gain reflected in the
value of the stock of the new entity. The Managing General Partner determined
that Limited Partners would not be able to defer taxation through the use of an
UPREIT structure due to difficulties likely to be experienced in obtaining
approval from various states for the distribution of operating partnership
interests. Unless a Limited Partner sold all or a portion of the securities
received in the transaction,
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such Limited Partner would have no additional cash with which to pay the taxes
which would result from the completion of a rollup transaction. The need for
cash to pay the taxes on the transaction could cause downward pressure on the
price of the stock. In addition, a Limited Partner would incur brokerage
commissions on the sale of any securities received in a rollup transaction,
thereby reducing the net proceeds received in the transaction.
Reorganization into a REIT. The Managing General Partner considered the
advisability of reorganizing the Partnership as a corporation treated as a real
estate investment trust. If approved, such a transaction would have provided
some advantages to the Limited Partners. Such a reorganization would be expected
to (a) provide investors in the reorganized entity with liquidity, (b) permit
distribution to investors of a simpler federal income tax form 1099-DIV
(compared to Schedule K-1), and (c) potentially be formed tax free to the
Limited Partners. The Managing General Partner was advised that the
reorganization of the Partnership into a REIT has a number of significant
disadvantages. For example, the small size of the reorganized Partnership, the
lack of diversification, the degree of debt relative to equity, and the absence
of internalized, integrated management would result in limited markets for the
shares of the newly formed real estate investment trust. As a result, the
Managing General Partner was advised that it would be unlikely that the real
estate investment trust shares would perform well in the market. In addition,
the Managing General Partner believes that the size of the resulting real estate
investment trust would not enable it to access the capital markets on an
advantageous basis.
Recommendation of the Managing General Partner; Fairness
The recommendation of the Managing General Partner in favor of the Sale
is based upon its belief that the Sale is fair to the Limited Partners for,
among others, the following reasons: (a) its belief that the terms and
conditions of the Sale, including the Aggregate Property Valuation and the
Purchase Price, are fair to the Limited Partners of the Partnership; (b) its
belief that the alternatives available to the Partnership are not as attractive
to the Limited Partners as the Sale; (c) its belief that now may be an opportune
time for the Partnership to sell the Properties, given current conditions in the
real estate and capital markets; and (d) its belief that the Purchase Price
represents a higher amount than a third party would offer the Partnership for
the Real Estate Interests.
The Managing General Partner has not obtained real estate appraisals to
establish the fair market value of the Properties, but, based upon its
significant real estate experience, it believes that the Aggregate Property
Valuation utilized in connection with determining the Purchase Price is not less
than the fair market value of the Properties. In addition, Stanger has opined
that the Aggregate Property Valuation used in determining the Purchase Price for
the Real Estate Interests is fair to the Limited Partners from a financial point
of view.
The Purchase Price was determined by the Managing General Partner. The
Managing General Partner valued the Real Estate Interests using the following
methodology. For Local Partnerships with HAP Contracts with expiration dates
more than ten years in the future, the Managing General Partner determined the
value by taking the aggregate net operating income before interest expense and
management fees (as adjusted for dividend restrictions with respect to
Properties subject to dividend restrictions) for such Local Partnership for
1996, less capital expenditures, and applied a capitalization rate of 11%. For
Local Partnerships with HAP Contracts expiring in six years or less, the
Managing General Partner calculated such Local Partnership's distributions for
1996 (or in certain cases used a three year average where the General Partners
did not believe that the 1996 distributions were representative), added the
management fees payable to the general partner of such Local Partnership for
1996, assumed that these distributions would be received for the balance of the
term of the HAP Contracts and discounted these future distributions at a
discount rate of 10%. For the Local Partnership with no HAP Contract, the
Managing General Partner determined the value by taking the 1996 net operating
income before interest expense and management fees, less capital expenditures,
applied a capitalization rate of 9%, then deducted $3,500 per apartment unit in
consideration of deferred maintenance requirements. To the extent that capital
expenditures were less that $600 per apartment unit, which was the case for most
of the Properties, the Managing General Partner has increased the capital
expenditures for purposes of this calculation to $600 per
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apartment unit to cover future recurring repair and maintenance requirements.
Based on the methodologies utilized, the increase in capital expenditures
affected the valuation of six of the thirteen properties. In selecting the
capitalization rates, the Managing General Partner took into account the
expectation that cash flow would be significantly reduced after expiration of
the current HAP Contracts and used a higher capitalization rate if the HAP
Contracts expired earlier. With respect to the Local Partnerships with HAP
Contracts expiring in six years or less, the Managing General Partner assumed
that the Properties would have no residual value upon expiration of the
respective HAP Contracts, due to the uncertainties as to future cash flow
following the expiration of the term of the HAP Contracts.
Based on such assumptions, and on certain increases in the aggregate
valuation as a result of discussions with the fairness opinion provider, the
Managing General Partner determined that the thirteen Properties owned by the
Local Partnerships that the Managing General Partner currently anticipates will
be included in the Sale have aggregate value of $70,894,912 (the "Aggregate
Property Valuation"). The Managing General Partner subtracted from the Aggregate
Property Valuation (i) $17,617,110 for the aggregate estimated value of the
general partnership interests in the Local Partnerships (excluding the general
partnership interests of the two local general partners that are affiliates of
the Managing General Partner) and the local general partners' right to future
management fees, including $71,748 attributable to the right to receive the
future management fees payable to the three local general partners affiliated
with the Managing General Partner (see "THE SALE -- Arrangements with General
Partners of the Local Partnerships"), and (ii) the outstanding mortgage
indebtedness and related party indebtedness of the Local Partnerships of
$51,880,721. In no event was the valuation of any of the Real Estate Interests
with respect to any of the Local Partnerships reduced below zero on account of
such indebtedness. The Managing General Partner deducted a contingency reserve
relating to potential costs in connection with the transfer of the partnership
interests of one of the Local Partnerships (which is included in the $17,617,110
referred to above). To the extent that the amount of costs payable in connection
with the transfer of the interests in such Local Partnership is less than the
contingency reserve, the Purchase Price payable to the Partnership will be
increased by the amount of such difference. The amount of the Aggregate Property
Valuation allocated to the general partnership interests in the Local
Partnerships is based in part upon the anticipated cost of buying out the local
general partners. The cost to buy out the unaffiliated general partners of the
Local Partnerships has been determined in arm's-length negotiations between the
Managing General Partner and the general partners of the Local Partnerships.
However, while the costs of such buyouts will be paid by the REIT and the
buyouts will benefit the REIT, a portion of such costs will be indirectly borne
by the Limited Partners. The calculations of the Managing General Partner
described above resulted in distributable cash out of the proceeds of the Sale
of $1,397,081.
The Managing General Partner believes that the method used to determine
the Purchase Price was reasonable in light of the fact that the Partnership owns
limited partnership interests in the Local Partnerships and does not own the
Properties directly, and that any sale of the Properties is subject to the
approval of the general partners of the Local Partnerships. In addition, as
discussed below, recent changes in HUD laws and policies are expected to
adversely impact the Partnership's cash flow and prospects.
The Managing General Partner believes that the Purchase Price is fair
and reasonable and exceeds the price that the Partnership would likely receive
if the Real Estate Interests were to be sold to a third party or parties. It
should be noted that, for purposes of calculating the value of the Real Estate
Interests, the Managing General Partner assumed that certain of the Properties
would have no residual values upon expiration of the respective HAP Contracts
applicable to such Properties, based on its belief that cash flow after
expiration of the HAP Contracts will be significantly reduced, as discussed
below. The Managing General Partner made the same assumption when determining
the capitalization rates used in their valuation calculations. Different
assumptions would likely have resulted in different valuations for the Real
Estate Interests.
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In determining the valuation of the Real Estate Interests, no
adjustment was made for the amount by which the value of assets other than the
Properties exceeded liabilities other than mortgage and certain related party
indebtedness because the Managing General Partner does not believe that these
assets are material (other than the Reserve Accounts referred to below). In
addition, pursuant to certain state housing finance statutes and regulations,
certain of the Local Partnerships are subject to limitations on the
distributions of dividends to the Partnership. Such statutes and regulations
require such Local Partnerships to hold cash flows in excess of such dividend
limitations in Reserve Accounts that may be used only for limited purposes. The
Purchase Price was calculated without attributing value to the Reserve Accounts.
The Managing General Partner believes that state regulatory considerations
limiting the availability of the Reserve Accounts to the Partnership have the
effect of substantially reducing or eliminating entirely any value attributable
to such Reserve Accounts. Nonetheless, the REIT may be able to realize a benefit
in the future by obtaining a reduction in the amount required to be held in the
Reserve Accounts.
The Managing General Partner relied on the following qualitative
factors in determining that the Sale is fair to the Limited Partners:
o The Properties do not currently produce significant cash flow and the
Partnership has not made distributions to date. The Partnership's
investment in the Properties was initially structured primarily to obtain
tax benefits, and not to provide cash distributions. Due to changes in the
tax laws pursuant to which losses of the Partnership are treated as passive
losses and can only be deducted against passive income, most Limited
Partners are not realizing material tax benefits from continuing to own
their limited partnership interests. Accordingly Limited Partners are not
receiving material benefits from continuing to hold their interests in the
Partnership.
o Recent changes in HUD laws and policies are expected to adversely affect
the Partnership's cash flow and prospects. Under MAHRAA, to the extent that
rents are above market, as is the case with most of the subsidized
Properties, the amount of the HAP Contract payments will be reduced. While
MAHRAA also contemplates a restructuring of the mortgage loans to reduce
the current debt service on the mortgage loans, it is expected that the
combination of the reduced HAP Contract payments and the restructuring of
the mortgage loans will result in a significant reduction in the cash flow
to the Local Partnerships. In the case of two restructurings that are
currently being negotiated by affiliates of the Managing General Partner
(involving Section 8 properties owned by Casden Partnerships other than the
Partnership), the restructurings proposed by HUD will significantly reduce
the cash flow from these properties. Furthermore, since the local general
partners would control the restructuring negotiations and most of the local
general partners' income results from their management fees, there can be
no assurance that any restructuring negotiated by local general partners
will optimize cash flow to the Partnership. Moreover, there are a number of
uncertainties as to the restructuring process, including potential for
adverse tax consequences to the Limited Partners. The Managing General
Partner does not believe that the "market" rents generated by the
Properties after reduction of the HAP Contract payments under MAHRAA will
be materially in excess of the debt service and operating expenses on such
Properties after expiration of the applicable HAP Contracts and accordingly
do not expect the Properties to produce any significant cash flow at such
time. When determining the Purchase Price offered for the Real Estate
Interests, the Managing General Partner ascribed no residual value to
certain of the Properties. The Managing General Partner believes that it is
highly unlikely that the Limited Partners of the Partnership will benefit
from any restructuring under MAHRAA.
o Due to the Partnership's limited current cash flow and the uncertainties
created by MAHRAA, the Managing General Partner does not believe that the
Properties could be sold to a third party on terms comparable to those of
the proposed Sale. In addition, the Partnership owns only limited
partnership interests in the Local Partnerships that hold title to the
Properties and the general partners of such unaffiliated Local Partnerships
are unaffiliated with the Managing General Partner of the Partnership. As a
result, the simultaneous buyout
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of the local general partners is necessary in order to acquire the
Properties. Accordingly, it would be difficult for the Partnership to seek
a third party buyer for all of its Real Estate Interests.
The Managing General Partner did not quantify, reach independent
conclusions regarding or otherwise assign relative weights to the individual
qualitative factors listed above. Instead, the Managing General Partner
considered the diminishing prospects of the Partnership in light of the totality
of the circumstances. The Managing General Partner believes that each of the
factors considered supported its determination that the Sale is fair to the
Limited Partners.
The REIT has offered to purchase the Real Estate Interests because the
acquisition of such interests is an important component in the formation of the
REIT and such acquisition may assist the REIT in carrying out its strategy of
acquiring the FHA-insured mortgage loans encumbering the Properties and
generating cash flow in connection with of such loans. The REIT intends to
purchase the local general partners' general partnership interests, including
the right to manage the Properties. The REIT believes that acquisition of the
Real Estate Interests, the partnership interests of the local general partners,
the right to manage each of the Properties, and the insured mortgage
indebtedness currently encumbering the Properties will allow it to (i) earn fee
income through the property management functions formerly performed by the local
general partners and (ii) restructure the mortgage loans on the Properties on
terms more advantageous than could be obtained by the Partnership. The REIT's
greater access to the capital markets will allow it to take advantage of
opportunities that are unavailable to the Partnership and inconsistent with the
Partnership's original objectives. The Partnership's investment objectives
contemplated that the Partnership would dispose of its Real Estate Interests and
liquidate. The Partnership's investment objectives did not contemplate the
Partnership raising additional capital or acquiring additional partnership
interests or mortgage loans, which would be necessary for the Partnership to
realize the potential benefits anticipated by the REIT.
The Managing General Partner also considered the fairness of the terms
of the Sale, including the allocation of the Aggregate Property Valuation to the
local general partners and the Purchase Price. REAL VI owns limited partnership
interests in the Local Partnerships that hold title to the Properties that the
REIT has offered to purchase. The simultaneous buyout of the local general
partners is necessary in order to enable the Partnership to realize the value of
its Real Estate Interests. Accordingly, the amount required to be paid by a
purchaser (whether a third party buyer or the REIT) to purchase the interests of
the local general partners will have the effect of reducing the amount of
consideration which a buyer is willing to pay for the Partnership's Real Estate
Interests. The amounts that the Managing General Partner will pay to the
unaffiliated local general partners in connection with the buyouts of the nine
unaffiliated local general partners with whom the REIT has entered into option
agreements have been determined in arm's-length negotiations. The Managing
General Partner believes that the terms of such buyouts are fair to the
Partnership. Therefore, the Managing General Partner believes that, while the
amount paid to the local general partners affects the amount of distribution to
Limited Partners and the buyout of the local general partners' interests will
benefit the REIT, the terms of these transactions are fair to the Partnership
and the Limited Partners. In addition, the Managing General Partner believes
that the amount to be distributed to the Limited Partners from the Sale is fair
to the Limited Partners. The distributions represent the Purchase Price plus
$1,400,000 of cash held by the Partnership.
Secondary and Market Prices for Units. The highest and lowest Unit sale
prices as reported to NAPICO by certain secondary market firms involved in sales
of the Units over the twelve-month period ended December 31, 1997 were $250.03
and $1.00, respectively. When gathering such data, NAPICO requests that the
recorded prices per Unit include any mark-ups for Units sold by the firms acting
as principals in the secondary market transactions and include any commissions
charged by them for facilitating the transactions, unless the firms acted as
retail brokers. When considering secondary market prices for the Units, Limited
Partners should note that the proposed Sale is for only 13 of the 34 properties
owned by the Partnership and that Limited Partners will continue
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to own their Units after consummation of the Sale. The Partnership will continue
to hold interests in twenty properties after the Sale.
No established market for the Units was ever expected to develop and
the secondary market transactions for the Units have been limited and sporadic.
It is not known to what extent the transactions in the secondary market are
between buyers and willing sellers, each having access to relevant information
regarding the financial affairs of the Partnerships, expected value of their
assets, and their prospects for the future. Many transactions in the secondary
market are believed to be distressed sales where sellers are highly motivated to
dispose of the Units and willing to accept substantial discounts from what might
otherwise be regarded as the fair value of the interest being sold, to
facilitate the sales. Secondary market prices generally do not reflect the
current market of the Partnerships' assets, nor are they indicative of total
return, because tax benefits received by original investors are not reflected in
such price. Nonetheless, notwithstanding these qualifications, the secondary
market prices, to the extent that the reported data are reliable, are indicative
of the prices at which the Units trade in the illiquid secondary markets.
On October 20, 1997, the Limited Partners received an offer from Equity
Resource Fund XX to purchase up to 400 of the outstanding units at a purchase
price of $250 per Unit. On June 26, 1998, the Limited Partners received an offer
from Bond Purchase L.L.C. to purchase up to 835 of the outstanding Units at a
purchase price of $333.00 per Unit.
The Managing General Partner did not give any specific weight to any
one of the foregoing factors but viewed them in the aggregate in supporting its
fairness determination. The Managing General Partner recommends that the Sale be
approved by the Limited Partners. Limited Partners should note, however, that
the Managing General Partner's recommendation is subject to inherent conflicts
of interest. See "CONFLICTS OF INTEREST."
Other Measures of Value. The Managing General Partner has not
calculated a going concern value or a liquidation value of the Units. Due to the
anticipated reduction in HAP payments at the expiration of HAP Contracts, as
described above, and the uncertainties relating to the impact on cash flow of
the restructuring of the FHA-insured mortgage loans, the Partnership does not
believe there is a sufficient basis to estimate future cash flows and calculate
going concern value. Similarly, due to the limited cash flows from the
Properties and the potential impact of the anticipated reductions in payments
under HAP Contracts, and the absence of future tax benefits from the Properties,
the Partnership does not believe that there is a sufficient market for
estimating the fair market value of the Properties. The Managing General Partner
has not calculated an estimate of the liquidation value of the Units assuming
that the Partnership's Properties were sold at their book value. The net book
value of the Properties (i.e. book value less mortgage indebtedness) is less
than zero, which is common with real estate that has been held for an extended
period. The book value of the real estate assets is based upon the original cost
of those assets, increased for capital expenditures and reduced for accumulated
depreciation, computed in accordance with generally accepted accounting
principles. The Managing General Partner did not obtain appraisals of the
Properties because, given the nature of the Properties, the uncertainties
resulting from the changes in law and policy relating to payments under HAP
Contracts, and the relatively small value of each of the Properties, the
Managing General Partner does not believe that the benefits to be derived from
such appraisals justified the expense to the Partnership. The Managing General
Partner does not believe that the price that Limited Partners originally paid
for their Units was relevant in determining the Purchase Price for the Real
Estate Interests and therefore gave it no weight when determining the fairness
of the proposed Sale.
The Units were offered primarily to provide tax benefits to Limited
Partners and only secondarily to provide return of capital or appreciation in
value. In addition, due to recent changes in HUD law and policies relating to
HAP Contracts, the potential future return from the Properties, and therefore
the economic value of the Properties themselves, has been materially reduced.
REAL VI was originally structured to take advantage of
-37-
<PAGE>
opportunities provided by the Internal Revenue Code and the United States
Housing Act. Changes in the tax code and the housing statutes have to a large
extent eliminated such opportunities and have adversely affected the economic
value of the Properties. In light of the current regulatory environment for
tax-driven low-income housing investments, the Managing General Partner does not
believe that the 1983 offering price of the Units should be a material factor in
calculating the Purchase Price for the Real Estate Interests. Accordingly, the
Managing General Partner does not believe that the purchase price originally
paid by Limited Partners for their Units is relevant to the determination of the
adequacy of the Purchase Price on a sale of the Real Estate Interests.
Post-Sale Operations of the Partnership
Following consummation of the Sale, the Partnership will retain its
limited partnership interests in twenty local partnerships. The Managing General
Partner of the Partnership does not anticipate that cash flows generated by such
local partnerships will be adequate to meet the operating expenses of such local
partnerships on an ongoing basis and that the Partnership will be required to
utilize its cash reserves to meet its operating expenses. Based on March 31,
1998 balances, the Partnership will retain approximately $4,700,000 after
payment of transaction costs and distribution of cash. The pro forma net cash
flow for the remaining Properties for the year ended December 31, 1997 and the
quarter ended March 31, 1998 resulted in a surplus of approximately $417,588 and
a deficit of approximately $88,838, respectively. The Managing General Partner
intends to eventually dispose of the Partnership's interests in the remaining
projects, then wind up the affairs of the Partnership, although the time frame
for such activities has not yet been determined, and such dispositions would
require approval of the general partners of the Local Partnerships. there can be
no assurance that the Partnership will be able to generate additional cash for
distributions to Limited Partners as a result of dispositions of the remaining
Properties.
Historical and Pro Forma Financial Information
The following is condensed financial information with respect to those
properties in which the Partnership will continue to own interests if the Sale
is approved. Given the structure of the proposed Sale, the composition of the
Partnership after the Sale will depend to some extent upon the number of general
partners of the Local Partnerships that elect to transfer their interests in the
Local Partnerships to the REIT.
The pro forma balance sheet of the Partnership has been prepared as if
the Sale was consummated on December 31, 1997. The pro forma statements of
operations of the Partnership for the year ended December 31, 1997 assume that
the Sale was consummated on January 1, 1998. The Sale will be accounted for
using the purchase method of accounting.
The pro forma financial statements are based on available information
and on certain assumptions, as set forth in the notes to pro forma financial
statements, that NAPICO believes are reasonable under the circumstances.
These statements do not purport to represent what the Partnership's
financial position, results of operations or cash flows would actually have been
if the Sale in fact had occurred on such dates or at the beginning of such
period or the Partnership's financial position, results of operations or cash
flows for any future date or period.
-38-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Pro Forma Consolidated Balance Sheet
As of March 31, 1998
(unaudited)
Assets
Pro Forma Pro Forma
Historical Adjustments Consolidated
---------- ----------- ------------
Investments in Limited Partnership $6,012,451 $(3,467,672)(A) $2,544,779
Rental Property, net of accum. dep. 2,972,435 (2,972,435)(B) -
Cash and Cash Equivalents 6,523,970 (232,557)(C) 6,291,413
Cash, restricted 38,465 (38,465)(D) -
Other Assets 242,196 (174,284)(E) 67,912
------- -------- ------
Total Assets $15,789,517 $(6,885,413) $8,904,104
=========== =========== ==========
Liabilities and Partners' Equity (Deficiency)
Liabilities:
Mortgage notes payable related
to properties $4,828,404 $(4,828,404)(F) $0
Notes payable, amounts due for
partnership interests 5,795,000 (4,200,000)(G) 1,595,000
Accrued interest payable 6,219,167 (4,714,623)(H) 1,504,544
Accounts Payable 139,533 (21,000)(I) 118,533
Other liabilities 38,465 (38,465)(J) -
17,020,569 (13,802,492) 3,218,077
Partners' Equity (Deficiency) (363,500) 69,171(K) (294,329)
General partners
Limited Partners (867,552) 6,847,908(L) 5,980,356
(1,231,052) 6,917,079 5,686,027
Total Liabilities and Partners'
Equity $15,789,517 $(6,885,413) $8,904,104
-39-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Notes to Pro Forma Balance Sheet
As of March 31, 1998
(unaudited)
Pro Forma Balance Sheet Adjustments
(A) Investments in Limited Partnerships
Historical Balance $6,012,451
----------
Less:
Echo Valley Apts (65,987)
Hudson Gardens (402,727)
Mulberry (2,850,104)
Victory Square (148,854)
--------
Pro Forma Adjustment (3,467,672)
----------
Pro Forma Balance $2,544,779
==========
(B) Peppertree property investment balance (a REIT property)
(C) $232,557 Peppertree cash (a REIT property)
(D) $38,465 Peppertree restricted cash for security deposits (a REIT
property)
(E) Peppertree prepaid expenses and deferred loan costs (a REIT property)
(F) Peppertree mortgage notes payable (a REIT property)
(G) Notes Payable
Historical Balance $5,795,000
----------
Less:
City Heights (1,450,000)
Eastridge (170,000)
Echo Valley (800,000)
Mulberry (1,360,000)
Victory Square (420,000)
--------
Pro Forma Adjustment (4,200,000)
----------
Pro Forma Balance $(1,595,000)
===========
-40-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Notes to Pro Forma Balance Sheet
As of March 31, 1998
(unaudited)
Pro Forma Balance Sheet Adjustments (continued)
(H) Interest Payable
Historical Balance $6,219,167
----------
Less:
City Heights (1,494,404)
Eastridge (231,623)
Echo Valley (975,943)
Mulberry (1,472,437)
Peppertree (35,365)
Victory Square (504,851)
--------
Pro Forma Adjustment (4,714,623)
----------
Pro Forma Balance $1,504,544
==========
(I) $21,000 Peppertree account payable and deferred rental income (a REIT
property)
(J) Peppertree tenant security deposit liabilities (a REIT property)
(K) General Partners' Deficiency
1% of pro forma equity adjustments.
(L) Limited Partners' Equity
99% of pro forma equity adjustments.
-41-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Pro Forma Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 Year Ended December 31, 1997
--------------------------------- ----------------------------
Pro Forma Pro Forma
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Operations:
Revenue 274,405 274,405 (A) - 1,070,895 (1,070,895) (A) -
---------- ----------- --------- ---------- ----------- ---------
Expenses:
General and Administrative 92,139 (92,139) (A) - 84,870 (84,870) (A) -
Operating 90,438 (90,438) (A) - 369,779 (369,779) (A) -
Management fees - affiliate - - - 53,500 (53,500) (A) -
Depreciation and amortization 43,614 (43,614) (A) - 156,480 (156,480) (A) -
Interest (121,155) (121,155) (A) - 426,337 (426,337) (A) -
---------- ----------- --------- ---------- ----------- ---------
347,346 (347,346) - 1,090,966 (1,090,966) -
---------- ----------- --------- ---------- ----------- ---------
Loss from rental operations (72,941) 72,941 - (20,071) 20,071 -
---------- ----------- --------- ---------- ----------- ---------
Partnership Operations:
Interest Income 76,323 (3,782) (B) 72,541 299,009 (13,066) (B) 285,943
---------- ----------- --------- ---------- ----------- ---------
Operating Expenses:
Management fees - general partner 125,556 (65,697) (C) 59,859 501,660 (262,788) (C) 238,872
General and Administrative 71,359 - 71,359 396,600 - 396,600
Interest 133,425 (103,263) (D) 30,162 533,700 (413,050) 120,650
---------- ----------- --------- ---------- ----------- ---------
Total Operating Expenses 330,340 (168,960) 161,380 1,431,960 (675,838) 756,122
---------- ----------- --------- ---------- ----------- ---------
Loss from Operations (254,017) 165,179 (88,838) (1,132,951) 662,772 (470,179)
---------- ----------- --------- ---------- ----------- ---------
Distributions from Limited Partnerships
Recognized as Income 70,800 (70,800) (E) 0 499,540 (350,677) (F) 148,863
Equity in income of limited Partnerships
and Amortization of Acquisition Costs 182,000 (60,669) (F) 121,331 625,025 (242,676) (F) 382,349
---------- ----------- --------- ---------- ----------- ---------
NET INCOME $ (74,158) $ 106,651 $ 32,493 $ (28,457) $ 89,490 $ 61,033
========== =========== ========= ========== =========== =========
</TABLE>
-42-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Notes to Pro forma Consolidated Statements of Operations
(unaudited)
Pro Forma Statements of Operations Adjustments
<TABLE>
<CAPTION>
Three Months Year Ended
Ended December 31,
March 31, 1997
--------- ------------
<S> <C> <C>
(A) Peppertree profit & loss for year ended 1997 (a REIT Property).
(B) Interest Income
Reflects estimated interest income for the period related to cash
distributions that no longer be received after the sale.
Historical Balance $ 76,323 $ 299,009
(3,782) (13,066
Pro Forma Adjustment ---------- ----------
Pro Forma Balance $ 72,541 285,943
========== ==========
(C) Management Fees
Reflects reduction in management fees, calculated at 0.4% of invested
assets, as a result of the sale of the properties:
Historical Balance $ 125,556 $ 501,660
Pro Forma Adjustment (65,697) (262,788)
---------- -------------
Pro Forma Balance $ 59,859 $ 238,872
========== =============
Pro Forma Adjustment for sale properties is calculated as
Invested Assets $125,556,110
-------------
Less - sale properties:
City Heights (7,137,569)
Denny Place/Willow Wood (2,817,778)
Eastridge (1,426,772)
Echo Valley (4,084,000)
Hemet Estates/Menlo (3,951,994)
Hudson Gardens (2,279,318)
Mariners Cove (22,367,000)
Mulberry (9,523,700)
Park Place Texas (2,489,100)
Peppertree (5,604,800)
</TABLE>
-43-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Notes to Pro forma Consolidated Statements of Operations
(unaudited)
Pro Forma Statements of Operations Adjustments (continued)
<TABLE>
<CAPTION>
Three Months Year Ended
Ended December 31,
March 31, 1997
--------- ------------
<S> <C> <C>
Valley Oaks (2,057,400)
Victory Square (1,957,650)
-------------
Total for sale properties (65,697,081)
-------------
Pro Forma Invested Assets $ 59,859,029
=============
Invested Assets related to Sale properties $ 65,697,081
Management fee rate 0.4%
-------------
Annual adjustment - Year ended Dec. 31, 1997 $ 262,788
=============
Adjustment fee for three months ended March 31, 1998 $ 65,697
=============
(D) Interest
The pro forma adjustments to the historical interest expense related to
notes payable, and the resulting pro forma balances were determined as
follows:
$ 133,425 $ 533,700
----------- --------------
Less:
City Heights (36,250) (145,000)
Eastridge (4,038) (16,150)
Echo Valley (19,000) (76,000)
Mulberry (34,000) (136,000)
Victory Square (9,975) (39,900)
----------- --------------
Pro Forma Adjustment (103,263) (413,050)
Pro Forma Balance $ 30,162 $ 120,650
=========== ==============
</TABLE>
-44-
<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
Notes to Pro forma Consolidated Statements of Operations
(unaudited)
Pro Forma Statements of Operations Adjustments (continued)
<TABLE>
<CAPTION>
Three Months Year Ended
Ended December 31,
March 31, 1997
--------- ------------
<S> <C> <C>
(E) Distributions from Limited Partnerships
The pro forma adjustments to the historical balances and the resulting pro
forma balances were determined as follows:
Historical Balance $ 70,800 $ 499,540
----------- -----------
Less:
City Heights (70,800) (70,800)
Hemet Estates/Menlo - (35,652)
Mariners Cove - (222,244)
Valley Oaks - (21,981)
----------- -----------
Pro Forma Adjustment (70,800) (350,677)
----------- -----------
Pro Forma Balance $ 0 $ 148,863
=========== ===========
(F) Equity in Income of Limited Partnership and Amortization of
Acquisition Costs
The pro forma adjustments to the historical balance and the resulting pro
forma balance were determined as follows:
Historical Balance $ 182,000 $ 625,025
----------- ------------
Less:
Denny Place 3,750 15,000
Echo Valleys (13,271) (53,085)
Hudson Gardens (17,909) (71,636)
Mulberry (40,068) (160,271)
Victory Square 6,829 27,316
----------- ------------
Pro Forma Adjustment (60,669) (242,676)
----------- ------------
Pro Forma Balance $ 121,331 $ 382,349
=========== ============
</TABLE>
-45-
<PAGE>
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT
Certain amendments to the Partnership Agreement are necessary in
connection with the consummation of the Sale.
The Partnership Agreement currently prohibits a sale of any of the
Properties or Real Estate Interests to the General Partners or their affiliates.
Accordingly, consent of the Limited Partners is being sought for an amendment to
the Partnership Agreement that eliminates such prohibition.
The Partnership Agreement also requires that any agreement entered
into between the Partnership and the Managing General Partner or any affiliate
of the Managing General Partner shall provide that it may be canceled at any
time by the Partnership without penalty upon 60 days' prior written notice (the
"Termination Provision"). It is the position of the Managing General Partner
that the Termination Provision does not apply to the Sale; nevertheless, the
Managing General Partner is seeking the approval of the Limited Partners to an
amendment to the Partnership Agreement that eliminates the Termination Provision
in connection with the Sale or any future disposition of Properties.
The Partnership Agreement also prohibits the Partnership from selling
any Property or any interest in a Property if the cash proceeds from such sale
would be less than the state and federal taxes applicable to such sale,
calculated using the maximum tax rates then in effect (the "Tax Requirement").
The Managing General Partner is seeking the approval of the Limited Partners to
an amendment to the Partnership Agreement that eliminates the Tax Requirement so
as to allow the Partnership to sell the Properties although such Tax Requirement
is not met.
By approving such Amendment, the Limited Partners are relinquishing a
potential benefit conferred by the terms of the Partnership Agreement. However,
the Managing General Partner believes that as a result of (i) recent legislation
relating to government-assisted housing, which is expected to reduce the cash
flow from the Properties and create possible adverse tax consequences to owners
of the Properties, and (ii) the substantial negative capital accounts which most
Limited Partners have which will result in recognition of significant gain on a
sale of the Real Estate Interests or the Properties, the Tax Requirement would
prevent sales of Properties or Real Estate Interests which are in the best
interests of the Limited Partners.
The consent of Limited Partners holding a majority of outstanding
Units is required in order to amend the Partnership Agreement. Limited Partners
must approve the proposed Sale and each of the three proposed Amendments in
order to allow consummation of the Sale.
V. CONFLICTS OF INTEREST
General
Due to the key role of affiliates of the Managing General Partner in
the organization of the REIT, and the relationships among the Managing General
Partner, the Casden Partnerships, Casden and Casden's directors and officers,
the Managing General Partner has certain conflicts of interest in recommending
the Sale to the Limited Partners. Some important conflicts are:
1. The terms of the Sale were established by the REIT and the Managing
General Partner, which are related parties. Accordingly, the terms and
conditions of the proposed Sale were not determined through arm's- length
negotiations. There can be no assurance that arm's-length negotiations would not
have resulted in terms more favorable to the Limited Partners.
-46-
<PAGE>
2. Although the Managing General Partner is accountable to the
Partnership and the Limited Partners as fiduciaries and is obligated to exercise
good faith and fair dealing toward other members of the Partnership, and
although Stanger provided an independent opinion with respect to the fairness of
the Aggregate Property Valuation utilized in connection with determining the
Purchase Price, no independent financial or legal advisors were engaged to
determine the Purchase Price or to represent the interests of the Limited
Partners. There can be no assurance that the involvement of financial or legal
advisors, or other third parties, on behalf of the Limited Partners would not
have resulted in a higher Purchase Price or terms more favorable to the Limited
Partners.
3. If the REIT Transaction is consummated, affiliates of the Managing
General Partner will receive substantial interests in the REIT in exchange for
the contribution of real property assets and the property management operations
of Casden, including direct or indirect interests in the Managing General
Partner. The Managing General Partner anticipates that it will receive
significant economic benefits as a result of receiving interests in the REIT.
Such interests in the REIT are likely to enjoy greater liquidity than the
Managing General Partner's current interests in the Partnership if the REIT
successfully completes an initial public offering following its initial
formation as a private REIT. Unlike Casden and its affiliates, the Limited
Partners will not have the right to participate in the REIT. It is anticipated
that approximately 45% of the equity securities of the REIT will be held by
Casden and its affiliates following the Private Placement, based on the terms of
the Private Placement as currently contemplated.
4. It is anticipated that the return from the interests in the REIT to
be received by the Managing General Partner and its affiliates in connection
with the REIT Transaction will exceed the return such persons currently receive
from the real estate assets and business such persons will contribute or sell to
the REIT. The implied value of the REIT's securities (based on the pricing of
the REIT's securities in the Private Placement and in contemplated subsequent
public offerings, if consummated) that will be attributed to the other assets
being contributed to the REIT may exceed the price paid by the REIT for such
interest in the Properties because of (i) the combination of real estate assets
and businesses and the resultant opportunities for enhanced access to equity
capital and financing alternatives that are likely to be available to the REIT;
(ii) the expected liquidity of the REIT's capital stock; (iii) the current
favorable public market valuation of real estate investment trusts; (iv) the
inclusion of certain real estate business and management companies owned by
affiliates of Casden in the REIT; and (v) the greater asset diversification of
the REIT, and other factors. Such realization of excess value is dependent on
economic, interest rate and real estate market trends, as well as market
conditions at the time of the formation of the REIT and the Private Placement
(and subsequent public offering) of its securities and, if realized, will likely
provide affiliates of the Managing General Partner with significant economic
benefits.
5. Substantially all of the officers and employees of Casden and its
affiliates will be employed as officers and employees of the REIT or its
subsidiaries. For their services as officers, directors or employees of the REIT
or its subsidiaries, such persons will be paid a salary and may be eligible to
participate in the REIT's bonus plan, option plan and other employee benefit
plans. In addition, through the REIT Transaction, the REIT will ensure
continuity of the business established by the Managing General Partner and its
affiliates. The Properties, if acquired by the REIT will continue to be managed
by the REIT's officers and employees for as long as the REIT continues to own
the Properties. In addition, unlike the Partnership, the REIT will have the
ability to reinvest proceeds from any future sale of the Properties. The REIT
will therefore afford ongoing employment opportunities for those persons
currently employed to assist with the administration and day-to-day operations
of the Properties and the REIT.
6. Affiliates of the Managing General Partner have entered into option
agreements with respect to the Local Partnerships held by the general partners
of the Local Partnerships. The value attributed to the management fees payable
to the general partners of the three Local Partnerships affiliated with the
Managing General Partner was deducted from the Aggregate Property Valuation when
determining the Purchase Price payable to the Limited Partners. The right to
receive such management fees will be transferred to the REIT in
-47-
<PAGE>
connection with the Sale, and affiliates of the Managing General Partner will
have a substantial interest in the REIT.
Fiduciary Responsibility
The Managing General Partner is accountable to the Partnership and the
Limited Partners as a fiduciary and consequently is obligated to exercise good
faith and fair dealing toward other members of the Partnership. The Partnership
Agreement provides that the Managing General Partner and its officers,
directors, employees, agents, affiliates, subsidiaries and assigns are entitled
to be indemnified for any claim, loss, expense, liability, action or damage
resulting from any act or omission performed or omitted by it pursuant to the
Partnership Agreement, but the Managing General Partner is not entitled to be
indemnified or held harmless for any act or omission constituting fraud,
negligence, breach of fiduciary duty or willful misconduct. In addition,
pursuant to the Partnership Agreement, the Managing General Partners has no
liability or obligation to the other partners or the Partnership for any
decision made or action taken in connection with the discharge of their duties
under the Partnership Agreement, if such decision or action was made or taken in
good faith.
If a claim is made against the Managing General Partner in connection
with its actions on behalf of the Partnership with respect to the Sale, the
Managing General Partner expects that it will seek to be indemnified by the
Partnership with respect to such claim. Any expenses (including legal fees)
incurred by the Managing General Partner in defending such claim shall be
advanced by the Partnership prior to the final disposition of such claim,
subject to the receipt by the Partnership of an undertaking by the Managing
General Partner to repay any amounts advanced if it is determined that the
Managing General Partner's actions constituted fraud, bad faith, gross
negligence, or failure to comply with any representation, condition or agreement
contained in the Partnership Agreement. As a result of these indemnification
rights, a Limited Partner's remedy with respect to claims against the Managing
General Partner relating to the Managing General Partner's involvement in the
sale of the Partnership's interest in the Properties to the REIT could be more
limited than the remedy which would have been available absent the existence of
these rights in the Partnership Agreement. A successful claim for
indemnification, including the expenses of defending a claim made, would reduce
the Partnership's assets by the amount paid.
-48-
<PAGE>
VI. SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994 and 1993, and for the three months ended March 31, 1998 and
1997.
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10-K and the Partnership's Quarterly Report
on Form 10-Q, which are attached hereto as Annexes B and C, respectively.
The selected historical financial and operating data of the
Partnership for the three-month periods ended March 31, 1998 and March 31, 1997
are derived from unaudited consolidated financial statements of the Partnership
which, in the opinion of the Managing General Partner, include all adjustments
(consisting only of normal recurring items unless otherwise disclosed) necessary
for a fair presentation of the Partnership's financial position and results of
operations. The results set forth for the three-month periods ended March 31,
1998 and March 31, 1997 are not necessarily indicative of results to be expected
for a full year.
<TABLE>
<CAPTION>
Three months Ended
Year Ended December 31, March 31,
------------------------------------------------------------------ ---------------------------
1997 1996 1995 1994 1993 1998 1997
------------- ------------ ------------ -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenues.................... $ 1,070,895 $ 1,211,516 $ 2,715,123 $ 2,680,834 $ 2,696,843 $ 274,405 $ 263,374
Rental Expenses.................... 1,090,966 1,386,758 2,961,159 2,919,354 2,802,417 277,332 294,530
----------- ----------- ----------- ------------- ----------- ----------- ------------
Loss from Rental Operations........ (20,071) 175,242 (246,036) (238,520) (105,574) (2,927) (31,156)
Interest Income.................... 299,009 165,591 168,911 221,268 71,954 76,323 63,216
Operating Expenses................. 1,431,960 1,295,090 1,476,162 1,331,328 1,494,860 426,080 337,460
----------- ----------- ----------- ------------- ----------- ----------- ------------
Loss From Operations............... (1,153,022) (1,304,741) (1,553,287) (1,348,580) (1,528,480) (352,684) (305,400)
Distributions From Limited Partners
Recognized as Income............... 499,540 597,425 347,163 500,498 247,782 70,800 70,800
Gain on Foreclosure................ - 1,902,022 - - 4,095,110 - -
Equity in Income of Limited Partnerships
and amortization of acquisition
costs............................. 625,025 603,934 415,526 33,356 (111,547) 182,000 149,000
----------- ----------- ----------- ------------- ----------- ----------- -----------
Net Income (Loss).................. $ (28,457) $ 1,798,690 $ (790,598) $ (414,726) $ 2,702,865 $ (99,884) $ (85,600)
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss)
allocated to Limited Partners...... $ (28,172) $ 1,780,654 $ (782,692) $ (410,579) $ 2,675,836 $ (98,885) $ (84,744)
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Limited Partnership Interest....... $ (2) $ 107 $ (47) $ (24) $ 159 $ (6) $ (5)
=========== =========== =========== =========== =========== =========== ===========
Total Assets....................... $15,726,187 $15,286,368 $18,337,139 $18,725,681 $18,810,269 $15,789,517 $15,301,479
=========== =========== =========== =========== =========== =========== ===========
Investments in Limited Partnerships $ 5,885,699 $ 6,051,522 $ 5,619,146 $ 5,213,864 $ 5,032,639 $ 6,012,451 $ 6,100,502
=========== =========== =========== =========== =========== =========== ===========
Partners' Deficiency............... $(1,156,894 $(1,128,437) $(2,927,077) $(2,136,479) $(1,721,753) $(1,256,778) $(1,214,037)
=========== =========== =========== =========== =========== =========== ===========
Limited Partners' Deficiency....... $ (794,136 $ (765,963) $(2,546,617) $(1,763,925) $(1,353,346) $ (893,021) $ (850,707)
=========== =========== =========== =========== =========== =========== ===========
Limited Partners' Deficiency
per Limited Partnership Interest... $ (47) $ (46) $ (152) $ (105) $ (81) $ (53) $ (51)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
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<PAGE>
VII. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material tax consequences relating
to the proposed Sale and the distribution of approximately $207 per Unit.
However, each Limited Partner is urged to consult his, her or its own tax
advisor for a more detailed explanation of the specific tax consequences to such
Limited Partner from the Sale.
Upon consummation of the Sale, and subject to the passive activity
rules described below, each Limited Partner will recognize his, her or its share
of the taxable gain of the Partnership to the extent that the sum of (i) the
cash, plus (ii) the fair market value of any property received by the
Partnership on the Sale plus (iii) the outstanding principal amount of the
Partnership's nonrecourse indebtedness, exceeds the Partnership's adjusted basis
for the Properties. Gain realized by the Partnership on the Sale will generally
be a Section 1231 gain (i.e., long-term capital gain, except for the portion
thereof which is taxable as ordinary income due to depreciation recapture). A
Partner's share of gains and losses from Section 1231 transactions from all
sources would be netted and would be taxed as capital gains or constitute
ordinary losses, as the case may be. A net Section 1231 gain for a taxable year
will be treated as capital gain only to the extent such gain exceeds the net
Section 1231 losses for the five most recent prior taxable years not previously
recaptured. Any gain attributable to a Limited Partner's share of depreciation
recapture will be taxed at ordinary income rates.
The taxable income realized by each Limited Partner by reason of the
Sale should be characterized as income from a "passive activity" and may be
offset by a Limited Partner's available "passive activity losses" (including
suspended losses). Under the Tax Reform Act of 1986 (the "1986 Act") losses from
passive activities may only be offset against income from passive activities or
may be deducted in full when the taxpayer disposes of the passive activity from
which the loss arose. However, pursuant to a transitional rule contained in the
1986 Act, a certain percentage of losses from a passive activity which was held
by the taxpayer on the date of the enactment of the 1986 Act (i.e., October 22,
1986) and at all times thereafter was permitted to offset any type of income
during the years 1987 through 1990.
It is estimated that as a consequence of the Sale, each Limited
Partner will have taxable income equal to approximately $3,826 per Unit, of
which $3,809 will constitute long-term capital gain and $17 will be ordinary
income due to recapture of accelerated depreciation. The income tax consequences
of the Sale to any Limited Partner depends in large part upon the amount of
losses that were allocated to such Limited Partner by the Partnership and the
amount of such losses which were applied by such Limited Partner to offset his
or her taxable income. If a Limited Partner has not utilized any of the passive
activity losses allocated to such Limited Partner in excess of those amounts
permitted under the transitional rule relief described above, the Limited
Partner will have a net federal and state tax liability of approximately $1,150.
Because passive losses are only deductible against passive income after 1986
(subject to certain transitional rules), the Managing General Partner does not
have any basis for determining the amount of such passive losses which have
previously been utilized by Limited Partners. The anticipated net tax liability
was calculated, assuming a federal capital gains rate of 25%,the current capital
gains rate for the portion of net Section 1231 gain attributable to unrecaptured
section 1250 gain and assuming an effective state tax rate of 5%, and that
Limited Partners have suspended passive losses of $2,214 per Unit from the
Partnership (which is the amount of passive losses that a Limited Partner would
have it had it not utilized any of its passive losses (except to the extent
permitted under the transitional rule)). The net tax liability was calculated by
deducting from the tax payable on the gain from the sale the tax benefit
resulting from the ability to deduct the suspended passive losses against
ordinary income (which is permitted following disposition of the passive
activity) assuming that the Limited Partner has sufficient ordinary income which
would otherwise have been taxed at the 39.6% marginal tax rate for federal
income tax purposes to fully utilize such losses at such rate, and assuming a
state income tax rate of 5%. Based on the foregoing, the cash distributions of
$330 per Unit would exceed a Limited Partner's net Federal and State tax
liability of $163 by $167. In addition to assuming federal income tax rates, the
calculation of income tax liability of a Limited Partner assumes that such
Limited Partner has no net Section 1231 losses for the five most recent prior
taxable years. If this latter
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<PAGE>
assumption is not applicable to a Limited Partner, the income tax liability of
such Limited Partner could increase because certain income would be taxed at
ordinary, instead of capital gains tax rates. Limited Partners are advised to
consult with their own tax advisors for specific application of the tax rules
where the above-described assumption is not applicable. The foregoing does not
take into consideration the effect of any local tax liabilities that may be
applicable to the Sale. It should be noted that, while the distribution of the
cash held by the Partnership will currently provide cash to pay the tax
liability and will not be currently taxable, the distribution of cash will
increase the amount by which the Limited Partners' capital accounts are negative
and will increase the taxable gain Limited Partners will realize in the future
on disposition of the Partnership's remaining assets or a Limited Partner's
interest in the Partnership and the tax payable by a Limited Partner at such
time.
The Managing General Partner believes that there were reasonable bases
for the foregoing assumptions. In light of the suitability standards that
Limited Partners met at the time of their original investment in the Partnership
and the types of investors who would have invested in an investment primarily
intended to provide tax benefits, the Managing General Partner assumed for
purposes of calculating the tax liabilities resulting from the proposed Sale
that each Limited Partner will have taxable income in excess of $155,950 (which
is the income level at which married taxpayers filing joint returns effectively
become subject to a 39.6% marginal rate) in 1998. While the financial
circumstances of the Limited Partners may vary considerably, the Managing
General Partner believes it is reasonable to assume that the majority of the
current Limited Partners will be in the highest federal tax bracket in 1998. The
Managing General Partner believes that while state tax rates vary from
state-to-state, the effective average state tax rate for individuals who itemize
deductions is approximately 5%. The Managing General Partner calculated the tax
benefit from the suspended passive losses at 44.6% (39.6% federal rate plus a 5%
effective state rate)
To the extent that a Limited Partner was able to utilize more passive
activity losses than were available under the transitional rules (e.g., because
such Limited Partner had passive income from other sources) to offset his, her
or its taxable income, the estimated federal income tax liability of such
Limited Partner would substantially increase. Thus, for example, if a Limited
Partner had no suspended passive activity losses to carry forward, it is
estimated that such Limited Partner would have a federal and state income tax
liability equal to approximately $1,150 per Unit, or $820 in excess of the
distribution of $330 per Unit. In addition, to the extent that a Limited Partner
does not have sufficient ordinary income taxed at a 39.6% marginal rate to fully
utilize the suspended passive losses against such income, the Limited Partner's
net tax benefits from the Sale would be reduced and the Limited Partner is
likely to be incur net tax costs in excess of the cash distributions which will
be received.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF LOSSES ANY LIMITED
PARTNER HAS AVAILABLE FROM OTHER SOURCES TO APPLY TO OFFSET HIS, HER OR ITS
TAXABLE INCOME FROM THE SALE, THE MANAGING GENERAL PARTNER CANNOT ESTIMATE THE
INCOME TAX LIABILITY OF EACH LIMITED PARTNER ARISING FROM THE SALE, THEREFORE,
EACH LIMITED PARTNER SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR CONCERNING THE
INCOME TAX CONSEQUENCES OF CONSENTING TO THE SALE WITH RESPECT TO SUCH LIMITED
PARTNER'S OWN TAX SITUATION.
VIII. LEGAL PROCEEDINGS
On June 25, 1997, the Securities and Exchange Commission (the
"Commission") entered into a consent decree with NAPICO, three members of
NAPICO's senior management and three affiliated entities (collectively, the
"NAPICO Affiliates") in connection with their alleged roles in two separate
series of securities laws violations. In connection therewith, certain NAPICO
Affiliates agreed to cease and desist from committing or causing securities law
violations. In addition, National Partnership Equities, Inc. ("NPEI"), a
brokerage firm affiliated with NAPICO, agreed to undergo a review of certain of
its policies and procedures and pay a $100,000
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<PAGE>
penalty. The NAPICO Affiliates consented to the above sanctions and relief
without admitting or denying the Commission's findings.
The two series of securities law violations relate to the NAPICO
Affiliates' (i) satisfying the minimum offering threshold of a "part or none"
private placement by utilizing a subscription from a non-bona fide investor and
failing to disclose such violation in subsequent offering materials for such
private placement and (ii) failing to disclose in the periodic reports for
another of its programs the fact that such program's cash was used to pay the
expenses of properties not owned by such program that were managed by an
affiliate and failing to maintain adequate internal controls to detect such
violations.
IX. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about August 6, 1998. Only Limited
Partners of record on July 24, 1998 (the "Record Date") will be given notice of,
and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and the
letter from the Managing General Partner, constitute the Solicitation Materials
to be distributed to the Limited Partners to obtain their votes for or against
the Sale. The Solicitation Period is the time frame during which Limited
Partners may vote for or against the Sale. The Solicitation Period will commence
upon the date of delivery of this Consent Solicitation Statement and will
continue until the earlier of (i) September 10, 1998 or such later date as may
be determined by the Managing General Partner and (ii) the date upon which the
Managing General Partner determines that a Majority Vote has been obtained. At
its discretion, the Managing General Partner may elect to extend the
Solicitation Period. Under no circumstances will the Solicitation Period be
extended beyond November 30, 1998. Any Consents delivered to the Partnership
prior to the termination of the Solicitation Period will be effective provided
that such Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale. Consent to the Sale will
also include consent to Amendments to the Partnership Agreement that (i)
eliminate a restriction against sales of Partnership assets to affiliates of the
Managing General Partner; (ii) eliminate the Termination Provision in connection
with the Sale and (iii) modify the Tax Requirement to allow the Partnership to
assume, for purposes of calculating taxes, that all of the passive losses from
the Partnership are available to Limited Partners.
The Consent included in the Solicitation Materials constitutes the
ballot to be used by Limited Partners in casting their votes for or against the
Sale. By marking this ballot, the Limited Partner may either vote "for,"
"against" or "abstain" as to the Partnership's participation in the Sale. Once a
Limited Partner has voted, he may not revoke his vote unless he submits a second
Consent, properly signed and completed, together with a letter indicating that
this prior Consent has been revoked, and such second Consent is received by
Gemisys Corporation (the "Tabulator") prior to expiration of the Solicitation
Period. See "Withdrawal and Change of Election Rights" below
-52-
<PAGE>
The Sale will not be completed unless it is approved by a Majority
Vote. See "THE SALE-- Conditions" for a discussion of the other conditions
precedent to the Sale. BECAUSE APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST, FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE SALE.
Any Limited Partner who returns his Consent signed but does not
specify "for," "against" or "abstain" will be deemed to have voted for the Sale.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Consent will be determined by the
Tabulator, whose determination will be final and binding. The Tabulator reserves
the absolute right to reject any or all Consents that are not in proper form or
the acceptance of which, in the opinion of the Managing General Partner's
counsel, would be unlawful. The Tabulator also reserves the right to waive any
irregularities or conditions of the Consent as to particular Units. Unless
waived, any irregularities in connection with the Consents must be cured within
such time as the Tabulator shall determine. The Partnership, the Managing
General Partner and the Tabulator shall be under no duty to give notification of
defects in such Consents or shall incur liabilities for failure to give such
notification. The delivery of the Consents will not be deemed to have been made
until such irregularities have been cured or waived.
Completion Instructions
Each Limited Partner is requested to complete and execute the Consent
in accordance with the instructions contained therein. For his Consent to be
effective, each Limited Partner must deliver his Consent to the Tabulator at any
time prior to the termination of the Solicitation Period to the Partnership at
the following address:
Gemisys Corporation
7103 South Revere Parkway
Englewood, Colorado 80112
A pre-addressed stamped envelope for return of the Consent has been
included with the Solicitation Materials. Limited Partners may also telecopy an
executed copy of this Consent to the Tabulator at 303-705- 6171. The Consents
will be effective only upon actual receipt by the Partnership. The method of
delivery of the Consent to the Partnership is at the election and risk of the
Limited Partner, but if such delivery is by mail it is suggested that the
mailing be made sufficiently in advance of September 10, 1998 to permit delivery
to the Partnership on or before such date.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or facsimile transmission notice of withdrawal or change in
vote must be timely received by the Tabulator at its address set forth under
"Completion Instructions" above and must specify the name of the person having
executed the Consent to be withdrawn or vote changed and the name of the
registered holder if different from that of the person who executed the Consent.
No Dissenters' Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners
do not have dissenters' rights of appraisal. If the Sale is approved by a
Majority Vote, and the other conditions to consummation of the Sale are
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<PAGE>
satisfied, all Limited Partners, both those voting in favor of the Sale and
those not voting in favor, will be entitled to receive the resulting cash
distributions.
Solicitation of Consents
The Managing General Partner and its officers, directors and employees
may assist in the solicitation of consents and in providing information to
Limited Partners in connection with any questions they may have with respect to
this Consent Solicitation Statement and the voting procedures. Such persons and
entities will be reimbursed by the Partnership for out of pocket expenses in
connection with such services. The Partnership may also engage third parties to
assist with the solicitation of Consents and pay fees and reimburse the expenses
of such persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE PROMPTLY.
If you have any questions about the consent procedure or require
assistance, please contact: MacKenzie Partners, the Partnership's consent
solicitation agent, toll free at 800-322-2885 or collect at 212- 929-5500.
X. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
August 5, 1998
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<PAGE>
REAL ESTATE ASSOCIATES LIMITED VI
9090 Wilshire Boulevard
Beverly Hills, California 90211
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
OF REAL ESTATE ASSOCIATES LIMITED VI
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to REAL VI (the
"Partnership") that, with respect to the transaction by which the Partnership
proposes to sell certain of its real estate assets to a real estate investment
trust sponsored by affiliates of certain general partners of the Partnership or
to a subsidiary partnership of the REIT, the undersigned votes all of his, her
or its units of limited partnership interest as indicated below:
On the proposal to sell all of the interests of the Partnership in the
real estate assets of thirteen of the thirty-four limited partnerships in which
the Partnership holds a limited partnership interest to a real estate investment
trust or its affiliate to be organized by Casden Properties and to authorize the
Managing General Partner to take any and all actions that may be required in
connection therewith, including the execution on behalf of the Partnership of
such amendments, instruments and documents as shall be necessary to reflect the
transfer of the general and limited partnership interests and to authorize the
Managing General Partner to sell any remaining real estate interests not
transferred to such real estate investment trust or its affiliates pursuant to
the proposal without further consent of the Limited Partners.
FOR AGAINST ABSTAIN
|_| |_| |_|
On the proposal to approve an amendment to the Partnership Agreement
that eliminates a provision prohibiting the Partnership from selling any
Property to a General Partner or its affiliate.
FOR AGAINST ABSTAIN
|_| |_| |_|
On the proposal to approve an amendment to the Partnership Agreement
that eliminates a provision allowing the Partnership to cancel, upon 60 days'
prior written notice, any agreement entered into between the Partnership and a
General Partner or an affiliate of a General Partner.
FOR AGAINST ABSTAIN
|_| |_| |_|
On the proposal to approve an amendment to the Partnership Agreement
that eliminates certain tax provisions that were required to be met as a
condition to a disposition of the Partnership's real property assets
FOR AGAINST ABSTAIN
|_| |_| |_|
<PAGE>
The undersigned acknowledges receipt from the Managing General Partner
of the Consent Solicitation Statement dated August 5, 1998.
Dated: _____________, 1998 ------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Signature (if held jointly)
------------------------------------
Print Name
------------------------------------
Title
Please sign exactly as name appears
hereon. When units are held by joint
tenants, both should sign. When
signing as an attorney, as executor,
administrator, trustee or guardian,
please give full title of such. If a
corporation, please sign name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON SEPTEMBER
10, 1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO
303-705-6171 OR BY USING THE ENCLOSED PREPAID ENVELOPE TO THE ADDRESS FIRST
WRITTEN ABOVE. IF YOU HAVE ANY QUESTIONS, PLEASE CALL 800-322-2885.
A LIMITED PARTNER SUBMITTING A SIGNED BUT UNMARKED CONSENT WILL BE
DEEMED TO HAVE VOTED FOR THE PARTNERSHIP'S PARTICIPATION IN THE SALE.
<PAGE>
Annex A
Real Estate Associates Limited VI
9090 Wilshire Boulevard
Beverly Hills, California 90211
Gentlemen:
You have advised us that Real Estate Associates Limited VI
(the "Partnership"), National Partnership Investments Corp., and National
Partnership Investments Associates, the general partners (the "General
Partners") of the Partnership, and Casden Properties and certain of its
affiliates (the "Company"), an affiliate of the General Partners, are
contemplating a transaction in which interests (the "Real Estate Interests") in
certain real estate assets listed in Exhibit 1 (the "Properties"), which are
owned by the Partnership through investments in certain local limited
partnerships (the "Local Partnerships"), will be sold to a newly formed real
estate investment trust or its designated affiliate to be organized by the
Company (the "REIT"), subject to, among other matters, the requisite approval of
the limited partners (the "Limited Partners") of the Partnership (the "Sale").
You have further advised us that in connection with the
proposed Sale, the value ascribed to the thirteen Properties to be sold (the
"Aggregate Property Valuation") will be approximately $70,894,912. In addition,
we have been advised that the Aggregate Property Valuation will be utilized and
adjusted by the General Partners to reflect, among other things, various other
assets and liabilities of the Partnership and the Local Partnerships, the
allocation of the Aggregate Property Valuation among the Local Partnerships,
amounts attributable to general partner and management interests in the Local
Partnerships or the General Partners' estimate of the costs associated with the
buyout thereof, and transaction expenses to determine a net purchase price of
the Real Estate Interests to be acquired (the "Purchase Price").
In addition, you have advised us that certain of the
Properties are subject to restrictions on the amount of cash flow which can be
distributed to investors (the "Dividend Limitation") which limit annual dividend
payments, and that the Local Partnerships do not have any accrued but unpaid
distribution balances ("Accrued Distributions") or other contractual or
regulatory provisions which would allow the Local Partnerships, and therefore
the Partnership, to make distributions in excess of the Dividend Limitation in
future years.
You have requested that Robert A. Stanger & Co., Inc.
("Stanger") provide to the Partnership an opinion as to whether the Aggregate
Property Valuation, which is to be utilized in connection with determining the
Purchase Price to be paid for the Real Estate Interests in the Sale, is fair to
the Limited Partners from a financial point of view.
743936.1
<PAGE>
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
August 4, 1998
Page 2
In the course of our analysis for rendering this opinion, we
have, among other things:
o Reviewed a draft of the consent solicitation
statement (the "Consent") relating to the Sale in a
form the Partnership's management has represented to
be substantially the same as will be distributed to
the Limited Partners;
o Reviewed the Partnership's annual reports on form
10-K filed with the Securities and Exchange
Commission for the years ended December 31, 1995,
1996, and 1997, and the quarterly report on form 10-Q
for the period ending March 31, 1998, which the
Partnership's management has indicated to be the most
current financial statements;
o Reviewed descriptive information concerning the
Properties, including location, number of units and
unit mix, age, and amenities;
o Reviewed summary historical operating statements for
the Properties, as available, for the years ended
December 31, 1995, 1996, and 1997;
o Reviewed 1998 operating budgets for the Properties
prepared by the Partnership's or the Local
Partnerships' management;
o Discussed with management of the Partnership and the
Managing General Partner the market conditions for
apartment properties; conditions in the market for
sales/acquisitions of properties similar to those
owned by the Local Partnerships; historical, current
and projected operations and performance of the
Properties; the physical condition of the Properties
including any deferred maintenance; and other factors
influencing the value of the Properties;
o Performed site visits of the Properties;
o Reviewed data concerning, and discussed with property
management personnel, local real estate rental market
conditions in the market of each Property, and
reviewed available information relating to
acquisition criteria for income-producing properties
similar to the Properties;
743936.1
<PAGE>
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
August 4, 1998
Page 3
o Reviewed information provided by management relating
to debt encumbering the Properties, Housing
Assistance Program contract provisions pertaining to
the Properties, and any ground lease provisions;
o Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed,
without independent verification, the accuracy and completeness of all financial
information, management reports and data, and all other reports and information
that were provided, made available or otherwise communicated to us by the
Partnership, the Company, the General Partners and their affiliates, the Local
Partnerships or management of the Properties. We have not performed an
independent appraisal, engineering study or environmental study of the assets
and liabilities of the Partnership. We have relied upon the representations of
the Partnership, the Company, the General Partners and their affiliates, the
Local Partnerships and management of the Properties concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditure and replacement reserve requirements, and the terms and
conditions of any debt, regulatory agreements and ground leases encumbering the
Properties. We have also relied upon the assurance of the Partnership, the
Company, and the General Partners and their affiliates, and management of the
Properties that any financial statements, budgets, forecasts, capital
expenditure and replacement reserve estimates, debt and regulatory agreement and
ground lease summaries, value estimates and other information contained in the
Consent or otherwise provided or communicated to us were reasonably prepared on
bases consistent with actual historical experience and reflect the best
currently available estimates and good faith judgments; that no material changes
have occurred in the value of the Properties or other information reviewed
between the date such information was provided and date of this letter; that the
Partnership, the Company, the General Partners and their affiliates, the Local
Partnerships and the management of the Properties are not aware of any
information or facts that would cause the information supplied to us to be
incomplete or misleading in any material respect; that the highest and best use
of each of the Properties is as improved; and that all calculations and
projections were made in accordance with the terms of the Partnership and Local
Partnerships Agreements, ground leases and the existing and anticipated
regulatory agreements.
We have not been requested to, and therefore did not: (i)
select the method of determining the Aggregate Property Valuation or the
Purchase Price to be paid for the Real Estate Interests in the Sale; (ii) make
any recommendation to the Partnership or its partners with respect
743936.1
<PAGE>
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
August 4, 1998
Page 4
to whether to approve or reject the proposed Sale; or (iii) express any opinion
as to (a) the tax consequences of the proposed Sale to the Limited Partners, (b)
the terms of the Partnership Agreement, the fairness of the proposed amendments
to the Partnership Agreement, or the terms of any agreements or contracts
between the Partnership, the Company, any affiliates of the General Partners,
and the Local Partnerships, (c) the General Partners' business decision to
effect the proposed Sale, (d) any adjustments made to the Aggregate Property
Valuation to determine the Purchase Price to be paid for the Real Estate
Interests and the net amounts distributable to the partners, including but not
limited to, balance sheet adjustments to reflect the General Partners' estimate
of the value of current and projected net working capital balances and cash and
reserve accounts of the Partnership and the Local Partnerships (including debt
service and mortgage escrow amounts, operating and replacement reserves, and
surplus cash reserve amounts and additions) and the income therefrom, the
General Partners' determination that no value should be ascribed to any reserves
of the Local Partnerships or the cash flow from the Properties in excess of
certain limitations on dividends to the Partnership, the General Partners'
determination of the value of any notes due to affiliates of the General
Partners or management of the Local Partnerships, the allocation of the
Aggregate Property Valuation among the Local Partnerships, the amount of
Aggregate Property Valuation ascribed to certain general partner and/or
management interests in the Local Partnerships, and other expenses and fees
associated with the Sale, (e) the fairness of the buyout cost of certain general
partner and/or management interests in the Local Partnerships or the allocation
of such buyout costs among the Local Partnerships, or the amount of any
contingency reserves associated with such buyouts or with the transfer of
partnership interests of one of the Local Partnerships, (f) the General
Partners' decision to deduct the face value of certain notes payable to
affiliates and/or management of the Local Partnerships in determining the
Purchase Price to be paid for the Real Estate Interests where the actual cost of
purchasing the notes may be less than the face value of the notes, (g) the
Purchase Price to be paid for the Real Estate Interests, or (h) alternatives to
the proposed Sale, including but not limited to continuing to operate the
Partnership as a going concern. We are not expressing any opinion as to the
fairness of any terms of the proposed Sale other than the Aggregate Property
Valuation utilized in connection with determining the Purchase Price to be paid
for the Real Estate Interests.
Our opinion addresses only the aggregate value of the
Properties and is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the proposed Sale in the context of information
available as of the date of our analysis. Events occurring after that date could
affect the Properties and the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, it is our opinion
that as of the date of this letter the Aggregate Property Valuation utilized in
connection with determining the Purchase Price
743936.1
<PAGE>
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
August 4, 1998
Page 5
to be paid for the Real Estate Interests in the Sale is fair to the Limited
Partners from a financial point of view.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary description. We
have advised the Partnership and the General Partners that our entire analysis
must be considered as a whole and that selecting portions of our analysis and
the factors considered by us, without considering all analyses and facts, could
create an incomplete view of the evaluation process underlying this opinion.
Yours truly,
743936.1
<PAGE>
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
August 4, 1998
Page 6
Exhibit 1
Real VI
Listing of Properties
Property Location
City Heights Wilkes-Barre, PA
Denny Place Los Angeles, CA
Eastridge Apartments Bristol, VA
Echo Valley Apartments Warwick, RI
Hemet Estates (Menlo Estates) Hemet, CA
Hudson Street Apts (aka Hudson Pasadena, CA
Gardens)
Mariner's Cove San Diego, CA
Mulberry Towers Scranton, PA
Park Place Apartments Cleveland, TX
Peppertree Cypress, CA
Valley Oaks Gault, CA
Willow Wood Los Angeles, CA
Victory Square Canton, OH
743936.1
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Annex B -- The Partnership's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1997
"Incorporated by Reference"
733531.1
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Annex C -- The Partnership's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1998
"Incorporated by Reference"
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Annex D
PROPOSED AMENDMENTS
TO THE PARTNERSHIP AGREEMENT
Set forth below is the text of the proposed Amendments to the Partnership
Agreement for which the consent of the Limited Partners is being sought in
connection with the Sale.
[Section 9.3(d) Deleted]
Section 9.3(k) of the Partnership Agreement is amended to read as follows:
"(k) the Partnership will not sell or lease any Project
or Project Interest to the General Partners or their
affiliates; provided that the foregoing shall not apply
to any sale of Project Interests made in connection with
the proposed Sale described in the Definitive Consent
Solicitation Statement of the Partnership dated August
5, 1998."
Section 9.1(h) of the Partnership Agreement is amended to read as follows:
"(h) to enter into and carry out agreements of any kind,
provided that all contracts with the General Partners or
their affiliates must provide for termination by the
Partnership on 60 days written notice, without penalty,
and to do any and all other acts and things necessary,
proper, convenient, or advisable to effectuate and carry
out the purposes of the Partnership. The limitation
contained in the proviso in the preceding sentence shall
not apply
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to any agreement entered into in connection with the
proposed Sale."
<PAGE>
Annex E
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
(212) 856-7000
(212) 230-7653
August 5, 1998
Real Estate Associates Limited VI
9090 Wilshire Boulevard
Beverly Hills, California 90211
Re: Amendments to the Agreement of Limited Partnership of Real Estate
Associates Limited VI
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Dear Sir or Madam:
We have acted as counsel to Real Estate Associates Limited VI, a
California limited partnership (the "Partnership"), in connection with the
amendments to the Partnership's Restated Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") the form of which is attached hereto
as Exhibit A (the "Amendments").
In rendering this opinion, we have examined originals or copies of the
following:
(i) The Partnership Agreement as certified by an officer of
National Partnership Investments Corp. ("NAPICO"), the
managing general partner of the Partnership;
(ii) The Certificate of Limited Partnership of the Partnership
(the "Certificate of Limited Partnership"), as certified by
the Secretary of State of the State of California and by an
officer of NAPICO;
(iii) An Agreement dated June 1, 1984 between NAPICO and National
Partnership Investments Associates (the "General Partners'
Agreement") as certified by an officer of NAPICO;
(iv) The Definitive Consent Solicitation Statement of the
Partnership dated August 5, 1998 (the "Consent Solicitation
Statement"); and
743660.1
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2
Real Estate Associates Limited VI August 5, 1998
(v) The Amendments.
The documents listed above are collectively referred to as the
"Documents".
In rendering this opinion we have made the following assumptions, each
as you have agreed, without any investigation or independent verification: (i)
the genuineness of all signatures of all persons executing any or all of the
Documents; (ii) the authenticity and completeness of all documents, certificates
and instruments submitted to us as originals; (iii) the conformity with the
originals of all documents, certificates and instruments submitted to us as
copies; (iv) the legal capacity to sign of all individuals executing such
documents, certificates and instruments; and (v) there are no oral modifications
or written agreements or understandings which limit, modify or otherwise alter
the terms, provisions, and conditions of, or relate to, the transactions
contemplated by the Documents.
As to matters of fact relevant to this opinion, as you have agreed we
have relied without independent investigation on, and assumed the accuracy and
completeness of, the certificate of an officer of NAPICO (referred to herein as
the "Officer's Certificate"). As you have agreed, we have not made an
investigation as to, and have not independently verified, the facts underlying
the matters covered by such Officer's Certificate.
We also have assumed, without any investigation or independent
verification, (a) the due authorization, execution, acknowledgment as indicated
thereon, and delivery of the Documents, and the validity and enforceability
thereof against all parties thereto, (b) that each party is validly existing,
has full power, authority and legal right to execute and deliver the Documents
to which it is a party and to carry out the transactions contemplated
thereunder, and that each is duly qualified and in good standing in each
jurisdiction where qualification is required, (c) that each party has complied
with any order, rule, and regulation or law which may be applicable to such
party with regard to any aspect of the transactions contemplated by the
Documents, (d) that pursuant to the General Partners Agreement, NAPICO has the
power to make all decisions pursuant to the Partnership Agreement to be made by
the General Partners of the Partnership and (e) that all actions taken by NAPICO
in connection with the Consent Solicitation Statement have been duly authorized
by all necessary corporate action on the part of NAPICO.
Our opinions are limited to the California Uniform Limited Partnership
Act.
We express no opinion except as expressly set forth below and no other
opinions shall be implied. We express no opinion as to state and federal laws,
rules, regulations, principles and requirements (collectively "laws") in the
following areas: securities or "Blue Sky" laws, including
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3
Real Estate Associates Limited VI August 5, 1998
without limitation, any opinions with respect to the compliance of the
Consent Solicitation Statement with the securities laws, or laws of fiduciary
duty. We disclaim any obligation to update any of the opinions expressed herein
for events (including changes of law or fact) occurring after the date hereof.
We have not reviewed and our opinion does not extend to any agreements,
documents or instruments other than those which we have expressly acknowledged
herein examining.
Based upon and subject to the foregoing, we are of the opinion that the
Amendments, if duly approved by the limited partners of the Partnership pursuant
to the Consent Solicitation Statement, will not violate the Partnership
Agreement or the California Uniform Limited Partnership Act.
This opinion is solely for the benefit of the addressee in connection
with the transaction contemplated by the Consent Solicitation Statement, and is
not to be relied upon in any other context nor quoted in whole or in part, nor
otherwise referred to.
Sincerely,
Battle Fowler LLP
743660.1
