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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________to _______________
Commission File Number 0-11975
Brauvin Real Estate Fund L.P. 3
(Exact name of registrant as specified in its charter)
Delaware 36-3290420
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
Address of principal executive offices) (Zip Code)
(312) 443-0922
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ X ]
The aggregate sales price of the limited partnership interests of the
registrant (the "Units") to unaffiliated investors of the registrant was
$7,729,000. This does not reflect market value. This is the price at
which the Units were sold to the public. There is no current market for
these interests, nor have any of these interests been sold within the
last 60 days prior to this filing.
Portions of the Prospectus of the registrant dated April 28, 1983, and
filed pursuant to Rule 424(b) under the Securities Act of 1933, as
amended, are incorporated by reference into Parts II, III and IV of this
Annual Report on Form 10-K.
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BRAUVIN REAL ESTATE FUND L.P. 3
1995 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 9
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters. . . . . . . . .10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . .11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation. . . . . . . . . . . . . . .13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . .20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . .20
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . .21
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . .24
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . .25
Item 13. Certain Relationships and Related Transactions. . . . . . . . .25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
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PART I
Item 1. Business.
Brauvin Real Estate Fund L.P. 3 (the "Partnership") is a Delaware
limited partnership formed in July 1983 whose business has been
devoted exclusively to acquiring, operating, holding for investment
and disposing of existing office buildings, shopping centers and
industrial and retail commercial buildings of a general purpose
nature, all in larger metropolitan areas.
The General Partners originally intended to dispose of the
Partnership's properties approximately five to eight years after
acquisition of each property, with a view toward liquidation of the
Partnership. Due to real estate market conditions and economic trends
the General Partners instead believed it to be in the best interest
of the Parternship to retain the properties until such time as the
General Partners deemed it appropriate to dispose of the Partnership's
properties. The General Partners have now determined that it is in
the best interest of the Partnership to liquidate the Partnership.
Accordingly, efforts are currently underway to sell or otherwise
liquidate the remaining Partnership assets. There can, however, be
no assurance that the General Partners will achieve their goal of
liquidating the Partnership during 1996. However, since the limited
partnership agreement (the "Agreement") provides that the Partnership
shall terminate December 31, 2007, unless sooner terminated, the
General Partners shall in no event dispose of the properties after
that date.
During 1984, the Partnership had acquired three properties, one of
which was conveyed to the first mortgage holder in 1989. In June 1995
an additional property was conveyed to the first mortgage holder. The
remaining property consisted of three office buildings, one of which
was sold in May 1995. The Partnership will not purchase any
additional properties.
The Partnership is currently operating the two remaining office
buildings which are being managed by Brauvin Management Company. The
focus of property management activities has been improvement in the
economic performance of the properties with the goal of maximizing
value to the Partnership upon disposition.
The Partnership has no employees.
The Partnership utilized its proceeds available for investment for
the acquisition of properties. In seeking disposition opportunities,
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the Partnership is competing with many established and experienced
firms, as well as individuals and entities who own properties similar
to those owned by the Partnership. The Partnership, therefore,
expects keen competition in connection with the sale of its
properties.
The Partnership, by virtue of its ownership of real estate, is
subject to federal and state laws and regulations covering various
environmental issues. Management of the Partnership retains the
services of third parties who hold themselves out to be experts in the
field to assess a wide range of environmental issues and conduct tests
for environmental contamination. Management believes that all real
estate owned by the Partnership is in full compliance with applicable
environmental laws and regulations.
Market Conditions/Competition
The Partnership faces active competition in all aspects of its
business and must compete with entities which own properties similar
in type to those owned by the Partnership. Competition exists in such
areas as attracting and retaining creditworthy tenants, financing
capital improvements and eventually selling properties. Many of the
factors affecting the ability of the Partnership to compete such as,
softened markets caused by an oversupply of similar rental facilities,
declining performance in the economy in which a property is located,
population shifts, reduced availability of permanent mortgage funds,
and changes in zoning laws or changes in patterns of the needs of
users, are beyond the General Partners' control. The marketability
of the properties may also be affected by prevailing interest rates
and existing tax laws. As a result, the Partnership has retained
ownership of its properties for periods longer than anticipated at
acquisition; in addition, it may refinance, sell or otherwise dispose
of certain properties at times or on terms and conditions that are
less advantageous than would otherwise be the case if such unfavorable
economic or market conditions did not exist.
Item 2. Properties.
The following is a discussion of the rental properties owned and
operated by the Partnership. The Partnership purchased three
properties during 1984 and has not purchased any additional
properties. On December 26, 1989, the Partnership conveyed Kensington
Tower back to the first mortgage lender, Travelers Insurance Company.
In 1995, the Partnership conveyed the Country Club Plaza back to the
first mortgage lender, Finova Capital Corporation. The Partnership
also sold one of the three Bear Canyon office buildings in 1995.
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As of December 31, 1995, the Partnership owned the property
described below:
Location Description of Property
Albuquerque, NM Two Office Buildings
Bear Canyon Professional Buildings ("Bear Canyon")
On November 16, 1984, the Partnership acquired three, two-story
office buildings with approximately 63,000 square feet of space,
collectively known as the Bear Canyon Professional Buildings, located
in Albuquerque, New Mexico. The Partnership paid approximately
$4,700,000 for these properties consisting of $1,600,000 in cash and
the issuance of an all-inclusive note to the seller in the amount of
approximately $3,100,000. This all-inclusive wrap note accrued
interest at the rate of 12.375% to 12.025% per annum compounded
annually over the term of the all-inclusive note, which was to mature
at the time of the sale of Bear Canyon. The holder of the note was
to receive 25% of the property's cash flow after debt service and was
to provide a 9% guaranteed return to the Partnership on its investment
in Bear Canyon.
As a result of legal proceedings instituted by the Partnership
against the seller, a settlement agreement was reached whereby the
Partnership is no longer obligated to the seller under the terms of
the all-inclusive wrap note and is now obligated directly to the
underlying lenders. Furthermore, the seller is no longer entitled to
share in any portion of Operating Cash Flow or sale proceeds derived
from Bear Canyon.
On May 26, 1995, the Partnership sold the Bear Canyon Office
Building II to an unaffiliated third party for approximately $920,000.
The net sales proceeds to the Partnership were approximately $377,000
which were used to fund operating expenses.
On October 1, 1992, the Partnership signed a loan modification
agreement with the lender of Bear Canyon Office Building I (the "Bear
Canyon I"). The modification reduced the interest rate from 10.875%
to 8.875%, effective July 1, 1992, and reduced the monthly payments
to interest only payments. The unpaid interest on the loan as of July
1, 1992 was added to the principal of the note. Additional payments
of 50% of annual cash flow, if any, commencing in the fourth quarter
of 1992 and calculated quarterly as of December 31, March 31, June 30
and September 30 shall be applied to the principal of the note.
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On April 20, 1995 the Partnership received a further modification
from the lender extending the maturity date from May 1, 1995 to May
1, 1996. The modification increased the interest rate from 8.875% to
10%. Interest is payable monthly and additional payments of 50% of
annual cash flow, if any, calculated quarterly as of December 31,
March 31, June 30 and September 30 shall be applied to the principal
of the note.
The Bear Canyon I building is currently under contract for sale to
an unaffiliated third party for $625,000. The Partnership will
consider reverting the property to the first mortgage lender during
1996 if the property cannot be sold to an unaffiliated third party.
As of December 31, 1994, the carrying amount of the affected real
estate pledged as collateral was written down to the related
outstanding debt of $414,730 and the resulting loss of $344,452 was
included in the adjustment to liquidation basis in the statement of
changes in net liabilities in liquidation.
The Partnership modified the mortgage on Bear Canyon Office
Building III during the third quarter of 1990 (the "First Loan
Modification"). The First Loan Modification reduced the interest pay
rate on the mortgage from 13.50% to 6.0% for the period from September
1989 to August 1990 and the interest pay rate was reduced from 13.50%
to 9.75% for the period from September 1990 to August 1991. The
difference between the pay rate and the initial rate of 13.5% was to
be deferred, but was forgiven pursuant to the Second Loan Modification
(defined below). Bear Canyon Office Building III continued to
operate at a cash flow deficit after the First Loan Modification. In
November 1991, the Partnership reached an agreement with the lender
to further modify the terms of the mortgage loan in a manner which the
Partnership believed would allow the property to operate at a
break-even or positive cash flow level (the "Second Loan
Modification"). Pursuant to the terms of the Second Loan
Modification, the annual interest rate was reduced from 13.5% to 3%
effective December 1, 1990. The Partnership would make monthly
payments of interest, plus principal payments based upon a: (i) 30
year amortization schedule plus 100% of net cash flow through June 1,
1992; (ii) 25 year amortization schedule plus 100% of net cash flow
from July 1, 1992 through June 1, 1993; and (iii) 15 year amortization
schedule plus 50% of net cash flow from July 1, 1993 through July 1,
1997, the extended maturity date. The deferred interest which began
accruing in September 1989 and the interest thereon has been forgiven
and was not added to the principal amount of the loan as had been
agreed upon pursuant to the First Loan Modification. Due to the
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Second Loan Modification, the Partnership recognized a non-cash gain
on forgiveness of deferred interest of $154,129 in 1991.
The lender has the option to accelerate the loan maturity on July
1, of each year if the property is not: (i) in good condition and
repair; (ii) occupied at a rate that is equal to the prevailing
occupancy rate for similar properties in the same locale; and (iii)
leased at rental rates which are at least 90% of the prevailing rate
for similar properties in the same locale. In the opinion of the
General Partners, the property currently meets these standards. The
Partnership established an escrow account with the mortgage servicing
agent in which the Partnership deposited approximately $21,000 to be
used to perform certain repairs and improvements to the property.
These escrowed funds were fully utilized. As a condition to the
Second Loan Modification, the Partnership has brought the loan current
based on the modified terms. At the time the Partnership acquired the
property it acquired the property subject to this mortgage and note.
In order to complete the Second Loan Modification, the Partnership was
required to assume the obligations and duties of the mortgage and note
on a non-recourse basis.
The Bear Canyon III building is currently under contract for sale
to an unaffiliated third party for $1,800,000. The Partnership will
consider reverting the property to the first mortgage lender during
1996 if the property cannot be sold to an unaffiliated third party.
As of December 31, 1994, the carrying amount of the affected real
estate pledged as collateral was written down to the related
outstanding debt of $1,461,925 and the resulting loss of $345,933 was
included in the adjustment to liquidation basis in the statement of
changes in net liabilities in liquidation.
The occupancy rate and average annual base rental per square foot
at December 31 for the last five years are as follows(all three Bear
Canyon office buildings are presented for the years ended December 31,
1994, 1993, 1992 and 1991):
1995 1994 1993 1992 1991
Occupancy Rate 95% 97% 98% 80% 68%
Average Annual
Base Rental Per
Square Foot $11.22 $10.26 $8.63 $9.18 $11.16
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Bear Canyon I and III have one tenant who individually occupies ten
percent or more of the net rentable square feet. The following is a
summary of the tenant rent roll at December 31, 1995:
Square Annual Expiration Renewal
Tenant Feet Rent Date Options
Real Estate Center 6,757 74,327 3/31/96 No
Others 37,371 420,698 Various
Various Vacant 2,122 -- -- --
46,250 $495,025
Risks of Ownership
The possibility exists that the tenants of the Partnership's
properties may be unable to fulfill their obligations pursuant to the
terms of the leases, including making base rent payments to the
Partnership. Such defaults by one or more of the tenants could have
an adverse effect on the financial position of the Partnership.
Furthermore, the Partnership may be unable to replace these tenants
due to conditions in the market area and competition in the areas in
which the properties are situated at the time any vacancies occur.
Additionally, there are costs to the Partnership when replacing
tenants such as leasing commissions and tenant improvements.
In the opinion of the General Partner, the Partnership has provided
for adequate insurance coverage of its real estate investment
properties.
Item 3. Legal Proceedings.
On July 22, 1994, a complaint was filed with the Second Judicial
District Court, in the county of Bernalillo, in the state of New
Mexico, against the Partnership and Brauvin Real Estate Fund L.P. 4
("BREF 4"), (the "Defendants"). United of Omaha Life Insurance
Company (the "Plaintiff") alleges that the Defendants failed and
refused to make payments when due and are in default under the
Modification Agreements, secured by the Bear Canyon III property and
a property in BREF 4, dated November 13, 1991. The Plaintiff declared
due and owing, from the Partnership only, the principal sum of
$1,510,300, together with accrued interest of $594,954, and non
payment of cash flow payments in the amount of $25,930, totaling
$2,131,184 together with interest from July 22, 1994. On September
6, 1994, the Partnership filed an answer and counterclaim. The
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counterclaim alleges breach of contract and breach of the duty of good
faith and dealing.
On July 18, 1995, the Plaintiff and Defendants agreed to dismiss
all legal actions against each other. Furthermore, the parties agreed
that the Partnership would make an additional payment of approximately
$13,600 to reduce the principal balance of the loan, which it did on
May 1, 1995. On August 10, 1995, in compliance with the agreement,
an Order of Dismissal was entered in the Second Judicial District
Court of the State of New Mexico.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for the Registrant's Limited Partnership Interests
and Related Security Holder Matters.
At December 31, 1995, there were approximately 631 Limited Partners
in the Partnership. There is no established public trading market for
Units and it is not anticipated that there will be a public market for
Units. Bid prices quoted by "partnership exchanges" vary widely and
are not considered a reliable indication of market value. Neither the
Partnership nor Brauvin Realty Partners, Inc. (the "Corporate General
Partner") will redeem or repurchase outstanding Units.
Pursuant to the terms of the Agreement, there are restrictions on
the ability of the Limited Partners to transfer their Units. In all
cases, the General Partners must consent to any transfer.
The Partnership suspended quarterly distributions to investors in
May 1988 (beginning with the quarter ended March 31, 1988) due to cash
flow shortages. As of December 31, 1995, cash distributions to
Limited Partners have totaled $1,371,640.
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BRAUVIN REAL ESTATE FUND L.P.3
(a Delaware limited partnership)
(Going Concern Basis)
Item 6. Selected Financial Data.
For the
Six Months ended June 30,
(Unaudited)
1994 1993
Selected Income Statement Data:
Total Income: $ 523,204 $ 476,085
Extraordinary Item:
Gain on extinguishment
of debt -- 292,615
Net Income (Loss) (175,393) 150,692
Net Income (Loss)
Per Limited Partnership
Unit $ (22.47) $ 19.30
Selected Balance Sheet Data:
Total Assets 7,066,809 7,400,754
Mortgages Payable $4,673,184 $4,784,137
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BRAUVIN REAL ESTATE FUND L.P.3
(a Delaware limited partnership)
(Going Concern Basis)
Item 6. Selected Financial Data - Continued
Years Ended
December 31,
1993 1992 1991
Selected Income Statement Data:
Total Income $ 925,522 $903,511 $915,290
Extraordinary Items
Gain on extinguishment of debt 292,172 -- 154,129
Net Income (Loss) 26,784 (222,606) (19,117)
Net Income (Loss) Per Limited
Partnership Unit $ 3.43 $ (28.51) $ (2.45)
Selected Balance Sheet Data:
Total Assets 7,153,861 7,400,754 7,502,795
Mortgages Payable $4,730,197 $5,148,403 $5,209,684
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on April 28,
1983 of 12,000 Units. A total of $7,729,000 was raised from the sale
of Units. Of the properties held by the Partnership during 1995, the
Partnership owned Country Club Plaza, which it acquired in 1984, and
the Bear Canyon Professional Buildings ("Bear Canyon"), which it
acquired in 1984. The Partnership conveyed Kensington Tower Building,
in which it had acquired an 80% interest in 1984 and the remaining 20%
interest in 1989, back to the first mortgage holder on December 26,
1989. The Partnership conveyed the Country Club Plaza back to the
first mortgage holder on June 13, 1995. The Partnership sold one of
the three Bear Canyon properties in May 1995 to an unaffiliated party
for approximately $920,000.
The Partnership continues to operate at a cash flow deficit due
to market conditions at the Bear Canyon properties and the payment of
certain Partnership overhead items. The Partnership, not having the
resources to continue to fund these deficits, requested loan
modifications from the lenders in order to operate its properties at
a break-even cash flow or better. The Partnership has been able to
obtain loan modifications from the lenders of Bear Canyon I and Bear
Canyon III. Bear Canyon I and III continue to generate a slight
negative cash flow.
As a result of continued inadequate cash flow to service the
Partnership's debts caused by its inability to increase tenant rental
rates and/or attract new tenants at the Partnership's remaining
properties, the General Partners have decided to cease operations and
liquidate all of the Partnership's assets as quickly as possible. The
Partnership shall endeavor to sell all of its real estate holdings or
negotiate an uncontested foreclosure of the properties to the lenders.
The partnership agreement (the "Agreement") provides that
distributions of Operating Cash Flow, as defined in the Agreement,
shall be distributed 99% to the Limited Partners and 1% to the General
Partners. The receipt by the General Partners of such 1% of Operating
Cash Flow is subordinate to receipt by the Limited Partners of
Operating Cash Flow equal to a 9% per annum, cumulative, non-compounded
return on Adjusted Investment, as such term is defined in the Agreement
(the "Preferential Distribution"). In the event the full Preferential
Distribution is not made in any year (herein referred to as a
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"Preferential Distribution Deficiency") and Operating Cash Flow is
available in following years in excess of the Preferential Distribution
for said year, then the Limited Partners shall be paid such excess
Operating Cash Flow until they have been paid any unpaid Preferential
Distribution Deficiency from prior years.
The Partnership has also entered into a contract to sell Bear
Canyon I to an unaffiliated third party for approximately $625,000 with
a closing anticipated for early 1996. The sale is subject to a "due
diligence" review by the purchaser and a financing contingency.
Accordingly, there can be no assurance that the sale will close.
The Partnership has entered into a contract to sell Bear Canyon
III to an unaffiliated third party for approximately $1,800,000 with
a closing anticipated for early 1996. The sale is subject to a "due
diligence" review by the purchaser and a financing contingency.
Accordingly, there can be no assurance that the sale will close.
As of December 31, 1995, the carrying amount of the Bear Canyon
properties real estate pledged as collateral was $1,876,655 and the
related outstanding debt was $1,749,375. In accordance with the
liquidation basis of accounting, a provision for loss of $878,099 has
been reflected in the 1994 financial statements.
Net Sale Proceeds, as defined in the Agreement, received by the
Partnership shall be distributed as follows: (a) first, to the Limited
Partners until such time as the Limited Partners have been paid an
amount equal to the amount of their Adjusted Investment; (b) second,
to the Limited Partners until such time as the Limited Partners have
been paid an amount equal to any unpaid Preferential Distribution
Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to
the Limited Partners, and the remaining 15% of the Net Sale Proceeds
to the General Partners. At December 31, 1995, the Preferential
Distribution Deficiency equaled $7,091,358.
The General Partners are doubtful that at the time the
Partnership's properties are sold, Net Sale Proceeds will be sufficient
to repay the Limited Partners an amount equal to a portion of their
Adjusted Investment or certain portions of the unpaid Preferential
Distribution Deficiency.
Financial Condition
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As a result of the General Partners' decision to cease operations
and liquidate the Partnership, the Partnership began using the
liquidation basis of accounting as of July 1, 1994 and has stated its
financial statements to reflect management's belief as to the
approximate fair value of the Partnership's assets and its estimated
liquidation costs. As of December 31, 1995, the total estimated value
of the Partnership's assets was $1,934,115 and its liabilities were
$2,032,875. The Partnership's assets as of December 31, 1995 consist
of the two Bear Canyon office buildings. Based on the fair value of
these properties and other assets, it is doubtful that any net
liquidation proceeds will be available to distribute to Limited
Partners.
Results of Operations
The Partnership's revenue and expenses are affected primarily by the
operations of the properties. Management of the Partnership has
elected and may continue to renegotiate the terms of the mortgage loans
(collateralized by the Partnership's properties) which frequently
results in a reduction of interest expense over its remaining term to
maturity or it may elect to dispose of assets that are non-performing
in order to produce cash flow sufficient to support the total
operations of the Partnership. Management evaluates the Partnership's
properties to determine their long-term viability on an on-going basis.
Various factors, all beyond the control of the Partnership and its
General Partner, converged to cause severe economic hardships on real
estate owners which had not been experienced in more than fifty years.
These conditions which have pervaded the real estate industry since the
late 1980's to the current time have been referred to optimistically
as a recession and realistically as a depression. Some of the factors
which contributed to the current condition of the real estate industry
include:
Development during the 1980's out paced demand for both office
and retail space causing higher vacancy rates in many markets.
Passage of the Tax Reform Act of 1986 reduced or eliminated
most tax benefits associated with ownership/investment in real estate
forcing real estate to compete for capital based solely on a recession
impacted cash flow.
The savings and loan crisis resulted in the creation of the
Resolution Trust Corp. (RTC). The RTC sponsored auctions of large
blocks of properties at significant discounts. This allowed the new
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owners to drop asking rentals markedly resulting in significantly lower
market rents.
Recessionary economic conditions combined with competitive
forces caused many U.S. companies to reduce employment levels thus
adversly impacting the demand for office space. This reduction in
employment also resulted in reduced retail sales further depressing the
demand for retail space.
These conditions have adversely impacted the Partnership's property
economics. Rental and occupancy rates have improved at the remaining
properties; however, they remain below where they were when the
properties were acquired.
In certain instances and under limited circumstances, management
of the Partnership has entered into negotiations with lenders for
the purpose of restructuring the terms of loans so as to provide
for debt service levels that could be supported by operations of
the properties. In such instances, the terms of the restructuring
agreement provided the lender with the potential for recovering
forgone economic benefits at the time the property is sold or
refinanced. When negotiations are unsuccessful, management of the
Partnership considers the possibility of reverting the properties
to the first mortgage lender. Foreclosure proceedings may require
six to 24 months to conclude.
An affiliate of the Partnership and the General Partners is
assigned responsibility for day-to-day management of the
properties. The affiliate receives a management fee which cannot
exceed 6% of gross revenues generated by the properties.
Management fee rates are determined by the extent of services
provided by the affiliate versus services that may be provided by
third parties, i.e., independent leasing agents. In all instances,
fees paid by the Partnership to the property management affiliate
are, in the General Partner's opinion, comparable to fees that
would be paid to independent third parties.
The General Partners conduct an in-depth assessment of each
property's physical condition as well as a demographic analysis to
assess opportunities for increasing occupancy and rental rates and
decreasing operating costs. In all instances, decisions concerning
restructuring of loan terms, reversions and subsequent operation of
the property are made with the intent of maximizing the potential
proceeds to the Partnership and, therefore, return of investment
and income thereon to Limited Partners.
<PAGE>
Results of Operations - December 31, 1995 Compared to December 31,
1994
Results of operations prior to the $24,319 gain on the sale of
Bear Canyon II and the $381,550 adjustment to the estimated losses
through date of liquidation, for the year ended December 31, 1995
reflected net income of $68,229 compared to a net loss of $111,180
for the year ended December 31, 1994, an increase in net income of
$179,409.
Total revenue generated for the year ended December 31, 1995 was
$746,617 compared to $996,044 in 1994, a decrease of $249,427. The
decrease in revenue was the result of the Partnership owning
Country Club Plaza and all three Bear Canyon office buildings for
the entire year of 1994. In May 1995, Country Club Plaza was
foreclosed by the first mortgage lender, and Bear Canyon Office
Building II was sold to an unaffiliated third party.
Total expenses incurred for the year ended December 31, 1995
were $678,388 compared to $1,111,224 in 1994, a decrease of
$432,836. The decrease in expenses was mainly the result of the
Partnership owning fewer properties due to the May 1995 foreclosure
of Country Club Plaza and the sale of Bear Canyon II.
Results of Operations - December 31, 1994 Compared to December 31, 1993
Pursuant to its liquidation basis of accounting, the Partnership
accrued $2,135,197 as of July 1, 1994 to provide for operating expenses
during its liquidation and adjust assets and liabilities to estimated
net realizable value or settlement amounts, respectively. Net income
was reduced by this amount for the period July 1, 1994 to December 31,
1994. The Partnership's write down of its assets to net realizable
value pursuant to the liquidation basis of accounting resulted in a
$1,971,197 reduction of net income for the period July 1, 1994 to
December 31, 1994. The remaining liquidation expenses consisted of
<PAGE>
$100,000 in professional fees and $64,000 in property operating losses.
Results of operations prior to adjustment to liquidation basis, for
the year ended December 31, 1994 reflected a net loss of $111,180
compared to a net loss of $26,784 for the year ended December 31, 1993,
an increase of $84,396.
Total revenue generated for the year ended December 31, 1994 was
$996,044 compared to $925,522 in 1993, an increase of $70,522. The
increase in revenue was due to an increase in occupancy at the Bear
Canyon properties. The Partnership operated four rental properties in
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1994 which were acquired in 1984. The Partnership did not purchase any
additional properties in 1994.
Total expenses incurred prior to the adjustment to liquidation
basis, for the year ended December 31, 1994 were $1,111,224 compared
to $1,190,910 in 1993, a decrease of $79,686. The decrease in expenses
was mainly due to a decrease in depreciation expense as a result of the
liquidation basis of accounting which reduced the properties to their
net realizable value.
Results of Operations - June 30, 1994 compared to June 30, 1993 (unaudited)
Results of operations for the six months ended June 30, 1994
reflected a net loss of $175,393 compared to a net income of $150,692
for the six months ended June 30, 1993, a decrease of approximately
$326,000. The decrease in net income was due to the Partnership
recognizing a non-cash gain of approximately $292,000 which resulted
from the forgiveness of debt on the Country Club loan modification
finalized in 1993. Also contributing to the decrease in net income was
an increase in legal fees of approximately $90,500 associated with
litigation.
Total revenue generated for the six months ended June 30, 1994 was
$523,204 compared to $476,085 in 1993, an increase of approximately
$47,100. The increase in revenue was due to an increase in other
income resulting from an increase in tenant reimbursement billings for
the second quarter of 1994 as compared to the second quarter of 1993
which reflects a tenant reimbursement billings adjustment for the year
ended 1992. The decrease in income was due to lower rental income
during the second quarter of 1994 as a result of lower occupancy at the
Partnership's properties.
Total expenses incurred for the six months ended June 30, 1994 were
$698,597 compared to $618,008 in 1993, an increase of approximately
$80,600. The increase in expenses was primarily due to an increase in
legal fees of approximately $90,500 associated with litigation.
Partially offsetting this increase was a decrease in general and
administrative expenses such as bad debt and audit expense.<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
See index to Financial Statements and Schedule on Page F-1 of this
Annual Report on Form 10-K for financial statements and financial
statement schedule, where applicable.
The supplemental financial information specified in Item 302 of
Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
The General Partners of the Partnership are:
Brauvin Realty Partners, Inc., a Delaware corporation
Mr. Jerome J. Brault, individually
Mr. Cezar M. Froelich, individually
Brauvin Realty Partners, Inc. (the "Corporate General Partner"),
was formed under the laws of the State of Delaware in December 1982,
with its issued and outstanding shares being owned by The A.G.E Realty
Corporation (50%), ChiCorp., Inc., the holding company of The Chicago
Corporation (5%) and Messrs. Jerome J. Brault (beneficially) (22-1/2%)
and Cezar M. Froelich (22-1/2%).
Mr. Jerome J. Brault. . . . . . . . .Chairman of the Board of
Directors and President
Mr. Robert J. Herleth . . . . . . . .Vice President and Director
Mr. James L. Brault . . . . . . . . .Vice President and Secretary
Mr. David W. Mesker . . . . . . . . .Director
Mr. Thomas J. Coorsh. . . . . . . . .Chief Financial Officer and
Treasurer
The business experience during the past five years of the General
Partners and officers and directors of the Corporate General Partner
are as follows:
Mr. Jerome J. Brault (age 62) is Director, Chairman of the Board
and President of Brauvin Properties, Inc., Brauvin Realty Properties,
Inc., Brauvin Realty Partners, Inc., Brauvin Ventures, Inc., Brauvin
Associates, Inc., Brauvin 6, Inc., Brauvin Advisory Services, Inc.,
Brauvin Securities Inc. and Brauvin Restaurant Properties, Inc. He is
Director, President, Chairman of the Board, Chief Executive Officer and
Secretary of Brauvin Realty Services, Inc., Brauvin Management Company
and Brauvin Financial, Inc. He is President and Director of Brauvin,
Inc. He is also Director, President, Chairman of the Board and Chief
Executive Officer of Brauvin Chili's Inc., Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
<PAGE>
Inc., Brauvin Realty Advisors IV, Inc., Brauvin Realty Advisors V, LLC,
and Brauvin Net Lease V, Inc. as well as an individual general partner
in seven other affiliated public limited partnerships. Prior to Mr.
Brault's affiliation with the Brauvin organization, he was the Chief
Operating Officer of Burton J. Vincent, Chesley & Company, a New York
Stock Exchange member firm. He is the father of James L. Brault,
officer of certain affiliated Brauvin entities.
Mr. Cezar M. Froelich (age 50) is a principal with the Chicago law
firm of Shefsky Froelich & Devine Ltd., which acts as counsel to the
General Partners, the Partnership and certain of their affiliates. His
practice has been primarily in the fields of securities and real estate
and he has acted as legal counsel to various public and private real
estate limited partnerships, mortgage pools and real estate investment
trusts. Mr. Froelich is an individual general partner in seven other
affiliated public limited partnerships and a shareholder in Brauvin
Management Company and Brauvin Financial Inc. Mr. Froelich resigned
as a director of the corporate general partner in December 1994.
Mr. James L. Brault (age 35) is a Vice President and Secretary of
Brauvin Chili's, Inc., Brauvin Properties, Inc., Brauvin Realty
Properties, Inc., Brauvin Realty Partners, Inc., Brauvin Ventures,
Inc., Brauvin 6, Inc., Brauvin Realty Advisors, Inc., Brauvin Realty
Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin
Associates Inc., Brauvin Inc., Brauvin Securities, Inc. and Brauvin
Restaurant Properties, Inc. He is Executive Vice President and
Secretary of Brauvin Advisory Services, Inc. He is also Executive Vice
President, Secretary and Director of Brauvin Realty Advisors IV, Inc.
and Brauvin Realty Advisors V, LLC., and Brauvin Net Lease V, Inc..
Additionally, he is the Executive Vice President and Assistant
Secretary of Brauvin Management Company and Brauvin Financial, Inc.,
as well as a Director of Brauvin Financial, Inc. Prior to joining the
Brauvin organization in May 1989, he was a Vice President of the
Commercial Loan Division of the First National Bank of Chicago, based
in their Washington, D.C. office. Mr. Brault joined the First National
Bank of Chicago in 1983 and his responsibilities included the
origination and management of commercial real estate loans, as well as
the direct management of a loan portfolio in excess of $150,000,000.
Mr. Brault received a B.A. in Economics from Williams College and an
M.B.A. in Finance and Investments from George Washington University in
1983 and 1987, respectively. Mr. Brault is a son of Mr. Jerome J.
Brault, the managing general partner of the Partnership.
<PAGE>
Mr. Robert J. Herleth (age 43) is a Vice President and Director
of Brauvin Properties, Inc., Brauvin Realty Properties, Inc., Brauvin
Realty Partners, Inc., Brauvin Ventures, Inc., and Brauvin 6, Inc. He
joined A.G. Edwards and Sons, Inc. in 1980 and presently serves as a
Vice President of A.G.E. Realty Corp. Mr. Herleth is also a director
and officer of Gull-AGE Capital Group and its subsidiaries.
Mr. David W. Mesker (age 64) is a Director of Brauvin Properties,
Inc., Brauvin Realty Properties, Inc., Brauvin Realty Partners, Inc.,
Brauvin Ventures, Inc. and Brauvin 6, Inc. Mr. Mesker is presently a
Senior Vice President of A.G. Edwards & Sons, Inc. and a Director and
officer of Gull-AGE Capital Group and its subsidiaries.
Mr. Thomas J. Coorsh (age 46) is the Treasurer and Chief Financial
Officer of Brauvin Chili's, Inc., Brauvin Properties, Inc., Brauvin
Realty Properties, Inc., Brauvin Realty Partners, Inc., Brauvin
Ventures, Inc., Brauvin 6, Inc., Brauvin Realty Advisors, Inc., Brauvin
Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin
Realty Advisors IV, Inc., Brauvin Realty Advisors V, LLC., Brauvin Net
Lease V, Inc., Brauvin Management Company, Brauvin Financial, Inc.,
Brauvin Securities, Inc., Brauvin Inc., Brauvin Associates, Inc.,
Brauvin Advisory Services, Inc. and Brauvin Restaurant Properties, Inc.
He is responsible for the overall financial management of Brauvin
Management Company, Brauvin Financial, Inc. and related partnerships.
He is responsible for partnership accounting and financial reporting
to regulatory agencies. From May 1992 until joining Brauvin in
November of 1993, Mr. Coorsh was self-employed as a business
consultant. Between 1990 and 1992, Mr. Coorsh was the senior vice
president of finance and chief accounting officer for Lexington Homes,
a large Illinois home builder. In 1990 Mr. Coorsh left The Balcor
Company, a major real estate syndicator, property manager and lender
to join Lexington Homes. Mr. Coorsh began work at The Balcor Company
in 1985 and his most recent position was first vice president -
finance. Mr. Coorsh's responsibilities at Balcor included property
management accounting and finance, treasury, and financial and
strategic planning. Before joining Balcor, Mr. Coorsh held financial
positions with several large, public corporations headquartered in the
Chicago metropolitan area. Mr Coorsh received a B.S. degree in
Industrial Management from Purdue University, in 1971, and an M.B.A.
in Finance and Accounting from the University of Chicago, in 1975 and
is a Certified Public Accountant.
<PAGE>
Item 11. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner or their affiliates as
described under the caption "Compensation Table" on pages 9 to 11 of
the Partnership's Prospectus, as supplemented, and the sections of the
Agreement entitled "Distributions of Operating Cash Flow," "Allocation
of Profits, Losses and Deductions," "Distribution of Net Sale or
Refinancing Proceeds" and "Compensation of General Partners and Their
Affiliates" on pages A-8 to A-15 of the Agreement attached as Exhibit
A to the Partnership's Prospectus.
The relationship of the Corporate General Partner (and its
directors and officers) to its affiliates is set forth above in Item
10. Reference is also made to Item 8, Note 3 for a description of such
distributions and allocations.
The General Partners received a share of the Partnership's losses
for 1995, 1994 and 1993. An affiliate of the General Partners received
Acquisition Fees as such term is defined in the Agreement, in
connection with the real property investments acquired by the
Partnership in 1985 in the aggregate sum of $927,480 when the real
property purchases were made.
An affiliate of the Partnership may be reimbursed for its direct
expenses relating to the administration of the Partnership.
(c, d, e & f) Not applicable.
(g) The Partnership has no employees and pays no
employee or director compensation.
(h & i) Not applicable.
(j) Compensation Committee Interlocks and Insider
Participation. Since the Partnership had no
employees, it did not have a compensation
committee and is not responsible for the payment
of any compensation.
(k) Not applicable.
<PAGE>
(l) Not applicable.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to
own beneficially more than 5% of the outstanding Units of the
Partnership.
(b) The officers and directors of the Corporate
General Partner do not own, individually or as a group, any Units.
No officer or director of the Corporate General Partner possesses a right
to acquire beneficial ownership of Units. The General Partners of the
Partnership will share in the profits, losses and distributions of the
Partnership as outlined in Item 11, "Executive Compensation".
(c) The Partnership is not aware of any arrangements,
the operations of which may result in a change of control of the
Partnership.
Item 13. Certain Relationships and Related Transactions.
(a & b) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate General Partner, as
described in the sections of the Partnership's Prospectus, entitled
"Compensation Table" and "Conflicts of Interest" at pages 9 to 13, as
supplemented, and the section of the Articles entitled "Rights, Duties
and Obligations of General Partners" at pages A-13 to A-16. The
relationship of the Corporate General Partner to its affiliates is set
forth in Item 10. Cezar M. Froelich is an individual general partner
of the Partnership and is also a principal of the law firm of Shefsky,
Froelich & Devine, Ltd., which firm acts as securities and real estate
counsel to the Partnership.
(c) No management persons are indebted to the Partnership.
(d) There have been no significant transactions with
promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) The following documents are filed as part of this report:
(1) (2) Financial Statements and Schedules indicated in
Part II, Item 8 "Financial Statements and Supplementary
Data" of Form 10-K.
(3) Exhibits required by the Security Exchange Commission
Regulation S-K Item 601.
(27) Financial Statement Disclcosure
The following exhibits are incorporated by reference to the
Registrant's Registration Statement (File No. 2-82289) on Form S-11
filed under the Securities Act of 1933:
Exhibit No. Description
3.(a) Articles of Limited Partnership
3.(b) Articles of Incorporation of Brauvin Realty
Partners, Inc.
3.(c) By-Laws of Brauvin Realty Partners, Inc.
3.(d) Certificate of Limited Partnership of the Partnership
10.(a) Escrow Agreement
(b) The Partnership was not required to file any report on Form 8-K
during the fourth quarter of 1995.
(c) An annual report for the fiscal year 1995 will be sent to
the Limited Partners subsequent to this filing and the Partnership
will furnish copies of such report to the Securities and Exchange
Commission at that time.
(d) Not applicable.
<PAGE>
The following exhibits are incorporated by reference to the
Registrant's 1994 Form 10-K:
(10)(b)(1)Management Agreement
(28) Pages 9-13 and A-8 to A-16 of the Partnership's
Prospectus, as supplemented, and the Articles dated
April 28, 1983.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
BRAUVIN REAL ESTATE FUND L.P. 3
BY: Brauvin Realty Partners, Inc.
Corporate General Partner
By: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors
and President
By: /s/ Robert J. Herleth
Robert J. Herleth
Vice President and Director
By: /s/ James L. Brault
James L. Brault
Vice President and Secretary
By: /s/ David W. Mesker
David W. Mesker
Director
By: /s/ Thomas J. Coorsh
Thomas J. Coorsh
Chief Financial Officer and Treasurer
INDIVIDUAL GENERAL PARTNERS
/s/ Jerome J. Brault
Jerome J. Brault
/s/ Cezar M. Froelich
DATED: March 29, 1996 Cezar M. Froelich
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors. . . . . . . . . . . . . . .F-2
Statements of Net Liabilities in Liquidation, December 31,
1995 and December 31, 1994 (Liquidation Basis). . . . . .F-4
Statement of Changes in Net Liabilities in Liquidation,
for the year ended December 31, 1995 and the period from
July 1 to December 31, 1994(Liquidation Basis) . . . . .F-5
Statements of Operations for the period January 1, 1994
to June 30, 1994 and the year ended December 31, 1993
(Going Concern Basis) . . . . . . . . . . . . . . . . . .F-6
Statements of Partners' Capital for the period January 1,
1994 to June 30, 1994 and the year ended December 31,
1993 (Going Concern Basis) . . . . . . . . . . . . . . .F-7
Statements of Cash Flows for the period January 1, 1994
to June 30, 1994 and the year ended December 31, 1993
(Going Concern Basis). . . . . . . . . . . . . . . . . .F-8
Notes to Financial Statements . . . . . . . . . . . . . . .F-9
Schedules are omitted for the reason that they are inappropriate
or equivalent information has been included elsewhere herein.
<PAGE>
To the Partners of
Brauvin Real Estate Fund L.P. 3
We have audited the statements of net liabilities in liquidation of
Brauvin Real Estate Fund L.P. 3 as of December 31, 1995 and 1994,
and the related statements of changes in net liabilities in
liquidation for the year ended December 31, 1995 and for the period
from July 1, 1994 to December 31, 1994 (prepared on a liquidation
basis). In addition, we have audited the related statements of
operations, partners' capital, and cash flows for the period from
January 1, 1994 to June 30, 1994 and the year ended December 31,
1993 (prepared on a going concern basis). These financial
statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provided a
reasonable basis for our opinion.
As described in Notes 1 and 2 to the financial statements, the
Partnership decided to cease operations and changed its basis of
accounting for periods subsequent to June 30, 1994 from the going
concern basis to a liquidation basis. Accordingly, as of December
31, 1995 and 1994, the carrying value of the assets are presented
at estimated realizable amounts and all liabilities are presented
at estimated settlement amounts.
<PAGE>
In our opinion, the financial statements referred to above present
fairly, in all material respects, the statements of net liabilities
in liquidation at December 31, 1995 and 1994 of Brauvin Real Estate
Fund L.P. 3 and the changes in its net liabilities in liquidation
for the year ended December 31, 1995 and for the period from July
1, 1994 to December 31, 1994 (prepared on a liquidation basis) and
the results of its operations and its cash flows for the period from
January 1, 1994 to June 30, 1994 and the year ended December 31,
1993 (prepared on a going concern basis), in conformity with
generally accepted accounting principles applied on the bases of
accounting described in Notes 1 and 2 to the financial statements.
/s/ ERNST & YOUNG, LLP
Chicago, Illinois
March 9, 1996
<PAGE>
STATEMENTS OF NET LIABILITIES IN LIQUIDATION - (Liquidation Basis)
December 31, December 31,
1995 1994
ASSETS
Cash $ 28,032 $ 65,468
Tenant receivables 13,395 17,475
Other assets 16,033 16,454
Real estate held for sale 1,876,655 4,974,040
Total Assets $1,934,115 $5,073,437
LIABILITIES
Accounts payable and other
accrued expenses $ 29,901 $ 42,213
Due to affiliates:
Management fees and
reimburseables 230,662 433,015
Legal fees -- 141,156
Security deposits 22,937 40,152
Note payable -- 125,000
Mortgages payable 1,749,375 4,608,211
Estimated losses through date
of liquidation -- 164,000
Total Liabilities 2,032,875 5,553,747
Net liabilities in liquidation $ 98,760 $ 480,310
See accompanying notes.
<PAGE>
STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
For the year ended December 31, 1995 and the period from
July 1 to December 31, 1994
(Liquidation Basis)
Net liabilities in liquidation at July 1, 1994
(Going Concern Basis) $1,594,674
Adjustment to liquidation basis (2,074,984)
Net liabilities in liquidation at December 31, 1994 (480,310)
Adjustments to provision of estimated losses through
date of liquidation 381,550
Net liabilities in liquidation at December 31, 1995 $ (98,760)
See accompanying notes
<PAGE>
STATEMENTS OF OPERATIONS
For the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993
(Going Concern Basis)
For the Period Year Ended
January 1, 1994 to December 31,
June 30, 1994 1993
INCOME:
Rental $ 479,404 $ 904,372
Interest 77 1,027
Other 43,723 20,123
Total Income 523,204 925,522
EXPENSES:
Interest 211,533 416,862
Depreciation 110,927 232,995
Real estate taxes 45,157 84,838
Repairs and maintenance 44,090 75,410
Other property operating 121,418 217,006
General and administrative 165,472 163,799
Total Expenses 698,597 1,190,910
Loss before Extraordinary Item (175,393) (265,388)
Extraordinary Item-
Gain on extinguishment of debt -- 292,172
Net Income (Loss) $(175,393) $ 26,784
Net Income (Loss) allocated to:
Limited Partners $(173,639) $ 26,516
General Partners (1,754) 268
$(175,393) $ 26,784
INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST BEFORE
EXTRAORDINARY ITEM
(7,729 units) $ (22.47) $ (34.00)
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST
(7,729 units) $ (22.47) $ 3.43
See accompanying notes.
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
For the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993
(Going Concern Basis)
Limited
General Partners
Partners (7,729 Units) Total
BALANCE at
January 1, 1993 $(36,487) $1,779,770 $1,743,283
Net income 268 26,516 26,784
BALANCE at
December 31, 1993 (36,219) 1,806,286 1,770,067
Net loss (1,754) (173,639) (175,393)
BALANCE at
June 30, 1994 $(37,973) $1,632,647 $1,594,674
See accompanying notes.
<PAGE>
STATEMENTS OF CASH FLOWS
For the period January 1, 1994 to June 30, 1994
and for the year ended December 31, 1993
(Going Concern Basis)
For the Period Year Ended
January 1, to December 31,
June 30, 1994 1993
Cash Flow from Operating Activities:
Net (loss) income $(175,393) $ 26,784
Adjustment to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation 110,927 292,701
Bad debt expense -- 19,577
Extraordinary gain on extinguish debt -- (292,172)
Changes in operating assets and
liabilities:
(Increase) decrease in tenant
receivables, net (32,778) 22,311
Decrease (increase) in other assets 42,558 (24,908)
Increase in due to affiliates 161,548 150,055
Decrease in accounts payable
and other accrued expenses (22,750) (124,876)
Increase (decrease) in security
deposits 6,556 (5,650)
Total adjustments 266,061 37,038
Net cash provided by operating
activities 90,668 63,822
Cash Flow from Investing Activities:
Capital expenditures (33,655) (45,869)
Cash used by investing activities (33,655) (45,869)
Cash Flow from Financing Activities:
Repayment of mortgages (57,013) (142,953)
Proceeds from note payable -- 125,000
Net cash used by financing
activities (57,013) (17,953)
Net increase in cash -- --
Cash at beginning of period -- --
Cash at end of period $ -- $ --
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
Effective July 1, 1994, the General Partners decided to cease
operations and liquidate all of the Partnership's assets in an
orderly manner. It is the Partnership's intention to sell all of
its real estate holdings or negotiate an uncontested foreclosure of
the properties to the lenders.
As a result of the General Partners' decision to cease
operations, and in accordance with generally accepted accounting
principles, the Partnership's financial statements for periods
subsequent to June 30, 1994 have been prepared on a liquidation
basis. Accordingly, at December 31, 1995 and 1994, the carrying
value of the assets was presented at estimated realizable amounts
and all liabilities were presented at estimated settlement amounts,
including estimated costs associated with carrying out the
liquidation. Preparation of the financial statements on a
liquidation basis requires significant assumptions by management,
including assumptions regarding the amounts that creditors would
agree to accept in settlement of obligations due them, the estimate
of liquidation costs to be incurred and the resolution of contingent
liabilities, including tax liabilities, resulting from the
liquidation. There may be differences between the assumptions and
the actual results because events and circumstances frequently do
not occur as expected.
Income Taxes:
The Partnership is not subject to the payment of federal or
state income taxes because components of its income and expenses
flow through directly to its investors.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
For tax purposes, the net carrying value of the real estate for
the Partnership is $994,612.
Property:
As of December 31, 1995, the Partnership owns one property
consisting of two office buildings located in Albuquerque, New
Mexico.
Prior to conversion from the going concern basis to the
liquidation basis of accounting,the Partnership's rental properties
were stated at cost, adjusted for acquisition costs and unstated
interest and included leasing commissions and tenant improvements.
Depreciation and amortization were recorded on a straight-line basis
over the economic lives of the properties, which approximated 30
years and the terms of the tenant's leases, respectively. The
Partnership made periodic assessments concerning possible permanent
impairment to the value of all the properties. In the event that
the Partnership determined that impairment in value had occurred,
the carrying basis of the property was reduced to its estimated fair
value.
In accordance with the liquidation basis of accounting, the
carrying value of property is stated at estimated realizable
amounts. Accordingly, there are no provisions for depreciation or
amortization.
The Partnership's properties are subject to liens under first
mortgages (See Note 4).
(2) ADJUSTMENT TO LIQUIDATION BASIS
Effective July 1, 1994, in accordance with the liquidation basis
of accounting, assets were adjusted to estimated net realizable
value and liabilities were adjusted to estimated settlement amounts,
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
including estimated costs associated with carrying out the
liquidation. The net adjustment required to convert from the going
concern (historical cost) basis to the liquidation basis of
accounting was a decrease in assets of $2,074,984 which is included
in the December 31, 1994 statement of changes in net liabilities in
liquidation. During 1994, significant changes in the carrying value
of assets and liabilities are summarized as follows:
Decrease in real estate to net
realizable value $1,971,197
Provision for estimated losses
through date of liquidation 164,000
Estimated adjustments to other
assets and liabilities (60,213)
$2,074,984
(3) PARTNERSHIP AGREEMENT:
The partnership agreement (the "Agreement") provides that
distributions of Operating Cash Flow, as defined in the Agreement,
shall be distributed 99% to the Limited Partners and 1% to the
General Partners. The receipt by the General Partners of such 1%
of Operating Cash Flow shall be subordinated to the receipt by the
Limited Partners of Operating Cash Flow equal to a 9% per annum,
cumulative, non-compounded return on Adjusted Investment, as such
term is defined in the Agreement (the "Preferential Distribution").
In the event the full Preferential Distribution is not made in any
year (herein referred to as a "Preferential Distribution
Deficiency") and Operating Cash Flow is available in following years
in excess of the Preferential Distribution for said year, then the
Limited Partners shall be paid such excess Operating Cash Flow until
they have been paid any unpaid Preferential Distribution Deficiency
from prior years. Net Sale Proceeds, as defined in the Agreement,
received by the Partnership shall be distributed as follows: (a)
first, to the Limited Partners until such time as the Limited
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Partners have been paid an amount equal to the amount of their
Adjusted Investment; (b) second, to the Limited Partners until such
time as the Limited Partners have been paid an amount equal to any
unpaid Preferential Distribution Deficiency; and (c) third, 85% of
any remaining Net Sale Proceeds to the Limited Partners, and the
remaining 15% of the Net Sale Proceeds to the General Partners. Net
profits and losses from operations of the Partnership for each
fiscal year of the Partnership shall be allocated 99% to the Limited
Partners and 1% to the General Partners. The Preferential
Distribution Deficiency equaled $7,091,358 and $6,395,748 at
December 31, 1995 and 1994, respectively.
(4) MORTGAGES AND NOTE PAYABLE:
Mortgages and note payable at December 31, 1995 and 1994 consist
of the following:
First Mortgages Interest Date
1995 1994 Rate Due
Country Club Plaza(c) $ -- $2,257,385 12.22% 8/94
Bear Canyon Office
Buildings
I(b) 399,960 414,730 10.00% 5/96
II(d) -- 474,171 9.96% 10/06
III(a) 1,349,415 1,461,925 3.00% 7/97
$1,749,375 $4,608,211
Note Payable Interest Date
1995 1994 Rate Due
Country Club Plaza (c) $ -- $ 125,000 -- --
(a) The terms of the mortgage loan on Bear Canyon Office Building
III were modified for the first time in the third quarter of 1990
and for the second time in the third quarter of 1991. The second
loan modification requires that the Partnership make monthly
payments of principal and interest based upon a (i) 25-year
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
amortization schedule plus 100% of net cash flow from July 1, 1992
through June 1, 1993 and (ii)a 15-year amortization schedule plus
50% of net cash flow from July 1, 1993 through July 1, 1997, the
extended maturity date. The Lender has the option to accelerate the
loan maturity on July 1 of each year if the property is not: (i) in
good condition and repair; (ii) occupied at a rate that is equal to
the prevailing occupancy rate for similar properties in the same
locale; and (iii) leased at rental rates which are at least 90% of
the prevailing rate for similar properties in the same locale.
The Bear Canyon III building is currently under contract for
sale. The Partnership will consider reverting the property to the
first mortgage lender during 1996 if the property cannot be sold to
an unaffiliated third party. As of December 31, 1995 and 1994, the
carrying amount of the affected real estate pledged as collateral
is $1,461,925 and the resulting loss of $345,933 was included in the
adjustment to liquidation basis in the statement of changes in net
liabilities in liquidation for the period from July 1 to December
31, 1994.
(b) On April 20, 1995 the Partnership received a modification from
the Bear Canyon I first mortgage lender extending the maturity date
from May 1, 1995 to May 1, 1996. The modification increased the
interest rate from 8.875% to 10%. Interest is payable monthly and
additional payments of 50% of annual cash flow, if any, calculated
quarterly as of December 31, March 31, June 30 and September 30
shall be applied to the principal of the note.
The Bear Canyon I building is currently under contract for sale.
As of December 31, 1995 and 1994, the carrying amount of the
affected real estate pledged as collateral is $414,730 and the
resulting loss of $344,452 was included in the adjustment to
liquidation basis in the statement of changes in net liabilities in
liquidation for the period July 1 to December 31, 1994.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In the event that the current contract does not result in a sale
of the property, the Partnership will request that the lender
forebear from exercising its rights under the loan agreement until
a sale is effected.
(c) On August 19, 1994, the Partnership received a notice of default
from the first mortgage lender. The notice stated that the default
was a result of the Partnership's failure to make the interest
payments of $18,065 due July 8, 1994 and August 8, 1994. The notice
also stated that the Partnership had five business days from receipt
of the notice to cure the default or the Lender would exercise its
rights granted under the security documents by and between the
Partnership and Finova Capital Corporation ("the Lender"). The
Partnership decided not to cure the default and on October 19, 1994,
agreed to a joint stipulation for entry of final judgment of
foreclosure and for appointment of a receiver. The Partnership and
Lender further agreed that if the Receiver is unsuccessful in
liquidating the property by May 31, 1995, the Lender would
immediately thereafter obtain a sale date for the property to be
sold at a foreclosure sale which would take place no later than June
30, 1995. On May 31, 1995, a Certificate of Sale was filed in
Brevard County, Florida and on June 13, 1995, title of the property
was transferred to the Lender.
As of December 31, 1994, the carrying amount of the affected
real estate pledged as collateral was written down to the related
outstanding debt of $2,257,385 and the resulting loss of $1,093,098
was included in the adjustment to liquidation basis in the statement
of changes in net liabilities in liquidation for the period from
July 1 to December 31, 1994.
(d) On May 26, 1995, the Partnership paid off the Bear Canyon II
first mortgage as a result of the sale of the property to an
unaffiliated third party for approximately $920,000.
As of December 31, 1994, the carrying amount of the affected
real estate pledged as collateral was written down to $840,000, the
sales contract amount less estimated costs to dispose. The
resulting loss of $187,714 was included in the adjustment to
liquidation basis in the statement of changes in net liabilities in
liquidation for the period from July 1 to December 31, 1994.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Partnership paid interest on all of its mortgages of
$205,266 for the year ended December 31, 1995 and $84,770 for the
period July 1, 1994 to December 31, 1994 and $211,533 for the period
January 1, 1994 to June 30, 1994; and $406,050 for the year ended
December 31, 1993, respectively.
(5) TRANSACTIONS WITH AFFILIATES:
The General Partners and other affiliates provide various
services to support operating activities of the Partnership. Fees,
commissions and other expenses incurred by the Partnership with
respect to such services are as follows:
Year ended July 1, 1994 to
December 31, 1995 December 31, 1994
Legal fees $ 300 $92,130
Management fees and reimbursable
administrative services 80,884 60,282
January 1, 1994 Year ended
to June 30, 1994 December 31, 1993
Legal fees $ 1,800 $ 34,600
Managment fees and reimbursable
administrative services 60,282 115,732
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services. Management fees cannot exceed 6% of
the gross operating revenues generated by the Partnership's
properties. The Partnership had payables to affiliates for
management fees and reimbursable administrative services of $230,662
and $433,015 at December 31, 1995, 1994, respectively. The
Partnership had payables to affiliates for legal fees of $141,156
at December 31, 1994.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(6) OPERATING LEASES:
Rental income received from Florida Food & Drug of Country Club
Plaza, approximated 11%, 18%, 18% and 20% of rental income for the
Partnership for the year ended December 31, 1995; the period July
1, 1994 to December 31, 1994; January 1, 1994 to June 30, 1994; and
the year ended December 31, 1993.
<PAGE>
EXHIBITS
TO
BRAUVIN REAL ESTATE FUND L.P. 3
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1995
<PAGE>
EXHIBIT INDEX
BRAUVIN REAL ESTATE FUND L.P. 3
FORM 10-K
For the fiscal year ended December 31, 1995
Exhibit (10)(b)(1) Management Agreement
Exhibit (28) Pages 9-13 and A-8 to A-16 of the
Prospectus, as supplemented, and the Articles
<PAGE>
EXHIBIT
(10)(b)(1)
<PAGE>
EXHIBIT
(28)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 28,032
<SECURITIES> 0
<RECEIVABLES> 13,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,876,655 <F1>
<DEPRECIATION> 0 <F2>
<TOTAL-ASSETS> 1,934,115
<CURRENT-LIABILITIES> 0
<BONDS> 1,749,375 <F3>
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,032,875
<SALES> 0
<TOTAL-REVENUES> 766,617 <F4>
<CGS> 0
<TOTAL-COSTS> 678,388 <F5>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,299
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "PP&E" REPRESENTS REAL ESTATE HELD FOR SALE
<F2> "DEPRECIATION" IS INCLUDED IN "PP&E"
<PAGE>
<F3> "BONDS" REPRESENTS MORTGAGE PAYABLE
<F4> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST,
AND OTHER INCOME
<F5> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
</FN>
</TABLE>
