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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional
Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
.............................REAL-EQUITY PARTNERS..............................
(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):
[ ] 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:
Units of Limited Partnership Interest..............................
2) Aggregate number of securities to which transaction applies:
30,000 Units.......................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$344...............................................................
4) Proposed maximum aggregate value of transaction:
$10,432,977........................................................
5) Total fee paid:
$2,087.............................................................
[ ] 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:____________________________________________________________
720071.8
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REAL-EQUITY PARTNERS
9090 Wilshire Boulevard
Beverly Hills, California 90211
___________ __, 1998
To the Limited Partners:
National Partnership Investments Corp., the managing general partner ("NAPICO"
or the "Managing General Partner") of REAL-Equity Partners (the "Partnership" or
"REP"), is writing to recommend, and seek your consent to, (i) a proposed sale
of the five real properties owned by the Partnership (the "Properties") 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) an amendment (the "Amendment") to the Partnership's
Agreement of Limited Partnership necessary to permit such sale.
NAPICO is a wholly-owned subsidiary of Casden Investment Corporation, the sole
director and stockholder of which is Mr. Alan I. Casden. Alan I. Casden is also
a general partner of Casden Properties, the sponsor of the REIT and an affiliate
of the Partnership. Four of the current members of NAPICO's board of directors,
Charles H. Boxenbaum, Bruce E. Nelson, Henry C. Casden and Alan I. Casden, are
expected to become officers and shareholders of the REIT. The Partnership owns
five conventional multi-unit residential apartment complexes, each of which is
referred to herein as a "Property." The mortgage on one of the Properties is
insured by the United States Department of Housing and Urban Development ("HUD")
and during the period for which the mortgage is so insured, its rents will be
subject to regulation by HUD. The transactions by which the Partnership proposes
to sell the Properties to the REIT and amend its Agreement of Limited
Partnership are hereinafter referred to as the "Sale." Limited Partners must
separately approve the proposed Sale and the proposed Amendment in order to
allow consummation of the Sale.
In evaluating the proposed Sale, the Limited Partners should note that:
o Based upon a purchase price for the Properties of $24,876,300,
which is payable $10,432,977 in cash and $14,443,323 by assumption
by the REIT of certain mortgage indebtedness, it is anticipated
that the Partnership will make an aggregate distribution to
Limited Partners of approximately $10,328,647, or $344 per unit.
Each unit represents one limited partnership interest in the
Partnership. The units were sold at an original cost of $1,000 per
unit. The Sale is expected to have a net tax benefit of $27 per
unit, assuming (i) that Limited Partners have suspended passive
losses of approximately $8,907,000, or $297 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. The per unit distribution amount of $344 is
anticipated to be sufficient to pay any federal and state income
taxes that may arise in connection with the Sale.
o The Managing General Partner believes that now may be an opportune
time for the Partnership to sell the Properties, 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
Purchase Price to be received by the Partnership for the
Properties in the Sale is fair from a financial point of view to
the Limited Partners.
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o The Managing General Partner believes that selling the
Partnership's entire portfolio of real estate assets in a single
transaction (as opposed to a series of individual sales) will
enable the Partnership to (i) reduce transaction expenses; and
(ii) dispose of its portfolio in an expedited time frame.
There are certain risk factors that the Limited Partners should consider in
evaluating the proposed Sale, such as:
o The terms of the Sale have not been negotiated at arm's-length.
o Casden is both an affiliate of the Managing General Partner and
the sponsor of the REIT and, as discussed in the enclosed
materials, would receive substantial benefits as a result of the
Sale and the successful formation and capitalization of the REIT
that will not be available to Limited Partners.
o It is possible that Limited Partners could earn a higher return on
their investment in the Partnership if the Partnership were to
retain ownership of the Properties, then market and sell the
Properties to third parties for a higher aggregate purchase price
at a later date.
o As a result of the Sale, the Partnership will not realize any
potential benefits of continuing to own the Properties.
o The Sale and liquidation of the Partnership will have a tax impact
on Limited Partners. For Limited Partners who have been able to
use all of the passive losses generated by the Partnership on a
current basis, the Sale should result in a net cash distribution,
after payment of tax liabilities, of $238 per Unit in excess of
the federal and state income taxes that would be due in connection
with the Sale. 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 result in a lower
net tax benefit.
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 Properties for cash, which it plans to raise in
connection with a private placement of its equity securities, and the assumption
of certain mortgage indebtedness. The closing of the Sale is subject to, among
other things, (i) the consummation of such private placement by the REIT; and
(ii) the consummation of a minimum number of similar sales transactions with
other Casden-affiliated partnerships.
If the Limited Partners do not approve the Sale, the Partnership will most
likely retain ownership of the Properties.
We urge you to carefully read the enclosed Consent Solicitation Statement in
order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE APPROVAL REQUIRES
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF LIMITED
PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE. To be sure your vote is represented, please sign, date and
return the enclosed consent as promptly as possible.
The proposed Sale is fully described in the enclosed Consent Solicitation
Statement. Please read the enclosed materials carefully, then return your signed
consent form either by facsimile to 303-705-6171 or in the enclosed envelope on
or before ________ __, 1998.
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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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<PAGE>
REAL-EQUITY PARTNERS
9090 Wilshire Boulevard
Beverly Hills, California 90211
________ __, 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-Equity Partners, a California limited
partnership (the "Partnership" or "REP"), is seeking the consent of the Limited
Partners of the Partnership to (i) the sale of the five real properties owned by
Partnership (the "Properties") 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 $24,876,300 (the "Purchase Price"), payable $10,432,977 in cash and
$14,443,323 by assumption by the REIT of certain mortgage indebtedness; and (ii)
an amendment to the Partnership's Agreement of Limited Partnership (the
"Amendment") necessary to permit such a sale.
Each of the Properties is a conventional multi-unit residential
apartment complex. The mortgage on one of the Properties is insured by the
United States Department of Housing and Urban Development ("HUD") and during the
period for which the mortgage is so insured, its rents will be subject to
regulation by HUD.
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 Properties to the
REIT and amend its Agreement of Limited Partnership (the "Partnership
Agreement") are hereinafter referred to as the "Sale." The series of
transactions by which Casden proposes to form the REIT and acquire certain real
estate assets from the Casden Partnerships and others is hereinafter referred to
as the "REIT Transaction." The Sale and the proposed Amendment are being
submitted to the Limited Partners as separate resolutions. Limited Partners must
approve the proposed Sale and the proposed Amendment 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 $344 per unit of limited partnership interest
in the Partnership from the net proceeds of the Sale.
The Sale is conditioned upon, (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; and (iii) the consummation of a
minimum number of real estate purchases from the Casden Partnerships in
connection with the REIT Transaction.
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 Purchase Price for the Properties, is fair to the
Limited Partners and recommends that the Limited Partners consent to the Sale.
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Limited Partners should note, however, that the Managing General Partner's
recommendation is subject to inherent conflicts of interest. See "CONFLICTS OF
INTEREST."
National Partnership Investments Associates II, a California limited
partnership ("NPIA II"), is the non- managing General Partner of the
Partnership. Pursuant to an agreement between NAPICO and NPIA II, NAPICO is
responsible for the performance of any duties required to be performed by the
General Partners and has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA II has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement.
This Consent Solicitation Statement and the accompanying form of
Consent of Limited Partner are first being mailed to Limited Partners on or
about ________ __, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON ________ __, 1998, UNLESS EXTENDED.
720071.8
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
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......................................4
Amendment to Partnership Agreement.........................................5
Limited Partner Approval...................................................5
Third-Party Opinion........................................................5
Recommendation of the Managing General Partner; Fairness...................5
Conflicts of Interest......................................................6
Summary Financial Information..............................................7
Transaction Expenses.......................................................7
Voting Procedures..........................................................8
II. THE PARTNERSHIP............................................................8
General....................................................................8
The Properties.............................................................9
Market for Partnership Interests and Related Security Holder Matters.......9
Distribution History.......................................................10
Year 2000 Information......................................................10
Directors and Executive Officers of NAPICO.................................11
III. THE SALE...................................................................12
Background and Reasons for the Sale........................................12
Acquisition Agreement......................................................13
Source of Funds............................................................13
Transaction Costs..........................................................14
Distribution of Sale Proceeds; Accounting Treatment........................14
Conditions.................................................................15
Fairness Opinion...........................................................15
Alternatives to the Sale...................................................19
Recommendation of the Managing General Partner; Fairness...................21
IV. AMENDMENT TO THE PARTNERSHIP AGREEMENT.....................................22
V. CONFLICTS OF INTEREST......................................................22
General....................................................................22
Fiduciary Responsibility...................................................23
VI. SELECTED FINANCIAL INFORMATION.............................................24
VII. FEDERAL INCOME TAX CONSEQUENCES............................................25
VIII. LEGAL PROCEEDINGS .........................................................26
IX. LIMITED PARTNERS CONSENT PROCEDURE.........................................27
Distribution of Solicitation Materials.....................................27
Voting Procedures and Consents.............................................27
Completion Instructions....................................................28
Withdrawal and Change of Election Rights...................................28
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No Dissenters' Rights of Appraisal.........................................28
Solicitation of Consents...................................................28
X. IMPORTANT NOTE.............................................................29
</TABLE>
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 Amendment to the Partnership Agreement.
Annex E - Legal Opinion of Battle Fowler LLP.
720071.8
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AVAILABLE INFORMATION
REAL-Equity Partners 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-Equity Partners (the "Partnership") is a California limited
partnership, the general partners of which are National Partnership Investments
Corp. ("NAPICO") and National Partnership Investments Associates II, a
California limited partnership ("NPIA II").
The Partnership holds title to five Properties. Each of the Properties
is a conventional multi-unit apartment complex. The mortgage on one of the
Properties is insured by HUD. During the period for which the mortgage is so
insured, its rents will be subject to regulation by HUD. Four of the Properties
are located in California and one is located in Nevada. 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 September 9, 1981. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell the Properties to the REIT for cash
and the assumption of certain mortgage indebtedness. See "THE SALE." It is the
intention of the Managing General Partner to liquidate the Partnership in
accordance with the Partnership Agreement following the consummation of the
Sale. See "THE SALE."
The aggregate consideration for the Properties is $24,876,300, payable
$10,432,977 in cash and $14,443,323 by assumption by the REIT of certain
mortgage indebtedness. As of March 31, 1998, the appraised value of the
Properties, as determined by an independent real estate appraiser, was
$27,200,000. The appraisals were obtained by the Partnership to assist the
Limited Partners in determining the net asset value of their Units for ERISA
compliance purposes and not in connection with the evaluation of the Sale. Such
appraisals are merely opinions of value and are not necessarily indicative of
the price at which the Property could be sold. Although the most recent
appraised value of the Properties exceeds the Purchase Price by approximately
$2.3 million, the appraisals specifically state that they did not take into
consideration any deferred maintenance requirements at the Properties.
Furthermore, the appraisals were prepared assuming that immediate capital
expenditures needed at the Properties, as identified to the appraiser, had been
completed. Recent engineering studies of the Properties performed by the
Managing General Partner indicate that the Properties require immediate capital
expenditures of approximately $3,009,000 in connection with required roof
repairs, exterior painting and wall repairs, HVAC replacements, repairs relating
to earthquake damage and other repairs needed to maintain the Properties'
competitive position in their respective markets. The Managing General Partner
believes that such immediate capital expenditures would be reflected in any
third-party offers for the Properties. When the Properties' deferred maintenance
requirements of $3,009,000 are taken into account, the Purchase Price exceeds
the appraised value of the Properties by approximately $700,000.
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
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distribution of approximately $344 in cash per unit. The units (the "Units"),
each of which one limited partnership interest, were originally sold for $1,000
per unit. All expenses of the Sale will be borne by the Partnership.
The distribution is anticipated to be sufficient to pay any federal and
state income taxes that would be due in connection with the Sale. For Limited
Partners, the Sale should result, in addition to a cash distribution of $344 per
Unit, in a federal and state income tax benefit (i.e., the amount by which the
tax savings resulting from deducting the passive losses exceeds the tax payable
on the gain from the Sale) of $27 per Unit, assuming that Limited Partners have
suspended passive losses of $297 per Unit from the Partnership that could be
deducted in full against such Limited Partners' ordinary income and 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 lower net cash distribution.
For Limited Partners who have been able to use all of the passive losses
generated by the Partnership on a current basis, the Sale should result in a net
cash distribution of $238 per Unit after payment of their tax liability. For a
discussion of the bases of these assumptions, see "FEDERAL INCOME TAX
CONSEQUENCES." Each Limited Partner is urged to consult his, her or its own tax
advisor for a more detailed explanation of the specific tax consequences to such
Limited Partner from the Sale.
NAPICO and NPIA II, the General Partners, will be entitled to receive
distributions in connection with the Sale of $104,330 in the aggregate.
The Sale is conditioned upon, (i) approval of a majority in interest of
the Limited Partners of the Partnership; (ii) the consummation of the Private
Placement; and (iii) 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
$344 per Unit to Limited Partners, which amount is anticipated to
be sufficient to pay any federal and state income taxes that would
be payable in connection with the Sale. The Cash distribution
would be in addition to a net tax benefit of $27 per Unit,
assuming (i) that Limited Partners have suspended passive losses
of $297 per Unit from the Partnership; (ii) that such losses are
available to offset ordinary income taxed at the 39.6% marginal
federal rate and (iii) federal and state effective capital gains
rates of 25% and 5%, respectively. For a discussion of the bases
of these assumptions, see "FEDERAL INCOME TAX CONSEQUENCES." If
the Sale is not completed, there can be no assurance that the
Partnership will be able to make distributions at the current rate
or that the Partnership will be able to make any future
distributions.
o Opportune Time to Sell. The Managing General Partner believes that
now may be an opportune time for the Partnership to sell its
interests in the Properties, given current conditions in the real
estate and capital markets. Specifically, the Managing General
Partner believes that investor demand for the stock of certain
public real estate companies similar to the proposed REIT has
increased significantly over the past several years. The Managing
General Partner believes that the current interest rate
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. "THE PARTNERSHIP" and "THE SALE-- Background and
Reasons for the Sale."
o Third Party Fairness Opinion. Robert A. Stanger & Co., Inc.
("Stanger"), an independent, nationally recognized real estate
investment banking firm, has been engaged by the Partnership to
render an
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opinion (the "Fairness Opinion") to the Partnership as to the
fairness, from a financial point of view, to Limited Partners of
the Purchase Price to be received by the Partnership for the
Properties 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
Purchase Price to be received for the Properties in the Sale is
fair, from a financial point of view, to Limited Partners. See
"THE SALE -- Fairness Opinion."
o Eliminating the Risks of Real Estate Investing. Continued
ownership of the Properties subjects the Partnership to continued
risks inherent in real estate ownership, such as national and
local economic trends, supply and demand factors in the local
property market, the cost of operating and maintaining the
physical condition of the Properties and the cost and availability
of financing for prospective buyers of the Properties. No
assurance can be given that a prospective buyer would be willing
to pay an amount equal to or greater than the Purchase Price for
the Properties in the future.
o Attractive Sale Terms. The Managing General Partner believes that
the Purchase Price for the Properties is fair to the Limited
Partners and, based on its experience in the real estate industry,
believes that it exceeds the price that the Partnership would be
likely to receive in a sale to a third party or parties.
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.
The Managing General Partner considered marketing the Properties
to third parties; 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
that marketing the Properties to third parties would result in
significant delays and uncertainties. There can be no assurance,
however, that a third party buyer would not be willing to pay a
price in excess of the Purchase Price to acquire the Properties.
Several of the options considered by the Managing General Partner,
including the reorganization of the Partnership as a real estate
investment trust, a rollup involving the Partnership and the use
of an "UPREIT" structure, would have (i) been prohibitively
expensive and logistically impractical; (ii) entailed compliance
with the rollup rules promulgated under the Securities Act of
1933, as amended (the "Securities Act"), which may have resulted
in significant delays, thereby potentially causing the Partnership
to miss the currently favorable market conditions for real estate
investment trusts; and (iii) resulted in the Limited Partners
receiving publicly traded securities rather than cash in exchange
for their Units. Such publicly traded securities would be subject
to the market risks generally applicable to equity securities. The
Managing General Partner believes that receipt of such securities
would be inconsistent with the Partnership's ultimate objective of
returning cash to the Limited Partners and winding up the business
of the Partnership. See "THE SALE -- Background and Reasons for
the Sale."
o Reduced Transaction Costs. The Partnership will not be required to
pay brokerage commissions in connection with the Sale, which would
typically be paid when selling real property to third parties. As
a result, the Sale is likely to produce a higher cash distribution
to Limited Partners than a comparable sale to an unaffiliated
third party. In addition, the Managing General Partner believes
that selling the Partnership's portfolio of real estate assets in
a single transaction (as opposed to a series of individual sales)
will enable the Partnership to dispose of its portfolio in an
expedited time frame and provide additional transaction cost
savings, although the Partnership will pay certain expenses, such
as the costs of environmental 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.
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Potential Adverse Effects of the Sale
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
o Loss of Opportunity to Benefit from Future Events. It is possible
that the future performance of the Properties will improve or that
prospective buyers may be willing to pay more for the Properties
in the future. It is possible that Limited Partners might earn a
higher return on their investment if the Partnership retained
ownership of the Properties. By approving the Sale, Limited
Partners will also be relinquishing certain current benefits of
ownership of the Properties, such as continuing distributions.
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 Properties. There is no assurance that the Managing General
Partner would not be able to obtain higher or better offers for
the Properties if such offers were to be solicited from
independent third parties.
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 $329
per Unit. In addition, the Sale will produce ordinary income
attributable to accelerated depreciation recapture of
approximately $16 per Unit. For Limited Partners who have been
able to use all of the passive losses generated by the Partnership
on a current basis, the Sale should result in a net cash
distribution of $238 per Unit after payment of their tax
liability. 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 receive a lower net cash distribution made in connection with
the Sale. For a discussion of the tax impact of the Sale, and the
Partnership's assumptions and the bases therefor, see "CERTAIN
FEDERAL TAX CONSEQUENCES." THE SPECIFIC TAX IMPACT OF THE SALE ON
LIMITED PARTNERS SHOULD BE DETERMINED BY LIMITED PARTNERS IN
CONSULTATION WITH THEIR TAX ADVISORS.
o No 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
720071.8
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<PAGE>
consummated. The execution of a purchase and sale agreement in
connection with the Sale could delay the time some or all of the
Properties could be sold to a third party if the Sale is not
consummated.
Amendment to Partnership Agreement
An amendment to the Partnership Agreement is necessary in connection
with the consummation of the Sale. The Partnership Agreement currently prohibits
a sale of any of the Properties to the General Partners or their affiliates.
Accordingly, consent of the Limited Partners is being sought for an amendment to
the Partnership Agreement that eliminates such prohibition.
The consent of Limited Partners holding a majority of outstanding Units
is required in order to amend the Partnership Agreement. Limited Partners must
approve the Amendment 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 Amendment. 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 Amendment by a
Majority Vote, or the other conditions to the consummation of the Sale are not
met, there will be no change in its investment objectives, policies and
restrictions and the Partnership will continue to be operated in accordance with
the terms of the Partnership Agreement. The Partnership will bear the costs of
the consent solicitation process whether or not the Sale is approved or
ultimately consummated.
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent
real estate investment banking firm, an opinion that the Purchase Price to be
received by the Partnership for the Properties 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 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 $55,500, plus $4,100 per Property, or an aggregate of
approximately $76,000. No portion of Stanger's fee is contingent upon
consummation of the Sale or completion of the REIT Transaction. See "THE SALE--
Fairness Opinion" and "--Potential Adverse Effects of the Sale--No Appraisals;
Limits on Fairness Opinion."
Recommendation of the Managing General Partner; Fairness
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 Properties. 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 Purchase Price for the Properties 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
720071.8
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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.
2. Although Stanger provided an independent opinion with respect to the
fairness of the Purchase Price, no independent financial or legal advisor was
engaged to represent the interests of 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 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."
720071.8
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<PAGE>
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, 1993 and for the three months ended March 31, 1998. The
following information should be read in conjunction with the Partnership's
Annual Report on Form 10-K and 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>
Partnership Operations
Interest Income............. $ 105,777 89,711 49,476 37,710 12,779 14,134 64,180
Operating Partnership
Expenses.................. 355,249 158,460 185,584 226,208 353,825 8,055 55,188
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss From Operations........ (249,472) (68,749) (136,108) (188,498) (341,046) 6,079 8,992
----------- ----------- ----------- ----------- ----------- ----------- -----------
Rental Operations
Revenues.................... 4,925,227 4,935,895 5,486,329 5,678,656 5,463,671 1,234,840 1,218,634
Expenses.................... 4,921,727 4,942,160 5,675,071 6,514,923 5,402,010 1,368,898 1,149,603
----------- ----------- ----------- ----------- ----------- --------- ---------
Income (Loss) from Rental
Operations................ 3,500 (6,265) (188,742) (836,267) 61,661 (134,058) 69,031
----------- ---------- ---------- ---------- ---------- ----------- ---------
Gain on Foreclosure of
Rental Property........... -- 259,088 -- -- -- -- --
----------- --------- ---------- ----------- --------- ----------- -----------
Net Income (Loss) .......... $ (245,972) 184,074 (324,850) (1,024,765) (279,385) (127,979) 78,023
=========== =========== =========== =========== =========== =========== ===========
Net Income allocated
to Limited Partners....... $ (243,512) 182,234 (321,601) (1,014,517) (276,591) (126,699) 77,243
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Limited Partnership
Interest.................. $ (8) 6 (11) (34) (9) (4) 3
=========== =========== =========== =========== =========== =========== ===========
Total assets................ $ 20,791,123 22,049,995 26,365,792 26,668,029 27,182,103 20,456,283 21,080,339
=========== =========== =========== =========== =========== =========== ===========
Partners' Equity............ $ 4,562,631 6,309,459 6,425,385 6,750,235 8,225,000 4,284,652 5,403,294
Limited Partners' Equity.... $ 6,184,431 7,027,943 7,145,709 7,467,310 8,931,827 5,907,732 6,955,186
=========== =========== =========== =========== =========== =========== ===========
Limited Partners' Equity
per Limited Partnership
interest.................. $ 206 234 238 249 298 197 232
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
Transaction Expenses
The Partnership will bear its direct costs relating to the Sale,
including customary closing costs such as the seller's portion of title
insurance and escrow fees, and the costs incurred in connection with this
solicitation of consents. The aggregate amount of such costs is expected to be
approximately $247,000, which the Partnership expects to pay using cash
equivalents held by the Partnership. The transaction costs will be borne by the
Partnership as they are incurred, whether or not the Sale is approved by the
Limited Partners or ultimately consummated. Costs
720071.8
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incurred individually by the Casden Partnerships, including accounting and legal
fees, will be borne directly by such partnerships.
Voting Procedures
This Consent Solicitation Statement outlines the procedures to be
followed by Limited Partners in order to consent to the Sale. A form of Consent
of Limited Partner (a "Consent") is attached hereto. These procedures must be
strictly followed in order for the instructions of a Limited Partner as marked
on such Limited Partner's Consent to be effective. The following is a summary of
certain of these procedures:
1. A Limited Partner may make his or her election on the Consent only
during the solicitation period commencing upon the date of delivery of this
Consent Solicitation Statement and continuing until the earlier of (i)
___________, 1998 or such later date as may be determined by the Managing
General Partner and (ii) the date upon which the Managing General Partner
determines that a Majority Vote has been obtained (the "Solicitation Period").
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 Amendment are being submitted to
the Limited Partners as separate resolutions. Limited Partners must approve the
proposed Sale and the proposed Amendment 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
Amendment.
II. THE PARTNERSHIP
General
The Partnership is a limited partnership that was formed under the laws
of the State of California on September 9, 1981. On September 27, 1983, the
Partnership offered 30,000 Units, each Unit consisting of one limited
partnership interest in the Partnership, at $1,000 per Unit through an offering
managed by E.F. Hutton & Company Inc. As of May 12, 1998 there were 30,000
limited partnership interests in the Partnership outstanding.
The Managing General Partner of the Partnership is NAPICO. The business
of the Partnership is conducted primarily by NAPICO. NPIA II is the non-managing
General Partner of the Partnership. Pursuant to an agreement between NAPICO and
NPIA II, NAPICO has the primary responsibility for the performance of any duties
required to be performed by the General Partners and, in general, has sole and
final discretion to manage and control the business of the Partnership and make
all decisions relating thereto. NPIA II has not participated in the management
of the Partnership, or in decisions made by the Partnership in connection with
the proposed Sale. NPIA II has not taken a position with respect to the Sale nor
has it participated in the preparation of this Consent Solicitation Statement.
The Partnership has no employees of its own.
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden. Alan I. Casden is the sole
director and stockholder of Casden Investment Corporation and, accordingly,
controls NAPICO.
720071.8
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The original objectives of the Partnership were to own and operate the
Properties (and certain other real estate assets) for investment so as to (i)
generate cash distributions for Limited Partners from operations of the
Properties, of which all or a portion of would be a return of capital or "tax
sheltered"; (ii) provide protection for the Partnership's capital investments;
and (iii) provide capital gains through appreciation, and equity build up
through principal reduction of mortgage loans on the properties over a period of
five to seven years.
The Partnership holds interests in five Properties, each of which is a
conventional multi-unit apartment complex. The mortgage on one of the Properties
is insured by HUD. During the period for which the mortgage is so insured, its
rents will be subject to regulation by HUD.
The Properties in which the Partnership has invested generated $3,500
in income to the Partnership in 1997, before Partnership expenses of
approximately $355,249 and interest income of $105,777. At December 31, 1997,
the Partnership had a cash reserve of $1,354,289.
The Properties
During 1997, all of the Properties in which the Partnership had
invested were substantially rented. The following is a schedule of the status,
as of December 31, 1997, of the Properties owned by the Partnership.
No. of Percentage of Total
Name & Location Units Units Occupied Units
- --------------- ------ -------------- -------------------
Arbor Glenn 208 195 94%
West Covina, CA
Park Creek 123 112 91%
Canoga Park, CA
Warner Willows I 74 74 100%
Woodland Hills, CA
Warner Willows II 73 70 96%
Woodland Hills, CA
Willowbrook Apartments 183 175 96%
Reno, NV
- ----------------- ----- ----- -----
Total 661 626 95%
===== ===== =====
The Properties range in age from 17 to 25 years. Routine repair,
maintenance and capital expenditures made out of operating cash reserves by the
Partnership amounted to approximately $1,781,359 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. In addition, recent engineering studies of the Properties performed
by the Managing General Partner indicate that the Properties require immediate
capital expenditures of approximately $3,000,000 in order to maintain the
Properties' competitive position their respective markets.
Market for Partnership Interests and Related Security Holder Matters
Limited partnership interests in the Partnership were sold through a
public offering managed by an affiliate of the predecessor of Lehman Brothers
Inc., and are not traded on a national securities exchange or listed for
quotation on the Nasdaq Stock Market. There is no established trading market for
Units and it is not anticipated that any market will develop for the purchase
and sale of 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 2,832 registered holders of Units in
REP. None of the Units are beneficially owned by Casden.
720071.8
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<PAGE>
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 $287.04 to $140.50 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. On May 15, 1998, the Limited Partners
received an unsolicited offer from a third party to purchase 4.9% of the
outstanding Units at a purchase price of $350.00 per Unit.
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 generally do not reflect the current market of the
Partnerships' assets, nor are they indicative of total return, since prior cash
distributions and tax benefits received by the original investor are not
reflected in the price. Nonetheless, notwithstanding these qualifications, the
Unit sales prices, to the extent that the reported data are reliable, are
indicative of the prices at which the Units have recently been sold. None of the
Unit sales transactions have involved Casden or its affiliates.
Distribution History
It was the intention of the Partnership that distributions of net cash
from operations be made quarterly, pro rata, in proportion to the number of
Units held. From November 1994 through May 1996, distributions to Limited
Partners were not made due to the Partnership's setting aside funds for losses
incurred as a result of the January 17, 1994 Northridge Earthquake. The
Partnership made distributions of $600,000 and $300,000 to the Limited Partners
in 1997 and 1996, respectively. In addition, distributions of $900,856 were made
to NAPICO in 1997. Under the terms of the Partnership Agreement, cash available
for distribution is to be allocated 90 percent to the Limited Partners as a
group and 10 percent to the General Partners. Based on cash distributions made
to the Limited Partners as of December 31, 1996, $834,188 was due to the General
Partners as their 10% percent share of cash available for distribution. This
amount was paid to the General Partners in February 1997. Future distributions
will depend in part on the operating results of the Properties and will be
impacted significantly by anticipated capital expenditures to cure certain items
of deferred maintenance, including roof and wall repairs and repairs relating to
earthquake damage.
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, however, the rental rates of one of the Properties are
subject to HUD regulation during the period that the mortgage of such Property
is insured by HUD.
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.
720071.8
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<PAGE>
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 1982and 1985,
respectively. Mr. Casden has been involved in approximately $3.8 billion of real
estate financings and sales, and has been responsible for the development and
construction of approximately 90,000 multi-family apartment units and 10,000
single-family homes and condominiums. Mr. Casden has served as a member of the
Advisory Board of the National Multi-Family Housing Conference, the Multi-Family
Housing Council, the President's Council of the California Building Industry
Association and the Urban Land Institute. Mr. Casden currently serves on the
Visiting Committee to USC's Marshall School of Business. In 1988, Mr. Casden
received the "Distinguished Alumnus Award" from USC. He holds a bachelor of
science degree from USC. Mr. Casden is also Co-Chairman of the Board of Trustees
of the Simon Wiesenthal Center, an international human rights agency, and
building chairman for its $50 million Museum of Tolerance, which opened in Los
Angeles in 1993.
Henry C. Casden has served as a Director of NAPICO since February 1988
and as its Secretary since November 1994. Since 1988, Mr. Casden has served as
the President and Chief Operating Officer of The Casden Company as well as the
managing general partner of Casden Properties. From 1971 to February 1988, Mr.
Casden was engaged in the private practice of law in Los Angeles, including as a
named partner in his law firm. His practice was devoted principally to
counseling real estate developers, lenders and investors throughout the United
States. Mr. Casden is a member of the Board of Visitors of the University of San
Diego School of Law and the bar association of the District of Columbia. Mr.
Casden received his bachelor of arts degree from the University of California at
Los Angeles, and is a graduate of the University of San Diego Law School. Mr.
Casden is a member of the State Bar of California and has numerous professional
and philanthropic affiliations. Henry C. Casden and Alan I. Casden are brothers.
Charles H. Boxenbaum has served as Chairman of the Board of Directors
and Chief Executive Officer of NAPICO since 1966. He has been active in the real
estate industry since 1960. Prior to joining Sonnenblick-Goldman Corp. of
California, Mr. Boxenbaum was a real estate broker with the Beverly Hills firm
of Carl Rhodes Company. From 1966 to 1980, Mr. Boxenbaum was Chairman of the
Board and Chief Executive Officer of Sonnenblick-Goldman Corp. of California, a
firm specializing in mortgage brokerage. In 1978, the Sonnenblick Goldman Corp.
trade style was sold, and Mr. Boxenbaum purchased the outstanding stock and
changed the name of the firm to National Partnership Investments Corp. He is one
of the founders of and a past director of First Los Angeles Bank, organized in
November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of
Directors of the National Multi Housing Council. Mr. Boxenbaum received his
bachelor of arts degree from the University of Chicago.
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.
720071.8
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<PAGE>
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, and (iv) continued ownership of the Properties. The
managers of NAPICO and Casden Properties also considered forming a REIT Entity
that would acquire the Properties held by the Partnership.
In May of 1997, NAPICO and Casden Properties invited Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") and certain other investment banking
firms to make presentations regarding strategic alternatives available to Casden
Properties in light of favorable conditions in the real estate capital markets.
Following such presentations, the managers of Casden Properties decided to form
a REIT Entity.
On April 1, 1997, Casden Properties retained Battle Fowler LLP as its
legal counsel in connection with the potential formation of a REIT Entity and
the potential sales of the assets of the Casden Partnerships. On September 4,
1997, Casden Properties engaged DLJ to act as Casden Properties' financial
advisor in connection with the formation of a REIT Entity.
On November 21, 1997, following several days of interviews with several
investment banking firms, NAPICO selected Stanger to render a fairness opinion
in connection with the Sale and the other proposed sales involving the Casden
Partnerships. For a description of the terms of Stanger's engagement and certain
additional information concerning Stanger, see "-- Fairness Opinion."
The financial and legal advisors of NAPICO and Casden Properties
conferred regularly from June of 1997 through July of 1998 regarding the
structure and terms of the proposed REIT Transaction, including the Purchase
Price to be offered for the Properties.
The Managing General Partner believes that it is in the best interests
of the Partnership to sell its interests in the Properties. Limited Partners
will realize an aggregate of approximately $24.00 per Unit in current passive
activity rental losses for 1997. In addition, Limited Partners realized
approximately $4.29 per Unit in interest income for 1997. Assuming Limited
Partners are restricted from utilizing passive losses, the Limited Partners will
be liable for the taxes related to the interest income without any corresponding
cash distribution.
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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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 Properties to the REIT for a favorable price. Limited
Partners should note, however, that the Managing General Partner's
recommendation is subject to inherent conflicts of interest.
See "CONFLICTS OF INTEREST."
The Partnership will continue to file reports under the Securities and
Exchange Act of 1934 until all of the Properties have been sold and the proceeds
from such sales have been distributed.
Acquisition Agreement
If the Sale is approved by the Limited Partners, it is contemplated
that the Partnership 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 August 31, 1998. If the closing does not occur by December 31, 1998 the
purchase and sale agreement will be terminated.
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.
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Transaction Costs
The Managing General Partner estimates that the transaction costs in
connection with the Sale, will be as follows:
Accounting ............................. $ 50,000
Legal .................................. 50,000
Escrow Costs (seller's portion)......... 25,000
Title Policy (seller's portion)......... 35,000
Stanger Fairness Opinion................ 76,000
Consent Solicitation Costs.............. 6,000
Miscellaneous Costs..................... 5,000
---------
Total................................... $ 247,000
---------
The General Partners will receive a distribution of approximately
$104,330 for their interests in the Partnership in connection with the Sale. The
General Partners are not entitled to receive fees in connection with the Sale.
Distribution of Sale Proceeds; Accounting Treatment
Following the Sale it is anticipated that the Partnership's affairs
will be wound up and the Partnership will be liquidated. After the payment of
all liabilities and expenses, the consideration to be paid to the Partnership
for the Properties will be allocated and distributed among Limited and General
Partners in accordance with the cash distribution rules set forth in the
Partnership Agreement. Pursuant to the Partnership Agreement, net distribution
proceeds are distributable as follows:
o Proceeds from the liquidation of the partnership shall be
distributed first to creditors in the order of priority as
provided for by law, second to the setting up of such reserves as
the General Partners deem necessary, and third to the Limited and
General Partners as set forth below: (a) first to the General
Partners in an amount equal to any fees owed to the General
Partners under the Partnership Agreement that have not yet been
paid; (b) next, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners have received an amount equal
to their adjusted capital accounts plus an amount equal to a
cumulative non-compounded 6%annual return on their aggregate
adjusted capital accounts from time to time (which annual return
shall, with respect to each Limited Partner, be calculated
commencing with the fiscal quarter after termination of the
offering, and shall be reduced by any cash distributions actually
distributed to such Limited Partner or predecessor in interest);
and (c) the balance, if any, 85% to the Limited Partners and 15%
to the General Partners: provided, that upon dissolution of the
Partnership, such balance, if any, shall be distributed to the
Limited Partners and the General Partners in proportion to their
respective positive account balances.
Based on the distribution priority in the Partnership Agreement, and
assuming the net proceeds of the Sale are $10,432,977, the Limited Partners will
be entitled to receive $10,328,647 in cash ($344 per Unit). NAPICO and NPIA II
will be entitled to receive a distribution in connection with the Sale of
$104,330. The Partnership will also distribute any cash reserves remaining after
winding down its operations and liquidating after the Sale. Such reserves are
expected to be insignificant.
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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; and
o The REIT shall have consummated the Private Placement, which will
be conditioned upon, among other things, the transfer of a minimum
number of properties to the REIT by the Casden Partnerships and
third parties in connection with the REIT Transaction.
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by the
Managing General Partner to conduct an analysis and to render an opinion as to
whether the Purchase Price to be paid to the Partnership for the Properties in
the Sale is fair, from a financial point of view, to the Limited Partners. The
Managing General Partner 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 Partnership that, subject to the assumptions,
limitations and qualifications contained in its Fairness Opinion, the Purchase
Price to be paid to the Partnership for the Properties in the proposed Sale is
fair, from a financial point of view, to the Limited Partners. The full text of
the Fairness Opinion, which contains a description of the matters considered and
the assumptions, limitations and qualifications made, is set forth as Exhibit A
hereto and should be read in its entirety. The summary set forth herein does not
purport to be a complete description of the review performed by Stanger in
rendering the Fairness Opinion. Arriving at a fairness opinion is a complex
process not necessarily susceptible to partial analysis or amenable to summary
description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. See
"-- Fairness Opinion -- Assumptions, Limitations and Qualifications." The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates have
provided information, research, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically held through partnerships, such
as real estate, oil and gas reserves, cable television systems and equipment
leasing assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
720071.8
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<PAGE>
Summary of Materials Considered. In the course of Stanger's analysis
to render its opinion, Stanger reviewed: (i) drafts of this Consent Solicitation
Statement in substantially the form which will be distributed to Limited
Partners; (ii) the Partnership's annual reports on Form 10-K for the years ended
December 31, 1995, 1996 and 1997 and the Partnership's quarterly report on Form
10-Q for the 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 the years ended
December 31, 1995, 1996 and 1997 and, as available, year-to-date through May
1998; (v) operating budgets for the Properties for 1998, as prepared by the
Managing General Partner; (vi) 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;
(vii) the February 1998 Property appraisals; (viii) a schedule of projected
capital expenditures and deferred maintenance for the Properties as prepared by
the Managing General Partner; and (ix) 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 Partnership, historical, current and projected operations and
performance of the Properties, the physical condition of the Properties
including any deferred maintenance, and other factors influencing 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 during December 1997. 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, 1997 and, as available, year-to-date through May
1998, the operating budget 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, 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.
720071.8
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<PAGE>
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 the terms of the HUD rental rate restrictions and the
rental rates allowed for each type of apartment for the single Property subject
to such HUD rental rate restrictions.
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 the estimated market rental rates the Property would likely obtain
based on review of the rates charged at similar properties in the local market
and considering the current HUD rental rate restrictions at the one Property
subject to such restrictions.
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 for each of the
Properties.
After assessing the above factors, Stanger estimated each Property's
effective gross income based upon estimated gross potential rent and estimates
of ancillary income and occupancy. Expenses were estimated based on historical
and budgeted operating expenses, discussions with management, and certain
industry expense information. Estimated property operating expenses, including
recurring replacement reserves, were then deducted from effective gross income
to arrive at each Property's estimated net operating income. 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 ten years. Income and expense escalators utilized in the analysis were based
on parameters cited by investors, owners and managers of similar properties,
market factors, and historical and budgeted results for each Property. Effective
rental income escalators generally ranged from approximately 3.0% to 3.8% per
year during the holding period. Effective expense escalators generally ranged
from approximately 2.8% to 3.0% per year.
As part of its DCF Analysis, Stanger then estimated the residual values
of the Properties by utilizing 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
10.0% to 11.0% and the resulting value was reduced by estimated sales costs of
3%.
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 the Properties were free-and-clear of mortgage debt utilizing
discount rates ranging from 11.25% to 12.25%. The Managing General Partner's
estimate of deferred maintenance of $3,009,000 was then deducted from the
resulting present value of the Properties.
Stanger observed that the range of estimated value of the portfolio of
Properties resulting from the above-referenced analysis was $22,850,000 to
$24,680,000 and that the Purchase Price of $24,876,300 was above this range of
value.
Stanger concluded that the range of estimated value of the portfolio of
Properties resulting from the DCF Analysis supported its opinion as to the
fairness of the Purchase Price 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. 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; (iii) ranges of residual
720071.8
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<PAGE>
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/or new regulations relating to the single
Property currently operating under HUD rental rate restrictions.
Stanger also reviewed the most recent Property appraisals conducted by
an independent third party. Stanger observed that the appraised value of the
Properties of $27,200,000 explicitly excluded reductions in value related to
capital expenditure requirements to cure deferred maintenance at the Properties.
Stanger further observed that the Properties are being sold to the REIT in an
"as is" condition, and that after deduction of the estimated cost of $3,009,000
for such required capital expenditures, as determined through engineering
studies conducted by the Managing General Partner, the adjusted appraised value
was $24,190,000, an amount below the Purchase Price of the 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 Purchase Price to be paid to the
Partnership for the Properties 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, or the
management of the Properties. Stanger has not performed an independent
appraisal, structural or 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, and the management of the
Properties concerning, among other things, any environmental liabilities and
deferred maintenance and estimated capital expenditure and replacement reserve
requirements. Stanger also relied upon the assurance of the Partnership, Casden,
the Managing General Partner and its affiliates, and the management of the
Properties that any financial statements, budgets, capital expenditures and
deferred maintenance estimates, mortgage debt, 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 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
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; and that the highest and best use of the Properties is
as improved.
Stanger was not requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered in connection with 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 Amendment to
the Partnership Agreement, or the terms of any agreements or contracts between
the Partnership, Casden and any affiliates of the Managing General Partner, (c)
the Managing General Partner's business decision to effect the proposed Sale,
(d) any adjustments made by the Managing General Partner to the Purchase Price
to determine 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 and operating and replacement reserves and the income therefrom
of the Partnership, and other expenses and fees associated with the Sale, or (e)
alternatives to the proposed Sale.
Stanger is not expressing any opinion as to the fairness of any terms
of the proposed Sale other than the Purchase Price of the Properties 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
720071.8
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<PAGE>
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
Properties 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 $55,500, plus $4,100 per
Property, or an aggregate of approximately $76,000. In addition, Stanger is
entitled to reimbursement for reasonable legal, travel and out-of-pocket
expenses incurred in making site visits and preparing the Fairness Opinion,
subject to an aggregate maximum of up to approximately $1,000, plus $600 per
Property, and is entitled to indemnification against certain liabilities,
including certain liabilities under federal securities laws. Stanger has not
been engaged to and has not provided services, and will not participate or
otherwise be involved in the REIT private 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. The Partnership
realized cash flow of $600,000 in 1997 that was available for distribution to
the Limited Partners. The Managing General Partner believes that the net
proceeds from the Sale will exceed the benefits from distributions from cash
flow and continued ownership of the Properties. Limited Partners realized an
aggregate of approximately $24 in current passive activity rental losses for
1997. Depreciation deductions that are primarily responsible for generating
losses realized by the Limited Partners should continue to decline until the end
of the depreciable lives of the Properties, when taxable income to Limited
Partners will exceed cash distributions. Federal depreciation for all of the
Properties will cease to be available within one to six years.
In addition, continuation of the Partnership would require the
Partnership to incur significant capital expenditures relating to repairs and
deferred maintenance which are required to preserve the Properties' competitive
position in their respective markets. Such capital expenditures are estimated to
total $3,009,000 based on engineering studies conducted by the Managing General
Partner. The payment of such costs would adversely affect the Partnership's
ability to make future cash distributions from operations until such costs were
fully funded.
Marketing the Properties for Sale to Third Parties. The Managing
General Partner also considered marketing the Properties to third parties.
However, the Managing General Partner does not believe that such alternative
would be in the best interests of the Limited Partners, because the Managing
General Partner believes that such a sale would not result in a net purchase
price for the Properties as high as the Purchase Price offered in connection
with the Sale. A sale of the Properties to an unaffiliated third party would
likely result in brokerage commissions and closing costs as high as $500,000.
While the Managing General Partner has not consulted any real estate
brokers or other real estate professionals concerning potential purchasers for
the Properties, based upon the Managing General Partner's experience and
familiarity with the market for multi-family residential housing, the Managing
General Partner does not believe that the Properties are likely to be sold at a
purchase price as high as the Purchase Price. The Managing General Partner
believes that any transaction with a potential purchaser would be time
consuming, difficult to
720071.8
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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. Although the most recent
appraised value of the Properties exceeds the Purchase Price by approximately
$2.3 million, the appraisals specifically state that they did not take into
consideration any deferred maintenance requirements at the Properties.
Furthermore, the appraisals were prepared assuming that immediate capital
expenditures needed at the Properties, as identified to the appraiser, had been
completed. Recent engineering studies of the Properties performed by the
Managing General Partner indicate that the Properties require immediate capital
expenditures of approximately $3,009,000 in connection with required roof
repairs, exterior painting and wall repairs, HVAC replacements, repairs relating
to earthquake damage and other repairs needed to maintain the Properties'
competitive position in their respective markets. The Managing General Partner
believes that such immediate capital expenditures would be reflected in any
third-party offers for the Properties. When the Properties' deferred maintenance
requirements of $3,009,000 are taken into account, the Purchase Price exceeds
the appraised value of the Properties by approximately $700,000.
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, 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.
720071.8
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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 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 Properties.
The Purchase Price of $24,876,300 was determined by the Managing
General Partner in light of (i) the average of the net aggregate operating
income of the Properties for 1996 and 1997, less recurring replacement reserves
(subject to certain adjustments by the Managing General Partner); (ii) the most
recent appraisals of the Properties; and (iii) the estimated deferred
maintenance expenditures applicable to the Properties as determined by
engineering studies conducted by the Managing General Partner. 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 Properties
were to be sold to a third party or parties. 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.
The following table sets forth certain measures of value and permits a
comparison of these measures against the amount each Limited Partner would
receive per Unit from the Sale and subsequent liquidation of the Partnership:
Amount to be
Received from Secondary Market Prices(2)
Sale and -------------------------------
Liquidation(1) High Low
- --------------------- --------- --------
$ 344.00 $ 287.04 $ 140.50
- ---------------------
(1) This amount is an estimate of the total amount expected to be
distributed per Unit to Limited Partners as a result of the liquidation
of the Partnership after the Sale. This amount includes the proceeds of
the Sale plus cash available for distribution. This amount will be
distributed in one or a series of distributions.
(2) Based on the high and low value of Unit sales made during the twelve
months ending December 31, 1997, as compiled by NAPICO. NAPICO's
methodology for compiling trade prices is as follows: Trade price
information reflects per Unit transaction prices for trades involving
the purchase of Units by third-party investors during the applicable
period. Firms supplying trade price data are instructed to provide
information only on those transactions whereby third-party investors
acquired Units from or through such firms. Due to commission and
mark-ups, sellers of Units typically receive less than the amounts paid
for Units by buyers as set forth in the table.
Secondary and Market Prices for Units. The information in the table
above under the heading "Secondary Market Prices" shows the highest and lowest
Unit sale prices as reported to NAPICO by certain secondary market firms
involved in sales of the Units over the twelve-month period ended December 31,
1997. When gathering such data, NAPICO requests that the recorded prices per
Unit include any mark-ups for Units sold by the firms acting as principals in
the secondary market transactions and include any commissions charged by them
for facilitating the transactions, unless the firms acted as retail brokers.
No established market for the Units was ever expected to develop and
the secondary market transactions for the Units have been limited and sporadic.
It is not known to what extent the transactions in the secondary market are
between buyers and willing sellers, each having access to relevant information
regarding the financial affairs of
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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 net asset value of the Partnerships' assets,
nor are they indicative of total return, because distributions 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 May 15, 1998, the Limited Partners received an offer from Peachtree
Partners to purchase up to four and nine-tenths percent (4.9%) of the
outstanding Units at a purchase price of three hundred and fifty dollars
($350.00) 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 recommend 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."
IV. AMENDMENT TO THE PARTNERSHIP AGREEMENT
An amendment to the Partnership Agreement is necessary in connection
with the consummation of the Sale. The Partnership Agreement currently prohibits
a sale of any of the Properties to the General Partners or their affiliates.
Accordingly, consent of the Limited Partners is being sought for an amendment to
the Partnership Agreement that eliminates such prohibition.
The consent of Limited Partners holding a majority-in-interest of the
outstanding Units is required in order to amend the Partnership Agreement.
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.
2. Although the Managing General Partner is accountable to the
Partnership and the Limited Partners as a fiduciary 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 Purchase Price 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
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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 Purchase Price paid by the REIT for
such interest in the Properties because of (i) the combination of real estate
assets and businesses and the resultant opportunities for enhanced access to
equity capital and financing alternatives that are likely to be available to the
REIT; (ii) the expected liquidity of the REIT's capital stock; (iii) the current
favorable public market valuation of real estate investment trusts; (iv) the
inclusion of certain real estate business and management companies owned by
affiliates of Casden in the REIT; and (v) the greater asset diversification of
the REIT, and other factors. Such realization of excess value is dependent on
economic, interest rate and real estate market trends, as well as market
conditions at the time of the formation of the REIT and the Private Placement
(and subsequent public offering) of its securities and, if realized, will likely
provide affiliates of the 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.
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 Partner 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 its 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
720071.8
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<PAGE>
the Managing General Partners 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.
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, 1993 and for the three months ended March 31, 1998. The
following information should be read in conjunction with the Partnership's
Annual Report on Form 10-K and 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>
Partnership Operations
Interest Income............. $ 105,777 89,711 49,476 37,710 12,779 14,134 64,180
Operating Partnership
Expenses.................. 355,249 158,460 185,584 226,208 353,825 8,055 55,188
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss From Operations........ (249,472) (68,749) (136,108) (188,498) (341,046) 6,079 8,992
----------- ----------- ----------- ----------- ----------- ----------- -----------
Rental Operations
Revenues.................... 4,925,227 4,935,895 5,486,329 5,678,656 5,463,671 1,234,840 1,218,634
Expenses.................... 4,921,727 4,942,160 5,675,071 6,514,923 5,402,010 1,368,898 1,149,603
----------- ----------- ----------- ----------- ----------- --------- ---------
Income (Loss) from Rental
Operations................ 3,500 (6,265) (188,742) (836,267) 61,661 (134,058) 69,031
----------- ---------- ---------- ---------- ---------- ----------- ---------
Gain on Foreclosure of
Rental Property........... -- 259,088 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) .......... $ (245,972) 184,074 (324,850) (1,024,765) (279,385) (127,979) 78,023
=========== =========== =========== =========== =========== =========== ===========
Net Income allocated
to Limited Partners....... $ (243,512) 182,234 (321,601) (1,014,517) (276,591) (126,699) 77,243
=========== =========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Limited Partnership
Interest.................. $ (8) 6 (11) (34) (9) (4) 3
=========== =========== =========== =========== =========== =========== ===========
Total assets................ $ 20,791,123 22,049,995 26,365,792 26,668,029 27,182,103 20,456,283 21,080,339
=========== =========== =========== =========== =========== =========== ===========
Partners' Equity............ $ 4,562,631 6,309,459 6,425,385 6,750,235 8,225,000 4,284,652 5,403,294
Limited Partners' Equity.... $ 6,184,431 7,027,943 7,145,709 7,467,310 8,931,827 5,907,732 6,955,186
=========== =========== =========== =========== =========== =========== ===========
Limited Partners' Equity
per Limited Partnership
interest.................. $ 206 234 238 249 298 197 232
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
720071.8
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VII. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material tax consequences relating to
the proposed Sale and the distribution of approximately $344 per Unit to the
Limited Partners. 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 $344 per Unit, of which
$328 will constitute long-term capital gain and the remaining portion of $16
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 benefit of
approximately $27 per Unit. Because passive losses are only deductible against
passive income after 1986 (subject to certain transitional rules), the Managing
General Partner does not have any basis for determining the amount of such
passive losses which have previously been utilized by Limited Partners. The
anticipated cash distribution of approximately $344 per Unit would be sufficient
to pay the federal and state tax liability arising from the Sale. The cash
distribution would be in addition to a net tax benefit of $27 per Unit, 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 $297 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 was calculated by deducting from the tax
payable on the gain from the sale (calculated at a federal tax rate of 25% since
all of the income is attributable to depreciation not recaptured as ordinary
income and taxed at capital gains rates) the tax benefit resulting from the
ability to deduct the suspended passive losses against ordinary income (which is
permitted following disposition of the passive activity) assuming that the
Limited Partner has sufficient ordinary income which would otherwise have been
taxed at the 39.6% marginal tax rate for federal income tax purposes to fully
utilize such losses at such rate, and assuming a state income tax rate of 5%. In
addition to assuming federal income tax rates, the calculation of income tax
liability of a Limited Partner assumes that such Limited Partner has no net
Section 1231 losses for the five most recent prior taxable years. If this latter
assumption is not applicable to a Limited Partner, the income tax liability of
such Limited Partner could increase because certain income would be taxed at
ordinary, instead of capital gains tax rates. Limited Partners are
720071.8
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<PAGE>
advised to consult with their own tax advisors for specific application of the
tax rules where the above-described assumption is not applicable. The foregoing
does not take into consideration the effect of any local tax liabilities that
may be applicable to the Sale.
The Managing General Partner believes that there were reasonable bases
for the foregoing assumptions. In light of the suitability standards that
Limited Partners met at the time of their original investment in the Partnership
and the types of investors who would have invested in an investment primarily
intended to provide tax benefits, the Managing General Partner assumed for
purposes of calculating the tax liabilities resulting from the proposed Sale
that each Limited Partner will have taxable income in excess of $155,950 (which
is the income level at which married taxpayers filing joint returns effectively
become subject to a 39.6% marginal rate) in 1998. While the financial
circumstances of the Limited Partners may vary considerably, the Managing
General Partner believes it is reasonable to assume that the majority of the
current Limited Partners will be in the highest federal tax bracket in 1998. The
Managing General Partner believes that while state tax rates vary from
state-to-state, the 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 $106 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 receive a lower net cash distribution.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF LOSSES ANY LIMITED
PARTNER HAS APPLIED TO OFFSET HIS, HER OR ITS TAXABLE INCOME, THE GENERAL
PARTNERS CANNOT ESTIMATE THE INCOME TAX LIABILITY OF EACH LIMITED PARTNER
ARISING FROM THE SALE, THEREFORE, EACH LIMITED PARTNER SHOULD CONSULT HIS, HER
OR ITS TAX ADVISOR CONCERNING THE INCOME TAX CONSEQUENCES OF CONSENTING TO THE
SALE WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION.
VIII. LEGAL PROCEEDINGS
On June 25, 1997, the Securities and Exchange Commission (the
"Commission") entered into a consent decree with NAPICO, three members of
NAPICO's senior management and three affiliated entities (collectively, the
"NAPICO Affiliates") in connection with their alleged roles in two separate
series of securities laws violations. In connection therewith, certain NAPICO
Affiliates agreed to cease and desist from committing or causing securities law
violations. In addition, National Partnership Equities, Inc. ("NPEI"), a
brokerage firm affiliated with NAPICO, agreed to undergo a review of certain of
its policies and procedures and pay a $100,000 penalty. The NAPICO Affiliates
consented to the above sanctions and relief without admitting or denying the
Commission's findings.
The two series of securities law violations relate to the NAPICO
Affiliates' (i) satisfying the minimum offering threshold of a "part or none"
private placement by utilizing a subscription from a non-bona fide investor and
failing to disclose such violation in subsequent offering materials for such
private placement and (ii) failing to disclose in the periodic reports for
another of its programs the fact that such program's cash was used to pay the
expenses of properties not owned by such program that were managed by an
affiliate and failing to maintain adequate internal controls to detect such
violations.
720071.8
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<PAGE>
IX. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about ________ __, 1998. Only Limited
Partners of record on ___________, 1998 (the "Record Date") will be given notice
of, and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and the
letter from the Managing General Partner, constitute the Solicitation Materials
to be distributed to the Limited Partners to obtain their votes for or against
the Sale. The Solicitation Period is the time frame during which Limited
Partners may vote for or against the Sale. The Solicitation Period will commence
upon the date of delivery of this Consent Solicitation Statement and will
continue until the earlier of (i) _________, 1998 or such later date as may be
determined by the Managing General Partner and (ii) the date upon which the
Managing General Partner determines that a Majority Vote has been obtained. At
its discretion, the Managing General Partner may elect to extend the
Solicitation Period. Under no circumstances will the Solicitation Period be
extended beyond ______________, 1998. Any Consents delivered to the Partnership
prior to the termination of the Solicitation Period will be effective provided
that such Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale. Consent to the Sale will
also include consent to the Amendment to the Partnership Agreement that
eliminates a restriction against sales of Partnership assets to affiliates of
the Managing General Partner.
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.
The Sale will not be completed unless it is approved by a Majority
Vote. See "THE SALE-- Conditions" for a discussion of the other conditions
precedent to the Sale. BECAUSE APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST, FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE SALE.
Any Limited Partner who returns his Consent signed but does not specify
"for," "against" or "abstain" will be deemed to have voted "for" the Sale.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Consent will be determined by the
Tabulators, whose determination will be final and binding. The 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.
720071.8
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<PAGE>
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 Partnership at 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 _______ __, 1998 to permit delivery
to the Partnership on or before such date.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or facsimile transmission notice of withdrawal or change in
vote must be timely received by the Tabulator at its address set forth under
"Completion Instructions" above and must specify the name of the person having
executed the Consent to be withdrawn or vote changed and the name of the
registered holder if different from that of the person who executed the Consent.
No Dissenters' Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners do
not have dissenters' rights of appraisal. If the Sale is approved by a Majority
Vote, and the other conditions to consummation of the Sale are satisfied, all
Limited Partners, both those voting in favor of the Sale and those not voting in
favor, will be entitled to receive the resulting cash distributions.
Solicitation of Consents
The Managing General Partner and its officers, directors and employees
may assist in the solicitation of consents and in providing information to
Limited Partners in connection with any questions they may have with respect to
this Consent Solicitation Statement and the voting procedures. Such persons and
entities will be reimbursed by the Partnership for out of pocket expenses in
connection with such services. The Partnership may also engage third parties to
assist with the solicitation of Consents and pay fees and reimburse the expenses
of such persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE
PROMPTLY.
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.
720071.8
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<PAGE>
X. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
_________ ___, 1998
720071.8
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<PAGE>
REAL-EQUITY PARTNERS
9090 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA 90211
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
OF REAL-EQUITY PARTNERS
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to REP (the "Partnership")
that, with respect to the transaction by which the Partnership proposes to sell
all of its real estate assets to a real estate investment trust formed by
affiliates of certain general partners of the Partnership or to a subsidiary
partnership of the REIT, the undersigned votes all of his, her or its units of
limited partnership interest as indicated below:
On the proposal to sell all of the interests of the Partnership in the
real estate assets of the five 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
|_| |_| |_|
720071.8
<PAGE>
The undersigned acknowledges receipt from
the Managing General Partner of the Consent
Solicitation Statement dated _________ __,
1998.
Dated: _____________, 199_ _______________________________
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
Please sign exactly as name appears hereon.
When units are held by joint tenants, both
should sign. When signing as an attorney, as
executor, administrator, trustee or
guardian, please give full title of such. If
a corporation, please sign name by President
or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON ________
[__], 1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO
303-705-6171 OR BY USING THE ENCLOSED PREPAID ENVELOPE. 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.
720071.8
<PAGE>
Annex A
FORM OF OPINION
REAL - Equity Partners
9090 Wilshire Boulevard
Beverly Hills, California 90211
Gentlemen:
You have advised us that REAL - Equity Partners (the "Partnership"),
National Partnership Investments Corp., ("NAPICO") and National Partnership
Investments Associates II, the general partners (the "General Partners") of the
Partnership, and Casden Properties and certain of its affiliates ("Casden"), an
affiliate of the General Partners, are contemplating a transaction (the "Sale")
in which the Partnership will sell its five rental apartment properties, listed
in Exhibit I, (the "Properties") to a newly formed real estate investment trust
or its designated affiliate to be organized by Casden (the "REIT") subject to,
among other matters, the requisite approval of the limited partners (the
"Limited Partners") of the Partnership.
You have further advised us that in connection with the proposed Sale,
the Properties will be sold to Casden for $24,876,300 (the "Purchase Price")
which is payable $10,432,977 in cash and $14,443,323 by assumption of debt.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide to the Partnership an opinion as to whether the Purchase Price to be
received by the Partnership for the Properties in connection with the Sale is
fair to the Limited Partners from a financial point of view.
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") related 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 three-month 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,
741048.1
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<PAGE>
number of units and unit mix, age, amenities and land acreage;
o Reviewed summary historical operating statements for the
Properties, as available, for the years ended December 31,
1995, 1996 and 1997 and the five months ending May 31, 1998;
o Reviewed the 1998 operating budgets for the Properties
prepared by the Partnership's management;
o Discussed with management of the Partnership and NAPICO the
conditions in the local market for apartment properties;
conditions in the market for sales/acquisitions of properties
similar to that owned by the Partnership; historical, current
and projected operations and performance of the Properties;
the physical condition of the Properties including any
deferred maintenance; and other factors influencing the value
of the Properties;
o Performed site visits of the Properties;
o Reviewed data concerning, and discussed with management, the
local real estate rental market conditions in the markets of
the Properties, and reviewed available information relating to
acquisition criteria for income-producing properties similar
to the Properties;
o Reviewed the February 1998 appraisals of the Properties which
were prepared for investor reporting purposes, and
management's estimate of immediate capital expenditure
requirements/deferred maintenance for the Properties; and
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 and management reports and data, and all other reports and
information that were provided, made available or otherwise communicated to us
by the Partnership, Casden, the General Partners and their affiliates, or the
management of the Properties. We have not performed an independent appraisal,
structural or engineering study or environmental study of the assets and
liabilities of the Partnership. We have relied upon the representations of the
Partnership, Casden, the General Partners and their affiliates and management of
the Properties concerning, among other things, any environmental liabilities,
deferred maintenance and estimated capital expenditure requirements. We have
also relied upon the assurance of the Partnership, Casden, the General Partners
and their affiliates, and the management of the Properties that any pro forma
financial statements, projections, budgets, forecasts, deferred maintenance and
capital expenditure estimates, value estimates and other information contained
in the Consent or otherwise provided or communicated to us were
741048.1
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<PAGE>
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 the date
of this letter; that the Partnership, Casden, the General Partners and their
affiliates, 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 the Properties is as improved; and that all calculations and projections were
made in accordance with the terms of the Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement").
We have not been requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered to the Partnership in the Sale;
(ii) make any recommendation to the Partnership or its partners, including the
Limited Partners, with respect to whether to approve or reject the proposed
Sale; (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
proposed amendment to the Partnership Agreement, or of any agreements or
contracts between the Partnership, Casden and any affiliates of the General
Partners, (c) the General Partners' business decision to effect the proposed
Sale, (d) the adjustments made by the General Partners to the Purchase Price to
arrive at net amounts distributable to the partners, including but not limited
to, balance sheet adjustments to reflect the General Partners' estimates of the
value of other assets and liabilities of the Partnership, and other expenses and
fees associated with the proposed Sale, and (e) alternatives to the proposed
Sale. We are not expressing any opinion as to the fairness of any terms of the
proposed Sale other than the Purchase Price to be received by the Partnership
for the Properties.
Our opinion 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 or 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 Purchase Price to be received by the Partnership for
the Properties in connection with the Sale is fair to the Limited Partners from
a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
____________, 1998
741048.1
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<PAGE>
EXHIBIT 1
REAL - Equity Partners
LISTING OF PROPERTIES
Property Location
- ------------------------------- ---------------------------------
Arbor Glen West Covina, CA
Park Creek Canoga Park, CA
Warner Willows I Woodland Hills, CA
Warner Willows II Woodland Hills, CA
Willowbrook Reno, NV
741048.1
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<PAGE>
Annex D
PROPOSED AMENDMENTS
TO THE PARTNERSHIP AGREEMENT
Set forth below is the text of the proposed Amendment to the Partnership
Agreement for which the consent of the Limited Partners is being sought in
connection with the Sale.
Section 12c(xi) of the Partnership Agreement is amended to read as follows:
"(xi) Except as provided in Subsection 12f(v), permit
the Partnership to purchase or lease property in which a
General Partner or its Affiliate has an interest or sell
any Property to a General Partner or its Affiliate,
provided that the foregoing shall not apply to any sale
of a Property made in connection with the proposed Sale
described in the Definitive Consent Solicitation
Statement of the Partnership dated May __, 1998."
741210.1
<PAGE>
Annex E
July __, 1998
REAL-Equity Partners
9090 Wilshire Boulevard
Beverly Hills, CA 90211
Re: Amendments to the Agreement of Limited Partnership of
REAL-Equity Partners
Dear Sir or Madam:
We have acted as counsel to REAL-Equity Partners, a California limited
partnership (the "Partnership"), in connection with the amendment to the
Partnership's Restated Certificate and Agreement of Limited Partnership (the
"Partnership Agreement") of the Partnership, the form of which is attached
hereto as Exhibit A (the "Amendment").
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 II (the "General Partners'
Agreement") as certified by an officer of NAPICO;
741216.1
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<PAGE>
(iv) The Definitive Consent Solicitation Statement of the Partnership
dated July __, 1998 ("Consent Solicitation Statement"); and
(v) The Amendment.
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 in accordance with the Officer's Certificate, 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.
741216.1
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<PAGE>
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 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,
741216.1
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