FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from........to.........
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X] (Amended by Exch Act Rel No.
28869, eff. 5/1/91.)
State the aggregate market value of the Limited Partnership Units ("Units") held
by non-affiliates. 729,999 of the Partnership's 909,134 Units are held by non-
affiliates. The aggregate market value of Units held by affiliates and non-
affiliates is not determinable since there is no public trading market for Units
and transfers of Units are not subject to certain restrictions.
PART I
ITEM 1. BUSINESS
General
Consolidated Capital Institutional Properties/2 (the "Partnership") was
organized on April 12, 1983, as a limited partnership under the California
Uniform Limited Partnership Act. On July 22, 1983, the Partnership registered
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933 (File No. 2-83540) and commenced a public offering for sale of Units. The
Units represent equity interests in the Partnership and entitle the holders
thereof to participate in certain allocations and distributions of the
Partnership. The sale of Units terminated on July 21, 1985, with 912,182 units
sold at $250 each, or gross proceeds of approximately $227.8 million to the
Partnership. The Partnership subsequently filed a Form 8-A Registration
Statement with the SEC and registered its Units under the Securities Exchange
Act of 1934 (File No. 0-11723). As permitted under its Partnership Agreement
(the original partnership agreement of the Partnership with all amendments shall
be referred to as the "Partnership Agreement"), the Partnership has repurchased
and retired a total of 3,048 Units for a total of $611,000. The Partnership
may, at its absolute discretion, repurchase Units, but is under no obligation to
do so.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In 1988, through a series of transactions, Southmark
Corporation ("Southmark") acquired controlling interest in CCEC. In December
1988, CCEC filed for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan,
ConCap Equities, Inc. ("CEI" or the General Partner) acquired CCEC's general
partner interests in the Partnership and 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the general
partner was approved by a majority of the limited partners in the Partnership
and in each of the Affiliated Partnerships pursuant to a solicitation of the
Limited Partners dated August 10, 1990. As part of this solicitation, the
Limited Partners also approved an amendment to the Partnership Agreement to
limit changes of control of the Partnership. All of CEI's outstanding stock is
owned by Insignia Properties Trust, an affiliate of Insignia Financial Group,
Inc. ("Insignia"), which was acquired through two transactions in December 1994,
and October 1995.
On October 30, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in two real estate limited partnerships
(including the Partnership) in which Insignia affiliates act as general partner.
The Purchaser offered to purchase up to 300,000 of the outstanding units of
limited partnership interest in the Partnership, at $40.00 per Unit, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated October 30, 1997 (the "Offer to Purchase") and the
related Assignment of Partnership Interest attached as Exhibits (a)(1) and
(a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally
filed with the Securities and Exchange Commission on October 30, 1997. Because
of the existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. As a result
of the tender offer, an Insignia affiliate purchased 164,940.99 of the
outstanding limited partner units of the Partnership during December 1997 and an
additional 4,164.30 in February 1998. At December 31, 1997 Insignia Properties,
L.P., an affiliate of Insignia owned 179,135 Units of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was formed, for the benefit of its Limited
Partners (herein so called and together with the General Partner shall be called
the "Partners"), to lend funds to Equity Partners/Two ("EP/2"), a California
general partnership in which certain of the partners were former shareholders
and former management of CCEC, the former corporate general partner of the
Partnership. See "Status of Master Loan" for a description of the loan and
settlement of EP/2's bankruptcy.
On September 12, 1996, the Partnership sold its sole investment property, North
Park Plaza, to an unaffiliated purchaser. Net proceeds, after closing costs,
were approximately $2,004,000. The disposition resulted in a loss of
approximately $90,000.
Through December 31, 1997, the Partnership advanced a total of approximately
$183,250,000 to EP/2 and its successor under the Master Loan (as defined in
"Status of the Master Loan"). As of December 31, 1997, the balance of the
Master Loan, net of the allowance for possible losses, was approximately
$37,834,000. EP/2 used the proceeds from these loans to acquire eleven (11)
apartment buildings and ten (10) office complexes, which collateralized the
Master Loan. EP/2's successor in bankruptcy (as more fully described in "Status
of Master Loan") currently owns four (4) apartment buildings, and seven (7)
office complexes which secure the Master Loan.
The Registrant has no employees. Management and administrative services are
performed by the General Partner and by an affiliate of the General Partner.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
STATUS OF MASTER LOAN
Prior to 1989, the Partnership had loaned funds totaling approximately
$176,000,000 to EP/2 subject to a non-recourse note (the "Master Loan"),
pursuant to the Master Loan Agreement dated July 22, 1983, between the
Partnership and EP/2. The Partnership secured the Master Loan with deeds of
trust or mortgages on real property purchased with the funds advanced as well as
by the assignment and pledge of promissory notes from the partners of EP/2.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's
consensual plan of reorganization (the "Plan"). In November 1990, EP/2 and the
Partnership consummated a closing under the Plan pursuant to which, among other
things, the Partnership and EP/2 executed an amended and restated loan agreement
(the "New Master Loan Agreement"), EP/2 was converted from a California general
partnership to a California limited partnership, Consolidated Capital Equity
Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed the deeds of trust and
mortgages on all the properties collaterally securing the New Master Loan
Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned
subsidiary of CEI, is the sole general partner of CCEP/2 and an affiliate of the
Partnership. The general partners of EP/2 became limited partners in CCEP/2.
CHI has full discretion with respect to conducting CCEP/2's business, including
managing CCEP/2's properties and initiating and approving capital expenditures
and asset dispositions and refinancings. Under the new partnership agreement,
CCEP/2 is managed by CHI primarily for the benefit of the Partnership. CCEP/2's
primary objective is to conduct its business to maximize the Partnership's
recovery under the New Master Loan Agreement.
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations after
third-party debt service and capital improvements. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
current accrued interest, the excess amount is applied to the principal balance
of the loan. Any net proceeds from sale or refinancing of any of CCEP/2's
properties are paid to the Partnership under the terms of the New Master Loan
Agreement. The Master Loan matures in November 2000.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing the
Partnership's interest income from the Master Loan by the amount of CCEP/2's
capital expenditures since such amounts were previously excluded from Excess
Cash Flow.
ITEM 2. PROPERTY
The Partnership's sole investment property, North Park Plaza, was sold in
September 1996. As of December 31, 1997, the Partnership has no real estate
assets.
ITEM 3. LEGAL PROCEEDINGS
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
An additional complaint was filed in November 1997 by PHC Construction against
the Partnership, CCEP/2 and other defendants. These lawsuits have been
consolidated. The complaints arise from construction services allegedly
performed by the plaintiff at the North Park Plaza Building in Southfield,
Michigan prior to the sale of that property in September 1996. The complaints
assert claims for breach of contract, quantum meruit and promissory estoppel.
The General Partner believes the claims asserted are without merit and intends
to vigorously defend the action.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate of the General Partner had breached certain contractual and fiduciary
duties allegedly owed to the claimant. The General Partner believes the claim
to be without merit and intends to vigorously defend the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 1997, no matter was submitted to a vote of
the unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
SECURITY HOLDER MATTERS
There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1997, there were
35,119 holders of record owning an aggregate of 909,134 units.
In April 1997, the Partnership distributed approximately $9,992,000 to the
partners. The limited partners received approximately $9,982,000 ($10.98 per
limited partnership unit) and the General Partners received approximately
$10,000. Of the total distribution amount, approximately $9,000,000 was from
surplus funds as a result of the refinancing of the CCEP/2 properties, which was
passed up to the Partnership as a reduction in principle of the master loan.
These funds were distributed 100% to the limited partners. The remaining
distribution amount of approximately $992,000 was from operations which is
allocated based on 1% to the general partner and 99% to the limited partners.
No distributions were paid in the year ended December 31, 1996. The Partnership
has distributed $1,500,000 from surplus funds as a result of the sale of
Cosmopolitan Center during March 1998. Future distributions will depend on
levels of cash generated from operations, refinancings, property sales, and the
availability of cash reserves. Such cash reserves are subject to the
requirements of the Partnership Agreement which requires that the Partnership
maintain reserves equal to 5% of Net Invested Capital.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8 - Financial
Statements and Supplementary Data."
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $ 6,755 $ 2,070 $ 4,065 $ 4,357 $ 4,068
Expenses (480) (2,649) (6,681) (15,093) (7,214)
Net income (loss) $ 6,275 $ (579) $(2,616) $(10,736) $ (3,146)
Net income (loss) per Limited
Partnership Unit:
Net income (loss) $ 6.83 $ (.63) $ (2.85) $ (11.69) $ (3.43)
Distributions per Limited
Partnership Unit $ 10.98 $ -- $ 3.27 $ -- $ --
Limited Partnership Units
outstanding 909,134 909,138 909,138 909,145 909,172
AS OF DECEMBER 31,
BALANCE SHEETS 1997 1996 1995 1994 1993
(in thousands)
Total assets $50,906 $54,636 $55,494 $ 61,073 $ 71,775
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
1997 Compared with 1996
The Partnership's net income for the year ended December 31, 1997, was
approximately $6,275,000 versus a net loss of approximately $579,000 for the
year ended December 31, 1996. The increase in net income is attributable to the
sale of the Partnership's investment property in September 1996, the increase in
income recognized on the master loan, an increase in interest income and a
decrease in general and administrative expenses. As discussed in "Item 8. Note
B - Net Investment in Master Loan," the Partnership recorded income on the
master loan of approximately $6,198,000 for the year ended December 31, 1997 as
compared to $362,000 for the year ended December 31, 1996. The increase in
income recognized is due to the increase in fair value of the underlying
collateral properties and due to improved operations at such properties.
Interest income increased due to an increase in cash balances and higher yields
on those investments. General and administrative expenses decreased due to a
decrease in reimbursements to affiliates and professional fees.
1996 Compared with 1995
The Partnership's net loss for the year ended December 31, 1996, was
approximately $579,000 versus a loss of approximately $2,616,000 for the year
ended December 31, 1995. The decrease in net loss is primarily attributable to
the write-down of the Partnership's sole investment property, North Park Plaza,
in 1995 due to the Partnership's continuing evaluation of its investment
property. Also contributing to the decrease in net loss were decreases in
depreciation expense and general and administrative expenses. Depreciation
expense decreased due to the write-down of investment property of approximately
$3,350,000 in 1995, along with the sale of North Park Plaza during the third
quarter of 1996. The decrease in general and administrative expenses is the
result of costs associated with the combined efforts of the Dallas and
Greenville offices during the transition period that ended June 30, 1995. Costs
relating to the transition efforts were incurred in an effort to minimize any
disruption in the 1994 year-end reporting function, including K-1 preparation
and distribution.
Partially offsetting the decrease in net loss were decreases in rental income,
interest income on investments, other income and the reduction of provision for
impairment loss. The decrease in rental income is primarily attributable to the
sale of North Park Plaza during the third quarter of 1996. Interest income on
investments decreased due to lower interest rates. The decrease in other income
is due to the Partnership's receipt of an insurance refund as well as dividend
income in 1995 with no corresponding receipt in 1996. Finally, the decrease in
the reduction of provision for impairment loss was due to a decrease in the
improvement of operations of the properties that are the underlying collateral
of the Master Loan.
On September 12, 1996, the Partnership sold North Park Plaza to an unaffiliated
party. The property was sold in an effort to maximize the Partnership's return
on its investment. The Partnership received net proceeds of approximately
$2,004,000 after payment of closing costs. This disposition resulted in a loss
of approximately $90,000.
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $12,417,000 versus approximately $18,478,000 at December 31, 1996.
The net (decrease) increase in cash and cash equivalents for the years ended
December 31, 1997 and 1996 was ($6,061,000) and $9,202,000, respectively. Net
cash provided by operating activities increased primarily due to the increase
in net income. Net cash provided by investing activities decreased due to a
decrease in principal receipts on the master loan and proceeds from the sale of
North Park Plaza in 1996. Net cash used in financing activities increased
because of a distribution to partners made in 1997.
The sufficiency of existing liquid assets to meet future liquidity requirements
is currently thought to be sufficient for any near-term needs of the
Partnership. See "CCEP/2 Property Operations" for discussion on CCEP/2's
ability to provide future cash flow as Master Loan debt service. In April 1997,
the Partnership made a distribution to the limited partners of approximately
$9,982,000 or $10.98 per unit. A distribution of approximately $10,000 was made
to the General Partner. No distributions were made during the year ended
December 31, 1996. In September 1995, the Partnership made a distribution to the
limited partners of approximately $2,973,000, or $3.27 per unit. A distribution
of approximately $30,000 was made to the General Partner. A cash distribution of
approximately $1,500,000 was made during March 1998.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined by the Partnership Agreement. Reserves, including cash and cash
equivalents, totaling approximately $12,417,000, were greater than the reserve
requirement of approximately $7,157,000 at December 31, 1997.
CCEP/2 Property Operations
CCEP/2 had a net loss of approximately $19,882,000 for the year ended December
31, 1997, versus a net loss of approximately $22,026,000 for the year ended
December 31, 1996. This decrease in net loss was primarily due to the gain on
sale of property in 1997. CCEP/2 recognizes interest expense on the New Master
Loan Agreement obligation according to the note terms, although payments to the
Partnership are required only to the extent of Excess Cash Flow, as defined
therein. During 1997, CCEP/2's consolidated statement of operations includes
total interest expense attributable to the Master Loan of $21,940,000.
Approximately $236,000 of required cash flow payments were made during 1997.
CCEP/2 is expected to continue to generate operating losses as a result of such
interest accruals and non cash charges for depreciation.
The Partnership invested approximately $150,000 in CCEP/2 during 1997 as
advances under the Master Loan. This money was used by CCEP/2 for deferred
maintenance and capital improvements at its investment properties. Additional
advances under the Master Loan are anticipated to be made to CCEP/2 in 1998 as
these properties continue the deferred maintenance and capital improvement
programs. During the year ended December 31, 1997, the Partnership received
approximately $3,768,000 as principal payments on the Master Loan; comprising
these payments were approximately $3,307,000 of proceeds from the sale of
certain investment property and $461,000 of required cash flow payments. These
funds are required to be transferred to the Partnership under the terms of the
Master Loan.
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and in 1993
a reorganization plan was confirmed by the bankruptcy court. Pursuant to the
reorganization, the 230 S. Broad Street Office Complex was transferred to the
first lien holder which held a mortgage loan of approximately $16 million
secured by the property. The bankruptcy court determined the first lien was in
excess of the property's estimated fair value, therefore, CCEP/2's general
partner interest was unsecured. The disposition of the property did not release
CCEP/2 from its $4.4 million obligation to the Partnership under the Master Loan
which had been secured by the general partner interest in Broad and Locust
Associates. The Partnership had previously recognized a provision for possible
losses for the balance of the Investments in Master Loan secured by the general
partner interest in Broad and Locust Associates. In 1994, CCEP/2 made a demand
on certain other partners of Broad & Locust Associates for the amount of the
Deficit Restoration Obligation ("DRO") as defined in the Broad & Locust
Associates Second Amended and Restated Partnership Agreement entered into in
July 1984, by CCEP/2 and certain other partners. In 1995, approximately
$204,000 was received by CCEP/2 on partial settlement of this claim. No
assurance can be given that CCEP/2 will be successful in its attempts to obtain
further payment of the DRO amount.
On December 2, 1997, CCEP/2 sold Cosmopolitan Center to an unrelated third party
for a contract price of $3,500,000 which resulted in a net gain of approximately
$2,739,000. The Partnership received net proceeds of approximately $3,307,000
which were remitted to CCIP/2 to pay down the Master Loan.
Richmond Plaza's mortgage indebtedness of approximately $14,232,000 matured in
March 1995, with waivers of the default obtained from the lender through June
15, 1996. The Partnership continued making the monthly payment of approximately
$132,000 under the terms of the original note through September 30, 1996, while
negotiating the refinancing with the original lender. During the negotiation
period, the lender did not issue a formal waiver but continued to accept
payments under the terms of the original note. On October 1, 1996, the
Partnership signed a promissory note with the existing mortgage holder for
$14,500,000 with an interest rate of 7.875% and a maturity date of June 1, 2000.
The Partnership's new monthly interest only payment is approximately $95,000 and
the first payment was due on December 1, 1996.
On November 13, 1996, CCEP/2 was successful in obtaining financing on Canyon
Crest, Highcrest Townhomes, and Windmere. Gross proceeds from the financing
were $9,000,000; the mortgage notes encumbering the properties carry a stated
interest rate of 7.33% with balloon payments due on November 1, 2003.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
LIST OF FINANCIAL STATEMENTS
Reports of Ernst & Young LLP, Independent Auditors
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties/2
We have audited the accompanying balance sheets of Consolidated Capital
Institutional Properties/2 as of December 31, 1997 and 1996, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital
Institutional Properties/2 at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
January 23, 1998,
except for Note I, as to which the date is
March 17, 1998
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
DECEMBER 31,
1997 1996
Assets
Cash and cash equivalents $ 12,417 $ 18,478
Interest receivable on Master Loan 634 --
Other assets 21 34
Investment in master loan to affiliate 80,549 84,167
Less: Allowance for impairment loss (42,715) (48,043)
37,834 36,124
$ 50,906 $ 54,636
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 6 $ --
Other liabilities 10 29
Distributions payable 141 141
157 170
Partners' Capital (Deficit)
General Partner (507) (560)
Limited Partners - (909,134 and 909,138 units
outstanding at December 1997 and 1996.) 51,256 55,026
50,749 54,466
$ 50,906 $ 54,636
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Rental income $ -- $ 1,188 $ 1,887
Interest income on net investment
in master loan to affiliate 870 -- 721
Interest income on investments 557 498 556
Other income -- 22 314
Reduction of provision for impairment loss 5,328 362 587
Total revenues 6,755 2,070 4,065
Expenses:
Operating -- 1,410 1,523
General and administrative 480 593 888
Depreciation -- 442 814
Write-down of investment property -- -- 3,350
Property taxes -- 114 106
Loss on sale of property -- 90 --
Total expenses 480 2,649 6,681
Net income (loss) $ 6,275 $ (579) $(2,616)
Net income (loss) allocated to general partner (1%) $ 63 $ (6) $ (26)
Net income (loss) allocated to limited partners (99%) 6,212 (573) (2,590)
$ 6,275 $ (579) $(2,616)
Net income (loss) per limited partnership unit $ 6.83 $ (0.63) $ (2.85)
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
TOTAL
LIMITED PARTNERS
PARTNERSHIP GENERAL LIMITED CAPITAL
UNITS PARTNERS PARTNERS (DEFICIT)
<S> <C> <C> <C> <C>
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1994 909,145 (498) 61,162 60,664
Net loss for the year ended
December 31, 1995 (26) (2,590) (2,616)
Distributions to partners (30) (2,973) (3,003)
Partners' capital (deficit) at
December 31, 1995 909,138 (554) 55,599 55,045
Net loss for the year ended
December 31, 1996 (6) (573) (579)
Partners' capital (deficit) at
December 31, 1996 909,138 (560) 55,026 54,466
Distributions to partners (10) (9,982) (9,992)
Net income for the year ended
December 31, 1997 63 6,212 6,275
Partners' capital (deficit) at
December 31, 1997 909,134 $ (507) $ 51,256 $ 50,749
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,275 $ (579) $ (2,616)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation -- 442 814
Amortization of lease commissions -- 43 53
Write-down of investment property -- -- 3,350
Reduction of allowance for impairment
loss in Master Loan to affiliate (5,328) (362) (587)
Loss on sale of investment property -- 90 --
Changes in accounts:
Interest receivable on Master Loan (634) -- --
Other assets 13 240 (301)
Accounts payable 6 (102) 102
Due from affiliates -- -- 1,347
Tenant security deposit liabilities -- 3 8
Other liabilities (19) (5) (55)
Accrued property taxes -- (44) (15)
Net cash provided by (used in)
operating activities 313 (274) 2,100
Cash flows from investing activities:
Property improvements and replacements -- (132) (681)
Advances on Master Loan (150) (1,000) (1,500)
Principal receipts on Master Loan 3,768 8,604 1,252
Purchase of securities available for sale -- -- (41,487)
Proceeds from sale of securities
available for sale -- -- 51,244
Proceeds from sale of investment property -- 2,004 --
Net cash provided by
investing activities 3,618 9,476 8,828
Cash flows from financing activities:
Distributions to partners (9,992) -- (3,003)
Net cash used in financing
activities (9,992) -- (3,003)
Net (decrease) increase in cash and
cash equivalents (6,061) 9,202 7,925
Cash and cash equivalents at beginning
of period 18,478 9,276 1,351
Cash and cash equivalents at end of period $ 12,417 $ 18,478 $ 9,276
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Consolidated Capital Institutional Properties/2 (the
"Partnership" or "Registrant"), a California limited partnership, was formed on
April 12, 1983, to lend funds through non-recourse notes with participation
interests (the "Master Loan"). The loans were made to, and the real properties
that secure the Master Loan were purchased and owned by Equity Partners/Two,
("EP/2"), a California general partnership in which certain of the partners were
former shareholders and former management of Consolidated Capital Equities
Corporation ("CCEC"), the former corporate general partner. Through
December 31, 1997, the Partnership had advanced approximately $183,250,000 under
the Master Loan.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). On October 18, 1990, the bankruptcy
court approved EP/2's consensual plan of reorganization (the "Plan"). In
November 1990, EP/2 and the Partnership consummated a closing under the Plan
pursuant to which, among other things, the Partnership and EP/2 executed an
amended and restated loan agreement (the "New Master Loan Agreement"), EP/2 was
converted from a California general partnership to a California limited
partnership, Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), and
CCEP/2 renewed the deeds of trust and mortgages on all the properties
collaterally securing the New Master Loan Agreement. ConCap Holdings, Inc.
("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole
general partner of CCEP/2 and an affiliate of the Partnership. The general
partners of EP/2 became limited partners in CCEP/2. CHI has full discretion
with respect to conducting CCEP/2's business, including managing CCEP/2's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings. See "Note C" for further discussion of EP/2's
bankruptcy settlement.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In December 1988, CCEC filed for reorganization under
Chapter 11. In 1990, as part of CCEC's reorganization plan, ConCap Equities,
Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's
general partner interests in the Partnership and in 15 other affiliated public
limited partnerships and replaced CCEC as managing general partner in all 16
partnerships. All of CEI's outstanding stock is owned by Insignia Properties
Trust ("IPT") an affiliate of Insignia Financial Group, Inc. ("Insignia"), which
it acquired through two transactions in December 1994, and October 1995. At
December 31, 1997, Insignia Properties, L.P., an affiliate of Insignia owned
179,135 Units of the Partnership.
The Partnership is the holder of a note receivable which is collateralized by
apartment and commercial properties located throughout the United States.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Depreciation: Depreciation is provided by the straight-line method over the
estimated life of the commercial property and related personal property. For
Federal income tax purposes, the modified accelerated cost recovery method is
used. As a result of the Tax Reform Act of 1986, for additions after December
31, 1986, the modified accelerated cost recovery method is used for depreciation
of (1) real property additions over 27 1/2 years and (2) personal property
additions over 5 to 15 years.
Cash and Cash Equivalents: Includes cash on hand and in banks, money market
funds and U.S. Treasury Bills with original maturities less than 90 days. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. The security deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on its
rental payments.
Advertising: The Partnership expenses the costs of advertising as incurred.
The amounts incurred for 1997, 1996, and 1995 did not have a material effect on
the financial statements.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. For the years ended December 31, 1997 and 1996, no
adjustments for impairment of value were recorded. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. The
effect of adoption was not material.
Prior to its sale in the third quarter of 1996, the property owned by the
Partnership experienced declines in its estimated net realizable value due to
regional economic factors such as a depressed real estate market in the area of
Michigan that the property was located and its deteriorating physical condition
due to the decision of the General Partner to postpone both routine and major
maintenance projects. Additionally, occupancy for this property was 61% at
December 31, 1994. At that time it was believed that occupancy could be
increased as the General Partner did not believe that this occupancy rate was
permanent in nature. After unsuccessful attempts at increasing occupancy during
1995 (occupancy remained at 61% at September 30, 1995) and with no new major
tenants expected in the future, it was determined that occupancy could not be
increased as expected and the asset was permanently impaired. Accordingly, the
Partnership recorded $3,350,000 in expense for the write-down on the real estate
in the year ended December 31, 1995.
Investment in Master Loan: The Partnership has adopted "Financial Accounting
Standards Board Statement No. 114, Accounting by Creditors for Impairment of a
Loan." Under the standard, the allowance for credit losses related to loans
that are identified for evaluation in accordance with "Statement 114" is based
on discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans.
Investments: The General Partner determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Presently, all of the Partnership's investments are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of partner's capital. The amortized cost of debt securities
in this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in other income.
Investments, stated at cost of approximately $11,000, consist of Southmark
Corporation Redeemable Series A Preferred Stock. These investments are
classified as available for sale and are included in other assets.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because, under current law, no Federal income taxes are
paid directly by the Partnership. The Unitholders are responsible for their
respective shares of Partnership net income or loss. The Partnership reports
certain transactions differently for tax than for financial statement purposes.
Partners' Capital (Deficit): The Partnership Agreement provides for net income
and net losses for both financial and tax reporting purposes to be allocated 99%
to the Limited Partners and 1% to the General Partner. "Distributable Cash from
Operations," as defined in the Partnership Agreement, are to be allocated 99%
to the Limited Partners and 1% to the General Partner. Distributions of surplus
funds are to be allocated 100% to the Limited Partners.
Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited
Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to
the Limited Partners by the number of Units outstanding. Per Unit information
has been computed based on 909,134 in 1997 and 909,138 Units outstanding in 1996
and 1995.
Fair Value of Financial Instruments: The carrying amount of the Partnership's
cash and cash equivalents approximates fair value due to the short term
maturities. The carrying amount of the Partnership's net investment in the
master loan approximates fair value due to the fact that it has been valued
based on the fair value of the underlying collateral.
Allowance for Impairment Loss: Allowances to reduce the carrying cost of the
Master Loan are provided when it is probable that reasonably estimable net
realizable values are less than the recorded carrying cost of such investment.
Gains or losses that result from the ongoing periodic evaluation of the net
realizable value of the Master Loan are credited or charged, as appropriate, to
operations in the period in which they are identified. If a collateral property
is sold, CCEP/2 remains liable for any outstanding debt under the Master Loan
Agreement, however, the value of the net investment in Master Loan on the
Partnership's books would be written down to the appropriate level.
Reclassifications: Certain reclassifications have been made to the 1996 and
1995 information to conform to the 1997 presentation.
NOTE B - NET INVESTMENT IN MASTER LOAN
At December 31, 1997, the recorded investment in the Master Loan is considered
to be impaired under "Statement 114." The Partnership measured the impairment
of the loan based upon the fair value of the collateral due to the fact that
repayment of the loan is expected to be provided solely by the collateral. For
the years ended December 31, 1997 and 1996, the Partnership recorded
approximately $5,328,000 and $362,000, respectively, in income based upon an
increase in the fair value of the collateral. Approximately $870,000 was
recorded as interest income on investment in Master Loan to affiliate based upon
cash generated as a result of improved operations of the properties which secure
the loan. Cash payments for interest of $236,000 were received from
Consolidated Capital Equity Partners/2 L.P. ("CCEP/2") during the year ended
December 31, 1997. The payment for the interest income recorded in the fourth
quarter of 1997 is expected to be received during the first quarter of 1998.
The principal balance of the Master Loan due to the Partnership totaled
approximately $80,549,000 and $84,167,000 at December 31, 1997 and 1996,
respectively. Interest due to the Partnership pursuant to the terms of the
Master Loan Agreement, but not recognized in the income statements, totaled
approximately $21,070,000, $20,600,000 and $18,800,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996,
such cumulative unrecognized interest totaled approximately $154,370,000 and
$133,300,000 and was not included in the balance of the investment in Master
Loan. The allowance for possible losses totaled approximately $42,715,000 and
$48,043,000 at December 31, 1997 and 1996, respectively.
During the year ended December 31, 1997, an advance of $150,000 was made to
CCEP/2 as an advance on the Master Loan. During 1996, the Partnership advanced
$1,000,000 to CCEP/2 as an advance on the Master Loan. The advance was used by
CCEP/2 to fund deferred maintenance and capital improvement projects on these
properties in order to maximize returns during improved market conditions as
well as maintain the condition of the properties securing the Master Loan.
CCEP/2 has approximately $32,905,000 in liens on the collateral that are
superior to the Master Loan.
The investment in Master Loan consists of the following:
AS OF DECEMBER 31,
1997 1996
(in thousands)
Master Loan funds advanced, at
beginning of year $ 84,167 $ 91,771
Advances on Master Loan 150 1,000
Principal receipts on Master Loan (3,768) (8,604)
Master Loan funds advanced, at
end of year $ 80,549 $ 84,167
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $ 48,043 $ 48,405 $ 48,992
Reduction of provision for impairment loss (5,328) (362) (587)
Allowance for impairment loss on Master
Loan to affiliates, end of year $ 42,715 $ 48,043 $ 48,405
</TABLE>
Terms of the New Master Loan Agreement: Under the terms of the New Master Loan
Agreement, interest accrues at 10% and payments are due quarterly in an amount
equal to Excess Cash Flow, generally defined in the New Master Loan Agreement as
net cash flow after third party debt service and capital improvements. If such
Excess Cash Flow payments are less than the current accrued interest during the
quarterly period, the unpaid interest is added to principal, compounded
annually, and is payable at maturity. If such Excess Cash Flow payments are
greater than the current accrued interest, the excess amount is applied to the
principal balance of the loan. Any net proceeds from the sale or refinancing of
any of CCEP/2's properties are paid to the Partnership under the terms of the
New Master Loan Agreement. The New Master Loan Agreement matures in November
2000.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing income on
the investment in Master Loan by the amount of CCEP/2's capital expenditures,
since such amounts were previously excluded from Excess Cash Flow.
EP/2's Bankruptcy Settlement: In November 1990, pursuant to EP/2's
reorganization plan described in "Note A," the Partnership and EP/2 consummated
a closing pursuant to which: (1) the Partnership and EP/2 executed the New
Master Loan Agreement more fully described below; (2) CCEP/2 renewed the deeds
of trust on all the collateral securing the Master Loan; (3) the Partnership
received cash of approximately $2,500,000, including $1,800,000 from the
general partners of EP/2 related to their promissory notes; (4) the Partnership
accepted assignment of certain partnership interests in affiliated partnerships
(the "Affiliated Partnership Interests"), which were valued by management of the
Partnership at approximately $2,500,000, as additional collateral securing the
Master Loan; and (5) all liabilities and claims between the Partnership and
EP/2's general partners were released.
EP/2 was the holder of a note receivable secured by North Park Plaza which had
not been performing according to the note terms since 1989. In the process of
negotiating the final bankruptcy settlement discussed above, EP/2 assigned its
interest in the note receivable to the Partnership. The Partnership foreclosed
upon and acquired North Park Plaza in July 1990, CCEP/2 is still obligated for
$6,600,000 under the Master Loan attributable to North Park Plaza not
extinguished in the foreclosure proceeding.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the years ended
December 31, 1997, 1996 and 1995. The General Partner and its affiliates
received fees as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
(in thousands)
Property management fees (included in
operating expenses) $ -- $ 63 $ 95
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its
affiliates received reimbursements as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
(in thousands)
Reimbursements for services of affiliates
(included in operating and general and
administrative expenses) $278 $317 $379
Leasing commissions -- 23 101
For the period of July 1, 1995 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency and insurer unaffiliated with
the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who received payment on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations was not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which Insignia affiliates act as general partner. The Purchaser
offered to purchase up to 300,000 of the outstanding units of limited
partnership interest in the Partnership, at $40.00 per Unit, net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. As a result
of the tender offer, an Insignia affiliate purchased 164,940.99 of the
outstanding limited partner units of the Partnership during December 1997 and an
additional 4,164.30 in February 1998.
NOTE D - COMMITMENT AND CONTINGENCIES
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
An additional complaint was filed in November 1997 by PHC Construction against
the Partnership, CCEP/2 and other defendants. These lawsuits have been
consolidated. The complaints arise from construction services allegedly
performed by the plaintiff at the North Park Plaza Building in Southfield,
Michigan prior to the sale of that property in September 1996. The complaints
assert claims for breach of contract, quantum meruit and promissory estoppel.
The General Partner believes the claims asserted are without merit and intends
to vigorously defend the action. Based upon the facts currently available, the
General Partner believes that the disposition of this matter will not have a
materially adverse effect on the financial position of the Partnership.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate of the General Partner had breached certain contractual and fiduciary
duties allegedly owed to the claimant. The General Partner believes the claim
to be without merit and intend to vigorously defend the claim.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined in the Partnership Agreement. In the event expenditures are made
from this reserve, operating revenue shall be allocated to such reserves to the
extent necessary to maintain the foregoing levels. Reserves, including cash and
cash equivalents totaling approximately $12,417,000, were greater than the
reserve requirement of approximately $7,157,000 at December 31, 1997.
NOTE E - OTHER INCOME
In 1991, the Partnership (and simultaneously 15 Affiliated Partnerships) entered
claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These
claims related to Southmark Corporation's activities while it exercised control
(directly, or indirectly through its affiliates) over the Partnership. The
Bankruptcy Court set the Partnership's and the affiliated Partnerships' allowed
claim at $11 million, in aggregate. In March 1994, the Partnership received
1,468 shares of Southmark Corporation Redeemable Series A Preferred Stock and
10,738 shares of Southmark Corporation New Common Stock with an aggregate market
value on the date of receipt of $11,000 and approximately $80,000 in cash
representing the Partnership's share of the recovery, based on its pro rata
share of the claims filed. Other income for 1995 includes a $286,000 refund
from the former master insurance policy.
NOTE F - SALE OF REAL ESTATE
In September 1996, the Partnership sold North Park Plaza, an office building in
Southfield, Michigan, for net sales proceeds of approximately $2,004,000 after
payment of closing costs. The Partnership realized a loss of approximately
$90,000 on the sale in 1996.
The sales transaction is summarized as follows (in thousands):
Cash proceeds received $ 2,004
Net real estate (1) (1,708)
Net other assets (386)
Loss on sale of real estate $ (90)
(1) Real estate at cost, net of accumulated depreciation of approximately $4.6
million.
The following pro-forma information reflects the operations of the Partnership
for the years ended December 31, 1996 and 1995, as if North Park Plaza had been
sold January 1, 1995.
Pro-Forma Results of Operations
For the Years Ended December 31,
1996 1995
Revenues $ 858 $2,121
Expenses 593 888
Net income $ 265 $1,233
Income per limited partnership unit $ .30 $ 1.34
NOTE G - REAL ESTATE AND ACCUMULATED DEPRECIATION
The Partnership sold its sole real estate property, North Park Plaza, in
September 1996. The following table presents a reconciliation of real estate
and accumulated depreciation for each of the years ended December 31, 1996, and
1995:
Years ended December 31,
1996 1995
(in thousands)
REAL ESTATE:
Balance, real estate at beginning of year $ 6,156 $ 8,825
Additions 132 681
Sale of Investment Property (6,288) --
Write-downs -- (3,350)
Balance, real estate at end of year $ -- $ 6,156
ACCUMULATED DEPRECIATION:
Accumulated depreciation of real estate
at beginning of year $ 4,138 $ 3,325
Depreciation of real estate 442 813
Accumulated depreciation on
real estate sale (4,580) --
Accumulated depreciation of real estate
at end of year $ -- $ 4,138
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1995, was approximately $14,104,000. The accumulated depreciation
taken for Federal income tax purposes at December 31, 1995, was approximately
$2,070,000.
NOTE H - PARTNER TAX INFORMATION
The following is a reconciliation between net income as reported in the
consolidated financial statements and federal taxable income allocated to the
partners in the Partnership's information return for the years ended December
31, 1997, 1996 and 1995 (in thousands, except per unit data):
1997 1996 1995
Net income (loss) as reported $ 6,275 $ (579) $(2,616)
Add (deduct):
Deferred revenue and other liabilities -- (24) 43
Depreciation differences -- 143 447
Accrued expenses (19) 22 (2)
Interest income (870) -- --
Valuation allowances (5,328) (362) 2,388
Other -- -- 348
Gain (loss) on disposition/foreclosure -- (10,160) --
Federal taxable income $ 58 $(10,960) $ 608
Federal taxable income (loss) per
limited partnership unit $ .06 $ (11.93) $ .66
The tax basis of the Partnership's assets and liabilities is approximately
$94,759,000 greater than the assets and liabilities as reported in the financial
statements at December 31, 1997.
NOTE I - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with Ernst & Young LLP regarding the 1997, 1996 and
1995 audits of the Partnership's financial statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER OF THE
PARTNERSHIP.
The names of the directors and executive officers of ConCap Equities, Inc.
("CEI"), the Partnership's General Partner, their ages and the nature of all
positions with CEI presently held by them are as follows:
NAME OF INDIVIDUAL POSITION IN CEI AGE
William H. Jarrard, Jr. President/Director 51
Ronald Uretta Vice President/Treasurer 41
Martha L. Long Controller 38
Robert D. Long, Jr. Vice President 30
Daniel M. LeBey Vice President/Secretary 32
Kelley M. Buechler Assistant Secretary 40
William H. Jarrard, Jr. has been President and Director of the General Partner
since December 1996. He has acted as Senior Vice President of Insignia
Properties Trust ("IPT"), parent of the General Partner since May 1997. Mr.
Jarrard previously acted as Managing Director - Partnership Administration of
Insignia from January 1991 through September 1997 and served as Managing
Director - Partnership Administration and Asset Management from July 1994 until
January 1996.
Ronald Uretta has been Vice President and Treasurer of the General Partner since
December 1996 and Insignia's Treasurer since January 1992. Since August 1996,
he has also served as Insignia's Chief Operating Officer. He has also served as
Insignia's Secretary from January 1992 to June 1996 and as Insignia's Chief
Financial Officer from January 1992 to August 1996.
Martha L. Long has been Controller of the General Partner since December 1996
and Senior Vice President - Finance and Controller of Insignia since January
1997. In June 1994, Ms. Long joined Insignia as its Controller and was promoted
to Senior Vice President - Finance in January 1997. Prior to that time, she was
Senior Vice President and Controller of the First Savings Bank in Greenville,
South Carolina.
Robert D. Long, Jr. has been Vice President of the General Partner since January
2, 1998. Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an
affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice
President and Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an
accountant for Insignia until joining MAE in 1993. Prior to joining Insignia,
Mr. Long was an auditor for the State of Tennessee and was associated with the
accounting firm of Harsman Lewis and Associates.
Daniel M. LeBey has been Vice President and Secretary of the General Partner
since January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997.
Since July 1996 he has also served as Insignia's Associate General Counsel.
From September 1992 until June 1996, Mr. LeBey was an attorney with the law firm
of Alston & Bird LLP, Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the General Partner since
June 1996 and Assistant Secretary of Insignia since January 1991.
ITEM 11. EXECUTIVE COMPENSATION
No remuneration was paid to the General Partner nor any of its directors and
officers during the year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, no person was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of February 28, 1998.
Number
Entity of Units Percentage
Insignia Properties, L.P. 185,040 20.35%
Insignia Properties, L.P. is an affiliate of Insignia.
(b) Beneficial Owners of Management
Neither CEI nor any of the directors or officers or associates of CEI own
any Units of the Partnership of record or beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of December 1997, the following entity was known to CEI to be the
beneficial owners of more than 5 percent (5%) of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS CEI SHARES OF TOTAL
Insignia Properties Trust 100,000 100%
One Insignia Financial Plaza
Greenville, SC 29602
Insignia Properties Trust is an affiliate of Insignia
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Current Management and Others
Except for the transactions described below, neither CEI nor any of its
directors, officers or associates, or any associates of any of them has had any
interest in any other transaction to which the Partnership is a party.
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the years ended
December 31, 1997, 1996 and 1995. The General Partner and its affiliates
received fees as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
(in thousands)
Property management fees $ -- $ 63 $ 95
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its
affiliates received reimbursements as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
(in thousands)
Reimbursements for services of affiliates $278 $317 $379
Leasing commissions -- 23 101
For the period of July 1, 1995 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency and insurer unaffiliated with
the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who received payment on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations was not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which Insignia affiliates act as general partner. The Purchaser
offered to purchase up to 300,000 of the outstanding units of limited
partnership interest in the Partnership, at $40.00 per Unit, net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. As a result
of the tender offer, an Insignia affiliate purchased 164,940.99 of the
outstanding limited partner units of the Partnership during December 1997 and an
additional 4,164.30 during February 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1.Financial Statements
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995
Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
2. Schedules
All other schedules are omitted because they are not required, are not
applicable or the financial information is included in the financial
statements or notes thereto.
3. Exhibits
S-K REFERENCE
SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
3 Certificates of Limited Partnership, as
amended to date.
10.1 Amended Loan Agreement dated November N/A
15, 1990 (the "Effective Date"), by and
between the Partnership and EP/2
(Incorporated by reference to the Annual
Report on Form 10-K for the year ended
December 31, 1990 ("1990 Annual
Report")).
10.2 Assumption Agreement as of the Effective N/A
Date,by and between EP/2 and CCEP/2
(Incorporated by reference to the 1990
Annual Report).
10.3 Assignment of Claims as of the Effective N/A
Date, by and between the Partnership and
EP/2. (Incorporated by reference to the
1990 Annual Report).
10.4 Assignment of Partnership Interests in CC N/A
Office Associates and Broad and Locust
Associates dated November 16, 1990 (the
effective date), by and between EP/2 and
CCEP/2 (Incorporated by reference to the
1990 Annual Report).
10.5 Property Management Agreement No. 113 N/A
ated October 23, 1990, by and between the
Partnership and CCEC (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1990).
10.6 Bill of Sale and Assignment dated October N/A
1990, by and between CCEC and ConCap
Services Company (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1990).
10.7 Assignment and Assumption dated October N/A
23, 1990, by and between CCEC and ConCap
Management Limited Partnership ("CCMLP")
(Incorporated by reference to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.8 Assignment and Agreement as to Certain N/A
Property Management Services dated
October 23, 1990, by and between CCMLP
and ConCap Capital Company (Incorporated
by reference to the Quarterly Report on
Form 10-Q for the quarter ended September
30, 1990).
10.9 Assignment and Agreement dated October N/A
23, 1990, by and between CCMLP and The
Hayman Company (100 Series of Property
Management Contracts) (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1990).
10.10 Construction Management Cost N/A
Reimbursement Agreement dated January 1,
1991, by and between the Partnership and
The Hayman Company. (Incorporated by
reference to the Annual Report on Form
10-K for the year ended December 31,
1991).
10.11 Investor Services Agreement dated October N/A
23, 1990, by and between the Partnership
and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.12 Assignment and Assumption Agreement N/A
Investor Services Agreement) dated
October 23, 1990 by and between CCEC and
ConCap Services Company.
10.13 Letter of Notice dated December 20, 1991, N/A
from Partnership Services, Inc. ("PSI")
to the Partnership regarding the change
in ownership and dissolution of ConCap
Services Company whereby PSI assumed the
Investor Services Agreement.
(Incorporated by reference to the Annual
Report on Form 10-K for the year ended
December 31, 1991).
10.14 Financial Services Agreement dated N/A
October 23, 1990, by and between the
Partnership and CCEC (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1990) (Incorporated by reference to the
1990 Annual Report).
10.15 Assignment and Assumption Agreement N/A
Financial Services Agreement) dated
October 23, 1990, by and between CCEC and
ConCap Capital Company (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1990).
10.16 Letter of Notice dated December 20, 1991, N/A
from PSI to the Partnership regarding the
change in ownership and dissolution of
ConCap Capital Company whereby PSI
assumed the Financial Services Agreement.
(Incorporated by reference to the Annual
Report on Form 10-K for the year ended
December 31, 1991).
10.17 Property Management Agreement No. 501 N/A
dated February 16, 1993, by and between
the Partnership and Coventry Properties,
Inc. (Incorporated by reference to the
Annual Report on Form 10-K for the year
ended December 31, 1992).
10.18 Property Management Agreement No. 412 N/A
dated May 13, 1993, by and between
Consolidated Capital Equity Partners/Two
L.P. and Coventry Properties, Inc.
(Incorporated by reference to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.19 Assignment and Assumption Agreement N/A
(Property Management Agreement No. 412)
dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment
Management Company Inc. and Partnership
Services, Inc. (Incorporated by reference
to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993).
10.20 Assignment and Agreement as to Certain N/A
Property Management Services dated May
13, 1993, by and between Coventry
Properties, Inc. and Partnership
Services, Inc. (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1993).
10.21 Property Management Agreement No. 413 N/A
dated May 13, 1993, by and between
Consolidated Equity Partners/Two L.P. and
Coventry Properties, Inc. (Incorporated
by reference to the Quarterly Report on
Form 10-Q for the quarter ended September
30, 1993).
10.22 Assignment and Assumption Agreement N/A
(Property Management Agreement No. 413)
dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment
Management Company, Inc. and Partnership
Services, Inc. (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1993).
10.23 Assignment and Agreement as to Certain N/A
Property Management Services dated May
13,1993, by and between Coventry
Properties, Inc. and Partnership
Services, Inc. (Incorporated by
reference to the Quarterly Report on Form
10-Q for the quarter ended September 30,
1993).
10.24 Contract for sale of real estate for N/A
North Park Plaza dated September 12,
1996, between Consolidated Capital
Institutional Properties/2,a California
limited partnership and North
ParkSouthfield, L.L.C., a Michigan
limited liability company.
11 Statement regarding computation of Net N/A
Income per Limited Partnership Unit
(Incorporated by reference to Note 1 of
Item 8 - Financial Statements of this
Form 10-K).
16 Letter, dated August 12, 1992, from Ernst N/A
& Young to the Securities and Exchange
Commission regarding change in certifying
accountant. (Incorporated by reference
to Form 8-K dated August 6, 1992).
27 Financial Data Schedule containing N/A
summary financial information extracted
from the balance sheet and statement of
operations which is qualified in its
entirety by reference to such financial
statements.
28.1 Fee Owner's Limited Partnership Agreement N/A
dated November 14, 1990 (Incorporated by
reference to the 1990 Annual Report).
99.1 Consolidated Capital Equity Partners/Two, N/A
L.P., audited financial statements for
the years endedDecember 31, 1997 and
1996.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1997:
None.
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: CONCAP EQUITIES, INC.
Its General Partner,
March 27, 1998 By: /s/ William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President/Director
March 27, 1998 By: /s/ Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 27, 1998 By: /s/William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President/Director
March 27, 1998 By: /s/Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties/2 1997 Year-End 10-K and is qualified in its
entirety by reference to such 10-K filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,417
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,906
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 50,749
<TOTAL-LIABILITY-AND-EQUITY> 50,906
<SALES> 0
<TOTAL-REVENUES> 6,755
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,275
<EPS-PRIMARY> 6.83<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 and 1996
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
December 31, 1997
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Reports of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statement of Partners' Deficit for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners/Two L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two L.P. as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in partners' deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Capital Equity Partners/Two L.P. at December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
January 23, 1998,
except for Note I, as to which the date is
March 17, 1998
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31,
Assets 1997 1996
Cash and cash equivalents $ 1,807 $ 932
Receivables and deposits 1,964 2,188
Restricted escrows 1,245 662
Other assets 2,443 2,652
Investments in limited partnerships -- 336
Investment properties:
Land 10,498 10,841
Buildings and related personal property 88,871 89,443
99,369 100,284
Less: accumulated depreciation (59,501) (58,187)
39,868 42,097
$ 47,327 $ 48,867
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 623 $ 529
Tenant security deposit liabilities 564 556
Accrued property taxes 770 516
Other liabilities 582 407
Mortgage notes and interest payable 32,905 33,180
Master loan and interest payable 234,861 216,775
270,305 251,963
Partners' Deficit
General Partner (2,216) (2,017)
Limited Partners (220,762) (201,079)
(222,978) (203,096)
$ 47,327 $ 48,867
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Rental income $ 17,149 $ 16,647 $ 15,839
Other income 1,235 1,117 1,164
Gain on sale of property 2,739 -- --
Total revenues 21,123 17,764 17,003
Expenses:
Operating 9,454 9,524 9,758
General and administrative 766 648 619
Depreciation 4,822 4,694 5,252
Interest 24,616 22,853 21,156
Property taxes 1,347 1,271 1,082
Write-down of investment properties
and investment in limited partnerships -- 800 15,406
Total expenses 41,005 39,790 53,273
Net loss $(19,882) $(22,026) $(36,270)
Net loss allocated to general partner (1%) $ (199) $ (220) $ (363)
Net loss allocated to limited partners (99%) (19,683) (21,806) (35,907)
$(19,882) $(22,026) $(36,270)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Partners' deficit at December 31, 1994 $(1,434) $(143,358) $(144,792)
Net loss for the year ended
December 31, 1995 (363) (35,907) (36,270)
Partners' deficit at December 31, 1995 (1,797) (179,265) (181,062)
Distribution to partners -- (8) (8)
Net loss for the year ended
December 31, 1996 (220) (21,806) (22,026)
Partners' deficit at December 31, 1996 (2,017) (201,079) (203,096)
Net loss for the year ended
December 31, 1997 (199) (19,683) (19,882)
Partners' deficit at December 31, 1997 $(2,216) $(220,762) $(222,978)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
Cash flows from operating activities: 1997 1996 1995
Net loss $(19,882) $(22,026) $(36,270)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 4,822 4,694 5,252
Amortization of loan costs, lease commissions
and ground lease 641 502 403
(Gain) loss on disposal of property (2,739) -- 44
Write-down of investment properties and
investment in limited partnerships -- 800 15,406
Change in accounts:
Receivable and deposits 224 (244) (911)
Other assets (585) (432) (468)
Accounts payable 94 (553) 660
Tenant security deposit liability 8 (28) (43)
Accrued property taxes 254 (229) (63)
Other liabilities 175 23 340
Interest on Master Loan 21,704 20,574 18,115
Due from affiliates -- (27) (1,308)
Net cash provided by operating activities 4,716 3,054 1,157
Cash flows from investing activities:
Property improvements and replacements (3,022) (4,108) (2,813)
Proceeds from property disposition 3,350 -- --
Net increase in restricted escrows (583) (562) (100)
Proceeds from sale of securities
available for sale -- -- 10,019
Purchase of securities available for sale -- -- (9,629)
Distributions from investment in
limited partnerships 336 124 1,048
Net cash provided by (used in) investing activities 81 (4,546) (1,475)
Cash flows from financing activities:
Distributions -- (8) --
Advances on Master Loan 150 1,000 1,500
Loan costs paid (29) (471) (97)
Principal payments on mortgage notes payable (275) (390) (426)
Principal payments on Master Loan (3,768) (8,604) (1,252)
Proceeds from long-term borrowings -- 9,286 6,970
Repayment of mortgage notes payable -- -- (6,702)
Net cash (used in) provided by financing activities (3,922) 813 (7)
Net increase (decrease) in cash and cash equivalents 875 (679) (325)
Cash and cash equivalents, at beginning of year 932 1,611 1,936
Cash and cash equivalents at end of year $ 1,807 $ 932 $ 1,611
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 2,920 $ 2,149 $ 4,265
<FN>
SUPPLEMENTAL DISCLOSE OF NON-CASH ACTIVITY
Accounts payable was adjusted $147,000 at December 31, 1996, for non-cash
amounts in connection with property improvements and replacements.
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Equity Partners/Two ("EP/2"), a California general partnership,
was formed on April 28, 1983, to engage in the business of acquiring, operating
and holding equity investments in income-producing real properties. Certain of
the general partners of EP/2 were former shareholders and former management of
Consolidated Capital Equities Corporation ("CCEC"), the former corporate
general partner of CCIP/2 (as defined below). On November 16, 1990, pursuant
to the bankruptcy settlement discussed below, EP/2's general partners executed
a new partnership agreement (the "New Partnership Agreement") whereby EP/2
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"). The general
partners of EP/2 became limited partners of CCEP/2. ConCap Holdings, Inc.
("CHI"), a Texas corporation, is CCEP/2's General Partner.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from Consolidated Capital
Institutional Properties/2 ("CCIP/2"), a California limited partnership. These
notes are secured by the real properties owned by and notes receivable on sold
properties owed to CCEP/2. The Partnership operates four apartment properties
located in Colorado, Illinois, Ohio and Texas and seven commercial office
complexes located in California, Georgia, Michigan and Virginia. One
commercial office complex was sold on December 2, 1997.
EP/2 Bankruptcy and Reorganization: During 1989, EP/2 defaulted on certain
interest payments that were due to CCIP/2 under the Master Loan and, before
CCIP/2 was able to exercise its remedies for such default, EP/2 filed for
bankruptcy protection in a Chapter 11 reorganization proceeding ("Chapter 11").
On October 18, 1990, the bankruptcy court approved EP/2's consensual plan of
reorganization (the "Plan"). On November 16, 1990, CCIP/2 consummated a
closing under the Plan pursuant to which: (1) CCIP/2 and EP/2 executed an
amended and restated loan agreement ("New Master Loan Agreement"); (2) CCEP/2
renewed the deeds of trust on all collateral securing the Master Loan; (3) EP/2
paid CCIP/2 cash of approximately $2.5 million, including $1.8 million
contributed by the general partners of EP/2 related to their promissory notes;
(4) the general partners of EP/2 contributed certain partnership interests in
affiliated partnerships ("General Partnership Interests"), which were valued by
management of CCIP/2 at approximately $2.5 million, that were assigned to
CCIP/2 as additional collateral securing the Master Loan and (5) all
liabilities and claims between EP/2's general partners and CCIP/2 were
released. See "Note C" for a description of the terms of the New Master Loan
Agreement.
The managing general partner of EP/2 was Consolidated Capital Enterprises, Inc.
("CCEI"), a Georgia corporation. In December 1988, CCEC filed for Chapter 11
protection. In October 1990, as part of CCEC's reorganization plan, CCEC sold
its general partner interest in CCIP/2 to ConCap Equities, Inc. ("CEI"), a
Delaware corporation. Pursuant to the New Partnership Agreement as discussed
above, CHI, a wholly-owned subsidiary of CEI, became the sole general partner
of CCEP/2, replacing CCEI, and the former general partners of EP/2 became
limited partners of CCEP/2. Pursuant to the New Partnership Agreement, CCEP/2
is managed by CHI and CHI has full discretion with respect to conducting
CCEP/2's business. CHI and the limited partners are hereinafter referred to
collectively as the "Partners." All of CEI's outstanding stock is owned by
Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc.
("Insignia"), which was acquired through two transactions in December 1994 and
October 1995.
Principles of Consolidation: In 1985, EP/2 together with Anderson CC 2, a
Georgia limited partnership, entered into a general partnership agreement ("CC
Office Associates") to acquire Cosmopolitan Center, an office building located
in Atlanta, Georgia. Pursuant to such general partnership agreement, the
property ownership is split 90%/10% between CCEP/2, as successor to EP/2, and
Anderson CC 2, respectively. CCEP/2's investment in CC Office Associates is
consolidated in CCEP/2's financial statements. No minority interest liability
has been reflected for Anderson CC 2's minority 10% interest because the Master
Loan balance, which is secured by a deed of trust held by CCIP/2 on
Cosmopolitan Center, exceeds the value of the property. As a result, CC Office
Associates has a net capital deficit and no minority liability exists with
respect to CCEP/2.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: Includes cash on hand and in banks and in money
market funds. U.S. Treasury Bills with original maturities greater than 90
days are considered to be investments. At certain times, the amount of cash
deposited at a bank may exceed the limit on insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling $506,000
(1997) and $546,000 (1996) are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
Escrows for Taxes: These funds of approximately $995,000 and $798,000 at
December 31, 1997 and 1996, respectively, are held by the Partnership and the
mortgage lender, designated for the payment of real estate taxes and included
in receivables and deposits.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 to 15
years.
Loan Costs: Loan costs of approximately $607,000 and $578,000, less
accumulated amortization of approximately $141,000 and $34,000, at December 31,
1997 and 1996, respectively are included in other assets and are being
amortized on a straight-line basis over the life of the loans. The
amortization expense is included in interest expense.
Investments in Limited Partnerships: The investments in limited partnerships
represent certain interests in three affiliated limited partnerships that were
contributed by EP/2's general partners to the Partnership. These investments
are stated at the lower of estimated fair value of the interests at the time of
contribution to the Partnership or the current estimated fair value of the
interests. The Partnership wrote this investment down $1,000,000 to its
estimated fair value during the third quarter of 1995. Also, in the fourth
quarter of 1995, CCEP/2 received distributions from two of the affiliated
partnerships in the amount of $1,048,000. During 1996, CCEP/2 received
distributions from three of the affiliated partnerships of approximately
$124,000. During 1997, CCEP/2 received distributions from three of the
affiliated partnerships of approximately $336,000. These amounts were
subsequently paid to CCIP/2 as a principal payment on the Master Loan per the
loan agreement.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately
$158,000, $157,000 and $152,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. In accordance with Financial
Accounting Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, the Partnership records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets. One of the properties owned by the Partnership experienced a
decline in net realizable value; as a result, the Partnership recorded a write-
down of approximately $800,000 on this property during the year ended December
31, 1996. The Partnership recorded a write-down of approximately $14.4 million
on seven of its properties during the year ended December 31, 1995.
Leases: The Partnership leases certain commercial space to tenants under
various lease terms. The leases are accounted for as operating leases in
accordance with "Financial Accounting Standards Board Statement No. 13." Some
of the leases contain stated rental increases during their term. For leases
with fixed rental increases, rents are recognized on a straight-line basis over
the terms of the lease.
For all other leases, minimum rents are recognized over the terms of the leases.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on these leases. In addition,
management finds it necessary to offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged to expense as incurred.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1997 and 1996, lease commissions totaled approximately $2,660,000 and
$2,745,000, respectively, with accumulated amortization of approximately
$1,324,000 and $1,458,000, respectively. Lease commissions are included in other
assets.
Allocation of Net Income and Cash Distributions: Pursuant to the Partnership
Agreement, net income and net losses for both financial and tax reporting
purposes are allocated 99% to the Limited Partners and 1% to CHI. Distributions
to the Partners are not allowed until CCEP/2 has fully paid and performed under
the terms of the Master Loan.
Due to Affiliates: Due from affiliates primarily represents cash flow payments
owed by CCEP/2 to CCIP/2 in accordance with the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because under current law, no Federal income taxes are paid
directly by CCEP/2. The Partners are responsible for their respective shares of
CCEP/2's net income or loss. CCEP/2 reports certain transactions differently
for tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$160,204,000 greater than the assets and liabilities as reported in the
financial statements.
Reclassifications: Certain reclassifications have been made to the 1996 and
1995 information to conform to the 1997 presentation.
NOTE B - DISPOSITION OF REAL ESTATE
On December 2, 1997, CCEP/2 sold Cosmopolitan Center to an unrelated third party
for a contract price of $3,500,000 and realized a gain on sale of approximately
$2,739,000. The Partnership received net proceeds of approximately $3,307,000
which were remitted to CCIP/2 to pay down the Master Loan.
NOTE C - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at December 31,
1997, and December 31, 1996, are $234,861,000` and $216,775,000, respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan Agreement, interest accrues at 10% per annum
and payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the Master Loan Agreement as net cash flow from operations after
third-party debt service. If such Excess Cash Flow payments are less than the
current accrued interest during the quarterly period, the unpaid interest is
added to principal, compounded annually, and is payable at the loan's maturity.
If such Excess Cash Flow payments are greater than the currently payable
interest, the excess amount is applied to the principal balance of the loan.
Any net proceeds from the sale or refinancing of any of CCEP/2's properties are
paid to CCIP/2 under the terms of the Master Loan Agreement.
The Master Loan matures in November 2000. The General Partner has determined
that the Master Loan and related interest payable has no determinable fair value
since payments are limited to net cash flows, as defined, but is not believed to
be in excess of the fair values of the underlying collateral.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from CCIP/2 to CCEP/2. This amendment and change in the definition of
Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP/2
by the amount of CCEP/2's capital expenditures since such amounts were
previously excluded from Excess Cash Flow. The amendment will have no effect on
the computation of interest expense on the Master Loan.
During 1997, CCIP/2 loaned approximately $150,000 to CCEP/2 as an advance on the
Master Loan. Also during 1997, CCEP/2 paid down the Master Loan by $3,768,000.
These payments were made from approximately $461,000 of proceeds from certain
investments and approximately $3,307,000 of proceeds from the sale of
Cosmopolitan Center. During 1996, CCIP/2 loaned approximately $1,000,000 to
CCEP/2 as an advance on the Master Loan to pay for capital improvements at
various properties in order to maintain the assets that secure the Master Loan.
Also, during 1996, CCEP/2 paid down the Master Loan by $8,604,000. The payments
were made from approximately $124,000 of proceeds from certain investments,
$501,000 of required cash flow payments, and $7,979,000 of proceeds from
refinancings. These funds are required to be transferred to CCIP/2 under the
terms of the Master Loan.
NOTE D - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Canyon Crest
1st Mortgage $ 2,000 $ 12 7.33% 11/01/03 $ 2,000
Highcrest Townhomes
1st Mortgage 4,000 24 7.33% 11/01/03 4,000
Windemere
1st Mortgage 3,000 18 7.33% 11/01/03 3,000
Richmond Plaza
1st Mortgage 14,500 95 7.88% 06/01/00 14,500
Village Brooke
1st Mortgage 6,780 54 8.00% 12/01/02 6,161
Town Center
1st Mortgage 474 9 9.88% 08/01/03 9
2nd Mortgage 197 8 8.63% 06/01/00 7
3rd Mortgage 1,086 10 8.75% 10/01/00 1,028
Other Mortgage 868 8 8.75% 10/01/00 823
Totals $32,905 $238
</TABLE>
The mortgage notes payable are nonrecourse and are collateralized by deeds of
trust on the real property. The mortgage notes require prepayment penalties if
repaid prior to maturity. All of these notes are superior to the Master Loan.
Richmond Plaza's mortgage indebtedness of approximately $14,232,000 matured in
March 1995, with waivers of the default obtained from the lender through June
15, 1996. The Partnership continued making the monthly payment of approximately
$132,000 under the terms of the original note through September 30, 1996, while
negotiating the refinancing with the original lender. During the negotiation
period, the lender did not issue a formal waiver but continued to accept
payments under the terms of the original note. On October 1, 1996, the
Partnership signed a promissory note with the existing mortgage holder for
$14,500,000 with an interest rate of 7.88% and a maturity date of June 1, 2000.
The Partnership's new monthly payment is approximately $95,000 and the first
payment was due on December 1, 1996.
On November 13, 1996, CCEP/2 was successful in obtaining financing on Canyon
Crest, Highcrest Townhomes, and Windemere. Gross proceeds from the financing
were $9,000,000; the mortgage notes encumbering the properties carry a stated
interest rate of 7.33% with balloon payments due on November 1, 2003.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1997, are as follows (in thousands):
Years Ending December 31, Notes Payable
1998 $ 272
1999 311
2000 16,632
2001 225
2002 6,394
Thereafter 9,071
Total $ 32,905
NOTE E - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for management and administration of all Partnership activities. The
Partnership paid property management fees based upon collected gross rental
revenues for property management services in each of the years ended December
31, 1997, 1996 and 1995.
Also, the Partnership is subject to an Investment Advisory Agreement between
CCEP/2 and an affiliate of ConCap Holdings, Inc. ("CHI"). This agreement
provides for an annual fee, payable in monthly installments, to be paid to an
affiliate of CHI for advisory and consulting services related to CCEP/2's
properties. Advisory fees paid pursuant to this agreement are reflected in the
following table.
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of CCEP/2's activities. The General Partner and its affiliates
received reimbursements and fees as reflected in the following table (in
thousands):
For the Years Ended
December 31,
1997 1996 1995
Property management fees $881 $883 $853
Investment advisory fees 154 154 178
Lease commissions 380 272 514
Reimbursement for Services of Affiliates 296 337 329
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties/2 ("CCIP/2") pursuant to the Master Loan Agreement.
Such interest payments totaled approximately $236,000 and $700,000 for the years
ended December 31, 1997 and 1995. There were no interest payments made in 1996.
Advances of approximately $150,000 $1,000,000 and $1,500,000 were made under the
Master Loan Agreement during the years ended December 31, 1997, 1996 and 1995,
respectively. Additionally, CCEP/2 made principal payments on the Master Loan of
$3,768,000, $8,604,000 and $1,252,000 in 1997, 1996, and 1995, respectively.
These funds were received from distributions from three affiliated partnerships,
from proceeds of a lawsuit settlement, proceeds from the sale of Cosmopolitan
Center and financing and refinancing proceeds.
For the period of July 1, 1995 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency and insurer unaffiliated with
the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations were not significant.
NOTE F - REVENUES
Rental income on the commercial property leases is recognized on a straight-line
basis over the life of the applicable leases. Minimum future rental income for
the commercial properties subject to noncancellable operating leases as of
December 31, 1997, are as follows (in thousands):
1998 $ 9,017
1999 7,533
2000 4,296
2001 2,729
2002 1,559
Thereafter 757
$ 25,891
There is no assurance that this rental income will continue at the same level
when the current leases expire.
NOTE G - LEGAL PROCEEDINGS
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and in 1993
a reorganization plan was confirmed by the bankruptcy court. Pursuant to the
reorganization, the 230 S. Broad Street Office Complex was transferred to the
first lien holder which held a mortgage loan of approximately $16 million
secured by the property. The bankruptcy court determined the first lien was in
excess of the property's estimated fair value, therefore, CCEP/2's general
partner interest was unsecured. The disposition of the property did not release
CCEP/2 from its $4.4 million obligation to CCIP/2 under the Master Loan which
had been secured by the general partner interest in Broad and Locust Associates.
CCIP/2 had previously recognized a provision for possible losses for the balance
of the Investments in Master Loan secured by the general partner interest in
Broad and Locust Associates. In 1994, CCEP/2 made a demand on certain other
partners of Broad & Locust Associates for the amount of the Deficit Restoration
Obligation ("DRO") as defined in the Broad & Locust Associates Second Amended
and Restated Partnership Agreement entered into in July 1984 by CCEP/2 and
certain other partners. In 1995 approximately $204,000 was received by CCEP/2
on partial settlement of this claim. No assurance can be given that CCEP/2 will
be successful in its attempts to obtain further payment of the DRO amount.
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
An additional complaint was filed in November 1997 by PHC Construction against
the Partnership, CCIP/2 and other defendants. These lawsuits have been
consolidated. The complaints arise from construction services allegedly
performed by the plaintiff at the North Park Plaza Building in Southfield,
Michigan prior to the sale of that property in September 1996. The complaints
assert claims for breach of contract, quantum meruit and promissory estoppel.
The General Partner believes the claims asserted are without merit and intends
to vigorously defend the action. Based upon the facts currently available, the
General Partner believes that the disposition of this matter will not have a
materially adverse effect on the financial position of the Partnership.
NOTE H - REAL ESTATE AND ACCUMULATED DEPRECIATION
The investment properties owned by the Partnership consist of the following:
(in thousands)
<TABLE>
<CAPTION>
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
<S> <C> <C> <C> <C> <C>
Canyon Crest $ 145 $ 3,333 $ 3,478 $ 1,843 3-20
Central Park Plaza 920 10,422 11,342 6,810 1-20
Central Park Place 811 9,599 10,410 6,417 1-20
Crescent Center 212 3,532 3,744 2,861 3-20
Lahser I 506 8,137 8,643 5,564 1-20
Lahser II 484 4,225 4,709 2,487 3-20
Highcrest Townhomes 707 6,855 7,562 4,120 3-20
Richmond Plaza 2,019 15,597 17,616 10,764 3-20
Town Center 2,815 13,372 16,187 10,149 1-20
Village Brooke 1,099 8,257 9,356 5,083 3-20
Windemere 780 5,542 6,322 3,403 3-20
Total $10,498 $88,871 $ 99,369 $59,501
</TABLE>
NOTE I - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
