FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1997
[ ] 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 0-13530
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
(Name of small business issuer in its charter)
Delaware 62-1181565
(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 Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $3,056,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of a specified date within the past 60 days: Market value
information for the registrant's partnership interests is not available. Should
a trading market develop for these interests, it is the managing general
partner's belief that the aggregate market value of the voting partnership
interests would not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated November 16, 1983 (included
in Registration Statement, No. 2-84436 of Registrant) are incorporated by
reference into Parts I and III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Davidson Diversified Real Estate I, L.P. (the "Registrant" or "Partnership") is
a Delaware limited partnership organized in January 1983. The general partners
of the Partnership are Davidson Diversified Properties, Inc., a Tennessee
corporation ("Managing General Partner"); Diversified Equities, Limited, a
Tennessee limited partnership ("Associate General Partner"); and David W. Talley
("Individual General Partner") (collectively, the "General Partners").
In 1992, 100% of the Managing General Partner's outstanding stock was purchased
by MAE GP Corporation ("MAE GP"), which is wholly-owned by Metropolitan Asset
Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged into Insignia
Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the Managing
General Partner is now a wholly-owned subsidiary of IPT. 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 offering of the Partnership's limited partnership units ("Units") commenced
on November 16, 1983, and terminated on September 14, 1984. The Partnership
received gross proceeds from the offering of $15,008,000 and net proceeds of
$13,507,200.
The Partnership's primary business is to acquire, own, operate and ultimately
dispose of existing income-producing residential real properties. Industry
segment information is not relevant. The Partnership does not engage in any
foreign operations nor derive any income from foreign sources.
All of the net proceeds of the offering were invested in the Partnership's six
properties, four of which have since been sold or foreclosed upon. See "Item 2.
Description of Properties," below for a description of the Partnership's
remaining properties.
The Partnership receives income from its properties and is responsible for
operating expenses, capital improvements and debt service payments under
mortgage obligations secured by the properties. The Partnership financed its
properties primarily through non-recourse debt. Therefore, in the event of
default, the lender can generally only look to the subject property for recovery
of amounts due.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
over-supply of similar properties resulting from over-building, increases in
unemployment or population shifts, reduced availability of permanent mortgage
funds, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
The real estate business is highly competitive. The Partnership's properties
are subject to competition from similar properties in the vicinity in which each
property is located. The Partnership is not a significant factor in its
industry. In addition, various limited partnerships have been formed by the
General Partners and/or their affiliates to engage in businesses which may be
competitive with the Partnership.
The Partnership has no employees. Management and administrative services are
performed by the Managing General Partner, and by affiliates of Insignia. See
"Item 12. Certain Relationships and Related Transactions" for further discussion
of transactions with affiliates during 1997 and 1996.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Type of Ownership Use
Versailles on the Lake 04/05/84 Fee ownership subject Apartment
Ft. Wayne, Indiana to first and second 156 units
mortgages.
Ashley Woods 07/31/84 Fee ownership subject Apartment
Cincinnati, Ohio to first mortgage. 352 units
SCHEDULE OF PROPERTIES (IN THOUSANDS):
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
Versailles on the Lake $ 4,382 $2,351 5-25 yrs S/L $ 1,165
Ashley Woods 8,620 4,325 5-25 yrs S/L 3,003
$13,002 $6,676 $ 4,168
See "Note A" of the Notes to Consolidated Financial Statements included in "Item
7. Financial Statements" for a description of the Partnership's depreciation
policy.
SCHEDULE OF MORTGAGES (IN THOUSANDS):
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
Versailles on the Lake
1st mortgage $2,529 7.6% 21.42 yrs 11/15/02 $2,071
2nd mortgage 88 7.6% (1) 11/15/02 88
Ashley Woods 8,000 7.29% 30 yrs 12/01/04 7,334
10,617
Less unamortized
discounts (112)
Total $10,505
(1) Interest only payments.
On November 20, 1997, the Partnership refinanced the debt encumbering Ashley
Woods. The refinancing replaced indebtedness of approximately $5,941,000 with a
new mortgage in the amount of $8,000,000. The new mortgage carries a stated
interest rate of 7.29% and is amortized over 30 years. Payments of
approximately $55,000 are due on the first day of each month until maturity.
Total loan costs related to the refinancing were approximately $154,000. As a
result of the refinancing, the Partnership recorded an extraordinary loss on
early extinguishment of debt of approximately $145,000, as a result of the
payment of prepayment penalties and the write off of the remaining unamortized
loan costs.
The above non-recourse mortgages are secured by the related property and
improvements of the Partnership and by pledge of revenues from the apartment
properties. The notes require prepayment penalties if repaid prior to maturity
and prohibit resale of the properties subject to existing indebtedness.
The Partnership exercised an interest rate buy-down option for Versailles on the
Lake reducing the stated rate from 8.76% to 7.60% during 1992. The fee for the
interest rate reduction was approximately $205,000 and is being amortized as a
loan discount using the interest method over the term of the loans. The
discount fee is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.76%.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average
Rental Rates Occupancy
(per unit)
Property 1997 1996 1997 1996
Versailles on the Lake $5,847 $5,696 95% 94%
Ashley Woods 6,321 6,143 90% 92%
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Managing General Partner believes that all of the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. No residential tenant leases 10% or more of the available space.
SCHEDULE OF REAL ESTATE TAXES (IN THOUSANDS) AND RATES:
1997 1997
Taxes Rate
Versailles on the Lake $ 84 9.12%
Ashley Woods 169 5.36%
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing General Partner of the Partnership believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition or operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matters were submitted to a
vote of Unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS
There is no established public market for the Units and it is not anticipated
that any will exist in the foreseeable future. As of January 1, 1998, there
were 1,056 holders of record owning an aggregate of 751.59 Units.
For the years ended December 31, 1997 and 1996, the Partnership distributed cash
flow from operations to the partners of $201,000 and $403,000, respectively. A
distribution of $900,000 was made to the limited partners on February 15, 1998.
This distribution represented a portion of the net proceeds from the mortgage
refinancing of Ashley Woods Apartments.
Pursuant to the terms of the Partnership Agreement, there are restrictions on
the ability of the limited partners to transfer their Units. In all cases, the
General Partners must consent to any transfer.
The Revenue Act of 1987 contained provisions which have an adverse impact on
investors in "publicly traded partnerships". Accordingly, the General Partners
have established a policy of imposing limited restrictions on the
transferability of the Units in secondary market transactions. Implementation
of this policy should prevent a public trading market from developing and may
impact the ability of an investor to liquidate his investment quickly. It is
expected that such policy will remain in effect until such time, if ever, as
further clarification of the Revenue Act of 1987 may permit the Partnership to
lessen the scope of the restrictions.
There are no material restrictions upon the Partnership's present or future
ability to make distributions in accordance with the provisions of the
Partnership's Partnership Agreement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership realized a net loss of $172,000 for the year ended December 31,
1997, compared to a net loss of $49,000 for the year ended December 31, 1996.
The increase in net loss is attributable to the extraordinary loss on early
extinghuishment of debt of $145,000 related to the refinancing of Ashley Woods
Apartments, as discussed in "Liquidity and Capital Resources" below.
The Partnership realized a loss before extraordinary item of $27,000 for the
year ended December 31, 1997, compared to a loss of $49,000 for the year ended
December 31, 1996. The decrease in loss before extraordinary item for the year
ended December 31, 1997, is primarily due to an increase in rental income,
partially offset by increased total expenses. Rental income increased due to
rental rate increases at both properties. Total expenses increased primarily
due to increased operating expenses and depreciation expense. Operating
expenses were higher due to increases in personnel costs at Ashley Woods as well
as increased promotions and advertising costs incurred at Ashley Woods in an
attempt to increase occupancy. Partially offsetting the increases in property
and advertising costs were decreases in maintenance expense and professional
costs. Maintenance expense decreased due to deck repairs and other exterior
projects at Ashley Woods and interior building repairs at Versailles being
incurred in 1996. Included in operating expense for the year ended December 31,
1997, is approximately $47,000 of major repairs and maintenance comprised
primarily of landscaping, parking lot repairs, and window coverings. For the
year ended December 31, 1996, maintenance expense included approximately
$103,000 of major repairs and maintenance comprised of interior and exterior
building repairs, window coverings and landscaping. Depreciation expense
increased as a result of property improvements and replacements completed during
1997 and 1996. Partially offsetting the increase in expenses was a decrease on
general and administrative expenses due to decreased expense reimbursements.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Managing General Partner will be able to sustain
such a plan.
Liquidity and Capital Reserves
At December 31, 1997, the Partnership held cash and cash equivalents of
approximately $1,976,000 compared to approximately $637,000 at December 31,
1996. The net increase in cash and cash equivalents for the year ended December
31, 1997 is $1,339,000 compared to a net decrease of $231,000 for the year ended
December 31, 1996. Net cash provided by operations increased primarily as a
result of a decrease in Ashley Woods' tax and insurance escrow deposits required
by the previous mortgage holder. Net cash used in investing activities
increased due to increased deposits to restricted escrows, as a result of
capital reserves established with the refinancing of Ashley Woods. Net cash
provided by financing activities increased due to the receipt of net proceeds
from the refinancing of Ashley Woods, as discussed below.
On November 20, 1997, the Partnership refinanced the debt encumbering Ashley
Woods. The refinancing replaced indebtedness of approximately $5,941,000 with a
new mortgage in the amount of $8,000,000. The new mortgage carries a stated
interest rate of 7.29% and is amortized over 30 years. Payments of approximately
$55,000 are due on the first day of each month until maturity. On December 1,
2004, at which time a balloon payment of approximately $7,334,000 is due. Total
loan costs related to the refinancing were approximately $154,000. As a result
of the refinancing, the Partnership recorded an extraordinary loss on early
extinguishment of debt of approximately $145,000, as a result of the payment of
prepayment penalties and the write off of the remaining unamortized loan costs.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness of $10,505,000, net of discount, is amortized over
varying periods. Of this amount, $8,000,000, which matures in 2004, relates to
Ashley Woods and $2,505,000, which matures in 2002, relates to Versailles on the
Lake. At the time of maturity, the properties will either be sold or
refinanced. Distributions of cash from operations of $201,000 and $403,000 were
made to the partners during the years ending December 31, 1997 and 1996,
respectively. A distribution of $900,000 was made to the limited partners on
February 15, 1998. This distribution represented a portion of the net proceeds
from the mortgage refinancing of Ashley Woods. Future cash distributions will
depend on the levels of net cash generated from operations, property
refinancings, property sales and the availability of cash reserves.
Year 2000
The Partnership is dependent upon the Managing 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 Managing 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 7. FINANCIAL STATEMENTS
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1997
and 1996
Consolidated Statement of Changes in Partners' Deficit - Years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997
and 1996
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Davidson Diversified Real Estate I, L.P.
We have audited the accompanying consolidated balance sheet of Davidson
Diversified Real Estate I, L.P. (A Limited Partnership) as of December 31, 1997,
and the related consolidated statements of operations, changes in partners'
deficit and cash flows for each of the two 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 consolidated financial position of Davidson
Diversified Real Estate I, L.P. (A Limited Partnership) at December 31, 1997,
and the consolidated results of its operations and its cash flows for each of
the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/S/ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 1998,
except for Note G, as to which the date is
March 17, 1998
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED BALANCE SHEET
December 31, 1997
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,976
Receivables and deposits 117
Restricted escrows 792
Other assets 233
Investment properties:
Land $ 1,072
Buildings and related personal property 11,930
13,002
Less accumulated depreciation (6,676) 6,326
$ 9,444
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 32
Tenant security deposits payable 89
Accrued property taxes 250
Other liabilities 101
Due to affiliate 321
Mortgage notes payable 10,505
Partners' Deficit
General partners' $ (114)
Limited partners' (751.59 units
issued and outstanding) (1,740) (1,854)
$ 9,444
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Revenues:
Rental income $ 2,839 $ 2,773
Other income 217 225
Total revenues 3,056 2,998
Expenses:
Operating 1,297 1,279
General and administrative 112 129
Depreciation 565 532
Interest 860 871
Property taxes 249 236
Total expenses 3,083 3,047
Loss before extraordinary item (27) (49)
Extraordinary loss on early extinguishment of debt (Note C) (145) --
Net loss $ (172) $ (49)
Net loss allocated to general partners (5%) $ (9) $ (2)
Net loss allocated to limited partners (95%) (163) (47)
$ (172) $ (49)
Net loss per limited partnership unit:
Loss before extraordinary item $ (33.59) $ (62.53)
Extraordinary loss on early extinguishment of debt (183.28) --
Net loss $(216.87) $ (62.53)
Distributions per limited partner unit $ 254.13 $ 509.59
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partnrs' Partners' Total
Original capital contributions 751.84 $ 1 $ 15,008 $15,009
Partners' deficit at
December 31, 1995 751.59 $ (73) $ (956) $(1,029)
Distributions to partners -- (20) (383) (403)
Net loss for the year ended
December 31, 1996 -- (2) (47) (49)
Partners' deficit at
December 31, 1996 751.59 (95) (1,386) (1,481)
Distributions to partners -- (10) (191) (201)
Net loss for the year ended
December 31, 1997 -- (9) (163) (172)
Partners' deficit at
December 31, 1997 751.59 $ (114) $ (1,740) $(1,854)
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net loss $ (172) $ (49)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 565 532
Amortization of discounts and loan costs 64 63
Extraordinary loss on early extinguishment of debt 145 --
Change in accounts:
Receivables and deposits 122 17
Other assets (5) (1)
Accounts payable (13) (1)
Tenant security deposits payable (2) 5
Accrued property taxes 9 10
Other liabilities (36) (46)
Net cash provided by operating activities 677 530
Cash flows from investing activities:
Property improvements and replacements (308) (318)
Net (deposits to) receipts from restricted escrows (563) 65
Net cash used in investing activities (871) (253)
Cash flows from financing activities:
Payments on mortgage notes payable (111) (105)
Repayment of mortgage note payable (5,941) --
Proceeds from refinancing 8,000 --
Payment of loan costs (154) --
Distributions to partners (201) (403)
Debt extinguishment costs (60) --
Net cash provided by (used in) financing
activities 1,533 (508)
Net increase (decrease) in cash and
cash equivalents 1,339 (231)
Cash and cash equivalents at beginning of year 637 868
Cash and cash equivalents at end of year $ 1,976 $ 637
Supplemental disclosure of cash flow information:
Cash paid for interest $ 798 $ 807
See Accompanying Notes to Consolidated Financial Statements
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Davidson Diversified Real Estate I, L.P. (the "Partnership") is a Delaware
limited partnership organized on January 14, 1983, to acquire and operate
residential real estate properties. As of December 31, 1997, the Partnership
operates two residential properties located in Cincinnati, Ohio and Ft. Wayne,
Indiana. The Partnership's managing general partner is Davidson Diversified
Properties, Inc., (the "Managing General Partner"). In 1992, 100% of the
Managing General Partner's outstanding stock was purchased by MAE GP Corporation
("MAE GP"), which is wholly-owned by Metropolitan Asset Enhancement, L.P.
("MAE"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective
February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"),
which is an affiliate of Insignia. Thus the Managing General Partner is now a
wholly-owned subsidiary of IPT.
PRINCIPLES OF CONSOLIDATION
During the third quarter of 1997, Ashley Woods Associates L.P. was restructured
into a limited liability company known as Ashley Woods L.L.C. ("Ashley Woods").
Davidson Diversified Real Estate I owns 100% of the new entity. As a result,
the Partnership consolidates its interest in Ashley Woods (whereby all accounts
of Ashley Woods are included in the consolidated financial statements of the
Partnership with intercompany accounts being eliminated).
ALLOCATIONS TO PARTNERS
Net earnings (loss) of the Partnership and taxable income (loss) are allocated
95% to the limited partners and 5% to the general partners. Distributions of
available cash (cash flow) are allocated among the limited partners and the
general partners in accordance with the agreement of limited partnership.
Allocation of net income for tax purposes, arising from the occurrence of a sale
or refinancing shall be allocated as follows:
First, an amount equal to the aggregate deficit in the capital accounts of the
general and limited partners having deficits in their capital accounts shall
be allocated to each such partner in the same ratio as the deficit such
partner's capital account bears to the aggregate of all such partner's
deficits.
Second, to the limited partners in an amount equal to the cash distributed to
them from a sale or refinancing.
Third, the remainder, if any, 5% to the general partners and 95% to the
limited partners.
Distributions of cash from sales or refinancings shall be distributed in the
following order of priority:
First, to the limited partners, an amount which when added to all prior
distributions of cash from sales or refinancings shall equal their original
invested capital, plus an amount which, when added to all prior distributions
to the limited partners (excluding distributions which are deducted in the
calculation of adjusted invested capital), will equal 8% per annum cumulative
noncompounded on their adjusted invested capital, commencing the last day of
the calendar quarter in which each limited partner is admitted to the
Partnership through the date of payment.
Second, to an affiliate of the general partners, an amount equal to its
subordinated real estate commission, which fee is equal to the lesser of (i)
3% of the gross sales price of a property or (ii) one-half of the competitive
commission, as defined, but may only be paid after the limited partners have
received their priority distributions as discussed in the previous paragraph.
Third, 85% of the remaining cash from sales or refinancings to the limited
partners and 15% of the remaining cash from sales or refinancings to the
general partners.
DEPRECIATION
Depreciation is provided by the straight-line method over the estimated lives of
the investment properties and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 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 7
years.
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.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to cash equivalents. 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.
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 accompanying notes.
Actual results could differ from those estimates.
ADVERTISING
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $42,000 and $39,000
for the years ended December 31, 1997 and 1996, respectively.
RESTRICTED ESCROWS
Reserve Account - The Partnership has a general reserve account for Versailles
to cover necessary repairs and replacements of existing improvements, debt
service, out-of-pocket expenses incurred for ordinary and necessary
administrative tasks, and payment of real property taxes and insurance premiums.
At December 31, 1997, this reserve totaled approximately $166,000.
Capital Reserve - At the time of the refinancing of Ashley Woods' mortgage note
payable during 1997, approximately $626,000 of the proceeds were designated for
"capital improvements escrows" for certain capital improvements.
LOAN COSTS
At December 31, 1997, loan costs of approximately $267,000, net of accumulated
amortization of approximately $57,000, are included in other assets and are
being amortized on a straight-line basis as interest expense over the term of
the respective loans.
LEASES
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership believes that the carrying amount of its financial instruments
(except for long term debt) approximates their fair value due to the short term
maturity of these instruments. The fair value of the Partnership's long term
debt, after discounting the scheduled loan payments, based on estimated rates
currently available to the Partnership, approximates its carrying balance.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 balances to conform to the
1997 presentation.
NOTE B - DUE TO AFFILIATE
The Partnership is liable to a company affiliated with the Managing General
Partner through common ownership for real estate commissions in the amounts of
$125,000 for Revere Village and $196,000 for Essex which were sold in previous
years. Payment of the commissions will not be made to the affiliated company
until after payment to the limited partners of their original invested capital,
plus 8% per annum cumulative non-compounded on their adjusted invested capital
commencing on the last day of the calendar quarter in which each limited partner
was admitted to the Partnership through the date of payment.
NOTE C - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows (in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
Versailles on the Lake
1st mortgage $ 2,529 $ 22 7.6% 11/15/02 $2,071
2nd mortgage 88 1 7.6% 11/15/02 88
Ashley Woods 8,000 55 7.29% 12/01/04 7,334
10,617 $ 78
Less unamortized
discounts (112)
Totals $10,505
On November 20, 1997, the Partnership refinanced the debt encumbering Ashley
Woods. The refinancing replaced indebtedness of approximately $5,941,000 with a
new mortgage in the amount of $8,000,000. The new mortgage carries a stated
interest rate of 7.29% and is amortized over 30 years. Payments of
approximately $55,000 are due on the first day of each month until maturity.
Total loan costs related to the refinancing were approximately $154,000. As a
result of the refinancing, the Partnership recorded an extraordinary loss on
early extinguishment of debt of approximately $145,000, as a result of the
payment of prepayment penalties and the write off of the remaining unamortized
loan costs.
The above non-recourse mortgages are secured by the related property and
improvements of the Partnership and by pledge of revenues from the apartment
properties. The notes require prepayment penalties if repaid prior to maturity
and prohibit resale of the properties subject to existing indebtedness.
The Partnership exercised an interest rate buy-down option for Versailles on the
Lake reducing the stated rate from 8.76% to 7.60% during 1992. The fee for the
interest rate reduction was approximately $205,000 and is being amortized as a
loan discount using the interest method over the term of the loans. The
discount fee is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.76%.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1997, are as follows (in thousands):
Years Ending December 31,
1998 $ 158
1999 170
2000 184
2001 198
2002 2,354
Thereafter 7,553
$10,617
NOTE D - INCOME TAXES
The Partnership received a ruling from the Internal Revenue Service that it is
to be classified as a partnership for Federal income tax purposes. Accordingly,
no provision for income taxes is made in the financial statements of the
Partnership. Taxable income or loss of the Partnership is reported in the income
tax returns of its partners.
The following is a reconciliation of reported net loss and Federal taxable loss
(in thousands, except per unit data):
1997 1996
Net loss as reported $ (172) $ (49)
Add (deduct)
Depreciation differences 33 (55)
Unearned income 65 (16)
Miscellaneous (40) (35)
Federal taxable loss $ (114) $ (155)
Federal taxable loss
per limited partnership unit $(144.09) $(195.92)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities at December 31, 1997 (in
thousands):
Net liabilities as reported $(1,854)
Differences in basis of assets and liabilities:
Buildings and Land 137
Accumulated depreciation (2,295)
Other 486
Net liabilities - Federal tax basis $(3,526)
NOTE E - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following payments were paid to affiliates of the Managing
General Partner during each of the years ended December 31, 1997 and 1996 (in
thousands):
1997 1996
Property management fees (included in
operating expenses) $151 $149
Reimbursement for services of affiliates,
including $5,000 of construction services
reimbursements in both 1997 and 1996
(included in investment properties,
general and administrative expenses
and operating expenses) 80 92
Additionally, the Partnership paid approximately $33,000 to affiliates of
Insignia for reimbursements of costs related to the refinancing of Ashley Woods
in November 1997. These costs were capitalized as loan costs and are being
amortized over the term of the loan.
For the period of January 1, 1996, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency and insurer unaffiliated
with the Managing General Partner. An affiliate of the Managing 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
Managing General Partner who received payments on these obligations from the
agent. The amount of the Partnership's insurance premiums accruing to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations is not significant.
On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992 - M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Versailles on the Lake Apartments owned by the Partnership.
NOTE F - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Versailles on the Lake
Fort Wayne, Indiana $ 2,617 $ 191 $3,847 $ 344
Ashley Woods
Cincinnati, Ohio 8,000 881 5,815 1,924
Totals $10,617 $1,072 $9,662 $2,268
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
Buildings
And Date of
Personal Accumulated Construc- Date Depreciable
Description Land Property Total Depreciation tion Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Versailles on the Lake $ 191 $ 4,191 $ 4,382 $2,351 1970 04/84 5-25
Ashley Woods 881 7,739 8,620 4,325 1971 07/84 5-25
Totals $1,072 $11,930 $13,002 $6,676
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation" (in
thousands):
Year Ended December 31,
1997 1996
Investment Properties
Balance at beginning of year $12,694 $12,376
Property improvements 308 318
Balance at end of year $13,002 $12,694
Accumulated Depreciation
Balance at beginning of year $ 6,111 $ 5,579
Depreciation expense 565 532
Balance at end of year $ 6,676 $ 6,111
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is $13,139,000 and $12,831,000, respectively. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1997 and 1996, is $8,971,000 and $8,438,000, respectively.
NOTE G - SUBSEQUENT EVENTSS
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with Ernst & Young LLP regarding the 1997 and 1996
audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The Partnership has no officers or directors. Davidson Diversified Properties,
Inc. (the "Managing General Partner") manages and controls the Partnership and
has general responsibility and authority in all matters affecting its business.
In 1992, 100% of the Managing General Partner's outstanding stock was purchased
by MAE GP Corporation ("MAE GP"), which is wholly-owned by Metropolitan Asset
Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged into Insignia
Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the Managing
General Partner is now a wholly-owned subsidiary of IPT. 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 names of the directors and executive officers of the Managing General
Partner, their ages and the nature of all positions presently held by them are
set forth below. There are no family relationships between or among any
officers and directors.
Name Age Position
Carroll D. Vinson 57 President and Director
William H. Jarrard, Jr. 51 Vice President
Robert D. Long, Jr. 30 Vice President and Chief
Accounting Officer
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Carroll D. Vinson has been President and Director of the Managing General
Partner and President of MAE and subsidiaries since August 1994. He has acted
as Chief Operating Officer of IPT since May 1997. During 1993 to August 1994,
Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and
engaged in various other investment and consulting activities which included
portfolio acquisitions, asset dispositions, debt restructurings and financial
reporting. Briefly, in early 1993, Mr. Vinson served as President and Chief
Executive Officer of Angeles Corporation, a real estate investment firm. From
1991 to 1993, Mr. Vinson was employed by Insignia in various capacities
including Managing Director - President during 1991.
William H. Jarrard, Jr. has been Vice President of the Managing General Partner
since January 1991. He has acted as Senior Vice President of IPT 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 of
Insignia from July 1994 until January 1996.
Robert D. Long, Jr. has been Vice President and Chief Accounting Officer of the
Managing General Partner since August 1994. Mr. Long joined MAE 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 Secretary of the Managing 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 Managing General Partner
and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
The Partnership was not required to and did not pay remuneration to officers
and/or directors of the Managing General Partner during 1997 or 1996. See "Item
12. Certain Relationships and Related Transactions" below for a discussion of
compensation and reimbursements paid to the General Partners and certain
affiliates.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 1998, no Unit holder was known by the Partnership to be the
beneficial owner of more than 5% of the Units of the Partnership.
As of January 1, 1998, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a group own any of the Partnership's
Units. No such director or officer had any right to acquire beneficial
ownership of additional Units of the Partnership.
There are no arrangements known to the Managing General Partner the operation of
which may, at a subsequent date, result in a change in control of the Ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following payments were paid to affiliates of the Managing
General Partner during each of the years ended December 31, 1997 and 1996 (in
thousands):
1997 1996
Property management fees $151 $149
Reimbursement for services of affiliates,
including $5,000 of construction services
reimbursements in both 1997 and 1996 80 92
Additionally, the Partnership paid approximately $33,000 to affiliates of
Insignia for reimbursements of costs related to the refinancing of Ashley Woods
in November 1997. These costs were capitalized as loan costs and are being
amortized over the term of the loan.
For the period of January 1, 1996, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency and insurer unaffiliated
with the Managing General Partner. An affiliate of the Managing 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
Managing 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 Managing General Partner by virtue of the
agent's obligations is not significant.
On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992 - M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Versailles on the Lake Apartments owned by the Partnership.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: see Exhibit Index contained herein.
(b) No Reports on Form 8-K were filed during the fourth quarter of
1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
By: Davidson Diversified Properties, Inc.,
Its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President and Director
Date: March 23, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
date indicated.
/s/Carroll D. Vinson President and Director March 23, 1998
Carroll D. Vinson
/s/Robert D. Long, Jr. Vice President and Chief March 23, 1998
Robert D. Long, Jr. Accounting Officer
EXHIBIT INDEX
Exhibit
3A Partnership Agreement dated January 14, 1983 is incorporated by reference
to Exhibit A to the Prospectus of the Partnership dated November 16, 1983
as filed with the Commission pursuant to Rule 424(b) under the Act.
3B Amendment No. 1 dated January 1, 1986 to the Partnership Agreement is
incorporated by reference to Exhibit 3B to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.
4 Certificate of Limited Partnership dated December 2, 1982 is incorporated
by reference to Exhibit 4 to the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987.
4A Certificate of Amendment of Certificate of Limited Partnership dated
March B4, 1983 is incorporated by reference to Exhibit 4A to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987.
4B Restated Certificate of Limited Partnership dated June 8, 1983 is
incorporated by reference to Exhibit 4B to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
4C Amended and Restated Certificate of Limited Partnership dated January 1,
1986 is incorporated by reference to Exhibit 4C to the Partnership's
Annual Report on form 10-K for the fiscal year ended December 31, 1987.
10A Agent's Agreement dated November 1, 1983 between the Partnership and
Harvey Freeman & Sons, Inc. is incorporated by reference to Exhibit 10B
to the Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1983.
10B Agreement Among Agents dated November 1, 1983 by and among Harvey Freeman
& Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey Freeman &
Sons, Inc. of Florida, Harvey Freeman & Sons, Inc. of Georgia, Harvey
Freeman & Sons, Inc. of Indiana, Harvey Freeman & Sons, Inc. of Kentucky,
Harvey Freeman & Sons, Inc. of Mississippi, Harvey Freeman & Sons, Inc.
of North Carolina, Harvey Freeman and Sons, Inc. of Ohio and Harvey
Freeman & Sons, Inc. of South Carolina is incorporated by reference to
Exhibit 10C to the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983.
10C Acquisition and Disposition Services Agreement dated October 3, 1983
between the Partnership and Criswell Freeman Company is incorporated by
reference to Exhibit 10D to the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1983.
10D Contract for Sale of Real Estate for Versailles on the Lake dated March
16, 1984 between Versailles on the Lake Associates, an Illinois limited
partnership and Tennessee Trust Company, Trustee, is incorporated by
reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-
K dated April 4, 1984.
10E Assignment of Contract for Sale dated April 2, 1984 between Tennessee
Trust Company, Trustee, and the Partnership (relating to Versailles on
the Lake Apartments) is incorporated by reference to Exhibit 10L to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1984.
10F Note dated November 19, 1984 executed by the Partnership payable to
American Fletcher National Bank and Trust Company relating to Versailles
on the Lake Apartments is incorporated by reference to Exhibit 10W to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.
10G Real Estate Mortgage, Assignment of Rents and Security Agreement dated
November 19, 1984 executed by the Partnership payable to American
Fletcher National Bank and Trust Company relating to Versailles on the
Lake is incorporated by reference to Exhibit 10EE to the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1985.
10H Memorandum of Understanding among SEC Realty Corp., Tennessee Properties,
L.P., Freeman Mortgage Corporation, J. Richard Freeman, W. Criswell
Freeman and Jacques-Miller Properties, Inc. is incorporated by reference
to Exhibit 10BB to the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
10I Partnership Administration and Consultation Agreement among Freeman
Properties, Inc., Freeman Diversified Properties, Inc., Residual Equities
Limited and Jacques-Miller Properties, Inc. is incorporated by reference
to Exhibit 10CC to the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
10J Partnership Agreement of Ashley Woods Associates dated May 16, 1990 owned
99.9% by the Partnership relating to refinancing of Ashley Woods
Apartments is incorporated by reference to Exhibit 10EE to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10K Multifamily Note with Addendum dated June 14, 1990 executed by Ashley
Woods Associates payable to PW Funding Inc. relating to Ashley Woods
Apartments is incorporated by reference to Exhibit 10FF to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10L Multifamily Open-end Mortgage with Rider dated June 14, 1990 executed by
Ashley Woods Associates in favor of PW Funding Inc. relating to Ashley
Woods Apartments is incorporated by reference to Exhibit 10GG to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10M Termination Agreement, dated December 31, 1991 among Jacques-Miller,
Inc., Jacques-Miller Property Management, Davidson Diversified
Properties, Inc., and Supar, Inc. is incorporated by reference to Exhibit
10HH to the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
10N Assignment of Limited Partnership Interest of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc. and
Insignia Jacques-Miller, L.P. is incorporated by reference to Exhibit
10II to the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
10O Assignment of General Partner Interests of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc. and
MAE GP Corporation is incorporated by reference to Exhibit 10JJ to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10P Stock certificate, dated December 31, 1991 showing ownership of 1,000
shares of Davidson Diversified Properties, Inc. by MAE GP Corporation is
incorporated by reference to Exhibit 10KK to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.
10Q Contracts related to refinancing of debt:
(a)First Deed of Trust and Security Agreement dated October 28, 1992
between Davidson Diversified Real Estate I, Limited Partnership and
First Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing Versailles on the Lake is incorporated by reference to
Exhibit 10Q (a) to the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992.
(b)Second Deed of Trust and Security Agreement dated October 28, 1992
between Davidson Diversified Real Estate I, Limited Partnership and
First Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing Versailles on the Lake is incorporated by reference to
Exhibit 10Q (b) to the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992.
(c)First Assignment of Leases and Rents dated October 28, 1992 between
Davidson Diversified Real Estate I, Limited Partnership and First
Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing Versailles on the Lake is incorporated by reference to
Exhibit 10Q (c) to the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992.
(d)Second Assignment of Leases and Rents dated October 28, 1992 between
Davidson Diversified Real Estate, I Limited Partnership and First
Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing Versailles on the Lake is incorporated by reference to
Exhibit 10Q (d) to the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992.
(e)First Deed of Trust Note dated October 28, 1992 between Davidson
Diversified Real Estate I Limited Partnership and First Commonwealth
Realty Credit Corporation, relating to Versailles on the Lake is
incorporated by reference to Exhibit 10Q (e) to the Partnership's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1992.
(f) Second Deed of Trust Note dated October 28, 1992 between Davidson
Diversified Real Estate I, Limited Partnership and First
Commonwealth Realty Credit Corporation relating to Versailles on the
Lake is incorporated by reference to Exhibit 10Q (f) to the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992.
10R Promissory Note dated November 20, 1997, by and between Ashley Woods,
L.L.C., a South Carolina limited liability company, and Lehman Brothers
Holdings, Inc., a Delaware corporation.
16 Letter from the Partnership's former independent accountant regarding its
concurrence with the statements made by the Partnership is incorporated
by reference to the exhibit filed with Form 8-K dated September 30, 1992.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate I, L.P. 1997 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000721673
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,976
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,002
<DEPRECIATION> 6,676
<TOTAL-ASSETS> 9,444
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,505
0
0
<COMMON> 0
<OTHER-SE> (1,854)
<TOTAL-LIABILITY-AND-EQUITY> 9,444
<SALES> 0
<TOTAL-REVENUES> 3,056
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 860
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172)
<EPS-PRIMARY> (216.87)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
PROMISSORY NOTE
$8,000,000 New York, New York
As of November 20, 1997
FOR VALUE RECEIVED ASHLEY WOODS, L.L.C., a South Carolina limited
liability company, having an address at c/o Insignia Financial Group, One
Insignia Financial Plaza, Greenville, South Carolina 29602 (hereinafter referred
to as "Borrower"), promises to pay to the order of LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation, having an address at Three World Financial Center, 200 Vesey
Street, New York, New York 10285 (hereinafter referred to as "Lender"), or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of EIGHT MILLION AND 00/100 DOLLARS ($8,000,000.00),
in lawful money of the United States of America with interest thereon to be
computed from the date of this Note at the Applicable Interest Rate (hereinafter
defined), and to be paid as hereinafter provided.
A. PAYMENT TERMS
Borrower shall pay to Lender:
(i) a payment of interest only on December 1, 1997;
(ii) a constant payment of $54,791.32 (the "Monthly Payment") on January 1,
1998 and on the first day of each calendar month (the "Monthly Payment
Date") thereafter to and including the first day of November, 2004,
and
(iii)the balance of the principal sum then outstanding and all
interest thereon shall be due and payable on the first day of
December, 2004 (the "Maturity Date").
Each of such payments shall be applied as follows:
(i) First to the payment of interest computed at the Applicable Interest
Rate; and
(ii) The balance applied toward the reduction of the principal sum.
B. INTEREST
The term "Applicable Interest Rate" as used in this Note shall mean
7.29% per annum.
Interest on the principal sum of this Note shall be calculated in
arrears on the basis of a three hundred sixty (360) day year consisting of
twelve (12) months of thirty (30) days each.
C. DEFAULT AND ACCELERATION
The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon and all other sums due under the Security
Instrument (hereinafter defined) and this Note (all such sums hereinafter
collectively referred to as the "Debt") shall without notice become immediately
due and payable at the option of Lender if any payment required in this Note is
not paid within ten (10) days after written notice from the Lender notifying
Borrower that the same is due or on the happening of any other default, after
the expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument (hereinafter collectively an "Event of
Default"). All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents (hereinafter defined) are hereby
made part of this Note to the same extent and with the same force as if they
were fully set forth herein. In the event that it should become necessary to
employ counsel to collect the Debt or to protect, sell or foreclose the security
hereof, Borrower also agrees to pay reasonable attorney's fees for the services
of such counsel whether or not suit be brought.
D. PREPAYMENT
Borrower shall not have the right or privilege to prepay all or any
portion of the unpaid principal balance of this Note until November 31, 2000.
Beginning December 1, 2000, provided no Event of Default exists, the principal
balance of this Note may be prepaid, in whole but not in part, upon: (i) not
less than 30 days and not more than 45 days prior written notice (the
"Prepayment Notice") to Lender specifying the scheduled payment date on which
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Note to and
including the Prepayment Date together with a payment of all interest which
would have accrued on the principal balance of this Note to and including the
first day of the calendar month immediately following the Prepayment Date, if
such prepayment occurs on a date which is not the first day of a calendar month
(the "Shortfall Interest Payment"); (iii) payment of all other sums then due
under this Note, the Security Instrument and the Other Security Documents and
(iv) if the Prepayment Date occurs prior to the date which is six months prior
to the Maturity Date payment of a prepayment consideration (the "Prepayment
Consideration") in an amount equal to the greater of: (A) one (1%) percent of
the principal amount of this Note being prepaid; and (B) the present value of a
series of payments each equal to the Payment Differential (hereinafter defined)
and payable on each monthly payment date over the remaining original term of
this Note and on the Maturity Date discounted at the Reinvestment Yield
(hereinafter defined) for the number of months remaining from the Prepayment
Date to each such monthly payment date and the Maturity Date. The term
"Reinvestment Yield" as used herein shall be equal to the lesser of (a) the
yield on the U.S. Treasury issue (primary issue) with a maturity date closest to
the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue)
with a term equal to the remaining average life of the Debt, with each such
yield being based on the bid price for such issue as published in The Wall
Street Journal on the date that is 14 days prior to the Prepayment Date set
forth in the Prepayment Notice (or, if such bid price is not published on that
date, the next preceding date on which such bid price is so published) and
converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein shall be equal to (x) the Applicable Interest Rate
minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the
principal sum outstanding on such Prepayment Date after application of the
Constant Monthly Payment (if any) due on such Prepayment Date, provided that the
Payment Differential shall in no event be less than zero. In no event, however,
shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury
obligations or otherwise. Lender shall notify Borrower of the amount, and the
basis of determination, of the required Prepayment Consideration. If a
Prepayment Notice is given by Borrower to Lender pursuant to this Article D, the
principal balance of this Note and the other sums required under this Article D
shall be due and payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the
contrary, provided no Event of Default exists, no Prepayment Consideration shall
be due in connection with a complete or partial prepayment resulting from the
application of insurance proceeds or condemnation awards pursuant to paragraphs
3 and 6 of the Security Instrument. In the event of any permitted partial
prepayment of the principal balance of this Note, the amount of principal
prepaid (but not including any Prepayment Consideration or interest) shall be
applied to the principal last due under this Note and shall not release Borrower
from the obligation to pay the Constant Monthly Payments next becoming due under
this Note and the Constant Monthly Payment shall not be adjusted or recalculated
as a result of such partial prepayment.
If a Default Prepayment (defined herein) occurs prior to the date
which is six months prior to the Maturity Date, Borrower shall pay to Lender the
entire Debt, including, without limitation, the Prepayment Consideration.
For purposes of this Note, the term "Default Prepayment" shall mean a
prepayment of the principal amount of this Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure, any sale in foreclosure or under
exercise of a power of sale or otherwise.
Notwithstanding any provision of this Article D to the contrary,
Lender may require Borrower, in lieu of a prepayment as contemplated in the
first paragraph of this Article D, to deliver to Lender the Defeasance
Collateral (hereinafter defined) in the manner contemplated herein. After
Lender's receipt of the Prepayment Notice, Lender shall, if it so elects, advise
Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be
required, in which event Borrower shall be entitled to a release of the Property
(hereinafter defined) from the lien of the Security Instrument and the Other
Security Documents upon satisfaction of the following:
I. Lender shall have received written confirmation from the rating
agencies that have rated the REMIC "real estate mortgage investment conduit"
(defined in Section 860D of the Internal Revenue Code of 1986, as amended from
time to time or any successor statute (the "Code")) ("REMIC") related to the
Securities (as defined in the Security Instrument) that such substitution of
Defeasance Collateral will not result in a downgrade, withdrawal or
qualification of the ratings then assigned to any of the Securities; provided,
however, that in the event that Lender or its agent is unable to obtain such
confirmation, the Lender or its agent shall so advise Borrower and Borrower will
then be subject to the other provisions of this Article D set forth above;
II. all accrued and unpaid interest and all other sums due under this
Note, the Security Instrument and other Security Documents up to the date of the
delivery of the Defeasance Collateral (the "Release Date"), including, without
limitation, all costs and expenses incurred by Lender or its agents in
connection with such release (including, without limitation, the review of the
proposed Defeasance Collateral and the preparation of the Defeasance Security
Agreement (as hereinafter defined) and the related documentation), shall be
fully paid on or before the Release Date; and
III. Borrower shall have delivered to Lender on or before the Release
Date:
(a) a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Defeasance
Collateral (the "Defeasance Security Agreement"), which shall provide,
among other things, that any excess received by Lender from the
Defeasance Collateral over the amount payable by Borrower hereunder
shall be refunded to Borrower promptly following each Monthly Payment
Date and the Maturity Date;
(b) direct, non-callable obligations of the United States of
America (the "US Obligations") that provide for payments prior, but as
close as possible, to all successive Monthly Payment Dates occurring
after the Release Date and the Maturity Date, with each such payment
being equal to or greater than the amount of the corresponding
Constant Monthly Payment required to be paid under this Note for the
balance of the term hereof and the amount required to be paid on the
Maturity Date (the "Defeasance Collateral"), each of which shall be
duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
wholly satisfactory to Lender (including, without limitation, such
instrument as may be required by the depository institution holding
such securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the book-entry
facilities of such institution) in order to perfect upon the delivery
of the Defeasance Security Agreement the first priority security
interest therein in favor of the Lender in conformity with all
applicable state and federal laws governing the granting of such
security interests, provided, however, that the price of the
Defeasance Collateral shall not exceed all sums that would otherwise
be due in connection with a prepayment of the principal balance of
this Note under the first paragraph of this Article D; Borrower shall
authorize and direct that the payments received from the U.S.
Obligations shall be made directly to Lender or Lender's designee and
applied to satisfy the Obligations of Borrower under this Note;
(c) evidence reasonably satisfactory to Lender that title to the
Release Property has been transferred to an entity other than
Borrower;
(d) Lender shall have received an opinion of Borrower's counsel,
dated as of the Release Date, in form reasonably satisfactory to
Lender stating, among other things, that (A) the Defeasance Collateral
and the U.S. Obligations have been duly and validly assigned and
delivered to Lender and Lender has a valid, perfected, first priority
lien and security interest in the Defeasance Collateral delivered by
Borrower, (B) the Defeasance Collateral has been validly assigned to
the REMIC, (C) the Defeasance has been effected in accordance with the
requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such
regulation may be amended or substituted from time to time) and will
not be treated as an exchange pursuant to Section 1001 of the Code and
(D) the tax qualification and status of the REMIC will not be
adversely affected or impaired as a result of the Defeasance;
(e) a certificate by Borrower's independent public accountant
certifying that all of the requirements set forth in Clause I and II
above and this Clause III have been fully satisfied;
(f) such other certificates, documents or instruments as Lender
may reasonably require; and
(g) Notwithstanding the foregoing, no such Release shall be
made, given or be deemed effective under this Article D until the
first day after expiration of the period during which the delivery to
Lender of the Defeasance Collateral in connection therewith is subject
to avoidance and recovery as a preferential transfer under 11 U.S.C.
547 in the event of a bankruptcy of the delivering person or entity
without such avoidance and recovery (which day shall be identified in
writing by Borrower at any time that Borrower delivers the Defeasance
Collateral to Lender), unless Lender receives, at the time of such
delivery, an opinion of counsel to the effect that such delivery of
the Defeasance Collateral would not be avoided and recovered as a
preferential transfer under 11 U.S.C. 547 in the event of the filing
of a bankruptcy petition in respect of the conveying or delivering
person or entity.
Upon compliance with the foregoing requirements relating to the
delivery of the Defeasance Collateral, the Property shall be released from the
lien of the Security Instrument and the Other Security Documents and the
Defeasance Collateral shall constitute collateral which shall secure this Note
and the Debt. Lender will, at Borrower's expenses, execute and deliver any
agreements reasonably requested by Borrower to release the lien of the Security
Instrument from the Property. Upon the release by the Lender in accordance with
this Article D, Borrower shall have no further right to prepay this Note
pursuant to the other provisions of this Article D or otherwise.
E. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default or upon the failure of Borrower to pay the Debt in full on the Maturity
Date, Lender shall be entitled to receive and Borrower shall pay interest
("Default Interest") on the entire unpaid principal sum at the rate of (i) the
greater of (a) two percent (2%) over the Prime Rate (hereinafter defined), as
such Prime Rate shall change from time to time or (b) five percent (5%) over the
Applicable Interest Rate then in effect or (ii) the maximum rate of interest
which Borrower may by law pay, whichever is lower, to be computed from the
occurrence of the Event of Default until the actual receipt and collection of
the Debt (the "Default Interest Rate"). This charge shall be added to the Debt,
and shall be deemed secured by the Security Instrument. This clause, however,
shall not be construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy accruing to
Lender by reason of the occurrence of any Event of Default. The term "Prime
Rate" as used in this Note shall mean the daily "prime rate" published in The
Wall Street Journal from the date of the Event of Default, as such "prime rate"
shall change from time to time. In the event The Wall Street Journal ceases to
publish the "prime rate" then Lender shall select an equivalent publication
which publishes such "prime rate"; and in the event such prime rates are no
longer generally published or are limited, regulated or administered by a
governmental or quasi-governmental body, then Lender shall select a comparable
interest rate index.
F. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Mortgage and Security Agreement dated as of the date hereof in the principal sum
of $8,000,000 given by Borrower to Lender encumbering the fee estate of Borrower
in certain premises located in Hamilton County, State of Ohio and other
property, as more particularly described therein and intended to be duly
recorded in said County. The term "Other Security Documents" as used in this
Note shall mean all and any of the documents other than this Note or the
Security Instrument now or hereafter executed by Borrower and/or others and by
or in favor of Lender, which wholly or partially secure or guarantee payment of
this Note. Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Lender" and "Borrower" shall include their
respective successors, assigns, heirs, executors and administrators.
G. SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate shall be deemed to be immediately
reduced to such maximum rate and all previous payments in excess of the maximum
rate shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder.
H. LATE CHARGE
If any sum payable under this Note is not received by Lender within
five (5) days of the date on which it is due, without taking into account or
including within said five (5) day period any applicable notice or grace period,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law to defray the expenses incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment and such amount shall be secured by the Security Instrument
and the Other Security Documents. Nothing contained herein is intended to
affect the rights of Lender in and to any Default Interest due to Lender
pursuant to the provisions of paragraph E hereof entitled "Default Interest".
I. MISCELLANEOUS
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
If Borrower consists of more than one person or party, the obligations
and liabilities of each such person or party shall be joint and several. The
foregoing sentence, however, is not intended to affect the limited liability of
any limited partner or stockholder of Borrower afforded by applicable
partnership or corporate law.
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment. No
release of any security for the Debt or extension of time for payment of this
Note or any installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Security Instrument or the Other Security Documents
made by agreement between Lender and any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other who may become liable for the payment of
all or any part of the Debt, under this Note, the Security Instrument or the
Other Security Documents.
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
This Note shall be governed and construed in accordance with the laws
of the State of New York and the applicable laws of the United States of
America.
J. EXCULPATION
Lender shall not enforce the liability and obligation of Borrower to
perform and observe the obligations contained in this Note or the Security
Instrument by any action or proceeding wherein a money judgment shall be sought
against Borrower or any general or limited partner or member of Borrower
(hereinafter collectively referred to as the "Exculpated Parties"), except that
Lender may bring a foreclosure action, action for specific performance or other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Note, the Security Instrument, the Other Security Documents, and the
interest in the Property, the Rents (as defined in the Security Instrument) and
any other collateral given to Lender created by this Note, the Security
Instrument and the Other Security Documents; provided, however, that any
judgment in any such action or proceeding shall be enforceable against the
Exculpated Parties only to the extent of Borrower's interest in the Property, in
the Rents and in any other collateral given to Lender. Lender, by accepting
this Note and the Security Instrument, agrees that it shall not sue for, seek or
demand any deficiency judgment against the Exculpated Parties in any such action
or proceeding, under or by reason of or under or in connection with the Security
Instrument, the Other Security Documents or this Note. The provisions of this
paragraph shall not, however, (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Security Instrument, the Other
Security Documents or this Note; (ii) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under the Security Instrument; (iii) affect the validity or enforceability
of any guaranty made in connection with the Security Instrument, this Note, or
the Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver upon the occurrence and continuance of an Event of
Default; (v) impair the enforcement of the Assignment of Leases and Rents dated
the date hereof given by Borrower to Lender executed in connection herewith;
(vi) impair the right of Lender to bring suit with respect to fraud or
intentional misrepresentation by Borrower, the Exculpated Parties or any other
person or entity in connection with the Security Instrument, this Note or the
Other Security Documents; (vii) impair the right of Lender to obtain the Rents
received by any of the Exculpated Parties after the occurrence and continuance
of an Event of Default; (viii) impair the right of Lender to bring suit with
respect to the Exculpated Parties' misappropriation of tenant security deposits
or Rents collected in advance; (ix) impair the right of Lender to obtain
insurance proceeds or condemnation awards due to Lender under the Security
Instrument; (x) impair the right of Lender to enforce the provisions of sub-
paragraphs 36(g) through 36(k), inclusive and paragraphs 34 and 35 of the
Security Instrument against the Borrower (excluding the general and limited
partners or members of Borrower); or (xi) impair the right of Lender to recover
any part of the Debt from the Borrower (excluding the general and limited
partners or members of Borrower) following the breach of any covenant contained
in paragraphs 9 or 55 of the Security Instrument.
THIS NOTE, AND THE OTHER SECURITY DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN LENDER, BORROWER AND THE OTHER RESPECTIVE
PARTIES HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS
BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, Borrower has duly executed this Note under seal as
of the day and year first above written.
ASHLEY WOODS, L.L.C., a South Carolina limited
liability company
By: DAVIDSON DIVERSIFIED REAL ESTATE I, L.P., a
Delaware limited partnership, its sole member
By: DAVIDSON DIVERSIFIED PROPERTIES, INC., a
Tennessee corporation, its general partner
By: /s/ Robert D. Long, Jr.
Name: Robert D. Long, Jr.
Title: Vice President
STATE OF South Carolina )
)SS:
COUNTY OF Greenville )
This instrument was acknowledged before me on the 20th day of
November, 1997, by Robert D. Long, Jr., who is the Vice President of DAVIDSON
DIVERSIFIED PROPERTIES, INC., a Tennessee corporation, on behalf of said
corporation, which corporation is the general partner of DAVIDSON DIVERSIFIED
REAL ESTATE I, L.P., a Delaware limited partnership which is the sole member and
acknowledged this instrument on behalf of ASHLEY WOODS, L.L.C., a South Carolina
limited liability company.
[SEAL]
/s/ S. Tamara T. Burdick
Notary Public in and for the
State of South Carolina
My Commission Expires: Print name of Notary Public
July 22, 2007
S. Tamara T. Burdick
