<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission file number 0-11962
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CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
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(Name of small business issuer in its charter)
Maryland 52-1311532
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 468-9200
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE N/A
- ----------------------------------------- ---------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
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(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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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 $2,283,991.
The limited partner interests of the Registrant are not traded in any
market. Therefore, the limited partner interests had neither a market selling
price nor an average bid or asked price within the 60 days prior to the date of
this filing.
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
1999 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-8
PART II
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Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . II-1
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-3
Item 7. Financial Statements . . . . . . . . . . . . . . II-10
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-10
PART III
--------
Item 9. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . III-2
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-2
Item 12. Certain Relationships and Related Transactions . III-3
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . III-4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . III-6
Financial Statements . . . . . . . . . . . . . . . . . . . III-9
<PAGE>
PART I
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ITEM 1. BUSINESS
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Capital Realty Investors-III Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on June 27, 1983. On November 7, 1983, the Partnership
commenced offering 60,000 units of limited partnership interests through a
public offering which was managed by Merrill Lynch, Pierce, Fenner and Smith,
Incorporated. The Partnership closed the offering in January 1984 when it
became fully subscribed.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI.
Services for the Partnership are performed by CRI, as the Partnership has no
employees of its own.
The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships). The Partnership
originally made investments in 37 Local Partnerships. As of December 31, 1999,
the Partnership had investments in 31 Local Partnerships. Each of these Local
Partnerships owns or owned a federal or state government-assisted or
conventionally financed apartment complex, which provides housing principally to
the elderly and/or to individuals and families of low or moderate income. The
original objectives of these investments, not necessarily in order of
importance, were to:
(1) preserve and protect the Partnership's capital;
(2) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners may use to offset income from other sources;
(3) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(4) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.
See Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.
The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, applied for
applicable mortgage insurance and/or subsidies, and, in general, remain as the
local general partners in the Local Partnerships. However, in the event of
non-compliance with the Local Partnerships' partnership agreements, the local
general partner may be removed and replaced with another local general partner
or with an affiliate of the Partnership's Managing General Partner. As a result
of its investment in the Local Partnerships, the Partnership became the
principal limited partner in 31 (27 as of December 31, 1999) of these Local
Partnerships. As a limited partner, the Partnership's legal liability for
obligations of the Local Partnership is limited to its investment. In six (four
as of December 31, 1999) Local Partnerships, the Partnership invested as a
limited partner in intermediary partnerships which, in turn, have invested as
general partners in the Local Partnerships. In most cases, an affiliate of the
Managing General Partner of the Partnership is also a general partner of the 27
Local Partnerships and the four intermediary partnerships. In most cases, the
local general partners of the Local Partnership retain responsibility for
developing, constructing, maintaining, operating and managing the projects. The
I-1
<PAGE>
PART I
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ITEM 1. BUSINESS - Continued
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local general partners and affiliates of the Managing General Partner may
operate other apartment complexes which may be in competition for eligible
tenants with the Local Partnerships' apartment complexes.
Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex that must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the Managing
General Partner believes there to be no material risk of market competition in
the operations of the apartment complexes described below which would adversely
impact the Partnership, except in specific circumstances as described in Part
II, Item 6, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
I-2
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
A schedule of the apartment complexes owned by Local Partnerships in
which the Partnership has an investment follows.
SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ------------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Arboretum Village $ 12,813,116 Conventional 308 0 --
Lisle, IL
Audubon Towers 3,415,475 New Jersey Housing and Mortgage 124 124 02/11/20
Audubon, NJ Finance Agency (NJHMFA)/8-HUD
Bartley Manor 747,404 Federal Housing Admin. (FHA)/ 70 69 05/31/00 (4)
Superior, WI 236
Briar Crest I (4) 534,761 FNMA/236 53 53 06/30/00 (4)
Niles, MI
Briar Crest II (4) 579,505 FNMA/236 49 49 06/30/00
Niles, MI
Briar Hills 556,176 FNMA/236 50 33 09/30/00 (4)
South Haven, MI
College Park 1,155,000 PNC Bank 100 100 05/01/08
Meridian, MS
Congress Plaza 2,246,495 Connecticut Housing Finance 101 100 02/28/04
Bridgeport, CT Agency/FHA Sect. 231/HUD
Glen Agnes 4,144,828 California Housing Finance 149 149 01/27/18
Fresno, CA Agency (CHFA)
Greeley Manor (4)(5) 1,219,251 WMF-Huntoon, Paige Associates 128 119 06/30/00 (4)
Greeley, CO Ltd./236/FHA
Heritage Estates I 2,650,408 Missouri Housing Development 228 0 --
St. Louis, MO Agency (MHDA)/Section 221(d)(4)
of the National Housing Act (NHA)
Heritage Estates II 2,132,968 MHDA/Section 221 (d)(4) of the 160 0 --
St. Louis, MO NHA
Highland Manor 1,369,713 Secretary of HUD 111 111 05/12/00 (4)(6)
Birmingham, AL
</TABLE>
(Continued)
I-3
<PAGE>
PART I
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ITEM 1. BUSINESS - Continued
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SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ------------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Indian Hills $ 495,153 FNMA/236 of the NHA/Sect. 8 40 24 09/30/00 (4)
Townhouses
Dowagiac, MI
Lakewood Apts. 817,622 Rural Housing & Comm. Dev. 50 50 07/31/00 (4)
Eufaula, AL Services (RHCD)
Meadow Lanes Apts. 1,693,425 Michigan State Housing Develop- 118 0 --
Holland, MI ment Authority/236 of the NHA
Monterey/Hillcrest 13,440,122 221(d)(4) of the NHA/FHA 300 60 12/13/03
Waukesha, WI
O'Farrell Towers 7,905,792 CHFA/Section 8 101 101 09/20/03
San Francisco, CA
Rolling Green at 8,623,478 Massachusetts Housing Finance 304 132 09/28/10
Milford (4) Agency/236 of the NHA
Milford, MA
Tyee Apts. 1,263,273 First National Bank of 100 40 07/31/00
Anchorage, AK Anchorage/236/FHA 16 11/30/03
Victorian Towers 5,000,114 NJHMFA/Section 8 204 27 12/01/23
Cape May, NJ
Villa Mirage I 2,096,387 CHFA/Section 8 50 50 12/01/05
Rancho Mirage, CA
Villa Mirage II 2,080,706 CHFA/Section 8 48 48 10/15/05
Rancho Mirage, CA
Village Green 329,342 Federal Housing Admin./ 36 36 04/30/00 (4)
Reedsburg, WI 236 of FHA
Village Square 444,282 Federal Housing Admin./ 48 48 04/30/00 (4)
Barabou, WI 236 of FHA
Village Squire I & II 8,807,543 Conventional 377 0 --
Canton, MI
</TABLE>
(Continued)
I-4
<PAGE>
PART I
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ITEM 1. BUSINESS - Continued
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SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ------------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Village Squire III $ 5,682,534 Conventional 224 0 --
Canton, MI
Walsh Park 4,841,244 IHDA 134 134 11/01/14
Chicago, IL
Winchester Gardens 2,925,333 HUD 206 202 10/05/00 (4)
Apts.
Columbus, OH
Windham Village 2,391,138 CHFA 50 44 10/31/15
Santa Rose, CA
Woodside Village 2,401,666 FNMA/236 180 114 08/31/00 (4)
Anchorage, AK
------------ ------ ------
Totals 31 $104,804,254 4,201 2,033
============ ====== ======
</TABLE>
I-5
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Year Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arboretum Village 93% 95% 94% 92% 94% $ 9,338 $ 9,238 $ 8,724 $ 8,677 $ 8,363
Lisle, IL
Audubon Towers 100% 100% 100% 100% 100% 9,158 9,161 9,166 9,164 9,129
Audubon, NJ
Bartley Manor 93% 93% 93% 98% 90% 5,656 5,356 5,313 5,116 5,024
Superior, WI
Briar Crest I 96% 97% 100% 98% 98% 5,333 4,784 5,012 4,844 4,611
Niles, MI
Briar Crest II 94% 96% 100% 100% 100% 5,327 4,814 4,986 4,950 4,579
Niles, MI
Briar Hills 92% 94% 96% 94% 96% 4,465 4,461 4,430 4,446 4,105
South Haven, MI
College Park 99% 100% 100% 100% 100% 4,937 4,955 4,944 4,927 4,856
Meridian, MS
Congress Plaza 100% 100% 100% 100% 100% 10,534 10,535 10,511 10,524 10,507
Bridgeport, CT
Glen Agnes 98% 95% 95% 94% 94% 7,836 7,634 7,623 7,654 7,742
Fresno, CA
Greeley Manor (5) 95% 100% 98% 97% 97% 3,629 3,573 3,159 3,087 2,928
Greeley, CO
Heritage Estates I 100% 99% 100% 98% 98% 5,176 4,940 4,776 4,722 4,629
St. Louis, MO
Heritage Estates II 100% 100% 100% 94% 98% 5,193 4,968 4,764 4,663 4,605
St. Louis, MO
Highland Manor 100% 98% 97% 100% 99% 6,515 7,584 9,188 9,011 8,739
Birmingham, AL
Indian Hills 100% 100% 100% 95% 98% 5,272 5,070 5,002 4,847 4,653
Townhouses
Dowagiac, MI
Lakewood Apts. 100% 98% 98% 100% 100% 4,305 4,269 4,363 4,264 4,200
Eufaula, AL
</TABLE>
(Continued)
I-6
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Year Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Meadow Lanes Apts. 97% 98% 93% 96% 98% $ 6,216 $ 6,174 $ 6,056 $ 5,985 $ 5,694
Holland, MI
Monterey/Hillcrest 96% 92% 94% 90% 94% 8,559 8,992 8,745 8,742 8,413
Waukesha, WI
O'Farrell Towers 100% 100% 100% 100% 99% 14,420 14,371 14,079 14,316 14,391
San Francisco, CA
Rolling Green at 97% 97% 99% 97% 98% 9,717 8,247 8,012 7,663 7,457
Milford
Milford, MA
Tyee Apts. 98% 100% 84% 94% 98% 8,947 8,707 8,676 8,565 8,311
Anchorage, AK
Victorian Towers 96% 99% 97% 100% 100% 5,196 4,989 4,902 4,783 4,588
Cape May, NJ
Villa Mirage I 100% 100% 100% 98% 100% 9,522 9,699 9,671 9,660 9,560
Rancho Mirage, CA
Villa Mirage II 100% 100% 100% 98% 100% 9,580 9,580 9,600 9,702 9,673
Rancho Mirage, CA
Village Green 92% 97% 89% 98% 94% 3,849 3,886 3,764 3,744 3,761
Reedsburg, WI
Village Square 83% 94% 98% 95% 94% 4,362 4,243 4,275 4,023 3,988
Barabou, WI
Village Squire I 97% 90% 92% 91% 98% 6,152 5,902 5,858 5,898 5,682
& II
Canton, MI
Village Squire III 97% 93% 96% 94% 96% 6,199 5,820 5,779 5,813 5,567
Canton, MI
Walsh Park 96% 99% 98% 99% 100% 8,940 11,653 11,301 11,083 10,777
Chicago, IL
Winchester Gardens 93% 90% 99% 100% 98% 4,001 4,136 4,452 4,447 4,405
Apts.
Columbus, OH
</TABLE>
(Continued)
I-7
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Year Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Windham Village 100% 100% 100% 100% 100% $ 10,572 $ 10,474 $ 10,438 $ 10,439 $ 10,396
Santa Rose, CA
Woodside Village 91% 86% 84% 84% 90% 9,295 8,420 8,576 8,927 9,145
Anchorage, AK
- ---------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 31 97% 97% 97% 97% 97% $ 7,039 $ 6,988 $ 6,972 $ 6,925 $ 6,790
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</TABLE>
(1) All properties are multifamily housing complexes. No single
tenant/resident rents 10% or more of the rentable square footage.
Residential leases are typically one year or less in length, with varying
expiration dates, and substantially all rentable space is for residential
purposes.
(2) The amounts provided are the balances of first mortgage loans payable of
the Local Partnerships as of December 31, 1999.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
(4) The Section 8 contract expiration date reflects an extension from the
original expiration date, in accordance with Federal legislation.
(5) In January 2000, the Partnership's interest in Greeley Manor was
transferred to the purchase money noteholder.
(6) This property entered the Mark-to-Market program in May 1998. The Section
8 HAP contract will be renewed annually.
On June 30, 1998, the Partnership sold its interest in Southmoor. See the
notes to the consolidated financial statements for additional information
concerning the sale.
In January 2000, the Partnership's interest in Greeley Manor was
transferred to the noteholder. See the notes to the consolidated financial
statements for additional information concerning the transfer.
The local managing general partner of O'Farrell has executed a contract for
the sale of the property, with a projected closing date of May 2000. See the
notes to the consolidated financial statements for additional information
concerning the sale.
I-8
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
In January 2000, the Partnership received notification from the local
managing general partner of a potential sale of the Rolling Green at Milford
property. See the notes to the consolidated financial statements for additional
information concerning the potential sale.
The Partnership has agreed to transfer its interests in College Park in
full satisfaction of its purchase money note indebtedness. See the notes to the
consolidated financial statements for additional information concerning the
transfer.
Subject to regulatory approval, the Partnership intends to transfer its
interests in Glen Agnes for $25,000 and the assumption of the purchase money
note. See the notes to the consolidated financial statements for additional
information concerning the transfer.
ITEM 2. PROPERTIES
----------
Through its ownership of limited partner interests in Local Partnerships,
Capital Realty Investors-III Limited Partnership indirectly holds an interest in
the underlying real estate. See Part I, Item 1 for information concerning these
properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In March 1999, the Partnership received notice of a collection action on
purchase money notes related to College Park. See the notes to the consolidated
financial statements for additional information concerning the purchase money
notes.
In November 1999, the holder of the purchase money note related to Glen
Agnes filed an action to foreclose on the Partnership's interest in the Local
Partnership. See the notes to the consolidated financial statements for
additional information concerning the purchase money note.
The Partnership's affiliate, C.R.H.C., Incorporated (CRHC), removed the
Local Managing General Partner (LMGP) of both Villa Mirage I and Villa Mirage II
in December 1999, due to its failure to address problems identified in the 1998
audited financial statements of those lower tier partnerships, including
overpayments to itself and its affiliated property management company. The
removed LMGP and its shareholder and another unrelated Local General Partner
filed lawsuits against the Partnership and CRHC with respect to both Villa
Mirage I and II seeking, among other things, an accounting and dissolution of
the partnerships and damages for alleged breaches of the respective partnership
agreements. Subsequently, the same plaintiffs filed injunction actions seeking
to compel the sales of the properties owned by Villa Mirage I and II. The
Partnership is defending both actions vigorously. See the notes to the
consolidated financial statements for additional information concerning these
proceedings.
I-9
<PAGE>
PART I
------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
I-10
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) On November 1, 1999, Odd Lot Liquidity Fund, LLC (Odd Lot), an
affiliate of an additional limited partner of the Partnership,
initiated an unregistered tender offer to purchase no more than 4.9%
of the outstanding units of additional limited partnership interest
(Units) of CRI-III at a price of $30 per Unit. Odd Lot, which is
unaffiliated with the Partnership, stated that it made the offer for
the express purpose of holding the Units for investment purposes and
not with a view to resale. The price offered was determined solely at
the discretion of Odd Lot and did not necessarily represent the fair
market value of each Unit. The Odd Lot offer expired on December 3,
1999, and as of March 28, 2000, the entity to which Odd Lot assigned
its newly acquired Units held 1.3% of the Units in the Partnership.
Other than any other tender offers, it is not anticipated that there
will be any formal market for resale of Units. As a result, investors
may be unable to sell or otherwise dispose of their Units in the
Partnership.
During 1999, a number of investors sold their Units in the Partnership
to other investors, as a result of an unregistered tender offer made
in December 1998. If more than 5% of the total outstanding Units in
the Partnership are transferred in any one calendar year (not counting
certain exempt transfers), the Partnership could be taxed as a
"publicly traded partnership," with potentially severe tax
implications for the Partnership and its investors. Specifically, the
Partnership would be taxed as a corporation and the income and losses
from the Partnership would no longer be considered a passive activity.
From January 1, 1999 through June 1, 1999, approximately 4.9% of
outstanding Units were sold. Accordingly, to remain within the 5%
safe harbor, effective June 1, 1999, the General Partner of the
Partnership halted recognition of any transfers that would exceed the
safe harbor limit through December 31, 1999. As a result, transfers
of Units due to sales transactions were not recognized by the
Partnership between June 1 and December 31, 1999.
(b) As of March 28, 2000 there were approximately 5,100 registered holders
of additional limited partnership interests in the Partnership.
(c) On November 12, 1999, the Partnership made a cash distribution of
$599,070 ($10.00 per additional limited partnership interest) to the
Additional Limited Partners out of available cash flow.
On November 23, 1998, the Partnership made a cash distribution of
$599,650 ($10.00 per additional limited partnership interest) to the
Additional Limited Partners. The distribution was a result of the
sale of the property relating to the Partnership's investment in
Southmoor and the refinancing of the Arboretum Village first mortgage
loan.
The Partnership received distributions of $1,069,289 and $6,214,806
from the Local Partnerships during 1999 and 1998, respectively. Some
of the Local Partnerships operate under restrictions imposed by
certain federal and/or state government agencies that limit the cash
return available to the Partnership.
II-1
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors-III Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.
General
-------
The Partnership has invested, through Local Partnerships, primarily in
federal or state government-assisted apartment complexes (the properties)
intended to provide housing to low and moderate income tenants. In conjunction
with such governmental assistance, which includes federal and/or state financing
at below-market interest rates and rental subsidies, the Local Partnerships
agreed to regulatory limitations on (i) cash distributions, (ii) use of the
properties and (iii) sale or refinancing. These limitations typically were
designed to remain in place for the life of the mortgage.
The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties, through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.
The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction or the sale of existing low income housing properties
by limiting the use of passive loss deductions. Therefore, the Managing General
Partner continues to concentrate on transferring the source of investment yield
from tax benefits to cash flow wherever possible, and on potentially enhancing
the ability of the Partnership to share in the appreciated value of the
properties.
The acquisition of interests in certain Local Partnerships was paid for in
part by purchase money notes of the Partnership. The purchase money notes are
nonrecourse obligations of the Partnership which typically mature 15 years from
the date of acquisition of the interest in a particular Local Partnership, and
are generally secured by the Partnership's interests in the Local Partnerships.
C.R.I., Inc. (the Managing General Partner) has been working to develop a
strategy to sell certain properties by utilizing opportunities presented by
federal affordable housing legislation, favorable financing terms and
preservation incentives available to not-for-profit purchasers. The Managing
General Partner intends to utilize all or part of the Partnership's net proceeds
(after a partial distribution to limited partners) received from the sales of
properties to fund reserves for paying at maturity, prepaying or purchasing
prior to maturity, at a discount where possible, currently outstanding purchase
money notes. The Managing General Partner believes that this represents an
opportunity to reduce the Partnership's long-term obligations.
II-2
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop strategies to sell or refinance certain properties pursuant to programs
developed by these agencies. These programs may include opportunities to sell a
property to a qualifying purchaser who would agree to maintain the property as
low to moderate income housing in perpetuity, or to refinance a property, or to
obtain supplemental financing. The Managing General Partner continues to
monitor certain state housing agency programs, and/or programs provided by
certain lenders, to ascertain whether the properties would qualify within the
parameters of a given program and whether these programs would provide an
appropriate economic benefit to the limited partners of the Partnership.
Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based Section 8 Rental Housing Assistance Payments
(HAP) provided by the U.S. Department of Housing and Urban Development (HUD)
pursuant to Section 8 HAP contracts. Current legislation allows all expired
Section 8 HAP contracts with rents at less than 100% of fair market rents to be
renewed for one year. Expiring Section 8 HAP contracts with rents that exceed
100% of fair market rents could be renewed for one year, but at rents reduced to
100% of fair market rents (Mark-to-Market). All expiring Section 8 HAP
contracts with rents exceeding comparable market rents, and properties with
mortgage loans insured by the Federal Housing Administration (FHA), became
subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property may undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This may
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage loan
will be converted to a non-performing but accruing (soft) second mortgage loan.
In many instances, the Mark-to-Market rental rate restructuring may require
the write down of an FHA-insured mortgage loan, which would trigger cancellation
of indebtedness income to the partners, a taxable event, even though no actual
cash is received. Additionally, if the existing first mortgage loan is
bifurcated into a first and second mortgage loan, the newly created second
mortgage loan will accrue interest at a below-market rate; however, the Internal
Revenue Service issued a ruling in July 1998 that concluded that the below-
market rate of interest will not generate additional ordinary income. Each
property subject to Mark-to-Market will be affected in a different manner, and
it is very difficult to predict the exact form of restructuring, or potential
tax liabilities to the limited partners, at this time.
There is a new HUD-sponsored program generally referred to as "Mark-up-to-
Market." Under this program, properties with expiring Section 8 contracts that
are located in high-rent areas as defined by HUD are eligible for rent increases
which would be necessary to bring Section 8 rents in line with market rate
rents. For properties with subsidized FHA loans, the rents are adjusted to take
into account the benefits the property is already receiving from the below-
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
market interest rate by means of a HUD determined Interest Subsidy Adjustment
Factor. The purpose of this program is to incentivize owners of properties with
expiring Section 8 contracts not to convert these properties to market rate
housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract with
HUD, subject to the annual availability of funding by Congress. In addition,
property owners who enter into the Mark-up-to-Market program will receive a
waiver from the cash flow restriction imposed on the property by the limited
dividend limitation.
The Managing General Partner is considering new strategies to deal with the
ever changing environment of affordable housing policy. The Section 236 and
Section 221(d)(3) mortgage loans may be eligible for pre-payment in their 18th
year or later. Properties with expiring Section 8 HAP contracts may become
convertible to market-rate apartment properties. Currently, there are few
lenders that will provide financing either to prepay existing mortgage loans of
these types or provide additional funds to allow a property to convert to
market-rate units. Where opportunities exist, the Managing General Partner will
continue to work with the Local Partnerships to develop strategies that make
economic sense for all parties involved.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1999 the Partnership had approximately 5,100 investors
who subscribed to a total of 60,000 units of limited partnership interests in
the original amount of $60,000,000. The Partnership originally made investments
in 37 Local Partnerships, of which 31 remain at December 31, 1999. The
Partnership's liquidity, with unrestricted cash resources of $10,045,683 as of
December 31, 1999, along with anticipated future cash distributions from the
Local Partnerships, is expected to be adequate to meet its current and
anticipated operating cash needs. During 1999 and 1998, the Partnership
received cash distributions of $1,069,289 and $6,214,806, respectively, from the
Local Partnerships. As of March 28, 2000, there are no material commitments for
capital expenditures.
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$21,994,384 (exclusive of unamortized discount on purchase money notes of
$573,464) plus accrued interest of $49,515,184 as of December 31, 1999, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. Purchase money notes in the
aggregate principal amount of $1,700,000, which originally matured on December
31, 1997, have been extended until January 31, 2001. Purchase money notes in
the aggregate principal amount of $364,481 matured January 1, 1999 and were paid
off, at a discount, on February 5, 1999. Purchase money notes in the original
aggregate principal amount of $1,760,000 matured on January 1, 1999 and were
extended to January 1, 2004. Purchase money notes in the aggregate principal
amount of $900,000 matured on January 1, 1999 and the parties are in the process
of negotiating an extension of these notes until January 1, 2004. Purchase
money notes in the aggregate principal amounts of $5,280,000 and $5,290,000
matured in January and February, 1999, respectively, and were not paid or
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
extended. Purchase money notes in the original aggregate principal amount of
$775,000 matured on January 1, 1999, were partially paid, and have been extended
to January 1, 2002. Purchase money notes in the original aggregate principal
amount of $1,275,000 matured on January 1, 1999, and have been extended to June
30, 2000. Purchase money notes in the aggregate principal amount of $734,500
matured on August 1, 1999, and had been extended until January 3, 2000, at which
time the Partnership's interest in the related Local Partnership was transferred
to the noteholders in exchange for the cancellation of all principal and accrued
interest due under the notes. Purchase money notes in the aggregate principal
amount of $850,000 matured on June 30, 1999 and have not been paid or extended.
Purchase money notes in the aggregate principal amount of $1,365,000 matured on
October 1, 1999 and were paid off at a discount in January 2000. The remaining
purchase money notes mature during 2002 through 2015. See the notes to the
consolidated financial statements for additional information concerning these
purchase money notes.
The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership. The Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not adversely impact the Partnership's
financial condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with maturing
purchase money notes not produce sufficient value to satisfy the related
purchase money notes, the Partnership's exposure to loss is limited because the
amount of the nonrecourse indebtedness of each of the maturing purchase money
notes exceeds the carrying amount of the investment in, and advances to, each of
the related Local Partnerships. Thus, even a complete loss of the Partnership's
interest in one of these Local Partnerships would not have a material adverse
impact on the financial condition of the Partnership. See further discussions
of certain purchase money notes in the notes to the consolidated financial
statements.
The following chart presents information related to purchase money notes
which have matured, have been extended to mature, or are scheduled to mature
through December 31, 2000, and which remain unpaid or unextended as of March 28,
2000. Excluded from the following chart are purchase money notes which matured
through December 31, 1999, and which have been paid off, cancelled, or extended
on or before March 28, 2000.
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investment in
Principal Interest and Advances to
Number of Balance Balance Underlying Local
Purchase Underlying as of as of Partnerships as
Money Note Local Percentage December Percentage December Percentage of December Percentage
(PMN) Maturity Partnerships of Total 31, 1999 of Total 31, 1999 of Total 31, 1999 of Total
- ---------------- ------------ ---------- ----------- ---------- ----------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 1999 6 19% $10,590,000 48% $22,110,410 45% $ 6,464,402 33%
2nd Quarter 1999 1 3% 850,000 4% 1,665,072 3% 1,375,042 7%
2nd Quarter 2000 1 3% 1,275,000 6% 3,513,449 7% 4,828,924 24%
---- ----- ----------- ----- ----------- ----- ------------ -----
Total through
12/31/2000 8 25% $12,715,000 58% $27,288,931 55% $ 12,668,368 64%
==== ===== =========== ===== =========== ===== ============ =====
Total, Local
Partnerships 31 100% $21,994,384 100% $49,515,184 100% $ 19,683,671 100%
==== ===== =========== ===== =========== ===== ============ =====
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, paying off certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes,
refinancing the respective properties' underlying debt or selling the underlying
real estate and using the Partnership's share of the proceeds to pay or buy down
certain purchase money note obligations. Although the Managing General Partner
has had some success applying these strategies in the past, the Managing General
Partner cannot assure that these strategies will be successful. Based on
discussions with the holders of purchase money notes maturing through December
31, 2000, the Managing General Partner can state that, in certain instances, the
noteholders do not appear to be willing to negotiate any extension or discounted
payoff. In such instances, upon maturity of the purchase money notes, the
noteholders may have the right to foreclose on the Partnership's interest in the
related Local Partnerships. In the event of a foreclosure, the excess of the
nonrecourse indebtedness over the carrying amount of the Partnership's
investment in the related Local Partnership would be deemed cancellation of
indebtedness income, which would be taxable to Limited Partners at a federal tax
rate of up to 39.6%. Additionally, in the event of a foreclosure, the
Partnership would lose its investment in the Local Partnership and, likewise,
its share of any future cash flow distributed by the Local Partnership from
rental operations, mortgage debt refinancings, or the sale of the real estate.
Of the 31 Local Partnerships in which the Partnership is invested as of both
December 31, 1999 and December 31, 1998, the eight Local Partnerships with
associated purchase money notes which mature through December 31, 2000 and which
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
remain unpaid or unextended as of March 28, 2000, represent the following
percentages of the Partnership's total distributions received from Local
Partnerships and share of income from Local Partnerships.
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
For the Years Distributions Received Income from
Ending from Local Partnerships Local Partnerships
----------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 20% $1,138,683
December 31, 1998 6% $1,203,021
</TABLE>
The Managing General Partner continues to address the maturity and
impending maturity of its debt obligations and seeks strategies which will
provide the most favorable outcome to the Additional Limited Partners. However,
there can be no assurance that these strategies will be successful.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1999 and 1998, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
decreased during 1999 primarily due to cash used for the discounted payoff of a
purchase money note, and for the partial paydown of two purchase money notes, as
discussed in the notes to the consolidated financial statements.
The Partnership made a cash distribution of $599,070 ($10.00 per additional
limited partnership interest) to the Additional Limited Partners from cash
resources accumulated from operations and distributions from partnerships on
November 12, 1999, to holders of record as of October 1, 1999. The Managing
General Partner intends to reserve all of the Partnership's remaining
undistributed cash for the possible repayment, prepayment or retirement of the
Partnership's outstanding purchase money notes related to the Local
Partnerships.
Results of Operations
---------------------
1999 Versus 1998
- ----------------
The Partnership's net loss for the year ended December 31, 1999 increased
from the year ended December 31, 1998 primarily due to a decrease in share of
income from partnerships related to receipt of proceeds from the refinancings of
the loans secured by first mortgages on Arboretum Village and Rolling Green-
Milford in April 1998 and July 1998, respectively. Contributing to the loss
were an extension fee related to one of the purchase money notes, an increase in
general and administrative expenses due to higher reimbursed payroll costs, and
a decrease in interest income due to decreased cash and cash equivalent
balances. Off-setting the Partnership's net loss were a decrease in interest
expense due to less amortization of discount on purchase money notes during 1999
II-7
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
and an extraordinary gain from extinguishment of debt as a result of the
discounted payoff of the purchase money note related to Lakewood Apartments in
February 1999.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's share of income from Local Partnerships for the
years ended December 31, 1999 and 1998 did not include losses of $958,378 and
$1,134,644, respectively. The Partnership's net loss recognized from the Local
Partnerships is generally expected to decrease in subsequent years as the
Partnership's investments in the Local Partnerships are reduced to zero.
Accordingly, excludable losses are generally expected to increase.
Distributions of $324,528 and $5,269,903 received from eight and ten Local
Partnerships during 1999 and 1998, respectively, were offset against the
respective years' recorded losses because these amounts were in excess of the
Partnership's investment.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which the Partnership's real
property investments were purchased. Future inflation could allow for
appreciated values of the Local Partnerships' properties over an extended period
of time as rental revenue and replacement values gradually increase.
The following table reflects the combined rental revenues of the properties
for the five years ended December 31, 1999. Combined rental revenue amounts for
years prior to 1999 have been adjusted to exclude rental revenues from those
properties in which the Partnership no longer is invested at December 31, 1999.
II-8
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C>
Combined Rental
Revenue $30,406,116 $29,945,255 $29,650,481 $29,483,376 $28,830,656
Annual Percentage
Increase 1.5% 1.0% 0.6% 2.3%
</TABLE>
Year 2000 Computer Issue
------------------------
The Partnership experienced little to no interruption in its computer
operations, or otherwise, as a result of the transition from the year 1999 to
2000. The Partnership's expenses associated with upgrading and testing its
internal hardware and software systems, data interfaces, business operations and
non-information technology functions which could have been affected by the
transition were not material.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-9
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and (c)
The Partnership has no directors, executive officers or significant
employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the
Partnership, are as follows:
William B. Dockser, 63, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 53, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Susan R. Campbell, 41, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
Melissa Cecil Lackey, 44, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required in these sections is incorporated herein by
reference to Notes 3 and 4 of the notes to the consolidated financial
statements contained in Part III.
(h) Termination of employment and change in control arrangements.
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
The following table sets forth certain information concerning any
person (including any "group") who is known to the Partnership to be
the beneficial owner of more than five percent of the issued and
outstanding units of additional limited partnership interest (Units)
at March 28, 2000.
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- -----------
Equity Resources Group, 4,737 units 7.9%
Incorporated, et. al.
14 Story Street
Cambridge, MA 02138
(b) Security ownership of management.
The following table sets forth certain information concerning all
Units beneficially owned, as of March 28, 2000, by each director and
by all directors and officers as a group of the Managing General
Partner of the Partnership.
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- -----------
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (4 persons) None 0%
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 10 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to consolidated financial statements, which contains disclosure of
related party transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
12(a).
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
III-3
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Index of Exhibits (Listed according to the number assigned in
----------------- the table in Item 601 of Regulation S-B.)
Exhibit No. 3 - Articles of Incorporation and bylaws
a. Certificate of Limited Partnership of Capital Realty Investors-
III Limited Partnership. (Incorporated by reference from Exhibit
No. 4 to Registrant's Registration Statement on Form S-11, as
amended, dated October 24, 1983.)
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. Amended Certificate and Limited Partnership Agreement of Capital
Realty Investors-III Limited Partnership. (Incorporated by
reference from Exhibit No. 4 to Registrant's Registration
Statement on Form S-11, as amended, dated October 24, 1983.)
Exhibit No. 10 - Material Contracts.
a. Management Services Agreement between CRI and Capital Realty
Investors-III Limited Partnership. (Incorporated by reference
from Exhibit No. 10(b) to Registrant's Registration Statement on
Form S-11, as amended, dated October 24, 1983.)
Exhibit No. 27 - Financial Data Schedule.
a. Filed herewith electronically.
Exhibit No. 99 - Additional Exhibits.
a. Prospectus of the Partnership, dated May 6, 1983. (Incorporated
by reference to Registrant's Registration Statement on Form S-11,
as amended, dated October 24, 1983.)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1999.
III-4
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
------------------------------------------------
(Registrant)
by: C.R.I., Inc.
--------------------------------------------
Managing General Partner
March 28, 2000 by: /s/ William B.Dockser
- ----------------- ---------------------------------------
DATE William B. Dockser, Director,
Chairman of the Board,
and Treasurer
(Principal Executive Officer)
In accordance with the Exchange Act, 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 28, 2000 by: /s/ H. William Willoughby
- ----------------- ----------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 28, 2000 by: /s/ Michael J. Tuszka
- ----------------- ----------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
-------------------------------
PUBLIC ACCOUNTANTS
-----------------
To the Partners
Capital Realty Investors-III Limited Partnership
We have audited the consolidated balance sheets of Capital Realty
Investors-III Limited Partnership (a Maryland limited partnership) as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in partners' deficit and cash flows for the years ended
December 31, 1999 and 1998. 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 did not audit the financial
statements of certain Local Partnerships. The Partnership's share of income or
loss from these Local Partnerships constitutes $1,458,560 and $1,494,893 of
income in 1999 and 1998, respectively, included in the Partnership's net loss.
The financial statements of these Local Partnerships were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amount included for these Local
Partnerships, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-III
Limited Partnership as of December 31, 1999 and 1998, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States.
Grant Thornton LLP
Vienna, VA
March 28, 2000
III-6
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-III Limited Partnership has
invested were filed in paper format under Form SE on March 29, 2000, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted January 14, 2000.
III-7
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Investments in and advances to partnerships $ 19,683,671 $ 21,458,167
Investment in partnership held for sale 1,285,964 --
Investment in partnership held in escrow 1,267,871 --
Cash and cash equivalents 10,045,683 10,804,306
Investment held in escrow -- 100,000
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $472,235 and $478,988, respectively 415,398 483,132
Property purchase costs, net of accumulated amortization of
$431,180 and $438,256, respectively 401,342 464,823
Other assets -- 5,982
------------ ------------
Total assets $ 33,099,929 $ 33,316,410
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 21,540,464 $ 22,179,945
Accrued interest payable 49,549,160 46,337,182
Accounts payable and accrued expenses 168,467 141,849
------------ ------------
Total liabilities 71,258,091 68,658,976
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid in:
General Partners 2,000 2,000
Limited Partners 60,001,500 60,001,500
------------ ------------
60,003,500 60,003,500
Less:
Accumulated distributions to partners (4,687,201) (4,088,131)
Offering costs (6,156,933) (6,156,933)
Accumulated losses (87,317,528) (85,101,002)
------------ ------------
Total partners' deficit (38,158,162) (35,342,566)
------------ ------------
Total liabilities and partners' deficit $ 33,099,929 $ 33,316,410
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-8
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Share of income from partnerships $ 1,778,488 $ 7,498,098
----------- -----------
Other revenue and expenses:
Revenue:
Interest and other income 505,503 518,960
----------- -----------
Expenses:
Interest 3,802,599 8,072,684
Management fee 300,000 300,000
General and administrative 253,844 219,173
Professional fees 100,773 102,773
Amortization of deferred costs 61,075 62,740
Extension fee 150,000 --
----------- -----------
4,668,291 8,757,370
----------- -----------
Total other revenue and expenses (4,162,788) (8,238,410)
----------- -----------
Loss before loss on disposition of investment in partnership (2,384,300) (740,312)
----------- -----------
Loss on disposition of investment in partnership -- (109,688)
----------- -----------
Loss before extraordinary gain from extinguishment of debt (2,384,300) (850,000)
----------- -----------
Extraordinary gain from extinguishment of debt 167,774 --
----------- -----------
Net loss $(2,216,526) $ (850,000)
=========== ===========
Net loss allocated to General Partners (1.51%) $ (33,470) $ (12,835)
=========== ===========
Net loss allocated to Initial and Special Limited Partners (1.49%) $ (33,026) $ (12,665)
=========== ===========
Net loss allocated to Additional Limited Partners (97%) $(2,150,030) $ (824,500)
=========== ===========
Net loss per unit of Additional Limited Partnership Interest
based on 60,000 units outstanding $ (35.83) $ (13.74)
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-9
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit, January 1, 1998 $(1,293,477) $(1,277,013) $(31,322,426) $(33,892,916)
Distribution of $10.00 per Additional -- -- (599,650) (599,650)
Limited Partnership Interest
Net loss (12,835) (12,665) (824,500) (850,000)
----------- ----------- ------------ ------------
Partners' deficit, December 31, 1998 (1,306,312) (1,289,678) (32,746,576) (35,342,566)
Distribution of $10.00 per Additional
Limited Partnership Interest -- -- (599,070) (599,070)
Net loss (33,470) (33,026) (2,150,030) (2,216,526)
----------- ----------- ------------ ------------
Partners' deficit, December 31, 1999 $(1,339,782) $(1,322,704) $(35,495,676) $(38,158,162)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-10
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,216,526) $ (850,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Share of income from partnerships (1,778,488) (7,498,098)
Amortization of deferred costs 61,075 62,740
Amortization of discount on purchase money notes -- 4,395,748
Loss on disposition of investment in partnership -- 109,688
Extraordinary gain from extinguishment of debt (167,774) --
Changes in assets and liabilities:
Decrease in other assets 5,982 13,188
Increase in accrued interest payable 3,802,599 3,682,600
Payment of purchase money note interest (417,328) (534,007)
Increase in accounts payable and accrued expenses 26,618 39,046
Decrease in consulting fees payable to related parties -- (42,500)
------------ ------------
Net cash used in operating activities (683,842) (621,595)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 1,069,289 6,214,806
Proceeds from disposition of investments in partnerships -- 1,038,159
------------ ------------
Net cash provided by investing activities 1,069,289 7,252,965
------------ ------------
Cash flows from financing activities:
Payment of purchase money note principal (275,000) --
Distributions to Additional Limited Partners (599,070) (599,650)
Pay-off of purchase money notes and related interest (370,000) (3,396,317)
Investment held in escrow -- (100,000)
Release of investment held in escrow 100,000 --
------------ ------------
Net cash used in financing activities (1,144,070) (4,095,967)
------------ ------------
Net (decrease) increase in cash and cash equivalents (758,623) 2,535,403
Cash and cash equivalents, beginning of year 10,804,306 8,268,903
------------ ------------
Cash and cash equivalents, end of year $ 10,045,683 $ 10,804,306
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 590,621 $ 1,051,093
============ ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-11
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-III Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on June
27, 1983 and shall continue until December 31, 2037, unless sooner
dissolved in accordance with the Partnership Agreement. The Partnership
was formed to invest in real estate by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships) which own and
operate federal or state government-assisted or conventionally financed
apartment properties located throughout the United States, which provide
housing principally to the elderly or to individuals and families of low or
moderate income.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, and current and former shareholders of
CRI. The Initial Limited Partner is Rockville Pike Associates Limited
Partnership-III, a limited partnership which includes certain current
officers and former employees of CRI or its affiliates. The Special
Limited Partner is Two Broadway Associates II, a limited partnership
comprised of an affiliate and employees of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated.
The Partnership sold 60,000 units at $1,000 per unit of Additional
Limited Partnership Interest through a public offering. The offering
period was terminated in January 1984.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in conformity with accounting principles
generally accepted in the United States.
c. Principles of consolidation
---------------------------
These financial statements include the accounts of four intermediary
limited partnerships which have invested in four Local Partnerships which
own and operate government assisted or conventionally financed apartment
properties.
d. Investments in and advances to partnerships
-------------------------------------------
The investments in and advances to Local Partnerships (see Note 2) are
accounted for by the equity method because the Partnership is a limited
partner in the Local Partnerships. Under this method, the carrying amount
of the investments in and advances to Local Partnerships is (i) reduced by
distributions received and (ii) increased or reduced by the Partnership's
share of earnings or losses, respectively, of the Local Partnerships. As
of December 31, 1999 and 1998, the Partnership's share of cumulative losses
of eight and nine respectively, of the Local Partnerships exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $9,736,465 and $9,089,320, respectively. Since the
Partnership has no further obligation to advance funds or provide financing
to these Local Partnerships, the excess losses have not been reflected in
III-12
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
the accompanying consolidated financial statements. As of December 31,
1999 and 1998, cash distributions of $324,528 and $5,269,903, respectively,
have been received from the Local Partnerships for which the Partnership's
carrying value is zero. These distributions are recorded as increases in
the Partnership's share of income from partnerships.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
e. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreements and commercial paper with original
maturities of three months or less.
f. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of limited partnership interests. Such costs were recorded as
a reduction of partners' capital when incurred.
g. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these consolidated financial
statements.
h. Use of estimates
----------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States, the Partnership is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
i. Fair Value of Financial Instruments
-----------------------------------
The financial statements include estimated fair value information as
of December 31, 1999, as required by Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
Instruments." Such information, which pertains to the Partnership's
financial instruments (primarily cash and cash equivalents and purchase
money notes), is based on the requirements set forth in SFAS No. 107 and
does not purport to represent the aggregate net fair value of the
Partnership.
III-13
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The balance sheet carrying amounts for cash and cash equivalents
approximate estimated fair values of such assets.
The Partnership has determined that it is not practicable to estimate
the fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.
2. INVESTMENTS IN PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of both December 31, 1999 and 1998, the Partnership held limited
partner interests in 31 Local Partnerships which were organized to develop,
construct, own, maintain and operate rental apartment properties which
provide housing principally to the elderly or to individuals and families
of low or moderate income. The remaining principal amounts due on
investments in the Local Partnerships were as follows.
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Due to local general partners: $ 119,544 $ 119,544
Purchase money notes due in:
1999 13,685,000 16,833,981
2000 2,009,500 --
2001 1,700,000 1,700,000
2002 2,011,270 1,511,270
2003 506,288 506,288
2004 1,760,000 --
Thereafter 322,326 2,082,326
Less: unamortized discount (573,464) (573,464)
----------- -----------
Total $21,540,464 $22,179,945
=========== ===========
</TABLE>
The amounts due to local general partners will be paid upon the
occurrence of certain specific events as outlined in the respective Local
Partnership's partnership agreement.
The purchase money notes have stated interest rates ranging from 5.57%
to 12%, certain of which are compounded annually. Unamortized discounts
are based on an imputed interest rate of 15% to reflect market interest
rates which prevailed when the notes were issued. The resulting discount
has been recorded by the Partnership and is being amortized to interest
expense over the life of the respective purchase money notes using the
effective interest method. The purchase money notes are payable in full
III-14
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
upon the earliest of: (1) sale or refinancing of the respective Local
Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. Purchase money notes in the
aggregate principal amount of $1,700,000, which originally matured on
December 31, 1997, have been extended until January 31, 2001. Purchase
money notes in the aggregate principal amount of $364,481 matured January
1, 1999 and were paid off, at a discount, on February 5, 1999. Purchase
money notes in the original aggregate principal amount of $1,760,000
matured on January 1, 1999 and were extended to January 1, 2004. Purchase
money notes in the aggregate principal amount of $900,000 matured on
January 1, 1999 and the parties are in the process of negotiating an
extension of these notes until January 1, 2004. Purchase money notes in
the aggregate principal amounts of $5,280,000 and $5,290,000 matured in
January and February, 1999, respectively, and were not paid or extended.
Purchase money notes in the original aggregate principal amount of $775,000
matured on January 1, 1999, were partially paid, and have been extended to
January 1, 2002. Purchase money notes in the original aggregate principal
amount of $1,275,000 matured on January 1, 1999, and have been extended to
June 30, 2000. Purchase money notes in the aggregate principal amount of
$734,500 matured on August 1, 1999 and had been extended until January 3,
2000, at which time the Partnership's interest in the related Local
Partnership was transferred to the noteholders in exchange for the
cancellation of all principal and accrued interest due under the notes.
Purchase money notes in the aggregate principal amount of $850,000 matured
on June 30, 1999 and have not been paid or extended. Purchase money notes
in the aggregate principal amount of $1,365,000 matured on October 1, 1999
and were paid off at a discount in January 2000. The remaining purchase
money notes mature during 2002 through 2015.
The purchase money notes, which are nonrecourse to the Partnership,
are generally secured by the Partnership's interest in the respective Local
Partnerships. There is no assurance that the underlying properties will
have sufficient appreciation and equity to enable the Partnership to pay
the purchase money notes' principal and accrued interest when due. If a
purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership. The
Partnership's inability to pay certain of the purchase money note principal
and accrued interest balances when due, and the resulting uncertainty
regarding the Partnership's continued ownership interest in the related
Local Partnerships, does not adversely impact the Partnership's financial
condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with
maturing purchase money notes not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
because the amount of the nonrecourse indebtedness of each of the maturing
purchase money notes exceeds the carrying amount of the investment in, and
advances to, each of the related Local Partnerships. Thus, even a complete
loss of the Partnership's interest in one of these Local Partnerships would
not have a material adverse impact on the financial condition of the
Partnership. See further discussion of certain purchase money notes,
below.
The following chart presents information related to purchase money
notes which have matured, have been extended to mature, or are scheduled to
mature through December 31, 2000, and which remain unpaid or unextended as
III-15
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
of March 28, 2000. Excluded from the following chart are purchase money
notes which matured through December 31, 1999, and which have been paid
off, cancelled, or extended on or before March 28, 2000.
III-16
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investment in
Principal Interest and Advances to
Number of Balance Balance Underlying Local
Purchase Underlying as of as of Partnerships as
Money Note Local Percentage December Percentage December Percentage of December Percentage
(PMN) Maturity Partnerships of Total 31, 1999 of Total 31, 1999 of Total 31, 1999 of Total
- ---------------- ------------ ---------- ----------- ---------- ---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 1999 6 19% $10,590,000 48% $22,110,410 45% $ 6,464,402 33%
2nd Quarter 1999 1 3% 850,000 4% 1,665,072 3% 1,375,042 7%
2nd Quarter 2000 1 3% 1,275,000 6% 3,513,449 7% 4,828,924 24%
---- ----- ----------- ----- ----------- ----- ------------ -----
Total through
12/31/2000 8 25% $12,715,000 58% $27,288,931 55% $ 12,668,368 64%
==== ===== =========== ===== =========== ===== ============ =====
Total, Local
Partnerships 31 100% $21,994,384 100% $49,515,184 100% $ 19,683,671 100%
==== ===== =========== ===== =========== ===== ============ =====
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These
alternatives include, among others, retaining the cash available for
distribution to meet the purchase money note requirements, paying off
certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, refinancing the respective properties'
underlying debt or selling the underlying real estate and using the
Partnership's share of the proceeds to pay or buy down certain purchase
money note obligations. Although the Managing General Partner has had some
success applying these strategies in the past, the Managing General Partner
cannot assure that these strategies will be successful. Based on
discussions with the holders of purchase money notes maturing through
December 31, 2000, the Managing General Partner can state that, in certain
instances, the noteholders do not appear to be willing to negotiate any
extension or discounted payoff. In such instances, upon maturity of the
purchase money notes, the noteholders may have the right to foreclose on
the Partnership's interest in the related Local Partnerships. In the event
of a foreclosure, the excess of the nonrecourse indebtedness over the
carrying amount of the Partnership's investment in the related Local
Partnership would be deemed cancellation of indebtedness income, which
would be taxable to Limited Partners at a federal tax rate of up to 39.6%.
Additionally, in the event of a foreclosure, the Partnership would lose its
investment in the Local Partnership and, likewise, its share of any future
cash flow distributed by the Local Partnership from rental operations,
mortgage debt refinancings, or the sale of the real estate. Of the 31
Local Partnerships in which the Partnership is invested as of both December
31, 1999 and December 31, 1998, the eight Local Partnerships with
associated purchase money notes which mature through December 31, 2000 and
which remain unpaid or
III-17
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
unextended as of March 28, 2000, represent the following percentages of the
Partnership's total distributions received from Local Partnerships and
share of income from Local Partnerships.
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
For the Years Distributions Received Income from
Ending from Local Partnerships Local Partnerships
----------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 20% $1,138,683
December 31, 1998 6% $1,203,021
</TABLE>
The Managing General Partner continues to address the maturity and
impending maturity of its debt obligations and seeks strategies which will
provide the most favorable outcome to the Additional Limited Partners.
However, there can be no assurance that these strategies will be
successful.
Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1999 and 1998 was $3,802,599 and $8,072,684,
respectively. The accrued interest payable on the purchase money notes of
$49,515,184 and $46,303,206 as of December 31, 1999 and December 31, 1998,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier, in some instances, if (and to the extent of a portion
thereof) the related Local Partnership has distributable net cash flow, as
defined in the relevant Local Partnership agreement.
Arboretum Village
-----------------
The Partnership paid off its purchase money note, at face value,
related to Arboretum Village Limited Partnership (Arboretum Village) on
April 30, 1998 from proceeds received from the refinancing of the Local
Partnership's first mortgage loan. See Note 2.c. for further information
concerning the refinancing.
Audubon Towers
--------------
The Partnership defaulted on the purchase money note related to
Audubon Towers Limited Partnership (Audubon Towers) on January 1, 1999 when
the note matured and was not paid. The default amount included principal
and accrued interest of $1,275,000 and $3,272,276, respectively. In August
1999, the Partnership and the noteholder agreed to extend the maturity date
of the purchase money note to June 30, 2000, in exchange for payment of a
fee not applicable to the note balance. The maturity date may be further
extended through January 2, 2003, in the event certain additional payments
are made. Under the extension agreement, documents transferring the
Partnership's interest in Audubon Towers to the noteholder were placed in
III-18
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
escrow to be released to the noteholder upon the earlier of (i) a future
default by the Partnership on the purchase money note, or (ii) the failure
to pay the balance of the purchase money note at final maturity.
Bartley Manor, Village Square and Village Green
-----------------------------------------------
In September 1995, the Partnership modified purchase money notes
totaling $1,365,000 relating to Bartley Manor, Village Square and Village
Green. In accordance with the modification agreement, the Partnership paid
an aggregate of $100,000 in accrued interest, and the maturity dates for
the notes were extended from February 1995 to July 1, 1998. On July 1,
1998, the Partnership defaulted on the purchase money notes relating to
these Local Partnerships when the notes matured and were not paid. The
default amount included principal and accrued interest aggregating
$1,365,000 and $2,185,356, respectively. During 1998, the Managing General
Partner and the purchase money noteholders reached an agreement to extend
the purchase money notes until October 1, 1999. In connection with the
extension agreements, in August 1998, the Partnership made interest
payments of $51,282, $28,571 and $20,147 to the purchase money noteholders
related to Bartley Manor, Village Square and Village Green, respectively.
The Partnership defaulted on its purchase money notes related to Bartley
Manor, Village Square and Village Green on October 1, 1999, when the notes,
as extended, matured and were not paid. The default amounts included
aggregate principal and accrued interest of $1,365,000 and $2,427,685.
Aggregate accrued interest at December 31, 1999 was $2,474,810. In January
2000, the Partnership paid off the notes at a discount. The discounted
payoff will result in extraordinary gain from extinguishment of debt of
approximately $2,865,000 for financial statement purposes in 2000, and in
cancellation of indebtedness income of approximately $3 million for federal
tax purposes in 2000.
Briar Crest I, Briar Crest II, Briar Hills and Indian Hills
-----------------------------------------------------------
The Partnership defaulted on its purchase money notes relating to
Briar Crest I, Briar Crest II, Briar Hills and Indian Hills on January 1,
1997 when the notes matured and were not paid. On April 1, 1998, the
Partnership and the purchase money noteholders related to Briar Crest I,
Briar Crest II and Briar Hills entered agreements extending the purchase
money note maturity dates until January 1, 2002. On July 17, 1998, the
Partnership and the purchase money noteholders related to Indian Hills
entered into an agreement extending the purchase money note maturity dates
until January 1, 2002. In connection with the extension agreements, the
Partnership made principal payments of $55,000, $54,800, $55,000 and
$50,000 to the purchase money noteholders related to Briar Crest I, Briar
Crest II, Briar Hills and Indian Hills, respectively. Additionally,the
Partnership paid $30,243, $34,391, $36,380 and $14,484 to reimburse the
purchase money noteholders and related entities for Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA) processing
and legal fees previously incurred on behalf of Briar Crest I, Briar Crest
II, Briar Hills and Indian Hills, respectively. Pursuant to the extension
agreements, the Partnership will make interest payments on the purchase
money notes from annual cash flow distributions received from the related
Local Partnerships to the purchase money noteholders. During the year
ended December 31, 1999, the Partnership received cash flow distributions
of $7,248, $4,351, $10,103, and $17,218 from Briar Crest I, Briar Crest II,
III-19
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
Briar Hills and Indian Hills, respectively. During the year ended December
31, 1998, the Partnership received cash flow distributions of $14,316,
$6,609, $5,337, and $12,231 from Briar Crest I, Briar Crest II, Briar Hills
and Indian Hills, respectively.
Cedar Valley
------------
The Partnership defaulted on its purchase money notes relating to
Cedar Valley on May 1, 1997 when the notes matured and were not paid. The
default amount included principal and accrued interest of $2,100,000 and
$3,166,710, respectively. The Managing General Partner and the noteholders
agreed to extend the purchase money notes until January 1998. On January
16, 1998, the noteholders foreclosed on the Partnership's interest in Cedar
Valley. As a result of such foreclosure, the noteholders acquired
ownership of the Partnership's interest in the Local Partnership. The
release of the Partnership's purchase money note obligation as a result of
the Partnership's loss of ownership interest in Cedar Valley resulted in a
net financial statement gain of approximately $5.5 million during 1998.
The federal tax gain was approximately $5.8 million.
College Park
------------
The Partnership defaulted on its purchase money notes related to
College Park Limited (College Park) on January 1, 1999, when the notes
matured and were not paid. The default amount included aggregate principal
and accrued interest of $880,000 and $1,622,642, respectively. As of March
28, 2000, aggregate principal and accrued interest of $880,000 and
$1,821,607, respectively, were due. The Partnership attempted to negotiate
with the noteholder of record to extend the maturity dates of the purchase
money notes for five years, but received no response. In March 1999, the
Partnership received notice of a collection action on the purchase money
notes by two individuals who claimed to be the noteholders. The
Partnership retained local counsel to defend the lawsuit. On July 26,
1999, the Partnership received notice that the plaintiffs moved to dismiss
their lawsuit. On September 7, 1999, the Partnership received notice that
a new collection action had been filed in the proper jurisdiction of
Mississippi. The purported noteholders indicated that they will not agree
to settle the action. Accordingly, to avoid the expense of further
litigation, the Partnership has agreed to transfer its interests in the
Local Partnership to the noteholders in exchange for cancellation of the
indebtedness, subject to HUD and local regulatory authority consent. The
uncertainty about the continued ownership of the Partnership's interest in
the related Local Partnership does not adversely impact the Partnership's
financial condition, as discussed above.
Due to the impending transfer of its interests in College Park, the
Partnership's basis in this Local Partnership, which was $1,263,122, was
reclassified to investment in partnership held for sale in the accompanying
consolidated balance sheet at December 31, 1999.
Congress Plaza
--------------
The Partnership defaulted on its purchase money note related to
Kapetan Associates Limited Partnership (Congress Plaza) on January 1, 1999
III-20
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
when the note matured and was not paid. The default amount included
principal and accrued interest of $775,000 and $2,162,200, respectively.
On May 19, 1999, the Partnership and the noteholder agreed to extend the
maturity date of the purchase money note to January 1, 2002, in exchange
for a partial principal payment. Under the extension agreement, documents
transferring the Partnership's interest in Congress Plaza to the noteholder
were placed in escrow to be released to the noteholder upon the earlier of
(i) a future default by the Partnership on the purchase money note, or (ii)
the failure to pay the balance of the purchase money note on or before
January 1, 2002.
Glen Agnes
----------
The Partnership defaulted on its purchase money note related to Glen
Agnes Associates (Glen Agnes) on June 30, 1999 when the note matured and
was not paid. The default amount included principal and accrued interest
of $850,000 and $1,597,852, respectively. As of March 28, 2000, principal
and accrued interest of $850,000 and $1,692,734, respectively, were due.
In November 1999, the noteholder filed an action to foreclose on the
Partnership's interest in the Local Partnership. In the meantime, an
affiliate of the noteholder has offered to purchase the Partnership's
interest in the Local Partnership for a payment of $25,000 to the
Partnership. Any transfer of the Partnership's interest in the Local
Partnership would have to be approved by the California Housing Finance
Agency. There is no assurance that such approval will be obtained, or that
a transfer will take place.
Greeley Manor
-------------
The Partnership defaulted on its purchase money note related to
Greeley Manor Company (Greeley Manor) on August 1, 1999 when the note
matured and was not paid. The default amount included principal and
accrued interest of $734,500 and $1,365,808, respectively. On October 15,
1999, the Partnership and the noteholder agreed to extend the maturity date
of the purchase money note to January 3, 2000, in exchange for a partial
principal payment. Under the extension agreement, documents transferring
the Partnership's interest in Greeley Manor to the noteholder were placed
in escrow to be released to the noteholder upon the earlier of (i) a future
default by the Partnership on the purchase money note, or (ii) the failure
to pay the balance of the purchase money note on or before January 3, 2000.
In January 2000, the documents were released from escrow and the
Partnership's interest in Greeley Manor was transferred to the noteholder.
The release of the Partnership's purchase money note obligation as a result
of the Partnership's loss of ownership interest in Greeley Manor will
result in a net financial statement gain of approximately $877,000 during
2000. The federal tax gain will be approximately $2,816,000.
Heritage Estates I and Heritage Estates II
------------------------------------------
The Partnership defaulted on the purchase money notes related to
Heritage Estates Associates Phase I (Heritage Estates I) and Heritage
Estates Associates Phase II (Heritage Estates II) on January 1, 1999 when
the notes matured and were not paid. The default amounts included
III-21
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
aggregate principal and accrued interest of $2,600,000 and $4,357,413,
respectively, for Heritage Estates I and aggregate principal and accrued
interest of $1,800,000 and $2,689,917, respectively, for Heritage Estates
II. As of March 28, 2000, principal and accrued interest of $2,600,000 and
$4,733,297, respectively, for Heritage Estates I, and $1,800,000 and
$2,926,184, respectively, for Heritage Estates II were due. The Managing
General Partner is currently exploring options to extend the maturity dates
of the purchase money notes related to Heritage Estates I and Heritage
Estates II for up to five years. There is no assurance that extensions
will be obtained.
Highland Manor
--------------
The Partnership and the holders of the purchase money notes (in the
original principal amount of $1,760,000) related to Highland Manor, Limited
(Highland Manor) have extended the maturity date thereof from January 1,
1999 to January 1, 2004, subject to the noteholders' right to accelerate
the maturity date upon nine months' notice. In connection with the
extension, in addition to the payments required to be made to the
noteholders by the Partnership from cash flow distributions from Highland
Manor, the Partnership agreed to make annual payments to the noteholders on
January 15th of each calendar year commencing January 15, 2000. On October
23, 1998, the Partnership made a payment of interest, which was held in
escrow, along with the purchase money note modification documents, until
January 1999, at which time the funds were released to the noteholders.
This payment has been, and subsequent payments will be, applied first to
payment of accrued interest, and thereafter to principal. In January 2000,
the Partnership made the first annual payment as agreed under the extension
documents.
Lakewood Apartments
-------------------
The Partnership defaulted on its purchase money notes related to
Eufaula Apartments, Limited (Lakewood Apartments) on January 1, 1999 when
the notes matured and were not paid. The default amount included aggregate
principal and accrued interest of $364,481 and $169,468, respectively. On
February 5, 1999, the Partnership paid off, at a discount, the purchase
money notes related to Lakewood Apartments. The discounted payoff resulted
in extraordinary gain from extinguishment of debt of approximately $168,000
for financial statement purposes, and in cancellation of indebtedness
income of approximately $180,000 for Federal tax purposes.
Meadow Lanes II
---------------
The Partnership defaulted on its purchase money note related to Meadow
Lanes II Limited Dividend Housing Associates (Meadow Lanes II) on February
28, 1999 when the note matured and was not paid. The default amount
included principal and accrued interest of $650,000 and $1,250,201,
respectively. As of March 28, 2000, principal and accrued interest of
$650,000 and $1,347,362, respectively, were due. The Partnership is
currently attempting to negotiate with the noteholder to extend the
maturity date of the purchase money note. There is no assurance that an
extension will be obtained.
III-22
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
Rolling Green - Milford
-----------------------
The Managing General Partner successfully negotiated an extension of
the maturity date of the purchase money notes related to Roberts Milford
Associates (Rolling Green) from August 31, 1999 to February 28, 2001.
These notes have an aggregate original principal amount of $2,250,000. The
maturity date was further extended to August 31, 2003 because the Local
Partnership refinanced its mortgage loan prior to the expiration of the
first extension, which further extension was provided for in the extension
agreement. The Partnership's share of the proceeds from the refinancing of
the property's first mortgage loan were applied against the purchase money
note principal. See Note 2.c. for further information concerning the
refinancing.
In January 2000, the Partnership received notification from the local
managing general partner of a potential sale of the Rolling Green Property.
There is no assurance that a sale will occur.
Southmoor
---------
The Partnership paid off its purchase money note, at face value,
related to K-S Apartments (Southmoor) on June 30, 1998 from proceeds
received from the sale of its interest in the Local Partnership. See note
2.c. for further information concerning the sale.
Tyee Apartments
---------------
The Partnership defaulted on its purchase money notes related to Tyee
Associates (Tyee Apartments) on February 1, 1999 when the notes matured and
were not paid. The default amounts included aggregate principal and
accrued interest of $1,305,000 and $3,312,902, respectively. As of March
28, 2000, aggregate principal and accrued interest of $1,305,000 and
$3,591,904 were due. As of March 28, 2000, the parties are negotiating a
discounted payoff of these purchase money notes. Additionally, the local
managing general partner has received two offers for the purchase of the
property. There is no assurance that either a negotiated discounted payoff
of the purchase money notes or a sale of the property will occur.
Victorian Towers
----------------
The Partnership defaulted on its purchase money note related to
Victorian Towers Associates (Victorian Towers) on January 1, 1999 when the
note matured and was not paid. The default amount included principal and
accrued interest of $900,000 and $1,710,560, respectively. As of March 28,
2000, principal and accrued interest of $900,000 and $1,865,237 were due.
The Managing General Partner has reached an agreement in principle with the
noteholder to extend the maturity date of the purchase money note until
January 1, 2004, and is awaiting execution of the related documents. There
is no assurance that an extension of the maturity date will be finalized.
III-23
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
Winchester Gardens
------------------
The Partnership defaulted on its purchase money notes related to
Winchester Gardens on December 31, 1997 when the notes matured and were not
paid. The default amount included principal and accrued interest of
$1,700,000 and $2,995,648, respectively. On April 7, 1998, the Partnership
was served with a complaint by the holders of the purchase money notes
suing the Partnership, the Managing General Partner and C.R.H.C.,
Incorporated (C.R.H.C. is an affiliate of the Managing General Partner),
for damages and seeking foreclosure on the Partnership's interest in the
Local Partnership. On July 29, 1998, the parties agreed to a settlement
which extended the maturity date of the purchase money notes to January 31,
2001. In connection with this settlement, the Partnership granted the
noteholders an option during the period January 1, 2000 through June 30,
2000 to purchase the Partnership's and C.R.H.C.'s interests in the Local
Partnership for an amount equal to the outstanding principal balance of the
purchase money notes plus accrued interest. As of March 28, 2000, the
noteholders had not exercised this option. The option is void if the
purchase money notes are satisfied prior to exercise of the option.
Woodside Village
----------------
The Partnership defaulted on its purchase money notes related to
Woodside Village on February 1, 1999 when the notes matured and were not
paid. The default amounts included aggregate principal and accrued
interest of $3,335,000 and $7,407,102, respectively. As of March 28, 2000,
aggregate principal and accrued interest of $3,335,000 and $8,026,612,
respectively, were due. The Partnership received a notice of default from
someone who claimed to be the current noteholder of the smaller note, but
the original noteholder initially disputed the validity of her claim. The
Partnership received a Notice of Default and U.C.C. Foreclosure of Security
Interest on May 10, 1999 with respect to a scheduled sale of 20% of the
Partnership's limited partner interest in Woodside Village on June 15,
1999. The Partnership has not received any confirmation that the sale
actually took place. The Partnership continues to negotiate a discounted
payoff with the first noteholder. Additionally, the local managing general
partner has received two offers for the purchase of the property. There is
no assurance that a negotiated discounted payoff of the purchase money
notes or that a sale of the property will occur.
b. Interests in profits, losses and cash distributions
---------------------------------------------------
made by Local Partnerships
--------------------------
The Partnership has a 96% to 98.99% interest in profits, losses and
cash distributions (as restricted by various federal and state housing
agencies) of each Local Partnership. An affiliate of the Managing General
Partner of the Partnership is also a general partner of each Local
Partnership or the intermediary limited partnership which invests in the
Local Partnership. The Partnership received cash distributions from the
rental operations of the Local Partnerships totaling $1,069,289 and
$6,214,806 during the years ended December 31, 1999 and 1998, respectively.
As of December 31, 1999 and 1998, 25 and 30, respectively, of the Local
Partnerships had surplus cash, as defined by their respective regulatory
III-24
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
agencies, in the amounts of $2,177,856 and $1,743,810, respectively, which
may be available for distribution in accordance with their respective
regulatory agencies' regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by HUD regulations. Such regulations
limit annual cash distributions to a percentage of the owner's equity
investment in a rental property. Funds in excess of those which may be
distributed to owners are required to be placed in a residual receipts
account held by the governing state or federal agency for the benefit of
the property.
Upon sale or refinancing of a property owned by a Local Partnership,
or upon the liquidation of a Local Partnership, the proceeds from such
sale, refinancing or liquidation shall be distributed in accordance with
the respective provisions of each Local Partnership's partnership
agreement. In accordance with such provisions, the Partnership would
receive from such proceeds its respective percentage interest of any
remaining proceeds, after payment of (1) all debts and liabilities of the
Local Partnership and certain other items, (2) the Partnership's capital
contributions plus certain specified amounts as outlined in each
partnership agreement, and (3) certain special distributions to general
partners and related entities of the Local Partnership.
c. Property matters
----------------
Arboretum Village
-----------------
On April 30, 1998, the local managing general partner of Arboretum
Villages Limited Partnership (Arboretum Village) refinanced the loan
secured by a first mortgage on the property owned by Arboretum Village. A
portion of the refinancing proceeds was used to pay in full the
Partnership's purchase money note obligation totaling $774,325 related to
this property. Additionally, the Partnership received $2,670,000 later in
1998 as additional proceeds from the refinancing. The proceeds received by
the Partnership (including the proceeds paid to the noteholders) were in
excess of the Partnership's basis in Arboretum Village by approximately
$3.4 million, and are included in share of income from partnerships for
1998.
Highland Manor
--------------
Under the Mark-to-Market program, the first mortgage debt related to
the property owned by Highland Manor, Limited (Highland Manor) was
restructured on July 28, 1998. This debt was split into two pieces: a new
first mortgage loan of $619,872 and a new second mortgage loan of $797,128.
The balance of the existing first mortgage loan of approximately $841,824
was forgiven. The debt forgiveness of $841,824 resulted in taxable income
to the partners of the Partnership.
The new first mortgage loan bears interest at the rate of 7.5% per
annum and will be amortized over its term of 30 years. The new second
mortgage loan does not bear interest and requires annual principal payments
of $39,856. In addition, the second mortgage loan requires a payment of
50% of Appreciation, as defined in the loan documents, upon sale or
III-25
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
refinancing. As part of this transaction, the Ginnie Mae Certificate
holder sold the restructured first and second mortgage loans to the holder
of the largest of the three purchase money notes made by the Partnership to
finance a portion of the acquisition of its interest in Highland Manor.
O'Farrell
---------
The local managing general partner of O'Farrell Towers Associates
(O'Farrell) has received an offer for the purchase of the property, and the
parties have executed a sales contract dated as of October 12, 1999, with a
revised projected closing date of May 2000. Proceeds received by the
Partnership from the sale of this property would be used to pay off, at a
discount, the purchase money notes related to O'Farrell. The contract is
subject to customary contingencies. Accordingly, there is no assurance
that a sale or the payoff of the purchase money notes will occur.
Due to the impending and likely sale of the property related to the
Partnership's investment in O'Farrell, the net unamortized amounts of
acquisition fees and property purchase costs related to O'Farrell, which
totaled $22,842, have been reclassified to investment in partnership held
for sale in the accompanying consolidated balance sheet at December 31,
1999. For the years ended December 31, 1999 and 1998, distributions from
O'Farrell represented approximately 3% and 2%, respectively, of total
distributions from Local Partnerships. The Partnership's share of income
from O'Farrell was $0 and $0 for the years ended December 31, 1999 and
1998, respectively.
Rolling Green - Milford
-----------------------
The Managing General Partner successfully negotiated an extension of
the maturity date of the purchase money notes related to Roberts Milford
Associates (Rolling Green) to February 28, 2001. These notes have an
aggregate original principal amount of $2,250,000; the maturity date had
been August 31, 1998. Pursuant to the agreement, the maturity date was
further extended to August 31, 2003 because the Local Partnership
refinanced its mortgage loan prior to the expiration of the first
extension. The refinancing of the property's mortgage loan closed on July
31, 1998. The Partnership's share of the refinancing proceeds, which was
$1,525,000, was applied against the purchase money note principal. These
proceeds were in excess of the Partnership's basis in Rolling Green and
were included in share of income from partnerships during 1998.
In January 2000, the Partnership received notification from the local
managing general partner of a potential sale of the Rolling Green Property.
There is no assurance that a sale will occur.
III-26
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
Southmoor
---------
On June 30, 1998, the Partnership sold its interest in K-S Apartments
(Southmoor). The sale of the Partnership's interest in Southmoor generated
sufficient cash proceeds to pay in full the Partnership's purchase money
note obligation related to this property. In addition, on July 1, 1998,
the Partnership received cash proceeds of $228,000 from the sale. The sale
proceeds were not sufficient to recover the Partnership's basis in the
Local Partnership and resulted in a net financial statement loss of
$221,727 for 1998. The federal tax gain was approximately $1.1 million for
1998. The Managing General Partner and/or its affiliates earned net fees
of $31,299 relating to this sale, which the Partnership paid on July 10,
1998.
Villa Mirage I and Villa Mirage II
----------------------------------
The Partnership's affiliate, C.R.H.C., Incorporated (CRHC), removed
the Local Managing General Partner (LMGP) of both Villa Mirage I and Villa
Mirage II in December 1999, due to its failure to address problems
identified in the 1998 audited financial statements of those lower tier
partnerships, including overpayments to itself and its affiliated property
management company. The removed LMGP and its shareholder and another
unrelated Local General Partner filed lawsuits against the Partnership and
CRHC with respect to both Villa Mirage I and II seeking, among other
things, an accounting and dissolution of the partnerships and damages for
alleged breaches of the respective partnership agreements (for refusal to
approve proposed sales of the properties). The lawsuits do not purport to
enjoin or reverse the removals of the LMGP. Subsequently, the same
plaintiffs filed injunction actions seeking to compel the sales of the
properties owned by Villa Mirage I and II. The Partnership has engaged
local counsel and intends to defend against the actions vigorously. CRHC
has moved to have both lawsuits stayed while the disputes are resolved by
arbitration in accordance with the respective Local Partnership agreements.
d. Affordable housing legislation
------------------------------
Some of the rental properties owned by the Local Partnerships are
dependent on the receipt of project-based Section 8 Rental Housing
Assistance Payments (HAP) provided by the U.S. Department of Housing and
Urban Development (HUD) pursuant to Section 8 HAP contracts. Current
legislation allows all expired Section 8 HAP contracts with rents at less
than 100% of fair market rents to be renewed for one year. Expiring
Section 8 HAP contracts with rents that exceed 100% of fair market rents
could be renewed for one year, but at rents reduced to 100% of fair market
rents (Mark-to-Market).
III-27
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
All expiring Section 8 HAP contracts with rents exceeding comparable market
rents, and properties with mortgage loans insured by the Federal Housing
Administration (FHA), became subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties
which are currently subsidized at higher-than-market rental rates, and will
therefore lower cash flow available to meet mortgage payments and operating
expenses. Each affected property may undergo debt restructuring according
to terms determined by an individual property and operations evaluation.
This may involve reducing the first mortgage loan balance to an amount
supportable by the property, taking into account the property's operating
expenses and reduced income. The balance of the amount written down from
the first mortgage loan will be converted to a non-performing but accruing
(soft) second mortgage loan.
Thirteen properties in which the Partnership is invested have Section
8 HAP contracts expiring in 2000 (some of these properties also have
related purchase money notes which have matured). The HAP contracts cover
substantially all of the apartment units in each property. Currently, rent
studies for seven of these properties indicate that the HAP rents are below
fair market rents, therefore, these properties will likely renew the HAP
contracts annually until a comprehensive solution is reached with the
respective purchase money noteholders. Two of these properties have been,
or will be, transferred to the purchase money noteholders in 2000. One
property entered the Mark-to-Market program in 1998 with a debt adjustment.
Rent studies relating to the remaining three properties are in progress.
The Section 8 HAP contracts for the following properties initially
expired during the government's fiscal year 1998 or 1999, and their
renewals expire during the year 2000.
III-28
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Units Original Renewed
Authorized for Expiration of Expiration of
Number of Rental Assistance Section 8 Section 8
Property Rental Units Under Section 8 HAP Contract HAP Contract
-------- ------------ ----------------- ------------- --------------
<S> <C> <C> <C> <C>
Bartley Manor 70 69 07/31/98 05/31/00
Briar Crest I 53 53 06/30/98 06/30/00
Briar Crest II 49 49 06/30/98 06/30/00
Briar Hills 50 33 09/30/98 09/30/00
Greeley Manor 128 119 11/01/98 06/30/00 (1)
Highland Manor 111 111 02/08/98 05/12/00 (2)
Indian Hills Townhouses 40 24 09/30/98 09/30/00
Lakewood Apartments 50 50 08/01/99 07/31/00
Tyee Apartments 100 40 07/31/98 07/31/00
Village Green 36 36 09/30/98 04/30/00
Village Square 48 48 09/30/98 04/30/00
Winchester Gardens Apartments 206 202 08/31/98 10/05/00
Woodside Village 180 114 08/31/98 08/31/00
----- ---
Total 1,121 948
===== ===
</TABLE>
(1) In January 2000, the Partnership's interest in Greeley Manor was
transferred to the purchase money noteholder.
(2) This property entered the Mark-to-Market program in May 1998. The
Section 8 HAP contract will be renewed annually.
With the uncertainty of continued project-based Section 8 subsidies
for properties with expiring HAP contracts, there is no assurance that
these rental properties will be able to maintain the rental income and
occupancy levels necessary to pay operating costs and debt service. As a
result, it is not possible to predict the impact on the Local Partnerships'
operations and the resulting impact on the Partnership's investments in and
advances to Local Partnerships at this time. As of December 31, 1999, the
carrying amount of the Partnership's investments in and advances to Local
Partnerships with Section 8 HAP contracts expiring in 2000 was $8,358,963.
There is a new HUD-sponsored program generally referred to as Mark-up-
to-Market. Under this program, properties with expiring Section 8
contracts that are located in high-rent areas as defined by HUD are
eligible for rent increases which would be necessary to bring Section 8
rents in line with market rate rents. For properties with subsidized FHA
loans, the rents are adjusted to take into account the benefits the
property is already receiving from the below-market interest rate by means
of a HUD determined Interest Subsidy Adjustment Factor. The purpose of
this program is to incentivize owners of properties with expiring Section 8
contracts not to convert these properties to market rate housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract
with HUD, subject to the annual availability of funding by Congress. In
addition, property owners who enter into the Mark-up-to-Market program will
III-29
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
receive a waiver from the cash flow restriction imposed on the property by
the limited dividend limitation.
e. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1999 and 1998 and for the years ended December 31, 1999 and
1998 follows.
III-30
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $81,091,462 and $76,019,851, respectively $ 75,945,135 $ 78,608,097
Land and land improvements 13,570,306 13,698,632
Other assets 20,908,627 20,015,580
------------ ------------
Total assets $110,424,068 $112,322,309
============ ============
Mortgage notes payable $104,804,254 $106,967,190
Other liabilities 9,718,955 9,496,712
------------ ------------
Total liabilities 114,523,209 116,463,902
Partners' deficit (4,099,141) (4,141,593)
------------ ------------
Total liabilities and partners' deficit $110,424,068 $112,322,309
============ ============
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 30,406,116 $ 30,043,094
Interest 635,738 727,870
Other 1,345,584 2,405,224
------------ ------------
Total revenue 32,387,438 33,176,188
------------ ------------
Expenses:
Operating 18,840,503 18,650,830
Interest 7,204,038 7,121,588
Depreciation 5,186,672 5,128,062
Amortization 85,919 208,708
------------ ------------
Total expenses 31,317,132 31,109,188
------------ ------------
Net income $ 1,070,306 $ 2,067,000
============ ============
</TABLE>
III-31
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
f. Reconciliation of the Local Partnerships' financial statement net
-----------------------------------------------------------------
income to taxable income
------------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded
when received rather than when earned; (2) certain costs are expensed when
paid or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation on the
property as permitted by Internal Revenue Service (IRS) Regulations. These
returns are subject to examination and, therefore, possible adjustment by
the IRS.
III-32
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
A reconciliation of the Local Partnerships' financial statement net
income reflected above to taxable income follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Financial statement net income $ 1,070,306 $ 2,067,000
Adjustments:
Difference in tax depreciation using accelerated
methods, net of depreciation on construction
period expenses capitalized for financial
statement purposes 2,228,567 (1,367,316)
Amortization for financial statement purposes not
deducted for income tax purposes 48,196 49,658
Miscellaneous, net 97,192 432,219
------------ ------------
Taxable income $ 3,444,261 $ 1,181,561
============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships. The fee amounted to $1,200,000, which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership. The
acquisition fee was capitalized and is being amortized over a 30-year period
using the straight-line method.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership. For the years ended December 31, 1999 and 1998,
the Partnership paid $188,024 and $161,102, respectively, as direct
reimbursement of expenses incurred on behalf of the Partnership. Such expenses
are included in the accompanying consolidated statements of operations as
general and administrative expenses.
Additionally, in accordance with the terms of the Partnership Agreement,
the Partnership is obligated to pay the Managing General Partner an annual
incentive management fee (the Management Fee), after all other expenses of the
Partnership are paid. The amount of the Management Fee shall be equal to 0.25%
of invested assets, as defined in the Partnership Agreement, and shall be
payable from the Partnership's cash available for distribution, as defined in
the Partnership Agreement, as of the end of each calendar year, as follows:
III-33
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
a. First, on a monthly basis as an operating expense before any
distributions to limited partners in the amount computed as described
in the Partnership Agreement, provided that such annual amount shall
not be greater than $300,000 and;
b. Second, after distributions to the limited partners in the amount of
1% of the gross proceeds of the offering, the balance of such 0.25% of
invested assets.
For each of the years ended December 31, 1999 and 1998, the Partnership paid the
Managing General Partner a Management Fee of $300,000.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property it owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. The Managing General Partner and/or its affiliates earned net fees of
$117,028 for services relating to the sale of the Partnership's interest in the
Park Heights Towers Local Partnership on February 2, 1996. On March 25, 1998,
the remaining balance of $42,500 was paid by the Partnership. Also, the
Managing General Partner and/or its affiliates earned net fees of $31,299 for
services relating to the sale of Southmoor on June 30, 1998. On July 10, 1998,
these fees were paid by the Partnership. No such fees were earned or paid in
1999.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partners and
1.51% to the General Partners. Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited
Partners was reduced to .49%. The net proceeds resulting from the liquidation
of the Partnership or the Partnership's share of the net proceeds from any sale
or refinancing of the Local Partnerships or their rental properties which are
not reinvested shall be distributed and applied as follows:
(i) to the payment of debts and liabilities of the Partnership
(including all expenses of the Partnership incident to the sale or
refinancing) other than loans or other debts and liabilities of the
Partnership to any partner or any affiliate; such debts and
liabilities, in the case of a non-liquidating distribution, to be
only those which are then required to be paid or, in the judgment
of the Managing General Partner, required to be provided for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership;
(iii) to each partner in an amount equal to the positive balance in his
capital account as of the date of the sale or refinancing, adjusted
for operations and distributions to that date, but before
allocation of any profits for tax purposes realized from such sale
or refinancing and allocated pursuant to the Partnership Agreement;
(iv) to the limited partners (A) an aggregate amount of proceeds from
sale or refinancing and all prior sales or refinancings equal to
their capital contributions, without reduction for prior cash
III-34
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
distributions other than prior distributions of sale and
refinancing proceeds, plus (B) an additional amount equal to a
cumulative noncompounded 6% return on each limited partners'
capital contribution, reduced, but not below zero, by (1) an amount
equal to 50% of the losses for tax purposes plus tax credits
allocated to such limited partner and (2) distributions of net cash
flow to each limited partner, such return, losses for tax purposes
and net cash flow distributions commencing on the first day of the
month in which the capital contribution was made;
(v) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate to the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital
contributions;
(vii) thereafter, for their services to the Partnership, in equal shares
to certain general partners (or their designees), whether or not
any is then a general partner, an aggregate fee of 1% of the gross
proceeds resulting from (A) such sale (if the proceeds are from a
sale rather than a refinancing) and (B) any prior sales from which
such 1% fee was not paid to the General Partners or their
designees; and,
(viii) the remainder, 12% to the General Partners (or their assignees), 3%
to the Special Limited Partner and 85% to the Initial and
Additional Limited Partners (or their assignees).
Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment properties, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment properties.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns. The fee would only be payable upon the sale of an investment
in a Local Partnership or the property it owns and would be subject to certain
restrictions, including the achievement of a certain level of sales proceeds and
making certain minimum distributions to limited partners. The Managing General
Partner and/or its affiliates earned net fees of $117,028 for services relating
to the sale of the Partnership's interest in the Park Heights Towers Local
Partnership on February 2, 1996. On March 25, 1998, the remaining balance of
$42,500 was paid by the Partnership. Also, the Managing General Partner and/or
its affiliates earned net fees of $31,299 for services relating to the sale of
Southmoor on June 30, 1998. On July 10, 1998, these fees were paid by the
Partnership. No such fees were earned or paid in 1999.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, 0.49% to the
Initial Limited Partner and 1.51% to the General Partners, after payment of the
Management Fee (see Note 3), as specified in the Partnership Agreement. As
defined in the Partnership Agreement, after the establishment of reserves deemed
necessary by the Managing General Partner, after payment of the Management Fee,
and after the distributions described below, the Partnership had no remaining
cash available for distribution for the years ended December 31, 1999 and 1998.
III-35
<PAGE>
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
On November 12, 1999, the Partnership made a cash distribution of $599,070
($10.00 per additional limited partnership interest) to the Additional Limited
Partners out of available cash flow.
On November 23, 1998, the Partnership made a cash distribution of $599,650
($10.00 per additional limited partnership interest) to the Additional Limited
Partners. The distribution was a result of the sale of the property relating to
the Partnership's investment in K-S Apartments (Southmoor) and the refinancing
of the Arboretum Village Limited Partnership (Arboretum Village) first mortgage
loan.
The Partnership received distributions of $1,069,289 and $6,214,806 from
the Local Partnerships during 1999 and 1998, respectively. The Managing General
Partner intends to reserve all of the Partnership's remaining undistributed cash
for the possible repayment, prepayment or retirement of the Partnership's
outstanding purchase money notes related to the Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
LOSS TO TAXABLE LOSS
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations, and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2.f.), including
losses in excess of related investment amounts. These returns are subject to
audit and, therefore, possible adjustment by the IRS. In addition, adjustments
arising from the amortization of discount on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2.a.).
III-36
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS
TO TAXABLE LOSS - Continued
A reconciliation of the Partnership's financial statement net loss to
taxable loss follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Financial statement net loss $ (2,216,526) $ (850,000)
Adjustments:
Differences between taxable loss
and financial statement net loss related
to the Partnership's equity in the Local Partnerships'
income or losses 1,618,242 (6,353,141)
Difference in extraordinary gain from extinguishment of debt -- (27,962)
Costs amortized over a shorter period for income tax purposes 66,275 (57,341)
Effect of amortization of discount on purchase money notes for financial
statement purposes 372,880 4,331,696
------------ ------------
Taxable loss $ (159,129) $ (2,956,748)
============ ============
</TABLE>
III-37
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
III-38
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,045,683
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,099,929
<CURRENT-LIABILITIES> 0
<BONDS> 71,089,624
0
0
<COMMON> 0
<OTHER-SE> (38,158,162)
<TOTAL-LIABILITY-AND-EQUITY> 33,099,929
<SALES> 0
<TOTAL-REVENUES> 2,283,991
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 865,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,802,599
<INCOME-PRETAX> (2,384,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,384,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 167,774
<CHANGES> 0
<NET-INCOME> (2,216,526)
<EPS-BASIC> (35.83)
<EPS-DILUTED> (35.83)
</TABLE>
