SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 31, 1996
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _______to _______
Commission file number: 0-14438
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3239107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich CT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 862-7000
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest, $250 Per Unit
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit A to the Prospectus of the registrant dated February 4, 1985, filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, is
incorporated by reference in Part IV of this Form 10-K.
<PAGE>
PART I
Item 1. Business
Integrated Resources High Equity Partners, Series 85, a California
Limited Partnership (the "Partnership"), was formed as of August 19, 1983. The
Partnership is engaged in the business of operating and holding for investment
previously acquired income-producing properties, consisting of office buildings,
shopping centers and other commercial and industrial properties. Resources High
Equity, Inc., a Delaware corporation and a wholly-owned subsidiary of Presidio
Capital Corp., a British Virgin Islands corporation ("Presidio"), is the
Partnership's managing general partner (the "Managing General Partner"). Until
November 3, 1994, Resources High Equity, Inc. was a wholly-owned subsidiary of
Integrated Resources, Inc. ("Integrated"). On November 3, 1994 Integrated
consummated its plan of reorganization under Chapter 11 of the United States
Bankruptcy Code at which time, pursuant to such plan of reorganization, the
newly-formed Presidio purchased substantially all of Integrated's assets.
Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the
associate general partner (the "Associate General Partner") on February 28, 1995
replacing Z Square G Partners II which withdrew as of that date. The Managing
General Partner and the Associate General Partner are referred to collectively
hereinafter as the "General Partners." Affiliates of the General Partners are
also engaged in businesses related to the acquisition and operation of real
estate.
The Partnership offered 400,000 units of limited partnership interest
(the "Units") pursuant to the Prospectus of the Partnership dated February 4,
1985, as supplemented by Supplements dated January 27, 1986 and April 11, 1986
(collectively, the "Prospectus"), filed pursuant to Rules 424(b) and 424(c)
under the Securities Act of 1933, as amended. The Prospectus was filed as part
of the Partnership's Registration Statement on Form S-11, Commission File No. 2-
92319 (the "Registration Statement"), pursuant to which the Units were
registered and offered. The offering was terminated on May 30, 1986. Upon final
admission of limited partners, the Partnership had accepted subscriptions for
400,010 Units (including the initial limited partner) for an aggregate of
$100,002,500 in gross proceeds, resulting in net proceeds from the offering of
$98,502,500 (gross proceeds of $100,002,500 less organization and offering costs
of $1,500,000). All underwriting and sales commissions were paid by Integrated
or its affiliates and not by the Partnership.
As of March 15, 1997, the Partnership had invested all of its net
proceeds in real estate. Revenues from the following properties represented 15%
or more of the Partnership's gross revenues during each of the last three fiscal
years: in 1996, Southport and 568 Broadway represented 30.2% and 25.0% of gross
revenues, respectively; in 1995, revenue from Southport, 568 Broadway and Loch
Raven represented 30.8%, 23.8% and 16.7% of gross revenues, respectively; in
1994, revenue from Southport, 568 Broadway and Loch Raven represented 32.7%,
18.3% and 15.6% of gross revenues, respectively.
The Partnership owned the following properties as of March 15, 1997:
(1) Westbrook Mall Shopping Center
On July 10, 1985, the Partnership purchased the fee simple interest in
the Westbrook Mall Shopping Center ("Westbrook"), a partially enclosed shopping
center located next to a regional mall in Brooklyn Center, Minnesota, near
Minneapolis. It comprises three buildings on approximately 9.87 acres, with a
total of 79,242 square feet of gross leasable area and parking for approximately
460 cars. It was built in three phases from 1966 to 1977.
<PAGE>
Westbrook is located directly across the street from the 1,000,000
square foot Brookdale Regional Shopping Center. Westbrook is in direct
competition with two nearby shopping centers: Brookdale Square, which is located
one-quarter mile east of Westbrook, has 140,000 square feet of gross leasable
area; and Northbrook Center, which is located one and one-quarter miles east of
Westbrook, contains 18 stores and has 76,000 square feet of gross leasable area.
In addition, there are two relatively new shopping centers in the vicinity: one,
anchored by a 105,000 square foot Target Discount Store, has an additional
39,000 square feet of retail space; the other, anchored by a 68,000 square foot
Designer Depot, has an additional 32,000 square feet of retail space. Overall
the Brookdale market comprises approximately 1.6 million square feet of retail
space, of which approximately 165,000 square feet was vacant as of January 1,
1997.
Westbrook was 77% leased as of January 1, 1997, compared to 83% as of
January 1, 1996. Occupancy, however, was only 21% as of January 1, 1997. In
August 1993, Best Buy closed its 22,695 square foot store at Westbrook. Best Buy
has continued to meet its financial obligations however, its lease expires on
January 31, 1997. Kids R' Us closed its 18,500 square foot store in October
1994. However, it remains obligated under its lease until it expires in January
2014. Edison Brothers, which has operated a Repp Big & Tall store on a
month-to-month lease has given notice that it will vacate at the end of January
1997 and terminate its lease. Additionally, Codeco, a local, 3,000 square foot
tenant, vacated and has been in default since the fall of 1996, and its lease
expires on January 31, 1997. At that time, the center will be 38% leased, and
14% occupied.
The Partnership's efforts to lease space in the center have been
unsuccessful due primarily to the functional obsolescence of the structure, and
secondarily to the weak retail climate in the immediate market. Therefore, in
addition to continuing to search for tenants for the existing vacancies, the
Partnership is pursuing various alternatives.
(2) Southport Shopping Center
On April 15, 1986, the Partnership purchased the fee simple interest in
Southport Shopping Center ("Southport"), a regional shopping center located on
the 17th Street Causeway in Fort Lauderdale, Florida near the intercoastal
waterway and beach area. The center's three buildings, comprising a total of
143,089 square feet, are situated on a 9.45 acre site. Southport was built in
phases from 1968 to 1977 and expanded again and renovated in 1985. The site
provides parking for 563 cars. Southport was 95% occupied as of January 1, 1997
as compared to 96% on January 1, 1996. There are no leases that represent at
least 10% of the square footage of the center scheduled to expire in 1997. The
vacancy represents one theater space located at the rear of the center. During
1996, new and renewal leases were completed on 21,660 square feet representing
15 percent of the center's leasable space. During 1996, the roof tiles were
painted and the roof on the East quadrant of the main center building will be
replaced in 1997.
Southport is highly visible from S.E. 17th Street, the major east/west
artery in the commercially-oriented area. Developments in the area are
diversified and include hotels, restaurants, retail centers, office buildings
and the 750,000 square foot Broward County Convention Center, which opened in
1991, is within walking distance. In 1996, the new 75,000 square foot, three
story mixed-use NorthPort Marketplace opened on county owned land adjacent to
<PAGE>
the Convention Center. With rental rates of $40-$50 per square feet, the
development has attracted national restaurant/entertainment chains and is not
considered competition for Southport's tenants. The center continues to maintain
a solid tenant base and anchor tenants, Publix, Eckerd and McCrory's, combined
square footage represents 39% of the center's leasable area.
(3) Loch Raven Plaza
On June 26, 1986, the Partnership purchased the fee simple interest in
Loch Raven Plaza ("Loch Raven"), a retail/office complex located in Towson,
Maryland. It contains approximately 25,000 square feet of office and storage
space and 125,000 square feet of retail space, with parking for approximately
655 vehicles.
The property was 91% occupied as of January 1, 1997, compared to 88% at
January 1, 1996. There are no leases which represent at least 10% of the square
footage of the center scheduled to expire during 1997.
A complete renovation of the exterior of the center and the parking lot
is planned for 1997. The entire project is budgeted for $1.1 million and is
expected to be completed in the Fall of 1997. The renovation is deemed necessary
in order to retain tenants as neighboring centers have recently undertaken
renovation and re-tenanting programs.
(4) Century Park I
On November 7, 1986, a joint venture (the "Century Park Joint Venture")
comprised of the Partnership and High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated public limited partnership, purchased the fee simple
interest in Century Park I ("Century Park I"), an office complex. The
Partnership and HEP-86 each have a 50% interest in the Century Park Joint
Venture.
Century Park I, situated on approximately 8.6 acres, is located in the
center of San Diego County in Kearny Mesa, California, directly adjacent to
Highway 163 at the northeast corner of Balboa Avenue and Kearny Villa Road.
Century Park I is part of an office park consisting of six office buildings and
two parking garages, in which Century Park Joint Venture owns three buildings,
comprising 200,002 net rentable square feet and one garage with approximately
810 parking spaces. One of the three buildings was completed in the latter half
of 1985, and the other two buildings were completed in February 1986. The
property was 74% leased as of January 1, 1997 compared to 74% at January 1,
1996. However, the leasing of 14,705 rentable square feet to HealthSouth / IMC
Healthcare Centers in January 1997 increased the occupancy rate to 81%. There
are no leases scheduled to expire in 1997. Capital expenditures budgeted for
1997 include replacing the roof and the installation of an HVAC monitoring
system in Building I.
Century Park I competes with other office parks and office buildings in
the Kearny Mesa submarket where the year-end 1996 vacancy rate was 15%. Net
absorption in the area was 209,397 square feet during 1996. The primary
competition continues to be Metropolitan Office Park with 100,000 square feet of
available space.
<PAGE>
(5) 568 Broadway
On December 2, 1986, a joint venture (the "Broadway Joint Venture")
comprised of the Partnership and HEP-86 acquired a fee simple interest in
568-578 Broadway ("568 Broadway"), a commercial building in New York City, New
York. Until February 1, 1990, the Partnership and HEP-86 each had a 50% interest
in the Broadway Joint Venture. On February 1, 1990, the Broadway Joint Venture
admitted a third joint venture partner, High Equity Partners L.P. - Series 88
("HEP-88"), an affiliated public limited partnership sponsored by Integrated.
HEP-88 contributed $10,000,000 for a 22.15% interest in the joint venture. The
Partnership and HEP-86 each retain a 38.925% interest in the joint venture.
568 Broadway is located in the SoHo district of Manhattan on the
northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story plus
basement and sub-basement building constructed in 1898. It is situated on a site
of approximately 23,600 square feet, has a rentable square footage of
approximately 299,000 square feet and a floor size of approximately 26,000
square feet. Formerly catering primarily to industrial light manufacturing, the
building has been converted to an office building and is currently being leased
to art galleries, photography studios, retail and office tenants. The last
manufacturing tenant vacated in January 1993. The building was 100% leased as of
January 1, 1997 compared to 95% as of January 1, 1996. There are no leases which
represent at least 10% of the square footage of the property scheduled to expire
during 1997.
568 Broadway competes with several other buildings in the SoHo area.
(6) Seattle Tower
On December 16, 1986, a joint venture (the "Seattle Landmark Joint
Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest
in Seattle Tower, a commercial office building located in downtown Seattle
("Seattle Tower"). The Partnership and HEP-86 each have a 50% interest in the
Seattle Landmark Joint Venture.
Seattle Tower is located at Third Avenue and University Street on the
eastern shore of Puget Sound in the financial and retail core of the Seattle
central business district. Seattle Tower, built in 1928, is a 27-story
commercial building containing approximately 141,000 rentable square feet,
including almost 10,000 square feet of retail space and approximately 2,211
square feet of storage space. The building also contains a 55-car garage.
Seattle Tower is connected to the Unigard Financial Center and the Olympic Four
Seasons Hotel by a skybridge system. Seattle Tower, formerly Northern Life
Tower, represented the first appearance in Seattle of a major building in the
Art Deco style. It was accepted into the National Register of Historic Places in
1975. Seattle Tower's occupancy at January 1, 1997 was 96% compared to 92% at
January 1, 1996. There are no leases which represent at least 10% of the square
footage of the property scheduled to expire during 1997.
Roof replacement and exterior building facade projects have been
budgeted in the aggregate amount of approximately $630,000. The projects are
expected to be completed during the third quarter of 1997.
<PAGE>
The Partnership believes that Seattle Tower's primary direct
competition comes from three office buildings of similar size or age in the
immediate vicinity of Seattle Tower, which buildings have current occupancy
rates which are comparable to Seattle Tower's.
Write-downs for Impairment
See Note 4 to the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of
write-downs for impairment.
Competition
The real estate business is highly competitive and, as discussed more
particularly above, the properties acquired by the Partnership may have active
competition from similar properties in the vicinity. In addition, various
limited partnerships have been formed by the Managing General Partner and/or its
affiliates that engage in businesses that may be competitive with the
Partnership. The Partnership will also experience competition for potential
buyers at such time as it seeks to sell any of its properties.
Employees
Services are performed for the Partnership at the properties by on-site
personnel. Salaries for such on-site personnel are paid by the Partnership or by
unaffiliated management companies that service the Partnership's properties from
monies received by them from the Partnership. Services are also performed by the
Managing General Partner and by Resources Supervisory Management Corp.
("Resources Supervisory"), each of which is an affiliate of the Partnership.
Resources Supervisory currently provides supervisory management and leasing
services for all of the Partnership's properties and subcontracts certain
management and leasing functions to unaffiliated third parties.
The Partnership does not have any employees. Wexford Management LLC
("Wexford") performs accounting, secretarial, transfer and administrative
services for the Partnership. See Item 10, "Directors and Executive Officers of
the Registrant", Item 11, "Executive Compensation", and Item 13, "Certain
Relationships and Related Transactions".
Item 2. Properties
A description of the Partnership's properties is contained in Item 1
above (see Schedule III to the financial statements for additional information
with respect to the properties).
Item 3. Legal Proceedings
The Broadway Joint Venture is currently involved in litigation with a
number of present or former tenants who are in default on their lease
obligations. Several of these tenants have asserted claims or counterclaims
seeking monetary damages. The plaintiffs' allegations include, but are not
limited to, claims for breach of contract, failure to provide certain services,
overcharging of expenses and loss of profits and income. These suits seek total
damages in excess of $20 million plus additional damages of an indeterminate
amount. The Broadway Joint Venture's action for rent against Solo Press was
<PAGE>
tried in 1992 and resulted in a judgment in favor of the Broadway Joint Venture
for rent owed. The Partnership believes this will result in dismissal of the
action brought by Solo Press against the Broadway Joint Venture. Since the facts
of the other actions which involve material claims or counterclaims are
substantially similar, the Partnership believes that the Broadway Joint Venture
will prevail in those actions as well.
A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a
related corporation that is a retail tenant of a building adjacent to 568
Broadway filed a lawsuit in the Supreme Court of The State of New York, County
of New York, against the Broadway Joint Venture which owns 568 Broadway. The
action was filed on April 13, 1994. The plaintiffs alleged that by erecting a
sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and
visibility to their customers. The sidewalk shed was erected, as required by
local law, in connection with the inspection and restoration of the 568 Broadway
building facade, which is also required by local law. Plaintiffs further alleged
that the erection of the sidewalk shed for a continuous period of over two years
is unreasonable and unjustified and that such conduct by defendants has deprived
plaintiffs of the use and enjoyment of their property. The suit seeks a judgment
requiring removal of the sidewalk shed, compensatory damages of $20 million, and
punitive damages of $10 million. The Partnership believes that this suit is
meritless and intends to vigorously defend it.
On or about May 11, 1993 HEP-86 was advised of the existence of an
action (the "B&S Litigation") in which a complaint (the "HEP Complaint") was
filed in the Superior Court for the State of California for the County of Los
Angeles (the "Court") on behalf of a purported class consisting of all of the
purchasers of limited partnership interests in HEP-86. On April 7, 1994 the
plaintiffs were granted leave to file an amended complaint (the "Amended
Complaint").
On November 30, 1995, after the Court preliminarily approved a
settlement of the B&S Litigation but ultimately declined to grant final approval
and after the Court granted motions to intervene by the original plaintiffs, the
original and intervening plaintiffs filed a Consolidated Class and Derivative
Action Complaint ( the "Consolidated Complaint") against the Administrative and
Investment General Partners of HEP-86, the managing general partner of the
Partnership, the managing general partner of HEP-88 and the indirect corporate
parent of the General Partners. The Consolidated Complaint alleges various state
law class and derivative claims, including claims for breach of fiduciary
duties; breach of contract; unfair and fraudulent business practices under
California Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and
receivership; fraud; and negligent misrepresentation. The Consolidated Complaint
alleges, among other things, that the general partners caused a waste of HEP
Partnership assets by collecting management fees in lieu of pursuing a strategy
to maximize the value of the investments owned by the limited partners; that the
general partners breached their duty of loyalty and due care to the limited
partners by expropriating management fees from the partnerships without trying
to run the HEP Partnerships for the purposes for which they are intended; that
the general partners are acting improperly to enrich themselves in their
position of control over the HEP Partnerships and that their actions prevent
non-affiliated entities from making and completing tender offers to purchase HEP
Partnership Units; that by refusing to seek the sale of the HEP Partnerships'
properties, the general partners have diminished the value of the limited
partners' equity in the HEP Partnerships; that the general partners have taken a
heavily overvalued partnership asset management fee; and that limited
partnership units were sold and marketed through the use of false and misleading
statements.
<PAGE>
In January, 1996, the parties to the B&S Litigation agreed upon a
revised settlement (the "Revised Settlement"). The core feature of the Revised
Settlement was the surrender by the general partners of certain fees that they
are entitled to receive, the reorganization of the Partnership, HEP-86 and
HEP-88 (collectively, the "HEP Partnerships") into a publicly traded real estate
investment trust ("REIT"), and the issuance of stock in the REIT to the limited
partners (in exchange for their limited partnership interests) and General
Partners (in exchange for their existing interest in the HEP Partnerships and
the fees being given up). The General Partners believe that the principal
benefits of the Revised Settlement were (1) substantially increased
distributions to limited partners, (2) market liquidity through a NASDAQ listed
security, and (3) the opportunity for growth and diversification that was not
permitted under the Partnership structure. There were also believed to be other
significant tax benefits, corporate governance advantages and other benefits of
the Revised Settlement.
On July 18, 1996, the Court preliminarily approved the Revised
Settlement and made a preliminary finding that the Revised Settlement was fair,
adequate and reasonable to the class. In August 1996, the Court approved the
form and method of notice regarding the Revised Settlement which was sent to
limited partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the Revised Settlement. Despite this, following the
submission of additional materials, the Court entered an order on January 14,
1997 rejecting the Revised Settlement and concluding that there had not been an
adequate showing that the settlement was fair and reasonable. Thereafter, the
plaintiffs filed a motion seeking to have the Court reconsider its order.
Subsequently, the defendants withdrew the revised settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also at the February
24, 1997 hearing, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the objectors to
the Revised Settlement, granted the request of one plaintiffs' law firm to
withdraw as class counsel and scheduled future hearings on various matters.
The Limited Partnership Agreement provides for indemnification of the
General Partners and their affiliates in certain circumstances. The Partnership
has agreed to reimburse the General Partners for their actual costs incurred in
defending this litigation and the costs of preparing settlement materials.
Through December 31, 1996, the General Partners had billed the Partnership a
total of $824,510 for these costs which was paid in February 1997.
The Partnerships and the General Partners believe that each of the
claims asserted in the Consolidated Complaint are meritless and intend to
continue to vigorously defend the B&S Litigation. It is impossible at this time
to predict what the defense of the B&S Litigation will cost, the Partnership's
financial exposure as a result of the indemnification agreement discussed above,
and whether the costs of defending could adversely affect the Managing General
Partner's ability to perform its obligations to the Partnership.
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 the fiscal year covered by this report through the
solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for Registrant's Securities and
Related Security Holder Matters
Units of the Partnership are not publicly traded. There are certain
restrictions set forth in the Partnership's amended limited partnership
agreement (the "Limited Partnership Agreement") which may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited partner to liquidate its investment in the event of an emergency or
for any other reason.
In 1987, the Internal Revenue Service adopted certain rules concerning
publicly traded partnerships. The effect of being classified as a publicly
traded partnership would be that income produced by the Partnership would be
classified as portfolio income rather than passive income. In order to avoid
this effect, the Limited Partnership Agreement contains limitations on the
ability of a limited partner to transfer Units in circumstances in which such
transfers could result in the Partnership being classified as a publicly traded
partnership. However, due to the low volume of transfers of Units, it is not
anticipated that this will occur.
As of March 15, 1997, there were 10,648 holders of Units of the
Partnership, owning an aggregate of 400,010 Units (including Units held by the
initial limited partner).
Distributions per Unit of the Partnership for periods during 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
Distributions for the Amount of Distribution
Quarter Ended Per Unit
- ------------- --------
<S> <C>
March 31, 1995 $ 0.60
June 30, 1995 $ 0.60
September 30, 1995 $ 0.60
December 31, 1995 $ 0.60
March 31, 1996 $ 0.60
June 30, 1996 $ 0.60
September 30, 1996 $ 0.60
December 31, 1996 $ 0.60
</TABLE>
The source of distributions in 1995 and 1996 was cash flow from
operations. All distributions are in excess of accumulated undistributed net
income and, therefore, represent a return of capital to investors on a generally
accepted accounting principles basis. In 1995, capital expenditures were funded
from cash flow and working capital reserves and in 1996, capital expenditures
were funded from cash flow. There are no material legal restrictions set forth
in the Limited Partnership Agreement upon the Partnership's present or future
ability to make distributions.
<PAGE>
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", for a discussion of factors which may affect the
Partnership's ability to pay distributions.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ -------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 8,888,016 $ 7,877,644 $ 7,994,126 $ 9,568,198 $ 9,615,258
Net Income (Loss) $ 2,134,717 $(18,624,934)(5) $ 1,442,884(3) $(7,160,418)(2) $(11,975,981)(1)
Net Income (Loss) Per Unit $ 5.07 $ (44.23)(5) $ 3.43(3) $ (17.01)(2) $ (28.44)(1)
Distributions Per Unit(6) $ 2.40 $ 2.40 $ 14.39(4) $ 6.25 $ 8.60
Total Assets $ 39,290,185 $ 37,309,597 $56,742,945 $63,040,600 $ 73,075,024
- ---------------
(1) Net loss for the year ended December 31, 1992 includes a write-down for
impairment on Century Park I, Seattle Tower and 568 Broadway of
$14,601,450, or $34.68 per Unit.
(2) Net loss for the year ended December 31, 1993 includes a write-down for
impairment on Southern National, Century Park I and 568 Broadway in the
aggregate amount of $10,050,650, or $23.87 per Unit.
(3) Net income for the year ended December 31, 1994 includes a write-down for
impairment on Southern National of $181,000, or $0.43 per Unit.
(4) Distributions for the year ended December 31, 1994 include a $9.45 per
Unit distribution from the proceeds of the sale of Southern National.
(5) Net loss for the year ended December 31, 1995 includes a write-down for
impairment on Century Park I, Seattle Tower, 568 Broadway, Loch Raven,
Southport and Westbrook in the aggregate amount of $20,469,050, or $48.61
per Unit.
(6) All distributions are in excess of accumulated undistributed net income
and, therefore represent a return of capital to investors on a generally
accepted accounting principles basis.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1996, 1995 and 1994, a total of 400,010 units
of limited partnership interest, including the initial limited partner, had been
issued for aggregate capital contributions of $100,002,500. In addition, the
General Partners contributed a total of $1,000 to the Partnership. As discussed
in Note 3, the General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners' equity
account was credited with only the actual capital contributed in cash, $1,000.
Subsequent to the issuance of the 1996 financial statements, the Partnership's
management determined that this accounting does not appropriately reflect the
Limited Partners' and General Partners' relative participations in the
Partnerships's net assets, since it does not reflect the General Partners' 5%
interst in the Partnership. Thus, the Partnershp has restated its financial
statements to reallocate $5,000,125 (5% of the gross proceeds raised at the
Partnership's formation) of the partners' equity to the General Partners' equity
account. This reallocation was made as of the inception of the Partnership and
all periods presented in the financial statements have been restated to reflect
the reallocation. The reallocation has no impact on the Partnership's financial
position, results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
The Partnership's real estate properties are office buildings
and shopping centers, all of which were acquired for cash. The public offering
of the Units commenced on February 4, 1985 and was terminated on May 30, 1986.
Upon termination, the Partnership had accepted subscriptions for 400,010 Units
for aggregate net proceeds of $98,502,500 (gross proceeds of $100,002,500 less
organization and offering expenses aggregating $1,500,000).
The Partnership uses working capital reserves remaining from
the net proceeds of its public offering and any undistributed cash from
operations as its primary source of liquidity. For the year ended December 31,
1996, all capital expenditures and distributions were funded from cash flow. As
of December 31, 1996, the Partnership had total working capital reserves of
approximately $3,512,000. The Partnership intends to distribute less than all of
its future cash flow from operations in order to maintain adequate reserves for
capital improvements and capitalized lease procurement costs. In March 1997, the
Managing General Partner notified the limited partners of its intention to
increase the annual distribution from $2.40 per unit to $3.00 per unit as a
result of improved operating results. If real estate market conditions
deteriorate in any areas where the Partnership's properties are located, there
is substantial risk that future cash flow distributions may be reduced. Working
capital reserves are temporarily invested in short-term instruments and,
together with operating cash flow, are expected to be sufficient to fund
anticipated capital improvements to the Partnership's properties.
<PAGE>
During the year ended December 31, 1996, cash and cash
equivalents increased $2,419,574 as a result of cash provided by operations in
excess of capital expenditures and distributions to partners. The Partnership's
primary source of funds is cash flow from the operation of its properties,
principally rents received from tenants, which amounted to $4,075,413 for the
year ended December 31, 1996. The Partnership used $645,287 for capital
expenditures related to capital and tenant improvements to the properties and
$1,010,552 for distributions to partners for the year ended December 31, 1996.
The following table sets forth, for each of the last three
fiscal years, the amount of the Partnership's expenditures at each of its
properties for capital improvements and capitalized tenant procurement costs:
<TABLE>
<CAPTION>
Capital Improvements and Capitalized Tenant Procurement Costs
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Seattle Tower ............... $ 352,522 $ 227,677 $ 152,115
Century Park I .............. 28,010 1,243,594 51,543
568 Broadway ................ 233,376 742,972 784,078
Westbrook ................... 0 10,410 5,250
Loch Raven .................. 224,666 327,807 131,727
Southport ................... 58,571 86,233 207,993
Southern National(a) ........ 0 0 0
---------- ---------- ----------
TOTALS ...................... $ 897,145 $2,638,693 $1,332,706
========== ========== ==========
</TABLE>
(a) Property sold in August 1994
The Partnership has budgeted approximately $3 million in
expenditures for capital improvements and capitalized tenant procurement costs
in 1997 which is expected to be funded from cash flow from operations. However,
such expenditures will depend upon the level of leasing activity and other
factors which cannot be predicted with certainty.
<PAGE>
The Partnership expects to continue to utilize a portion of
its cash flow from operations to pay for various capital and tenant improvements
to the properties and leasing commissions (the amount of which cannot be
predicted with certainty). Capital and tenant improvements may in the future
exceed the Partnership's current working capital reserves. In that event, the
Partnership would utilize the remaining working capital reserves, eliminate or
reduce distributions, or sell one or more properties. Except as discussed above,
management is not aware of any other trends, events, commitments or
uncertainties that will have a significant impact on liquidity.
Real Estate Market
The real estate market continues to suffer from the effects of
the substantial decline in the market value of existing properties which
occurred in the early 1990's. Market values have been slow to recover, and while
the pace of new construction has slowed, high vacancy rates continue to exist in
many areas. Technological changes are also occurring which may reduce the office
space needs of many users. These factors may continue to reduce rental rates. As
a result, the Partnership's potential for realizing the full value of its
investment in its properties is at continued risk.
Impairment of Assets
The Partnership evaluates the recoverability of the net
carrying value of its real estate and related assets at least annually, and more
often if circumstances dictate.
The Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" (SFAS #121) in 1995. Under SFAS #121, the
Partnership estimates the future cash flows expected to result from the use of
each property and its eventual disposition, generally over a five-year holding
period. In performing this review, management takes into account, among other
things, the existing occupancy, the expected leasing prospects of the property
and the economic situation in the region where the property is located.
If the sum of the expected future cash flows, undiscounted, is
less than the carrying amount of the property, the Partnership recognizes an
impairment loss, and reduces the carrying amount of the asset to its estimated
fair value. Fair value is the amount at which the asset could be bought or sold
in a current transaction between willing parties, that is, other than in a
forced or liquidation sale. Management estimates fair value using discounted
cash flows or market comparables, as most appropriate for each property.
Independent certified appraisers are utilized to assist management, when
warranted.
Prior to the adoption of SFAS #121, real estate investments
were carried at the lower of depreciated cost or net realizable value. Net
realizable value was calculated by management using undiscounted future cash
flows, in some cases with the assistance of independent certified appraisers.
Impairment write-downs recorded by the Partnership do not
affect the tax basis of the assets and are not included in the determination of
taxable income or loss.
Because the cash flows used to evaluate the recoverability of
the assets and their fair values are based upon projections of future economic
events such as property occupancy rates, rental rates, operating cost inflation
<PAGE>
and market capitalization rates which are inherently subjective, the amounts
ultimately realized at disposition may differ materially from the net carrying
values at the balance sheet dates. The cash flows and market comparables used in
this process are based on good faith estimates and assumptions developed by
management. Unanticipated events and circumstances may occur and some
assumptions may not materialize; therefore, actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs, which could be material in subsequent years if real
estate markets or local economic conditions change.
The following table represents the write-downs for impairment
recorded on the Partnership's properties for the years set forth below:
<TABLE>
<CAPTION>
During the Year ended December 31,
-----------------------------------------------------------------------
Property 1996 1995 1994 1993 1992
- -------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Seattle Tower ....... $ 0 $ 3,550,000 $ 0 $ 0 $ 2,500,000
Century Park I ...... 0 1,250,000 0 5,900,000 4,550,000
568 Broadway ........ 0 2,569,050 0 700,650 7,551,450
Westbrook ........... 0 3,400,000 0 0 0
Loch Raven .......... 0 4,800,000 0 0 0
Southport ........... 0 4,900,000 0 0 0
Southern National (a) 0 0 181,000 3,450,000 0
----------- ----------- ----------- ----------- -----------
$ 0 $20,469,050 $ 181,000 $10,050,650 $14,601,450
=========== =========== =========== =========== ===========
</TABLE>
(a) Property sold in August 1994
The details of each write-down are as follows:
Seattle Tower
Seattle Tower's occupancy declined from 90% when originally
purchased to 80% as of December 31, 1991. While occupancy recovered somewhat to
83% at December 31, 1992, the average base rent per square foot declined 8% from
$14.00 per square foot at the date of acquisition to an average rate of
approximately $12.87 per square foot at December 31, 1992. Management concluded
that the property's estimated net realizable value was below its net carrying
value. The net realizable value was based on the property's estimated
undiscounted future cash flows over a 5- year period, reflecting expected cash
flow from lower rental rates, and an assumed sale at the end of the holding
period using a 10% capitalization rate. Management, therefore, recorded a
write-down for impairment of $5,000,000 in 1992 of which the Partnership's share
was $2,500,000.
The Partnership was not able to achieve leasing expectations
at Seattle Tower and occupancy remained at approximately 80%. In addition,
market rents remained lower than projected. As a result, actual income levels at
Seattle Tower have not met and are not expected to meet income levels projected
during management's impairment review in 1994. In addition, projected capital
expenditures exceed amounts previously anticipated for such expenditures.
Because the estimate of undiscounted cash flows prepared in 1995 yielded a
<PAGE>
result lower than the asset's net carrying value, management determined that an
impairment existed. Management estimated the property's fair value in order to
determine the write-down for impairment. Because the estimate of fair value
using expected cash flows discounted at 13% over 15 years and an assumed sale at
the end of the holding period using a 10% capitalization rate yielded a result
which in management's opinion, was lower than the property's value in the
marketplace, the property was valued using sales of comparable buildings which
indicated a fair value of $25 per square foot. This fair value estimate resulted
in a $7,100,000 write-down for impairment in 1995 of which the Partnership's
share was $3,550,000.
The economic outlook for Seattle has improved considerably
since the last write- down at March 31, 1995. Occupancy has increased from
approximately 81% at the time of the write-down to approximately 96% at December
31, 1996, a 15% increase.
Century Park I
The former sole tenant at Century Park I, General Dynamics
Corp. vacated 52,740 square feet of space as of June 30, 1993 and the balance of
its space as of December 31, 1993 totaling 119,394 square feet pursuant to the
terms of its leases. On July 1, 1993 a 51,242 square foot lease was signed with
San Diego Gas and Electric for a 13-year, 10 month term with a cancellation
option exercisable between the fifth and sixth years. Due to the soft market in
the greater San Diego area, management concluded that the property's estimated
net realizable value was below its net carrying value. The net realizable value
was based on the property's estimated undiscounted future cash flows over a
5-year period and an assumed sale at the end of the holding period using a 10%
capitalization rate. Management, therefore, recorded a write-down for impairment
of $9,100,000 in 1992 of which the Partnership's share was $4,550,000.
Subsequently, management engaged the services of a certified independent
appraiser to perform a written appraisal of the market value of the property.
Based on the results of the appraisal, management recorded an additional
$11,800,000 write-down for impairment in 1993 of which the Partnership's share
was $5,900,000.
Since the date of the above mentioned appraisal, market
conditions surrounding Century Park I deteriorated causing higher vacancy and
lower rental rates. Leasing expectations were not achieved and capital
expenditures exceeded projections due to converting the building from a single
user to multi-tenancy capabilities. In early 1995, occupancy was only 25%.
Because the estimate of undiscounted cash flows prepared in 1995 yielded a
result lower than the asset's net carrying value, management determined that an
impairment existed. Management estimated the property's fair value using
expected cash flows discounted at 13% over 15 years and an assumed sale at the
end of the holding period using a 10% capitalization rate, in order to determine
the write-down for impairment. The fair value estimate resulted in a $2,500,000
write-down for impairment in 1995 of which the Partnership's share was
$1,250,000.
The economic outlook for Century Park has improved markedly
since the last write- down at March 31, 1995. The occupancy at the property has
increased from approximately 25% at the time of the write-down to approximately
74% at December 31, 1996, and 81% at January 31, 1997, a 56% increase.
<PAGE>
568 Broadway
The recession which occurred prior to 1992 had a particularly
devastating effect on the photography studios which depend heavily on
advertising budgets and art galleries as a source of business, resulting in many
tenant failures. Due to the poor market conditions in the Soho area of New York
City where 568 Broadway is located and the accompanying high vacancies and low
absorption rates which resulted in declining rental rates, management concluded
that the property's estimated net realizable value was below its net carrying
value. The net realizable value was based on sales of comparable buildings which
indicated a value of approximately $65 per square foot. Management, therefore,
recorded a write-down for impairment of $19,400,000 in 1992 of which the
Partnership's share was $7,551,450. Subsequently, management engaged the
services of a certified independent appraiser to perform a written appraisal of
the market value of the property. Based on the results of the appraisal,
management recorded an additional $1,800,000 write-down for impairment in 1993
of which the Partnership's share was $700,650.
Since the date of the above mentioned independent appraisal,
significantly greater capital improvement expenditures than were previously
anticipated have been required in order to render 568 Broadway more competitive
in the New York market. Because the estimate of undiscounted cash flows prepared
in 1995 yielded a result lower than the asset's net carrying value, management
determined that an impairment existed. Management estimated the property's fair
value in order to determine the write-down for impairment. Because the estimate
of fair value using expected cash flows discounted at 13% over 15 years and an
assumed sale at the end of the holding period using a 10% capitalization rate
yielded a result which, in management's opinion, was lower than the property's
value in the marketplace, the property was valued using sales of comparable
buildings which indicated a fair value of $45 per square foot. This fair value
estimate resulted in a $6,600,000 write-down for impairment in 1995 of which the
Partnership's share was $2,569,050.
The economic outlook for 568 Broadway has improved markedly
since the last write- down at March 31, 1995. Occupancy has increased from
approximately 76% at the time of the write-down to approximately 100% at
December 31, 1996, a 24% increase.
Westbrook
Occupancy at Westbrook was 28% in early 1995. Two significant
tenants are not operating while continuing to make rental payments under the
terms of their leases. However, their absence has adversely impacted both the
lease-up of the remaining space and rental rates, and will require additional
tenant procurement costs. At a result, income levels have not been met and are
not expected to meet income levels projected at the date of management's
impairment review in 1994. As a result, expected cash flow is lower than
previously projected. Because the estimate of undiscounted cash flows prepared
in 1995 yielded a result lower than the asset's net carrying value, management
determined that an impairment existed. Management estimated the property's fair
value in order to determine the write-down for impairment. Because the estimate
of fair value using expected cash flows discounted at 13% over 15 years and an
assumed sale at the end of the holding period using a 10% capitalization rate
yielded a result which, in management's opinion, was lower than the property's
value in the marketplace, the property was valued using sales of comparable
buildings which indicated a fair value of $25 per square foot. This fair value
estimate resulted in a $3,400,000 write-down for impairment in 1995.
<PAGE>
Loch Raven
Rental income at Loch Raven has not met and is not expected to
meet previously projected levels due to lower rental market rates since
management's impairment review in 1994. Expenses have also decreased slightly
but this decrease has been offset by significant capital expenditures which were
not previously anticipated. Because the estimate of undiscounted cash flows
prepared in 1995 yielded a result lower than the asset's net carrying value,
management determined that an impairment existed. Management estimated the
property's fair value using expected cash flows discounted at 13% over 15 years
and an assumed sale at the end of the holding period using a 10% capitalization
rate, in order to determine the write-down for impairment. This fair value
estimate resulted in $4,800,000 write-down for impairment in 1995.
Southport
Despite an occupancy rate in excess of 90% in 1995, actual
income levels at Southport have not met and are not expected to meet previously
projected income levels due to lower rental market rates. Expenses are slightly
higher than anticipated and tenant procurement cost estimates are greater than
amounts projected at the date of management's impairment review in 1994. Because
the estimate of undiscounted cash flows prepared in 1995 yielded a result lower
than the asset's net carrying value, management determined that an impairment
existed. Management estimated the property's fair value in order to determine
the write-down for impairment. Because the estimate of fair value using expected
cash flows discounted at 13% over 15 years and an assumed sale at the end of the
holding period using a 10% capitalization rate yielded a result which, in
management's opinion, was lower than the property's value in the marketplace,
the property was valued using sales of comparable buildings which indicated a
fair value of $105 per square foot. This fair value estimate resulted in a
$4,900,000 write-down for impairment in 1995.
Southern National
Southern National Corp. acquired First Savings Bank (the
original master lessee) in January 1994. Southern National had given notice that
it was not interested in remaining as a tenant after expiration of its lease but
was interested in acquiring the building. Management believed that substantial
renovations to the building would be required to adapt it to multi-tenant use.
Because the building might require substantial renovations and market rental
rates at that time were substantially below those which were payable under the
expiring lease, management determined that a write-down for impairment on the
building of $3,450,000 was required in 1993 based on an assumed sale using a 10%
capitalization rate. The building was sold to Southern National for $5,500,000
on August 8, 1994. Based on the sales price, an additional write-down of
$181,000 was recorded in 1994.
Results Of Operations
1996 vs. 1995
The Partnership experienced net income for the year ended
December 31, 1996 compared to a net loss for the prior year due primarily to the
significant write-downs for impairment recorded during 1995 as previously
discussed.
<PAGE>
Rental revenue increased for the year ended December 31, 1996
as compared to the prior year. Revenues at 568 Broadway, Seattle Tower and
Century Park I increased during 1996 due to higher occupancy rates and increased
at Southport due to higher rental rates in 1996 as compared to the prior year.
These increases, however, were partially offset by a decrease in revenue at
Westbrook as certain tenants vacated during 1996.
Costs and expenses decreased during 1996 as compared to 1995
due primarily to the significant write-downs for impairment recorded in 1995.
Operating expenses decreased slightly during 1996 due to decreases in real
estate taxes and bad debt expenses at certain properties partially offset by an
increase in repairs and maintenance and utility costs. Real estate taxes
decreased significantly at 568 Broadway due to the receipt of refunds related to
the 1992-1995 tax years of which the partnership's share was $353,500. Bad debt
expenses decreased at Southport, Westbrook, and Loch Raven due to fewer tenant
write-offs and/or bankruptcies in 1996 compared to 1995. Repairs and maintenance
at Century Park I and utility expenses at 568 Broadway increased due to
increased occupancy during the year ended December 31, 1996 as compared to the
prior year. Depreciation expense for 1996 increased due to the significant
capital improvement and tenant procurement costs incurred and capitalized during
the year ended December 31, 1995. The partnership management fee remained
relatively consistent in 1996 as compared to the prior year. Administrative
expenses increased due to the Partnership's reimbursement of the General
Partner's litigation and settlement costs as previously discussed. The property
management fee increase was the direct result of higher revenues at the
aforementioned properties.
Interest income increased due to higher cash balances in 1996
partially offset by slightly lower interest rates in 1996 as compared to the
prior year. For the year ended December 31, 1996, other income, which consists
of investor ownership transfer fees, increased compared to 1995 due to a greater
number of transfers during 1996.
1995 vs. 1994
The Partnership experienced a net loss for the year ended
December 31, 1995 compared to net income for the prior year due primarily to the
significant write-downs for impairment recorded during 1995 as previously
discussed.
Rental revenue decreased slightly for the year ended December
31, 1995 as compared to the prior year. The most significant decrease in
revenues during 1995 occurred due to the sale of Southern National. Since the
Partnership sold its interest in Southern National on August 8, 1994, no rental
revenue was billed or received from Southern National in 1995 compared to
$460,000 in revenues during 1994. Revenues at 568 Broadway and Century Park I
increased during 1995 due to higher occupancy rates. These increases, however,
were offset by a decrease in revenue at Southport as rental rates declined as
compared to 1994.
Costs and expenses increased during 1995 as compared to 1994
due primarily to the write-down for impairment recorded in 1995. Operating
expenses decreased slightly during 1995 due to decreases in real estate taxes
and repairs and maintenance at certain properties partially offset by an
increase in utility costs. Real estate taxes decreased at 568 Broadway and
Century Park I as a result of reductions in the assessed value of the properties
for the 1995 tax period and years prior. Repairs and maintenance decreased at
<PAGE>
Southport and Seattle Tower as certain projects were completed. The cost of
utilities in 1995 increased at 568 Broadway due to the increased occupancy
there. Depreciation expense for 1995 decreased due to lower asset carrying
values as a result of the write-down recorded during the first quarter of 1995.
The Partnership management fee decreased slightly during 1995 due to the sale of
Southern National in August 1994.
Interest income increased slightly due to higher interest
rates in 1995 compared to the prior year. For the year ended December 31, 1995,
other income, which consists of investor ownership transfer fees, increased
compared to 1994 due to a greater number of transfers during 1995.
Inflation is not expected to have a material impact on the
Partnership's operations or financial position.
Legal Proceedings
The Partnership is a party to certain litigation. See Note 8
to the Partnership's financial statements for a description thereof.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
I N D E X
Independent Auditors' report
Financial statements, years ended
December 31, 1996, 1995 and 1994
Balance Sheets
Statements of Operations
Statements of Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Integrated Resources High Equity Partners, Series 85
We have audited the accompanying balance sheets of Integrated Resources High
Equity Partners, Series 85 (a California limited partnership) as of December 31,
1996 and 1995, and the related statements of operations, partners' equity and
cash flows for each of the three years in the period ended December 31, 1996.
Our audit also included the financial statement schedule listed in the Index at
Item 14(a)2. These financial statements and the financial statement schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Integrated Resources High Equity Partners,
Series 85 at December 31, 1996 and 1995, and the results of its operations and
its cash flows for the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 2, in 1995 the Partnership changed its method of recording
write-downs for impairment of its investments in real estate to conform with
Statement of Financial Accounting Standards No. 121.
As discussed in Note 7, the accompanying financial statements have been restated
to reflect a reallocation of partners' equity.
DELOITTE & TOUCHE LLP
March 14, 1997
(April 30, 1997 as to Note 7)
New York, NY
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
BALANCE SHEETS
December 31,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Real estate ................................ $ 32,154,253 $ 32,533,972
Cash and cash equivalents .................. 4,870,517 2,450,943
Other assets ............................... 2,107,211 2,121,920
Receivables ................................ 158,204 202,762
------------ ------------
TOTAL ASSETS ............................... $ 39,290,185 $ 37,309,597
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses ...... $ 1,061,732 $ 1,016,797
Due to affiliates .......................... 1,164,121 352,633
Distributions payable ...................... 252,638 252,638
------------ ------------
Total liabilities ..................... 2,478,491 1,622,068
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY:
Limited partners' equity (as restated)
(400,010 units issued and outstanding) .. 34,970,158 33,902,201
General partners' equity (as restated).... 1,841,536 1,785,328
------------ ------------
Total partners' equity ................ 36,811,694 35,687,529
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY ..... $ 39,290,185 $ 37,309,597
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
---------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Rental Revenue ............................. $ 8,888,016 $ 7,877,644 $ 7,994,126
------------ ------------ ------------
Costs and Expenses:
Operating expenses ................ 3,139,504 3,397,690 3,483,983
Depreciation and amortization ..... 1,270,172 1,161,328 1,328,043
Partnership management fee ........ 908,172 908,172 984,589
Administrative expenses ........... 1,359,027 447,270 447,500
Property management fee ........... 327,759 303,936 277,844
Write-down for impairment ......... -- 20,469,050 181,000
------------ ------------ ------------
7,004,634 26,687,446 6,702,959
------------ ------------ ------------
Income (loss) before interest
and other income .................. 1,883,382 (18,809,802) 1,291,167
Interest income ................... 141,939 130,173 116,580
Other income ...................... 109,396 54,695 35,137
------------ ------------ ------------
Net income (loss) .......................... $ 2,134,717 $(18,624,934) $ 1,442,884
============ ============ ============
Net income (loss) attributable to:
Limited partners .................. $ 2,027,981 $(17,693,687) $ 1,370,740
General partners .................. 106,736 (931,247) 72,144
------------ ------------ ------------
Net income (loss) .......................... $ 2,134,717 $(18,624,934) $ 1,442,884
============ ============ ============
Net income (loss) per unit of limited
partnership interest (400,010 units
outstanding) ...................... $ 5.07 $ (44.23) $ 3.43
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
STATEMENT OF PARTNERS' EQUITY
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 (as previously reported)......... $ (2,002,211) $ 61,941,441 $ 59,939,230
Reallocation of partners' equity.......................... 5,000,125 (5,000,125) ---
Balance, January 1, 1994 (as restated).................... 2,997,914 56,941,316 59,939,230
Net income ............................................... 72,144 1,370,740 1,442,884
Distributions as a return of capital
($4.94 per limited partnership unit) ............... (104,003) (1,976,050) (2,080,053)
Distributions as a return of capital from sale of property
($9.45 per limited partnership unit) ............... (198,952) (3,780,094) (3,979,046)
------------ ------------ ------------
Balance, December 31, 1994 (as restated).................. 2,767,103 52,555,912 55,323,015
Net loss ................................................. (931,247) (17,693,687) (18,624,934)
Distributions as a return of capital
($2.40 per limited partnership unit) .............. (50,528) (960,024) (1,010,552)
------------ ------------ ------------
Balance, December 31, 1995 (as restated) ................. 1,785,328 33,902,201 35,687,529
Net income ............................................... 106,736 2,027,981 2,134,717
Distributions as a return of capital
($2.40 per limited partnership unit) .............. (50,528) (960,024) (1,010,552)
------------ ------------ ------------
Balance, December 31, 1996 (as restated).................. $ 1,841,536 $ 34,970,158 $ 36,811,694
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 2,134,717 $(18,624,934) $ 1,442,884
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Write-down for impairment ........................ -- 20,469,050 181,000
Depreciation and amortization .................... 1,270,172 1,161,328 1,328,043
Straight-line adjustment for stepped lease rentals (52,915) (43,550) 304,337
Changes in assets and liabilities:
Accounts payable and accrued expenses ............ 44,935 159,873 (84,713)
Receivables ...................................... 44,558 211,547 (14,899)
Due to affiliates ................................ 811,488 42,265 (1,188,296)
Other assets ..................................... (177,542) (504,798) (275,658)
------------ ------------ ------------
Net cash provided by operating activities .................. 4,075,413 2,870,781 1,692,698
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate .......................... -- -- 5,474,722
Improvements to real estate ................................ (645,287) (2,075,671) (1,058,855)
------------ ------------ ------------
Net cash (used in) provided by investing activities ................. (645,287) (2,075,671) 4,415,867
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners .................................. (1,010,552) (1,010,552) (6,467,530)
------------ ------------ ------------
Increase (Decrease) In Cash And Cash Equivalents .................... 2,419,574 (215,442) (358,965)
Cash And Cash Equivalents, Beginning of Year ........................ 2,450,943 2,666,385 3,025,350
------------ ------------ ------------
Cash And Cash Equivalents, End of Year .............................. $ 4,870,517 $ 2,450,943 $ 2,666,385
============ ============ ============
See notes to financial statements
</TABLE>
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Integrated Resources High Equity Partners, Series 85, A
California Limited Partnership (the "Partnership"), is a
limited partnership, organized under the Uniform Limited
Partnership Laws of California on August 19, 1983 for the
purpose of investing in, holding and operating
income-producing real estate. The Partnership will terminate
on December 31, 2008 or sooner, in accordance with terms of
the Agreement of Limited Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements are prepared on the accrual basis of
accounting. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain reclassifications have been made to the financial
statements for the prior years in order to conform to the
current year's classifications.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership
considers all short-term investments which have original
maturities of three months or less from the date of issuance
to be cash equivalents.
Organization costs
Organization costs were charged against partners' equity upon
the closing of the public offering in accordance with
prevalent industry practice.
Leases
The Partnership accounts for its leases under the operating
method. Under this method, revenue is recognized as rentals
become due, except for stepped leases where the revenue from
the lease is averaged over the life of the lease.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation
Depreciation is computed using the straight-line method over
the useful life of the property, which is estimated to be 40
years. The cost of properties represents the initial cost of
the properties to the Partnership plus acquisition and closing
costs less write-downs, if any.
Investments in joint ventures
For properties purchased in joint venture ownership with
affiliated partnerships, the financial statements present the
assets, liabilities, and expenses of the joint venture on a
pro rata basis in accordance with the Partnership's percentage
of ownership.
Impairment of Assets
The Partnership evaluates the recoverability of the net
carrying value of its real estate and related assets at least
annually, and more often if circumstances dictate.
The Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long- Lived Assets to be Disposed Of" (SFAS
#121) in 1995. Under SFAS #121, the Partnership estimates the
future cash flows expected to result from the use of each
property and its eventual disposition, generally over a
five-year holding period. In performing this review,
management takes into account, among other things, the
existing occupancy, the expected leasing prospects of the
property and the economic situation in the region where the
property is located.
If the sum of the expected future cash flows, undiscounted, is
less than the carrying amount of the property, the Partnership
recognizes an impairment loss, and reduces the carrying amount
of the asset to its estimated fair value. Fair value is the
amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a
forced or liquidation sale. Management estimates fair value
using discounted cash flows or market comparables, as most
appropriate for each property. Independent certified
appraisers are utilized to assist management, when warranted.
Prior to the adoption of SFAS #121, real estate investments
were carried at the lower of depreciated cost or net
realizable value. Net realizable value was calculated by
management using undiscounted future cash flows, in some cases
with the assistance of independent certified appraisers.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Assets (continued)
Impairment write-downs recorded by the Partnership do not
affect the tax basis of the assets and are not included in the
determination of taxable income or loss.
Because the cash flows used to evaluate the recoverability of
the assets and their fair values are based upon projections of
future economic events such as property occupancy rates,
rental rates, operating cost inflation and market
capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ
materially from the net carrying values at the balance sheet
dates. The cash flows and market comparables used in this
process are based on good faith estimates and assumptions
developed by management. Unanticipated events and
circumstances may occur and some assumptions may not
materialize; therefore, actual results may vary from the
estimates and the variances may be material. The Partnership
may provide additional write-downs, which could be material in
subsequent years if real estate markets or local economic
conditions change.
Income taxes
No provision has been made for federal, state and local income
taxes since they are the personal responsibility of the
partners.
Net income (loss) and distributions per unit of limited
partnership interest
Net income (loss) and distributions per unit of limited
partnership interest is calculated based upon the number of
units outstanding (400,010), for each of the years ended
December 31, 1996, 1995 and 1994.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, Resources
High Equity Inc., is a wholly-owned subsidiary of Presidio
Capital Corp. ("Presidio"). Presidio AGP Corp., which is a
wholly-owned subsidiary of Presidio, is the Associate General
Partner (together with the Managing General Partner the
"General Partners"). Affiliates of the General Partners are
also engaged in businesses related to the acquisition and
operation of real estate. Presidio is also the parent of other
corporations that are or may in the future be engaged in
business that may be in competition with the Partnership.
Accordingly, conflicts of interest may arise between the
Partnership and such other businesses. Wexford Management LLC
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
("Wexford") has been engaged to perform administrative
services to Presidio and its direct and indirect subsidiaries
as well as the Partnership. Wexford is engaged to perform
similar services for other similar entities that may be in
competition with the Partnership.
The Partnership has a property management services agreement
with Resources Supervisory Management Corp. ("Resources
Supervisory"), an affiliate of the Managing General Partner,
to perform certain functions relating to the management of the
properties of the Partnership. A portion of the property
management fees were paid to unaffiliated management companies
which are engaged for the purpose of performing the management
functions for certain properties. For the years ended December
31, 1996, 1995, and 1994, Resources Supervisory was entitled
to receive an aggregate of $327,759, $303,936, and $277,844 of
which $191,956, $161,137, and $153,732 was paid to
unaffiliated management companies, respectively.
For the administration of the Partnership the Managing General
Partner is entitled to receive reimbursement of expenses of a
maximum of $150,000 per year for each of the years ended
December 31, 1996, 1995 and 1994.
For managing the affairs of the Partnership, the Managing
General Partner is entitled to receive a Partnership
management fee equal to 1.05% of the amount of original gross
proceeds paid or allocable to the acquisition of property by
the Partnership. For the years ended December 31, 1996, 1995,
and 1994 the Managing General Partner earned $908,172,
$908,172 and $984,589, respectively.
The General Partners are allocated 5% of the net income or
(losses) of the Partnership which amounted to $106,736,
$(931,247), and $72,144 in 1996, 1995 and 1994, respectively.
The General Partners are also entitled to receive 5% of
distributions which amounted to $50,528, $50,528, and $302,955
in 1996, 1995 and 1994, respectively. During the third quarter
1994 the Partnership paid the balance of deferred fees payable
to the Managing General Partner and its affiliates of
$1,416,042 from the proceeds of the Southern National sale
(Note 4).
During the liquidation stage of the Partnership, the Managing
General Partner or an affiliate may be entitled to receive
certain fees which are subordinated to the limited partners
receiving their original invested capital and certain
specified minimum returns on their investments.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
During July 1996 through February 1997, Millennium Funding II
Corp., a wholly owned indirect subsidiary of Presidio,
contracted to purchase 18,114 units of the Partnership from
various limited partners, which represents less than 5% of the
outstanding limited partnership units of the Partnership. 1996
distributions in the amount of $947 were received by Millenium
Funding II Corp. related to these units.
4. REAL ESTATE
Management recorded write-downs for impairment, totaling
$14,601,450, $10,050,650, $181,000 and $20,469,050 in 1992,
1993, 1994 and 1995, respectively. No write-downs were
required for the year ended December 31, 1996. The details of
write-downs recorded are as follows:
The former sole tenant at Century Park, General Dynamics Corp.
vacated 52,740 square feet of space as of June 30, 1993 and
the balance of its space as of December 31, 1993 totaling
119,394 square feet pursuant to the terms of its leases. On
July 1, 1993 a 51,242 square foot lease was signed with San
Diego Gas and Electric for a thirteen-year, ten month term
with a cancellation option exercisable between the fifth and
sixth years. Due to the soft market in the greater San Diego
area, management concluded that the property's estimated net
realizable value was below its net carrying value. The net
realizable value was based on the property's estimated
undiscounted future cash flows over a 5 year period and an
assumed sale at the end of the holding period using a 10%
capitalization rate. Management, therefore, recorded a
write-down for impairment of $9,100,000 in 1992 of which the
Partnership's share was $4,550,000. Subsequently, management
engaged the services of a certified independent appraiser to
perform a written appraisal of the market value of the
property. Based on the results of the appraisal, management
recorded an additional $11,800,000 write-down for impairment
in 1993 of which the Partnership's share was $5,900,000.
Since the date of the above mentioned appraisal, market
conditions surrounding Century Park deteriorated causing
higher vacancy and lower rental rates. Leasing expectations
were not achieved and capital expenditures exceeded
projections due to converting the building from a single user
to multi-tenancy capabilities. In early 1995, occupancy was
only 25%. Because the estimate of undiscounted cash flows
prepared in 1995 yielded a result lower that the asset's net
carrying value, management determined that an impairment
existed. Management estimated the property's fair value using
expected cash flows discounted at 13% over 15 years and an
assumed sale at the end of the holding period using a 10%
capitalization rate in order to determine the write-down for
impairment. This fair value estimate resulted in a $2,500,000
write-down for impairment in 1995 of which the Partnership's
share was $1,250,000.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
Seattle Tower's occupancy declined from 90% when originally
purchased to 80% as of December 31, 1991. While occupancy
recovered somewhat to 83% at December 31, 1992, the average
base rent per square foot declined 8% from $14.00 per square
foot at the date of acquisition to an average rate of
approximately $12.87 per square foot at December 31, 1992.
Management concluded that the property's estimated net
realizable value was below its net carrying value. The net
realizable value was based on the property's estimated
undiscounted future cash flows over a 5 year period,
reflecting expected cash flow from lower rental rates, and an
assumed sale at the end of the holding period using a 10%
capitalization rate. Management, therefore, recorded a
write-down for impairment of $5,000,000 in 1992 of which the
Partnership's share was $2,500,000.
The Partnership was not able to achieve leasing expectations
at Seattle Tower and occupancy remained at approximately 80%.
In addition, market rents were lower than projected. As a
result, actual income levels at Seattle Tower did not meet and
were not expected to meet income levels projected during
management's impairment review in 1994. In addition, projected
capital expenditures exceeded amounts previously anticipated
for such expenditures. Because the estimate of undiscounted
cash flows prepared in 1995 yielded a result lower than the
asset's net carrying value, management determined that an
impairment existed. Management estimated the property's fair
value in order to determine the write-down for impairment.
Because the estimate of fair value using expected cash flows
discounted at 13% over 15 years and an assumed sale at the end
of the holding period using a 10% capitalization rate yielded
a result which, in management's opinion, was lower than the
property's value in the marketplace, the property was valued
using sales of comparable buildings which indicated a fair
value of $25 per square foot. This fair value estimate
resulted in a $7,100,000 write-down for impairment in 1995 of
which the Partnership's share was $3,550,000.
The recession which occurred prior to 1992 had a particularly
devastating effect on the photography studios which depend
heavily on advertising budgets and art galleries as a source
of business, resulting in many tenant failures. Due to the
poor market conditions in the SoHo area of New York City where
568 Broadway is located and the accompanying high vacancies
and low absorption rates which resulted in declining rental
rates, management concluded that the property's estimated net
realizable value was below its net carrying value. The net
realizable value was based on sales of comparable buildings
which indicated a value of approximately $65 per square foot.
Management, therefore, recorded a write-down for impairment of
$19,400,000 in 1992 of which the Partnership's share was
$7,551,450. Subsequently, management engaged the services of a
certified independent appraiser to perform a written appraisal
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
of the market value of the property. Based on the results of
the appraisal, management recorded an additional $1,800,000
write-down for impairment in 1993 of which the Partnership's
share was $700,650.
Since the date of the above mentioned appraisal, significantly
greater capital improvement expenditures than were previously
anticipated were required in order to render 568 Broadway more
competitive in the New York market. In addition, occupancy
levels remained low. Because the estimate of undiscounted cash
flows prepared in 1995 yielded a result lower than the net
carrying value, management determined that an impairment
existed. Management estimated the property's fair value in
order to determine the write-down for impairment. Because the
estimate of fair value using expected cash flows discounted at
13% over 15 years and an assumed sale at the end of the
holding period using a 10% capitalization rate yielded a
result which, in management's opinion, was lower than the
property's value in the marketplace, the property was valued
using sales of comparable buildings which indicated a fair
value of $45 per square foot. This fair value estimate
resulted in a $6,600,000 write-down for impairment in 1995 of
which the Partnership's share was $2,569,050.
Occupancy at Westbrook was 28% in early 1995. Two significant
tenants were not operating while continuing to make rental
payments under the terms of their leases. However, their
absence adversely impacted both the lease-up of the remaining
space and rental rates, and required additional tenant
procurement costs. As a result, income levels did not meet and
were not expected to meet income levels projected at the date
of management's impairment review in 1994. As a result,
expected cash flow is lower than previously projected. Because
the estimate of undiscounted cash flows prepared in 1995
yielded a result lower than the asset's net carrying value,
management determined that an impairment existed. Management
estimated the property's fair value in order to determine the
write-down for impairment. Because the estimate of fair value
using expected cash flows discounted at 13% over 15 years and
an assumed sale at the end of the holding period using a 10%
capitalization rate yielded a result which, in management's
opinion, was lower than the property's value in the
marketplace, the property was valued using sales of comparable
buildings which indicated a fair value of $20 per square foot.
This fair value estimate resulted in a $3,400,000 write-down
for impairment in 1995.
Rental income at Loch Raven did not meet and was not expected
to meet previously projected levels due to lower rental market
rates since management's impairment review in 1994. Expenses
also decreased slightly but this decrease was offset by
significant capital expenditures which were not previously
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
anticipated. Because the estimate of undiscounted cash flows
prepared in 1995 yielded a result lower than the asset's net
carrying value, management determined that an impairment
existed. Management estimated the property's fair value, using
expected cash flows discounted at 13% over 15 years and an
assumed sale at the end of the holding period using a 10%
capitalization rate, in order to determine the write-down for
impairment. This fair value estimate resulted in a $4,800,000
write-down for impairment in 1995.
Despite an occupancy rate in excess of 90% in 1995, actual
income levels at Southport did not meet and were not expected
to meet previously projected income levels due to lower rental
market rates. Expenses were slightly higher than anticipated
and tenant procurement cost estimates were greater than
amounts projected at the date of management's impairment
review in 1994. Because the estimate of undiscounted cash
flows prepared in 1995 yielded a result lower than the asset's
net carrying value, management determined that an impairment
existed. Management estimated the property's fair value in
order to determine the write-down for impairment. Because the
estimate of fair value using expected cash flows discounted at
13% over 15 years and an assumed sale at the end of the
holding period using a 10% capitalization rate yielded a
result which, in management's opinion, was lower than the
property's value in the marketplace, the property was valued
using sales of comparable buildings which indicated a fair
value of $105 per square foot. This fair value estimated
resulted in a $4,900,000 write-down for impairment in 1995.
Southern National Corp. acquired First Savings Bank (the
original master lessee) in January 1994. Southern National had
given notice that it was not interested in remaining as a
tenant after expiration of its lease but was interested in
acquiring the building. Management believed that substantial
renovations to the building would be required to adapt it to
multi-tenant use. Because the building might require
substantial renovations and market rental rates at that time
were substantially below those which were payable under the
expiring lease, management determined that a write-down for
impairment on the building of $3,450,000 was required in 1993
based on an assumed sale using a 10% capitalization rate. The
building was sold to Southern National for $5,500,000 on
August 8, 1994. Based on the sales price, an additional
write-down of $181,000 was recorded in 1994.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE (CONTINUED)
The following table is a summary of the Partnership's real
estate as of:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land ................................... $ 11,056,966 $ 11,056,966
Buildings and improvments .............. 34,817,081 34,171,794
------------ ------------
45,874,047 45,228,760
Less: Accumulated depreciation ......... (13,719,794) (12,694,788)
------------ ------------
$ 32,154,253 $ 32,533,972
============ ============
</TABLE>
The following is a summary of the Partnership's share of
anticipated future receipts under noncancellable leases:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
1997 1998 1999 2000 2001 Thereafter Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Westbrook ... $ 299,000 $ 285,000 $ 285,000 $ 285,000 $ 176,000 $ 2,761,000 $ 4,091,000
Southport ... 1,743,000 1,661,000 1,524,000 1,271,000 1,003,000 1,271,000 8,473,000
Loch Raven .. 861,000 804,000 739,000 512,000 361,000 639,000 3,916,000
Century Park 837,000 852,000 873,000 862,000 862,000 3,841,000 8,127,000
568 Broadway 2,115,000 1,891,000 1,736,000 1,679,000 1,459,000 4,734,000 13,614,000
Seattle Tower 613,000 436,000 298,000 231,000 143,000 235,000 1,956,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 6,468,000 $ 5,929,000 $ 5,455,000 $ 4,840,000 $ 4,004,000 $13,481,000 $40,177,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
5. DISTRIBUTIONS PAYABLE
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Limited partners ($.60 per unit) ............... $240,006 $240,006
General partners ............................... 12,632 12,632
-------- --------
$252,638 $252,638
======== ========
</TABLE>
Such distributions were paid in the subsequent quarters.
6. DUE TO AFFILIATES
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Partnership management fee ........................... $ 227,044 $ 227,044
Settlement and litigation cost reimbursement (Note 8) 824,510 --
Non-accountable expense reimbursement ................ 37,500 37,500
Property management fees ............................. 75,067 88,089
---------- ----------
$1,164,121 $ 352,633
========== ==========
</TABLE>
Such amounts were paid in the subsequent quarters.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
7. PARTNERS' EQUITY
At December 31, 1996, 1995 and 1994 a total of 400,010 units
of limited partnership interest, including the initial limited
partner, had been issued for aggregate capital contributions
of $100,002,500. In addition, the General Partners contributed
a total of $1,000 to the Partnership. As discussed in Note 3,
the General Partners hold a 5% equity interest in the
Partnership. However, at the inception of the Partnership, the
General Partners' equity account was credited with only the
actual capital contributed in cash, $1,000. Subsequent to the
issuance of the 1996 financial statements, the Partnership's
management determined that this accounting does not
appropriately reflect the Limited Partners' and General
Partners' relative participations in the Partnerships's net
assets, since it does not reflect the General Partners' 5%
interst in the Partnership. Thus, the Partnershp has restated
its financial statements to reallocate $5,000,125 (5% of the
gross proceeds raised at the Partnership's formation) of the
partners' equity to the General Partners' equity account. This
reallocation was made as of the inception of the Partnership
and all periods presented in the financial statements have
been restated to reflect the reallocation. The reallocation
has no impact on the Partnership's financial position, results
of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
8. COMMITMENTS AND CONTINGENCIES
a) 568 Broadway Joint Venture is currently involved in litigation
with a number of present or former tenants who are in default
on their lease obligations. Several of these tenants have
asserted claims or counter claims seeking monetary damages.
The plaintiffs' allegations include but are not limited to
claims for breach of contract, failure to provide certain
services, overcharging of expenses and loss of profits and
income. These suits seek total damages in excess of $20
million plus additional damages of an indeterminate amount.
The Broadway Joint Venture's action for rent against Solo
Press was tried in 1992 and resulted in a judgement in favor
of the Broadway Joint Venture for rent owed. The Partnership
believes this will result in dismissal of the action brought
by Solo Press against the Broadway Joint Venture. Since the
facts of the other actions which involve material claims or
counterclaims are substantially similar, the Partnership
believes that the Broadway Joint Venture will prevail in those
actions as well.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and
a related corporation which is a retail tenant of a building
adjacent to 568 Broadway filed a lawsuit in the Supreme Court
of The State of New York, County of New York, against the
Broadway Joint Venture which owns 568 Broadway. The action was
filed on April 13, 1994. The Plaintiffs allege that by
erecting a sidewalk shed in 1991, 568 Broadway deprived
plaintiffs of light, air and visibility to their customers.
The sidewalk shed was erected, as required by local law, in
connection with the inspection and restoration of the 568
Broadway building facade, which is also required by local law.
Plaintiffs further allege that the erection of the sidewalk
shed for a continuous period of over two years is unreasonable
and unjustified and that such conduct by defendants has
deprived plaintiffs of the use and enjoyment of their
property. The suit seeks a judgement requiring removal of the
sidewalk shed, compensatory damages $20 million, and punitive
damages of $10 million. The Partnership believes that this
suit is without merit and intends to vigorously defend it.
c) On or about May 11, 1993 High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, was advised of the
existence of an action (the "B&S Litigation') in which a
complaint (the "HEP Complaint") was filed in the Superior
Court for the State of California for the County of Los
Angeles (the "Court") on behalf of a purported class
consisting of all of the purchasers of limited partnership
interests in HEP-86. On April 7, 1994 the plaintiffs were
granted leave to file an amended complaint (the "Amended
Complaint").
On November 30, 1995, after the Court preliminarily approved a
settlement of the B&S Litigation but ultimately declined to
grant final approval and after the Court granted motions to
intervene by the original plaintiffs, the original and
intervening plaintiffs filed a Consolidated Class and
Derivative Action Complaint ( the "Consolidated Complaint")
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
against the Administrative and Investment General Partners of
HEP-86, the managing general partner of the Partnership, the
managing general partner of HEP-88 and the indirect corporate
parent of the General Partners. The Consolidated Complaint
alleges various state law class and derivative claims,
including claims for breach of fiduciary duties; breach of
contract; unfair and fraudulent business practices under
California Bus. & Prof. Code Sec. 17200; negligence;
dissolution, accounting and receivership; fraud; and negligent
misrepresentation. The Consolidated Complaint alleges, among
other things, that the general partners caused a waste of HEP
Partnership assets by collecting management fees in lieu of
pursuing a strategy to maximize the value of the investments
owned by the limited partners; that the general partners
breached their duty of loyalty and due care to the limited
partners by expropriating management fees from the
partnerships without trying to run the HEP Partnerships for
the purposes for which they are intended; that the general
partners are acting improperly to enrich themselves in their
position of control over the HEP Partnerships and that their
actions prevent non-affiliated entities from making and
completing tender offers to purchase HEP Partnership Units;
that by refusing to seek the sale of the HEP Partnerships'
properties, the general partners have diminished the value of
the limited partners' equity in the HEP Partnerships; that the
general partners have taken a heavily overvalued partnership
asset management fee; and that limited partnership units were
sold and marketed through the use of false and misleading
statements.
In January, 1996, the parties to the B&S Litigation agreed
upon a revised settlement (the "Revised Settlement"). The core
feature of the Revised Settlement was the surrender by the
general partners of certain fees that they are entitled to
receive, the reorganization of the Partnership, HEP-86 and
HEP- 88 (collectively, the "HEP Partnerships") into a publicly
traded real estate investment trust ("REIT"), and the issuance
of stock in the REIT to the limited partners (in exchange for
their limited partnership interests) and General Partners (in
exchange for their existing interest in the HEP Partnerships
and the fees being given up). The General Partners believe
that the principal benefits of the Revised Settlement were (1)
substantially increased distributions to limited partners, (2)
market liquidity through a NASDAQ listed security, and (3) the
opportunity for growth and diversification that was not
permitted under the Partnership structure. There were also
believed to be other significant tax benefits, corporate
governance advantages and other benefits of the Revised
Settlement.
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On July 18, 1996, the Court preliminarily approved the Revised
Settlement and made a preliminary finding that the Revised
Settlement was fair, adequate and reasonable to the class. In
August 1996, the Court approved the form and method of notice
regarding the Revised Settlement which was sent to limited
partners.
Only approximately 2.5% of the limited partners of the HEP
Partnerships elected to "opt out" of the Revised Settlement.
Despite this, following the submission of additional
materials, the Court entered an order on January 14, 1997
rejecting the Revised Settlement and concluding that there had
not been an adequate showing that the settlement was fair and
reasonable. Thereafter, the plaintiffs filed a motion seeking
to have the Court reconsider its order. Subsequently, the
defendants withdrew the revised settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion.
Also at the February 24, 1997 hearing, the Court recused
itself from considering a motion to intervene and to file a
new complaint in intervention by one of the objectors to the
Revised Settlement, granted the request of one plaintiffs' law
firm to withdraw as class counsel and scheduled future
hearings on various matters.
The Limited Partnership Agreement provides for indemnification
of the General Partners and their affiliates in certain
circumstances. The Partnership has agreed to reimburse the
General Partners for their actual costs incurred in defending
this litigation and the costs of preparing settlement
materials. Through December 31, 1996, the General Partners had
billed the Partnership a total of $824,510 for these costs
which was paid in February 1997.
The Partnerships and the General Partners believe that each of
the claims asserted in the Consolidated Complaint are
meritless and intend to continue to vigorously defend the B&S
Litigation. It is impossible at this time to predict what the
defense of the B&S Litigation will cost, the Partnership's
financial exposure as a result of the indemnification
agreement discussed above, and whether the costs of defending
could adversely affect the Managing General Partner's ability
to perform its obligations to the Partnership.
9. RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER
FINANCIAL STATEMENTS TO TAX REPORTING
The Partnership files its tax returns on an accrual basis and
has computed depreciation for tax purposes using the
accelerated cost recovery systems, which is not in accordance
with generally accepted accounting principles. The following
is a reconciliation of the net income (loss) per the financial
statements to the net taxable income (loss).
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
NOTES TO FINANCIAL STATEMENTS
9. RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER
FINANCIAL STATEMENTS TO TAX REPORTING (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 2,134,717 $(18,624,934) $ 1,442,884
Write-down for impairment ................ -- 20,469,050 181,000
Tax loss from sale of Southern National .. -- -- (2,383,290)
Tax depreciation in excess of financial
statement depreciation ................... (1,553,354) (1,564,609) (1,588,134)
------------ ------------ ------------
Net taxable income (loss) ................ $ 581,363 $ 279,507 $ (2,347,540)
============ ============ ============
</TABLE>
The differences between the Partnership's assets and
liabilities for tax purposes and financial reporting purposes
are as follows:
<TABLE>
<CAPTION>
December 31,
1996
-------------
<S> <C>
Net assets per financial statements ........................ $ 36,811,694
Write-down for impairment .................................. 41,671,150
Tax depreciation in excess of financial
statement depreciation .............................. (11,995,057)
Gain on admission of joint venture
partner not recognized for tax purposes ............. (307,093)
Organization costs not charged to partners'
equity for tax purposes ............................. 1,500,000
------------
Net assets per tax reporting ............................... $ 67,680,694
============
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The Managing
General Partner manages and controls substantially all of the Partnership's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. The Managing General Partner is also the investment
general partner of HEP-86 and the managing general partner of HEP-88, both
limited partnerships with investment objectives similar to those of the
Partnership. The Associate General Partner is also a general partner in other
partnerships affiliated with Presidio and whose investment objectives are
similar to those of the Partnership. The Associate General Partner, in its
capacity as such, does not devote any material amount of its business time and
attention to the Partnership's affairs.
Based on a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership pursuant to Rule 16a-3(e) during its most recent
fiscal year and Form 5 and amendments thereto furnished to the Partnership with
respect to its most recent fiscal year, and written representations pursuant to
Item 405(b)(2)(i) of Regulation S-K, none of the General Partners, directors or
officers of the Managing General Partner or beneficial owners of more than 10%
of the Units failed to file on a timely basis reports required by Section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") during the most
recent fiscal or prior fiscal years. No written representations were received
from the partners of the Associate General Partner.
As of March 15, 1997, the names and ages of, and the positions
held by, the officers and directors of the Managing General Partner are as
follows:
<TABLE>
<CAPTION>
Has Served as an
Officer and/or
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
Joseph M. Jacobs 44 Director and President November 1994
Jay L. Maymudes 36 Director, Vice President, November 1994
Secretary and Treasurer
Robert Holtz 29 Vice President November 1994
Arthur H. Amron 40 Vice President and Assistant November 1994
Secretary
Frederick Simon 42 Vice President February 1996
</TABLE>
All of the current executive officers and directors were
elected following the consummation of Integrated's plan of reorganization under
which the Managing General Partner became indirectly wholly-owned by Presidio.
Biographies for the executive officers and directors follow:
Joseph M. Jacobs has been a director and the President of
Presidio since its formation in August 1994 and a director, Chief Executive
Officer, President and Treasurer of Resurgence Properties Inc., a company
engaged in diversified real estate activities ("Resurgence"), since its
<PAGE>
formation in March 1994. Since January 1, 1996, Mr. Jacobs has been a member and
the President of Wexford. From May 1994 to December 1995, Mr. Jacobs was the
President of Wexford Management Corp. From 1982 through May 1994, Mr. Jacobs was
employed by, and since 1988 was the President of, Bear Stearns Real Estate
Group, Inc., a firm engaged in all aspects of real estate, where he was
responsible for the management of all activities, including maintaining
worldwide relationships with institutional and individual real estate investors,
lenders, owners and developers.
Jay L. Maymudes has been the Chief Financial Officer, a Vice
President and Treasurer of Presidio since its formation in August 1994 and the
Chief Financial Officer and a Vice President of Resurgence since July 1994,
Secretary of Resurgence since January 1995 and Assistant Secretary from July
1994 to January 1995. Since January 1, 1996, Mr. Maymudes has been the Chief
Financial Officer and a Senior Vice President of Wexford and was the Chief
Financial Officer and a Vice President of Wexford Management Corp. from July
1994 to December 1995. From December 1988 through June 1994, Mr. Maymudes was
the Secretary and Treasurer, and since February 1990 was a Senior Vice President
of Dusco, Inc., a real estate investment advisor.
Robert Holtz has been a Vice President and Secretary of
Presidio since its formation in August 1994 and a Vice President and Assistant
Secretary of Resurgence since its formation in March 1994. Since January 1,
1996, Mr. Holtz has been a Senior Vice President and member of Wexford and was a
Vice President of Wexford Management Corp. from May 1994 to December 1995. From
1989 through May 1994, Mr. Holtz was employed by, and since 1993 was a Vice
President of, Bear Stearns Real Estate Group, Inc., where he was responsible for
analysis, acquisitions and management of the assets owned by Bear Stearns Real
Estate and its clients.
Arthur H. Amron has been a Vice President of certain
subsidiaries of Presidio since November 1994. Since January 1996, Mr. Amron has
been the general counsel and a Senior Vice President of Wexford. Also, from
November 1994 to December 1995, Mr. Amron was the general counsel and, from
March 1995 to December 1995, a Vice President, of Wexford Management Corp. From
1992 through November 1994 Mr. Amron was an attorney with the law firm of
Schulte, Roth and Zabel.
Frederick Simon was a Senior Vice President of Wexford
Management Corp. from November 1995 to December 1995. Since January 1996, Mr.
Simon has been a Senior Vice President of Wexford. He is also a Vice President
of Resurgence. Prior to joining Wexford, Mr. Simon was Executive Vice President
and a Partner of Greycoat Real Estate Corporation, the U.S. arm of Greycoat PLC,
a London stock exchange real estate investment and development company.
All of the directors will hold office, subject to the bylaws
of the Managing General Partner, until the next annual meeting of stockholders
of the Managing General Partner and until their successors are elected and
qualified.
There are no family relationships between any executive
officer and any other executive officer or director of the Managing General
Partner.
<PAGE>
As of March 15, 1997, the names and ages of, as well as the
position held by, the officers and directors of the Associate General Partner
are as follows:
<TABLE>
<CAPTION>
Has Served as an
Officer and/or
Name Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Robert Holtz 29 Director and President March 1995
Mark Plaumann 41 Director and Vice President March 1995
Jay L. Maymudes 36 Vice President, Secretary March 1995
and Treasurer
Arthur H. Amron 40 Vice President and March 1995
Assistant Secretary
</TABLE>
See the biographies of the above named officers and directors
in the preceding section except as noted below.
Mark Plaumann has been a Senior Vice President of Wexford
since January 1996. Mr. Plaumann was a Vice President of Wexford Management
Corp. from February 1995 to December 1995. Mr. Plaumann is also a director of
Wahlco Environmental Systems, Inc. (a NYSE registrant engaged in the sale of air
pollution control and specially engineered products and is majority-owned by
investment funds managed by Wexford) since June 1996 and a director of
Technology Service Group, Inc (a NASDAQ registrant engaged in the sale of smart
pay phones and is majority-owned by investment funds managed by Wexford) since
March 1997. Mr. Plaumann was employed by Alvarez & Marsal, Inc., a workout firm
as Managing Director from February 1990 to January 1995. Mr. Plaumann was
employed by American Healthcare Management, Inc. a hospital management company
from February 1985 to January 1990 and by Ernst & Young from January 1973 to
February 1985.
Affiliates of the General Partners are also engaged in
business related to the acquisition and operation of real estate.
Many of the officers, directors and partners of the Managing
General Partner and the Associate General Partner are also officers and/or
directors of the general partners of other public partnerships controlled by
Presidio and various subsidiaries of Presidio.
Item 11. Executive Compensation
The Partnership is not required to and did not pay
remuneration to the officers and directors of the Managing General Partner or
the partners of the Associate General Partner. Certain officers and directors of
the Managing General Partner receive compensation from the Managing General
Partner and/or its affiliates (but not from the Partnership) for services
performed for various affiliated entities, which may include services performed
for the Partnership; however, the Managing General Partner believes that any
compensation attributable to services performed for the Partnership is
immaterial. See also "Item 13. Certain Relationships and Related Transactions."
<PAGE>
Item 12. Security Ownership of Certain Beneficial
Owners and Management
As of March 15, 1997, no person was known by the Partnership
to be the beneficial owner of more than 5% of the Units.
No directors, officers or partners of the Managing General
Partner presently own any Units. An affiliate of the Managing General Partner
contracted to purchase 18,114 Units from various limited partners. These
purchases represent less than 5% of the outstanding Units.
As of March 1, 1997, there were 8,797,255 shares of
outstanding common stock of Presidio (the "Class A Shares"). As of that date,
neither the individual directors nor the officers and directors of the Managing
General Partner as a group were known by the Partnership to own more than 1% of
the Class A Shares.
The following table sets forth certain information known to
Presidio with respect to beneficial ownership of the Class A Shares as of March
1, 1997 (based on 8,797,255 Class A Shares outstanding on such date) by: (i)
each person who beneficially owns 5% or more of the Class A Shares, (ii) the
executive officers of Presidio, (iii) each of Presidio's directors, and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Beneficial Ownership
-------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
------------------------ ------ -----------
<S> <C> <C>
Thomas F. Steyer 4,553,560(1) 51.8%
Fleur A. Fairman
John M. Angelo
Michael L. Gordon 1,231,762(2) 14.0%
Intermarket Corp. 1,000,918(3) 11.4%
M. H. Davidson & Co. 474,205(4) 5.4%
Michael Steinhardt --(5) --
Joseph M. Jacobs --(5) --
Robert Holtz -- --
Jay L. Maymudes -- --
Charles E. Davidson --(5) --
Martin L. Edelman 4,550(6) *
Dean J. Takahashi 4,550(6) *
Paul T. Walker 4,550(6) *
Directors and executive
officers as a group (7 persons) 13,650 *
-----------------------
* Less than 1% of the outstanding Common Stock.
<PAGE>
(1) As the managing partners of each of Farallon Capital Partners, L.P.
("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
Capital Institutional Partners II, L.P. ("FCIP II") and Tinicum Partners
L.P. ("Tinicum"), (collectively, the "Farallon Partnerships"), may each
be deemed to own beneficially for purposes of Rule 13d-3 of the Exchange
Act the 1,397,318, 1,610,730, 607,980 and 241,671 shares held,
respectively, by each of such Farallon Partnerships. Farallon Capital
Management, LLC ("FCMLLC"), the investment advisor to certain
discretionary accounts which collectively hold 695,861 shares and Enrique
H. Boilini, David I. Cohen, Joseph F. Downes, Jason M. Fish, Andrew B.
Fremder, William F. Mellin, Stephen L. Millham, Meridee A. Moore and
Thomas F. Steyer, as a managing member of FCMLLC (collectively the
"Managing Members") may be deemed to be the beneficial owner of all of
the shares owned by such discretionary accounts. FCMLLC and each Managing
Member disclaims any beneficial ownership of such shares.
Farallon Partners, LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP
II and Tinicum), and each of Fleur A. Fairman, Mr. Boilini, Mr. Cohen,
Mr. Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and
Mr. Steyer, each as managing member of FPLLC (collectively, the "Managing
Members"), may be deemed to be the beneficial owner of all of the shares
owned by FCP, FCIP, FCIP II and Tinicum. FPLLC and each Managing Member
disclaims any beneficial ownership of such shares.
(2) John M. Angelo and Michael L. Gordon, the general partners and
controlling persons of AG Partners, L.P., which is the general partner of
Angelo, Gordon & Co., L.P., may be deemed to have beneficial ownership
under Section 13(d) of the Exchange Act of the securities beneficially
owned by Angelo, Gordon & Co., L.P. and its affiliates. Angelo, Gordon &
Co., L.P., a registered investment advisor, serves as general partner of
various limited partnerships and as investment advisor of third party
accounts with power to vote and direct the disposition of Class A Shares
owned by such limited partnerships and third party accounts.
(3) Intermarket Corp. serves as General Partner for certain limited
partnerships and as investment advisor to certain corporations and
foundations. As a result of such relationships, Intermarket Corp. may be
deemed to have the power to vote and the power to dispose of Class A
shares held by such partnerships, corporations and foundations.
(4) Marvin H. Davidson, Thomas L. Kemper Jr., Stephen M. Dowicz, Scott E.
Davidson and Michael J. Leffell, the general partners, members and
stockholders of certain entities that are general partners or investment
advisors of Davidson Kempner Endowment Partners, L.P., Davidson Kempner
Partners L.P., Davidson Kempner Institutional Partners, L.P., M. H.
Davidson and Co., and Davidson Kempner International Ltd. (collectively,
the "Investment Funds") may be deemed to be the beneficial owners under
Section 13(d) of the Exchange Act of the securities beneficially owned by
the Investment Funds and their affiliates.
In addition, Mr. Kempner owns 800 shares and may be deemed to
beneficially own certain securities held by certain foundations and
trusts. Mr. Kempner disclaims beneficial ownership of such shares.
<PAGE>
(5) Excludes 1,200,000 Class B Shares owned by IR Partners. Such Class B
Shares are convertible in certain circumstances into 1,200,000 Class A
Shares; however, such shares are not convertible at present. IR Partners
is a general partnership whose general partners are Steinhardt
Management, certain of its affiliates and accounts managed by it and
Roundhill Associates. Roundhill Associates is a limited partnership whose
general partner is Charles E. Davidson, the principal of Presidio
Management, the Chairman of the Board of Presidio and a Member of
Wexford. Joseph M. Jacobs, the Chief Executive Officer and President of
Presidio and a Member and the President of Wexford, has a limited
partner's interest in Roundhill Associates. Pursuant to Rule 13d-3 under
the Exchange Act, each of Michael H. Steinhardt, the controlling person
of Steinhardt Management and its affiliates and Charles E. Davidson may
be deemed to be beneficial owners of such 1,200,000 shares.
(6) Shares held by each Class A Director of Presidio were issued pursuant to
a Memorandum of Understanding Regarding Compensation of Class A Directors
of Presidio. See "Executive Compensation -- Compensation of Directors."
</TABLE>
The address of Thomas F. Steyer and the other individuals
mentioned in footnote 1 above (other than Fleur A. Fairman) is c/o Farallon
Capital Partners, L.P., One Maritime Plaza, San Francisco, California 94111 and
the address of Fleur A. Fairman is c/o Farallon Capital Management, Inc., 800
Third Avenue, 40th Floor, New York, New York 10022. The address of Angelo,
Gordon & Co., L.P. and its affiliates is 245 Park Avenue, 26th Floor, New York,
New York 10167. The address for Intermarket Corp. is 667 Madison Avenue, New
York, New York 10021. The address for M. H. Davidson & Co. is 885 Third Avenue,
New York, New York 10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The General Partners and certain affiliated entities have,
during the year ended December 31, 1996, earned or received compensation or
payments for services or reimbursements from the Partnership or Presidio
subsidiaries as follows:
<TABLE>
<CAPTION>
Capacity in Compensation from
Name of Recipient Which Served the Parntership
- ----------------- ------------ ---------------
<S> <C> <C>
Resources High Equity Inc. Managing General Partner $1,703,408(1)
Presidio AGP Corp. Associate General Partner $ 1,011(2)
Resources Supervisory Affiliated Property Managers $ 135,803(3)
Management Corp.
Millennium Funding Corp. Affiliate $ 228,794(4)
- ------------
(1) Of this amount $49,517 represents the Managing General Partner's share of
distributions of cash from operations, $150,000 represents payment for
non-accountable expenses of the Managing General Partner based upon the
number of Units sold, $595,717 represents reimbursement of costs in
connection with the B&S Litigation, and $908,174 represents a Partnership
Management Fee for managing the affairs of the Partnership. Furthermore,
under the Partnership's Limited Partnership Agreement, 5% of the
Partnership's net income and net loss is allocated to the General
Partners (0.1% to the Associate General Partner and 4.9% to the Managing
General Partner). Pursuant thereto, for the year ended December 31, 1996,
$21,532 of the Partnership's taxable income was allocated to the Managing
General Partner.
(2) This amount represents the Associate General Partner's share of
distributions of cash from operations. In addition, for the year ended
December 31, 1996, $439 of the Partnership's taxable income was allocated
to the Associate General Partner.
(3) This amount was earned pursuant to a management agreement with Resources
Supervisory, a wholly-owned subsidiary of Presidio, for performance of
certain functions relating to the management of the Partnership's
properties. The total fee paid to Resources Supervisory was $327,759, of
which $191,956 was paid to unaffiliated management companies.
(4) This amount represents reimbursements of actual costs incurred in
defending the B&S Litigation and the cost of preparing settlement
materials.
</TABLE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) (1) Financial Statements: see Index to Financial Statements in
Item 8.
(a) (2) Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation
(a) (3) Exhibits:
3,4. (a) Amended and Restated Partnership Agreement ("Partnership
Agreement") of the Partnership, incorporated by reference to
Exhibit A to the Prospectus of the Partnership dated February
4, 1985, included in the Partnership's Registration Statement
on Form S-11 (Reg. No. 2-92319).
(b) Amendment dated April 1, 1985 to the Partnership's
Partnership Agreement, incorporated by reference to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1985.
(c) Restatement of Amendment dated December 1, 1986 to the
Partnership's Partnership Agreement, incorporated by reference
to the Partnership's Current Report on Form 8-K dated December
8, 1986.
(d) Amendment dated as of April 1, 1988 to the Partnership's
Partnership Agreement, incorporated by reference to the
Partnership's Annual Report on Form 10- K for the year ended
December 31, 1988.
10. (a) Agent's Agreement between the Partnership and Resources
Property Man agement Corp., incorporated by reference to
Exhibit 10(b) to the Partnership's Regi stration Statement on
Form S-11 (Reg. No. 2-92319).
(b) Acquisition and Disposition Services Agreement among the
Partnership and Realty Resources Inc., and Resources
Acquisitions, Inc., incorporated by reference to Exhibit 10(c)
to the Partnership's Registration Statement on Form S-11 (Reg.
No. 2- 92319).
(c) Agreement among Resources High Equity, Inc., Integrated
Resources, Inc. and Z Square G Partners II, incorporated by
reference to Exhibit 10(d) to the Partnership's Registration
Statement on Form S-11 (Reg. No. 2-92319).
(d) Lease Agreement dated June 12, 1985, between the
Partnership and First Federal Savings and Loan Association of
South Carolina for the First Federal Office Building,
incorporated by reference to Exhibit 10(g) to the
Partnership's Post-Effective Amendment No. 1 to Registration
Statement on Form S-11 (Reg. No. 2-92319).
<PAGE>
(e) Joint Venture Agreement dated November 2, 1986 between the
Partnership and High Equity Partners, L.P. - Series 86, A
California Limited Partnership, with respect to Century Park
I, incorporated by reference to Exhibit 10(b) to the
Partnership's Current Report on Form 8-K dated November 7,
1986.
(f) Joint Venture Agreement dated October 27, 1986 between the
Partnership and High Equity Partners, L.P. - Series 86, with
respect to 568 Broadway, incorporated by reference to Exhibit
10(b) to the Partnership's Current Report on Form 8-K dated
November 19, 1986.
(g) Joint Venture Agreement dated November 24, 1986 between
the Partnership and High Equity Partners, L.P. - Series 86,
with respect to Seattle Tower, incorporated by reference to
Exhibit 10(b) to the Partnership's Current Report on Form 8-K
dated December 8, 1986.
(h) Amended and Restated Joint Venture Agreement dated
February 1, 1990 among the Partnership, High Equity Partners,
L.P. - Series 86 and High Equity Partners, L.P. - Series 88,
with respect to 568 Broadway, incorporated by reference to
Exhibit 10(a) to the Partnership's Current Report on Form 8-K
dated February 1, 1990.
(i) First Amendment to Amended and Restated Joint Venture
Agreement of 568 Broadway Joint Venture, dated as of February
1, 1990, among the Partnership, High Equity Partners, L.P. -
Series 86 and High Equity Partners, L.P. - Series 88,
incorporated by reference to Exhibit 10(p) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1990.
(j) Agreement, dated as of March 23, 1990, among the
Partnership, Resources High Equity Inc. and Resources Property
Management Corp., with respect to the payment of deferred
fees, incorporated by reference to Exhibit 10(q) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1990.
(k) Amending Agreement, dated as of December 31, 1991, to
Agreement dated as of March 23, 1990, among the Partnership,
Resources High Equity Inc. and Resources Property Management
Corp., with respect to the payment of deferred fees,
incorporated by reference to Exhibit 10(r) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.
(l) Form of Termination of Supervisory Management Agreement
(separate agreement entered into with respect to each
individual property) and Form of Supervisory Management
Agreement between the Partnership and Resources Supervisory
(separate agreement entered into with respect to each
property), incorporated by reference to Exhibit 10(s) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.
<PAGE>
(m) Amending Agreement, dated as of December 30, 1992, to
Agreement dated as of March 23, 1990, among the Partnership,
Resources High Equity, Inc. and Resources Property Management
Corp., with respect to the payment of deferred fees,
incorporated by reference to Exhibit 10(m) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1992.
(n) Amending Agreement, dated as of December 29, 1993, to
Agreement dated as of March 23, 1990, among the Partnership,
Resources High Equity, Inc. and Resources Property Management
Corp., incorporated by reference with respect to the payment
of deferred fees.
(b) Reports on Form 8-K:
The Partnership filed the following reports on Form 8-K during
the last quarter of the fiscal year:
None.
<PAGE>
Financial Statement Schedule Filed Pursuant to
Item 14(a)(2)
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85,
A CALIFORNIA LIMITED PARTNERSHIP
ADDITIONAL INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
INDEX
Additional financial information furnished pursuant to the requirements
of Form 10-K:
Schedules - December 31, 1996, 1995 and 1994 and years then ended, as
required:
Schedule III - Real estate and accumulated depreciation
- Notes to Schedule III - Real estate and
accumulated depreciation
All other schedules have been omitted because they are
inapplicable, not required, or the information is included in the financial
statements or notes thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused This report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INTEGRATED RESOURCES HIGH EQUITY
PARTNERS, SERIES 85, A CALIFORNIA
LIMITED PARTNERSHIP
By: RESOURCES HIGH EQUITY, INC.
Managing General Partner
Dated: May 7, 1997 By: /s/ Joseph M. Jacobs
--------------------
Joseph M. Jacobs
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, This report has been signed below by the following persons on behalf of
the registrant and in their capacities on the dates indicated.
Dated: May 7, 1997 By: /s/ Joseph M. Jacobs
--------------------
Joseph M. Jacobs
President and Director
(Principal Executive Officer)
Dated: May 7, 1997 By: /s/ Jay L. Maymudes
-------------------
Jay L. Maymudes
Vice President, Secretary,
Treasurer and Director
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Costs Reductions
Capitalized Recorded
Subsequent to Subsequent to
Initial Costs Acquisition Acquistion
------------------------ ------------------------ -------------
Buildings
Encum- and Carrying
Description brances Land Improvements Improvements Costs Write-downs
----------- ------- ----------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL:
The Westbrook Mall Shopping Center Brooklyn Center MN $ --- $ 1,424,800 $ 3,648,837 $ 714,579 $ 374,968 $ (3,400,000)
The Southport Shopping Center Ft. Lauderdale FL --- 6,961,667 13,723,333 886,569 1,866,962 (4,900,000)
The Loch Raven Shopping Center Towson MD --- 2,469,871 6,860,748 973,428 953,837 (4,800,000)
------- ----------- ----------- ----------- ---------- ------------
--- 10,856,338 24,232,918 2,574,576 3,195,767 (13,100,000)
------- ----------- ----------- ----------- ---------- ------------
OFFICE:
Century Park I Office Complex Kearny Mesa CA --- 3,122,064 12,717,936 1,452,515 1,363,130 (11,700,000)
568 Broadway Office Building New York NY --- 2,318,801 9,821,517 4,872,883 1,556,212 (10,821,150)
Seattle Tower Office Building Seattle WA --- 2,163,253 5,030,803 1,657,092 609,392 (6,050,000)
------- ----------- ----------- ----------- ---------- ------------
--- 7,604,118 27,570,256 7,982,490 3,528,734 (28,571,150)
------- ----------- ----------- ----------- ---------- ------------
$ --- $18,460,456 $51,803,174 $10,557,066 $6,724,501 $(41,671,150)
======= =========== =========== =========== ========== ============
<PAGE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------------------
Buildings
and Accumulated Date
Description Land Improvements Total Depreciation Acquuired
----------- ---- ------------ ----- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
RETAIL:
The Westbrook Mall Shopping Center Brooklyn Center MN $ 686,001 $ 2,077,183 $ 2,763,184 $ 1,236,191 1985
The Southport Shopping Center Ft. Lauderdale FL 5,998,194 12,540,337 18,538,531 4,143,083 1986
The Loch Raven Shopping Center Towson MD 1,507,227 4,950,657 6,457,884 1,952,549 1986
----------- ------------ ----------- -----------
8,191,422 19,568,177 27,759,599 7,331,823
----------- ------------ ----------- -----------
OFFICE:
Century Park I Office Complex Kearny Mesa CA 1,123,811 5,831,834 6,955,645 2,651,358 1986
568 Broadway Office Building New York NY 977,120 6,771,143 7,748,263 2,502,477 1986
Seattle Tower Office Building Seattle WA 764,613 2,645,927 3,410,540 1,234,136 1986
----------- ------------ ----------- -----------
2,865,544 15,248,904 18,114,448 6,387,971
----------- ------------ ----------- -----------
$11,056,966 $ 34,817,081 $45,874,047 $13,719,794
=========== ============ =========== ===========
Note: The aggregate cost for Federal income tax purposes is $87,545,196 at
December 31, 1996.
</TABLE>
<PAGE>
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85
A California Limited Partnership
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(A) RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR ....... $ 45,228,760 $ 63,622,139 $ 70,637,066
ADDITIONS DURING THE YEAR
Improvements to Real Estate 645,287 2,075,671 1,058,855
OTHER CHANGES
Write-down for Impairment . -- (20,469,050) (181,000)
Sales - net ............... -- -- (7,892,782)
------------ ------------ ------------
BALANCE AT END OF YEAR (1) ......... $ 45,874,047 $ 45,228,760 $ 63,622,139
============ ============ ============
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND CLOSING
COSTS.
</TABLE>
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR .... $ 12,694,788 $ 11,714,459 $ 12,982,723
ADDITIONS DURING THE YEAR
Depreciation Expense (1) 1,025,006 980,329 1,149,796
SUBTRACTIONS DURING THE YEAR
Sales .................. -- -- (2,418,060)
------------ ------------ ------------
BALANCE AT END OF YEAR .......... $ 13,719,794 $ 12,694,788 $ 11,714,459
============ ============ ============
(1) DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD OVER
THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN ITEM 8 TO THE INTEGRATED RESOURCES HIGH EQUITY PARTNERS,
SERIES 85 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,870,517
<SECURITIES> 0
<RECEIVABLES> 158,204
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,290,185
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 36,811,694
<TOTAL-LIABILITY-AND-EQUITY> 39,290,185
<SALES> 0
<TOTAL-REVENUES> 8,888,016
<CGS> 0
<TOTAL-COSTS> 3,139,504
<OTHER-EXPENSES> 3,865,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,134,717
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,134,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,717
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
