UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-13233
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BALCOR PENSION INVESTORS-V
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(Exact name of registrant as specified in its charter)
Illinois 36-3254673
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 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 ]
<PAGE>
PART I
Item 1. Business
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Balcor Pension Investors-V (the "Registrant") is a limited partnership formed
in 1983 under the laws of the State of Illinois. The Registrant raised
$219,652,500 from sales of Limited Partnership Interests. The Registrant's
operations consist of investment in wrap-around mortgage loans and first
mortgage loans. The Registrant is also operating one property acquired through
foreclosure. All information included in this report relates to this industry
segment.
The Registrant originally funded thirty-four loans. A portion of mortgage
reductions generated by repayments was reinvested in five additional loans and
a second funding on an existing loan, and a portion was distributed to Limited
Partners. The remainder was added to working capital reserves. As a result of
the repayments, foreclosures and write-offs of thirty-four loans, the
Registrant has one loan in its portfolio as of December 31, 1996. Ten
properties were acquired through foreclosure and two loans were reclassified as
investment in joint ventures with affiliates. The Registrant sold seven of the
properties and one of the investments in joint ventures, and has one property
and one investment in joint ventures with affiliates in its portfolio as of
December 31, 1996. See "Item 2". Properties for additional information.
The Registrant's remaining investments face various levels of competition for
retention of tenants from similar types of properties in the vicinity in which
they are located. The Registrant has no plans to change the current use of or
to renovate its remaining investments.
Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction. While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997. However, values could
begin to level off as they approach replacement cost triggering new
construction and an increase in capitalization rates.
The investment market for apartments was excellent during 1996 due to a number
of factors. Investor interest was strong, driven primarily by institutions, as
Real Estate Investment Trusts aggressively expanded their portfolios and
pension funds viewed apartments as an attractive asset class due to their
perceived low volatility and the emergence of large professional property
management companies. Operationally, existing apartment properties registered
on a national basis occupancy in the mid 90's and rental rate increases of 3-4%
in 1996. While above the rate of inflation, the rate of rental growth in 1996
was below that of the previous two years suggesting that the apartment cycle
may have plateaued, especially as the impact of new construction in many areas
is being felt. While 1997 is projected to be another solid year, values should
begin to level off as capitalization rates move upward continuing a trend which
began during the second half of 1996.
<PAGE>
Currently, office properties are attracting the most interest from real estate
investors. While new apartment construction has been underway since 1995, the
office sector has just entered its development phase in most markets and new
construction is generally only proceeding with strong tenant pre-leasing.
Occupancy rates are at their highest level in years, reaching the 90s in a vast
number of markets. As a result, rents have finally begun to increase at rates
well in excess of inflation in many markets around the country. As a result of
these fundamentals, office properties have increasingly become in strong demand
by investors. Values increased significantly during 1996 and are expected to do
so again in 1997. Suburban properties are attracting attention as well. Still,
office properties remain a highly volatile sector where one new build-to-suit
office building for a major tenant could throw a market into relapse. In
addition, office space is highly vulnerable to corporate restructuring and the
growing "telecommuting" trend. The Registrant believes the combination of
strong price increases and future volatility make this an excellent time to
sell office assets.
During 1996 the Registrant sold the 45 West 45th Street Office Building in
which it held a minority joint venture interest, the Glades on Ulmerton,
Granada, Plantation, Huntington Meadows, Waldengreen and the Villa Medici
apartment complexes and the Union Tower office building. The Registrant also
sold its remaining property, the Harbor Bay office building in January 1997.
The Registrant is actively marketing the property in which it holds a minority
joint venture interest for sale and seeking repayment of its remaining loan.
The timing of the termination of the Registrant and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. Such contingencies may include legal and other fees
stemming from litigation involving the Registrant including, but not limited
to, the lawsuit discussed in "Item 3. Legal Proceedings". In the absence of any
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held
by the Registrant for a longer period of time.
The Registrant received notice of an unsolicited offer for the purchase of
Limited Partnership Interests ("tender offer") in March 1997. The tender offer
was made by Madison Partnership Liquidity Investors XXI, LLC and stated that
their primary motive in making the offer is to make a profit from the purchase
of the interests. Madison Partnership Liquidity Investors XXI, LLC is seeking
to acquire 4.9% of the total interests outstanding in the Registrant. The
Registrant incurred administrative costs in responding to the tender offer and
may incur additional costs if additional tender offers are made in the future.
The General Partner cannot predict with any certainty what impact this tender
offer or any future tender offers will have on the operations or management of
the Registrant.
During 1996, the Registrant received a repayment of the Seven Trails Apartments
loan receivable and sold the wrap-around mortgage loan relating to The Glen
Apartments and its interest in the Noland Fashion Square acquisition loan. See
"Item 7. Liquidity and Capital Resources" for additional information.
During 1996, the Registrant sold seven properties in all cash sales totaling
$55,848,000. In addition, in 1996, the General Partner sold one property in
which the Registrant held a minority joint venture interest with affiliates in
an all cash sale for $10,300,000. During January 1997, the Registrant sold the
Harbor Bay Office Building for $6,900,000. See Item 7. "Liquidity and Capital
Resources" for additional information.
<PAGE>
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure, is subject to Federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate. The
General Partner is not aware of any potential liability due to environmental
issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-V, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Other Information
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The Glen Apartments
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In 1986, the Registrant funded a $2,130,233 loan collateralized by The Glen
Apartments, Fairfax County, Virginia and evidenced by a wrap-around mortgage
note in the principal amount of $4,950,000 (the "Loan"). The principal amount
of the Loan included the principal amount of an underlying first mortgage loan
(the "Underlying Loan"). The Loan is payable in monthly interest only payments
through maturity in December 1997.
On December 23, 1996, the Registrant sold the Loan to Bank America Investment
Corporation, an Illinois corporation. The sale price was equal to 96.11% of the
total of the outstanding principal balance of the Loan and deferred interest
due under the terms of the Loan, less the outstanding principal balance of the
Underlying Loan at closing. The sale price was $2,674,362. Neither the General
Partner nor any affiliate will receive a brokerage commission in connection
with the sale of the property. The General Partner will be reimbursed by the
Registrant for actual expenses incurred in connection with the sale.
From the proceeds of the sale, the Registrant paid closing costs of $15,543 and
a total of $92,264 to two unaffiliated parties as a brokerage commission. The
Partnership received the remaining proceeds of $2,566,555.
An affiliate of the Partnership simultaneously sold another loan to the
purchaser.
1420 Harbor Bay Parkway
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As previously reported, in December 1996, the Registrant contracted to sell the
1420 Harbor Bay Parkway, Alameda, California, to an unaffiliated party, Lincoln
Property Company N.C., Inc., a Texas corporation. The purchaser assigned its
rights under the agreement of sale to one of its affiliates, Lincoln-DLJ Harbor
Bay Opco, LLC, and the sale closed on January 23, 1997. The sale price was
$6,900,000. From the proceeds of the sale, the Registrant paid a total of
$241,500 as a brokerage commission to two unaffiliated parties, one of which is
an affiliate of the third party providing property management services for the
property, and paid closing costs of $51,776. The Registrant received the
remaining proceeds of approximately $6,606,724.
<PAGE>
Item 2. Properties
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As of December 31, 1996, the Registrant owned the property described below in
fee simple:
Location Description of Property
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Alameda County, California * Harbor Bay: a two-story office building
containing approximately 120,000 square feet.
* This property was sold in January 1997. See Note 17 of Notes to Financial
Statements for additional information.
The average occupancy rates and the effective average rent per square foot for
each of the last five years for the commercial property owned by the Registrant
at December 31, 1996, is described below.
1996 1995 1994 1993 1992
Harbor Bay Office Building
Occupancy rate 85% 88% 83% 58% 50%
Effective rent $15.29 $18.71 $17.20 $18.52 $23.38
Information regarding tenants occupying 10% or more of the leasable square feet
of the above listed property is provided below.
Scheduled
Lease Lease
Square Base Rent Expiration Renewal
Property Tenant Feet Per Annum Date Option
- -------- -------- -------- --------- ---------- ---------
Harbor Bay Thompkins & Co.
Office (Insurance) 12,513 $170,400 10/2008 Yes
Building Business Design 16,053 $240,795 4/1999 Yes
Associates
(Software)
IDX Corporation 22,940 $324,830 3/2001 Yes
(Consulting)
The Registrant also holds a minority joint venture interest in the Whispering
Hills Apartments located in Overland Park, Kansas. See Notes 3(g) and 11 of
Notes to Financial Statements for additional information.
Real estate taxes incurred in 1996 for the above commercial property was
$162,475.
The federal tax basis of the Registrant's property was $8,780,048 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the property were depreciated over its useful life of 40 years, using the
straight-line method.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate properties.
<PAGE>
See Notes to Financial Statements for other information regarding this
property.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726, U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates were the
defendants. The complaint alleged violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in the Related Partnerships and alleged breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint sought compensatory and punitive
damages.
A settlement of these proceedings was approved by the District Court on
November 20, 1996 on the terms previously described in the form of settlement
agreement attached as Exhibit 99 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996. Distributions to be paid pursuant to the
settlement were paid in February 1997. All proceedings relating to this matter
are now dismissed.
Proposed Class and Derivative Action Lawsuits
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division "Chancery Court", Case
No. 96 CH 06283) (the "Dee Case", naming the General Partner and the general
partners (the "Balcor Defendants" of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships", as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group "Insignia" and Walton
Street Capital Acquisition II, LLC "Walton" and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants". The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case". An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case" was filed on July 25, 1996.
<PAGE>
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint. On January 7, 1997, the Chancery Court denied the plaintiffs'
motion for leave to amend the complaint and dismissed the matter with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time whether or
not an unfavorable decision in this action would have a material adverse impact
on the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 38,266.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total income $13,299,467 $14,571,311 $12,182,999 $19,394,286 $13,794,232
<PAGE>
Recovery of
losses on loans,
real estate and
accrued inter-
est receivable 3,672,819 1,600,000 None None None
Provision for
losses on loans,
real estate and
accrued inter-
est receivable 1,499,518 1,117,110 None 6,755,000 4,000,000
Income before gains
on sales of
assets 10,373,926
Net income 20,049,845 12,145,083 10,835,098 10,335,746 7,982,124
Net income per
Limited Partner-
ship Interest 32.10 24.88 22.20 21.17 16.35
Total assets 82,215,052 99,679,564 117,976,309 120,700,542 144,257,526
Mortgage notes
payable None None None 2,245,353 5,840,049
Distributions per
Limited Partner-
ship Interest (A) 82.15 64.50 23.65 65.25 32.50
(A) These amounts include distributions of Original Capital of $54.28, 27.50,
$2.65, $23.25 and $2.50 per Limited Partnership Interest for the years 1996,
1995, 1994, 1993 and 1992, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Net income increased during 1996 as compared to 1995 primarily due to gains
recognized on the sales of four properties owned by Balcor Pension Investors-V
(the "Partnership"). Net income increased in 1995 as compared to 1994
primarily as a result of improved operations at the Partnership's properties.
Further discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
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The Partnership recognized gains on sales of real estate of $9,675,919 in
connection with the sales of the Huntington Meadows, The Glades on Ulmerton,
the Villa Medici apartment complexes and the Union Tower office building in
1996.
<PAGE>
Net interest income on loans receivable decreased in 1996 as compared to 1995
due primarily to the 1995 repayments of the Club Wildwood, Four Seasons and
Point West mobile home parks and the Fairview Plaza I and II loans.
Additionally the Seven Trails loan receivable was repaid in 1996.
Income from operations of real estate held for sale represents net property
operations generated by the properties the Partnership has acquired through
foreclosure. At December 31, 1996, the Partnership was operating one property.
Original funds advanced by the Partnership were approximately $14,000,000 for
this property. Income from operations of real estate held for sale decreased in
1996 as compared to 1995 due to lower occupancy at the Harbor Bay Office
Building and increased tenant related expenditures at the Union Tower Office
Building.
Due to higher average cash balances in 1996 resulting from the property and
loan sales in 1996, interest on short-term investments increased during 1996 as
compared to 1995.
The Partnership's loans generally bear interest at contractually-fixed interest
rates. Some loans also provide for additional interest in the form of
participations, usually consisting of either a share in the capital
appreciation of the property collateralizing the Partnership's loan and/or a
share in the increase of the gross income of the property above a certain
level. Participation income was recognized during 1995 in connection with the
prepayment of the Club Wildwood, Four Seasons and Point West mobile home parks
loans. Additionally, participation income was recognized on the Glen and Meadow
Run Apartments loans during 1996 and 1995.
Prepayment premiums totaling $315,000 were received in 1995 in connection with
the prepayments on the Club Wildwood, Four Seasons and Point West mobile home
park loans.
Participation in joint ventures with affiliates represents the Partnership's
share of the property operations at the Whispering Hills Apartments and the 45
West 45th Street Office Building. Primarily as a result of the recognition of a
gain in connection with the sale of the 45 West 45th Street Office Building in
1996 and a provision for losses related to a change in the estimate of the fair
value of the 45 West 45 Street Office Building in 1995, the Partnership
recognized participation in income of joint ventures with affiliates during
1996 as compared to participation in loss during 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represent estimations based on many variables
which affect the value of real estate, including economic and demographic
conditions. See Note 3(d) of Notes to Financial Statements for further
information regarding the Partnership's accounting policies related to the
determination of the fair value of its loans and real estate held for sale.
During 1996, the Partnership recognized a provision of $511,415 related to the
<PAGE>
Noland Fashion Square loan and provisions of $988,103 related to its real
estate held for sale to provide for changes in the estimate of the fair value
of certain properties in the Partnership's portfolio. The Partnership
recognized recoveries in 1996 of $2,478,000 and $341,382 related to the Seven
Trails Apartments loan and The Glen Apartments loan, respectively, and $853,437
related to its real estate held for sale. The Partnership recognized a
recovery of $1,600,000 and a provision of $817,110 in 1995 related to its real
estate held for sale and an additional provision of $300,000 related to the
Meadow Run loan. During 1995, allowances of $397,881 related to the Fairview I
and II loan receivable prepayment and $317,110 related to the Comerica Office
Building sale were written off.
As a result of the sale of the Comerica Office Building in 1995 and the
write-off of the unamortized deferred expenses, amortization expense decreased
during 1996 as compared to 1995.
The Partnership incurred higher legal, consulting, postage and printing costs
in connection with a response to a tender offer during 1996. As a result,
administrative expenses increased during 1996 as compared to 1995.
1995 Compared to 1994
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Interest income on loans receivable decreased in 1995 as compared to 1994 due
to the foreclosure of the Villa Medici Apartments in March 1995 and the final
interest income payments received on the Cinnamon Square Apartments loan in
1994. This decrease was partially offset by the receipt of additional interest
income in connection with the Club Wildwood, Four Seasons and Pointe West
mobile home park loan prepayments during 1995. Interest expense on loans
payable decreased during 1995 as compared to 1994 due to the purchase of the
Seven Trails West Apartments underlying loan in March 1994.
The Partnership had one non-accrual loan at December 31, 1995 which is
collateralized by Seven Trails West Apartments. For non-accrual loans, income
is recorded only as cash payments are received from the borrower. The funds
advanced by the Partnership for this loan were approximately $8,000,000,
representing approximately 4% of original funds advanced. During 1995 the
Partnership received cash payments of net interest income of approximately
$1,617,000. Under the terms of the original loan agreement the Partnership
would have received approximately $2,021,000 of net interest income during
1995.
Income from operations of real estate held for sale represents the net
operations of properties acquired by the Partnership through foreclosure. At
December 31, 1995, the Partnership was operating eight properties. Original
funds advanced by the Partnership totaled approximately $69,545,000 for these
properties. The Partnership foreclosed on the Villa Medici Apartments in March
1995. Additionally, occupancy rates at several of the Partnership's properties
increased while leasing costs decreased at the Harbor Bay Office Building in
1995. As a result, income from operations of real estate held for sale
increased in 1995 as compared to 1994.
Due to higher Partnership cash balances and interest rates during 1995,
interest income on short-term investments increased in 1995 as compared to
1994.
<PAGE>
Participation in joint ventures with affiliates represents the Partnership's
share of the property operations at the Whispering Hills Apartments and the 45
West 45th Street Office Building. The Partnership recognized its share of the
decline in the fair value of the 45 West 45th Street Office Building during
1995 which was the primary reason the Partnership recognized participation in
loss of joint ventures during 1995 as compared to participation in income of
joint ventures in 1994.
The Partnership did not recognize any provisions during 1994 related to its
loans receivable or real estate held for sale.
As a result of the sale of the Comerica Office Building and the full
amortization of the related deferred expenses, amortization expense increased
during 1995 as compared to 1994.
Decreases in legal fees related to the 1994 foreclosures and mortgage servicing
fees resulted in a decrease in administrative expenses during 1995 as compared
to 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $49,976,000 as
of December 31, 1996 when compared to December 31, 1995 primarily as a result
of the Partnership's share of the net proceeds received in connection with the
sale of seven properties and two loans and the repayment of one loan. The
Partnership's cash flow provided by operating activities of approximately
$7,663,000 was generated primarily by net interest income from the
Partnership's loans receivable, net interest income on short-term investments
and cash flow from the operation of the Partnership's properties held for sale
which was partially offset by the payment of administrative expenses. The
Partnership's investing activities generated cash flow of approximately
$79,804,000 primarily from the sale proceeds from the seven properties, the
Seven Trails Apartments loan repayment and the Noland Fashion Square
acquisition loan sale proceeds. Cash of approximately $37,491,000 was used in
financing activities consisting primarily of distributions to partners. In
addition, in January 1997 the Partnership received net proceeds of $6,606,724
from the sale of the Harbor Bay office building and made a special distribution
of $55,352,430 to Limited Partners.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures. None of the properties have any
underlying debt. During 1996 and 1995 the Partnership's remaining property, the
Harbor Bay office building, generated positive cash flow. All of the properties
which were sold in 1996 generated positive cash flow prior to their sales in
1996 and in 1995. The property in which the Partnership holds a minority joint
venture interest with affiliate, the Whispering Hills Apartments, generated
positive cash flow during 1996 and 1995. The property in which the Partnership
held a joint venture interest with affiliates, the 45 West 45th Street Office
Building, generated positive cash flow prior to its sale in 1996 and in 1995.
<PAGE>
However, significant leasing costs were incurred at the 45 West 45th Street
Office Building in 1995. These costs were not included in classifying the cash
flow performance of the property in 1995 since they were nonrecurring
expenditures. Had these costs been included, the 45 West 45th Street Office
Building would have generated a significant cash flow deficit in 1995. As of
December 31, 1996, the occupancy rate at the Harbor Bay Office Building was
84%.
During November 1996, the General Partner sold the 45 West 45th Street Office
Building in which it held a minority joint venture interest. During December
1996, the Partnership sold the Glades on Ulmerton, Granada, Plantation,
Huntington Meadows, Villa Medici, and the Waldengreen apartments complexes and
the Union Tower office building for sales prices of $6,500,000, $2,300,000,
$3,000,000, $9,300,000, $12,808,000, $6,590,000 and $15,350,000 respectively.
During January 1997 the Partnership sold the Harbor Bay office building. The
Partnership is actively marketing the property in which it holds a minority
joint venture interest for sale and seeking repayment of its remaining loan.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. Such contingencies may include legal and other fees
stemming from litigation involving the Partnership including, but not limited
to, the lawsuit discussed in "Item 3. Legal Proceedings". In the absence of
any contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held by
the Partnership for a longer period of time.
The 45 West 45th Street Office Building was owned by a joint venture consisting
of the Partnership and three affiliates. In November 1996, the joint venture
sold the property in an all cash sale for $10,300,000. From the proceeds of
the sale, the joint venture paid $579,075 in selling costs. The net proceeds
of the sale were $9,720,925, of which $2,113,329 was the Partnership's share.
Pursuant to the terms of the sale, $500,000 of the proceeds will be retained by
the joint venture until April 1997. The remaining proceeds were distributed to
the Limited Partners in January 1997. See Note 11 of Notes to Financial
Statements for additional information.
The Partnership funded a $14,700,000 loan collateralized by a wrap-around
mortgage on the Seven Trails Apartments. This loan wrapped around an underlying
first mortgage loan of $6,714,692, resulting in funds advanced by the
Partnership of $7,985,308. In March 1994, the underlying first mortgage loan
was purchased by the Partnership at face value for $4,689,871 which increased
the funds advanced to $12,675,179. The wrap-around mortgage loan matured in
February 1996. The Partnership extended the loan until April 1, 1996 to allow
the borrower additional time to secure alternate financing. The loan was repaid
in full in April 1996. The Partnership received proceeds of $16,473,402
consisting of funds advanced of $12,675,179, equity buildup related to
principal payments of $2,024,821 made by the Partnership on the underlying loan
and additional interest income of $1,773,402. The proceeds were distributed to
the Limited Partners in July 1996. See Note 5 of Notes to Financial Statements
for additional information.
The Meadow Run Apartments first mortgage loan matured in July 1996. The
Partnership negotiated an extension of the loan until December 1996 to allow
the borrower additional time to secure alternate financing. The loan came due
in December 1996 and the borrower is currently pursuing alternate financing and
<PAGE>
continues to make monthly interest payments to the Partnership. See Note 5 of
Notes to Financial Statements for additional information.
In August 1996, the Noland Fashion Square acquisition loan, in which the
Partnership held a 40.77% participating interest, was sold. The Partnership's
share of the sale price was $7,226,945. From the proceeds of the sale, the
Partnership paid $100,810 as its share of selling costs. Pursuant to the terms
of the sale, $101,932 of the proceeds were held in an escrow account until
November 1996 at which time the escrow was released to the Partnership. The
proceeds were distributed as special distributions to the Limited Partners in
October 1996 and January 1997. See Note 7 of Notes to Financial Statements for
additional information.
The Noland Fashion Square Shopping Center loan was recorded by the Partnership
as an investment in an acquisition loan. The Partnership has recorded its share
of the property's operations as equity in loss from investment in acquisition
loan. The Partnership's share of operations has no effect on the cash flow of
the Partnership. Amounts representing contractually required debt service are
recorded as interest income.
In December 1996, the Partnership sold The Glen Apartments first mortgage loan
in an all cash sale for $2,674,362. From the proceeds of the sale the
Partnership paid $107,806 in selling costs. The net proceeds were distributed
to the Limited Partners in January 1997. See Note 6 of Notes to Financial
Statements for additional information.
In December 1996, the Partnership sold The Glades on Ulmerton Apartments in an
all cash sale for $6,500,000. From the proceeds of the sale the Partnership
paid $275,210 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In December 1996, the Partnership sold the Granada Apartments in an all cash
sale for $2,300,000. From the proceeds of the sale the Partnership paid
$139,738 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In December 1996, the Partnership sold the Plantation Apartments in an all cash
sale for $3,000,000. From the proceeds of the sale the Partnership paid
$173,592 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In December 1996, the Partnership sold the Huntington Meadows Apartments in an
all cash sale for $9,300,000. From the proceeds of the sale the Partnership
paid $341,832 in selling costs. In addition, the purchaser received a $342,000
credit against the purchase price for certain repairs required at the property.
Pursuant to the terms of the sale, $200,000 of the proceeds were be retained by
the Partnership until February 1997. The full amount of the holdback was
released in February 1997. The remainder of the proceeds were distributed as a
special distribution to the Limited Partners in January 1997. See Note 14 of
Notes to Financial Statements for additional information.
<PAGE>
In December 1996, the Partnership sold the Villa Medici Apartments in an all
cash sale for $12,808,000. From the proceeds of the sale the Partnership paid
$362,595 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In December 1996, the Partnership sold the Waldengreen Apartments in an all
cash sale for $6,590,000. From the proceeds of the sale the Partnership paid
$270,325 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In December 1996, the Partnership sold the Union Tower office building in an
all cash sale for $15,350,000. From the proceeds of the sale the Partnership
paid $361,230 in selling costs. The net proceeds were distributed as a special
distribution to the Limited Partners in January 1997. See Note 14 of Notes to
Financial Statements for additional information.
In January 1997, the Partnership sold the Harbor Bay office building in an all
cash sale for $6,900,000. From the proceeds of the sale the Partnership paid
$293,276 in selling costs. The net proceeds will be distributed to the Limited
Partners in 1997. See Note 17 of Notes to Financial Statements for additional
information.
The Partnership made four distributions totaling $82.15, $64.50, and 23.65 per
Interest in 1996, 1995 and 1994, respectively. See Statement of Partners'
Capital for additional information. Distributions were comprised of $27.87 of
Cash Flow and $54.28 of Mortgage Reductions in 1996, $37.00 of Cash Flow and
$27.50 of Mortgage Reductions in 1995 and $21.00 of Cash Flow and $2.65 of
Mortgage Reductions in 1994. Cash Flow distributions decreased in 1996 as
compared to 1995 and increased in 1995 as compared to 1994 primarily due to the
1995 loan repayments. Distributions from Mortgage Reductions were made from
property sales and loan repayments.
In January 1997, the Partnership paid a distribution of $55,352,430 ($126.00
per Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow of $5.00 per Interest for the
fourth quarter of 1996 and a special distribution of $121.00 per Interest
primarily from proceeds received from the seven property sales in 1996. The
level of the regular quarterly Cash Flow distribution was consistent with the
prior quarter. Including the January 1997 distribution, Limited Partners have
received cash distributions totaling $725.90 per $500 Interest. Of this amount,
$415.12 has been Cash Flow from operations and $310.78 represents a return of
Original Capital. In January 1997, the Partnership also paid $183,044 to the
General Partner as its distributive share of Cash Flow for the fourth quarter
of 1996 and made a contribution to the Early Investment Incentive Fund of
$61,015.
In February 1997, the General Partner made a settlement payment of
$164,739($.38 per Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly Kennedy
et. at. v. Balcor Pension Investors-V, et. al. class action lawsuit.
<PAGE>
During 1996 the General Partner used amounts placed in the Early Investment
Incentive Fund to repurchase 5,319 Interests from Limited Partners at a total
cost of $1,187,603. In February 1997, the Partnership discontinued the
repurchase of Interests from Limited Partners.
Future distributions will be made from available proceeds from the sale of the
Partnership's remaining properties and the repayment of its remaining loan. The
General Partner, on behalf of the Partnership, has retained what it believes is
an appropriate amount of working capital to meet current cash or liquidity
requirements which may occur.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate. Lower interest rates
may increase the probability that borrowers' may seek prepayment of the
Partnership's loan whereas rising interest rates decrease the yields on the
loans and make prepayment less likely.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
plans relating to properties of the Partnership, as well as assumptions
relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
<PAGE>
On September 14, 1995 the Partnership approved the engagement of Coopers &
Lybrand LLP as its independent auditors for the fiscal year ending December 31,
1995 to replace the firm of Ernst & Young LLP, who were dismissed as auditors
of the Partnership effective September 14, 1995. The General Partner of the
Partnership approved the change in auditors.
The reports of Ernst & Young LLP on the Partnership's financial statements for
each of the two fiscal years ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Partnership's financial statements for
each of the two fiscal years ended December 31, 1994, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP would have caused Ernst & Young LLP to make reference to the
matter in their report.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Mortgage Advisors-V, its General Partner,
has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman, President
and Chief Executive Officer and has responsibility for all ongoing day-to-day
activities at Balcor. He is a Director of The Balcor Company. He is also Senior
Vice President of American Express Company and is responsible for its real
estate operations worldwide. Prior to joining Balcor, Mr. Meador was employed
at the Harris Trust and Savings Bank in the commercial real estate division
where he was involved in various lending activities. Mr. Meador received his
M.B.A. degree from the Indiana University Graduate School of Business.
<PAGE>
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for
Balcor's property sales activities. He also has supervisory responsibility for
Balcor's accounting, financial, treasury, investor services and investment
administration functions. From 1989 to 1995, Mr. Mendelson was Vice President -
Transaction Management and Vice President - Senior Transaction Manager and had
responsibility for various asset management matters relating to real estate
investments made by Balcor, including negotiations for the restructuring of
mortgage loan investments. Mr. Mendelson received his M.B.A. degree from the
University of Chicago.
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He received a Master of Planning degree from the University of
Virginia. Mr. Powell has been designated a Certified Real Estate Financier by
the National Society for Real Estate Finance and is a full member of the Urban
Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Managing Director of The Balcor
Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $8,955 in 1996 with respect to one of the executive
officers and directors of the General Partner. The Registrant has not paid and
does not propose to pay any remuneration to the remaining executive officers
and directors of the General Partner. Certain of the remaining officers receive
compensation from The Balcor Company (but not from the Registrant) for services
performed for various affiliated entities, which may include services performed
for the Registrant. However, the general partner believes that any such
compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 12 of Notes to Financial Statements for
information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
<PAGE>
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Mortgage Advisors-V and its officers and partners own as a group
through the Early Investment Incentive Fund and otherwise the following Limited
Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ---------------- ----------------
Limited Partnership
Interests 28,476 6.5%
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 12 of Notes to Financial Statements for information relating to
transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and
Restated Certificate of Limited Partnership of Balcor Pension Investors-V
previously filed as Exhibit 3 and 4.1, respectively, to Amendment No. 1 dated
January 16, 1984 to the Registrant's Registration Statement on Form S-11
(Registration No. 2-87662) are incorporated herein by reference.
<PAGE>
(4) Form of Confirmation regarding Interests in the Registrant set forth as
Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1992 is incorporated herein by reference.
(10)(a)(i) Agreement of Sale and attachments thereto relating to the sale of
the Granada Apartments, Tampa, Florida previously filed as Exhibit (2)(a)(i) to
the Registrants Current Report on Form 8-K dated September 17, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the Granada
Apartments, Tampa, Florida previously filed as Exhibit (2)(a)(ii) to the
Registrant's Current Report on Form 8-K dated September 17, 1996 is
incorporated herein by reference.
(iii) Letter Agreement dated October 7, 1996, relating to the sale of the
Granada Apartments, Tampa, Florida previously filed as Exhibit (99)(b) to the
Registrant's Current Report on Form 8-K dated October 3, 1996 is incorporated
herein by reference.
(iv) Second Amendment to Agreement of Sale relating to the sale of Granada
Apartments, Tampa, Florida previously filed as Exhibit (10)(a)(iv) to the
Registrant's Current Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(b)(i) Agreement of Sale and attachments thereto relating to the sale of the
Plantation Apartments, Tampa, Florida previously filed as Exhibit (2)(b)(i) to
the Registrant's Current Report on Form 8-K dated September 17, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the
Plantation Apartments, Tampa, Florida previously filed as Exhibit (2)(b)(ii) to
the Registrant's Current Report on Form 8-K dated September 17, 1996 is
incorporated herein by reference.
(iii) Letter Agreement dated October 7, 1996, relating to the sale of the
Plantation Apartments, Tampa, Florida previously filed as Exhibit (99)(c) to
the Registrant's Current Report on Form 8-K dated October 3, 1996 is
incorporated herein by reference.
(iv) Second Amendment to Agreement of Sale relating to the sale of Plantation
Apartments, Tampa, Florida previously filed as Exhibit (10)(b)(iv) to the
Registrant's Current Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(c)(i) Agreement of Sale and attachments thereto relating to the sale of the
The Glades on Ulmerton Apartments, Largo, Florida previously filed as Exhibit
(2)(c)(i) to the Registrant's Current Report on Form 8-K dated September 17,
1996 is incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the The
Glades on Ulmerton Apartments, Largo, Florida previously filed as Exhibit
(2)(c)(ii) to the Registrant's Current Report on Form 8-K dated September 17,
1996 is incorporated herein by reference.
<PAGE>
(iii) Letter Agreement dated October 7, 1996, relating to the sale of the The
Glades on Ulmerton Apartments, Largo, Florida previously filed as Exhibit
(99)(d) to the Registrant's Current Report on Form 8-K dated October 3, 1996 is
incorporated herein by reference.
(d)(i) Agreement of Sale and attachments thereto relating to the sale of the
Union Tower office building, Lakewood, Colorado previously filed as Exhibit (2)
to the Registrant's Current Report on Form 8-K dated October 10, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the Union
Tower office building, Lakewood, Colorado previously filed as Exhibit
(10)(d)(ii) to the Registrant's Current Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
(e) Purchase and Sale Agreement relating to the sale of first mortgage loan
secured by The Glen Apartments, Fairfax County, Virginia is attached hereto.
(f)(i) Agreement of Sale and attachments thereto relating to the sale of the
1420 Harbor Bay Parkway, Alameda, California previously filed as Exhibit (2)(a)
to the Registrant's Current Report on Form 8-K dated December 6, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the 1420
Harbor Bay Parkway, Alameda, California previously filed as Exhibit (2)(b) to
the Registrant's Current Report on Form 8-K dated December 6, 1996 is
incorporated herein by reference.
(iii) Second Amendment to Agreement of Sale relating to the sale of the 1420
Harbor Bay Parkway, Alameda, California is attached hereto.
(iv) Third Amendment to Agreement of Sale relating to the sale of the 1420
Harbor Bay Parkway, Alameda, California is attached hereto.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
File No. 0-13233) is hereby incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors-V, et
al. previously filed as Exhibit (99)(c) to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996 is incorporated herein by reference.
(b) Reports on Form 8-K:
1) A Current Report on Form 8-K dated October 3, 1996, was filed relating to
the Agreement of Sale for Huntington Meadows Apartments, Arlington, Texas, and
to Letter Agreements for the sales of the Granada Apartments, Tampa, Florida,
the Plantation Apartments, Tampa, Florida and The Glades on Ulmerton
Apartments, Largo, Florida.
<PAGE>
2) A Current Report on Form 8-K dated October 10, 1996, was filed relating to
the Agreement of Sale for the Union Tower office building, Lakewood, Colorado.
3) A Current Report on Form 8-K dated December 6, 1996, was filed relating to
the Agreement of Sale and First Amendment to the Agreement of Sale for the 1420
Harbor Bay Parkway, Alameda, California, the closing of the sales of Villa
Medici Apartments, Overland Park, Kansas, The Glades on Ulmerton Apartments,
Largo, Florida, Plantation Apartments, Tampa, Florida, Granada Apartments,
Tampa, Florida, Union Tower office building, Lakewood, Colorado, Waldengreen
Apartments, Orlando, Florida, and Huntington Meadows Apartments, Arlington,
Texas.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-V
By: /s/Jayne A. Kosik
-----------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor Mortgage
Advisors-V, the General Partner
Date: March 28,1997
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- --------------------------------------------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
/s/Thomas E Meador Advisors-V, the General Partner March 28,1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Mortgage
/s/Jayne A. Kosik Advisors-V, the General Partner March 28, 1997
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Pension Investors-V
We have audited the accompanying balance sheets of Balcor Pension Investors-V
(An Illinois Limited Partnership) as of December 31, 1996 and 1995 and the
related statements of partners' capital, income and expenses and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors-V at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon disposition of all its
interests in real estate. The Partnership is presently marketing for sale its
remaining real estate asset and is seeking repayment of its remaining mortgage
loan receivable. Upon disposition of its remaining real estate asset, repayment
of the remaining mortgage loan receivable and resolution of the litigation
described in Note 15 to the financial statements, the Partnership intends to
cease operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-V:
We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Pension Investors-V (An Illinois Limited
Partnership) for the year ended December 31, 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Balcor
Pension Investors-V for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1995
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and December 31, 1995
ASSETS
1996 1995
--------------- ---------------
Cash and cash equivalents $ 67,655,936 $ 17,680,262
Escrow deposits - restricted 95,243 42,103
Accounts and accrued interest receivable 665,695 576,378
Prepaid expenses 38,651 145,027
Deferred expenses, net of accumulated
amortization of $133,699 in 1996 and
$261,244 in 1995 196,549 149,904
--------------- ---------------
68,652,074 18,593,674
--------------- ---------------
Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 6,015,968 26,421,997
Investment in acquisition loan 8,439,304
Less:
Loans payable - underlying mortgages 2,539,832
Allowance for potential loan losses 2,102,000 5,859,733
--------------- ---------------
Net investment in loans receivable 3,913,968 26,461,736
Real estate held for sale (net of
allowance of $2,711,056 in 1996
and $4,955,000 in 1995) 6,606,724 50,018,118
Investment in joint ventures-affiliates 3,042,286 4,606,036
--------------- ---------------
13,562,978 81,085,890
--------------- ---------------
$ 82,215,052 $ 99,679,564
=============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and December 31, 1995
(Continued)
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued interest payable $ 978,110 $ 265,469
Due to affiliates 150,580 49,849
Other liabilities, principally escrow
deposits and accrued real estate taxes 145,394 611,875
Security deposits 81,774 493,733
--------------- ---------------
Total liabilities 1,355,858 1,420,926
--------------- ---------------
Commitments and contingencies
Limited Partners' capital
(439,305 Interests issued
and outstanding) 80,322,266 102,310,790
General Partner's capital (deficit) 536,928 (4,052,152)
--------------- ---------------
Total Partners' capital 80,859,194 98,258,638
--------------- ---------------
$ 82,215,052 $ 99,679,564
=============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
Partners' Capital (Deficit) Accounts
-------------------------------------------
General Limited
Total Partner Partners
---------------- ------------- ------------
Balance at December 31, 1993 $ 116,834,271 $ (3,519,091)$ 120,353,362
Cash distributions (A) (11,414,609) (1,025,046) (10,389,563)
Net income for the year
ended December 31, 1994 10,835,098 1,083,510 9,751,588
---------------- ------------- ------------
Balance at December 31, 1994 116,254,760 (3,460,627) 119,715,387
Cash distributions (A) (30,141,205) (1,806,033) (28,335,172)
Net income for the year
ended December 31, 1995 12,145,083 1,214,508 10,930,575
---------------- ------------- ------------
Balance at December 31, 1995 98,258,638 (4,052,152) 102,310,790
Cash distributions (A) (37,449,289) (1,360,384) (36,088,905)
Net income for the year
ended December 31, 1996 20,049,845 5,949,464 14,100,381
---------------- ------------- ------------
Balance at December 31, 1996 $ 80,859,194 $ 536,928 $ 80,322,266
================ ============= ============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994
---------------- ------------- ------------
First quarter $ 5.00 $ 4.00 $ 9.00
Second quarter 14.78 5.00 6.65
Third quarter 41.72 31.82 4.00
Fourth quarter 20.65 23.68 4.00
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------------- ------------- ------------
Income:
Interest on loans receivable,
and from investment in
acquisition loan $ 3,575,255 $ 5,834,417 $ 8,035,744
Less interest on loans
payable - underlying
mortgages 185,693 273,184 472,303
---------------- ------------- ------------
Net interest income on
loans receivable 3,389,562 5,561,233 7,563,441
Income from operations of
real estate held for sale 4,160,232 5,366,016 3,406,925
Interest on short-term
investments 1,141,900 1,007,008 714,328
Participation income 40,146 926,139 75,506
Prepayment premiums 315,000
Recovery of losses on loans,
real estate and accrued
interest receivable 3,672,819 1,600,000
Participation of income
(loss) of joint ventures-
affiliates 894,808 (204,085) 422,799
---------------- ------------- ------------
Total income 13,299,467 14,571,311 12,182,999
---------------- ------------- ------------
Expenses:
Provision for potential
losses on loans, real
estate and accrued
interest receivable 1,499,518 1,117,110
Amortization of deferred
expenses 55,455 199,150 129,874
Administrative 1,318,547 1,031,937 1,148,320
---------------- ------------- ------------
Total expenses 2,873,520 2,348,197 1,278,194
---------------- ------------- ------------
Income before equity in
loss from investment
in acquisition loan 10,425,947 12,223,114 10,904,805
Equity in loss from investment
in acquisition loan (52,021) (78,031) (69,707)
---------------- ------------- ------------
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995 and 1994
(Continued)
Income before gain on sales of
real estate 10,373,926 12,145,083 10,835,098
Gain on sales of real estate 9,675,919
---------------- ------------- ------------
Net income $ 20,049,845 $ 12,145,083 $ 10,835,098
================ ============= ============
Net income allocated to
General Partner $ 5,949,464 $ 1,214,508 $ 1,083,510
================ ============= ============
Net income allocated to
Limited Partners $ 14,100,381 $ 10,930,575 $ 9,751,588
================ ============= ============
Net income per Limited
Partnership Interest
(439,305 issued and
outstanding) $ 32.10 $ 24.88 $ 22.20
================ ============= ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
--------------- ------------ ------------
Operating activities:
Net income $ 20,049,845 $ 12,145,083 $ 10,835,098
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sales of real estate (9,675,919)
Equity in loss from invest-
ment in acquisition loan 52,021 78,031 69,707
Participation in (income)
loss of joint
ventures - affiliates (894,808) 204,085 (422,799)
Recovery of losses on loans,
real estate and accrued
interest receivable (3,672,819) (1,600,000)
Provision for potential
losses on loans, real
estate and accrued
interest receivable 1,499,518 1,117,110
Amortization of deferred
expenses 55,455 199,150 129,874
Payment of leasing
commissions (102,100) (221,925)
Accrued interest income
due at maturity (610,927) (906,566)
Collection of interest
income due at maturity 452,768 2,591,071 98,055
Net change in:
Escrow deposits
- restricted (53,140) 342,522 (4,940)
Accounts and accrued
interest receivable (89,317) (111,371) 681,297
Prepaid expenses 106,376 (145,027)
Accounts and accrued
interest payable 712,641 35,805 (37,023)
Due to affiliates 100,731 (86,694) (178)
Other liabilities (466,481) (386,838) 326,774
Security deposits (411,959) 137,104 66,460
--------------- ------------ ------------
Net cash provided by
operating activities 7,662,812 13,909,104 10,613,834
--------------- ------------ ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(Continued)
1996 1995 1994
--------------- ------------ ------------
Investing activities:
Proceeds from sale of
acquisition loan 7,226,945
Costs incurred in connection
with the sale of
acquisition loan (100,810)
Procceeds from sale of loan
receivable 2,674,362
Costs incurred in connection
with sale of loan receivable (107,806)
Capital contributions to joint
ventures - affiliates (22,759) (204,116)
Distributions from joint
ventures - affiliates 2,481,317 398,620 590,827
Collection of principal
payments on loans receivable 14,700,000 16,060,889 415,659
Improvements to real estate (628,831) (439,382) (377,081)
Proceeds from sales
of real estate 55,506,000 2,570,208
Costs incurred in
connection with the
sales of real estate (1,924,522) (175,495)
--------------- ------------ ------------
Net cash provided by
investing activities $ 79,803,896 $ 18,210,724 $ 629,405
--------------- ------------ ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(Continued)
1996 1995 1994
--------------- ------------ ------------
Financing activities:
Distributions to Limited
Partners $ (36,088,905)$ (28,335,172)$ (10,389,563)
Distributions to General
Partner (1,360,384) (1,806,033) (1,025,046)
Principal payments on loans
payable - underlying
mortgages (41,745) (343,945) (471,728)
Repayment of loans payable -
underlying mortgages (4,689,871)
Principal payments on mortgage
notes payable (4,004)
Repayment of mortgage
note payable (2,241,349)
--------------- ------------ ------------
Net cash used in financing
activities (37,491,034) (30,485,150) (18,821,561)
--------------- ------------ ------------
Net change in cash and
cash equivalents 49,975,674 1,634,678 (7,578,322)
Cash and cash equivalents at
beginning of period 17,680,262 16,045,584 23,623,906
--------------- ------------ ------------
Cash and cash equivalents
at end of period $ 67,655,936 $ 17,680,262 $ 16,045,584
================ ============= ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-V
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Partnership's Business:
Balcor Pension Investors-V (the "Partnership") is engaged in the operation of
residential and commercial real estate located in Overland Park, Kansas and
Alameda, California. Additionally, the Partnership has an investment in a first
mortgage loan.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996 the Registrant sold the 45 West 45th Street Office
Building in which it held a minority joint venture interest, the Glades on
Ulmerton, Granada, Plantation, Huntington Meadows, Waldengreen and the Villa
Medici apartment complexes and the Union Tower office building. The Registrant
sold the Harbor Bay office building in January 1997. The Registrant is actively
marketing the property in which it holds a minority joint venture interest for
sale and seeking repayment of its remaining loan. The timing of the termination
of the Partnership and final distribution of cash will depend upon the nature
and extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees stemming from litigation
involving the Partnership including but not limited to, the lawsuit discussed
in Note 15 of Notes to Financial Statements. In the absence of any
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be
held by the Partnership for alonger period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner 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 vary from those estimates.
(b) The Partnership records wrap-around mortgage loans at the face amount of
the mortgage instrument which includes the outstanding indebtedness of the
borrower under the terms of the underlying mortgage obligations. The underlying
mortgage obligations were recorded as a reduction of the wrap-around mortgage
loan and the resulting balance represented the Partnership's net advance to the
borrower. The Partnership was responsible for making periodic payments to the
underlying mortgage lenders only to the extent that payments as required by the
wrap-around mortgage agreement were received by the Partnership from the
borrower.
<PAGE>
(c) Income on loans is recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest is discontinued when a loan
becomes ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment has occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which are
otherwise not performing in accordance with their terms is recorded on a cash
basis.
Various loan agreements provide for participation by the Partnership in
increases in value of the collateral property when the loan is repaid or
refinanced. In addition, certain loan agreements allow the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income is reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate held for sale is reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
(d) Loan losses on mortgage notes receivable are charged to income and an
allowance account is established when the General Partner believes the loan
balance will not be recovered. The General Partner assesses the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance is transferred to real estate
held for sale after the fair value of the property, less costs of disposal is
assessed. Upon the transfer to real estate held for sale, a new basis in the
property is established.
Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121,
the Partnership records its investments in real estate at the lower of cost or
fair value, and periodically assesses, but not less than on an annual basis,
fair value of its real estate properties held for sale. The General Partner
estimates the fair value of its properties based on the current sales price
less estimated closing costs. Changes in the property's fair value are recorded
by an adjustment to the property allowance account and are recognized in the
income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value is determined. The
General Partner considers the methods referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicate otherwise.
(e) Under certain circumstances, the Partnership may accept promissory notes in
satisfaction of a borrower's obligations for certain fees upon prepayment of a
loan as required by the loan agreement. These fees include, among other things,
prepayment penalties and participations in the borrower's appreciation in the
collateral property. The Partnership's policy is to record such income on a
cash basis as payments required under the terms of the promissory notes are
received.
<PAGE>
(f) Investment in the acquisition loan represented a first mortgage loan which,
because the loan agreement included certain specified terms, must be accounted
for as an investment in a real estate venture. The investment was therefore
reflected in the accompanying financial statements using the equity method of
accounting. Under this method, the Partnership recorded its investment at cost
(representing total loan funding) and subsequently adjusted its investment for
its share of property income or loss.
Amounts representing contractually required debt service are recorded in the
accompanying statements of income and expenses as interest income and
participation income. Equity from investment in acquisition loan represented
the Partnership's share of the collateral properties' operations, including
depreciation and interest expense. The Partnership's share of operations had no
effect on cash flow of the Partnership.
(g) Investment in joint venture - affiliate represents the Partnership's 25%
interest, under the equity method of accounting, in a joint venture with an
affiliate. Under the equity method of accounting, the Partnership records its
initial investment at cost and adjusts its investment account for additional
capital contributions, distributions and its share of joint venture income or
loss.
(h) Deferred expenses consist of loan application and processing fees and
mortgage brokerage fees which were amortized over the terms of the respective
agreements, and leasing commissions which are amortized over the life of each
respective lease. These fees are fully amortized when a property is sold.
(i) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes maintenance and insurance and is
recognized as revenue in the period the applicable costs are incurred.
(j) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(k) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash or cash
equivalents are held or invested in one financial institution.
<PAGE>
(l) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(m) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the General
Partner was allocated additional income in 1996 for financial statement
purposes.
(n) Several reclassifications have been made to the previously reported 1994
financial statements to conform with the classification used in 1995 and 1996.
Mortgage servicing fees have been reclassified and are included in
administrative expenses during 1995 and 1996. This reclassification has also
been made to the previously reported 1994 financial statements to conform with
the classification used in 1995 and 1996. These reclassifications have not
changed the 1994 results.
4. Partnership Agreement:
The Partnership was organized in October 1983. The Partnership Agreement
provides for Balcor Mortgage Advisors-V to be the General Partner and for the
admission of Limited Partners through the sale of Limited Partnership Interests
at $500 per Interest, 439,305 of which were sold on or prior to August 31,
1984, the termination date of the offering.
Pursuant to the Partnership Agreement, all income of the Partnership will be
allocated 90% to the Limited Partners and 10% to the General Partner and all
losses will be allocated 99% to the Limited Partners and 1% to the General
Partner.
To the extent that Cash Flow is generated, distributions will be made as
follows: (i) 90% of such Cash Flow will be distributed to the Limited Partners,
(ii) 7.5% of such Cash Flow will be distributed to the General Partner, and
(iii) an additional 2.5% of such Cash Flow will be distributed to the General
Partner and shall constitute the Early Investment Incentive Fund (the "Fund").
Upon the liquidation of the Partnership, the General Partner will return to the
Partnership for distribution to Early Investors an amount not to exceed the
2.5% share originally allocated, if necessary for Early Investors to receive a
return of their Original Capital plus a specified Cumulative Return based on
the date of investment.
At the sole discretion of the General Partner and subject to certain
limitations as set forth in the Partnership Agreement, amounts placed in the
Fund were available to repurchase Interests from existing Limited Partners.
During 1996, the Fund repurchased 5,319 Interests at a total cost of
$1,187,603. All repurchases of Interests have been made at 90% of the then
current valuation of such Limited Partnership Interests at the previous quarter
<PAGE>
end less any distributions made after the previous quarter end. Distributions
of Cash Flow and Mortgage Reductions pertaining to such repurchased Interests
will be paid to the Fund. In February 1997, the Partnership discontinued the
repurchase of Interests from Limited Partners.
5. Investment in Loan Receivable:
The Meadow Run Apartments first mortgage loan receivable, which was funded in
1984, had a balance of $6,015,968 at December 31, 1996 and 1995. This balance
includes an additional amount of interest that accrued and will be payable to
the Partnership upon repayment of the loan, or upon sale of the property.
Current monthly payments of $43,063 are due at an interest rate of 13.25% per
annum. The loan matured in July 1996. The Partnership extended the loan until
December 1996 to allow the borrower additional time to secure alternate
financing. The borrower was not able to obtain financing by December 1996 but
continues to make monthly interest payments to the Partnership. The General
Partner is monitoring the borrower's efforts to seek alternate financing. The
Partnership may receive additional payments from the borrower representing
participation in the operating results of the collateral property which exceeds
specified levels and a share of appreciation in the collateral property upon
repayment or refinancing.
(B) In March 1994, the Seven Trails West Apartments loan matured and was
extended for two years on the same terms as the previously modified loan,
except for an increase in the interest rate from 10% to 11% per annum. In
addition, in March 1994 the $4,689,871 underlying first mortgage loan on the
property was purchased by the Partnership at face value. The Seven Trails West
Apartments loan matured in February 1996. The Partnership extended the loan
until April 1, 1996 to allow the borrower additional time to secure alternate
financing. The loan was repaid in April 1996. The Partnership recognized a
recovery of $2,478,000 upon the repayment of the loan.
6. Sale of Loan Receivable:
In December 1996 the Partnership sold The Glen Apartments which was a
wrap-around mortgage loan for a sale price of $2,674,362. Prior to the sale,
the note receivable balance was $5,253,261 which included $303,261 of accrued
interest. The underlying mortgage loan was $2,498,088. From the proceeds of the
sale the Partnership paid $107,806 in selling costs. The carrying value of the
loan was $2,755,173. The Partnership did not recognize a gain or loss in
connection with the sale of this loan. During 1996, the Partnership recognized
a recovery of $341,382 and wrote off the previously established allowance for
losses of $530,000.
7. Sale of Acquisition Loan Receivable:
The Partnership and two affiliates entered into a participation agreement to
fund a $23,300,000 first mortgage loan collateralized by the Noland Fashion
Square Shopping Center. The Partnership participated ratably in approximately
41% of the loan amount, interest income and participation income. The balance
of the loan included the Partnership's share of the cumulative net loss of the
property after the loan was funded. The loan was sold in August 1996 in an all
<PAGE>
cash sale for $17,725,000 of which $7,226,945 is the Partnership's share. From
the proceeds of the sale the Partnership paid $100,810 as its share of selling
costs. The carrying value of the loan was $8,387,283. The Partnership did not
recognize a gain or loss in connection with the sale of this loan. During
1996, the Partnership recognized an additional provision for losses of $511,415
and wrote off $749,733 against the previously established loss allowance
related to this loan.
Loans are classified as non-accrual as a result of delinquency or other
noncompliance with terms of loan agreements; such loans aggregated $15,152,768
at December 31, 1995 and none at December 31, 1996.
Non-accrual loans and loans which have been restructured are hereinafter
referred to as impaired loans. Net interest income relating to impaired loans
would have been $3,040,000 in 1995 and $2,906,000 in 1994. Net interest income
received from impaired loans included in the accompanying Statements of Income
and Expenses amounted to $2,227,000 (cash basis and accrual basis) in 1995,
$1,826,000 (cash basis and accrual basis) in 1994.
Impaired loans totaled $15,152,768 at December 31, 1995 and none at December
31, 1996. The impaired loan had a related allowance for losses of $2,478,000 in
1995. The average recorded investments in impaired loans during the year ended
December 31, 1995 was approximately $18,689,610 and $7,576,384 at December 31,
1996.
8. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1996 is described in the
table below:
1996 1995 1994
----------- ----------- -----------
Loans:
Balance at beginning
of year $5,859,733 $5,957,614 $5,957,614
Provision charged to
income 511,415 300,000 None
Recovery of provision
previously charged
to income (2,819,382)
Direct write-off
of loans against
allowance (1,449,766) (397,881) None
----------- ----------- ----------
Balance at the end of
the year $2,102,000 $5,859,733 $ 5,957,614
=========== =========== ===========
<PAGE>
Real Estate Held for Sale:
Balance at beginning of
year $4,955,000 $6,055,000 $6,055,000
Provision charged to
income 988,103 817,110 None
Recovery of provision
previously charged to
income (853,437) (1,600,000) None
Direct write-off
of real estate
held for sale
against allowance (2,378,610) (317,110) None
----------- ----------- ------------
Balance at the end of
the year $2,711,056 $4,955,000 $ 6,055,000
=========== =========== ===========
9. Mortgage Notes Payable:
During February 1994 the Partnership prepaid the underlying first mortgage on
The Glades on Ulmerton Apartments of $2,241,349. During the year ended December
31, 1994 the Partnership incurred and paid interest expense on mortgage notes
payable for properties held during the year of $34,585.
10. Management Agreement:
As of December 31, 1996, the property owned by the Partnership is under a
management agreement with a third-party company. This management agreement
provides for annual fees of 3% to 6% of gross operating receipts.
11. Investment in Joint Ventures - Affiliates:
The Partnership has classified the Whispering Hills Apartments first mortgage
loan investment as an investment in joint venture - affiliate. This investment
represents a joint venture between the Partnership and an affiliate. Profits
and losses are allocated 25% to the Partnership and 75% to the affiliate.
The Partnership and three affiliates (together, the "Participants"), previously
funded a $23,000,000 loan on the 45 West 45th Street Office Building. In
February 1995, the Participants received title to the property through
foreclosure, and the Partnership owns a 21.74% joint venture interest in the
property. During 1995, the Partnership recognized $537,630 as its share of the
provision related to the change in the estimate of the fair value of the
property. In November 1996, the joint venture sold the property in an all cash
sale for $10,300,000. From the proceeds of the sale, the joint venture paid
$579,075 in selling costs. The basis of the property was $6,786,740. For
financial statement purposes, the joint venture recognized a gain of
$2,934,185, of which $637,892 represents the Partnership's share.
These amounts are included in the Partnership's participation in income (loss)
of joint ventures with affiliates. During 1996, 1995, and 1994 the Partnership
received distributions from these joint ventures totaling $2,481,317, $398,620,
and $590,827, respectively, and made contributions of $22,759 and $204,116 in
1996 and 1995, respectively.
<PAGE>
12. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $ 54,285 $ 1,959 $91,569 $ 5,481 $131,305 $10,930
Property management fees None None None None 460,824 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 27,291 23,720 82,348 9,881 84,961 38,028
Data processing 8,406 3,308 49,177 4,775 87,782 20,653
Investor communica-
tions None None 11,014 0 36,782 10,098
Legal 15,436 13,416 24,592 3,681 9,688 8,403
Portfolio management 103,642 90,082 154,618 25,969 100,599 42,147
Other 20,819 18,095 6,028 62 27,070 6,284
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $17,633, $63,806 and $126,944 for 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
13. Real Estate Held for Sale:
The Partnership acquired the Villa Medici Apartments through foreclosure in
March 1995 and classified it as real estate held for sale at December 31, 1994.
This acquisition represents a noncash transaction to the Partnership.
Accordingly, the noncash aspect of this acquisition is not presented in the
Partnership's Statements of Cash Flow. The Partnership recorded the cost of
the property at $9,382,780. This amount represents the outstanding loan
balance plus accrued interest receivable. In addition, the Partnership reduced
the basis of the property by $115,493 for certain receivables, liabilities,
escrows and costs recognized or incurred in connection with the foreclosure.
At the date of foreclosure, the property was transferred to real estate held
for sale at its fair value.
14. Disposition of Properties Acquired Through Foreclosure:
<PAGE>
(a) In December 1996, the Partnership sold The Glades on Ulmerton Apartments in
an all cash sale for $6,500,000. From the proceeds of the sale, the Partnership
paid $275,210 in selling costs. The basis of the property was $5,643,466. For
financial statement purposes the Partnership recognized a gain of $581,324 from
the sale of this property and a recovery of a previously established allowance
of $600,000.
(b) In December 1996, the Partnership sold the Granada Apartments in an all
cash sale for $2,300,000. From the proceeds of the sale, the Partnership paid
$139,738 in selling costs. The basis of the property was $3,348,979. For
financial statement purposes the Partnership did not recognize a gain or loss
on the sale of this property. The Partnership recognized an additional
provision of $488,717 and wrote off $700,000 against the previously established
allowance.
(c) In December 1996, the Partnership sold the Plantation Apartments in an all
cash sale for $3,000,000. From the proceeds of the sale, the Partnership paid
$173,592 in selling costs. The basis of the property was $3,769,738. For
financial statement purposes the Partnership did not recognize a gain or loss
on the sale of this property. The Partnership recognized an additional
provision of $488,330 and wrote off $455,000 against the previously established
allowance.
(d) In December 1996, the Partnership sold the Huntington Meadows Apartments in
an all cash sale for $9,300,000. From the proceeds of the sale, the Partnership
paid $341,832 in selling costs. In addition, the purchaser received a $342,000
credit against the purchase price for certain repairs required at the property.
The basis of the property was $7,228,111. For financial statement purposes the
Partnership recognized a gain of $1,388,057 from the sale of this property.
(e) In December 1996, the Partnership sold the Villa Medici Apartments in an
all cash sale for $12,808,000. From the proceeds of the sale, the Partnership
paid $362,595 in selling costs. The basis of the property was $9,487,780. For
financial statement purposes the Partnership recognized a gain of $2,957,625
from the sale of this property.
(f) In December 1996, the Partnership sold the Waldengreen Apartments in an all
cash sale for $6,590,000. From the proceeds of the sale, the Partnership paid
$270,325 in selling costs. The basis of the property was $6,566,238. For
financial statement purposes the Partnership did not recognize a gain or loss
on the sale of this property. The Partnership recognized a recovery of $253,437
and wrote off $500,000 against the previously established allowance.
(g) In December 1996, the Partnership sold the Union Tower office building in
an all cash sale for $15,350,000. From the proceeds of the sale, the
Partnership paid $361,230 in selling costs. The basis of the property was
$10,239,857. For financial statement purposes the Partnership recognized a gain
of $4,748,913 from the sale of this property.
15. Contingency and Settlement of Litigation:
<PAGE>
The Partnership is currently involved in a lawsuit whereby the Partnership the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interest in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. This action has been
dismissed with prejudice and plaintiffs have filed an appeal. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the financial position, operations and
liquidity of the Partnership. The Partnership believes it has meritorious
defenses to contest the claims.
A settlement has received final approval by the court in November 1996 in the
class action, Paul Williams and Beverly Kennedy, et.al. v. Balcor Pension
Investors, et. al. upon the terms described in the notice to class members in
September 1996. The settlement had no material impact on the Partnership.
16. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts and accrued interest payable approximates fair value.
Loans receivable: The fair value of the Partnership's investment in the loans
receivable approximates the carrying value of $6,015,968.
The fair value for the Partnership's investments in loans receivable was
estimated using discounted cash flow analyses. The discount rates were based
upon rates at the end of 1996 and 1995 comparable to those the Partnership
could receive or charge in the commercial real estate lending market with terms
and maturities comparable to the Partnership's loans receivable and mortgage
note it presently holds.
17. Subsequent Events:
(a) In January 1997, the Partnership made a distribution of $55,352,430
($126.00 per Interest) to the holders of Limited Partnership Interests
representing a regular quarterly distribution of Cash Flow of $5.00 per
Interest for the fourth quarter of 1996 and a special distribution of $121.00
per Interest primarily from proceeds received form the seven property sales in
1996.
(b) In January 1997, the Partnership sold the Harbor Bay office building in an
all cash sale for $6,900,000. From the proceeds of the sale, the Partnership
paid $293,276 in selling costs. For financial statement purposes, the
Partnership recognized an additional provision of $11,056 in 1996 and will
recognize no gain or loss in 1997.
(c) In February 1997, the General Partners made a settlement payment of
$164,739 ($.38 per $500 Interest) to members of the class pursuant to the
settlement approved by the court in November 1996 in the Paul Williams and
Beverly Kennedy et. al. vs. Balcor Pension Investors-V, et. al. class action
lawsuit.
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") dated as of December
23, 1996 by and between Labcor V Limited Partnership ("Seller") and BankAmerica
Investment Corporation, an Illinois corporation ("Purchaser").
RECITALS
A. Seller is the holder of a certain loan made by Balcor Pension
Investors-V to The Glen Limited Partnership ("Borrower") in the original
principal amount of $4,950,000 (the "Loan"). The Loan is more fully described
on Exhibit A hereto. The Loan is evidenced and secured by a mortgage (the
"Mortgage") on the real property more fully described on Exhibit B hereto (the
"Property") and by any other documents or instruments which may evidence or
secure the Loan (collectively, the "Related Documents"). The Mortgage and
Related Documents are hereinafter collectively called the "Loan Documents."
B. Borrower is also obligated to pay, or has acquired the Property
subject to, a loan in the original principal amount of $2,916,000 (the "Prior
Mortgage Loan"). The Prior Mortgage Loan is more fully described on Exhibit A
hereto. The Prior Mortgage Loan is evidenced and secured by a mortgage (the
"Prior Mortgage") on the Property and by any other documents or instruments
which may evidence or secure the Prior Mortgage Loan (collectively, the "Prior
Mortgage Related Documents"). The Prior Mortgage and the Prior Mortgage
Related Documents are hereinafter collectively called the "Prior Mortgage Loan
Documents").
C. Seller wishes to sell, and Purchaser wishes to purchase, subject to
the terms and conditions hereof:
(i) all right, title and interest of Seller in and to the Loan,
together with all Accrued Interest and Contingent Interest (as those terms are
defined herein), and any accrued and unpaid fees with respect to the Loan as of
the Closing Date; and
(ii) all right, title and interest of Seller in and to the Loan
Documents;
NOW, THEREFORE in consideration of the mutual representations, warranties,
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
Section 1. Definitions.
(a) As used herein, the following terms shall have the meanings herein
specified (to be equally applicable to both the singular and plural forms of
the terms defined), except to the extent otherwise specified to the contrary:
"Accrued Interest" shall mean interest which shall have accrued on the
Loan since the most recent payment of interest with respect to the Loan and
<PAGE>
remains unpaid, including all "Revenue Interest" as defined in the Loan
Documents.
"Adjustment" shall have the meaning specified in Section 11.
"Agreement" shall mean this Purchase and Sale Agreement, as it may be
amended, supplemented and modified from time to time.
"Assignment of Mortgages" shall have the meaning provided in Section
6(a)(i).
"Borrower" shall have the meaning provided in Recital A.
"Business Day" shall mean any day other than (a) a Saturday or a Sunday or
(b) any other day in which commercial banks in Chicago, Illinois are required
or authorized by law to be closed for business.
"Closing" shall have the meaning provided in Section 6.
"Closing Date" shall have the meaning provided in Section 6.
"Contingent Interest" shall mean all interest in connection with the Loan
which shall become due and payable upon the occurrence of an event or
circumstance set forth in the Loan Documents which has not occurred on or prior
to the Closing Date.
"Deferred Interest" shall mean all interest which has accrued on the
principal amount of the Loan but which is not yet due and payable (including
the "Accrual Interest" as defined in the Loan Documents), but excluding
Contingent Interest and Accrued Interest.
"Deposit" shall have the meaning provided in Section 3(a)(i).
"Escrow Agent" shall mean Chicago Title and Trust Company.
"Escrow Agreement" shall have the meaning specified in Section 3(c).
"Guarantor" shall have the meaning provided in Section 2(d)(vi).
"Immaterial part" shall have the meaning provided in Section 12(b).
"Indemnified Persons" means the Purchaser Indemnified Persons or the
Seller Indemnified Persons, as the case may be.
"Indemnifying Person" means the party who shall be obligated to indemnify
the Indemnified Persons under this Agreement.
"Insignificant portion" shall have the meaning provided in Section 12(a).
"Laws" shall mean any present or future federal, state, municipal or local
laws, ordinances, rules, regulations, requirements, judgments, writs, decrees,
determinations, awards or court orders, building codes and zoning ordinances
and similarly, applicable orders, rules and regulations of any regulatory,
licensing, accrediting, rating, insurance underwriting or rating organization
or other body exercising similar functions.
<PAGE>
"Loan Documents" shall have the meaning provided in Recital A.
"Losses" shall mean all damages, losses, liabilities, obligations,
penalties, claims, litigations, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses of any kind or nature (including,
without limitation, reasonable attorneys' fees and disbursements) as sustained,
suffered or incurred by any Indemnified Person arising from any matter which is
the subject of indemnification under this Section; provided, however, that
Losses of any Indemnified Person under this Agreement shall be computed net of
(A) the amount, if any, of insurance proceeds that such Indemnified Person
shall have received (net of Taxes payable with respect thereto) in respect of
the matter, the existence or occurrence of which gave rise to such
indemnification, and (B) the amount, if any, of the Tax benefits actually
realized by such Indemnified Person as a result of such Losses in the year in
which such Losses occur, as reasonably determined by such Indemnified Person.
"Material part" shall have the meaning provided in Section 12(b).
"Mortgage" shall have the meaning provided in Recital A.
"Notice of Claim" shall have the meaning provided in Section 17(d).
"Permitted Encumbrances" shall have the meaning provided in Section 5(a).
"Pricing Date" shall have the meaning provided in Section 7(e).
"Principal Amount" shall mean the outstanding principal amount of the Loan
as of the Closing Date, but excluding the outstanding principal amount of any
Prior Mortgage Loan which would otherwise be included in calculating the
outstanding principal amount of the Loan pursuant to the Loan Documents.
"Prior Mortgage" shall have the meaning provided in Recital B.
"Prior Mortgage Loan" shall have the meaning provided in Recital B.
"Prior Mortgage Related Documents" shall have the meaning provided in
Recital B.
"Prior Mortgage Loan Documents" shall have the meaning provided in Recital
B.
"Property" shall have the meaning provided in Recital A.
"Purchase Price" shall have the meaning provided in Section 3(a).
"Purchaser" shall have the meaning provided in the Preamble to this
Agreement.
"Purchaser Indemnified Persons" means and includes the Purchaser and its
permitted assigns and their respective directors, officers, agents, employees,
advisors, successors and affiliates.
"Reports" shall have the meaning provided in Section 7(o).
<PAGE>
"Seller" shall have the meaning provided in the Preamble of this
Agreement.
"Seller Indemnified Persons" means and includes Seller and its affiliates
and their respective directors, officers, agents, employees, advisors,
successors and affiliates.
"Seller's Closing Documents" shall have the meaning provided in Section
6(a).
"Significant portion" shall have the meaning provided in Section 12(a).
"Tax" or "Taxes" means all income taxes (including any tax on or based
upon net income, gross income, income as specially defined, earnings, or
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits, alternative or add on minimum, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts in respect
thereof, imposed by any taxing authority.
"Third Party Claim" shall have the meaning provided in Section 17(d).
"Title Policies" shall have the meaning specified in Section 5(b).
(b) The phrase "to the best of Seller's knowledge" and any similar phrase
referring to the knowledge of Seller, shall mean the actual knowledge of any
person currently employed by Seller who Seller has reasonably determined is
likely to have firsthand knowledge with respect to the Loan, the Borrower, any
Guarantor or the Property. The knowledge of any other person shall not be
imputed to Seller, regardless of whether any such person shall have once been
or shall currently be employed by or an agent of Seller.
Section 2. Agreement to Sell and Purchase the Loan. (a) Subject to
the terms and conditions set forth herein, Seller hereby agrees to sell,
transfer and assign to Purchaser and Purchaser hereby agrees to purchase and
accept from Seller all of its right, title and interest in and to the Loan and
the Loan Documents and all liens, claims and rights arising thereunder or in
connection therewith. Except as expressly set forth herein, the sale, transfer
and assignment of the Loan and the Loan Documents is and shall be made "AS IS",
"WHERE IS", "WITH ALL FAULTS".
(b) Purchaser has made such examinations, reviews and investigations as
it deems necessary or appropriate in making its decision to purchase the Loan.
Purchaser has been and will continue to be solely responsible for making its
own independent investigation of the Loan and the Loan Documents. Purchaser
acknowledges that the sale of the Loan by Seller to Purchaser is irrevocable,
and that Purchaser shall have no recourse to Seller, except as otherwise
provided in this Agreement. Purchaser acknowledges that Seller has not made
any representations or warranties concerning the collectability of the Loan or
the value of the Property.
<PAGE>
(c) Purchaser acknowledges that except as provided in Section 6(e)(iv)
hereof, Purchaser's obligation to close the transaction contemplated herein is
not conditioned on the delivery of any estoppel or confirmation of the
outstanding amount of the Loan or any other information regarding the Loan, the
Loan Documents or anything relating to the Property from any party having an
interest in or claim to the Property.
(d) Except as expressly set forth herein, Seller does not and will not
make any oral or written representations, warranties, promises or guarantees
whatsoever, whether express or implied, concerning or with regard to, and
expressly disclaims any liability or obligation with respect to, concerning or
relating to, any of the following:
(i) the collectibility of the Loan;
(ii) the value or condition of the Property;
(iii) title or ownership to or of the Property or any portion or
part thereof or any materials, fixtures or furnishings located therein or
thereon;
(iv) compliance with any environmental protection, pollution or land
use Laws, including, but not limited to, those pertaining to the use, handling,
generating, treating, storing or disposing of any hazardous waste, hazardous
substance, petroleum product, storage tank, or other container therefor,
asbestos or any other substance controlled or otherwise governed by applicable
Laws;
(v) the zoning and any other restrictions applicable to the
Property;
(vi) ownership of or obligations in respect of any air rights, zoning
bonuses, floor area ratio bonuses or entitlements or other similar rights or
benefits attributable to, burdening or otherwise pertaining to the Property;
(vii) claims by Borrower or any guarantors of the Loan (the
"Guarantors") against Seller under the Loan Documents or otherwise or claims by
third parties against the Borrower or any of the Guarantors or Seller or the
creditworthiness or ability of Borrower or any of the Guarantors to fulfill
their respective obligations or pay their respective debts as they mature;
(viii) pending, existing or projected approvals, commitments or
guarantees concerning or relating to, or rights of or from or claims against or
relating to, any governmental or quasi-governmental entity regarding,
assurances of assistance, compliance with programs or benefits, real estate
taxes or increases therein or changes thereto, tax reductions or benefits,
ability to meet, comport with or comply with assistance programs or programs
creating tax benefits for owners or tax reductions or credits for, in favor of
or benefitting the owner of the Property; and
(ix) the compliance in the past by the Borrower or any other
applicable party with conditions to advances under the Loan Documents or the
implicit or explicit waiver of any such conditions, the establishment of any
course of dealing or course of conduct regarding advances, or any commitment on
the part of Seller to make any advances under the Loan Documents.
<PAGE>
Purchaser acknowledges that it is a sophisticated investor and, except as
otherwise provided in this Agreement, Purchaser is relying solely on its own
investigation of the Loan, the Borrower, the Guarantors and the Property.
Purchaser further acknowledges that the failure of Seller to disclose any
material, non-public information with respect to the Loan, the Borrower, the
Guarantors or the Property which was not known to Seller shall not entitle
Purchaser to rescind or invalidate this Agreement or to seek any damages from
Seller, except as may otherwise be provided in this Agreement.
Section 3. Purchase Price of the Loan. (a) The purchase price of the
Loan shall be the sum of (x) Ninety Six and eleven hundredths percent (96.11%)
of the outstanding Principal Amount of the Loan plus (y) Ninety Six and eleven
hundredths percent (96.11%) of the outstanding Deferred Interest (collectively,
"Purchase Price"). The Purchase Price shall be paid as follows:
(i) an initial deposit equal to five percent (5%) of the Purchase
Price (together with any interest earned thereon, if any, the "Deposit"),
previously paid by Purchaser to the Escrow Agent, to be held in escrow, by the
Escrow Agent for disbursement in accordance with the terms of the Escrow
Agreement; and
(ii) the balance of the Purchase Price on the Closing Date payable by
wire transfer of immediately available funds to the direct order of Seller.
Purchaser shall receive at Closing a credit against the balance of the Purchase
Price then due in an amount equal to the sum, without duplication, of (A) all
payments of principal and interest, including, without limitation, proceeds
from compromises and settlements made by the Borrower with respect to the Loan
and actually received by Seller during the period commencing on the Pricing
Date and ending on the Closing Date and (B) any amounts then received by Seller
pursuant to Section 12 hereof and not applied to the restoration or rebuilding
of a Property in accordance with the Loan Documents.
(b) The Escrow Agent will hold the Deposit in accordance with the Escrow
Agreement attached hereto as Exhibit C (the "Escrow Agreement"). The party
entitled to the Deposit shall receive all interest earned thereon, if any,
which interest shall not be credited against the balance of the Purchase Price
due pursuant to Section 3(a)(ii) above.
(c) In addition to the Purchase Price, Purchaser shall on the Closing
Date pay to Seller by wire transfer of immediately available funds to the
direct order of Seller, the total amount of Adjustments due Seller in
accordance with Section 11 hereof.
Section 4. Assumption of Seller's Obligations. (a) On the Closing
Date, Purchaser shall assume and upon the Closing Date shall be deemed to have
assumed all of Seller's obligations of any kind whatsoever arising or accruing
after the Closing with respect to the Loan, the Property or the Loan Documents,
including, without limitation, any obligation Seller may have under the Loan
Documents to make any payment on any Prior Mortgage Loan, and Purchaser shall
indemnify Seller as specified in Section 17 hereof. The provisions of this
Section shall survive the Closing.
<PAGE>
(b) No recital herein or in any Exhibit hereto of any obligations to be
assumed by Purchaser shall constitute an acknowledgment or admission by either
party that any additional sums or advances are due, or that any other
obligations exist, under the Loan Documents or otherwise, and each party shall
have the right to deny and contest any claim for any such sums or advances or
any such obligation in the same manner as if such recitals had not been
included in this Agreement.
Section 5. Priority of Mortgage. (a) As a condition to the obligation
of the Purchaser to pay the Purchase Price at the Closing, the title to the
Property shall be subject only to the Loan Documents, any Prior Mortgage and
any Prior Mortgage Loan Documents and the liens, encumbrances and other title
matters described on Schedule 5(a) annexed hereto and other non-monetary
encumbrances or defects which do not materially, adversely affect the use of
the Property or the priority of any lien, claim or right being acquired by
Purchaser hereunder ("Permitted Encumbrances" -- all other title matters shall
be referred to herein as "Unpermitted Encumbrances").
(b) The policy of title insurance (the "Title Policies") with respect to
the Loan, a copy of which is attached to Schedule 5(a) hereto, is and will be
at Closing in full force and effect, is not subject to defenses of the insurer
by reason of acts or knowledge of the insured, and the rights of Seller
thereunder will be assigned to Purchaser at Closing. Except as may be
specified on Schedule 5(a) hereto, no claims have been made by Seller under any
such Title Policies.
Section 6. Closing of Sale. The closing of the sale of the Loan (the
"Closing") shall occur on a business day designated by Seller which shall be
not more than thirty (30) days after the Pricing Date (the "Closing Date");
provided that Seller shall give Purchaser not less than five (5) business days'
prior written notice of the Closing Date.
(a) At the Closing, the following (the "Seller's Closing Documents")
shall be delivered by Seller to Purchaser:
(i) assignment of the Mortgage and other recorded documents, without
recourse, representation or warranty, express or implied (other than any
covenant, representation or warranty contained in this Agreement which
expressly survives the Closing), in the form annexed hereto as Exhibit D (the
"Assignment of Recorded Documents").
(ii) a general assignment of the Seller's rights in and to the Loan
and the Loan Documents, without recourse, representation or warranty, express
or implied (other than any covenant, representation or warranty contained in
this Agreement which expressly survives the Closing), in the form annexed
hereto as Exhibit E.
(iii) assignments of any and all uniform commercial code
financing statements heretofore filed with respect to the Property in which
Seller is named as secured party, all on Form UCC-3 or such other forms which
may then be accepted for filing in the offices where such financing statements
have been filed.
<PAGE>
(iv) the original Loan Documents described on Schedule 7(f) or, to
the extent that Seller is unable to deliver an original of any of the Loan
Documents, copies thereof, together with a certificate of the Seller with
regard to the accuracy of such copies, in the form of Exhibit F attached
hereto.
(v) an allonge to the note evidencing the Loan, endorsing such note
to Purchaser.
(vi) all escrow, impound or cash collateral accounts and all letters
of credit, if any, held by Seller as security for the Loan or the performance
of the Borrower's obligations under the Loan Documents.
(vii) copies of notices given by Seller to the Borrower, the
applicable insurance companies or any other person regarding the transfer of
the Loan.
(viii) a certificate regarding any changes in the information
specified on Exhibit A, as updated to the Closing Date.
(ix) an affidavit stating that Seller is not a "foreign person" under
the Foreign Investment in Real Property Tax Act, Internal Revenue Code Section
1445, as amended, and the regulations promulgated thereunder.
(x) such other and further documents and instruments of transfer and
assignment, without recourse, representation or warranty, express or implied
(other than any, covenant, representation or warranty contained in this
Agreement which expressly survives the Closing), as may be reasonably required
to effectuate or confirm the assignment and transfer of the Loan and the Loan
Documents to Purchaser.
(b) At the Closing, the balance of the Purchaser Price shall be delivered
by Purchaser to Seller.
(c) At the Closing, the Escrow Agent shall (and is hereby authorized and
directed by Seller and Purchaser to) transfer to Seller the Deposit.
(d) The obligation of Seller to transfer the Loan to Purchaser and to
otherwise consummate the transactions contemplated hereby shall be subject to
the satisfaction of the following conditions precedent on and as of the Closing
Date:
(i) all representations and warranties of Purchaser contained in
this Agreement shall have been true in all material respects when made and
shall be true in all material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and
Purchaser shall have performed and complied with, in all material respects, all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by Purchaser prior to or at the Closing;
(ii) Seller shall have received the balance of the Purchase Price;
<PAGE>
(iii) Seller shall have received payment of the balance of the
Purchase Price in accordance with Section 3(a)(ii) and such other amounts as
are due Seller hereunder; and
(iv) No claim, litigation or other proceeding, arising out of or
relating to the Loan, the Borrower, any Guarantor or the Property, shall have
been threatened or commenced after the Pricing Date against Seller or any
person for whom Seller shall be liable or whom Seller shall be obligated to
indemnify, which in the opinion of Seller is material, unless the Purchaser
shall have provided security satisfactory to Seller in its sole discretion for
Purchaser's obligation to indemnify Seller against such claim, litigation or
other proceeding under Section 17.
(e) Purchaser's obligation to pay the Purchase Price, to purchase the
Loan and otherwise to consummate the transactions contemplated hereby shall be
subject to Sections 5 and 12 hereof and to the satisfaction of the following
conditions precedent on and as of the Closing Date:
(i) all representations and warranties of Seller contained in this
Agreement shall have been true in all material respects when made and, to the
extent then deemed remade, shall be true in all material respects at and as of
the Closing Date as if such representations and warranties were made at and as
of the Closing Date;
(ii) Seller shall have performed and complied with, in all material
respects, all material covenants, agreements and conditions required by this
Agreement to be performed or complied with by Seller prior to or at the Closing
Date; and
(iii) Purchaser shall have received Seller's Closing Documents.
(iv) Seller has delivered to Purchaser an estoppel certificate from
Borrower substantially in the form attached hereto as Exhibit G ("Borrower
Estoppel").
(f) The foregoing conditions are for the benefit only of the party for
whom they are specified to be conditions precedent and such party may, in its
sole discretion, waive any or all of such conditions and close under this
Agreement without any increase in, abatement of or credit against the Purchase
Price.
(g) From and after the Closing Date, Seller shall promptly, subsequent to
its receipt, forward to Purchaser (at the address specified herein for notices)
copies or originals of any and all bills, invoices, insurance binders and
policies, letters, documents and other correspondence it receives relating to
the Loan, the Loan Documents and the Property to the extent (i) that such
materials are not otherwise subject to a privilege, or subject to an obligation
of confidentiality or other contractual obligation restricting Seller's release
thereof or (ii) the delivery thereof would not subject Seller to criminal
liability or otherwise constitute the violation of any Law.
Section 7. Representations and Warranties by Seller. Seller represents
and warrants to Purchaser as of the date of this Agreement as follows:
<PAGE>
(a) Seller is an Illinois limited partnership, duly formed, validly
existing and in good standing under the Laws of the jurisdiction in which it
was formed, and has the full power, authority and legal right to engage in the
transactions contemplated by, and perform and observe the terms and conditions
of this Agreement.
(b) This Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of Seller
and, upon the assumption that this Agreement constitutes a legal, valid and
binding obligation of Purchaser, this Agreement constitutes a legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.
(c) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by Seller do not and will not (i) violate
or conflict with the Seller's organizational documents or (ii) violate or
conflict with any Laws or any governmental regulation or permit applicable to
Seller or (iii) result in a breach of, or constitute a default under, any
provision of any contract or other instrument to which Seller is a party or by
which it is bound, which breach or default would prevent or materially
interfere with Seller's performance hereunder or (iv) result in the creation or
imposition of any lien, charge or encumbrance pursuant to the terms of any such
contract or other instrument which lien, charge or encumbrance would prevent or
materially interfere with Seller's performance hereunder.
(d) Except as specified on Schedule 7(h) or as previously disclosed to
Purchaser in writing, to the best of Seller's knowledge, without investigation
or inquiry with respect thereto, Seller has not received written notice of any
actions, suits or proceedings, either pending or threatened, against Seller in
connection with the Loan, including, without limitation, any actions, suits or
proceedings which might question the validity of this Agreement or the
consummation of the transactions contemplated hereby.
(e) As of the date specified on Exhibit A (the "Pricing Date"), the (i)
unpaid principal balance of the Loan, (ii) the amount of interest accrued on
the Loan which remains unpaid, (iii) the rate or rates at which interest on the
unpaid principal amount of the Loan accrues or is payable, and (iv) the
maturity date with respect to the Loan are as specified on Exhibit A hereto.
(f) To the best of Seller's knowledge, (i) the Loan Documents specified
on Schedule 7(f) hereto constitute all material Loan Documents, (ii) such Loan
Documents have not been modified or amended, except as described on Schedule
7(f) hereto, and (iii) the copies of such Loan Documents which are attached to
Schedule 7(f) or which have previously been delivered to Purchaser are true and
correct in all material respects.
(g) Except as specified on Schedule 7(g) or 7(h) or as previously
disclosed to Purchaser in writing, to the best of Seller's knowledge, without
investigation or inquiry with respect thereto, Seller has received no written
<PAGE>
notice that the Loan is subject to any right of rescission, set-off,
recoupment, abatement, diminution, counterclaim or valid defense by the
Borrower or any Guarantor which would affect the ability of the holder thereof
to realize the practical benefits of the security intended to be provided by
the Loan Documents for the Loan, as such realization may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such realization is considered in a
proceeding at law or in equity.
(h) Except as set forth on Schedule 7(h) or as previously disclosed to
Purchaser in writing, to the best of Seller's knowledge, without investigation
or inquiry with respect thereto, (i) Seller has not commenced or threatened to
commence any actions, suits or proceedings in connection with the Loan
Documents, and (ii) there are no valid, effective and enforceable orders,
injunctions or decrees of any federal, state, municipal or local court or
arbitral body with respect to the Loan or the Loan Documents.
(i) Seller (i) is the sole owner and holder of the Loan, free of any
encumbrances, liens, pledges, charges or security interests of any nature,
(ii) has not granted any other option to purchase or other rights in and to the
Loan, (iii) has not pledged, collaterally assigned or otherwise hypothecated
any, interest therein or agreed to do so and (iv) has obtained (to the extent
required and not waived or the requirement therefor otherwise avoided or
averted) all consents of Borrower, any Guarantor or other third party pursuant
to a Loan Documents which is necessary for the execution and delivery of this
Agreement and the sale of the Loan provided for herein.
(j) Except as specified on Schedule 7(j) hereto or as previously
disclosed to Purchaser in writing, to the best of Seller's knowledge, without
investigation or inquiry with respect thereto, neither Borrower nor any
Guarantor has filed or is the subject of any proceeding under any state or
federal bankruptcy or insolvency Law.
(k) Except as specified on Schedule 7(k) hereto or as previously
disclosed to Purchaser, to the best of Seller's knowledge, without
investigation or inquiry with respect thereto, Seller has not received any
written notice of any pending or threatened condemnation or similar proceeding
affecting the Property.
(l) Except as specified on Schedule 7(l) hereto or as previously
disclosed to Purchaser in writing, no environmental reports or studies with
respect to the Property (collectively, "Reports") have been performed by or on
behalf of Seller and, to the best of Seller's knowledge, without investigation
or inquiry, Seller has not received notice that any of such Reports are
inaccurate in any material respect.
(m) To the best of Seller's knowledge, (i) the letters dated August 26,
1996, December 6, 1996 and December 11, 1996 from Terri F. Thompson on behalf
of Seller to the Borrower, represent the only written prepayment correspondence
from Seller to Borrower with respect to the Loan; (ii) there have been no oral
prepayment communications between Seller and Borrower which differed in any
material respect from the letters referred to above; and (iii) with the
exception of the letters dated November 27, 1996 and December 10, 1996, Seller
has received no written prepayment correspondence from Borrower.
<PAGE>
All warranties and representations of Seller in this Section 7 are true
and correct in all material respects as of the date hereof, and, with respect
to clauses (a) through (c) above, shall continue to be true and correct in all
material respects as of the Closing Date. Subject to the provisions of Section
17 hereof, the representations and warranties of Seller contained in this
Section 7 shall survive the Closing for a period of ninety (90) days; provided,
however, that any claim hereunder based upon such representations and
warranties must be made within such ninety (90) day period.
Section 8. Representations and Warranties by Purchaser. Purchaser
represents and warrants as follows:
(a) Purchaser is an Illinois corporation, validly existing and in good
standing under the laws of the jurisdiction in which it was formed, and has the
full power, authority and legal right to engage in the transactions
contemplated by, and perform and observe the terms and conditions of this
Agreement.
(b) This Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
Purchaser and, upon the assumption that this Agreement constitutes a valid and
binding obligation of Seller, this Agreement constitutes a legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally, and by general principles of
equity.
(c) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby do not and will not (i) violate or
conflict with the organizational documents of Purchaser, (ii) violate or
conflict with any Law or any governmental regulation or permit applicable to
Purchaser, (iii) result in a breach of, or constitute a default under, any of
the provisions of any contract or other instrument to which Purchaser is a
party or by which it is bound, which breach or default would prevent or
materially interfere with Purchaser's performance hereunder, (iv) result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of any such contract or other instrument which lien, charge or encumbrance
would prevent or materially interfere with Purchaser's performance hereunder or
(v) to the best of Purchaser's knowledge, violate, conflict with or constitute
a "prohibited transaction" under Section 406 of the Employee Retirement Income
Security Act of 1974, Section 4975 of the Internal Revenue Code of 1986, as
amended, or under any comparable provision of the Internal Revenue Code of
1986, as amended.
(d) The execution and delivery of this Agreement by Purchaser do not, and
the performance of this Agreement by Purchaser will not, require the consent or
approval of any public authority.
(e) There are no legal actions, suits, arbitrations, or other legal,
administrative or other governmental proceedings pending or, to the knowledge
of Purchaser, threatened against Purchaser that might question the validity of
this Agreement or the consummation of the transactions contemplated hereby.
<PAGE>
(f) Purchaser is a principal with respect to the proposed transaction
relating to the Loan, and is not acting as an agent for an undisclosed
unaffiliated principal.
(g) The obligations of Purchaser hereunder are not contingent upon
Purchaser's procuring financing to provide funds to pay the Purchase Price to
Seller, and Purchaser has (or will, as of the Closing Date, have) available
funds to enable it to consummate the purchase and sale described herein.
(h) Purchaser is not acting on behalf of the Borrower or any of the
Guarantors.
(i) Purchaser is a sophisticated buyer with respect to the Loan, has
adequate information concerning the business and financial condition of
Borrower to make an informed decision regarding the purchase of the Loan and
has independently and without reliance upon Seller, and based on such
information as Purchaser has deemed appropriate, made its own analysis and
decision to enter into this Agreement.
(j) Without implying that the Loan constitutes a "security" within the
meaning of any applicable securities laws, Purchaser is not purchasing the Loan
with a view to resale or distribution in a manner that would violate applicable
securities laws.
All warranties and representations of Purchaser in this Section 8 are true
and correct in all material respects as of the date hereof, and shall continue
to be true and correct in all material respects as of the Closing Date.
Subject to the provisions of Section 17 hereof, the representations and
warranties of Purchaser contained in Sections 8(f), 8(i) and 8(j) shall survive
the Closing. Subject to the provisions of Section 17 hereof, the remaining
representations and warranties of Purchaser contained in this Section 17 shall
survive the Closing for a period of ninety (90) days; provided, however, that
any claim hereunder based upon such representations and warranties must be made
within such ninety (90) day period.
Section 9. Covenants of Seller. (a) Seller shall not, between the
date hereof and the Closing Date, take any affirmative action, or expressly
consent to any action, which would adversely affect the priority of the lien of
the Mortgage.
(b) Seller shall not, between the date hereof and the Closing Date,
(i) materially modify, waive or amend the terms of any of the Loan
Documents;
(ii) foreclose or accept a deed-in-lieu of foreclosure with respect
to the Loan;
(iii) grant any consents contemplated in the Loan Documents
without Purchaser's consent, which shall not be unreasonably, withheld,
conditioned or delayed (if Purchaser shall fail to respond to Seller's request
for such a consent for a period of three (3) Business Days, such failure to
respond shall be deemed to constitute Purchaser's consent to such matter);
<PAGE>
(iv) compromise or settle claims of any kind with respect to the
Loan;
(v) sell or enter into an agreement to sell all or any portion of
the Loan or interest therein;
(vi) release any Borrower or Guarantor or any portion of the
Property; or
(vii) increase the principal amount outstanding under any of the
Notes or increase the amount of the debt secured by any of the Mortgages;
provided, however, that Seller may make any advances which it may be required
to make under the Loan Documents and, at Seller's option, Seller may make
advances after obtaining Purchaser's prior written approval (which shall not be
unreasonably withheld, delayed or conditioned and which shall be deemed given
if Purchaser fails to respond to Seller within 24 hours of any written request
for approval) to pay costs and expenses incurred to protect and preserve the
Property and its rights and security under the Loan Documents, including,
without limitation, (A) taxes, charges or assessments that may be imposed by
law upon the Property, (B) premiums on insurance policies covering the
Property, (C) expenses incurred in upholding the lien or enforceability of a
Mortgage or any other Loan Document, (D) utilities, security and maintenance
costs with respect to the Property and (E) any other amount, cost or expense
which Seller is permitted or required to expend pursuant to the Loan Documents
or as otherwise may be required under the Loan Documents or pursuant to
requirements of Law. Seller shall provide Purchaser with notice of any such
advances made after the date hereof.
(c) Between the date hereof and the Closing Date, Seller shall continue
to service the Loan, the Borrower and any Guarantor in accordance with its
prior practices and as it would in the ordinary course of its business.
(d) From and after the Closing Date, if Seller shall receive any payment
from a Borrower, any Guarantor or other party on account of an obligation or
liability arising under the Loan Documents which prior to the Closing Date
would have inured to Seller's benefit, then Seller shall accept such payment on
behalf of Purchaser and, subject to the provisions of Section 17 hereof, shall
promptly remit same to Purchaser.
(e) From and after the Closing Date, Seller shall cooperate with
Purchaser in connection with the delivery of notices to Borrowers and
Guarantors and the substitution of Purchaser in any ongoing litigation to
collect the Loan or to enforce the Loan Documents, including, without
limitation, providing such documentation, witnesses and information which
Seller possesses and which may be reasonably requested by Purchaser; provided,
however, that Seller shall not be required to incur any cost or expense in
connection therewith for which Purchaser shall not agree to indemnify Seller.
(f) Seller shall use its best efforts to obtain and deliver to Purchaser
prior to the Closing (i) the Borrower Estoppel, and (ii) an estoppel
certificate from the holder of the Prior Mortgage certifying as to the amount
of the unpaid principal balance of the Prior Mortgage Loan and that no defaults
<PAGE>
exist under the Prior Mortgage Loan; provided, however, that Seller shall not
be obligated to incur any material cost or expense in connection therewith.
Section 10. Covenants of Purchaser. From and after the date hereof
until the Closing Date, (i) Purchaser shall not contact the Borrower or any
Guarantor regarding the Loan or the Property, (ii) Purchaser shall not take any
action with respect to the Borrower or any Guarantor, the Loan or the Loan
Documents which would have the effect of impairing or diminishing the value
thereof or the priority of the Mortgage, and (iii) Purchaser shall deliver to
Seller copies of all notices given or received by Purchaser in connection with
the Loan.
Section 11. Adjustments. The following (each an "Adjustment") shall be
apportioned at the Closing as of the close of business on the day immediately
preceding the Closing Date:
(a) Accrued Interest as of the close of business on the day
immediately preceding the Closing Date shall be calculated and shall constitute
an Adjustment due Seller; and
(b) The following advances shall be calculated and shall constitute
an Adjustment due Seller:
(i) Any advances which Seller may have made in accordance with
its obligations under the Loan Documents or pursuant to any requirement of any
applicable Laws; or
(ii) Any advances which Seller may have elected to make to pay
costs and expenses incurred to protect and preserve the Property and its rights
and security under the Loan Documents from and after the Pricing Date through
the close of business on the day immediately preceding the Closing Date,
including, without limitation, (A) taxes, charges or assessments that may be
imposed by law upon the Property, (B) premiums on insurance policies covering
the Property, (C) expenses incurred in upholding the lien or enforceability of
a Mortgage or any other Loan Document, (D) utilities, security and maintenance
costs with respect to the Property, and (E) any other amount, cost or expense
which Seller is permitted or required to expend pursuant to the Loan Documents.
(c) Contingent Interest based on the income or cash flow of the
Borrower for the year in which the Closing shall occur shall be prorated on a
per diem basis based on the Contingent Interest paid by the Borrower during the
immediately preceding year, and Seller's pro rata share of such Contingent
Interest shall constitute an Adjustment due Seller. Such proration shall be
final and shall not be recalculated when the actual Contingent Interest for
such year shall be ascertained.
Section 12. Condemnation and Destruction. (a) If, prior to the Closing
Date, all or any significant portion (as defined in this Section) of the
Property is taken by eminent domain (or, if prior to the Closing Date, any
eminent domain proceeding with respect to any significant portion of the
Property has been commenced or Seller has received written notice threatening
to commence any such eminent domain proceeding), Seller shall notify Purchaser
<PAGE>
thereof promptly after obtaining knowledge thereof and either Purchaser or
Seller shall have the right to terminate this Agreement, which termination
shall be effected by giving notice to the other not later than ten (10) days
after the giving of Seller's notice. For the purposes hereof, a "significant
portion" of the Property shall mean such a portion of the Property as shall
have a value, as reasonably determined by Seller, in excess of ten (10%)
percent of the Purchase Price. If either party elects to terminate this
Agreement as aforesaid, the provisions of Section 16(b) shall apply. If
neither Seller nor Purchaser elects to terminate this Agreement as aforesaid,
or if an "insignificant portion" (i.e., anything other than a significant
portion) of the Property is taken by eminent domain (or becomes the subject of
a pending taking), there shall be no abatement of the Purchase Price and Seller
shall assign to Purchaser (without recourse) at the Closing the rights of
Seller to the awards theretofore received, if any, for the taking, and
Purchaser shall be entitled to all rights of Seller under the Loan Documents,
if any, to receive and keep all awards for the taking of the Property or such
portion thereof.
(b) If, prior to the Closing Date, a material part (as defined in this
Section) of the Property is destroyed or damaged by fire or other casualty,
Seller shall promptly notify Purchaser thereof and either Purchaser or Seller
shall have the right to terminate this Agreement, which termination shall be
effected by giving notice to the other not later than ten (10) days after the
giving of Seller's notice. For the purposes hereof, a "material part" of the
Property shall mean a part of the Property as shall have a value, as reasonably
determined by Seller, in excess of ten (10%) percent of the Purchase Price. If
either party elects to terminate this Agreement as aforesaid, the provisions of
Section 16(b) shall apply. If neither Seller nor Purchaser elects to terminate
this Agreement as aforesaid, or if there is damage to or destruction of an
"immaterial part" (i.e., anything other than a material part) of the Property
by fire or other casualty, there shall be no abatement of the Purchase Price
and Seller shall assign to Purchaser (without recourse) at the Closing the
rights of Seller to any insurance proceeds theretofore received, if any, with
respect to such damage or destruction, and Purchaser shall be entitled to all
rights of Seller under the Loan Documents, if any, to receive and keep any
insurance proceeds payable upon the occurrence of any such casualty.
Section 13. Time of the Essence. Purchaser and Seller acknowledge and
agree that each and every one of the dates, time periods and time limitations
set forth in this Agreement shall be of the essence of this Agreement as
against Purchaser and Seller.
Section 14. Title Examination, Diligence Fees. All premiums and fees
for title examination and title insurance or any other report, study, survey or
diligence research obtained by Purchaser, if any, and all related charges in
connection therewith shall be paid prior to or at the Closing by Purchaser.
Section 15. Broker. (a) Seller represents and warrants to Purchaser
that it has not hired, retained or dealt with any broker or finder in
connection with the negotiation, execution or delivery of this Agreement or the
transactions contemplated hereby, except Meenan, McDevitt & Company and Creamer
Realty Consultants. Seller will indemnify Purchaser against all Losses arising
out of any claim that the aforesaid representation and warranty is untrue.
<PAGE>
(b) Purchaser represents and warrants to Seller that it has not hired,
retained or dealt with any broker or finder in connection with the negotiation,
execution or delivery of this Agreement or the transactions contemplated
hereby. Purchaser will indemnity Seller against all Losses arising out of any
claim that the aforesaid representation and warranty is untrue.
(c) The provisions of this Section shall survive the Closing and any
termination of this Agreement.
Section 16. Remedies. (a) If Purchaser shall default under this
Agreement, the parties hereto agree that the damages that Seller shall sustain
as a result thereof shall be substantial but shall be difficult to ascertain.
Notwithstanding anything contained herein to the contrary, the parties hereto
therefore agree that if, subject to the conditions contained herein, Purchaser
fails to perform all of the terms, covenants, conditions and agreements to be
performed by it hereunder whether at or prior to the Closing, Seller may retain
the Deposit as and for liquidated damages, and thereafter neither Seller nor
Purchaser shall have any further liability or obligation hereunder, except for
such liabilities or obligations which are specifically stated herein to survive
the termination of this Agreement.
(b) If on the Closing Date Seller shall be unable to perform its
obligations or to satisfy any condition applicable to Seller hereunder in
accordance with the provisions of this Agreement or title to the Property shall
not be in accordance with this Agreement and this Agreement shall be terminated
in accordance with its terms as a result thereof, the sole liability of Seller
shall be to direct Escrow Agent to return the Deposit to Purchaser, and, upon
such return, this Agreement shall be deemed terminated and neither Seller nor
Purchaser shall have any further liability or obligation hereunder, except for
such liabilities or obligations as are specifically stated to survive the
termination of this Agreement.
(c) Notwithstanding anything contained herein to the contrary, if Seller
shall intentionally default in the performance of its obligation to transfer
the Property hereunder, Purchaser shall be entitled to sue for specific
performance of this Agreement. Purchaser shall not have any right to sue for
or to collect damages, including, without limitation, punitive damages, from
Seller based upon any such intentional default by Seller.
(d) If, pursuant to the terms, conditions and provisions hereof,
Purchaser or Seller is not obligated to purchase and close with respect to the
Loan, then upon Purchaser's or Seller's notice to the other with respect
thereto terminating this Agreement, Seller and Purchaser shall direct Escrow
Agent to disburse the Deposit to Purchaser and, upon such return, this
Agreement shall be deemed terminated and neither Seller nor Purchaser shall
have any further liability or obligation hereunder, except for such liabilities
or obligations as are specifically stated to survive the termination of this
Agreement.
<PAGE>
Section 17. Indemnification.
(a) Subject to the limitations set forth in this Section 17, from and
after the Closing, Seller shall save, defend and indemnify the Purchaser
Indemnified Persons against and hold them harmless from any and all Losses (but
not exceeding aggregate Losses in excess of $100,000) imposed upon or incurred
by Purchaser Indemnified Persons, directly or indirectly, arising out of the
untruthfulness, inaccuracy or breach of any representation or warranty of
Seller contained in this Agreement or the breach of any agreement or covenant
of Seller contained in this Agreement, excluding any such Losses which shall
have been caused by the intentional misconduct of the Purchaser Indemnified
Persons.
(b) Subject to the limitations set forth in this Section 17, from and
after the Closing, Purchaser shall save, defend and indemnify the Seller
Indemnified Persons against and hold them harmless from any and all Losses
imposed upon or incurred by any Seller Indemnified Persons, directly or
indirectly, arising out of (i) the untruthfulness, inaccuracy or breach of any
representation or warranty of Purchaser contained in this Agreement; (ii) the
breach of any agreement or covenant of Purchaser contained in this Agreement;
(iii) Purchaser's failure to perform any of Sellers' obligations under the Loan
Documents which first arise or accrue from and after the Closing; or (iv) the
ownership of the Loan or the Loan Documents by Purchaser after the Closing
Date, excluding any such Losses which shall have been caused by the intentional
misconduct of the Seller Indemnified Persons. With the exception of (i) Losses
which shall have been caused by the intentional misconduct of the Seller
Indemnified Persons, or (ii) Losses for which Seller is required to indemnify
any Purchaser Indemnified Person pursuant to this Section 17, Purchaser hereby
releases and forever discharges the Seller Indemnified Persons from all
damages, losses, liabilities, obligations, penalties, claims, litigations,
demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or nature sustained, suffered or incurred by any Purchaser
Indemnified Person in connection with or related to the Loan or the Loan
Documents.
(c) Each party's right of indemnification hereunder shall be that party's
sole contractual remedy with respect to any claims arising out of or in any way
related to the matters covered by this Agreement from and after the Closing and
shall be in lieu of any other remedy it may otherwise have at law, in equity or
otherwise.
(d) The obligations and liabilities of an Indemnifying Person with
respect to Losses resulting from the assertion of liability by third parties
(each, a "Third Party Claim") shall be subject to the following terms and
conditions:
(i) The Indemnified Persons shall give prompt written notice (each,
a "Notice of Claim") to the Indemnifying Person of any Third Party Claim which
might give rise to any Loss by the Indemnified Persons, stating the nature and
basis of said Third Party Claim, and the amount thereof to the extent known.
Each Notice of Claim shall be accompanied by copies of all relevant
documentation with respect to such Third Party Claim, including, without
limitation, any summons, complaint or other pleading which may have been served
or written demand or other document or instrument.
<PAGE>
(ii) If the Indemnifying Person shall acknowledge in writing its
obligation to indemnify the Indemnified Persons, subject to the terms and
conditions of this Agreement, against such Third Party Claim, then the
Indemnifying Person shall have the right to assume the defense of such Third
Party Claim at its own expense and by its own counsel (reasonably satisfactory
to the Indemnified Persons).
(iii) If the Indemnifying Person shall assume the defense of a
Third Party Claim in accordance with this Agreement, the Indemnifying Person
shall not be responsible for any legal or other defense costs subsequently
incurred by the Indemnified Persons in connection with the defense thereof. If
the Indemnifying Person does not exercise its right to assume the defense of
such a Third Party Claim, then the Indemnified Persons may assume such defense
and the costs, expenses and reasonable attorneys' fees incurred by them shall
continue to constitute Losses hereunder.
(iv) Anything contained herein to the contrary notwithstanding,
neither the Indemnifying Person nor the Indemnified Persons shall admit any
liability with respect to, or settle, compromise or discharge, any Third Party
Claim without the written consent of the other, which consent shall not be
unreasonably withheld. In addition, each of the Indemnifying Person and the
Indemnified Persons shall cooperate and act in a reasonable and good faith
manner to minimize Losses relating to any Third Party Claim.
(e) The provisions of this Section 17 shall survive the Closing.
Section 18. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given and received
(a) if personally delivered with proof of delivery thereof (any notice or
communication so delivered being deemed to have been received at the time
delivered on a Business Day, or if not a Business Day, the next succeeding
Business Day), or (b) sent by United States first class registered or certified
mail, return receipt requested, postage prepaid (any notice or communication so
sent being deemed to have been received three (3) Business Days after the date
of deposit in the United States mail), or (c) by nationally recognized
overnight courier (any notice or communication so sent being deemed to have
been received on the first succeeding Business Day subsequent to the day so
sent), or (d) by telecopier (any notice or communication so sent being deemed
to have been received on the date of transmission, if a Business Day, or the
first succeeding Business Day subsequent thereto), addressed to the respective
parties as follows: If to Purchaser:
If to Purchaser:
BankAmerica Investment Corporation
231 South LaSalle Street, 17Q
Chicago, Illinois 60697
Attn: C. Richard Schuler
Fax: (212) 828-5423<PAGE>
With a copy to:
Barrack, Ferrazzano, Kirschbaum
& Perlman
333 West Wacker
Chicago, Illinois 60606
Attn: Marc Jacobs
Fax: (312) 984-3150
If to Seller:
Labcor III Limited Partnership
c/o Balcor Management Services, Inc.
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
Attn: Daniel L. Charleston
Fax: (847) 317-4462
With a copy to:
Hopkins & Sutter
Three First National Plaza
Suite 4100
Chicago, Illinois 60602
Attn: Wayne F. Osoba
Fax: (312) 558-3312
or to such other address or party as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address or addresses shall only be effective upon receipt.
Section 19. Miscellaneous Provision. (a) The acceptance of the Closing
Documents referenced in Section 6 by Purchaser and Seller shall be deemed an
acknowledgment by Purchaser and Seller that the other has fully complied with
all of its obligations hereunder and that such party is discharged there from
and that such party shall have no further obligation or liability with respect
to any of the agreements made by it in this Agreement, except for those
provisions of this Agreement which expressly provide that any such obligation
of such obligation of such party shall survive the Closing.
(b) Each of Seller and Purchaser agrees that it will continue to be bound
by the terms, covenants and conditions of that certain Confidentiality
Agreement, dated as of October 4, 1996 the terms of which shall continue in
full force and effect during the effectiveness of this Agreement and subsequent
to any Closing hereunder or the termination hereof. Seller agrees to treat the
terms and provisions of this Agreement, as they relate to the Purchase Price
paid by Purchaser and to any other economic terms of this Agreement, as
confidential, and will not disclose any of such terms to any third party,
including but not limited to the Borrower, but excluding Seller's officers,
employees, advisors, attorneys and consultants who have a need to know the same
<PAGE>
in connection with the performance of Seller's obligations under this
Agreement, except to the extent that such disclosure is compelled pursuant to
any judicial order or is required to be disclosed pursuant to any law or
regulation applicable to Seller. The terms of this Section 19(b) shall continue
in full force and effect during the effectiveness of this Agreement and
subsequent to any Closing hereunder or the termination hereof.
(c) On or prior to the Closing Date, Purchaser shall not have the right
to assign its rights hereunder, in whole or in part, without the prior written
consent of Seller. Any assignment on or prior to the Closing Date without such
prior written consent shall be deemed null and void. Notwithstanding the
foregoing, Purchaser may assign this Agreement on or prior to the Closing Date
to an affiliate (as defined in the Securities Act of 1933) and to any lender
providing financing to Purchaser or such affiliate to consummate the
transactions contemplated herein; provided, however, that if any such
assignment shall occur or if Purchaser shall assign its rights hereunder after
the Closing Date, Purchaser shall remain liable for all obligations of
Purchaser under this Agreement. Subject to and without limiting the preceding
two sentences, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(d) This Agreement does not constitute an offer to sell and shall not
bind the parties hereto unless and until each elects to be bound hereby by
executing and delivering to the other an executed original counterpart hereof.
(e) If any term or provision of this Agreement or the application thereof
to any persons or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(f) This Agreement, together with the Escrow Agreement and the Schedules
and Exhibits hereto and thereto, constitute the entire agreement of the parties
regarding the subject matter of this Agreement and the Escrow Agreement, and
all prior or contemporaneous agreements, understandings, representations and
statements, oral or written, are hereby merged herein.
(g) The parties agree to mutually execute and deliver to each other, at,
and, from time to time after, the Closing, such other and further documents as
may be reasonably required by counsel for the parties to carry into effect the
purposes and intents of this Agreement, provided such documents do not impose
any material obligations upon any party hereunder except as set forth in this
Agreement.
(h) This Agreement may not be modified, amended, altered or supplemented
except by written agreement executed and delivered by Purchaser and Seller.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original, and all of which when so executed shall be deemed
to be an original, and all of which taken together shall constitute one and the
<PAGE>
same agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement. Any delivery of a counterpart signature by
telecopier shall, however, be promptly followed by delivery of a manually
executed counterpart.
(i) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois applicable to agreements made and to be
performed wholly within such State.
(j) All Schedules and Exhibits referred to in this Agreement are
incorporated herein and made a part hereof as fully as if set forth herein.
(k) The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed as a waiver of any of
such provisions, or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to be
a waiver of any other or subsequent breach.
(l) Each party to this Agreement shall bear the costs of its own
attorneys' fees and expenses in the preparation, negotiation and execution of
this Agreement. Purchaser shall pay any transfer, conveyance, real property
transfer or gains, mortgage or mortgage recording, sales, use, value added,
stock or note transfer and stamp taxes, any recording, registration or other
similar taxes, expenses or fees and any penalties, interest and fees thereon,
imposed by any taxing authority, recording officer or register, or other
governmental authority in connection with the transactions contemplated herein.
(m) The Article and Section headings used herein are for reference
purposes only and do not control or affect the meaning or interpretation of any
term or provision hereof. All references in this Agreement to Sections,
paragraphs, Exhibits and Schedules are to the Sections and paragraphs hereof
and the Exhibits and Schedules annexed hereto.
(n) The representations, warranties and agreements of the parties
contained herein are intended solely for the benefit of the parties to whom
such representation, warranties or agreements are made and their permitted
assigns, shall confer no rights hereunder, whether legal or equitable, in any
other party, and no other party shall be entitled to rely thereon.
(o) Seller and Purchaser each hereby irrevocably submits to the
jurisdiction of any State or Federal court sitting in the County of Cook and
State of Illinois over any action or proceeding arising out of or relating to
this Agreement, and Seller and Purchaser each hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard or determined
in any such State or Federal court. Seller and Purchaser each hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding.
Seller and Purchaser each irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to Seller or Purchaser, as the case may be, at its respective address
specified in Section 18 hereof. Seller and Purchaser each hereby agrees that
<PAGE>
the final judgment in any such action or proceeding shall be conclusive and may
be enforced in any other jurisdiction by suit on the judgment or in any other
matter provided by law. Nothing in this paragraph shall affect the right of
Seller or Purchaser, as the case may be, to serve legal process in any other
manner permitted by law or affect the right of Seller or Purchaser, the case
may be, to bring any action or proceeding against the other in the courts of
any other jurisdiction.
(p) NEITHER SELLER NOR PURCHASER MAY RECORD THIS AGREEMENT, ALL RECORDING
OFFICERS ARE HEREBY DIRECTED NOT TO RECORD THIS AGREEMENT. To the extent that
any such filing is made in violation of the Agreement, the party effecting such
filing shall indemnify the other against any damages incurred by the other in
connection therewith. The provisions of this paragraph shall survive the
termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, Purchaser and Seller have executed and delivered this
Agreement as of the day and year first above written.
SELLER:
LABCOR V LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Balcor Mortgage Advisors-V, an Illinois
general partnership, its general partner
By: The Balcor Company,
a Delaware corporation, a partner
By: /s/ Daniel L. Charleston
--------------------------------
Name: Daniel L. Charleston
--------------------------------
Its: Authorized Agent
--------------------------------
PURCHASER:
BANKAMERICA INVESTMENT CORPORATION
By: /s/ C. Richard Schuler
--------------------------------
Name: C. Richard Schuler
--------------------------------
Title: Attorney In Fact
--------------------------------
<PAGE>
SECOND AMENDMENT TO AGREEMENT OF SALE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE (this "Amendment"), is entered
into as of the 19th day of December, 1996, by and between LINCOLN PROPERTY
COMPANY N.C., INC., a Texas corporation ("Purchaser"), and BGT LIMITED
PARTNERSHIP, an Illinois limited partnership ("Seller").
W I T N E S S E T H:
A. Purchaser and Seller have heretofore entered into a certain Agreement
of Sale dated December 6, 1996 (as previously amended, the "Agreement") for the
purchase and sale of the property commonly known as 1420 Harbor Bay, located in
Alameda, California.
B. Purchaser and Seller now desire to amend the Agreement to change the
Closing Date and extend the Inspection Period.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. The Closing Date, as defined in Paragraph 8 of the Agreement, shall be
changed to January 9, 1997.
2. The expiration of the Inspection Period (as defined in Paragraph 7.1
of the Agreement) is hereby extended to 2:00 p.m. Chicago time on January 6,
1997.
3. The Escrow Agreement is hereby modified to conform with 1 and 2.
4. Except as specifically modified herein, the terms and conditions of
the Agreement shall remain unchanged and in full force and effect.
5. All capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meanings given to them in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
PURCHASER:
LINCOLN PROPERTY COMPANY N.C., INC., a
Texas corporation
By: /s/ Barry DiRaimundo
--------------------------
Name:
--------------------------
Its:
--------------------------
SELLER:
BGT LIMITED PARTNERSHIP,
By: BGT Partners, Inc., an Illinois
corporation, its general partner
By: /s/ James E. Mendelson
-----------------------------
Name:
-----------------------------
Its:
-----------------------------
<PAGE>
THIRD AMENDMENT TO AGREEMENT OF SALE
THIS THIRD AMENDMENT TO AGREEMENT OF SALE (this "Amendment"), is entered
into as of the 6th day of January, 1997, by and between LINCOLN PROPERTY
COMPANY N.C., INC., a Texas corporation ("Purchaser"), and BGT LIMITED
PARTNERSHIP, an Illinois limited partnership ("Seller").
W I T N E S S E T H:
A. Purchaser and Seller have heretofore entered into a certain Agreement
of Sale dated December 6, 1996 (as previously amended, the "Agreement") for the
purchase and sale of the property commonly known as 1420 Harbor Bay, located in
Alameda, California.
B. Purchaser and Seller now desire to amend the Agreement to change the
Closing Date and the Purchase Price.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. The Purchase Price, as defined in Paragraph 1 of the Agreement is
hereby changed to $6,900,000.
2. The expiration of the Inspection Period (as defined in Paragraph 7.1
of the Agreement) is deemed to have occurred at 2:00 p.m. Chicago time on
January 6, 1997. Purchaser has elected to waive its rights to terminate the
Agreement puruant to Paragraph 7.1 thereof.
3. The Closing Date, as defined in Paragraph 8 of the Agreement, shall
be changed to January 21, 1997.
4. The Escrow Agreement is hereby modified to conform with the terms of
this Amendment.
5. Except as specifically modified herein, the terms and conditions of
the Agreement shall remain unchanged and in full force and effect.
6. All capitalized terms used in this Amendment, unless otherwise
defined herein, shall have the meanings given to them in the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
PURCHASER:
LINCOLN PROPERTY COMPANY N.C., INC.,
a Texas corporation
By: /s/ Steve M. Dunn
------------------------------
Name: Steven M. Dunn
------------------------------
Its: Director of Aquisitions
------------------------------
SELLER:
BGT LIMITED PARTNERSHIP,
By: BGT Partners, Inc., an Illinois
corporation, its general partner
By: /s/ James E. Mendelson
---------------------------
Name: James E. Mendelson
---------------------------
Its: Authorized Rep.
---------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 67656
<SECURITIES> 0
<RECEIVABLES> 4580
<ALLOWANCES> 4813
<INVENTORY> 0
<CURRENT-ASSETS> 68455
<PP&E> 6607
<DEPRECIATION> 0
<TOTAL-ASSETS> 82215
<CURRENT-LIABILITIES> 1356
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 80859
<TOTAL-LIABILITY-AND-EQUITY> 82215
<SALES> 0
<TOTAL-REVENUES> 22975
<CGS> 0
<TOTAL-COSTS> 52
<OTHER-EXPENSES> 1374
<LOSS-PROVISION> 1499
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20050
<INCOME-TAX> 0
<INCOME-CONTINUING> 20050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20050
<EPS-PRIMARY> 32.10
<EPS-DILUTED> 32.10
</TABLE>
