SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
IRS Employer Identification
Commission File No. 0-15962 No. 36-3256340
The undersigned registrant hereby amends the following sections of its
Report for September 30, 1995 on Form 10-Q as set forth in the pages
attached hereto:
ITEM 1. FINANCIAL STATEMENTS
Pages 3 to 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pages 30 to 42
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
By: JMB Realty Corporation
Corporate General Partner
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
and Principal Accounting Officer
Dated: November 20, 1995
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1). . . . . . . . . . . . . . . . . . . . . . . . . $ 17,937,247 18,165,563
Short-term investments (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,129,166
Restricted funds (note 4(b)). . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 457,674
Interest, rents and other receivables (net of allowance
for doubtful accounts of $427,559 and $791,916 at
September 30, 1995 and December 31, 1994, respectively) . . . . . . . . . . . . . 251,972 621,516
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,629 141,055
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,354 376,378
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,506,202 21,891,352
------------ ------------
Investment properties, at cost:
Land and leasehold interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,982,049 10,788,810
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,566,436 150,959,418
------------ ------------
112,548,485 161,748,228
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 35,943,191 49,431,004
------------ ------------
Total investment properties, net of
accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 76,605,294 112,317,224
------------ ------------
Investment in unconsolidated ventures, at equity
(notes 1, 2 and 7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,846,534 8,864,503
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,067,124 2,776,163
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,961 1,226,212
------------ ------------
$106,171,115 147,075,454
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Current portion of long-term debt (notes 2(f), 4(b), 4(d) and 4(e)) . . . . . . . . $ 53,542,105 94,880,985
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,729,974 4,048,221
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,741,075 2,575,385
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,631,372 11,640,409
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930,433 810,997
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,813 625,079
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 66,790,772 114,581,076
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422,308 423,743
Investment in unconsolidated ventures, at
equity (notes 1, 2 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,839,611 167,376,693
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,443,153
Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . . . . . . . 32,500,000 25,794,970
------------ ------------
Commitments and contingencies (notes 1, 2, 3, 4, 5 and 6)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,552,691 309,619,635
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,830,731) (20,281,012)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (1,316,336) (1,235,319)
------------ ------------
(22,146,067) (21,515,331)
------------ ------------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . . . . . . . . . . 351,746,836 351,746,836
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457,806,317) (456,620,305)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (44,176,028) (36,155,381)
------------ ------------
(150,235,509) (141,028,850)
------------ ------------
Total partners' capital accounts (deficits) . . . . . . . . . . . . . . . . . (172,381,576) (162,544,181)
------------ ------------
$106,171,115 147,075,454
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . . . . $ 4,228,089 5,541,534 13,206,557 16,404,140
Interest income . . . . . . . . . . . . . . . . . . . . . 277,258 261,378 860,204 699,445
Other income. . . . . . . . . . . . . . . . . . . . . . . -- -- 400,856 400,000
----------- ---------- ----------- -----------
4,505,347 5,802,912 14,467,617 17,503,585
----------- ---------- ----------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . . . . 2,777,725 3,239,370 8,855,956 9,987,757
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 1,036,841 1,199,665 3,284,518 3,599,964
Property operating expenses . . . . . . . . . . . . . . . 2,584,115 2,893,900 6,848,487 8,529,627
Professional services . . . . . . . . . . . . . . . . . . 87,658 18,491 550,762 431,220
Amortization of deferred expenses . . . . . . . . . . . . 155,288 107,034 443,114 315,388
General and administrative. . . . . . . . . . . . . . . . 508,678 291,441 904,169 540,099
----------- ---------- ----------- -----------
7,150,305 7,749,901 20,887,006 23,404,055
----------- ---------- ----------- -----------
Operating loss. . . . . . . . . . . . . . . . . . . (2,644,958) (1,946,989) (6,419,389) (5,900,470)
Partnership's share of operations of
unconsolidated ventures
(notes 1, 2 and 7). . . . . . . . . . . . . . . . . . . . (33,148,476) (4,394,381) (42,102,148) (12,236,290)
----------- ---------- ----------- -----------
Net operating loss. . . . . . . . . . . . . . . . . (35,793,434) (6,341,370) (48,521,537) (18,136,760)
Gain on sale or disposition of investment
properties (notes 2(b), 4(a) and 4(b)). . . . . . . . . . 7,784,269 -- 14,423,043 --
Gain on sale or disposition of unconsolidated
venture . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,702,082 -- 1,702,082
----------- ---------- ----------- -----------
Net loss before extra-
ordinary items . . . . . . . . . . . . . . . . . (28,009,165) (4,639,288) (34,098,494) (16,434,678)
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- -----------
Extraordinary items:
Gain on forgiveness of indebtedness
(note 4(a)) . . . . . . . . . . . . . . . . . . . . . . -- -- 1,586,624 --
Partnership's share of gain on extinguishment
of indebtedness of unconsolidated venture
(note 2(c)) . . . . . . . . . . . . . . . . . . . . . . 30,980,232 -- 30,980,232 --
Prepayment penalty on refinanced long-term debt
(note 4(e)) . . . . . . . . . . . . . . . . . . . . . . (204,093) -- (204,093) --
----------- ---------- ----------- -----------
Net earnings (loss) . . . . . . . . . . . . . . . . $ 2,766,974 (4,639,288) (1,735,731) (16,434,678)
=========== ========== =========== ===========
Net earnings (loss) per limited
partnership interest (note 1):
Net operating loss. . . . . . . . . . . . . . . . $ (87.62) (15.18) (118.08) (43.41)
Gain from sale or disposition of
investment properties . . . . . . . . . . . . . 19.22 -- 35.60 --
Gain from sale or disposition of
unconsolidated ventures . . . . . . . . . . . . -- 4.20 -- 4.20
Extraordinary items . . . . . . . . . . . . . . . 75.97 -- 79.89 --
----------- ---------- ----------- -----------
Net earnings (loss) . . . . . . . . . . . . . . $ 7.57 (10.98) (2.59) (39.21)
=========== ========== =========== ===========
Cash distributions per limited
partnership interest. . . . . . . . . . . . . . . $ -- -- 20.00 --
=========== ========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,735,731) (16,434,678)
Items not requiring (providing) cash or cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,284,518 3,599,964
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,114 315,388
Amortization of deferred rental income. . . . . . . . . . . . . . . . . . . . . . . . . -- 110,515
Amortization of discount on long-term debt. . . . . . . . . . . . . . . . . . . . . . . 189,799 460,756
Partnership's share of operations of unconsolidated ventures. . . . . . . . . . . . . . 42,102,148 12,236,290
Gain on sale or disposition of investment properties (note 4(a)). . . . . . . . . . . . (14,423,043) --
Gain on sale of interest in unconsolidated venture (note 2(b)). . . . . . . . . . . . . -- (1,702,082)
Extraordinary items (notes 2(b), 4(a) and 4(e)) . . . . . . . . . . . . . . . . . . . . (32,362,763) --
Changes in:
Restricted funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,674 1,629,584
Interest, rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . 369,544 (231,281)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65,574) (219,757)
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (97,854) (104,035)
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,251 272,886
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (311,018) 106,662
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,690 88,870
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (409,266) (361,853)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,607,778 2,268,858
Deferred interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,233 (1,759,195)
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,436 100,190
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,029 177,702
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (590,542) (12,446)
------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 3,071,423 542,338
------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . . 2,129,166 (2,301,061)
Additions to investment properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,014,630) (2,113,822)
Partnership's distributions from unconsolidated ventures. . . . . . . . . . . . . . . . . 1,369,320 4,980,081
Cash proceeds from sale of investment properties (note 4(a)). . . . . . . . . . . . . . . 2,795,768 --
Partnership's contributions to unconsolidated ventures. . . . . . . . . . . . . . . . . . (10,000) (779,583)
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (318,462) (723,432)
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . 4,951,162 (937,817)
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (376,203) (514,595)
Proceeds received on refinancing of long-term debt. . . . . . . . . . . . . . . . . . . . 431,059 --
Prepayment penalty on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (204,093) --
Distributions to general partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81,017) --
Distributions to limited partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,020,647) --
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . (8,250,901) (514,595)
------------ -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . (228,316) 910,074
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . . . . . 18,165,563 17,255,489
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . . $ 17,937,247 18,165,563
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . . . . . . . . . $ 2,969,249 9,017,338
============ ===========
Sale of investment properties:
Total sale proceeds, net of selling expenses. . . . . . . . . . . . . . . . . . . . . . $ 17,925,768 --
Principal balances due on mortgages payable . . . . . . . . . . . . . . . . . . . . . . (15,130,000) --
------------ -----------
Cash proceeds from sale of investment property,
net of selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,795,768 --
============ ===========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Forgiveness of indebtedness - Brittany Downs Apartments -
Phase II (note 4(a)):
Balance due on long-term debt cancelled . . . . . . . . . . . . . . . . . . . . . . . $ 495,310 --
Accrued interest on long-term debt cancelled. . . . . . . . . . . . . . . . . . . . . 1,455,191 --
Reduction of escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (363,877) --
------------ -----------
Extraordinary item due to forgiveness of indebtedness
secured by Brittany Downs Apartments - Phase II . . . . . . . . . . . . . . . . $ 1,586,624 --
============ ===========
Non-cash financing activities:
Gross proceeds from refinancing of long-term debt (note 4(e)) . . . . . . . . . . . . . $ 26,000,000 --
Principal and interest paid at closing. . . . . . . . . . . . . . . . . . . . . . . . . (24,985,162) --
Prepayment penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,093) --
Payment of deferred mortgage expense. . . . . . . . . . . . . . . . . . . . . . . . . . (379,686) --
------------ -----------
Proceeds received on refinancing of long-term debt. . . . . . . . . . . . . . . . $ 431,059 --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994 which are
included in the Partnership's 1994 Annual Report on Form 10-K (File No. 0-
15962) filed on March 28, 1995, as certain footnote disclosures which would
substantially duplicate those contained in such audited financial
statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its consolidated venture, Mariners Pointe
Associates ("Mariners Pointe"). The effect of all significant transactions
between the Partnership and its consolidated venture has been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in Orchard Associates (note 2(b)); JMB/Piper Jaffray Tower
Associates ("JMB/Piper") and JMB Piper Jaffray Tower Associates II
("JMB/Piper II"); 900 3rd Avenue Associates ("JMB/900"); 1090 Vermont
Avenue, N.W. Associates Limited Partnership ("1090 Vermont");
Maguire/Thomas Partners - South Tower ("South Tower"); and the
Partnership's indirect (through Carlyle-XIV Associates, L.P.) interest in
JMB/NYC Office Building Associates, L.P. ("JMB/NYC").
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the ventures as described
above. Such adjustments are not recorded on the records of the
Partnership. The effect of these items is summarized as follows for the
nine months ended September 30:
<TABLE>
<CAPTION>
1995 1994
------------------------ -------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings
(loss) . . . . . . . . $(1,735,731) (19,607,175) (16,434,678) (17,409,300)
Net earnings
(loss) per
limited
partnership
interest . . . . . . . $ (2.59) (50.66) (39.21) (41.67)
=========== =========== =========== ==========
</TABLE>
The net earnings (loss) per limited partnership interest is based upon
the limited partnership interests outstanding at the end of each period.
Deficit capital accounts will result, through the duration of the
Partnership, in the recognition of net gain for financial reporting and
Federal income tax purposes.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Partnership distributions from its unconsolidated ventures are
considered cash flow from operating activities to the extent of the
Partnership's cumulative share of net earnings. The Partnership records
amounts held in U.S. Government obligations at cost which approximates
market. For the purposes of these statements, the Partnership's policy is
to consider all such amounts held with original maturities of three months
or less ($17,855,000 and $18,160,000 at September 30, 1995 and December 31,
1994, respectively) as cash equivalents with any remaining amounts
(generally with original maturities of one year or less) reflected as
short-term investments being held to maturity.
The Wilshire Bundy Plaza incurred minimal damage as a result of the
earthquake in southern California on January 17, 1994. On February 22,
1995, the City Council of the City of Los Angeles passed an ordinance
relating to the repair of welded steel moment frame buildings in an area of
the city that includes Wilshire Bundy Plaza. While a complete
determination of the requirements to comply with the ordinance is not as
yet completed, it is estimated that the cost of such repairs, which have
been accrued for and are included in accounts payable in the accompanying
consolidated financial statements, could be approximately $3 million.
During March 1995, Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued. SFAS 121, when effective,
will require that the Partnership record an impairment loss on its long-
lived assets to be held and used whenever their carrying value cannot be
fully recovered through estimated undiscounted future cash flows from
operations and sale. The amount of the impairment loss to be recognized
would be the difference between the long-lived asset's carrying value and
the asset's estimated fair value. Any long-lived assets identified "to be
disposed of" would no longer be depreciated but adjustments for impairment
loss would be made in each period as necessary to report these assets at
the lower of historical cost and fair value less costs to sell. In certain
situations, such estimated fair value could be less that the existing non-
recourse debt which is secured by the property.
The amount of any impairment loss recognized by the Partnership under
its current accounting policy has been limited to the excess, if any, of
the property's carrying value over the outstanding balance of the
property's non-recourse indebtedness. An impairment loss under SFAS 121
would be determined without regard to the nature or the balance of such
non-recourse indebtedness. Upon the disposition of a property for which an
impairment loss has been recognized under SFAS 121, the Partnership would
recognize, at a minimum, a net gain for financial reporting purposes to the
extent of any excess of the then outstanding balance of the property's non-
recourse indebtedness over the then carrying value of the property,
including the effect of any reduction for impairment loss under SFAS 121.
The Partnership expects to adopt SFAS 121 no later than the first
quarter of 1996. Although the Partnership has not finalized its assessment
of the full impact of adopting SFAS 121, it is likely that additional
provisions for value impairment would be required for the properties owned
by the Partnership and its consolidated ventures, or by the Partnership's
unconsolidated ventures. Such provisions, including the Partnership's
share of such unconsolidated venture provisions, are currently estimated to
total approximately $16,000,000 in the first period of implementation of
SFAS 121. In addition, upon the disposition of an impaired property, the
Partnership would generally recognize more net gain for financial reporting
purposes under SFAS 121 than it would have under the Partnership's current
impairment policy, without regard to the amount, if any, of cash proceeds
received by the Partnership in connection with the disposition. Although
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
implementation of this new accounting statement could significantly impact
the Partnership's reported earnings, there would be no impact on cash
flows. Further, any such impairment loss would not be recognized for
Federal income tax purposes.
(2) VENTURE AGREEMENTS
(a) General
The Partnership at September 30, 1995 is a party to seven operating
joint venture agreements. Pursuant to such agreements, the Partnership
made initial capital contributions of approximately $192,607,000 (before
legal and other acquisition costs and its share of operating deficits as
discussed below). Under certain circumstances, either pursuant to the
venture agreements or due to the Partnership's obligations as a general
partner, the Partnership may be required to make additional cash
contributions to the ventures. Five of the joint venture agreements
(JMB/NYC (through an interest in Carlyle-XIV Associates, L.P.), JMB/Piper,
JMB/Piper II, JMB/900 and South Tower) are, directly or indirectly, with
partnerships (JMB/Manhattan Associates, Ltd. ("JMB/Manhattan"), Carlyle
Real Estate Limited Partnership-XIII ("C-XIII") and Carlyle Real Estate
Limited Partnership-XV ("C-XV")) sponsored by the Corporate General Partner
or its affiliates. These five joint ventures have entered into a total of
six property joint venture agreements.
The Partnership has acquired, through the above ventures, interests in
one apartment complex and seven office buildings. The venture properties
have been financed under various long-term debt arrangements.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
(b) Orchard Associates
The Partnership's interest in Old Orchard shopping center (through
Orchard Associates and Old Orchard Urban Venture ("OOUV")) was sold in
September 1993, as described below.
At sale, OOUV and an unaffiliated third party contributed the Old
Orchard shopping center and $60,366,572 in cash (before closing costs and
prorations), respectively, to a newly formed limited partnership.
Immediately at closing, the new partnership distributed to OOUV $60,366,572
in cash (before closing costs and prorations) in redemption of
approximately 89.5833% of OOUV's interest in the new partnership. OOUV,
the limited partner, has retained a 10.4167% interest in the new limited
partnership after such redemption. OOUV is also entitled to receive up to
an additional $4,300,000 based upon certain events (as defined), all of
which was earned in 1993 and received in 1994. Upon receipt, OOUV
distributed the $4,300,000 to the respective partners, based upon their
precontribution percentage interests. OOUV may still earn up to an
additional $3,400,000 based upon certain future earnings of the property
(as defined), none of which has been earned or received as of the date of
this report.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Contemporaneously with the formation of the new limited partnership,
OOUV redeemed Orchard Associates' ("Orchard") interest in OOUV for
$56,689,747 (before closing costs and prorations). This transaction has
resulted in Orchard having no ownership interest in the property as of the
effective date of the redemption agreement.
At the time of redemption, OOUV retained a portion of the Orchard
Associates redemption proceeds in order to fund certain contingent amounts
which may have been due in the future. In July 1995, OOUV distributed to
Orchard Associates their redemption holdback of $2,083,644. As a result,
the Partnership received its share of the holdback of $1,041,820. In
October 1995, OOUV distributed to Orchard their share of the pre-sale
settlement with Federated department stores of $288,452. As a result,
Orchard distributed to the Partnership its share of the settlement of
$144,226. The Partnership currently intends to retain these funds for
working capital purposes.
OOUV and Orchard have also entered into a contribution agreement
whereby they have agreed to share future gains and losses which may arise
with respect to potential revenues and liabilities from events which
predated the contribution of the property to the new venture (including,
without limitation, the distribution to OOUV of the $4,300,000 and the
potential future distribution of $3,400,000 amounts as described above) in
accordance with their pre-contribution percentage interests. In September
1994, Orchard received its share of the contingent $4,300,000 as discussed
above. Orchard distributed to each of the respective partners their share
($1,702,082) of such amount. The Partnership recognized a gain of
$1,702,082 for financial reporting and Federal income tax purposes in 1994.
Upon receipt of all or a portion of the remaining contingent amounts,
Orchard and the Partnership would expect to recognize additional gain for
financial reporting and Federal income tax purposes in the year of such
receipts. However, there can be no assurance that any portion of the
remaining contingent amounts will be received.
(c) JMB/NYC
The Partnership owns indirectly, through Carlyle-XIV Associates, L.P.
and JMB/NYC, an interest in (i) the 237 Park Avenue Associates venture
which owns an existing 23-story office building, (ii) the 1290 Associates
venture which owns an existing 44-story office building, and (iii) the 2
Broadway Associates and 2 Broadway Land Co. ventures which sold their 32-
story office building in September 1995 (together "Three Joint Ventures"
and individually a "Joint Venture"). All of the buildings are located in
New York, New York. In addition to JMB/NYC, the partners of the Three
Joint Ventures include O & Y Equity Company, L.P. and O & Y NY Building
Corp. (hereinafter sometimes referred to as the "Olympia & York
affiliates"), both of which are affiliates of Olympia and York
Developments, Ltd. (hereinafter sometimes referred to as "O&Y").
JMB/NYC is a joint venture among Carlyle-XIV Associates, L.P.,
Property Partners, L.P. and Carlyle-XIII Associates, L.P. as limited
partners and Carlyle Managers, Inc. as the sole general partner. Effective
March 25, 1993, the Partnership became a 40% shareholder of Carlyle
Managers, Inc. Related to this investment, the Partnership has an
obligation to fund $1,200,000 of additional paid-in capital to Carlyle
Managers, Inc. (reflected in amounts due to affiliates in the accompanying
consolidated financial statements).
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JMB/NYC is a limited partnership, and the Partnership's interest in
JMB/NYC, which previously had been held directly, was contributed to
Carlyle-XIV Associates, L.P. in exchange for its limited partnership
interest in that partnership. As a result of these transactions, the
Partnership currently holds, indirectly as a limited partner of Carlyle-XIV
Associates, L.P., an approximate 50% limited partnership interest in
JMB/NYC. The sole general partner of Carlyle-XIV Associates, L.P. is
Carlyle Investors, Inc., of which the Partnership became a 40% shareholder
effective March 25, 1993. Related to this investment, the Partnership has
an obligation to fund, on demand, $1,200,000 of additional paid-in capital
(reflected in amounts due to affiliates in the accompanying consolidated
financial statements). The general partner in each of JMB/NYC and Carlyle-
XIV Associates, L.P. is an affiliate of the Partnership. For financial
reporting purposes, the allocation of profits and losses of JMB/NYC to the
Partnership is 50%.
The terms of the JMB/NYC venture agreement generally provide that
JMB/NYC's share of the Three Joint Ventures' annual cash flow, sale or
refinancing proceeds, operating and capital costs (to the extent not
covered by cash flow from a property) and profit and loss will be
distributed to, contributed by or allocated to the Partnership in
proportion to its (indirect) share of capital contributions to JMB/NYC. As
discussed below, an agreement with the Olympia & York affiliates, when
effective, would provide first for allocation of cash flow to the Olympia &
York affiliates to the level of certain preference amounts, as defined.
The agreement would also, among other things, provide for no further
allocation from the Joint Ventures of depreciation, amortization or
operating losses and the allocation of operating income from the Joint
Ventures only to the extent of cash flow distributions to JMB/NYC.
In October 1994, JMB/NYC entered into an agreement (the "Agreement")
with the Olympia & York affiliates to resolve certain disputes which are
more fully discussed below. Certain provisions of the Agreement became
immediately effective and, therefore, binding upon the partners, while
others become effective either upon certain conditions being met or upon
execution and delivery of final documentation. In general, the parties
have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve almost all property management,
leasing, sale (certain rights to control a sale would be retained by
JMB/NYC through March 31, 2001) or refinancing decisions and the
establishment of a new preferential distribution level payable to the
Olympia & York affiliates from all future sources of cash, (ii) sell the 2
Broadway Building, and (iii) restructure the first mortgage loan. A more
detailed discussion of these items is contained below. As part of the
Agreements, in order to facilitate the restructuring, JMB/NYC and the
Olympia & York affiliates agreed to file for each of the Three Joint
Ventures a pre-arranged bankruptcy plan for reorganization under Chapter 11
of the Bankruptcy Code. In June 1995, the 2 Broadway Joint Ventures filed
their pre-arranged bankruptcy plans for reorganization, and in August 1995,
the bankruptcy court entered an order confirming their plans of
reorganization. Bankruptcy filings for the other Joint Ventures are
expected to occur in 1996 and JMB/NYC would seek to incorporate the
proposed transactions contained in the Agreement in the reorganization
plans for the other Joint Ventures, although there is no assurance that
such proposed transactions would be incorporated. During the bankruptcy
proceedings, there exists a possibility that one or more of the proposed
transactions could be challenged by certain creditors resulting in the
elimination or changes to all or portions of the Agreement by the
bankruptcy court. Consequently, there are no assurances that the
transactions contemplated in the Agreement will be finalized. If the
transactions contemplated in the Agreement are finalized, there would
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
nevertheless need to be a significant improvement in current market and
property operating conditions resulting in a significant increase in the
value of the 237 Park Avenue and 1290 Avenue of the Americas properties
before JMB/NYC would receive any share of future net proceeds from
operations, sale or refinancing. The restructuring of the Three Joint
Ventures' agreements would include the elimination of any funding
obligation by JMB/NYC for any purpose. Consequently, in such event,
JMB/NYC would recognize, for financial reporting purposes, a gain to the
extent of the then current deficit investment balance (which amount was
$251,588,694 as of September 30, 1995). In the event that one or more of
the transactions proposed in the Agreement are not consummated, JMB/NYC and
the Partnership may, among other things, recognize substantial gain for
Federal income tax purposes with no corresponding distributable proceeds.
In September 1995, the 2 Broadway Joint Ventures concluded the sale of
2 Broadway with a third party for a net purchase price, after commissions
and certain other payments but before prorations, of approximately $18.3
million. As a result of this sale and the disposition of its interest in
the 2 Broadway Joint Ventures, JMB/NYC recognized a net gain of
approximately $10,000,000 for financial reporting purposes. In
anticipation of this sale and in accordance with the Agreement, the unpaid
first mortgage indebtedness previously allocated to 2 Broadway was re-
allocated to 237 Park Avenue and 1290 Avenue of the Americas during 1994.
A provision for value impairment was recorded at December 31, 1993 for
financial reporting purposes for $192,627,560, net of the non-recourse
portion of the Purchase Notes given to the Olympia & York affiliates as
part of the consideration of JMB/NYC's acquisition of its interest in the
Three Joint Ventures including accrued interest related to the 2 Broadway
Joint Venture interests payable by JMB/NYC to the Olympia & York affiliates
in the amount of $46,646,810. The provision for value impairment was
allocated $136,534,366 and $56,093,194 to the Olympia & York affiliates and
to JMB/NYC, respectively. Such provision was allocated to the partners to
reflect their respective ownership percentages before the effect of the
non-recourse Purchase Notes including accrued interest.
In October 1995, certain affiliates of O&Y, including one of the
partners in the Joint Ventures, filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. These affiliates of O&Y
are preparing a plan to restructure their ownership interests in various
office buildings, including the 237 Park Avenue and 1290 Avenue of the
Americas office buildings, which could take the form of one or more real
estate investment trusts. Any such restructuring would be subject to the
approval of their various creditors as well as the bankruptcy court, and
would likely result in such creditors collectively obtaining control of
such ownership interests. Although JMB/NYC has had discussions with the
Olympia & York affiliates and certain of the creditors concerning possible
restructuring proposals, because of the preliminary status and the
complexity of the proposals, as well as the current divergence in the
interests of certain of the creditors, the Partnership does not know at
this time how a restructuring would affect the Joint Ventures, JMB/NYC's
ownership interest therein and/or the effectuation of various transactions
pursuant to the Agreement. One or more of the proposed transactions
contemplated by the Agreement may not be effected as a result of such
restructuring, which could result in, among other things, JMB/NYC and the
Partnership recognizing substantial gain for Federal income tax purposes
with no corresponding distributable proceeds.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JMB/NYC purchased a 46.5% interest in each of the Three Joint Ventures
for approximately $173,600,000, subject to a long-term first mortgage loan
which has been allocated among the individual Joint Ventures. A portion of
the purchase price is represented by four 12-3/4% promissory notes (the
"Purchase Notes") which have an aggregate outstanding principal balance of
$14,272,592 and $35,158,225 at September 30, 1995 and December 31, 1994,
respectively. Such Purchase Notes, which contain cross-default provisions,
and are non-recourse to JMB/NYC, are secured by JMB/NYC's interests in the
Three Joint Ventures, and such Purchase Note relating to the purchase of
the interest in the ventures owning the 2 Broadway Building is additionally
secured by JMB/NYC's interest in $20,000,000 of distributable sale proceeds
from the other two Joint Ventures. A default under the Purchase Notes
would include, among other things, a failure by JMB/NYC to repay a Purchase
Note upon acceleration of the maturity, and could cause an immediate
acceleration of the Purchase Notes for the other ventures. Beginning in
1992, the Purchase Notes provide for monthly interest only payments on the
principal and accrued interest based upon the level of distributions
payable to JMB/NYC discussed below. If there are no distributions payable
to JMB/NYC or if the distributions are insufficient to cover monthly
interest on the Purchase Notes, then the shortfall interest (as defined)
accrues and compounds monthly. Interest accruals total $44,487,575 at
September 30, 1995. During 1994 and through September 30, 1995, no
payments were made on the Purchase Notes. All of the principal and accrued
interest on the Purchase Notes is due in 1999 or, if earlier, on the sale
or refinancing of the related property. The Agreement with the Olympia &
York affiliates, when effective, would provide for a 5-year extension of
the due dates on the Purchase Notes to 2004. It further provides for the
cancellation of indebtedness under the 2 Broadway Purchase Notes in excess
of $20 million. As discussed more fully below, the 2 Broadway Joint
Ventures concluded the sale of the 2 Broadway Building at a price which did
not provide any proceeds to JMB/NYC to repay the related Purchase Notes.
Consequently, $20,000,000 of the 2 Broadway Purchase Notes has been
reallocated and is payable out of JMB/NYC's share of distributable cash
flow or sale proceeds, if any, from the other two Joint Ventures.
Prior to 1992, operating profits (excluding depreciation and
amortization) were allocated 30% to JMB/NYC and 70% to the Olympia & York
affiliates, and operating losses (excluding depreciation and amortization)
were allocated 96% to JMB/NYC and 4% to the Olympia & York affiliates.
Depreciation and amortization were allocated 46.5% to JMB/NYC and 53.5% to
the Olympia & York affiliates. Subsequent to 1991, pursuant to the
agreement reached in March 1993 between JMB/NYC and the Olympia & York
affiliates, for the period January 1, 1992 to June 30, 1993, as discussed
below, gross income was allocable to the Olympia & York affiliates to the
extent of the distributions of excess monthly cash flow received for the
period with the balance of operating profits or losses allocated 46.5% to
JMB/NYC and 53.5% to the Olympia & York affiliates. Beginning July 1,
1993, operating profits or losses, in general, are allocated 46.5% to
JMB/NYC and 53.5% to the Olympia & York affiliates. The Agreement with the
Olympia & York affiliates, when effective, would provide for no further
allocation to JMB/NYC of depreciation, amortization or operating losses and
the allocation of operating income only to the extent of cash flow
distributions, if any, during the remaining term of the Joint Ventures.
There was no allocation of depreciation, amortization or operating income
or losses to JMB/NYC for Federal income tax purposes in 1994.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Under the terms of the Three Joint Ventures' agreements, JMB/NYC was
entitled to a preferred return of annual cash flow, with any additional
cash flow distributable 99% to the Olympia & York affiliates and 1% to
JMB/NYC, through 1991. The Olympia & York affiliates were obligated to
make capital contributions to the Three Joint Ventures to pay any operating
deficits (as defined) and to pay JMB/NYC's preferred return through
December 31, 1991. JMB/NYC did not receive its preferred return for the
fourth quarter 1991 and the Olympia & York affiliates applied JMB/NYC's
preferred return to 1992 disputed interest calculations (see below).
Subsequent to 1991, capital contributions to pay for property operating
deficits and other requirements that may be called for under the Three
Joint Ventures' agreements are required to be shared 46.5% by JMB/NYC and
53.5% by the Olympia & York affiliates. The Olympia & York affiliates have
alleged that pursuant to the Three Joint Ventures' agreements between the
Olympia & York affiliates and JMB/NYC, the effective rate of interest with
reference to the first mortgage loan for the purpose of calculating
JMB/NYC's share of operating cash flow or deficits after 1991 is as though
the rate were fixed at 12-3/4% per annum (versus the variable short-term
U.S. Treasury obligation rate plus 1-3/4% per annum (with a minimum 7%)
payable on the first mortgage loan). JMB/NYC believes that, commencing in
1992, the Three Joint Ventures' agreements require an effective rate of
interest with reference to the first mortgage loan, based upon each Joint
Venture's allocable share of the loan, to be 1-3/4% over the variable
short-term U.S. Treasury obligation rate plus any excess monthly operating
cash flow after capital costs of the Three Joint Ventures, such sum not to
be less than a 7% nor exceed a 12-3/4% per annum interest rate, rather than
the 12-3/4% per annum fixed rate that applied prior to 1992. The Olympia &
York affiliates have disputed this calculation of interest expense and
contended that the 12-3/4% per annum fixed rate applied after 1991.
During the quarter ended March 31, 1993, an agreement was reached
between JMB/NYC and the Olympia & York affiliates (the "1993 Agreement")
which rescinded the default notices previously received by JMB/NYC and
eliminated the alleged operating deficit funding obligation of JMB/NYC for
the period January 1, 1992 through June 30, 1993. Pursuant to the 1993
Agreement, during this period, JMB/NYC recorded interest expense at 1-3/4%
over the variable short-term U.S. Treasury obligation rate (subject to a
minimum rate of 7% per annum), which is the interest rate on the underlying
first mortgage loan. Under the terms of the 1993 Agreement, during this
period, the amount of capital contributions that the Olympia & York
affiliates and JMB/NYC would have been required to make to the Three Joint
Ventures, if the first mortgage loan bore interest at a rate of 12-3/4% per
annum (the Olympia & York affiliates' interpretation), became a priority
distribution level to the Olympia & York affiliates from the Three Joint
Ventures' annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also entitles the Olympia & York affiliates to a 7% per annum
return on such unpaid priority distribution level. During this period, the
excess available operating cash flow after the payment of the priority
distribution level discussed above from any of the Three Joint Ventures was
advanced in the form of loans to pay operating deficits and/or unpaid
priority distribution level amounts of any of the other Three Joint
Ventures. Such loans bear a market rate of interest, have a final maturity
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
of ten years from the date when made and are repayable only out of first
available annual cash flow or net sale or refinancing proceeds. The 1993
Agreement also provides that, except as specifically agreed otherwise, the
parties each reserve all rights and claims with respect to each of the
Three Joint Ventures and each of the partners thereof, including, without
limitation, the interpretation of or rights under each of the joint venture
partnership agreements for the Three Joint Ventures. As a result of the
above noted agreement with the Olympia & York affiliates, the cumulative
priority distribution level payable to the Olympia & York affiliates at
March 31, 1995 was approximately $50,000,000. The term of the 1993
Agreement expired on June 30, 1993. Therefore, effective July 1, 1993,
JMB/NYC is recording interest expense at 1-3/4% over the variable short-
term U.S. Treasury obligation rate plus any excess operating cash flow
after capital costs of the Three Joint Ventures, such sum not to be less
than a 7% nor exceed a 12-3/4% per annum interest rate. The Olympia & York
affiliates continue to dispute this calculation and for the period
commencing July 1, 1993 contend that a 12-3/4% per annum fixed rate
applies. Based upon this interpretation, interest expense for the Three
Joint Ventures for the nine months ended September 30, 1995 was
$87,363,401. Based upon the amount of interest determined by JMB/NYC for
the nine months ended September 30, 1995, interest expense for the Three
Joint Ventures was $51,700,688. The cumulative effect of recording the
interest expense calculated by JMB/NYC is to reduce the losses of the Three
Joint Ventures by $108,734,142 (of which the Partnership's share is
$25,280,688) for the period of July 1, 1993 through September 30, 1995 and
to correspondingly reduce what would otherwise be JMB/NYC's funding
obligation with respect to the Three Joint Ventures.
Certain provisions of the Agreement with the Olympia & York
affiliates, when effective, would resolve the funding obligation dispute.
In general, the priority distribution level created in the 1993 Agreement
and JMB/NYC's alleged funding obligation subsequent to June 30, 1993 would
be eliminated in return for the creation of a new preferential distribution
level to the Olympia & York affiliates payable from all sources of
available cash ("Preference Amount"). Such Preference Amount would be
$81.5 million for 1290 Avenue of the Americas and $38.5 million for 237
Park Avenue and both amounts would bear interest at 9% per annum,
compounded monthly, retroactively effective from May 1, 1994. Net proceeds
available, if any, after repayment of the Preference Amounts plus interest,
would then be distributable in accordance with the original terms of the
Three Joint Ventures' Agreements which provide for, in general, that net
proceeds from all sources will be distributable 46.5% to JMB/NYC and 53.5%
to the Olympia & York affiliates, subject to, as described above, repayment
by JMB/NYC of its Purchase Notes.
The terms of the current joint venture partnership agreements between
the Olympia & York affiliates and JMB/NYC for the Three Joint Ventures
provide, in the event of a dissolution and liquidation of a Joint Venture,
that if there is a deficit balance in the tax basis capital account of
JMB/NYC, after the allocation of profits or losses and the distribution of
all liquidation proceeds, then JMB/NYC generally would be required to
contribute cash to the Joint Venture in the amount of its deficit capital
account balance. Taxable gain arising from the sale or other disposition
of a Joint Venture's property generally would be allocated to the joint
venture partner or partners then having a deficit balance in its or their
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
respective capital accounts in accordance with the terms of the joint
venture agreement. However, if such taxable gain is insufficient to
eliminate the deficit balance in its account in connection with a
liquidation of a Joint Venture, JMB/NYC would be required to contribute
funds to the Joint Venture (regardless of whether any proceeds were
received by JMB/NYC from the disposition of the Joint Venture's property)
to eliminate any remaining deficit capital account balance.
The Partnership's potential liability for such contribution, if any,
would be its share, if any, of the liability of JMB/NYC and would depend
upon, among other things, the amounts of JMB/NYC's and the Olympia & York
affiliates' respective capital accounts at the time of a sale or other
disposition of Joint Venture property, the amount of JMB/NYC's share of the
taxable gain attributable to such sale or other disposition of the Joint
Venture property and the timing of the dissolution and liquidation of the
Joint Venture. In such event, the Partnership could be required to sell or
dispose of its other assets in order to satisfy any obligation attributable
to it as a partner of JMB/NYC to make such contribution. Although the
amount of such liability could be material, the Limited Partners of the
Partnership would not be required to make any additional contributions of
capital to satisfy such obligation, if any, of the Partnership. The
Partnership's deficit investment balance in JMB/NYC as reflected in the
balance sheet (aggregating $165,569,119 at September 30, 1995) does not
necessarily represent the amount, if any, the Partnership would be required
to pay to satisfy its deficit restoration obligation. Under the Agreement
with the Olympia & York affiliates, subject to the satisfaction of certain
conditions, any deficit capital account funding obligation of JMB/NYC to
the Joint Ventures would be eliminated.
The 237 Park Avenue and 1290 Avenue of the Americas office buildings
serve as collateral for the first mortgage loan. The lender has asserted
various defaults under the loan. A restructuring of the loan now appears
likely to depend on the restructuring of the ownership interest of various
affiliates of O&Y in a number of office buildings, as discussed above. The
Olympia & York affiliates reached an agreement with the first mortgage
lender whereby effective January 1, 1993, the Olympia & York affiliates are
limited to taking distributions of $250,000 on a monthly basis from the
Three Joint Ventures and reserving the remaining excess cash flow in a
separate interest-bearing account to be used exclusively to meet the
obligations of the Three Joint Ventures as approved by the lender.
Interest on the first mortgage loan is currently calculated based upon a
variable rate related to the short-term U.S. Treasury obligation rate,
subject to a minimum rate on the loan of 7% per annum.
Should a restructuring of the joint venture partnership agreements
providing for the elimination of JMB/NYC's funding obligations in
accordance with the Agreement not be finalized, JMB/NYC may decide not to
commit any additional amounts to the Three Joint Ventures. In addition,
under these circumstances, it is possible that JMB/NYC may determine to
litigate these issues with the Olympia & York affiliates. A decision not
to commit any additional funds or an adverse litigation result could, under
certain circumstances, result in the loss of JMB/NYC's interest in the
related Joint Ventures. The loss of an interest in a particular Joint
Venture could, under certain circumstances, permit an acceleration of the
maturity of the related purchase note (each purchase note is secured by
JMB/NYC's interest in the related Joint Venture). Under certain
circumstances, the failure to repay a purchase note could constitute a
default under, and permit an immediate acceleration of, the maturity of the
purchase notes for the other Joint Ventures. In such event, JMB/NYC may
decide not to repay, or may not have sufficient funds to repay, any of the
purchase notes and accrued interest thereon. This could result in JMB/NYC
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
no longer having an interest in any of the related Joint Ventures, which
would result in substantial net gain for financial reporting and Federal
income tax purposes to JMB/NYC (and through JMB/NYC and the Partnership, to
the Limited Partners) with no distributable proceeds.
(d) JMB/Piper
Under the terms of a modification agreement with the lender, in
addition to fixed interest on the mortgage notes secured by the Piper
Jaffray Tower, contingent interest is payable in annual installments on
April 1 computed at 50% of gross receipts, as defined, for each fiscal year
in excess of $15,200,000. No such contingent interest was due for 1991,
1992, 1993 or 1994. In addition, to the extent the investment property
generates cash flow after payment of the fixed interest on the mortgage,
contingent interest, if any, leasing and capital costs, and 25% of the
ground rent, such amount will be paid to the lender as a reduction of the
principal balance of the mortgage loan. The excess cash flow payments
remitted to the lender for 1992, 1993 and 1994 totalled $923,362,
$1,390,910 and $353,251 respectively. On a monthly basis, the venture
deposits the property management fee into an escrow account to be used
(including interest earned thereon) for future leasing costs to the extent
cash flow is not sufficient to cover such items. To date, no escrow funds
have been required to be used for leasing costs. The manager of the
property (which was an affiliate of the Corporate General Partner through
November 1994 (see note 6)) has agreed to defer receipt of its management
fee until a later date. As of September 30, 1995, the manager has deferred
approximately $2,832,000 ($2,357,000 of which represents fees deferred
through November 1994) of management fees. If upon sale or refinancing as
discussed below, there are funds remaining in this escrow after payment of
amounts owed to the lender, such funds will be paid to the manager to the
extent of its deferred and unpaid management fees. Any remaining unpaid
management fees would be payable out of the venture's share of sale or
refinancing proceeds. Additionally, pursuant to the terms of the loan
modification, effective January 1992, OB Joint Venture, as majority owner
of the underlying land, began deferring receipt of its share of land rent.
These deferrals will be payable from potential net sale or refinancing
proceeds, if any.
Furthermore, pursuant to the loan modification, the venture can prepay
the mortgage note beginning February 1, 1996, subject to a prepayment fee.
The prepayment fee is calculated pursuant to a formula to provide the
lender a minimum return of 13.59% per annum (if the loan is held to
maturity) plus a participation in excess sale and refinancing proceeds, if
any. For financial reporting purposes, interest expense has been accrued
at a rate of 13.59% per annum. In order for the venture to share in future
net sale or refinancing proceeds, there must be a significant improvement
in current market and property operating conditions resulting in a
significant increase in value of the property.
During the fourth quarter of 1993, the joint venture finalized a lease
amendment with Popham, Haik, Schnobrich & Kaufman, Ltd. (104,843 square
feet). The amendment provides for the extension of the lease term from
February 1, 1997 to January 31, 2003 in exchange for a rent reduction
effective February 1, 1994. In addition, the tenant leased an additional
10,670 square feet effective August 1, 1995. The rental rate on the
expansion space approximates market which is significantly lower than the
reduced rental rate on the tenant's current occupied space.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During the second quarter of 1994, a major tenant and joint venture
partner, Piper Jaffray, Inc. (275,758 square feet) agreed to expand its
leased space by 3,362 square feet in July 1995 and 19,851 square feet in
December 1995 into space previously leased to tenants whose leases expire
just prior to the effective dates for Piper Jaffray, Inc.'s expansions.
The expansion space lease expiration date will be coterminous with Piper
Jaffray, Inc.'s existing lease expiration date of March 2000 and the net
effective rental rate approximates market.
(e) JMB/900
As a result of certain defaults by one of the unaffiliated joint
venture partners, an affiliate of the General Partners assumed management
responsibility for the 900 Third Avenue building as of August 1987 for a
fee computed as a percentage of certain revenues. In December 1994, the
affiliated property manager entered into a sub-management contract with an
unaffiliated third party. Pursuant to the sub-management agreement, the
unaffiliated property manager is managing the property.
Through December 31, 1991, it was necessary for JMB/900 to contribute
approximately $4,364,000 ($1,457,000 of which was contributed by the
Partnership) to pay past due property real estate taxes and to pay certain
costs, including litigation settlement costs, which were the responsibility
of one of the unaffiliated joint venture partners under the terms of the
joint venture agreement to the extent such funds were not available from
the investment property. In July 1989, JMB/900 filed a lawsuit in Federal
court against the former manager and one of the unaffiliated venture
partners to recover the amounts contributed and to recover for certain
other joint venture obligations on which the unaffiliated partner has
defaulted. This lawsuit was dismissed on jurisdictional grounds.
Subsequently, however, the Federal Deposit Insurance Corporation ("FDIC")
filed a complaint, since amended, in a lawsuit against the joint venture
partner, the Partnership, C-XV and JMB/900, which has enabled the
Partnership and C-XV to refile its previously asserted claims against the
unaffiliated joint venture partner as part of that lawsuit in Federal
court. There is no assurance that JMB/900 will recover the amounts of its
claims as a result of the litigation. Due to the uncertainty, no amounts
in addition to the amounts advanced to date, noted above, have been
recorded in the financial statements. Settlement discussions with one of
the venture partners and the FDIC continue. In addition, it appears that
the unaffiliated venture partners may not have the financial capabilities
to repay amounts advanced on their behalf. Consequently, a final
settlement may involve redirecting to JMB/900 amounts otherwise payable to
the unaffiliated venture partners in accordance with the venture agreement.
Under certain circumstances, JMB/900 may consider purchasing one or all of
the unaffiliated venture partners' positions in Progress Partners in order
to resolve this and potential future disputes. There are no assurances
that a settlement will be finalized or that the Partnership and affiliated
partner will be able to recover any amounts from the unaffiliated venture
partners.
In 1994, JMB/900, on behalf of Progress Partners, successfully
completed an extension to December 1, 2001 of its mortgage loan, which
matured on December 1, 1994. Pursuant to the loan extension, net cash flow
(as defined) after debt service and capital will be paid into an escrow
account controlled by the lender to be used, including interest earned
thereon, by the joint venture for the payment of real estate taxes as well
as for releasing costs associated with leases which expire in 1999 and 2000
(approximately 240,000 square feet of space). To date, no escrow funds
have been required to be used for leasing costs. The remaining proceeds in
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
this escrow plus interest earned thereon, if any, will be released to the
joint venture once 90% of such leased space has been renewed or released.
During April and July 1995, the venture deposited approximately $1,300,000
and $1,200,000, respectively, (representing net cash flow (as defined))
generated by the property during the first and second quarter, respectively
into escrow under the terms of the loan extension, for the payment of real
estate taxes. The agreement provides, however, that the joint venture can
immediately repay itself, out of the first available net cash flow (after
the payment of real estate taxes), certain costs incurred and deposits made
by the joint venture in connection with the loan extension. As of
September 30, 1995, approximately $1,300,000 of these amounts have been
repaid to the joint venture (of which the Partnership's share is
approximately $433,000).
(f) South Tower
The mortgage note secured by the South Tower Office Building in Los
Angeles, California, as well as the promissory note secured by the
Partnership's interest in the joint venture matured December 1, 1994. The
Partnership and the joint venture have been in discussions with the
respective lenders regarding an extension or refinancing of the mortgage
note and the promissory note. The joint venture had reached an agreement
with the lender of the mortgage note whereby the lender would refrain from
exercising its rights and remedies under the loan documents through
September 1, 1995 while the venture continued to negotiate an extension or
refinancing of the note with the lender. In 1995, the lender is currently
considering an extension of such agreement. The venture continues to make
interest payments to the lender under the original terms of the mortgage
note and is required to escrow all available cash flow. The Partnership
also has ceased making debt service payments on the promissory note and is
negotiating an extension or refinancing with the lender. Such extension or
refinancing is likely to be dependent on the results of negotiations with
the lender of the mortgage note. There is no assurance that the joint
venture or the Partnership will be able to extend or refinance these notes.
In March 1995, the venture entered into a seven year direct lease with the
Los Angeles Unified School District ("LAUSD") for approximately one-half of
a major tenant's (IBM's) space. Under the terms of an agreement reached
with IBM, the joint venture will be reimbursed by IBM for all shortfalls
between amounts due under the LAUSD as compared to amounts which would have
been received under the IBM leases. In early 1995, two major law firm
tenants occupying approximately 5% of the building's space notified the
joint venture of their intentions to disband each of these respective
firms. The joint venture negotiated a lease termination agreement with one
of the law firms for $1,600,000, all of which has been received as of
September 30, 1995. The other law firm, which has vacated its space and is
no longer paying rent, has filed for bankruptcy. The collectability of
amounts owed by such tenant under its lease obligation is uncertain. In
the absence of an extension or refinancing of the notes, and due to the
uncertainty that IBM will renew any of its remaining space, the Partnership
may decide not to commit any significant additional amounts to the
property. This would likely result in the Partnership no longer having an
ownership interest in the property, which would result in a gain for
financial reporting and for Federal income tax purposes with no
corresponding distributable proceeds. The promissory note secured by the
Partnership's interest in the joint venture has been classified at
September 30, 1995 and December 31, 1994 as a current liability in the
accompanying consolidated financial statements.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(g) 1090 Vermont
Through 1993, the Partnership and joint venture partners had
contributed a total of $4,076,000 ($2,038,000 by the Partnership) to the
joint venture to cover releasing costs and costs of a lobby renovation.
The Partnership and joint venture partner had agreed that the contributions
made to the joint venture would be repaid along with a return thereon out
of first available proceeds from property operations, sale or refinancing.
In 1993, the joint venture finalized a refinancing of the existing mortgage
loan with a new loan in the amount of $17,750,000. The refinancing
resulted in net proceeds of approximately $2,259,000 for the joint venture.
Of such proceeds, $1,785,560 (of which the Partnership's share was
$889,064) was distributed in December 1993 as a partial return of the
additional capital contributed. In addition to providing refinancing
proceeds to the joint venture, the debt service payments due under the new
loan are significantly lower than the payments due under the prior loan.
As a result of the reduced debt service payments under the new loan,
the property is currently producing cash flow for the joint venture.
Consequently, the Partnership and joint venture partners received
distributions totalling approximately $1.4 million since the effective date
of the refinancing (the Partnership's share was approximately $700,000).
Such distributions represented a partial return of the additional capital
contributed.
(h) Mariners Pointe
Under the terms of the joint venture agreement, the joint venture
partner is obligated to contribute 22.3% of annual cash operating deficits.
The Partnership had made a request for capital from the joint venture
partner for its share of the 1992 deficit. The joint venture partner's
obligation to make the capital contribution is secured by its interest in
the joint venture as well as personal guarantees by certain of its
principals. The joint venture partner has not made the required
contribution. The Partnership is currently negotiating with the joint
venture partner to obtain its interest in the joint venture and receive
certain amounts in satisfaction of its funding obligation. There can be no
assurance that the Partnership will collect any or all of the amounts due
from the joint venture partner.
Subsequent to the end of the quarter, the joint venture commenced
marketing the property for sale. There can be no assurance, however, that
a sale will be finalized.
The underlying mortgage note was originally scheduled to mature in
October 1994. See note 4(c) regarding the extension of such loan.
(3) DISPOSITION OF INVESTMENT PROPERTIES
(a) Turtle Creek
Under the terms of the Turtle Creek venture agreement, through
December 1990, the joint venture partner was obligated to make capital
contributions to the venture to fund operating deficits including debt
service of the property and to pay the Partnership a preferential return.
The joint venture partner defaulted on such obligations. Due to the non-
payment of debt service, the lender, on March 7, 1989, concluded
proceedings to realize on its security and took title to the property.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The joint venture partner's obligations to the Partnership were
guaranteed by certain of the joint venture partner's principals. After
filing a lawsuit against the joint venture partner and certain of the joint
venture partner's principals, on April 3, 1992, the Partnership entered
into a settlement agreement whereby the Partnership is scheduled to receive
total payments of $4,075,000. The Partnership received $650,000 of this
amount upon execution of the agreement. The remainder of the settlement
amount is represented by a promissory note issued to the Partnership in the
amount of $3,425,000. The note provides for monthly interest payments over
a six-year period at interest rates which vary from 4.8613% to 5.3684% per
annum. In addition, the note provides for annual principal payments of
$400,000 due every April for five years with a final payment in the amount
of $1,425,000 due on the sixth anniversary of the date of issuance of the
note. Due to the uncertainty of collection of the remaining settlement
amounts, settlement principal payments are reflected in other income only
as collected. As of the date of this report, all scheduled principal and
interest payments have been received. During the fourth quarter of 1994,
the joint venture partner and its principals contacted the Partnership
regarding a substantially discounted prepayment of the note, however, such
discounted prepayment as proposed by the joint venture partner has been
rejected by the Partnership.
(b) Brittany Downs Apartments Phase I and II
A summary description of the sale is contained in note 4(a).
(c) Louisiana Tower
A summary description of the disposition is contained in note 4(b).
(4) LONG-TERM DEBT
(a) Brittany Downs Apartments - Phase I and II
In June 1993, the Partnership refinanced the Brittany Downs Apartments
Phase I $7,090,000 mortgage loan resulting in a reduction of the effective
interest rate on the loan from 8.0% per annum to 6.2% per annum.
Brittany Downs Apartments Phase II did not produce sufficient cash
flow to cover its required debt service payments and, consequently, the
Partnership had been paying a reduced amount of debt service since November
1990. Although, the Partnership was negotiating to obtain a loan
modification to reduce the property's required debt service payments, the
Partnership was placed in default during the fourth quarter 1992, for
failure to pay the required debt service. Accordingly, the balances of the
Phase II first mortgage note, the second mortgage note, and related accrued
interest were classified as current liabilities in the accompanying
consolidated financial statements at December 31, 1994. Based upon the
notice of default, the total amount of interest in arrears on the existing
mortgage notes for Brittany Downs Apartment Phase II in the principal
amount of $8,645,310 as of December 31, 1994, was $1,455,200.
The Partnership had been marketing the two Phases together for sale.
In this regard, on January 10, 1995, the Partnership sold the Brittany
Downs Apartments Phase I and II to an unaffiliated third party. The sale
price was $18,380,000 (before selling costs and prorations), of which
$2,795,768 was received in cash at closing and $14,340,000 represented the
purchaser's assumption of the underlying debt (net of a payoff discount
granted by the underlying lender for Brittany Downs Apartments Phase II).
The sale resulted in a gain of $6,638,774 for financial reporting purposes
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
and approximately $8,800,000 for Federal income tax reporting purposes in
1995. In addition, as a result of the payoff discount granted by the
underlying lender for Brittany Downs Apartments Phase II, the Partnership
recognized an additional gain on forgiveness of indebtedness of $1,586,624
for financial reporting purposes and approximately $140,000 for Federal
income tax reporting purposes in 1995, respectively.
(b) Louisiana Tower
During 1988, Louisiana Tower restructured its existing mortgage note
with the lender. In 1990, the Partnership further restructured the loan in
order to reduce current and anticipated deficits resulting from the
termination of a major tenant's lease and costs associated with leasing.
The terms of the agreement required debt service payments in an amount
equal to the monthly cash flow generated by the property (before payment of
property management fees) plus $100,000 per annum for a five-year period
commencing with the January 1990 payment. The cash flow of the property
was escrowed monthly and remitted to the lender annually on March 31. The
difference between the above pay rate and the contract pay rate of 9% per
annum on the principal balance accrued at 9% per annum compounded monthly
until maturity when the principal and accrued interest was to be due and
payable. The existing modification period expired and the loan matured in
January 1995. The Partnership decided that it would not commit any
significant amounts of capital to this property due to the fact that the
recovery of such amounts would be unlikely. Consequently, commencing in
June 1994, the Partnership ceased making the required debt service payments
to the lender and sought further modifications to the loan. The lender was
unwilling to provide further modifications to the loan and began
foreclosure proceedings in October 1994. A receiver was appointed for the
property and a third party manager was appointed to manage the property on
the receiver's behalf. Title to the property was transferred to the lender
on August 30, 1995. The Partnership recognized a gain of $7,784,268 for
financial reporting purposes and approximately $3,300,000 for Federal
income tax purposes in connection with this transfer with no distributable
proceeds.
(c) Mariners Pointe
During the third quarter of 1994, the Partnership obtained a two year
extension of the existing $6,500,000 mortgage loan. The new maturity date
is October 1, 1996. Under terms of the loan extension, the loan bears
interest at 2.75% above the floating weekly tax exempt rate. The weekly
tax exempt interest rate at September 30, 1995 was 3.25% per annum for an
interest rate of 6.00% per annum as of that date. Prior to the extension,
the loan bore interest of 10.875% per annum.
(d) Wilshire Bundy Plaza
The Partnership had commenced discussions with the existing lender for
a possible debt modification on its mortgage loan which matures April 1996
in order to reduce its debt service and cover its releasing costs and
earthquake repair costs (note 1) over the next several years. In this
regard, the Partnership suspended debt service payments commencing with the
December 1, 1994 payment. During July 1995, the Partnership received a
formal notice of default on its mortgage loan from the lender. As of the
date of this report, $4,991,065 of principal and interest is in arrears
relating to this mortgage loan. Accordingly, the principal balance of the
mortgage loan ($41,292,105) and related accrued interest has been
classified as a current liability in the accompanying consolidated
financial statements at September 30, 1995 and December 31, 1994. The
lender began foreclosure proceedings in October 1995. A receiver has been
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
appointed for the property and the previously affiliated third party
property manager continues to manage the property on behalf of the
receiver. Title to the property is expected to transfer to the lender in
1996. The Partnership expects to recognize a gain for Federal income tax
and financial reporting purposes in 1996 in connection with this transfer
with no distributable proceeds. Reference is made to Part II Other
Information Item 1 Legal Proceedings for a discussion of the foreclosure
action.
(e) Louis Joliet Mall
The second mortgage loan matured on September 1, 1995. During
September 1995, the Partnership finalized a refinancing of the property's
first (with a principal balance of approximately $12,400,000) and second
(with a principal balance of $10,000,000 and accrued and deferred interest
of approximately $2,500,000) mortgage loans with a new seven year first
mortgage loan in the amount of $26,000,000. Such refinancing resulted in
approximately $430,000 in net proceeds after payment of the existing loans,
closing costs and prepayment penalty, which the Partnership has decided to
retain for working capital purposes. The new first mortgage loan bears
interest at 8.03% per annum with monthly interest only payments for the
first eighteen months and monthly principal and interest payments based
upon a 25 year amortization schedule thereafter. The new loan matures on
October 1, 2002 and can be prepaid after the second loan year with a yield
maintenance prepayment penalty. The first mortgage loan bore interest of
8.75% per annum and originally was to mature in April 1998. The second
mortgage loan bore interest of 10% per annum. As a result of the early
refinancing of the first mortgage loan, the Partnership paid a prepayment
penalty of approximately $204,000.
(f) Wells Fargo Center
The mortgage note secured by the Wells Fargo Center (South Tower
Office Building) (with a balance of $194,582,781 as of September 30, 1995)
as well as the promissory note secured by the Partnership's interest in the
joint venture (with a balance of $12,250,000 and accrued interest of
$245,000 and $918,750 as of December 31, 1994 and September 30, 1995,
respectively) matured December 1, 1994. The Partnership and the joint
venture have been in discussions with the respective lenders regarding an
extension or refinancing of the mortgage note and the promissory note. In
the absence of an extension or refinancing of the notes, the Partnership
may decide not to commit any significant additional amounts to the
property. This would likely result in the Partnership no longer having an
ownership interest in the property, and would result in a gain for
financial reporting and for Federal income tax purposes with no
corresponding distributable proceeds. The promissory note secured by the
Partnership's interest in the joint venture has been classified at
September 30, 1995 and December 31, 1994 as a current liability in the
accompanying consolidated financial statements.
(5) PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits and
losses of the Partnership from operations are allocated 96% to the Limited
Partners and 4% to the General Partners. Profits from the sale of
investment properties are to be allocated to the General Partners to the
greatest of (i) 1% of such profits, (ii) the amount of cash distributions
to the General Partners, or (iii) an amount which will reduce the General
Partners' capital accounts deficits (if any) to a level consistent with the
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
gain anticipated to be realized from the sale of properties. Losses from
the sale of investment properties are to be allocated 1% to the General
Partners. The remaining profits and losses will be allocated to the
Limited Partners.
The General Partners are not required to make any additional capital
contributions except under certain limited circumstances upon termination
of the Partnership. Distributions of "net cash receipts" of the
Partnership are allocated 90% to the Limited Partners and 10% to the
General Partners (of which 6.25% constitutes a management fee to the
Corporate General Partner for services in managing the Partnership).
The Partnership Agreement provides that subject to certain conditions,
the General Partners shall receive as a distribution from the sale of a
real property by the Partnership up to 3% of the selling price, and that
the remaining proceeds (net after expenses and retained working capital) be
distributed 85% to the Limited Partners and 15% to the General Partners.
However, prior to such distributions being made, the Limited Partners are
entitled to receive 99% of net sale or refinancing proceeds and the General
Partners shall receive 1% until the Limited Partners have received (i) cash
distributions of net sale or refinancing proceeds in an amount equal to the
Limited Partners' aggregate initial capital investment in the Partnership
and (ii) cumulative cash distributions from the Partnership's operations
which, when combined with the net sale or refinancing proceeds previously
distributed, equal a 6% annual return on the Limited Partners' average
capital investment for each year (their initial capital investment reduced
by net sale or refinancing proceeds previously distributed) commencing with
the third fiscal quarter of 1985. If upon the completion of the
liquidation of the Partnership and the distribution of all Partnership
funds, the Limited Partners have not received the amounts in (i) and (ii)
above, the General Partners will be required to return all or a portion of
the 1% distribution of net sale or refinancing proceeds described above up
to an amount equal to such deficiency in payments to the Limited Partners
pursuant to (i) and (ii) above.
(6) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership (or in the case of certain property management fees and out-of-
pocket expenses, by the Partnership's consolidated ventures) to the
Corporate General Partner and its affiliates as of September 30, 1995 and
1994 and for the nine months ended September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Unpaid at
September 30,
1995 1994 1995
-------- ------- -------------
<S> <C> <C> <C>
Property management
and leasing fees . . . . . . . . . $315,929 794,430 6,592
Insurance commissions
(refunds). . . . . . . . . . . . . 64,062 65,039 --
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . . . . . . 16,633 66,012 1,165
-------- ------- -----
$396,624 925,481 7,757
======== ======= =====
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and employees of
the Corporate General Partner and its affiliates relating to the
administration of the Partnership and the operation of Partnership
investment properties. For the nine months ended September 30, 1995 and
fiscal 1994, such costs aggregated $625,571 and $214,504, respectively, all
of which was paid as of September 30, 1995. All amounts deferred or
currently due to the Corporate General Partner and its affiliates do not
bear interest and are expected to be repaid in future periods.
The Corporate General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties, is not
expected to have a material effect on the operations of the Partnership.
Reference is made to note 2(c) regarding the Partnership's obligation
to fund, on demand, $1,200,000 and $1,200,000 to Carlyle Managers, Inc. and
Carlyle Investors, Inc., respectively, for additional paid-in capital
(reflected in amounts due to affiliates in the accompanying consolidated
financial statements). As of September 30, 1995, these obligations bore
interest at 5.78% per annum and interest accrued on these obligations was
$341,075.
The manager of Piper Jaffray Tower (which was an affiliate of the
Corporate General Partner through November 1994) has agreed to defer
receipt of its property management fees as more fully discussed in note
2(d). Such fees were approximately $2,357,000 at September 30, 1995.
Effective January 1, 1994, certain officers and directors of the
Corporate General Partner acquired interests in a company which, among
other things, has provided and continues to provide certain property
management services to certain properties owned by the Partnership. Such
acquisition had no effect on the fees payable by the Partnership under any
existing agreements with such company. The fees earned by such company
from the Partnership for the nine months ended September 30, 1995 were
approximately $8,700, all of which have been paid.
Certain of the Partnership's properties are managed by affiliates of
the General Partners or their assignees for fees computed as a percentage
of certain rents received by the properties. In December 1994, one of the
affiliated property managers sold substantially all of its assets and
assigned its interest in its management contracts to an unaffiliated third
party. In addition, certain of the management personnel of the property
manager became management personnel of the purchaser and its affiliates.
The successor to the affiliated property manager's assets is the property
manager of the Wilshire Bundy Office Building, the Mariner's Pointe
Apartments, and the Piper Jaffray Tower. In addition, the affiliated
property manager entered into a sub-management agreement with the successor
for the management of the 900 Third Avenue office building.
The Louis Joliet Mall is managed by an affiliate of the Corporate
General Partner for fees computed as a percentage of certain revenues.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(7) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary income statement information for Orchard Associates (note
2(b)), JMB/NYC, JMB/Piper, JMB/Piper II, South Tower, JMB/900 and 1090
Vermont for the nine months ended September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Total income from properties
(unconsolidated). . . . . . . . . . . . . . . . . . $181,697,760 196,485,734
============ ===========
Operating loss of ventures. . . . . . . . . . . . . . $ 53,594,673 26,184,946
============ ===========
Partnership's share of
operating loss. . . . . . . . . . . . . . . . . . . $ 42,102,148 12,236,290
============ ===========
Partnership's share of
gain on sale of
interest. . . . . . . . . . . . . . . . . . . . . . $ -- 1,702,082
============ ===========
Partnership's share of
gain on extinguishment
of indebtedness . . . . . . . . . . . . . . . . . . $ 30,980,232 --
============ ===========
</TABLE>
(8) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are Notes to Consolidated Financial
Statements contained in this report.
At September 30, 1995, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $17,937,000. Such funds are
available for distributions to partners and working capital requirements
including the Partnership's potential funding obligations for cash
operating deficits currently being incurred at the Mariner's Pointe
Apartments and Louis Joliet Mall. In February 1995, the Partnership
distributed $8,020,647 to the Limited Partners ($20 per limited partnership
interest) and $81,017 to the General Partners out of proceeds from the sale
or refinancing of certain investment properties. The Partnership and its
consolidated venture have currently budgeted in 1995 approximately
$3,438,000 for tenant improvements and other capital expenditures. The
Partnership's share of such items and its share of such similar items for
its unconsolidated ventures in 1995 is currently budgeted to be
approximately $4,616,000. Actual amounts expended in 1995 may vary
depending on a number of factors including actual leasing activity, results
of property operations, liquidity considerations and other market
conditions over the course of the year. The source of capital for such
items and for both short-term and long-term future liquidity and
distributions to partners is dependent upon net cash generated by the
Partnership's investment properties, debt modifications for certain of the
Partnership's investment properties and the sale or refinancing of such
investments. However, due to the property specific factors discussions
below, the Partnership considers only Louis Joliet Mall, 1090 Vermont
Avenue and 900 Third Avenue to be significant sources of future long-term
operational cash generated. Due to the above situations and the property
specific concerns discussed below, the Partnership had suspended operating
distributions beginning with the fourth quarter 1991 distribution payable
in February 1992.
As of September 30, 1995, the current portion of the long-term
indebtedness of the Partnership and its consolidated ventures was
approximately $53,542,105, including the entire indebtedness encumbering
Wilshire Bundy Plaza and the Partnership's interest in the Wells Fargo
South Tower office building. Reference is made to Notes 2(f) and 4(d).
Piper Jaffray Tower
At the Piper Jaffray Tower, occupancy increased slightly to 98% during
the quarter, up from 97% at the end of the second quarter.
The Minneapolis office market remains competitive due to the
significant amount of new office building developments, which has caused
effective rental rates achieved at Piper Jaffray Tower to be below
expectations. During the fourth quarter of 1993, the joint venture
finalized a lease amendment with Popham, Haik, Schnobrich & Kaufman, Ltd.
(104,843 square feet). The amendment provides for the extension of the
lease term from February 1, 1997 to January 31, 2003 in exchange for a rent
reduction effective February 1, 1994. In addition, the tenant leased an
additional 10,670 square feet effective August 1, 1995. The rental rate on
the expansion space approximates market, which is significantly lower than
the reduced rental rate on the tenant's current occupied space.
During the second quarter of 1994, Piper Jaffray, Inc. (275,758 square
feet) agreed to expand its leased space by 3,362 square feet in July 1995
and 19,851 square feet in December 1995 into space previously leased to
tenants whose leases expire just prior to the effective dates for Piper's
expansions. The expansion space lease expiration date will be coterminous
with Piper's existing lease expiration date of March 2000 and the net
effective rental rate approximates market.
Pursuant to the modification of the mortgage loan made in August 1992,
to the extent the investment property generates cash flow after payment of
fixed interest on the mortgage, contingent interest, if any, leasing and
capital costs, and 25% of the ground rent, such amount will be paid to the
lender as a reduction of the principal balance of the mortgage loan. The
excess cash flow payments remitted to the lender for 1992, 1993 and 1994
totalled $923,362, $1,390,910 and $353,251 respectively. The mortgage note
provides for the lender to earn a minimum internal rate of return which
increases over the term of the note. Accordingly, for financial reporting
purposes, interest expense has been accrued at a rate of 13.59% per annum
which is the estimated minimum internal rate of return per annum assuming
the note is held to maturity. On a monthly basis, the venture deposits the
property management fee into an escrow account to be used for future
leasing costs to the extent cash flow is not sufficient to cover such
items. To date, no escrow funds have been required to be used for leasing
costs. The manager of the property (which was an affiliate of the
Corporate General Partner through November 1994 (see Note 6) has agreed to
defer receipt of its management fee until a later date. As of September
30, 1995, the manager has deferred approximately $2,832,000 of management
fees ($2,357,000 of which represents fees deferred through November 1994).
In order for the Partnership to share in future net sale or refinancing
proceeds, there must be a significant improvement in current market and
property operating conditions resulting in a significant increase in value
of the property. Reference is made to Note 2(d) for further discussion of
this investment property.
Brittany Downs Apartments - Phase I and II
In June 1993, the Partnership refinanced the Brittany Downs Apartments
Phase I $7,090,000 mortgage loan resulting in a reduction of the effective
interest rate on the loan from 8.0% per annum to 6.2% per annum.
Brittany Downs Apartments Phase II did not produce sufficient cash
flow to cover its required debt service payments and, consequently, the
Partnership had been paying a reduced amount of debt service since November
1990. The Partnership had been placed in default for failure to pay the
required debt service.
On January 10, 1995, the Partnership sold the Brittany Downs
Apartments Phase I and II to an unaffiliated third party. The sale price
was $18,380,000 (before selling costs and prorations), of which $2,795,768
was received in cash at closing and $14,340,000 represented the purchaser's
assumption of the underlying debt (net of a payoff discount granted by the
underlying lender for Brittany Downs Apartments Phase II). The sale
resulted in a gain of $6,638,774 for financial reporting purposes and
approximately $8,800,000 for Federal income tax reporting purposes in 1995.
In addition, as a result of the payoff discount granted by the underlying
lender for Brittany Downs Apartments Phase II, the Partnership will
recognize an additional gain on forgiveness of indebtedness of $1,586,624
for financial reporting purposes and approximately $140,000 for Federal
income tax reporting purposes in 1995.
JMB/NYC
Occupancy at 1290 Avenue of the Americas remained at 94% during the
quarter. A new lease with Alex Brown (78,000 square feet or approximately
4% of the building's leasable space) was executed during the third quarter
of 1994. The lease has an eighteen year term. It is expected that the
property will continue to be adversely affected by low effective rental
rates achieved upon releasing of space under existing leases which expire
over the next few years and may be adversely affected by an increased
vacancy rate over the next few years. Approximately 21% of the building's
space under tenant leases will expire by the end of 1995. During the third
quarter of 1995, the Joint Venture that owns the building executed a lease
with a major insurance company for a lease of approximately 506,000 square
feet of space in the building with a fifteen year term with occupancy to
commence in 1996. During the fourth quarter of 1994, the Joint Venture
that owns the building negotiated an amendment with a tenant, Deutsche Bank
Financial Products Corporation, under which the tenant will surrender space
on the 12th and 13th floors (137,568 square feet or approximately 7% of the
building's leasable space) on or before June 30, 1996. The original lease
(as amended) was to terminate on December 31, 2003. The amendment also
added space on the 8th and 9th floors (44,360 square feet or approximately
2% of the building's leasable space) which will expire on or before
December 31, 1997. In consideration for this amendment, the tenant paid an
early termination fee of $29,000,000 to the Joint Venture on December 1,
1994.
Occupancy at 237 Park Avenue during the quarter remained at 98%. It
is expected that the property will be adversely affected by the low
effective rental rates achieved upon releasing of space under existing
leases which expire over the next few years and may be adversely affected
by an increased vacancy rate over the next few years.
In October 1994 JMB/NYC entered into an agreement (the "Agreement")
with the Olympia & York affiliates to resolve certain disputes which are
more fully discussed below. Certain provisions of the Agreement are
immediately effective and, therefore, binding upon the partners, while
others become effective either upon certain conditions being met or upon
execution and delivery of final documentation. In general, the parties
have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve almost all property management,
leasing, sale (certain rights to control a sale would be retained by
JMB/NYC through March 31, 2001) or refinancing decisions and the
establishment of a new preferential distribution level payable to the
Olympia & York affiliates from all future sources of cash, (ii) sell the 2
Broadway Building, and (iii) restructure the first mortgage loan. A more
detailed discussion of each items is contained below and in Note 2. As
part of the Agreement, in order to facilitate the restructuring, JMB/NYC
and the Olympia & York affiliates have agreed to file for each of the Three
Joint Ventures a pre-arranged bankruptcy plan for reorganization under
Chapter 11 of the Bankruptcy Code. In June 1995, the 2 Broadway Joint
Ventures filed their pre-arranged bankruptcy plans for reorganization, and
in August 1995, the bankruptcy court entered an order confirming their
plans of reorganization. Bankruptcy filings for the other Joint Ventures
are expected to occur later in 1996 and JMB/NYC would seek to incorporate
the proposed transactions contained in the Agreement in the reorganization
plans for the other Joint Ventures, although there is no assurance such
proposed transactions would be incorporated. During the bankruptcy
proceedings, there exists a possibility that one or more of the proposed
transactions could be challenged by certain creditors resulting in the
elimination or changes to all or portions of the Agreement by the
bankruptcy court. Consequently, there are no assurances that the
transactions contemplated in the Agreement will be finalized. If the
transactions contemplated in the Agreement are finalized, there would
nevertheless need to be a significant improvement in current market and
property operating conditions resulting in a significant increase in the
value of the 237 Park Avenue and 1290 Avenue of the Americas properties
before JMB/NYC would receive any significant share of future net proceeds
from operations, sale or refinancing. The restructuring of the Joint
Ventures' agreements would include the elimination of any funding
obligation by JMB/NYC for any purpose. Consequently, in such event,
JMB/NYC would recognize, for financial reporting purposes, a gain to the
extent of the then current deficit investment balance (which amount was
$251,588,694 as of September 30, 1995). In the event that one or more of
the transactions proposed in the Agreement are not consummated, JMB/NYC and
the Partnership may, among other things, recognize substantial gains for
Federal income tax purposes with no corresponding distributable proceeds.
In September 1995, the 2 Broadway Joint Ventures concluded the sale of
2 Broadway with a third party for a net purchase price, after commissions
and certain other payments but before prorations, of approximately $18.3
million. As a result of this sale and the disposition of its interest in
the 2 Broadway Joint Ventures, JMB/NYC recognized a net gain of
approximately $10,000,000 for financial reporting purposes. In
anticipation of this sale and in accordance with the Agreement, the unpaid
first mortgage indebtedness previously allocated to 2 Broadway was
reallocated to 237 Park Avenue and 1290 Avenue of the Americas during 1994.
A provision for value impairment was recorded at December 31, 1993 for
financial reporting purposes for $192,627,560, net of the non-recourse
portion of the Purchase Notes given to the Olympia & York affiliates as
part of the consideration for JMB/NYC's acquisition of its interests in the
Three Joint Ventures, including accrued interest related to the 2 Broadway
Joint Venture interests payable by JMB/NYC to the Olympia & York affiliates
in the amount of $46,646,810. The provision for value impairment was
allocated $136,534,366 and $56,093,194 to the Olympia & York affiliates and
JMB/NYC, respectively. Such provision was allocated to the partners to
reflect their respective ownership percentages before the effect of the
non-recourse Purchase Notes including accrued interest.
In October 1995, certain affiliates of O&Y, including one of the
partners in the Joint Ventures, filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. These affiliates of O&Y
are preparing a plan to restructure their ownership interests in various
office buildings, including the 237 Park Avenue and 1290 Avenue of the
Americas office buildings, which could take the form of one or more real
estate investment trusts. Any such restructuring would be subject to the
approval of their various creditors as well as the bankruptcy court, and
would likely result in such creditors collectively obtaining control of
such ownership interests. Although JMB/NYC has had discussions with the
Olympia & York affiliates and certain of the creditors concerning possible
restructuring proposals, because of the preliminary status and the
complexity of the proposals, as well as the current divergence in the
interests of certain of the creditors, the Partnership does not know at
this time how a restructuring would affect the Joint Ventures, the
JMB/NYC's ownership interest therein and/or the effectuation of various
transactions pursuant to the Agreement. One or more of the proposed
transactions contemplated by the Agreement may not be effected as a result
of such restructuring, which could result in, among other things, JMB/NYC
and the Partnership recognizing substantial gain for Federal income tax
purposes with no corresponding distributable proceeds.
JMB/NYC has had a dispute with the Olympia & York affiliates over the
calculation of the effective interest rate with reference to the first
mortgage loan, which covers all three properties, for the purpose of
determining JMB/NYC's deficit funding obligation, as described more fully
in Note 2 of Notes to Financial Statements. During the quarter ended March
31, 1993, an agreement was reached between JMB/NYC and the Olympia & York
affiliates (the "1993 Agreement") which rescinded the default notices
previously received by JMB/NYC and eliminated the operating deficit funding
obligation of JMB/NYC for the period January 1, 1992 through June 30, 1993.
Pursuant to the 1993 Agreement, during this period, JMB/NYC recorded
interest expense at 1-3/4% over the short-term U.S. Treasury obligation
rate (subject to a minimum rate of 7% per annum), which is the interest
rate on the underlying first mortgage loan. Under the terms of the 1993
Agreement, during this period, the amount of capital contributions that the
Olympia & York affiliates and JMB/NYC would have been required to make to
the Three Joint Ventures, if the first mortgage loan bore interest at a
rate of 12-3/4% per annum (the Olympia & York affiliates' interpretation),
became a priority distribution level to the Olympia & York affiliates from
the Three Joint Ventures' annual cash flow or net sale or refinancing
proceeds. The 1993 Agreement also entitles the Olympia & York affiliates
to a 7% per annum return on such unpaid priority distribution level.
During this period, the excess available operating cash flow after the
payment of the priority distribution level discussed above from any of the
Three Joint Ventures was advanced in the form of loans to pay operating
deficits and/or unpaid priority distribution level amounts of any of the
other Three Joint Ventures. Such loans bear a market rate of interest,
have a final maturity of ten years from the date when made and are
repayable only out of first available annual cash flow or net sale or
refinancing proceeds. The 1993 Agreement also provides that, except as
specifically agreed otherwise, the parties each reserve all rights and
claims with respect to each of the Three Joint Ventures and each of the
partners thereof, including, without limitation, the interpretation of or
rights under each of the joint venture partnership agreements for the Three
Joint Ventures. The term of the 1993 Agreement expired on June 30, 1993.
Therefore, effective July 1, 1993, JMB/NYC is recording interest expense at
1-3/4% over the short-term U.S. Treasury obligation rate plus any excess
operating cash flow after capital costs of each of the Three Joint
Ventures, such sum not to be less than 7% nor exceed a 12-3/4% per annum
interest rate. The Olympia & York affiliates continue to dispute this
calculation for the period commencing July 1, 1993, and contend that a 12-
3/4% per annum fixed rate applies. Certain provisions of the Agreement
with the Olympia & York affiliates, when effective, would resolve the
funding obligation dispute.
The 237 Park Avenue and 1290 Avenue of the America's office buildings
serve as collateral for the first mortgage loan. A restructuring of the
loan now appears likely to depend upon the restructuring of the ownership
interests of various affiliates of O&Y in a number of office buildings, as
discussed below. In previous negotiations, the Olympia & York affiliates
reached an agreement with the first mortgage lender whereby effective
January 1, 1993, the Olympia & York affiliates are limited to taking
distributions of $250,000 on a monthly basis from the Three Joint Ventures
and reserving the remaining excess cash flow in a separate interest-bearing
account to be used exclusively to meet the obligations of the Three Joint
Ventures as approved by the lender. Interest on the first mortgage loan is
currently calculated based upon a variable rate related to the short-term
U.S. Treasury obligation rate, subject to a minimum rate on the loan of 7%
per annum. In the absence of the contemplated restructuring, an increase
in the short-term U.S. Treasury obligation rate could result in increased
interest payable on the first mortgage loan by the Three Joint Ventures.
Should a restructuring of the joint venture partnership agreements
providing for the elimination of JMB/NYC's funding obligations in
accordance with the Agreement not be finalized, JMB/NYC may decide not to
commit any additional amounts to the Three Joint Ventures. In addition,
under these circumstances, it is possible that JMB/NYC may determine to
litigate these issues with the Olympia & York affiliates. A decision not
to commit any additional funds or an adverse litigation result could, under
certain circumstances, result in the loss of the interest in the related
Joint Ventures. The loss of an interest in a particular Joint Venture
could, under certain circumstances, permit an acceleration of the maturity
of the related purchase note (each purchase note is secured by JMB/NYC's
interest in the related Joint Venture). Under certain circumstances, the
failure to repay a purchase note could constitute a default under, and
permit an immediate acceleration of, the maturity of the purchase notes for
the other Joint Ventures. In such event, JMB/NYC may decide not to repay,
or may not have sufficient funds to repay, any of the purchase notes and
accrued interest thereon. This could result in JMB/NYC no longer having an
interest in any of the related Joint Ventures, which would result in
substantial net gain for financial reporting and Federal income tax
purposes to JMB/NYC (and through JMB/NYC and the Partnership, to the
Limited Partners) with no distributable proceeds.
1090 Vermont Avenue Building
During the quarter, occupancy of this office building decreased
slightly to 93%, down from 95% at the end of the second quarter. Through
1993, the Partnership and joint venture partners contributed a total of
$4,076,000 ($2,038,000 by the Partnership) to the joint venture to cover
releasing costs and costs of a lobby renovation. The Partnership and joint
venture partner had agreed that the contributions made to the joint venture
would be repaid along with a return thereon out of first available proceeds
from property operations, sale or refinancing. In 1993, the joint venture
finalized a refinancing of the existing mortgage loan with a new loan in
the amount of $17,750,000. The refinancing resulted in net proceeds of
approximately $2,259,000 for the joint venture. Of such proceeds,
$1,785,560 (of which the Partnership's share was $889,064) was distributed
to the venture partners in December 1993 as a partial return of the
additional capital contributed. As a result of the reduced interest
payments under the new loan, the property produced cash flow for the joint
venture in 1994. Consequently, the Partnership and joint venture partners
received distributions totaling approximately $1.4 million since the
effective date of the refinancing (the Partnership's share was
approximately $700,000). Such distributions represent a partial return of
the additional capital contributed.
Old Orchard Shopping Center
In the third quarter of 1993, Orchard Associates in which the
Partnership and an affiliated partnership sponsored by the Corporate
General Partner each have a 50% interest, sold its interest in the Old
Orchard shopping center (reference is made to Note 2(b)).
At the time of redemption, OOUV retained a portion of the Orchard
Associates redemption proceeds in order to fund certain contingent amounts
which may have been due in the future. In July 1995, OOUV distributed to
Orchard Associates its redemption holdback of $2,083,644. As a result, the
Partnership received its share of the holdback of $1,041,820. In October
1995, OOUV distributed to Orchard their share of the pre-sale settlement
with Federated department stores of $288,452. As a result, Orchard
distributed to the Partnership its share of the settlement of $144,226.
The Partnership currently intends to retain these funds for working capital
purposes.
Wilshire Bundy Plaza
Occupancy at the Wilshire Bundy Plaza decreased slightly to 86% during
the quarter, down from 87% at the end of the second quarter. From October
1995 through 1996, approximately 26% of the building's square feet under
tenant leases expires. Included in such expirations is Bozell, Jacobs,
Kenyan & Eckhardt (40,000 square feet or approximately 14% of the
building's leasable space) who informed the Partnership that it would not
be renewing its lease that expires in May 1996. In addition, several
tenants have approached the Partnership seeking space and/or rent
reductions. The Partnership is working with its existing tenants and
aggressively seeking replacement tenants for current and future vacant
space. The Brentwood office market (the competitive market for the
building) remains competitive with a current vacancy rate of approximately
14%. While office building development in this market is virtually at a
standstill, the Partnership does not expect a significant improvement in
the competitive market conditions for several years.
The Wilshire Bundy Plaza incurred minimal damage as a result of the
earthquake in southern California on January 17, 1994. On February 22,
1995, the City Council of the City of Los Angeles passed an ordinance
relating to the repair of welded steel moment frame buildings in an area of
the city that includes Wilshire Bundy Plaza. During June 1995, the
Partnership received notice from the City of Los Angeles which requires the
Partnership to submit a report to the City which indicates the number of
welded connections damaged and proposed repair procedures by no later than
December 20, 1995. All repairs must be completed by no later than March
19, 1998. While a complete determination of the requirements to comply
with the ordinance is not as yet completed, it is estimated that the cost
of such repairs, which have been accrued for and are included in accounts
payable in the accompanying consolidated financial statements, could be
approximately $3 million (none of which had been budgeted).
In 1995, and for several years beyond, the property will not generate
enough cash flow to pay for the costs associated with releasing the space
under leases which expire, the capital costs associated with the seismic
repair, and the required debt service payments. Consequently, the
Partnership had commenced discussions with the existing lender for a
possible debt modification on its mortgage loan which matures April 1996 in
order to reduce its debt service and cover its releasing costs and
earthquake repair costs (discussed above) over the next several years. In
this regard, the Partnership suspended debt service payments commencing
with the December 1, 1994 payment. During July 1995, the Partnership
received a formal notice of default on its mortgage loan from the lender.
As of the date of this report, $4,991,065 of principal and interest is in
arrears relating to this mortgage loan. Accordingly, the principal balance
of the property's underlying mortgage loan ($41,292,105) and related
accrued interest ($4,371,671) has been classified as a current liability in
the accompanying consolidated financial statements as of September 30,
1995. The lender began foreclosure proceedings in October 1995. A
receiver has been appointed for the property and the previously affiliated
third party property manager continues to manage the property on behalf of
the receiver. Title to the property is expected to transfer to the lender
in 1996. This property represents approximately 9% of the Partnership's
original cash investment in real properties. The Partnership expects to
recognize a gain for Federal income tax and financial reporting purposes in
1996 in connection with this transfer with no distributable proceeds.
Wells Fargo Center
The Wells Fargo Center ("South Tower") operates in the downtown Los
Angeles office market, which has become extremely competitive over the last
several years with the addition of several new buildings that has resulted
in a high vacancy rate of approximately 25% in the marketplace. In 1992,
two major law firm tenants occupying approximately 11% of the building's
space approached the joint venture indicating that they were experiencing
financial difficulties and desired to give back a portion of their leased
space in lieu of ceasing business altogether. The joint venture reached
agreements which resulted in a reduction of the space leased by each of
these tenants. Also, a major tenant, IBM, which originally leased
approximately 58% of the tenant space in the Wells Fargo Building, is sub-
leasing a portion of its space which is scheduled to expire in December
1998. In addition, the joint venture has entered into a seven year direct
lease with the Los Angeles United School District ("LAUSD") for
approximately one-half of IBM's space with occupancy beginning March 1,
1995. Under the terms of an agreement reached with IBM, the joint venture
will be reimbursed by IBM for all shortfalls between amounts which would
have been due under the IBM lease and the LAUSD lease. In early 1995, two
major law firm tenants occupying approximately 5% of the building's space
notified the joint venture of their intentions to disband each of these
respective firms. The joint venture negotiated a lease termination
agreement with one of the law firms for $1,600,000, all of which has been
received as of September 30, 1995. The other law firm, which has vacated
its space, has filed for bankruptcy. The collectability of amounts owed by
such tenant under its lease obligation is uncertain. The Partnership
expects that the competitive market conditions and the continued recession
in Southern California will have an adverse affect on the building through
lower effective rental rates achieved on releasing of existing space which
expires or is given back over the next several years. In addition, new
leases will likely require expenditures for lease commissions and tenant
improvements prior to occupancy. This anticipated decline in rental rates,
the anticipated increase in re-leasing time and the costs upon releasing
will result in a decrease in cash flow from operations over the near term.
The Partnership's share of distributions from the joint venture for 1992
and 1993 were insufficient to cover the debt service on the promissory note
secured by the Partnership's interest in the joint venture. Such shortfall
was due to rental concessions granted to facilitate leasing of space taken
back in 1992 from the two tenants noted above and the expansion of one of
the other major tenants in the building. The property produced cash flow
and distributed approximately $1,963,000 to the Partnership in 1994.
The mortgage note secured by the property (with a balance of
$194,582,781 as of September 30, 1995), as well as the promissory note
secured by the Partnership's interest in the joint venture (with a balance
of $12,250,000 and accrued interest of $245,000 and $918,750 as of December
31, 1994 and September 30, 1995, respectively) matured December 1, 1994.
The Partnership and the joint venture have been in discussions with the
respective lenders regarding an extension of the mortgage note and the
promissory note. The joint venture had reached an agreement with the
lender of the mortgage note whereby the lender would refrain from
exercising its rights and remedies under the loan documents through
September 1, 1995 while the venture continues to negotiate an extension or
refinancing of the note with the lender. The lender is currently
considering an extension of such agreement. The venture continues to make
interest payments to the lender under the original terms of the mortgage
note and is required to escrow all available cash flow. The Partnership
has ceased making debt service payments on the promissory note and an
extension or refinancing with the lender is likely to be dependent on the
results of negotiations with the lender of the mortgage note. There is no
assurance that the joint venture or the Partnership will be able to extend
or refinance these notes. In the absence of an extension or refinancing of
the notes, the Partnership may decide not to commit any significant
additional amounts to the property. This would likely result in the
Partnership no longer having an ownership interest in the property, and in
such event would result in a gain for financial reporting and for Federal
income tax purposes with no corresponding distributable proceeds. The
promissory note secured by the Partnership's interest in the joint venture
has been classified at June 30, 1995 and December 31, 1994 as a current
liability in the accompanying consolidated financial statements. The
property did not sustain any significant damage as a result of the January
1994 earthquake in southern California. Reference is made to Notes 2(f)
and 4(f).
900 Third Avenue Building
During the quarter, occupancy of this building remained at 96%. The
midtown Manhattan market remains competitive. Approximately 44,000 square
feet (approximately 8% of the building's leasable square footage) of leased
space expires in 1995 and 1996. The manager has signed a long term lease
with Zweig Advisors, Inc. to occupy 25,900 square feet (approximately 5% of
the building's leasable square footage) of this space upon the existing
lease expiration on March 1, 1996. The property's operating cash flow will
be adversely affected by lower rental rates achieved and leasing costs
incurred upon releasing this space and may be adversely affected by
increased vacancy during the releasing period. In 1994, JMB/900 Third
Avenue Associates, on behalf of the property joint venture, successfully
completed an extension to December 1, 2001 of its mortgage loan, which
matured on December 1, 1994. In addition, net cash flow after debt service
and capital will be paid into an escrow account controlled by the lender to
be used by the property joint venture for the payment of property taxes and
for releasing costs associated with leases which expire in 1999 and 2000
(approximately 240,000 square feet of space). To date, no escrow funds
have been required to be used for leasing costs. The remaining proceeds in
this escrow (including interest earned thereon), if any, will be released
to the property joint venture once 90% of such leased space has been
renewed or released. The agreement provides, however, that the joint
venture can repay itself, out of the first available net cash flow, certain
costs incurred and deposits made by the joint venture in connection with
the loan extension. As of September 30, 1995, approximately $1,300,000 of
these amounts have been repaid to the joint venture (of which the
Partnership's share is approximately $433,000). During April and July
1995, the venture deposited approximately $1,300,000 and $1,200,000,
respectively, (representing cash flow generated during the first quarter
and second quarter, respectively) into escrow under the terms of the loan
extension, for the payment of property taxes.
Louis Joliet Mall
Occupancy at this mall increased to 87% (excluding the effect of the
move-out of General Cinema, Inc., as discussed below), up from 80% at the
end of the second quarter, primarily due to new tenants, Italiani's (7,218
square feet, or approximately 2.5% of the mall's leasable space), Joliet
Public Library (4,727 square feet, or approximately 1.5% of the mall's
leasable space) and Lechters (3,300 square feet, or approximately 1% of the
mall's leasable space), taking occupancy during the quarter. During the
fourth quarter of 1994, General Cinema, Inc. (14,587 square feet or
approximately 5% of the mall space) ceased its operations within the mall.
The Partnership and the tenant are currently seeking a new operator to run
the theaters at the mall. The tenant continues to pay rent in accordance
with its lease (which expires December 31, 1998) and as of the date of this
report, all amounts due from the tenant under the lease have been received.
During the third quarter of 1993, Al Baskin Co. (19,960 square feet or
approximately 7% of the mall space) informed the Partnership that even
though its lease does not contain provisions allowing it to terminate its
lease, it believed it had the right and intended to terminate its lease
effective December 31, 1993 (as opposed to the original lease expiration of
December 31, 2003). In response, during the third quarter of 1993, the
Partnership filed an anticipatory breach lawsuit against the tenant in
order to prevent the tenant from vacating its space and cease paying rent
to the Partnership. Subsequently, the Partnership and tenant entered into
a temporary agreement under which the tenant continues to operate its store
and pay rent. As of the date of this report, all amounts due from the
tenant under the lease have been received. The Partnership believes the
tenant's position is without merit and intends to enforce the original
terms of the lease. On November 9, 1995, Al Baskin filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. According to published
reports, in connection with its reorganization, Al Baskin intends to
repudiate its leases and close several of its stores including the store at
Louis Joliet Mall by February 1, 1996. The Partnership has only begun to
assess this situation and the remedies available to it by law. In the
short term, if Al Baskin is successful in repudiating its lease and closing
its store, there will be an adverse affect on the property's occupancy and
cash flow. The long term affects on the property cannot be determined at
this time. In addition, the Partnership is uncertain as to what will
happen with the above discussed ongoing litigation.
A mall enhancement program for the center was completed in November
1994 at a cost of approximately $2,500,000. The enhancement program
included new flooring, signage and mall entranceways. Costs were funded
from the property's operating cash flow and the Partnership's working
capital reserve.
The second mortgage loan matured on September 1, 1995. During
September 1995, the Partnership refinanced the first mortgage and second
mortgage loans with a new mortgage with the first mortgage lender. The
terms of the mortgage loan are for a $26,000,000 seven year term at an
interest rate of 8.03% per annum. The first mortgage loan bore interest of
8.75% per annum and was to mature in April 1998. The second mortgage loan
bore interest of 10% per annum. As a result of the early refinancing of
the first mortgage loan, the Partnership paid a prepayment penalty of
approximately $204,000. The Partnership received approximately $430,000 in
net proceeds after payment of the existing loans, closing costs and
prepayment penalty.
Louisiana Tower
The property operated at a small deficit in 1994 as a result of the
1990 debt modification as more fully discussed in Note 4(b). The existing
modification period expired and the loan (with an outstanding principal
balance of $22,173,850 at August 30, 1995) matured in January 1995. The
Partnership decided that it would not commit any significant amounts of
capital to this property due to the fact that the recovery of such amounts
would be unlikely. Consequently, commencing in June 1994, the Partnership
ceased making the required debt service payments to the lender and sought
further modifications to the loan. The lender was unwilling to provide
further modifications to the loan and began foreclosure proceedings in
October 1994. A receiver was appointed for the property and a third party
manager was appointed to manage the property on the receiver's behalf.
Title to the property transferred to the lender on August 30, 1995. This
property represents approximately 5% of the Partnership's original cash
investment in real properties. The Partnership recognized a gain of
$7,784,268 for financial reporting purposes and approximately $3,300,000
for Federal income tax purposes in connection with this transfer with no
distributable proceeds.
Mariners Pointe Apartments
Occupancy at the Mariners Pointe Apartments increased during the
quarter to 96%, up from 91% at the end of second quarter. The property has
operated at a small deficit in 1994 and 1995. During the third quarter of
1994, the Partnership obtained a two-year extension of the existing
$6,500,000 mortgage loan which matured on October 1, 1994. Under terms of
the loan extension, the loan bears interest at 2.75% above the floating
weekly tax exempt rate. The weekly tax exempt interest rate at September
30, 1995 was 3.25% per annum resulting in an interest rate of 6.00% per
annum on that date. Prior to the extension, the loan bore interest of
10.875% per annum.
Subsequent to the end of the quarter, the joint venture commenced
marketing the property for sale. There can be no assurance, however, that
a sale will be finalized.
In 1992 and 1993, the property operated at a small deficit as the
result of certain capital improvements. Under the terms of the joint
venture agreement, the joint venture partner was obligated to contribute
22.3% of such deficits. The Partnership had made a request for capital
from the joint venture partner for its share of the 1992 deficit. The
joint venture partner's obligation to make the capital contribution is
secured by its interest in the joint venture as well as personal guarantees
by certain of its principals. The joint venture partner has not made the
required contribution. The Partnership is currently negotiating with the
joint venture partner to obtain its interest in the joint venture and
receive certain amounts in satisfaction of its funding obligation. There
can be no assurance that the Partnership will collect any or all of the
amounts due from the joint venture partner in satisfaction of its funding
obligation.
General
To the extent that additional payments related to certain properties
are required or if properties do not produce adequate amounts of cash to
meet their needs, the Partnership may utilize the working capital which it
maintains and/or pursue outside financing sources. However, based upon
current market conditions, the Partnership may decide not to, or may not be
able to, commit additional funds to certain of its investment properties.
This would result in the Partnership no longer having an ownership interest
in such property, and generally would result in taxable income to the
Partnership with no corresponding distributable proceeds. The
Partnership's and the ventures' mortgage obligations are all non-recourse.
Therefore, the Partnership and its ventures are not personally obligated to
pay mortgage indebtedness.
There are certain risks and uncertainties associated with the
Partnership's investments made through joint ventures including the
possibility that the Partnership's joint venture partners in an investment
might become unable or unwilling to fulfill their financial or other
obligations, or that such joint venture partners may have economic or
business interests or goals that are inconsistent with those of the
Partnership.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. The Partnership's
philosophy and approach has been to aggressively and creatively manage the
Partnership's real estate assets to attract and retain tenants. Net
effective rents to the landlord from renewal tenants are much more
favorable than lease terms which can be negotiated with new tenants.
However, the Partnership's capital resources must also be preserved and
allocated in such a manner as to maximize the total value of the portfolio.
As a result of the real estate market conditions discussed above, the
Partnership continues to conserve its working capital. All expenditures
are carefully analyzed and certain capital projects are deferred when
appropriate. The Partnership has also sought or is seeking additional loan
modifications or extensions of loan modifications where appropriate. By
conserving working capital, the Partnership will be in a better position to
meet the future needs of its properties since outside sources of capital
may be limited.
The Partnership has held certain of its investment properties longer
than originally anticipated in an effort to maximize the return to the
Limited Partners. After reviewing the remaining properties and their
competitive marketplace, the General Partners of the Partnership expect to
be able to conduct an orderly liquidation of the remaining properties as
quickly as practicable. Therefore, the affairs of the Partnership are
expected to be wound up no later than 1999 (with the possible exception of
the Partnership's interest in JMB/NYC) (sooner if the properties are sold
or disposed of in the nearer term), barring unforeseen economic
developments. However, in light of current severely depressed real estate
markets, it currently appears that the Partnership's goal of capital
appreciation will not be achieved. Although, the Partnership expects to
distribute from sale proceeds some portion of the Limited Partners'
original capital, without a dramatic improvement in market conditions, the
Limited Partners will receive substantially less than half of their
original investment.
RESULTS OF OPERATIONS
At September 30, 1995 and 1994, the Partnership owned ten and twelve
investment properties, respectively, all of which were operating.
The aggregate decrease in the balance of cash and cash equivalents and
short-term investments as of September 30, 1995 as compared to December 31,
1994 is primarily due to the distribution to partners of $8,101,664 in
February 1995, partially offset by the receipt of $2,795,768 relating to
the sale of Brittany Downs Apartments Phase I and Phase II in January 1995
and the receipt of $1,041,820, in July 1995 relating to the sale of Old
Orchard (Note 2(b)). The decrease in short-term investments at September
30, 1995 as compared to December 31, 1994 is primarily due to all of the
Partnership's investments in U.S. Government obligations being classified
as cash equivalents at September 30, 1995. Reference is made to Note 1.
The decrease in restricted funds as of September 30, 1995 as compared
to December 31, 1994 is due to the disposition of Louisiana Tower in August
1995 (see Note 4(b)).
The increase in prepaid expenses at September 30, 1995 as compared to
December 31, 1994 is due primarily to the timing of payment of insurance
premiums at each of the Partnership's consolidated investment properties.
The decrease in interest, rents and other receivables, escrow
deposits, land and leasehold improvements, buildings and improvements,
accumulated depreciation, and deferred expenses as of September 30, 1995 as
compared to December 31, 1994 is due primarily to the sale of the Brittany
Downs Apartments Phase I and Phase II in January 1995 (Note 4(a)) and the
disposition of Louisiana Tower in August 1995.
The decrease in current portion of long-term debt, accrued interest,
and long-term debt, less current portion as of September 30, 1995 as
compared to December 31, 1994 is primarily due to the sale of the Brittany
Downs Apartments Phase I and Phase II during January 1995, the disposition
of Louisiana Tower in August 1995, and the refinancing of the first and
second mortgage notes at Louis Joliet Mall in September 1995. The decrease
in accrued interest as of September 30, 1995 as compared to December 31,
1994 is partially offset by the compounding of interest on the loan secured
by Wilshire Bundy Plaza (Note 4(d)) and the debt secured by the
Partnership's interest in the South Tower Venture (Note 2(f)) for which the
Partnership has suspended debt service payments.
The increase in due to affiliates as of September 30, 1995 as compared
to December 31, 1994 is due primarily to interest accruing on the
Partnership's obligation to fund, on demand, $2,400,000 to Carlyle
Managers, Inc. and Carlyle Investors, Inc. ($1,200,000 for each), for
additional paid in capital (as more fully discussed in Note 2(c)).
The increase in accrued real estate taxes as of September 30, 1995 as
compared to December 31, 1994 is primarily due to the timing of the payment
of real estate taxes at Wilshire Bundy Plaza, partially offset by the sale
of the Brittany Downs Apartments Phase I and Phase II in January 1995.
The decrease in unearned rents as of September 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of the collection of
rental income at Wilshire Bundy Plaza and Louis Joliet Mall.
The decrease in other liabilities as of September 30, 1995 as compared
to December 31, 1994 is primarily due to the disposition of Louisiana Tower
in August 1995.
The decrease in rental income, mortgage and other interest,
depreciation and property operating expenses for the three and nine months
ended September 30, 1995 as compared to the three and nine months ended
September 30, 1994 is due primarily to the sale of Brittany Downs
Apartments Phase I and II in January 1995 and the disposition of Louisiana
Tower in August 1995.
The increase in interest income for the three and nine months ended
September 30, 1995 as compared to the three and nine months ended September
30, 1994 is primarily due to the increase in 1995 in the average interest
rate earned on the Partnership's investment in U.S. Government obligations.
The increase in professional services for the three and nine months
ended September 30, 1995 as compared to the three and nine months ended
September 30, 1995 is primarily due to professional fees incurred in
conjunction with the refinancing of Louis Joliet Mall in September 1995 and
the disposition of the Louisiana Tower in August 1995.
The increase in amortization of deferred expenses for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 is primarily due to the amortization of
costs associated with the loan extension obtained at Mariners Pointe
Apartments during the third quarter of 1994 (Note 4(c)).
The increases in general and administrative expenses for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 are attributable primarily to an increase
in reimbursable costs to affiliates of the General Partners in 1995 and the
recognition of certain additional prior year reimbursable costs to such
affiliates. Reference is made to Note 6.
The increase in the Partnership's share of loss from operations of
unconsolidated ventures and the Partnership's share of gain from the
extinguishment of indebtedness of unconsolidated venture for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 is primarily due to the Partnership's share
of loss from the disposition of the 2 Broadway ventures (Note 2(c)) and the
related gain on the extinguishment of indebtedness.
The increase in the gain from the sale or disposition of investment
properties and extraordinary items for the nine months ended September 30,
1995 as compared to the nine months ended September 30, 1994 is due to the
sale of the Brittany Downs Apartments Phase I and Phase II in January 1995
and the related gain recognized on forgiveness of debt (Note 4(a)), the
refinancing of Louis Joliet Mall in September 1995 and related prepayment
penalty (Note 4(e)) and the disposition of Louisiana Tower in August 1995.
