SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-14351
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
-------------- --------------
Cash and cash equivalents $ 1,400,141 $ 1,192,138
Restricted investments 480,000 480,000
Escrow deposits 1,505,565 937,213
Accounts and accrued interest receivable 166,027 349,385
Deferred expenses, principally loan
financing fees, net of accumulated
amortization of $225,959 in 1994 and
$283,373 in 1993 1,118,394 1,035,536
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4,670,127 3,994,272
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Investment in real estate, at cost:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
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73,062,736 73,062,736
Less accumulated depreciation 23,780,503 22,366,015
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Investment in real estate, net of
accumulated depreciation 49,282,233 50,696,721
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$ 53,952,360 $ 54,690,993
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Loans payable - affiliates $ 13,005,605 $ 8,752,085
Accounts payable 53,149 93,233
Due to affiliates 430,576 108,865
Accrued liabilities, principally interest
and real estate taxes 682,781 919,487
Security deposits 240,892 245,973
Loss in excess of investment in joint
venture with an affiliate 1,084,573 996,929
Mortgage notes payable - affiliates 1,673,215 7,481,299
Purchase price, promissory and mortgage
notes payable 51,771,186 49,744,207
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Total liabilities 68,941,977 68,342,078
Partners' capital (83,936 Limited Partnership
Interests issued and outstanding) (14,989,617) (13,651,085)
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$ 53,952,360 $ 54,690,993
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
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Income:
Rental and service $ 9,400,531 $ 10,000,186
Interest on short-term investments 43,402 64,296
Settlement income 113,870
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Total income 9,443,933 10,178,352
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Expenses:
Interest on purchase price, promissory
and mortgage notes payable 3,923,809 4,833,220
Interest on short-term loans from affiliates 375,992 247,799
Depreciation 1,414,488 1,594,474
Amortization of deferred expenses 225,959 148,540
Property operating 3,171,378 3,507,664
Real estate taxes 732,550 807,959
Property management fees 470,127 506,214
Administrative 468,053 320,474
Participation in loss of joint venture
with an affiliate 109 68,668
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Total expenses 10,782,465 12,035,012
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Loss before recognized gain on sale
of property (1,338,532) (1,856,660)
Recognized gain on sale of property 3,648,559
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Net (loss) income $ (1,338,532) $ 1,791,899
============== ==============
Net (loss) income allocated to
General Partner $ (13,385) $ 17,919
============== ==============
Net (loss) income allocated to
Limited Partners $ (1,325,147) $ 1,773,980
============== ==============
Net (loss) income per Limited Partnership
Interest (83,936 issued and outstanding) $ (15.79) $ 21.13
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(Unaudited)
1994 1993
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Income:
Rental and service $ 3,071,937 $ 3,083,781
Interest on short-term investments 14,022 9,019
Settlement income 113,870
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Total income 3,085,959 3,206,670
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Expenses:
Interest on purchase price, promissory
and mortgage notes payable 1,264,438 1,410,826
Interest on short-term loans from affiliates 195,082 67,827
Depreciation 471,495 488,457
Amortization of deferred expenses 65,622 57,117
Property operating 1,099,841 1,319,411
Real estate taxes 236,320 252,013
Property management fees 161,130 160,446
Administrative 154,206 117,322
Participation in loss of joint venture
with an affiliate 19,640 33,335
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Total expenses 3,667,774 3,906,754
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Loss before recognized gain on sale
of property (581,815) (700,084)
Recognized gain on sale of property 3,648,559
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Net (loss) income $ (581,815) $ 2,948,475
============== ==============
Net (loss) income allocated to
General Partner $ (5,818) $ 29,485
============== ==============
Net (loss) income allocated to
Limited Partners $ (575,997) $ 2,918,990
============== ==============
Net (loss) income per Limited Partnership
Interest (83,936 issued and outstanding) $ (6.86) $ 34.78
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
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Operating activities:
Net (loss) income $ (1,338,532) $ 1,791,899
Adjustments to reconcile net (loss) income
to net cash provided by or used in
operating activities:
Recognized gain on sale of property (3,648,559)
Participation in loss of joint venture
with an affiliate 109 68,668
Depreciation of properties 1,414,488 1,594,474
Amortization of deferred expenses 225,959 148,540
Deferred interest expense 195,655 332,068
Payment of deferred interest expense (681,731) (1,498,286)
Net change in:
Escrow deposits (356,202) (470,838)
Accounts and accrued interest
receivable 183,358 (215,784)
Accounts payable (40,084) (37,431)
Due to affiliates 321,711 69,230
Accrued liabilities 249,370 256,288
Security deposits (5,081) (54,048)
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Net cash provided by or used in
operating activites 169,020 (1,663,779)
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Investing activities:
Redemption of restricted investments 1,300,000
Contribution to joint venture with
an affiliate (80,913)
Distribution from joint venture with
an affiliate 87,535 94,133
Proceeds from sale of property 13,200,000
Payment of selling costs (109,559)
Additions to properties (140,468)
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Net cash provided by investing activities 87,535 14,263,193
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Financing activities:
Proceeds from issuance of mortgage
notes payable 11,664,000 29,416,121
Repayment of loans payable - affiliates (539,293) (2,581,471)
Proceeds from loans payable - affiliates 577,267
Repayment of mortgage notes payable -
affiliates (1,592,538) (1,027,935)
Repayments of mortgage notes payable (9,389,731) (36,551,323)
Principal payments on purchase price,
promissory and mortgage notes payable (247,290) (188,276)
Funding of repair escrow (212,150) (353,295)
Payment of deferred expenses (308,817) (803,277)
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Net cash used in financing activities (48,552) (12,089,456)
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Net change in cash and cash equivalents 208,003 509,958
Cash and cash equivalents at beginning
of period 1,192,138 183,369
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Cash and cash equivalents at end of period $ 1,400,141 $ 693,327
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. This reclassification
has not changed the 1993 results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying statements
for the nine months and quarter ended September 30, 1994, and all such
adjustments are of a normal and recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1994 and 1993, the Partnership
incurred interest expense on non-affiliated purchase price, promissory and
mortgage notes payable of $3,505,125 and $4,134,348 and paid interest expense
of $3,505,125 and $5,093,011, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1994 are:
Paid
--------------------
Nine Months Quarter Payable
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Property management fees $469,632 $161,760 $54,026
Reimbursement of expenses to
the General Partner, at cost:
Accounting 48,095 29,625 29,045
Data processing 24,446 11,114 27,515
Investor communications 13,369 8,193 8,140
Legal 8,444 5,175 5,141
Portfolio management 34,234 20,590 20,843
Other 10,512 6,442 6,400
In March and July 1994, the Partnership refinanced the Chestnut Ridge - Phase I
and Forest Ridge - Phase II mortgage loans payable, respectively, including
loans previously outstanding to an affiliate of the Partnership. See Note 5 of
Notes to Financial Statements for additional information.
In July 1993, the Partnership repaid the $1,027,935 loan outstanding with
Balcor Real Estate Holdings, Inc. ("BREHI"), and all accrued interest thereon,
relating to the mortgage financing on the Hunter's Glen Apartments.
The Partnership incurred interest expense on loans from affiliates on the
Chestnut Ridge - Phase I, Forest Ridge - Phase II and Hunter's Glen apartment
complexes of $492,403 and $698,872 and paid interest expense of $904,707 and
$908,840 during the nine months ended September 30, 1994 and 1993,
respectively. Interest expense of $29,605 was payable as of September 30, 1994.
As of September 30, 1994, the Partnership owes $13,005,605 to the General
Partner in connection with the funding of additional working capital and other
Partnership obligations. This amount included $480,000 which was borrowed to
pledge as collateral relating to the Country Oaks mortgage loan. During the
nine months ended September 30, 1994, the Partnership retired and replaced
$1,646,000 and $2,569,546 of affiliate loans related to the Chestnut Ridge -
Phase I and Forest Ridge - Phase II apartment complexes, respectively, with
General Partner loans in connection with the 1994 refinancings of the
properties' mortgage loans. The Partnership also had net borrowings of $37,974
during this period from the General Partner. The Partnership incurred interest
expense of $302,373 and $247,799, and paid interest expense of $135,741 and
$182,057 during the nine months ended September 30, 1994 and 1993,
respectively, in connection with these loans. As of September 30, 1994,
interest expense of $279,466 was payable. Interest expense was computed at the
American Express Company cost of funds rate plus a spread to cover
administrative costs. As of September 30, 1994, this rate was 5.362%.
4. Restricted Investment:
As of September 30, 1994, the Partnership had cash of $480,000 pledged as
collateral relating to the Country Oaks mortgage loan. The amount pledged is
invested in short-term instruments pursuant to the terms of the pledge
agreement with the lending institution. Interest earned on the investment
accumulates to the benefit of the Partnership and is payable upon expiration or
termination of the pledge agreement or earlier at the sole discretion of the
lending institution.
5. Loan Refinancings:
a) In March 1994, the Partnership completed the refinancing of the mortgage
loans payable collateralized by the Chestnut Ridge - Phase I Apartments. These
loans consisted of a $3,029,731 first mortgage loan from an unaffiliated lender
and a junior mortgage loan and an unsecured loan from affiliates of the
Partnership totaling $3,983,484, including deferred interest of $450,185. The
proceeds from the new first mortgage loan of $3,694,000 from an unaffiliated
lender were used to repay the previous first mortgage loan, the deferred
interest on the affiliated loans and a portion of the outstanding loans from
affiliates. The new first mortgage loan has an interest rate of 9.02% compared
to the previous first mortgage loan rate of 9.75%, and requires monthly
principal and interest payments of $29,776 through maturity in April 2001. The
Partnership paid refinancing costs totaling $89,666. As required by the
unaffiliated lender, $1,646,000 of the remaining balance of the affiliate loans
was retired and replaced with a General Partner loan and the remainder was
recharacterized as a subordinate non-recourse loan of $1,473,215 and a
preferred limited partnership interest of $200,000 in the subsidiary
partnership which holds title to the property, all of which are included in
mortgage notes payable-affiliates in the balance sheet. The contract interest
rate on the subordinate non-recourse loan remains unchanged at 10.50%, which is
the rate of return earned on the preferred limited partnership interest as
well. The Limited Partners' position is unaffected by this conversion of a
portion of the affiliated loan to an equity position as Limited Partners'
equity is subordinate to the preferred interest just as it was subordinated to
the affiliate loans prior to the recharacterization.
b) In July 1994, the Partnership completed the refinancing of the mortgage
loans collateralized by the Forest Ridge - Phase II Apartments. These loans
consisted of a $6,360,000 first mortgage loan from an unaffiliated lender and
an unsecured loan from an affiliate of the Partnership totaling $4,179,546,
including deferred interest of $231,546. The proceeds from the new first
mortgage loan of $7,970,000 from an unaffiliated lender were used to repay the
previous first mortgage loan and a portion of the outstanding affiliate loan.
The new first mortgage loan has an interest rate of 9.188% compared to the
previous first mortgage loan rate of 9.025%, and requires monthly principal and
interest payments of $65,209 through maturity of August 2001. The Partnership
paid refinancing costs totaling $219,151. As required by the unaffiliated
lender, the remaining $2,569,546 balance of the affiliate loan was retired and
replaced with a General Partner loan.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property. Three properties were relinquished
through foreclosure during 1989, one property was sold in 1990 and one property
was sold in 1993. The Partnership continues to operate its eight remaining
properties and owns a minority joint venture interest in one property.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1993 for a more complete understanding of
the Partnership's financial position.
Operations
- - ----------
Summary of Operations
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During the third quarter of 1993, the Partnership recognized a gain for
financial statement purposes on the July 1993 sale of the Playa Palms
Apartments, which resulted in net income during the nine months and quarter
ended September 30, 1993 as compared to a net loss for the same periods in
1994. Further discussion of the Partnership's operations is summarized below.
1994 Compared to 1993
- - ---------------------
The July 1993 sale of Playa Palms Apartments caused decreases in rental and
service income, interest expense on purchase price, promissory and mortgage
notes payable, depreciation expense, property operating expense, real estate
taxes and property management fees during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993. These decreases
were offset by, or were in addition to, other activity as described below.
The Partnership was able to achieve higher occupancy levels and/or rental rates
at all of the Partnership's eight remaining properties. As a result, rental
and service income increased at these properties during the nine months and
quarter ended September 30, 1994 which partially offset the decreases due to
the July 1993 sale of Playa Palms. In addition, the increase in rental and
service income also resulted in an increase in property management fees at
these properties during the quarter ended September 30, 1994 as compared to the
same period in 1993.
During the latter half of 1993, restricted investments of $1,995,000 were
released and the proceeds were used to repay the respective loans from the
General Partner relating to these cash collateral obligations. As a result of
these funds no longer being available for short-term investments, interest
income on short-term investments decreased during the nine months ended
September 30, 1994 as compared to the same period in 1993.
During the third quarter of 1993, the Partnership reached a settlement with one
of the defendants in litigation on the Park Crossing Apartments and recognized
settlement income of $113,870 in connection with this transaction.
During 1994, the Partnership retired and replaced certain affiliated loans
related to the Chestnut Ridge - Phase I and Forest Ridge - Phase II apartment
complexes with General Partner loans in connection with the 1994 refinancings
of the properties' mortgage loans. As a result, interest expense on short-term
loans from affiliates increased during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993.
Due to the refinancing of the mortgage loans collateralized by Chestnut Ridge -
Phase I during March 1994 and Forest Ridge - Phase II in July 1994, deferred
expenses related to the previous loans were fully amortized. As a result,
amortization of deferred expenses increased during the nine months ended
September 30, 1994 as compared to the same period in 1993.
The Partnership incurred higher parking lot repairs and exterior painting costs
at the Hunter's Glen Apartments during 1993 which, together with the Playa
Palms sale, resulted in a decrease in property operating expenses during the
quarter ended September 30, 1994 as compared to the same period in 1993. During
1994 the Partnership incurred higher repair and maintenance costs as required
by the 1993 refinancing of the Marbrisa Apartments, which partially offset this
decrease.
Increased accounting, data processing and portfolio management expenses
resulted in an increase in administrative expenses during the nine months and
quarter ended September 30, 1994 as compared to the same periods in 1993.
The Partnership holds a minority joint venture interest in the Rosehill Pointe
Apartments, which realized a decrease in interest expense during 1994 due to a
reduction of the interest rate on the property's first mortgage loan during the
third quarter of 1993. This decrease was partially offset by increased
expenditures for carpet replacement, utilities and insurance during 1994 as
compared to 1993. As a result of the combined effect of these events,
participation in loss of joint venture with an affiliate decreased during the
nine months and quarter ended September 30, 1994 as compared to the same
periods in 1993.
The Partnership recognized a gain on the sale of property during the third
quarter of 1993 of $3,648,559 in connection with the July 1993 sale of Playa
Palms Apartments for financial statement purposes.
Liquidity and Capital Resources
- - -------------------------------
The cash or near cash position of the Partnership increased slightly as of
September 30, 1994 when compared to December 31, 1993. During 1994, all but two
of the Partnership's properties generated positive cash flow, which was
partially offset by the payment of administrative expenses, interest expense on
short-term loans from the General Partner and deferred interest expense upon
the refinancing of the mortgage loans collateralized by the Chestnut Ridge -
Phase I Apartments in March 1994, and the Forest Ridge - Phase II Apartments in
July 1994. The Partnership's financing activities included the refinancing of
these mortgage loans. From the proceeds of the new first mortgage loans, the
Partnership repaid the previous first mortgage loans and a portion of the loans
payable from affiliates relating to each property. The Partnership also funded
required repair escrows and paid related financing costs. Additional financing
activities included payment of principal on mortgage notes payable.
The Partnership is largely dependent on loans from the General Partner. As of
September 30, 1994, the Partnership owes approximately $13,006,000 to the
General Partner in connection with the funding of additional working capital
and other Partnership obligations. These loans are expected to be repaid from
available cash flow from future property operations, or from proceeds received
from the disposition of the Partnership's real estate investments.
Future cash distributions will be subject to repayment of the short-term loans
from affiliates and will be dependent on improved property operating
performance and the receipt of proceeds from future property sales, as to all
of which there can be no assurances.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. During the nine months ended September
30, 1994 and 1993, six of the Partnership's eight remaining properties
generated positive cash flow. In addition, the property in which the
Partnership holds a minority joint venture interest generated positive cash
flow during the nine months ended September 30, 1994 and 1993. The Hunter's
Glen and Forest Ridge - Phase II apartment complexes generated positive cash
flow during the nine months ended September 30, 1994 as compared to a marginal
deficit during 1993 due to lower parking lot repairs and exterior painting
expenditures, and lower operating costs, respectively. The Marbrisa and
Chestnut Ridge - Phase I apartment complexes, which generated positive cash
flow during the nine months ended September 30, 1993, operated at a marginal
deficit during 1994 primarily due to slightly lower repair and maintenance
costs, and the payment of deferred interest to affiliates of the Partnership in
connection with the refinancing of the property's mortgage loans, respectively.
The terms of the affiliate loan on the Chestnut Ridge - Phase I Apartments
provide for a partial deferral of interest. As of September 30, 1994, the
cumulative interest deferred and outstanding on this loan totaled $29,605, all
of which was payable to an affiliate of the General Partner, and is due upon
maturity of the loan if not repaid earlier from cash flow from the property.
Had the Partnership been obligated to pay the deferred amount in 1994, the
property would have continued to operate at a marginal deficit. The deferred
amount is also payable from proceeds received upon the sale or refinancing of
the properties.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties including refinancing of mortgage
loans, improving property operating performance, and seeking rent increases
where market conditions allow. Despite improvements during 1993 and 1994 in the
local economies and rental markets where certain of the Partnership's
properties are located, the General Partner believes that continued ownership
of many of the properties is in the best interests of the Partnership in order
to maximize potential returns to Limited Partners. As a result, the Partnership
will continue to own these properties for longer than the holding period for
the assets originally described in the prospectus.
Although affiliates of the General Partner have, in certain circumstances,
provided mortgage loans for certain properties of the Partnership, there can be
no assurance that loans of this type will be available from either affiliates
or the General Partner in the future. The General Partner may continue to
provide additional short-term loans to the Partnership to fund working capital
needs or property operating deficits, although there is no assurance that such
loans will be available. Should such short-term loans from the General Partner
not be available, the General Partner will seek alternative third party sources
of financing working capital. However, the current economic environment and its
impact on the real estate industry make it unlikely that the Partnership would
be able to secure financing from third parties to fund working capital needs or
operating deficits. Should additional borrowings be needed and not be available
through the General Partner, its affiliates or third parties, the Partnership
may be required to dispose of some of its properties earlier than intended in
order to satisfy Partnership obligations.
In March 1994, the Partnership completed the refinancing of the mortgage loans
collateralized by Chestnut Ridge - Phase I Apartments. The Partnership obtained
a new first mortgage from an unaffiliated lender of $3,694,000, and used these
proceeds to repay the previous first mortgage loan, deferred interest on the
affiliate loans and a portion of the outstanding loans from affiliates. Of the
remaining balances of the affiliate loans, a portion was retired and replaced
with a General Partner loan and the remainder was recharacterized as a
subordinate non-recourse loan and an equity position to an affiliate of the
Partnership. See Note 5 of Notes to Financial Statements for additional
information.
In July 1994, the Partnership completed the refinancing of the mortgage loans
collateralized by the Forest Ridge - Phase II Apartments. The Partnership
obtained a new first mortgage from an unaffiliated lender of $7,970,000, and
used these proceeds to repay the previous first mortgage loan, the deferred
interest on the loan from an affiliate and a portion of the outstanding loan
from an affiliate. The remaining balance of the affiliated loan was retired and
replaced with a General Partner loan. See Note 5 of Notes to Financial
Statements for additional information.
In October 1994, the Partnership reached a settlement with the remaining
defendants in litigation on the Park Crossing Apartments and received $300,000
in settlement of all claims due to the Partnership. See Part II Item 1. Legal
Proceedings for additional information.
The Partnership's properties are owned through the use of third-party and
affiliate mortgage loan financings and therefore, the Partnership is subject to
the financial obligations required by such loans. During 1995, the mortgage
loan collateralized by the Country Oaks Apartments in the amount of $5,502,000
matures. As a result of the downturn experienced by the real estate industry
over the last few years, many banks, savings and loans and other lending
institutions have tightened mortgage lending criteria and are generally willing
to advance less funds with respect to a property than many lenders were willing
to advance during the 1980's. As a result, in certain instances it may be
difficult for the Partnership to refinance a property in an amount sufficient
to retire in full the current third-party mortgage financing with respect to
the property. In the event negotiations with the existing lender for a loan
modification or with new lenders for a refinancing are unsuccessful, the
Partnership may sell the collateral property or other properties to satisfy an
obligation or may relinquish title to the collateral property in satisfaction
of the outstanding mortgage loan balance.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
Park Crossing Apartments
- - ------------------------
The Partnership received a judgment in June 1991 for $1,641,388 against the
seller of the Park Crossing Apartments and certain of its affiliates and
principals for failure to make certain payments under the original management
and guarantee agreement and other agreements (Piedmont Engineering and
Construction Corp. et al. vs. Park Crossing Investors, et al., U. S. District
Court, Northern District of Georgia, Case No. C87-1103A). The judgment was not
paid and in November 1992, the Partnership commenced proceedings against the
seller, the successor to the seller (the "Successor"), certain of their
principals and affiliates, and other entities to, among other things, enforce
the previous judgement and void certain allegedly fraudulent transfers made by
the defendants (Park Crossing Investors vs. Piedmont Engineering and
Construction Corporation, et al., Superior Court of Fulton County, Georgia,
Case No.: E-7692). The Partnership also requested $2,500,000 in punitive
damages. In July 1993, the Partnership settled with one minor defendant who is
not affiliated with the seller or its principals and received approximately
$114,000.
The Successor subsequently filed a counterclaim against the Partnership for
unspecified compensatory and punitive damages alleging that the filing of
notices by the Partnership against real property owned by the Successor damaged
efforts to sell the property. The Partnership released the notices upon order
of the Superior Court. Pursuant to negotiations between the parties, on
October 26, 1994, an agreement was executed pursuant to which the remaining
defendants paid the Partnership $300,000 in settlement of all claims against
the defendants. In addition, approximately $147,000, being held in escrow
representing payments due the seller under the purchase documents, will be
released to the Partnership. All legal proceedings, including the counterclaim
against the Partnership, have been dismissed.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits:
(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-14351) are incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1994.
SIGNATURES
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.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVII, the
General Partner
By: /s/Allan Wood
----------------------------------
Allan Wood
Executive Vice President, and Chief Accounting
and Financial Officer (Principal Accounting and
Financial Officer) of Balcor Partners-XVII, the
General Partner
Date: November 11, 1994
-------------------------
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