UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14351
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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.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Operations
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Summary of Operations
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During 1996, Balcor Realty Investors 85-Series II A Real Estate Limited
Partnership (the "Partnership") sold seven properties and recognized
significant gains on these sales. The Partnership also recognized its share of
the gain on the June 1996 sale of the Rosehill Pointe Apartments, which was
owned by a joint venture consisting of the Partnership and an affiliate. These
events resulted in the recognition of net income during 1996 as compared to a
net loss during 1995 and 1994. Improved property operations at several of the
properties owned by the Partnership was the primary reason the net loss
decreased during 1995 as compared to 1994. Further discussion of the
Partnership's operations is summarized below.
1996 Compared to 1995
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Rental and service income decreased in 1996 as compared to 1995 primarily due
to the sales of the Forest Ridge - Phase II, Country Oaks, Chestnut Ridge -
Phase I, Hunters Glen, Marbrisa, Willow Bend Lake, and Park Crossing apartment
complexes during 1996.
Higher average cash balances due to the investment of the proceeds from the
property sales prior to distribution to Limited Partners in January 1997,
resulted in an increase in interest income on short-term investments during
1996 as compared to 1995.
Rosehill Pointe Apartments, in which the Partnership held a minority joint
venture interest, was sold during June 1996. As a result of the Partnership's
share of the gain recognized during 1996 in connection with the sale, income
from participation in joint venture with an affiliate increased in 1996 when
compared to 1995. In connection with the sale, the Partnership also recognized
its share of debt extinguishment expense of $20,945 which is classified as an
extraordinary item.
Interest expense on mortgage notes payable decreased in 1996 as compared to
1995 primarily due to the repayment of mortgage loans with proceeds from the
property sales.
The repayment of the General Partner loans during 1996 along with lower
interest rates resulted in a decrease in interest expense on short-term loans
from affiliate during 1996 as compared to 1995.
Depreciation expense decreased in 1996 as compared to 1995 due to the 1996
property sales.
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Amortization of deferred expenses related to mortgage loans on properties
decreased in 1996 as compared to 1995 due to the 1996 property sales.
Property operating expenses decreased during 1996 as compared to 1995 due to
the property sales. This decrease of approximately $807,000 was partially
offset by increased repair and maintenance expenditures in 1996 at the Hunters
Glen Apartments of approximately $133,000 relating to basin work and painting
in preparation for the sale.
Real estate tax expense decreased during 1996 as compared to 1995 due to the
property sales.
Property management fees decreased in 1996 as compared to 1995 due to the
property sales.
Higher professional fees resulted in an increase in administrative expenses
during 1996 when compared to 1995.
The Partnership sold the Forest Ridge - Phase II, Country Oaks, Chestnut Ridge
- - Phase I, Hunters Glen, Marbrisa, Willow Bend Lake, and Park Crossing
apartment complexes and recognized gains totaling $25,641,050 during 1996.
As a result of the 1996 property sales, the Partnership wrote-off the remaining
unamortized deferred expenses in the amount of $709,329. In addition, in
connection with the sales of the Chestnut Ridge - Phase I, Hunters Glen, Willow
Bend Lake and Park Crossing apartment complexes, the Partnership paid $804,428
in prepayment penalties. These amounts were recognized as an extraordinary item
and classified as debt extinguishment expenses during 1996.
In connection with the sale of the Chestnut Ridge - Phase I Apartments, the
Partnership recognized an extraordinary gain on forgiveness of debt of
$1,864,919 in 1996.
1995 Compared to 1994
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The Partnership was able to achieve higher rental rates at most of the
Partnership's properties in 1995. As a result, rental and service income
increased at these properties during 1995 as compared to 1994.
Rental income increased at the Rosehill Pointe Apartments due to higher rental
rates, resulting in participation in income of joint venture with an affiliate
during 1995 as compared to participation in loss of joint venture with an
affiliate in 1994.
During 1994, the Partnership reached a settlement with defendants in the
litigation relating to the Park Crossing Apartments and received $300,000 in
settlement of all claims due to the Partnership.
In connection with the 1994 refinancing of certain of the properties' mortgage
loans, the Partnership retired $2,274,269, including deferred interest, and
replaced $4,215,546 of affiliate mortgage notes payable related to the Chestnut
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Ridge - Phase I and Forest Ridge - Phase II apartment complexes with proceeds
from both third party mortgage loans and short-term loans from the General
Partner. As a result, interest expense on mortgage notes payable decreased and
interest expense on short-term loans from affiliates increased during 1995 as
compared to 1994. The Partnership paid a prepayment penalty of $54,805 in
connection with the Country Oaks Apartments refinancing in June 1995 which
partially offset the decrease in interest expense on mortgage notes payable.
Due to the refinancing of the mortgage loans collateralized by Chestnut Ridge -
Phase I in 1994, the Partnership wrote-off the remaining unamortized deferred
expenses related to the previous loan. As a result, amortization of deferred
expenses decreased during 1995 as compared to 1994.
Professional fees incurred in 1994 related to refinancings and legal fees
relating to the Park Crossing Apartments settlement incurred in 1994 resulted
in a decrease in administrative expenses during 1995 as compared to 1994.
Liquidity and Capital Resources
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The cash position of the Partnership increased by approximately $11,332,000 as
of December 31, 1996 when compared to December 31, 1995 primarily as a result
of the proceeds received in connection with the property sales in 1996. The
Partnership's cash used in operating activities of approximately $306,000 was
primarily due to the operations of its properties and interest income on
short-term investments, which were offset by administrative expenses and the
payment of accrued interest on short-term loans from an affiliate. Cash
provided by investing activities of approximately $61,724,000 consisted of
proceeds received in connection with the sales of the Forest Ridge - Phase II,
Country Oaks, Chestnut Ridge - Phase I, Hunters Glen, Marbrisa, Willow Bend
Lake, and Park Crossing apartment complexes, net of selling costs, plus net
distributions received from the joint venture with an affiliate, which
primarily represent the Partnership's share of the proceeds from the sale of
Rosehill Pointe Apartments. Cash used in financing activities of approximately
$50,086,000 consisted primarily of the repayment in full of approximately
$11,901,000 of loans payable to an affiliate and the repayment of mortgage
notes payable of approximately $38,272,000 with proceeds from property sales.
In January 1997, the Partnership made a distribution from sales proceeds to
Limited Partners as discussed below.
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 or 20% of the property's
rental and service income. The Partnership defines cash flow generated from its
properties as an amount equal to the property's revenue receipts less property
related expenditures, which include debt service payments. During 1996 and
1995, Steeplechase Apartments generated positive cash flow. As of December 31,
1996, the occupancy rate at the property was 96%.
The Forest Ridge - Phase II Apartments, which was sold in June 1996, generated
positive cash flow prior to its sale in 1996 and generated a marginal deficit
during 1995. The Chestnut Ridge - Phase I Apartments, which was sold in
<PAGE>
September 1996, generated a marginal deficit prior to its sale in 1996 and
during 1995. The Hunters Glen and Country Oaks apartment complexes, which were
sold in September 1996, both generated positive cash flow prior to their sales
in 1996 and during 1995. The Marbrisa and Willow Bend Lake apartment
complexes, which were sold in October 1996, both generated positive cash flow
prior to their sales in 1996 and during 1995. The Park Crossing apartment
complex, which was sold in November 1996, generated positive cash flow prior to
its sale in 1996 and during 1995. The Rosehill Pointe Apartments, in which the
Partnership held a minority joint venture interest, was sold in June 1996 and
generated positive cash flow prior to its sale in 1996 and during 1995.
During 1996, the Partnership sold the Forest Ridge - Phase II, Country Oaks,
Chestnut Ridge - Phase I, Hunters Glen, Marbrisa, Willow Bend Lake and Park
Crossing apartment complexes. During 1996, the General Partner also sold the
Rosehill Pointe Apartments, in which the Partnership held a minority joint
venture interest. The Partnership has entered into a contract for the sale of
its remaining property, the Steeplechase Apartments, for a sale price of
$10,100,000. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees stemming from litigation involving the Partnership including,
but not limited to the lawsuits discussed in "Item 3. Legal Proceedings." In
the absence of any such contingency, the reserves will be paid within twelve
months of the last property being sold. In the event a contingency arises,
reserves may be held by the Partnership for a longer period of time.
The Rosehill Pointe Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In June 1996, the joint venture sold the property
in an all cash sale for $20,700,000. From the proceeds of the sale, the joint
venture paid $15,537,677 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $170,250 in selling costs.
The net proceeds of the sale were $4,992,073, of which $1,915,958 was the
Partnership's share. Pursuant to the terms of the sale, $500,000 of the
proceeds were retained by the joint venture until October 1996. The full amount
of the holdback was released in October 1996. The Partnership's share of the
remaining proceeds was used to repay a portion of the General Partner loan. See
Note 7 of Notes to Financial Statements for additional information.
In June 1996, the Partnership sold the Forest Ridge - Phase II Apartments
complex in an all cash sale for $11,100,000. From the proceeds of the sale,
the Partnership paid $7,870,116 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $126,000 in selling costs.
Pursuant to the terms of the sale, $500,000 of the proceeds were retained by
the Partnership until October 1996. The full amount of the holdback was
released in October 1996. The remaining proceeds were used to repay a portion
of the General Partner loan. See Note 10 of Notes to Financial Statements for
additional information.
In September 1996, the Partnership sold the Country Oaks Apartments for
$8,250,000. The purchaser of the Country Oaks Apartments took title subject to
the existing first mortgage in the amount of $5,946,893. From the proceeds of
the sale, the Partnership paid $154,436 in selling costs. The remaining
proceeds were used to repay a portion of the General Partner loan in October
1996. See Note 10 of Notes to Financial Statements for additional information.
<PAGE>
In September 1996, the Partnership sold the Chestnut Ridge - Phase I Apartments
in an all cash sale for $5,513,400. From the proceeds of the sale, the
Partnership paid $3,629,161 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $199,601 in selling costs and
$181,458 in prepayment penalties, resulting in the Partnership receiving net
proceeds of $1,503,180 from the sale. However, the terms of the 1994
refinancing of this property provided that minimum net proceeds of $1,646,000
were to be received from the sale of this property. As a result, $142,820 was
contributed to the Partnership through an increase to the balance of the junior
loan outstanding from The Balcor Company ("TBC"). Pursuant to the terms of the
sale, $250,000 of the proceeds were retained by the Partnership until December
1996. The full amount of the holdback was released in December 1996. The
remaining proceeds were used to repay a portion of the General Partner loan in
October 1996. See Notes 10 and 12 of Notes to Financial Statements for
additional information.
In September 1996, the Partnership sold the Hunters Glen Apartments in an all
cash sale for $9,100,000. From the proceeds of the sale, the Partnership paid
$4,541,552 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $270,215 in selling costs and $90,832 in prepayment
penalties. Pursuant to the terms of the sale, $500,000 of the proceeds were
retained by the Partnership until January 1997. The full amount of the holdback
was released in January 1997. A portion of the remaining proceeds was used to
repay a portion of the General Partner loan in October 1996 and the remainder
was distributed to the Limited Partners in January 1997. See Note 10 of Notes
to Financial Statements for additional information.
In October 1996, the Partnership sold the Marbrisa Apartments in an all cash
sale for $7,800,000. From the proceeds of the sale, the Partnership paid
$5,361,230 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $325,361 in selling costs. Pursuant to the terms of the
sale, $500,000 of the proceeds were retained by the Partnership until February
1997. The full amount of the holdback was released in February 1997. The
remainder of the proceeds were distributed to the Limited Partners in January
1997. See Note 10 of Notes to Financial Statements for additional information.
In October 1996, the Partnership sold the Willow Bend Lake Apartments in an all
cash sale for $14,350,000. From the proceeds of the sale, the Partnership paid
$9,737,486 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $366,660 in selling costs and $389,499 in prepayment
penalties. Pursuant to the terms of the sale, $250,000 of the proceeds were
retained by the Partnership until February 1997. The full amount of the
holdback was released to the Partnership in February 1997. The remainder of the
proceeds were distributed to the Limited Partners in January 1997. See Note 10
of Notes to Financial Statements for additional information.
In November 1996, the Partnership sold the Park Crossing Apartments in an all
cash sale for $11,350,000. From the proceeds of the sale, the Partnership paid
$7,131,987 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $191,995 in selling costs and $142,639 in prepayment
penalties. The majority of the remaining proceeds were distributed to the
Limited Partners in January 1997. See Note 10 of Notes to Financial Statements
for additional information.
<PAGE>
Steeplechase Apartments is located in Lexington, Kentucky, in the southeast
sub-market. This area offers a wide range of pricing at its various apartment
complexes. Steeplechase's pricing positions it toward the upper end of the
market. Approximately 1,500 new units were completed in the sub-market in 1996,
which has had a softening effect on occupancy and rental rates at Steeplechase
Apartments. In 1996, the property's average occupancy was 93%; the southeast
sub-market's average occupancy was 91%.
During January 1997, the Partnership made its initial cash distribution and
paid $9,232,960 ($110 per Interest) to the holders of Limited Partnership
Interests representing a special distribution of Net Cash Proceeds from the
sales of the Hunters Glen, Marbrisa, Willow Bend Lake and Park Crossing
apartment complexes. To date, Limited Partners have received cash distributions
of Net Cash Proceeds of $110 per $1,000 interest, as well as certain tax
benefits. The Partnership will distribute available proceeds from the sale of
the Steeplechase Apartments in 1997. In light of results to date, investors
will not recover a substantial portion of their original investment.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
plans relating to the property of the Partnership, as well as assumptions
relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Jayne A. Kosik
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Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners-XVII, the
General Partner
Date: April 4, 1997
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
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President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XVII,
/s/ Thomas A. Meador the General Partner April 4, 1997
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Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners XVII, the
/s/ Jayne A. Kosik General Partner April 4, 1997
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Jayne A. Kosik
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