UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-14342
COMMERCIAL PROPERTIES 4, L.P.
(formerly Hutton/GSH Commercial Properties 4)
Exact name of Partnership as specified in its charter
Virginia 11-2711361
State or other jurisdiction of incorporation I.R.S.
Employer Identification No.
3 World Financial Center, 29th Floor
New York, NY ATTN: Andre Anderson 10285
Address of principal executive offices zip code
Partnership's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the Partnership (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 shorter period that the
Partnership was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Partnership's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Prospectus of Partnership dated February 4, 1985 (included
in amendment No. 1 to Registration Statement, No. 2-95046, of Partnership
filed February 4, 1985) are incorporated by reference into Part III.
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended
November 30, 1997 filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Commercial Properties 4, L.P. (the "Registrant" or the "Partnership")
(formerly known as Hutton/GSH Commercial Properties 4) is a Virginia
limited partnership organized pursuant to a Certificate and Agreement of
Limited Partnership dated November 1, 1984, of which CP4 Real Estate
Services Inc. ("RE Services"), formerly Hutton Real Estate Services XI,
Inc. (see Item 10. "Certain Matters Involving Affiliates of RE Services"),
and HS Advisors III, Ltd. ("HS Advisors"), are the general partners
(together, the "General Partners"). Commencing February 4, 1985, the
Partnership began offering through E.F. Hutton & Company Inc. ("Hutton"), a
former affiliate of the Partnership, up to a maximum of 100,000 units of
limited partnership interest (the "Units") at $500 per Unit. Investors who
purchased the Units (the "Limited Partners") are not required to make any
additional capital contributions. The Units were registered under the
Securities Act of 1933, as amended (the "Act"), under Registration
Statement No. 2-95046, which Registration Statement was declared effective
on February 4, 1985.
The offering of Units was terminated on February 6, 1986. Upon termination
of the offering, the Partnership had accepted subscriptions for 56,341
Units for an aggregate of $28,170,500. After deducting offering costs and
initial working capital reserves, approximately $23,600,000 was available
for investment in real estate. In addition, by deferring certain fees and
commissions related to the offering and utilizing $500,000 of working
capital, an additional $1,800,000 was available for investment in real
estate. The Partnership was formed to engage in the business of acquiring,
operating and holding for investment, the following two joint ventures: (i)
Deerwood Center Associates Joint Venture, a Florida joint venture
partnership which owned and operated Reflections at Deerwood
Center("Reflections") until November 30, 1994, and (ii) Skytop Associates
Joint Venture, a New York joint venture partnership which owned and
operated Crosswest Office Center ("Crosswest" or the "Property") until May
31, 1994.
Effective May 31, 1994, Enal Productions ("Enal"), the co-venturer of
Skytop Associates Joint Venture (the "Skytop Joint Venture"), withdrew and
assigned all of its right, title and interest in the Skytop Joint Venture
to the Partnership. As a result, the Skytop Joint Venture was dissolved as
of May 31, 1994. No consideration was paid to Enal in connection with this
transaction.
Reflections was sold on November 30, 1994.
(b) Financial Information About Industry Segment
The Partnership's sole business is the ownership and operation of the
Property. All of the Partnership's revenues, operating profit or losses
and assets relate solely to such industry segment.
(c) Narrative Description of Business
Incorporated by reference to Note 1 "Organization," Note 5 "Real Estate
Investments" and Note 6 "Mortgage Notes Payable" of the Notes to the
Consolidated Financial Statements of the Partnership's Annual Report to
Unitholders for the year ended November 30, 1997 filed as an exhibit under
Item 14.
The Partnership's principal investment objectives with respect to the
Property (in no particular order of priority) are:
1) Capital appreciation;
2) Distributions of Net Cash From Operations attributable to rental
income;
3) Preservation and protection of capital; and
4) Equity build-up through principal reduction of mortgage loans, if any,
on the Property.
Competition
The Property is subject to competition from similar types of properties
located in the same vicinity. The business of owning and operating
commercial office buildings in the area where the Property is located is
highly competitive, and the Partnership competes with a number of
established companies, some of which have greater resources than the
Partnership. For a discussion of current commercial real estate market
conditions in the Westchester area, see the section entitled Message to
Investors in the Partnership's Annual Report to Unitholders for the year
ended November 30, 1997 filed as an exhibit under Item 14.
Employees
The Partnership has no employees.
Item 2. Properties
A description of the Partnership's remaining Property and material leases
is incorporated by reference to the Message to Investors and Note 5 "Real
Estate Investments" of the Notes to the Consolidated Financial Statements
in the Partnership's Annual Report to Unitholders for the year ended
November 30, 1997 filed as an exhibit under Item 14.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of Unitholders during the fourth quarter
of fiscal 1997.
PART II
Item 5. Market for Partnership's Limited Partnership Units and Unitholder
Matters.
(a) Market Information
No established public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future.
(b) Holders
As of November 30, 1997, the number of Unitholders was 2,900.
(c) Distributions
Distributions of Net Cash from Operations, if any, are to be made quarterly
approximately 45 days after the close of each fiscal quarter.
Distributions of Net Cash from Operations to the Limited Partners have been
suspended since the second quarter of 1987 due to the Partnership's need to
increase the cash reserve to fund tenant improvements, leasing commissions,
any monthly operating deficit at the Property and mortgage principal
payments. Although the General Partners believe that the Partnership's
cash reserve is presently adequate to fund these necessary expenses, it is
anticipated that cash distributions will remain suspended until the sale of
the Property. Any cash reserves held by the Partnership at the time of
sale will be distributed together with proceeds resulting from such a sale.
Additional information pertaining to the Partnership's liquidity and
ability to fund cash distributions is incorporated by reference to Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Item 6. Selected Financial Data
Incorporated by reference to the section entitled Financial Highlights of
the Partnership's Annual Report to Unitholders for the year ended
November 30, 1997 filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Since the full amount of units offered was not sold, insufficient funds
were raised to meet the Partnership's commitments with respect to the
acquisition and lease-up of the properties. In order to meet these
commitments, the General Partners have postponed reimbursements of certain
fees and expenses. Funds made available by deferring payment of the
acquisition fee at Reflections have been fully distributed to the Limited
Partners as cash distributions. Cash flow from operations is currently
being utilized to make payments on the principal balance of the mortgage
secured by the Partnership's remaining property, Crosswest, or held in
escrow to fund future mortgage payments. It is anticipated that cash
distributions to the partners of the Partnership will remain suspended for
the foreseeable future in light of these funding needs and the
Partnership's decision to market Crosswest for sale as discussed below.
The General Partners expect to engage a real estate brokerage firm to
assist in marketing for sale Crosswest and it is anticipated that following
the sale of Crosswest the Partnership will be liquidated. It is
anticipated that the sale of Crosswest and liquidation of the Partnership
will occur in 1998. Any cash held by the Partnership at the time of sale,
less any contingent reserves necessary to liquidate the Partnership, will
be distributed together with proceeds resulting from such a sale. There
can be no assurance that the Property will be sold within this time frame,
or that any sale, if completed, will result in a particular price.
The Partnership had cash and cash equivalents at November 30, 1997 of
$133,958 compared with $1,339,034 at November 30, 1996. The decrease is
primarily attributable to real estate additions, mortgage principal
payments and the payment of certain other reimbursable expenses exceeding
net cash from operating activities. The Partnership maintained a
restricted cash balance of $402,707 at November 30, 1997, compared with
$873,891 at November 30, 1996. The restricted cash balance at November 30,
1997 consisted of $52,649 in security deposits, $239,908 in real estate tax
escrows and $110,150 representing the Crosswest lockbox escrow which was
established in the fourth quarter of 1993, pursuant to Crosswest's amended
loan agreement. The decrease from a year earlier is primarily attributable
to the payment in 1997 of invoices for building improvements relating to
the first floor renovation, which was partially offset by contributions to
the escrow for real estate taxes. The Partnership's cash balance, along
with funds generated by operating activities are expected to provide
sufficient liquidity to enable the Partnership to meet its operating
expenses.
Accounts payable and accrued expenses totaled $435,377 at November 30, 1997
compared with $386,616 at November 30, 1996. The increase is primarily due
to costs associated with tenant improvements completed during 1997.
Due to affiliates was $2,349,614 at November 30, 1997, compared to
$3,863,561 at November 30, 1996. The decrease mainly reflects the
reimbursement of certain deferred fees and expenses.
Results of Operations
1997-1996
Partnership operations resulted in a net loss of $251,655 for the year
ended November 30, 1997, compared with a net loss of $152,434 for the year
ended November 30, 1996. The higher net loss in 1997 is primarily due to
increased property operating and general and administrative expenses. Net
cash used for operating activities totaled $179,526, for the year ended
November 30, 1997, compared with net cash provided by operating activities
of $825,328 for the year ended November 30, 1996. The decrease is
primarily due to the reimbursement of certain deferred fees and expenses.
Rental income totaled $2,779,607 for the year ended November 30, 1997,
compared with $2,719,736 for the year ended November 30, 1996.
The slight increase is primarily attributable to higher base rent and
reimbursable operating expense and real estate tax escalations.
Interest income totaled $72,217 for the year ended November
30, 1997, compared with $85,121 for the year ended November 30, 1996.
The decrease reflects lower average cash balances during 1997.
Property operating expenses totaled $1,371,457 for the year ended November
30, 1997, compared with $1,292,614 for the year ended November 30, 1996.
The increase is primarily due to higher administrative costs and to
increased management fees associated with the Property's cafeteria and
fitness center, which were partially offset by lower utility costs.
General and administrative expenses for the year ended November 30, 1997
were $228,998, compared with $151,993 for fiscal 1996. During the 1997
period, certain expenses incurred by RE Services Inc., its affiliates, and
an unaffiliated third party service provider in servicing the Partnership,
which were voluntarily absorbed by affiliates of RE Services, Inc. in prior
periods, were reimbursable to RE Services, Inc. and its affiliates.
1996-1995
Partnership operations resulted in a net loss of $152,434 for the year
ended November 30, 1996, compared with a net loss of $234,306 for the year
ended November 30, 1995. The lower net loss in 1996 is largely
attributable to higher rental income at Crosswest, partially offset by
higher property operating expenses.
Rental income totaled $2,719,736 for the year ended November 30, 1996,
compared with $2,574,200 for the year ended November 30, 1995.
The increase of $145,536 is primarily attributable to tenant expansions
and higher occupancy in 1996. Interest income increased
to $85,121 for the year ended November 30, 1996, compared with $55,393 for
the year ended November 30, 1995, primarily due to higher average cash
balances.
Property operating expenses totaled $1,292,614 for the year ended November
30, 1996, compared with $1,214,013 for the year ended November 30, 1995.
The increase is primarily due to higher municipal taxes and utility
expenses during 1996.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended November 30, 1997, filed as an exhibit under Item 14,
and page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers and directors. RE Services and HS
Advisors, the General Partners of the Partnership, jointly manage and
control the affairs of the Partnership and have general responsibility and
authority in all matters affecting its business.
The directors and executive officers of RE Services and HS Advisors are
listed respectively below.
RE Services
CP 4 Real Estate Services Inc., formerly Hutton Real Estate Services XI,
Inc., is a Delaware corporation and a wholly-owned subsidiary of Lehman
Brothers Inc. ("Lehman"). See the section captioned "Certain Matters
Involving Affiliates of RE Services" below for a description of the Hutton
Group's acquisition by Shearson Lehman Brothers, Inc. ("Shearson") and the
subsequent sale of certain of Shearson's domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co.
Incorporated, which resulted in a change in the General Partner's name.
Certain officers and directors of RE Services are now serving (or in the
past have served) as officers and directors of entities which act as
general partners of a number of real estate limited partnerships which have
sought protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which
has been adversely affected by the economic conditions in the markets in
which that real estate is located and, consequently, the partnerships
sought the protection of the bankruptcy laws to protect the partnership
assets from loss through foreclosure. The names and positions held by the
directors and executive officers of RE Services are set forth below. There
are no family relationships between or among any officer and any other
officer or director.
Name Office
Rocco F. Andriola Director
Jeffrey C. Carter Director & President
Timothy E. Needham Vice President & Chief Financial Officer
Rocco F. Andriola, 39, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996.
Since joining Lehman in 1986, Mr. Andriola has been involved in a wide
range of restructuring and asset management activities involving real
estate and other direct investment transactions. From June 1991 through
September 1996, Mr. Andriola held the position of Senior Vice President in
Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr.
Andriola held the position of First Vice President in Lehman's Capital
Preservation and Restructuring Group. From 1986 to 1989, Mr. Andriola
served as a Vice President in the Corporate Transactions Group of Shearson
Lehman Brothers' office of the general counsel. Prior to joining Lehman,
Mr. Andriola practiced corporate and securities law at Donovan Leisure
Newton & Irvine in New York. Mr. Andriola received a B.A. from Fordham
University, a J.D. from New York University School of Law, and an LLM in
Corporate Law from New York University's Graduate School of Law.
Jeffrey C. Carter, 52, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September
1988. From 1972 to 1988, Mr. Carter held various positions with
Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener Associates,
Inc. including Director of Consulting Services at both firms. From 1982
through 1987, Mr. Carter was President of Keystone Hospitality Services, an
independent hotel consulting and brokerage company. Mr. Carter received
his B.S. degree in Hotel Administration from Cornell University and an
M.B.A. degree from Columbia University.
Timothy E. Needham, 29, is an Assistant Vice President of Lehman Brothers
Inc. and assists in the management of commercial real estate in the
Diversified Asset Group. Mr. Needham joined Lehman in September 1995.
Prior to joining Lehman, Mr. Needham was a consultant with KPMG Peat
Marwick LLP in the Banking and Investment Services Group from 1994-1995.
Mr. Needham received his master's degree in international management from
the American Graduate School of International Management in December 1993.
Mr. Needham is currently a candidate for the designation of Chartered
Financial Analyst, Level III.
HS Advisors
HS Advisors is a California limited partnership formed on August 11, 1982,
the sole general partner of which is Hogan Stanton Investment, Inc. ("HS
Inc."), a wholly-owed subsidiary of Goodman Segar Hogan Hoffler ("GSHH").
The names and positions held by the directors and executive officers of HS
Inc. are as set forth below. There are no family relationships between or
among any officer and any other officer or director.
Name Office
Mark P. Mikuta President
Donald T. Herrick, Jr. Vice President and Treasurer
Julie R. Adie Vice President and Secretary
Mark P. Mikuta, 43, is Senior Vice President of Goodman Segar Hogan, Inc.
and is Controller and Vice President of Dominion Capital, Inc., a wholly-
owned subsidiary of Dominion Resources. Mr. Mikuta joined Dominion
Resources in 1987. Prior to joining Dominion Resources, he was an internal
auditor with Virginia Commonwealth University in Richmond, Virginia from
1980 - 1987 and an accountant with Coopers & Lybrand from 1977 - 1980. Mr.
Mikuta earned a bachelor of science degree in accounting from the
University of Richmond in 1977. He is a Certified Public Accountant (CPA)
and Certified Financial Planner (CFP) in the state of Virginia and a member
of the American Institute of Certified Public Accountants.
Donald T. Herrick, Jr., 54, is President of Goodman Segar Hogan, Inc. He
is also President of Dominion Lands, Inc. and Vice President of Dominion
Capital, Inc., both of which are wholly-owned subsidiaries of Dominion
Resources, Inc. Mr. Herrick joined Dominion Resources in 1970. He earned
a Bachelor of Business Administration degree from the University of
Michigan in 1965 and an M.B.A. from American University in 1969. Mr.
Herrick has completed all course work towards the M.A.I. designation.
Julie R. Adie, 43, is a Vice President of Goodman Segar Hogan, Inc. and
Senior Vice President of Goodman Segar Hogan Hoffler, L.P. She is
responsible for investment management of a commercial real estate portfolio
for the company's Asset Management Division. Prior to GSHH, Ms. Adie was
an asset manager with Aetna Real Estate Investors from 1986 to 1988. Ms.
Adie practiced as an attorney from 1978 through 1984 and is currently a
member of the Virginia Bar Association. She holds a B.A. Degree from Duke
University, a Juris Doctor from University of Virginia and an M.B.A. from
Dartmouth College.
Certain Matters Involving Affiliates of RE Services
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain
of its domestic retail brokerage and asset management businesses to Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to
this sale, Shearson changed its name to Lehman Brothers Inc. The
transaction did not affect the ownership of the Partnership or the
Partnership's General Partners. However, the assets acquired by Smith
Barney included the name "Hutton." Consequently, Hutton Real Estate
Services XI, Inc., a General Partner, changed its name to RE Services, Inc.
Additionally, effective August 3, 1995, the Partnership changed its name to
Commercial Properties 4, L.P., to delete any reference to "Hutton."
On August 1, 1993, GSH transferred all of its leasing, management and sales
operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited
partnership. On that date, the leasing, management and sales operations of
a portfolio of properties owned by the principals of Armada/Hoffler ("HK")
were also obtained by GSHH. The General Partner of GSHH is Goodman Segar
Hogan Hoffler, Inc., a Virginia corporation ("GSHH Inc."), which has a 1%
interest in GSHH. The stockholders of GSHH Inc. are GSH with a 62%
interest and H.K. Associates, L.P., an affiliate of HK, with a 38%
interest. The remaining interests in GSHH are limited partnership
interests owned by GSH, HK and 23 employees of GSHH. The transaction did
not affect the ownership of the General Partners.
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors and officers
received any compensation from the Partnership. See Item 13 below with
respect to a description of certain transactions of the General Partners
and their affiliates with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Beneficial Owners
No person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934) is known to the Partnership to be
the beneficial owner of more than five percent of the outstanding Units as
of November 30, 1997.
(b) Security Ownership of Management
No officer or director of the General Partners beneficially owned or owned
of record directly or indirectly any Units of the Partnership as of
November 30, 1997.
(c) Changes In Control
None.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Certificate and Agreement of Limited Partnership of the
Partnership, for the year ended November 30, 1997, $4,529 of income was
allocated to the General Partners ($3,019 to RE Services and $1,510 to HS
Advisors). For a description of the allocation of income and loss to which
the General Partners are entitled, reference is made to the material
contained on pages 49 through 52 of the Prospectus of Registrant dated
February 4, 1985 (the "Prospectus"), contained in Amendment No. 1 to
Partnership's Registration Statement No. 2-95046, under the section
captioned "Profits and Losses and Cash Distributions," which section is
incorporated herein by reference thereto.
In connection with the acquisition of Crosswest, the General Partners or
their respective affiliates earned acquisition fees aggregating $830,054
($622,541 by RE Services and $207,513 by HS Advisors). In connection with
the acquisition of Reflections at Deerwood Center, the General Partners or
their respective affiliates became and remain entitled to acquisition fees
aggregating $623,925 ($467,944 by RE Services and $155,981 by HS Advisors).
The General Partners have agreed to defer payment of the $623,925
Reflections acquisition fee until such time as the General Partners
determine there is sufficient cash available for such payment.
For a description of the acquisition fees to which the General Partners are
entitled, reference is made to the material contained on page 14 of the
Prospectus under footnote 4 to the section captioned "Estimated Use of
Proceeds," which description is incorporated herein by reference thereto.
The Partnership entered into a sales agency agreement with Hutton pursuant
to which Hutton was entitled to receive up to 8% of the gross proceeds from
the sale of Units as selling commissions. Pursuant to such agreement,
during the year ended November 30, 1985, Hutton received $1,788,840 as
selling commissions. Selling commissions of $418,960 and $48,440 earned by
Hutton in connection with the sale of Units on December 12, 1985 and
February 6, 1986, respectively, have been deferred.
Payments of $1,500,000 and $250,000 were paid during the third and fourth
quarter of 1997, respectively, for principal and interest on advances due
to the General Partners.
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by RE Services and its affiliates in servicing the
Partnership to the extent permitted by the Partnership agreement. In prior
years, affiliates of RE Services had voluntarily absorbed these expenses.
Disclosure relating to amounts paid to the General Partners or their
affiliates during the past three years is incorporated herein by reference
to Note 4 "Transactions with Related Parties" of Notes to the Consolidated
Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended November 30, 1997 filed as an exhibit under
Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Page
Number
(1) Financial Statements:
Report of Independent Auditors (1)
Consolidated Balance Sheets - At November 30, 1997 and 1996 (1)
Consolidated Statements of Operations -
For the years ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows -
For the years ended November 30, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation F-1
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the financial statements and
the notes thereto; (2) the schedules are not required under the related
instructions; or (3) the schedules are inapplicable.
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended November 30, 1997, which is filed as an
exhibit under Item 14.
(3) See Exhibit Index contained herein.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1997:
None.
(c) See Exhibit Index contained herein.
EXHIBIT INDEX
Exhibit No. (4)
(4) (A) Certificate and Agreement of Limited Partnership
(included as, and incorporated herein by reference to,
Exhibit A to the Prospectus of Partnership dated February 4,
1985, contained in Amendment No. 1 to Registration Statement No. 2-95046,
of Partnership filed February 4,1985 (the "Registration Statement").
(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to the Registration Statement).
(10) (A) Mortgage dated October 10, 1990 between Skytop Joint Venture and
Apple Bank for Savings in the principal amount of $2,000,000
(included as, and incorporated herein by reference to,Exhibit (10)(C)
to the Partnership's Annual Report of Form 10-K filed February 28, 1991).
(B) Mortgage dated June 16, 1992 between Deerwood Center Associates Joint
Venture and Aetna Life Insurance Company in the principal amount of
$6,521,990 (included as, and incorporated herein by reference to,
Exhibit (10)(D) to the Partnership's Quarterly Report of Form 10-Q filed
July 15, 1992).
(C) Mortgage dated November 18, 1993 between Skytop Joint Venture and
Penn Mutual Life Insurance Company in the principal amount of
$3,000,000 (included as, and incorporated herein by reference to,
Exhibit (10)(C) to the Partnership's Annual Report of Form 10-K
filed February 28, 1993).
(D) Agreement of Withdrawal and Assignment between Enal Productions,
Inc. and the Partnership (included as, and incorporated herein by
reference to, Exhibit (10)(D) to the Partnership's Annual Report on
Form 10-K filed February 25, 1995).
(E) Closing documents between Deerwood Center Associates Joint Venture
and Reflections Jacksonville Limited Partnership (included as, and
incorporated herein by reference to, Exhibit (10)(E) to the
Partnership's Annual Report on Form 10-K filed February 25, 1995).
(13) Annual Report to Unitholders for the fiscal year ended November 30, 1997.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
(28) Portions of Prospectus of Partnership dated February 4, 1985
(included as, and incorporated herein by reference to Exhibit.)
(28) to the Partnership's Annual Report on Form
10-K filed February 27, 1987.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Partnership has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMMERCIAL PROPERTIES 4, L.P.
BY: HS Advisors III, Ltd.
General Partner
BY: Hogan Stanton Investment, Inc.
General Partner
Date: February 27, 1998
BY: /s/Mark P. Mikuta
Name: Mark P. Mikuta
Title: President
BY: CP4 Real Estate Services, Inc.
General Partner
Date: February 27, 1998
BY: /s/Jeffrey C.Carter
Name: Jeffrey C. Carter
Title: President and Director
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 Partnership in the capabilities and on the dates
indicated.
CP4 REAL ESTATE SERVICES INC.
A General Partner
Date: February 27, 1998
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director
Date: February 27, 1998
BY: /s/Jeffrey C. Carter
Jeffrey C. Carter
President and Director
Date: February 27, 1998
BY: /s/Timothy E.Needham
Timothy E. Needham
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Partnership in the capabilities and on the dates
indicated.
HS ADVISORS III. LTD.
A General Partner
Date: February 27, 1998
BY: /s/Mark P. Mikuta
Mark P. Mikuta
President of Hogan Stanton
Investment, Inc., as general
partner of HS Advisors III, Ltd.
Date: February 27, 1998
BY: /s/Donald T.Herrick, Jr.
Donald T. Herrick, Jr.
Vice President and Treasurer of
Hogan Stanton Investment, Inc.,
as general partner of HS Advisors III, Ltd.
Date: February 27, 1998
BY: /s/Julie R. Adie
Julie R. Adie
Vice President and Secretary of
Hogan Stanton Investments, Inc.
as general partner of HS Advisors III, Ltd.
EXHIBIT 13
ANNUAL REPORT TO UNITHOLDERS
FOR THE YEAR ENDED NOVEMBER 30, 1997
Commercial Properties 4, L.P.
Commercial Properties 4, L.P. is a limited partnership
formed in 1984 to acquire, operate and hold for
investment commercial real estate. The Partnership's
sole remaining asset is the Crosswest Office Center
("Crosswest"), a three-story commercial office building
containing approximately 145,000 square feet located in
White Plains, New York, approximately twenty miles
north of New York City.
Contents
1 Message to Investors
2 Financial Highlights
3 Consolidated Financial Statements
6 Notes to the Consolidated Financial Statements
10 Report of Independent Auditors
11 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1997 Annual Report for Commercial
Properties 4, L.P. This report includes an update on our intention
to market the Partnership's remaining property, Crosswest Office
Center ("Crosswest" or the "Property") and a review of operations
at the Property during the year. Also included are financial
highlights and the Partnership's audited financial statements.
Market Update
The commercial office market continued to improve during 1997, with a
healthy economy increasing demand for office space in most areas of
the country. Westchester County was no exception to this favorable
environment; lease rates and market values are steadily improving
as compared to a year earlier. In consideration of these strong
conditions, as well as favorable capital markets and the completion
of significant capital improvements during the year, the General
Partners believe that the Property is well-positioned for sale.
Accordingly, we expect to engage a real estate brokerage firm to
assist with our efforts in marketing Crosswest for sale. It is
anticipated that a sale of the Property and liquidation of the
Partnership will be completed during 1998. However, there can be no
assurance that the Property will be sold within this time frame, or
that any sale, if completed, will result in a particular price.
Once the Property is sold, the General Partners will distribute the
net proceeds together with the Partnership's remaining cash
reserves (after payment of, or provision for, the Partnership's
liabilities and expenses), and dissolve the Partnership.
Operations Update
The Property was 95% occupied at November 30, 1997, compared with 100%
a year earlier. The decrease is primarily attributable to a 6,000
square foot increase in the Property's gross leasable area as a
result of the conversion of an existing first floor storage area
into commercial office space. Leasing activity during the year
included one new lease totaling 1,437 square feet. In addition,
three leases were renewed, totaling 4,743 square feet and two
tenants leasing a total of 4,125 square feet, extended leases.
Another two tenants increased their space by 1,135 square feet and
563 square feet, respectively, and extended their leases. In order
to provide space for the 1,135 square foot expansion, the General
Partners negotiated an early termination with a tenant occupying
4,542 square feet, and collected an early termination fee. In
1998, leases totaling 28,481 square feet, or approximately 20% of
the Property's leasable area, are scheduled to expire. The General
Partner will continue to negotiate renewals and aggressively market
any leasable space.
General Information
As you are aware, several third parties have commenced partial tender
offers to purchase units of the Partnership at prices which are
below the Partnership's Net Asset Value. In response, we
recommended that limited partners reject these offers because they
do not reflect the underlying value of the Partnership's assets.
According to published industry sources, most investors who hold
units of limited partnerships similar to the Partnership have
rejected these types of tender offers due to their inadequacy.
Summary
Our focus during 1998 will be to market Crosswest for sale. Should a
sale be consummated, the General Partners will pay one or more
distributions to the Limited Partners and liquidate the
Partnership. In the interim, we will continue to pursue leasing
initiatives at Crosswest to maintain and enhance its value. We
will keep you apprised of significant developments in future
reports.
Very truly yours,
CP4 Real Estate Services Inc. Hogan Stanton Investments, Inc.
General Partner General Partner of HS Advisors III, Ltd.
/s/Jeffrey C. Carter /s/ Mark P. Mikuta
Jeffrey C. Carter Mark P. Mikuta
President President
February 26, 1998
Financial Highlights
Selected Financial Data
For the Years Ended November 30, 1997 1996 1995 1994 1993
Dollars in thousands,
except per Unit data
Total income $ 2,852 $ 2,805 $ 2,630 $ 3,130 $ 3,373
Net loss (252) (152) (234) (3,967) (1,114)
Total assets at year end 13,235 15,119 15,417 15,525 26,131
Mortgage payable 2,503 2,653 2,781 2,899 8,722
Net cash provided by
(used for) operations (180) 825 573 437 37
Net loss per limited
partnership Unit $(4.55) $(2.82) $(4.24) $(70.12) $(19.58)
Total income remained largely unchanged from 1996, reflecting
relatively stable leasing conditions at the Property.
The higher net loss in 1997 is primarily attributable to
higher property operating expenses and general and administrative
expenses.
Consolidated Balance Sheets At November 30, At November 30,
1997 1996
Assets
Real estate, at cost:
Land $2,000,000 $2,000,000
Building and improvements 19,032,005 18,241,490
21,032,005 20,241,490
Less accumulated depreciation (9,208,423) (8,337,153)
11,823,582 11,904,337
Cash and cash equivalents 133,958 1,339,034
Restricted cash 402,707 873,891
Rent receivable 106,351 88,910
Prepaid expenses, net of accumulated amortization
of $522,642 in 1997 and $423,728 in 1996 349,160 360,341
Deferred rent receivable 317,316 370,148
Other assets, net of accumulated amortization
of $72,108 in 1997 and $54,165 in 1996 101,775 182,233
Total Assets $13,234,849 $15,118,894
Liabilities and Partners' Capital (Deficit)
Liabilities:
Mortgage note payable $2,503,108 $2,653,177
Accrued interest payable _ 17,135
Accounts payable and accrued expenses 435,377 386,616
Due to affiliates 2,349,614 3,863,561
Total Liabilities 5,288,099 6,920,489
Partners' Capital (Deficit):
General Partners (124,399) (128,928)
Limited Partners (56,341 units outstanding) 8,071,149 8,327,333
Total Partners' Capital 7,946,750 8,198,405
Total Liabilities and Partners' Capital $13,234,849 $15,118,894
Consolidated Statement of Partners' Capital (Deficit)
For the years ended November 30, 1997, 1996 and 1995
General Limited
Partners Partners Total
Balance at November 30, 1994 $(140,127) $8,725,272 $8,585,145
Net income (loss)
4,645 (238,951) (234,306)
Balance at November 30, 1995 (135,482) 8,486,321 8,350,839
Net income (loss) 6,554 (158,988) (152,434)
Balance at November 30, 1996 (128,928) 8,327,333 8,198,405
Net income (loss) 4,529 (256,184) (251,655)
Balance at November 30, 1997 $(124,399) $8,071,149 $7,946,750
Consolidated Statements of Operations
For the years ended November 30, 1997 1996 1995
Income
Rental $2,779,607 $2,719,736 $2,574,200
Interest 72,217 85,121 55,393
Total Income 2,851,824 2,804,857 2,629,593
Expenses
Property operating 1,371,457 1,292,614 1,214,013
Depreciation and amortization 1,101,770 1,101,925 1,069,494
Interest 401,254 410,759 430,618
General and administrative 228,998 151,993 149,774
Total Expenses 3,103,479 2,957,291 2,863,899
Net Loss $(251,655) $(152,434) $(234,306)
Net Income (Loss) Allocated:
To the General Partners $ 4,529 $ 6,554 $ 4,645
To the Limited Partners (256,184) (158,988) (238,951)
$(251,655) $(152,434) $(234,306)
Per limited partnership unit
(56,341 outstanding) $(4.55) $(2.82) $(4.24)
Consolidated Statements of Cash Flows
For the years ended November 30, 1997 1996 1995
Cash Flows From Operating Activities:
Net loss $(251,655) $(152,434) $(234,306)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 956,236 960,358 933,099
Amortization 145,534 141,567 136,395
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 471,184 (104,116) (344,987)
Rent receivable (17,441) 1,775 (22,805)
Prepaid expenses and other assets (53,895) (34,901) (69,176)
Deferred rent receivable 52,832 30,996 (27,251)
Accrued interest payable (17,135) (826) (764)
Accounts payable and accrued expenses 48,761 (215,869) (8,363)
Due to affiliates (1,513,947) 198,778 210,885
Net cash provided by (used for) operating activities
(179,526) 825,328 572,727
Cash Flows From Investing Activities:
Additions to real estate (875,481) (218,026) (306,338)
Net cash used for investing activities (875,481) (218,026) (306,338)
Cash Flows From Financing Activities:
Mortgage principal payments (150,069) (127,809) (118,308)
Net cash used for financing activities (150,069) (127,809) (118,308)
Net increase in cash and cash equivalents (1,205,076) 479,493 148,081
Cash and cash equivalents,
beginning of year 1,339,034 859,541 711,460
Cash and cash equivalents, end of year $ 133,958 $ 1,339,034 $ 859,541
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,614,514 $ 211,050 $ 220,552
Supplemental Disclosure of Non-Cash Investing Activities:
Tenant improvements funded
through accounts payable $ _ $ _ $ 42,765
Notes to the Consolidated Financial Statements
November 30, 1997, 1996 and 1995
1. Organization
Commercial Properties 4, L.P. (the "Partnership") was organized
as a Limited Partnership under the laws of the State of Virginia
pursuant to a Certificate and Agreement of Limited Partnership
dated and filed November 1, 1984 (the "Partnership Agreement").
The Partnership was formed for the purpose of acquiring and
operating certain types of commercial real estate. The General
Partners of the Partnership are CP4 Real Estate Services Inc.
("RE Services"), which is an affiliate of Lehman Brothers (see
below), and HS Advisors III, Ltd. ("HS Advisors"), which is an
affiliate of Goodman Segar Hogan Hoffler, L.P., (see below). The
Partnership will continue until December 31, 2010, unless sooner
terminated in accordance with the terms of the Partnership
Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of
its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney").
Subsequent to the sale, Shearson Lehman Brothers Inc. changed its
name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partners.
However, the assets acquired by Smith Barney included the name
"Hutton". Consequently, effective October 8, 1993, the Hutton
Real Estate Services XI, Inc. General Partner changed its name to
CP4 Real Estate Services Inc., and effective August 3, 1995,
Hutton/GSH Commercial Properties 4 changed its name to Commercial
Properties 4, L.P. to delete any reference to "Hutton".
On August 1, 1993, Goodman Segar Hogan, Incorporated ("GSH")
transferred all of its leasing, management and sales operations
to Goodman Segar Hogan Hoffler, L.P., a Virginia limited
partnership ("GSHH"). On that date, the leasing, management and
sales operations of a portfolio of properties owned by the
principals of Armada/Hoffler were also obtained by GSHH. The
General Partner of GSHH is Goodman Segar Hogan Hoffler, Inc., a
Virginia corporation ("GSHH Inc."), which has a one percent
interest in GSHH. The stockholders of GSHH Inc. are GSH with a
sixty-two percent stock interest and H.K. Associates, L.P., an
affiliate of Armada/Hoffler ("HK"), with a thirty-eight percent
stock interest. The remaining ninety-nine percentage interests
in GSHH are limited partnership interests owned fifty percent by
GSH and forty-nine percent by HK. The transaction did not affect
the ownership of the General Partners.
Effective May 31, 1994, Enal Productions ("Enal"), the coventurer
of Skytop Associates Joint Venture ("Skytop"), withdrew and
assigned all of its right, title and interest in Skytop to the
Partnership. The minority interest attributed to Enal in the
amount of $1,026,164 was accounted for as a reduction in the net
carrying value of real estate investments. No consideration was
paid to Enal as part of this transaction. As a result of the
withdrawal of Enal and the transfer of interest to the
Partnership, Skytop dissolved as of May 31, 1994.
2. Significant Accounting Policies
Consolidation The consolidated financial statements include the
accounts of the Partnership and its ventures, Skytop and Deerwood
Center Associates Joint Venture ("Deerwood"). The Partnership
had a 100% share of ownership of capital in both its ventures up
through the dissolution of Skytop on May 31, 1994.
As of November 30, 1997 and 1996, the consolidated
financial statements include the accounts of the Partnership and
Deerwood, in which the Partnership continues to have a 100% share
of ownership of capital. Intercompany accounts and transactions
between the Partnership and its joint ventures have been
eliminated in consolidation.
Cash and Cash Equivalents Cash and cash equivalents consist of
short-term highly liquid investments which have maturities of
three months or less from the date of purchase. The carrying
value approximates fair value because of the short maturity of
these instruments.
Restricted Cash Restricted cash represents funds escrowed for
future payment of real estate taxes, security deposits and excess
cash from Crosswest Office Center ("Crosswest" or the "Property")
operations escrowed for capital improvements and leasing
commissions (Note 6).
Real Estate Real estate investments consist of just one
commercial office building at November 30, 1997 and 1996, and are
recorded at cost less accumulated depreciation. Cost includes
the initial purchase price of the property plus closing costs,
acquisition and legal fees and capital improvements.
Depreciation is computed using the straight-line method based on
estimated useful lives of 10 to 25 years, except for tenant
improvements, which are depreciated over the terms of the
respective leases.
Leases Leases are accounted for as operating leases. Leasing
commissions are amortized over the terms of the respective leases
and are included in prepaid expenses, net of accumulated
amortization.
Accounting for Impairment In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of ("FAS 121"),
which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. FAS
121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership adopted FAS 121
during the fourth fiscal quarter of 1995.
Fair Value of Financial Instruments Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments.
Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties
in a current transaction other than in forced liquidation.
However, in many instances current exchange prices are not
available for certain of the Partnership's financial instruments,
since no active market generally exists for such financial
instruments.
Fair value estimates are subjective and are dependent on a number
of significant assumptions based on management's judgment
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. In addition, FAS 107 allows a
wide range of valuation techniques. Therefore, comparisons
between entities, however similar, may be difficult.
Deferred Rent Receivable Deferred rent receivable consists of
rental income which is recognized on a straight-line basis over
the term of the respective leases but will not be received until
later periods.
Financing Costs Financing costs are amortized over the life of
the mortgage note (Note 6) and are included in other assets, net
of accumulated amortization.
Income Taxes No provision for income taxes has been made in the
financial statements since such taxes are the responsibility of
the individual partners rather than the Partnership.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Reclassifications Certain prior year amounts have been
reclassified in order to conform to the current year's
presentation.
3. The Partnership Agreement
The Partnership Agreement provides that the net cash from
operations, as defined, for each fiscal year will be distributed
on a quarterly basis 98% to the Limited Partners and 2% to the
General Partners until each Limited Partner has received a 9%
annual, noncumulative return on his adjusted capital investment,
as defined. The remaining net cash from operations will then be
distributed to the General Partners until the General Partners
have received 10% of the aggregate net cash from operations
distributed to all partners. The balance of net cash from
operations will then be distributed 90% to the Limited Partners
and 10% to the General Partners.
Net proceeds from sales or refinancings shall be distributed 99%
to the Limited Partners and 1% to the General Partners until each
Limited Partner has received an amount equal to his adjusted
capital and a 10% cumulative annual return thereon, reduced by
any net cash from operations previously distributed to such
Limited Partner. The balance of net proceeds from sales or
refinancings will then be distributed 85% to the Limited Partners
and 15% to the General Partners.
Income before depreciation for any fiscal year and all gains from
sales or refinancings will be allocated in substantially the same
manner as net cash from operations. Losses and depreciation for
any fiscal year shall be allocated 99% to the Limited Partners
and 1% to the General Partners.
Upon the dissolution of the Partnership, the General Partners
shall contribute to the capital of the Partnership, an amount not
to exceed 1% of the total capital contributions made by all the
Partners, less any prior capital contributions made by the
General Partners. In no event shall the General Partners be
obligated to contribute an amount in excess of any negative
balance in their respective capital accounts, except as noted
below.
If as a result of the dissolution of the Partnership, the sum of
the Limited Partners' capital contributions plus an amount equal
to a 6% cumulative annual return on each Limited Partner's
adjusted capital value less any distributions made to each
Limited Partner from net cash flow from operations, exceeds
aggregate distributions to the Limited Partners of net proceeds
from a sale or refinancing, the General Partners will contribute
to the Partnership for distribution to the Limited Partners an
amount equal to the lesser of such excess or the aggregate
distribution of net proceeds from a sale or refinancing
distributed to the General Partners.
4. Transactions with Related Parties
The following is a summary of the amounts earned by or accrued to
the General Partners and their affiliates during the years ended
November 30, 1997, 1996 and 1995:
Unpaid Earned
November 30, Earned
1997 1997 1996 1995
Advances and related interest $1,258,289 $270,144 $198,685 $210,830
Acquisition fees 623,925 _ _ _
Selling commissions 467,400 _ _ _
$2,349,614 $270,144 $198,685 $210,830
The advances from the General Partners bear interest at the prime
rate, and are to be repaid from future cash flows of the
Partnership, when available. Payments of $1,500,000 and $250,000
were paid during the third and fourth quarter of 1997,
respectively. Interest expense recorded on the advances was
$201,360, $198,685 and $210,830 during 1997, 1996 and 1995,
respectively.
Effective as of January 1, 1997, the Partnership began
reimbursing certain expenses incurred by RE Services, Inc. and
its affiliates in servicing the Partnerships to the extent
permitted by the partnership agreement. In prior years,
affiliates of RE Services, Inc. had voluntarily absorbed these
expenses. For the year ended November 30, 1997, $34,840 was
accrued, and $33,944 was paid.
5. Real Estate Investments
Since inception, the Partnership acquired two commercial office
buildings through investments in joint ventures as follows:
Rentable
Square Date Purchase
Property Name Feet Location Acquired Price
Crosswest (a) 152,000 Westchester, NY 9/10/85 $16,048,055
Reflections (b) 114,000 Jacksonville, FL 12/17/85 $11,300,170
(a) Crosswest was originally acquired by Skytop.
(b) Reflections was acquired by Deerwood and was sold on November
30, 1994.
6. Mortgage Notes Payable
Skytop Associates Joint Venture On October 10, 1990, the
Partnership entered into a mortgage loan agreement with Apple
Bank for Savings. The principal amount of the loan was
$1,973,861 and bore interest at 10.25% and was payable in equal
monthly installments of $18,117, applied to principal and
interest, commencing December 1, 1990 through October 1, 1993.
On October 1, 1993, the entire balance of the debt outstanding
was due and payable. At the option of the General Partners, the
loan was extended to November 18, 1993. The loan was
collateralized by Crosswest.
On November 18, 1993, the extended maturity date, the Partnership
obtained replacement financing on Crosswest from The Penn Mutual
Life Insurance Company, an unaffiliated party. Total proceeds of
$3,000,000 were received and are collateralized by a Mortgage and
Security Agreement and an Assignment of Rents and Leases
Agreement encumbering Crosswest. The Partnership increased the
amount of the mortgage debt on the Property in order to provide
funds to complete the leasing of the Property. The term of the
loan is for seven years and at an annual interest rate of 7.75%
and requires monthly payments of principal and interest based on
a 15 year amortization schedule. The loan also requires a
lockbox account, into which all excess rental receipts from
Crosswest are to be directly deposited each month.
As a result of the withdrawal of Enal and the transfer of Enal's
right, title, and interest in Skytop to the Partnership as of May
31, 1994, (Note 1), the Partnership agreed to be bound by all of
the obligations of Skytop pursuant to the Mortgage and Security
Agreement and the Assignment of Rents and Leases that encumbered
the property as of May 31, 1994.
Annual principal maturities of the mortgage note over the next
four years are as follows:
1998 $137,168
1999 161,143
2000 174,086
2001 2,030,711
$2,503,108
Based on the borrowing rates currently available to the
Partnership for mortgage loans with similar terms and average
maturities, the fair value of long-term debt approximates
carrying value.
7. Rental Income Under Operating Leases
Future minimum rental income on noncancellable operating leases
at Crosswest as of November 30, 1997 is as follows:
1998 2,253,577
1999 1,626,483
2000 1,270,297
2001 608,765
2002 443,155
Thereafter 693,351
$6,895,628
Generally, leases are for terms of three to five years, contain
renewal options and allow for increases in certain property
operating expenses to be passed on to tenants.
8. Reconciliation of Net Loss to Tax Loss
For the year ended November 30, 1997, taxable income exceeded the
net loss reported in the financial statements by $353,746. For
the year ended November 30, 1996, taxable income exceeded the net
loss reported in the financial statements by $277,916. For the
year ended November 30, 1995, the net loss reported in the
financial statements exceeded the tax loss by $131,312. These
differences are due to the differences between the tax basis and
financial statement basis of buildings and improvements and the
use of accelerated methods of depreciating real estate for tax
purposes as compared to the straight-line method used for
financial statement purposes. In addition, rental income is
recorded on a straight-line basis over the term of the lease for
financial statement purposes, and is reportable for tax purposes
when received or receivable.
Report of Independent Auditors
General and Limited Partners
Commercial Properties 4, L.P.
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of
Commercial Properties 4, L.P. and Consolidated Ventures as of
November 30, 1997 and 1996, and the related consolidated
statements of operations, partners' capital (deficit) and cash
flows for each of the three years in the period ended November
30, 1997. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Commercial Properties 4, L.P. and
Consolidated Ventures at November 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended November 30, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 21, 1998
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and Determination of
Net Asset Value Per $500 Unit at November 30, 1997 (Unaudited)
Partnership's
Aquisition Cost Share of
(Purchase Price Plus November 30, 1997
General Partners 1997 Appraised
Property Date of Aquisition Aquisition Fees) Value (1)
Crosswest Office Centre 09-10-85 $17,478,593 $10,696,892
Cash and cash equivalents 133,958
Cash restricted 402,707
Rent receivable 106,351
Prepaid expenses 53,718
Other assets 47,515
11,441,141
Less:
Total Liabilities - net of mortgage loan (2,784,991)
Partnership Net Asset Value (3) $8,656,150
Net Asset Value Allocated:
Limited Partners $8,569,589
General Partners 86,561
Net Asset Value Per Unit
(56,341 units outstanding) $152.10
(1) This represents the Partnership's share of the November 30,
1997 Appraised Value which was determined by an independent
property appraisal firm.
(2) The Partnership's share of the November 30, 1997 Appraised
Value is net of the outstanding mortgage loan balance at
November 30, 1997.
(3) The Net Asset Value assumes a hypothetical sale at November
30, 1997 of the Partnership's property at a price based upon
its appraised value as a rental property and the distribution
of the proceeds of such sale, combined with the Partnership's
cash, after liquidation of the Partnership's liabilities, to
the partners of the Partnership. Real estate brokerage
commissions payable to the General Partners or others are not
determinable at this time and have not been estimated for
purposes of this calculation. Since the Partnership would
incur real estate brokerage commissions and other selling
expenses in connection with the sale of the property and other
assets, cash available for distribution to the Partners would
be less than the appraised Net Asset Value.
Limited Partners should note that appraisals are only estimates of
current value and actual values realizable upon sale may be
significantly different. A significant factor in establishing an
appraised value is the actual selling price for the properties which
the appraiser believes are comparable. In addition, the appraised
value does not reflect the actual costs which would be incurred in
selling the property. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation
between the appraised value of the Partnership's property and the
price at which Units of the Partnership could be sold may be
significant. Fiduciaries of Limited Partners which are subject to
ERISA or other provisions of law requiring valuations of Units should
consider all relevant factors, including, but not limited to Net Asset
Value per Unit, in determining the fair market value of the investment
in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1997
Crosswest
Commercial Property: Office Center
Location Westchester, NY
Construction date 1985
Acquisition date 09-10-85
Life on which depreciation in latest
income statements is computed 10 - 25 years
Encumbrances $ 2,503,108
Initial cost to Partnership:
Land 2,000,000
Building and improvements 14,048,055
Costs capitalized
subsequent to acquisition:
Land, building
and improvements 5,072,739
Retirements (88,789)
Gross amount at which
carried at close of period (1):
Land $ 2,000,000
Building and improvements 19,032,005
$ 21,032,005
Accumulated depreciation (2) $ 9,208,423
(1) For Federal income tax purposes, the aggregate basis of land, buildings and
improvements is $19,093,550.
(2) For Federal income tax purposes, the amount of accumulated depreciation is
$8,401,958.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended
November 30, 1997, 1996, and 1995:
1997 1996 1995
Real estate investments:
Beginning of year $20,241,490 $20,027,287 $19,678,184
Additions 875,481 218,026 349,103
Retirements (84,966) (3,823) _
End of year $21,032,005 $20,241,490 $20,027,287
Accumulated depreciation:
Beginning of year $8,337,153 $7,380,618 $6,447,519
Depreciation expense 956,236 960,358 933,099
Retirements (84,966) (3,823) _
End of year $9,208,423 $8,337,153 $7,380,618
Consent of Independent Auditors
We consent to the incorporation by reference in this
Annual Report (Form 10-K) of Commercial Properties 4,
L.P. of our report dated January 21, 1998, included in
the 1997 Annual Report to Shareholders of Commercial
Properties 4, L.P. and Consolidated Ventures.
Our audit also included the financial statement schedule
of Commercial Properties 4, L.P. and Consolidated
Ventures listed in Item 14(a). This schedule is the
responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the
basic financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Boston, Massachusetts
January 21, 1998
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<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
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<SALES> 2,779,607
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