SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1994 Commission file #0-16111
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(Exact name of registrant as specified in its charter)
Illinois 36-3314827
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
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
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . 26
PART II OTHER INFORMATION
Item 3. Defaults on Senior Securities . . . . . . . . . . . . . . 36
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 37
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 39
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,618,486 5,020,087
Short-term investments (note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,636,326 10,167,294
Interest, rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . 1,063,116 1,092,658
Current portion of notes receivable (net of allowance for doubtful accounts of
$1,466,051 in 1994 and
1993, note 7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,316 34,073
Escrow deposits and restricted securities (notes 1 and 4(a)) . . . . . . . . . . . . . 7,032,431 6,151,429
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,373,675 22,465,541
------------ ------------
Investment properties, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,388,166 37,109,099
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,881,494 376,030,478
------------ ------------
390,269,660 413,139,577
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,086,915) (107,997,321)
------------ ------------
Total investment properties, net of accumulated depreciation . . . . . . . . . . 282,182,745 305,142,256
------------ ------------
Investment in unconsolidated ventures, at equity (notes 3 and 11). . . . . . . . . . . . 27,829,703 28,554,815
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,791,752 4,305,261
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,086,400 6,719,239
Venture partners' deficits in ventures . . . . . . . . . . . . . . . . . . . . . . . . . 4,880,739 4,699,065
------------ ------------
$352,145,014 371,886,177
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1994 1993
------------ -----------
Current liabilities:
Current portion of long-term debt (note 4) . . . . . . . . . . . . . . . . . . . . . $ 86,533,154 103,244,992
Current portion of notes payable (note 8). . . . . . . . . . . . . . . . . . . . . . -- 70,701
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,028,766 2,256,478
Amounts due to affiliates (note 10). . . . . . . . . . . . . . . . . . . . . . . . . 6,605,905 6,410,710
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,872,024 6,130,382
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265,400 728,334
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 102,305,249 118,841,597
Notes payable (note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361,135 361,135
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679,742 863,192
Investment in unconsolidated ventures, at equity (notes 3 and 11). . . . . . . . . . . 39,688,128 28,318,569
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000 360,000
Long-term debt, less current portion (note 4). . . . . . . . . . . . . . . . . . . . . 239,117,478 237,811,558
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,511,732 386,556,051
Venture partners' subordinated equity in ventures. . . . . . . . . . . . . . . . . . . 9,269,305 9,901,367
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,440,995) (15,779,416)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . (600,866) (600,866)
------------ ------------
(17,021,861) (16,360,282)
------------ ------------
Limited partners:
Capital contributions, net of offering costs . . . . . . . . . . . . . . . . . . . 384,978,681 384,978,681
Cumulative net losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (383,394,393) (368,991,190)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . (24,198,450) (24,198,450)
------------ ------------
(22,614,162) (8,210,959)
------------ ------------
Total partners' capital accounts (deficits). . . . . . . . . . . . . . . . . . (39,636,023) (24,571,241)
------------ ------------
Commitments and contingencies (notes 1, 2, 3, 4, 7, 8 and 9)
$352,145,014 371,886,177
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ---------------------------
1994 1993 1994 1993
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . $12,956,543 13,220,801 26,106,762 26,323,753
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . 199,303 75,397 351,459 234,177
----------- ---------- ---------- ----------
13,155,846 13,296,198 26,458,221 26,557,930
----------- ---------- ---------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . . . . . . 8,346,594 8,670,121 17,022,328 17,322,812
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 2,875,186 3,087,272 5,874,605 6,173,723
Property operating expenses. . . . . . . . . . . . . . . . . . . 4,935,530 5,453,354 10,887,883 10,939,501
Professional services. . . . . . . . . . . . . . . . . . . . . . 188,553 162,935 444,746 432,396
Amortization of deferred expenses. . . . . . . . . . . . . . . . 284,748 319,026 569,249 620,152
General and administrative . . . . . . . . . . . . . . . . . . . 141,576 192,342 312,563 344,727
Provisions for value impairment. . . . . . . . . . . . . . . . . -- 2,166,799 -- 2,166,799
----------- ----------- ---------- ----------
16,772,187 20,051,849 35,111,374 38,000,110
----------- ----------- ---------- ----------
Operating loss. . . . . . . . . . . . . . . . . . . . . . . 3,616,341 6,755,651 8,653,153 11,442,180
Partnership's share of loss from operations of unconsolidated
ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,367,905 4,479,462 9,441,407 9,835,452
Venture partners' share of ventures' operations. . . . . . . . . . (472,313) (876,353) (1,063,528) (1,721,395)
----------- ----------- ---------- ----------
Net operating loss . . . . . . . . . . . . . . . . . . . . 7,511,933 10,358,760 17,031,032 19,556,237
Gain on sale of interests in unconsolidated ventures (notes 9(b)
and (c)). . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,627,427) -- (2,856,567)
Gain on sale or disposition of investment properties, net of venture
partner's share of gain of $728,978 and $777,055 (notes 4(a)(i) and
9(a)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,334,684) -- (1,966,250) --
----------- ----------- ---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,177,249 7,731,333 15,064,782 16,699,670
=========== =========== ========== ==========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ---------------------------
1994 1993 1994 1993
------------ ---------- ------------ ------------
Net loss per limited partnership interest (note 1):
Net operating loss . . . . . . . . . . . . . . . . . . $ 16.25 22.41 36.85 42.31
Net gain on sale of interests in unconsolidated ventures
(notes 9(b) and (c)) . . . . . . . . . . . . . . . . . -- (5.86) -- (6.37)
Net gain on sale or disposition of investment properties
(notes 4(a)(i) and 9(a)) . . . . . . . . . . . . . . . (2.98) -- (4.39) --
----------- ----------- ---------- ----------
$ 13.27 16.55 32.46 35.94
=========== =========== ========== ==========
Cash distributions per limited partnership interest. . . $ -- -- -- --
=========== =========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . $(15,064,782) (16,699,670)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,874,605 6,173,723
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . 569,249 620,152
Long-term debt - deferred accrued interest . . . . . . . . . . . . . . . . . . . . 1,613,348 1,028,253
Partnership's share of loss from operations of unconsolidated ventures . . . . . . 9,441,407 9,835,452
Venture partners' share of ventures' operations and gain on sale or disposition of
investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286,473) (1,721,395)
Provision for value impairment . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,166,799
Total gain on sale or disposition of investment properties . . . . . . . . . . . . (2,743,305) --
Gain on sale of interests in unconsolidated ventures . . . . . . . . . . . . . . . -- (2,856,567)
Changes in:
Interest, rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . 29,542 205,614
Current portion of notes receivable. . . . . . . . . . . . . . . . . . . . . . . . 10,757 175,288
Escrow deposits and restricted securities (note 4(a)). . . . . . . . . . . . . . . (881,002) (342,720)
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632,839 568,110
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227,712) (84,799)
Amounts due affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,195 643,556
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 738,693 2,048,693
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,066 676,051
Deposits and advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (430,000)
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (183,450) 51,805
------------ -----------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . 255,977 2,058,345
------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1994 1993
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . . . . . . . . . . . . 1,530,968 126,075
Additions to investment properties . . . . . . . . . . . . . . . . . . . . . . . . . (680,784) (721,347)
Cash proceeds from sale of investment property (note 9(a)) . . . . . . . . . . . . . 2,810,896 --
Cash proceeds from sale of interest in unconsolidated venture (note 9(c)). . . . . . -- 229,140
Partnership's distributions from unconsolidated ventures . . . . . . . . . . . . . . 3,807,873 957,832
Partnership's contributions to unconsolidated ventures . . . . . . . . . . . . . . . (1,260,570) (517,939)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,205) (187,550)
------------ -----------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . 6,136,178 (113,789)
------------ -----------
Cash flows from financing activities:
Principal payment on note payable. . . . . . . . . . . . . . . . . . . . . . . . . . (70,701) --
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (462,160) (517,718)
Distributions to venture partners. . . . . . . . . . . . . . . . . . . . . . . . . . (305,895) (138,638)
Contributions from venture partners. . . . . . . . . . . . . . . . . . . . . . . . . 45,000 --
------------ -----------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . (793,756) (656,356)
------------ -----------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 5,598,399 1,288,200
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . $ 14,670,282 14,245,866
============ ===========
Non-cash investing and financing activities:
Non-cash gain recognized on sale of interest in unconsolidated venture (note 9(b)) $ -- 2,627,427
============ ===========
Sale of investment property (note 9(a)):
Total sale proceeds, net of selling expenses . . . . . . . . . . . . . . . . . . $ 16,268,000 --
Principal balance due on mortgage payable. . . . . . . . . . . . . . . . . . . . 13,457,104 --
------------ -----------
Cash proceeds from sale of investment property, net of selling expenses. . . $ 2,810,896 --
============ ===========
Disposition of investment property (note 4(a)(i)):
Balance due on long-term debt canceled . . . . . . . . . . . . . . . . . . . . . $ 3,100,000 --
Accrued interest expense on accelerated long-term debt . . . . . . . . . . . . . 997,056 --
Reduction of investment property . . . . . . . . . . . . . . . . . . . . . . . . (2,016,927) --
Reduction of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . (16,467) --
------------ -----------
Non-cash gain recognized due to lender realizing upon security . . . . . . . $ 2,063,662 --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1993,
which are included in the Partnership's 1993 Annual Report on Form 10-K (file
no. 0-16111 filed on March 28, 1994 (the "Annual Report")), as certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts
of the Partnership and its consolidated ventures, Eastridge Development
Company ("Eastridge"); Daytona Park Associates ("Park") (see note 4(a)(i));
JMB/160 Spear Street Associates ("160 Spear"); Villa Solana Associates ("Villa
Solana") (sold March 23, 1994, see note 9(a)); 260 Franklin Street Associates
("260 Franklin"); C-C California Plaza Partnership ("Cal Plaza"); Villages
Northeast Associates ("Villages Northeast") and VNE Partners, Ltd. ("VNE
Partners"). The effect of all transactions between the Partnership and the
consolidated ventures has been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's interests
in JMB/Piper Jaffray Tower Associates ("JMB/Piper") and JMB/Piper Jaffray
Tower Associates II ("JMB/Piper II"); 900 Third Avenue Associates ("JMB/900");
Maguire/Thomas Partners-South Tower ("South Tower"); JMB/Owings Mills
Associates ("JMB/Owings") (sold June 30, 1993, see note 9(b)); Carlyle - XV
Associates, L.P., which owns an interest in JMB/125 Broad Building Associates,
L.P. ("JMB/125"), and JMB/NewPark Associates ("JMB/NewPark").
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles ("GAAP")
and to consolidate the accounts of certain ventures as described above. Such
adjustments are not recorded on the records of the Partnership. The effect of
these items is summarized as follows for the six months ended June 30, 1994
and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
GAAP Basis Tax Basis GAAP Basis Tax Basis
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net loss . . . . . . $15,064,782 10,787,210 16,699,670 6,801,613
Net loss per
limited partner-
ship interest . . . $ 32.46 23.54 35.94 14.21
=========== ========== ========== =========
</TABLE>
The net loss per limited partnership interest ("Interest") is based upon
the interests outstanding at the end of each period. Deficit capital accounts
will result, through the duration of the Partnership, in the recognition of
net gain for financial reporting and income tax purposes.
Certain amounts in the 1993 consolidated financial statements have been
reclassified to conform with the 1994 presentation.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement. Partnership
distributions from unconsolidated ventures are considered cash flow from
operating activities only to the extent of the Partnership's cumulative share
of net earnings. In addition, the Partnership records amounts held in U.S.
Government obligations and other securities at cost which approximates market.
For the purposes of these statements, the Partnership's policy is to consider
all such amounts held with original maturities of three months or less
($8,268,112 at June 30, 1994 and none at December 31, 1993) as cash
equivalents with any remaining amounts (generally with original maturities of
one year or less) reflected as short-term investments being held to maturity.
Escrow deposits and restricted securities primarily represent cash and
investments restricted as to their use by the Partnership.
Due to the uncertainty of the Partnership's ability to recover the net
carrying value of the California Plaza, Wells Fargo Center - IBM Tower, Villa
Solana Apartments and Springbrook Shopping Center investment properties, the
Partnership, or ventures, as the case may be, made, as a matter of prudent
accounting practice, provisions for value impairment. A provision for value
impairment was recorded at June 30, 1993, of $2,166,799 for California Plaza,
which included $1,558,492 relating to the venture partner's deficit investment
balance at that date, at August 31, 1993, of $67,479,871 (of which, the
Partnership's share is $20,035,181) for Wells Fargo Center - IBM Tower, at
September 30, 1993, of $916,309 for Villa Solana Apartments, and at December
31, 1993 of $7,534,763 for Springbrook Shopping Center. Such provisions
generally reduced the net carrying values of the investment properties to the
then outstanding balance of the related non-recourse mortgage notes.
(2) INVESTMENT PROPERTIES
(a) General
The Partnership has acquired, either directly or through joint ventures,
interests in four apartment complexes, twelve office buildings, four shopping
centers and one parking facility. The Partnership's aggregate cash
investment, excluding certain related acquisition costs, is $299,637,926.
During 1989, the Partnership disposed of its interest in the investment
property owned by CBC Investment Company ("Boatmen's"). During 1991, the
Partnership sold 62% of its interest in Harbor and in 1993 sold its remaining
38% interest in Harbor (note 9(c)). In September 1992, the Partnership sold
the Erie-McClurg Parking Facility. In June 1993, the Partnership sold its
interest in Owings Mills Shopping Center (note 9(b)). In March 1994, the
Partnership, through Villa Solana Associates, sold Villa Solana Apartments
(note 9(a)). In May 1994, the lender realized upon its security interest in
the Park at Countryside Apartments (note 4(a)(i)). All of the properties
owned at June 30, 1994 were completed and operating.
All investment properties are pledged as security for the long-term debt,
for which there is no recourse to the Partnership.
(b) Woodland Hills Apartments
Effective February 1, 1991, the seller/manager agreed to guarantee a
level of cash flow from the property equal to the underlying debt service in
return for a subordinated level of cash flow (payable as an incentive
management fee) from operations and sale or refinancing of the property. The
underlying debt (which consists of first and second mortgage notes secured by
the property) was scheduled to mature in June 1994. The maturity date of the
first mortgage loan was extended to September 1, 1994 and an agreement in
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
principle has been reached with the lender of the second mortgage loan to
refinance both notes, however there is no assurance that such refinancing will
be executed (see note 4(b)).
(3) VENTURE AGREEMENTS
(a) Introduction
The Partnership (or Carlyle-XV Associates, L.P., in which the Partnership
holds a limited partnership interest) has entered into eight joint venture
agreements (JMB/Piper, JMB/Piper II, JMB/900, JMB/Owings, JMB/125, 260
Franklin, Villages Northeast and JMB/NewPark) with Carlyle Real Estate Limited
Partnership-XIV ("Carlyle-XIV") or Carlyle Real Estate Limited Partnership-XVI
(or Carlyle-XVI Associates, L.P., in which Carlyle Real Estate Limited
Partnership-XVI holds a limited partnership interest) ("Carlyle-XVI"),
partnerships sponsored by the Corporate General Partner, and eight joint
venture agreements with unaffiliated venture partners. Pursuant to such
agreements, the Partnership made initial capital contributions of
approximately $247,300,000 (before legal and other acquisition costs and its
share of operating deficits as discussed below). The terms of these
affiliated partnerships provide, in general, that the benefits of ownership,
including tax effects, net cash receipts and sale and refinancing proceeds,
are allocated between or distributed to, as the case may be, the Partnership
and the affiliated partner in proportion to their respective capital
contributions to the affiliated venture.
There are certain risks associated with the Partnership's investments
made through joint ventures, including the possibility that the Partnership's
joint venture partner(s) in an investment might become unable or unwilling to
fulfill its (their) financial or other obligations, or that such joint venture
partner(s) may have economic or business interests or goals that are
inconsistent with those of the Partnership. Under certain circumstances,
either pursuant to the venture agreements or due to the Partnership's
obligations as a general partner, the Partnership may be required to
contribute additional amounts to the venture.
During 1989, the Partnership disposed of its interest in the Boatmen's
venture (note 3(c)). During 1991, the Partnership sold a portion of its
interest in the Harbor venture. In January 1993, the Partnership sold the
remaining portion of its interest in the Harbor venture (note 9(c)). In June
1993, the Partnership sold its interest in the JMB/Owings Mills Associates
joint venture (note 9(b)). In March 1994, the Partnership, through Villa
Solana Associates, sold the Villa Solana Apartments to an independent third
party (note 9(a)). In May 1994, the lender realized upon its security
interest in the Park at Countryside Apartments (note 4(a)(i)).
(b) JMB/900
As a result of certain defaults by one of the unaffiliated joint venture
partners, an affiliate of the General Partner assumed management
responsibility for the property as of August 1987 for a fee computed as a
percentage of certain revenues.
Through December 31, 1991, it was necessary for JMB/900 to contribute
approximately $4,364,000 ($2,909,000 of which was contributed by the
Partnership) to pay past due property real estate taxes and to pay certain
costs which were the responsibility of one of the unaffiliated joint venture
partners under the terms of the joint venture agreement, to the extent such
funds were not available from the investment property.
In July 1989, JMB/900 filed a lawsuit in federal court against the former
manager and one of the unaffiliated venture partners to recover the amounts
contributed and to recover for certain other joint venture obligations on
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
which the unaffiliated partner has defaulted. This lawsuit was dismissed on
jurisdictional grounds. Subsequently, however, the Federal Deposit Insurance
Corporation ("FDIC") filed a complaint, since amended, in a lawsuit against
the joint venture partner, the Partnership and affiliated partner and the
joint venture, which has enabled the Partnership and affiliated partner to
refile its previously asserted claims against the joint venture partner as
part of that lawsuit in Federal Court. There is no assurance that JMB/900
will recover the amounts of its claims as a result of the litigation. Due to
the uncertainty, no amounts in addition to the amounts advanced to date, noted
above, have been recorded in the financial statements. Settlement discussions
with one of the venture partners and the FDIC continue. In addition, it
appears that the unaffiliated venture partners may not have the financial
capabilities to repay amounts advanced on their behalf. Consequently, a final
settlement will likely involve redirecting amounts otherwise payable to the
unaffiliated venture partners in accordance with the venture agreement to
JMB/900. There are no assurances that a settlement will be finalized and that
the Partnership and affiliated partner will be able to recover any amounts
from the unaffiliated venture partners.
JMB/900, on behalf of the joint venture, has entered into a non-binding
letter of intent with the existing lender for the extension of its mortgage
loan in the amount of $90,411,000 which matures in December 1994. The
proposed terms of the extension would extend the loan for seven years with
monthly payments of principal and interest based on an interest rate of 9.375%
per annum and a 25 year principal amortization schedule. The current interest
rate is 13% per annum. In addition, net cash flow after debt service and
capital will be paid into an escrow account controlled by the lender to be
used by the joint venture for releasing costs associated with leases which
expire in 1999 and 2000 (approximately 240,000 square feet of space). The
remaining proceeds in this escrow, if any, will be released to the joint
venture once 90% of such leased space has been renewed or released. The
letter of intent contemplates a closing for this extension by the end of
September 1994 with the terms being effective upon the current maturity date
in December 1994. The letter of intent is non-binding with respect to the
loan extension, and consummation of the proposed transaction is subject to the
satisfaction of various conditions, including approval by the unaffiliated
venture partners. Therefore, there can be no assurance that a loan extension
will be consummated on these or any terms.
(c) Boatmen's
During 1989 the joint venture defaulted on the mortgage loan secured by
the property, and the lender obtained title to the property. As a result, the
Partnership has no further ownership interest in the property.
On May 31, 1990, the Partnership entered into an agreement with the joint
venture partners to settle certain claims against the joint venture partners.
The settlement provided that the joint venture partners make payments
totalling $2,325,000 to the Partnership. The remaining notes do not bear
interest and were scheduled to be due May 31, 1993. As of June 30, 1994, the
Partnership has received cash payments totalling $1,910,937. Two of the
venture partners were delinquent under the scheduled payments in the amount of
$414,063 as of June 30,1994. These joint venture partners had requested
extensions of the promissory notes and the Partnership is currently
considering their requests. To preserve its legal rights, the Partnership
served the delinquent partners with notices of default. The Partnership has
recognized revenue on the settlement only to the extent of the cash collected.
There is no assurance that the remaining delinquent payments will be
collected.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(d) JMB/NewPark
In December 1986, the Partnership, through the JMB/NewPark joint venture
partnership, acquired an interest in an existing joint venture partnership
("NewPark Associates") with the developer which owns an interest in an
existing enclosed regional shopping center in Newark, California known as
NewPark Mall.
JMB/NewPark acquired its 50% interest in NewPark Associates for a
purchase price of $32,500,000 paid in cash at closing, subject to an existing
first mortgage loan of approximately $23,556,000 and certain loans from the
joint venture partner of approximately $6,300,000.
On December 31, 1992, NewPark Associates refinanced the shopping center
with an institutional lender. The new mortgage note payable in the principal
amount of $50,620,219 is due on November 1, 1995. Monthly payments of
interest only of $369,106 are due through November 30, 1993. Commencing on
December 1, 1993 through October 30, 1995, principal and interest are due in
monthly payments of $416,351 with a final balloon payment due November 1,
1995. Interest on the note payable accrues at 8.75% per annum. The joint
venture has an option to extend the term of the mortgage note payable to
November 1, 2000 upon payment of a $250,000 option fee and satisfaction of
certain conditions as specified in the mortgage note. A portion of the
proceeds from the note payable were used to pay the outstanding balance,
including accrued interest, under the previous mortgage note payable and the
notes payable to the unaffiliated joint venture partner. NewPark Associates
commenced a renovation of NewPark Mall in early 1993 and such renovation was
substantially completed as of September 30, 1993.
(e) Cal Plaza
In August 1990, the joint venture partner filed a lawsuit against the
Partnership, the General Partners of the Partnership and certain of their
affiliates, alleging, among other things, breaches of the joint venture
agreement and fraud. The Partnership filed a counterclaim against the joint
venture partner for breaches of the joint venture agreement and property
management agreement. In November 1991, the Partnership and the joint venture
partner reached a settlement resolving certain claims between the two parties.
Under the terms of the settlement agreement, the obligation of the venture
partner to indemnify Cal Plaza for payment on promissory notes issued to a
tenant was revised (see note 8) and previously escrowed amounts were made
available for 1991 cash flow requirements.
In December 1993, the venture reached an agreement with the lender to
modify the mortgage note, effective February 1993. The accrual rate of the
note remains at 10.375% per annum, but the interest only monthly payments are
based on an interest rate of 8% per annum. The maturity date of the note has
been extended from January 1, 1997 to January 1, 2000, and property cash flows
are required to be escrowed as more fully described in note 4(a)(vi).
(f) JMB/125
In December 1985, the Partnership, through the JMB/125 joint venture
partnership, acquired an interest in an existing joint venture partnership
("125 Broad") which owns a 40-story office building, together with a leasehold
interest in the underlying land, located at 125 Broad Street in New York, New
York. In addition to JMB/125, the other partners (the "O&Y partners") of 125
Broad include O&Y 25 Realty Company L.P., Olympia & York Broad Street Holding
Company L.P. (USA) and certain other affiliates of Olympia & York Development,
Ltd. ("O&Y").
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JMB/125 is a joint venture between Carlyle-XV Associates, L.P. (in which
the Partnership holds an approximate 99% limited partnership interest),
Carlyle-XVI Associates, L.P. and Carlyle Advisors, Inc. The terms of the
JMB/125 venture agreement generally provide that JMB/125's share of 125
Broad's annual cash flow and sale or refinancing proceeds will be distributed
or allocated to the Partnership in proportion to its (indirect) 60% share of
capital contributions to JMB/125. In April 1993 JMB/125, originally a general
partnership, was converted to a limited partnership, and the Partnership's
interest in JMB/125, which previously had been held directly, was converted to
a limited partnership interest and was contributed to Carlyle-XV Associates,
L.P. in exchange for a limited partnership interest in Carlyle-XV Associates,
L.P. As a result of these transactions, the Partnership currently holds,
indirectly through Carlyle-XV Associates, L.P., an approximate 60% limited
partnership interest in JMB/125. The general partner in each of JMB/125 and
Carlyle-XV Associates, L.P. is an affiliate of the Partnership. For financial
reporting purposes, profits and losses of JMB/125 are generally allocated 60%
to the Partnership.
JMB/125 acquired an approximately 48.25% interest in 125 Broad for a
purchase price of $16,000,000, subject to a first mortgage loan of
$260,000,000 and a note payable to an affiliate of the joint venture partners
in the amount of $17,410,516 originally due September 30, 1989. In June 1987,
the note payable was consolidated with the first mortgage loan forming a
single consolidated note in the principal amount of $277,410,516. The
consolidated note bears interest at a rate of 10-1/8% per annum payable in
semi-annual interest only payments and matures on December 27, 1995. JMB/125
has also contributed $14,055,500 to 125 Broad to be used for working capital
purposes and to pay an affiliate of O&Y for its assumption of JMB/125's share
of the obligations incurred by 125 Broad under the "takeover space" agreement
described below. In addition, JMB/125 contributed $24,222,042, plus interest
thereon of approximately $1,089,992 on June 30, 1986 for working capital
purposes. Thus, JMB/125's original cash investment (exclusive of acquisition
costs) was $55,367,534, of which the Partnership's share was approximately
$33,220,000.
The land underlying the office building is subject to a ground lease
which has a term through June 2067 and provides for annual rental payments of
$1,075,000. The terms of the ground lease grant 125 Broad a right of first
refusal to acquire the fee interest in the land in the event of any proposed
sale of the land during the term of the lease and an option to purchase the
fee interest in the land for $15,000,000 at 10-year intervals.
The partnership agreement of 125 Broad, as amended, provides that the O&Y
partners are obligated to make advances to pay operating deficits incurred by
125 Broad from the earlier of 1991 or the achievement of a 95% occupancy rate
of the office building through 1995. In addition, from closing through 1995,
the O&Y partners are required to make capital contributions to 125 Broad for
the cost of tenant improvements and leasing expenses up to certain specified
amounts and to make advances to 125 Broad to the extent such costs exceed such
specified amounts and such costs are not paid for by the working capital
provided by JMB/125 or the cash flow of 125 Broad. The amount of all costs
for such tenant improvements and leasing expenses over the specified amounts
and the advances for operating deficits from the earlier of the achievement of
a 95% occupancy rate of the office building or 1991 will be treated by 125
Broad as non-recourse loans bearing interest, payable monthly, at the floating
prime rate of an institutional lender. The interest rate in effect at June
30, 1994 was 6.25% per annum. The amount of such outstanding O&Y partner non-
recourse loans was approximately $17,608,000 at June 30, 1994. Due to a major
tenant vacating in 1991, the property operated at a deficit in 1993 and is
expected to operate at a deficit in 1994 and for the next several years. Such
deficits through 1995 are required to be funded by additional loans from the
O&Y partners, although as discussed below the O&Y partners have been in
default of such funding obligation since June 1992. The outstanding principal
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
balance and any accrued and unpaid interest of such loans will be payable from
125 Broad's annual cash flow or net sale or refinancing proceeds, as described
below. Any unpaid principal of such loans and any accrued and unpaid interest
thereon will be due and payable on December 31, 2000. JMB/125 and the O&Y
partners are obligated to make capital contributions, in proportion to their
respective interests in 125 Broad, in amounts sufficient to enable 125 Broad
to pay any excess expenditures not required to be covered by the capital
contributions or advances of the O&Y partners described above.
The 125 Broad partnership agreement also provides that beginning in 1991,
annual cash flow, if any, is distributable first to JMB/125 and to the O&Y
partners in certain proportions up to certain specified amounts. Next, the
O&Y partners are entitled to repayment of principal and any accrued but unpaid
interest on the loans for certain tenant improvements, leasing expenses and
operating deficits described above, and remaining annual cash flow, if any, is
distributable approximately 48.25% to JMB/125 and approximately 51.75% to the
O&Y partners. In general, operating profits or losses are allocable
approximately 48.25% to JMB/125 and approximately 51.75% to the O&Y partners,
except for certain specified items of profits or losses which are allocable to
JMB/125 or the O&Y partners.
The 125 Broad partnership agreement further provides that, in general,
upon sale or refinancing of the property, net sale or refinancing proceeds
(after repayment of the outstanding principal balance and any accrued and
unpaid interest on any loans from the O&Y partners described above) are
distributable approximately 48.25% to JMB/125 and approximately 51.75% to the
O&Y partners.
In the event of a dissolution and liquidation of 125 Broad, the terms of
the 125 Broad joint venture agreement provide that if there is a deficit
balance in the tax basis capital account of JMB/125, after the allocation of
profits or losses and the distribution of all liquidation proceeds, then
JMB/125 generally would be required to contribute cash to 125 Broad in the
amount of its deficit capital account balance. Taxable gain arising from the
sale or other disposition of 125 Broad property generally would be allocated
to the joint venture partner or partners then having a deficit balance in its
or their respective capital accounts in accordance with the terms of 125 Broad
joint venture agreement. However, if such taxable gain is insufficient to
eliminate the deficit balance in its account in connection with a liquidation
of 125 Broad, JMB/125 would be required to contribute funds to 125 Broad
(regardless of whether any proceeds were received by JMB/125 from the
disposition of 125 Broad's property) to eliminate any remaining deficit
capital account balance.
The Partnership's liability for such contribution, if any, would be its
share, if any, of the liability of JMB/125 and would depend upon, among other
things, the amounts of JMB/125's and the O&Y partners' respective capital
accounts at the time of a sale or other disposition of 125 Broad's property,
the amount of JMB/125's share of the taxable gain attributable to such sale or
other disposition of 125 Broad's property and the timing of the dissolution
and liquidation of 125 Broad. In such event, the Partnership could be
required to sell or dispose of other assets in order to satisfy an obligation
to make such contribution. Although the amount of such liability could be
material, the Limited Partners of the Partnership would not be required to
make additional contributions of capital to satisfy such obligation, if any,
of the Partnership.
As described above, the terms of the 125 Broad joint venture agreement
provide that the O&Y partners are obligated to advance to 125 Broad, in the
form of interest-bearing loans, amounts required to pay operating deficits and
capital improvement costs incurred during 1991 through 1995. O&Y and certain
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
of its affiliates have been involved in bankruptcy proceedings in the United
States and Canada and similar proceedings in England. During 1993, O&Y
emerged from bankruptcy protection in Canada. In addition, a reorganization
of the management of the company's United States operations has been
completed, and certain O & Y affiliates are in the process of renegotiating or
restructuring various loans affecting properties in the United States in which
they have an interest. In view of the present financial condition of O&Y and
its affiliates and the anticipated deficits for the property, as well as the
existing defaults of the O&Y Partners, it appears unlikely that the O&Y
partners will meet their financial and other obligations to JMB/125 and 125
Broad.
In October 1993, 125 Broad entered into an agreement with Salomon
Brothers, Inc. to terminate its lease covering approximately 231,000 square
feet (17% of the building) at the property on December 31, 1993 rather than
its scheduled termination in January 1997. In consideration for the early
termination of the lease, Salomon Brothers, Inc. paid 125 Broad approximately
$26,500,000, plus interest thereon of approximately $200,000, which 125 Broad
in turn paid to its lender to reduce amounts outstanding under the mortgage
loan. In addition, Salomon Brothers, Inc. paid JMB/125 $1,000,000 in
consideration of JMB/125's consent to the lease termination.
Due to the O&Y partners' failure to advance necessary funds to 125 Broad
as required under the 125 Broad joint venture agreement, 125 Broad defaulted
on its mortgage loan in June 1992 by failing to pay approximately $4,722,000
of the semi-annual interest payment due on the loan. The only payment that
has been made since was in October 1993 as described above. As a result of
this default, the loan agreement provides for a default interest rate of 13-
1/8% per annum on the unpaid principal amount. In addition, during 1992
affiliates of O&Y defaulted on a "takeover space" agreement with Johnson &
Higgins, Inc. ("J&H"), one of the major tenants at the 125 Broad Street
Building, whereby such affiliates of O&Y agreed to assume certain lease
obligations of J&H at another office building in consideration of J&H's
leasing space in the 125 Broad Street Building. As a result of this default,
J&H has offset rent payable to 125 Broad for its lease at the 125 Broad Street
Building in the amount of approximately $37,600,000 through June 30, 1994, and
it is expected that J&H will continue to offset amounts due under its lease
corresponding to amounts by which the affiliates of O&Y are in default under
the "takeover space" agreement. Due to the O&Y affiliates' default under the
"takeover space" agreement and the continuing defaults of the O&Y partners to
advance funds to cover operating deficits, as of June 30, 1994, the arrearage
under the mortgage loan had increased to approximately $62,990,000. As
discussed above, approximately $26,700,000 was remitted to the lender in
October 1993 in connection with the early termination of the Salomon Brothers
lease, and was applied towards mortgage principal for financial reporting
purposes. Due to their obligations relating to the "takeover space"
agreement, the affiliates of O&Y are obligated for the payment of the rent
receivable associated with the J&H lease at the 125 Broad Street Building.
Based on the continuing defaults of the O&Y partners, 125 Broad has reserved
the entire $37,600,000 of rent offset by J&H and has also reserved
approximately $32,600,000 of accrued rents receivable relating to such J&H
lease, since the ultimate collectibility of such amounts depends upon the O&Y
partners' and the O&Y affiliates' performance of their obligations. The
Partnership's share of such losses, approximately $2,606,000 and $2,571,000
for the six months ended June 30, 1994 and 1993, respectively, is included in
the Partnership's share of loss from operations of unconsolidated ventures.
The O&Y partners had attempted to negotiate a restructuring of the mortgage
loan with the lender in order to reduce the significant operating deficits
which the property is expected to incur during 1994 and for the next several
years. JMB/125 has notified the O&Y partners that their failure to advance
funds to cover the operating deficits constitutes a default under the 125
Broad joint venture agreement. The negotiations to restructure the loan were
not successful and the O&Y partners are now negotiating to transfer the
property to the lender.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Accordingly, it appears unlikely the O&Y partners will fulfill their
obligations to 125 Broad and JMB/125. Also, JMB/125 is not likely to commit
any significant additional amounts to the property. As discussed above, the
O&Y partners are negotiating to transfer the property to the lender. This is
expected to result in the Partnership no longer having an ownership interest
in the property. If this event were to occur, the Partnership would recognize
a net gain for financial reporting and Federal income tax purposes without any
corresponding distributable proceeds. In addition, under certain
circumstances as discussed above, JMB/125 may be required to make an
additional capital contribution to 125 Broad in order to make up a deficit
balance in its capital account, and the Partnership may, under certain
circumstances, be requested to bear a share of such additional capital
contribution obligation.
Vacancy rates in the downtown Manhattan office market have increased over
the last few years. As a result, competition for tenants has increased, which
has resulted in lower effective rents. The increased vacancy in the downtown
Manhattan office market has resulted primarily from layoffs, cutbacks and
consolidations by many financial service companies which, along with related
businesses, dominate the submarket. This resulted in uncertainty as to 125
Broad's ability to recover the net carrying value of the investment property
through future operations and sale. As a matter of prudent accounting
practice, a provision for value impairment of such investment property of
$14,844,420 was recorded as of December 31, 1991. The Partnership's share of
such provision was $4,841,800 and was included in the Partnership's share of
loss from operations of unconsolidated ventures. Such provision was recorded
to reduce the net book value of the investment property to the then
outstanding balance of the related non-recourse financing and O&Y partner
loans.
The office building is being managed pursuant to a long-term agreement
with an affiliate of the O&Y partners. Under the terms of the management
agreement, the manager is obligated to manage the office building, collect all
receipts from operations and to the extent available from such receipts pay
all expenses of the office building. The manager is entitled to receive a
management fee equal to 1% of gross receipts of the property.
(g) JMB/Piper
In August 1992, the venture signed an agreement with the lender,
effective April 1, 1991, to modify the terms of the mortgage notes which are
secured by the investment property. The principal balance of the mortgage
notes has been consolidated into one note in the amount of $100,000,000.
Under the terms of the modification, commencing on April 1, 1991 and
continuing through and including January 30, 2020, fixed interest will accrue
and is payable on a monthly basis at a $10,250,000 per annum level.
Contingent interest is payable in annual installments on April 1 and is
computed at 50% of gross receipts, as defined, for each fiscal year in excess
of $15,200,000; none was due for 1991, 1992 or 1993. In addition, to the
extent the investment property generates cash flow after payment of the fixed
interest on the mortgage, contingent interest, leasing and capital costs, and
29% of the ground rent (25% after January 15, 1992 as a result of the Larkin,
Hoffman, Daly & Lindgren, Ltd. settlement discussed below), such amount will
be paid to the lender as a reduction of the principal balance of the mortgage
loan. The excess cash flow generated by the property in 1992 totalled
$923,362 and was remitted to the lender during the third quarter of 1993.
During 1993, the excess cash flow generated under this agreement was
$1,390,910 and was remitted to the lender during the second quarter of 1994.
The mortgage note provides for the lender to earn a minimum internal rate of
return which increases over the term of the note. Accordingly, for financial
reporting purposes, interest expense has been accrued at a rate of 13.59% per
annum which is the estimated minimum internal rate of return per annum
assuming the note is held to maturity. On a monthly basis, the venture
deposits the property management fee into an escrow account to be used for
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
future leasing costs to the extent cash flow is not sufficient to cover such
items. The manager of the property (which is an affiliate of the Corporate
General Partner) has agreed to defer receipt of its management fee until a
later date. As of June 30, 1994, the manager has deferred approximately
$2,094,000 of management fees. In order for the Partnership to share in
future net sale or refinancing proceeds, there must be a significant
improvement in current market and property operating conditions resulting in a
significant increase in value of the property.
During the fourth quarter of 1993, the joint venture finalized a lease
amendment with Popham, Haik, Schnobrich & Kaufman, Ltd. (104,843 square feet).
The amendment provides for the extension of the lease term from February 1,
1997 to January 31, 2003 in exchange for a rent reduction effective February
1, 1994. In addition, the tenant will lease an additional 10,670 square feet
effective August 1, 1995. The rental rate on the expansion space approximates
market, which is significantly lower than the reduced rental rate on the
tenant's current occupied space.
During the second quarter of 1994, the manager reached an agreement with
Piper Jaffray, Inc. (275,758 square feet) to expand its leased space by 3,362
square feet in July 1995 and 19,851 square feet in December 1995. Such space
is currently leased to tenants whose leases expire just prior to the effective
dates for Piper's expansions. The expansion space lease expiration date will
be coterminous with Piper's existing lease expiration date of March 2000 and
the net effective rental rate approximates market.
(4) LONG-TERM DEBT
(a) Debt Modifications
(i) Park
On May 17, 1994, the lender concluded proceedings to realize upon its
security and took title to the property as described below.
In March 1988 and November 1991, the mortgage note secured by Park at
Countryside Apartments located in Daytona Beach, Florida was modified to
reduce the monthly installments payable. The new agreement provided for
annually increasing minimum monthly interest payments from $18,033 (7.0% per
annum) through 1991 to $23,250 (9.0% per annum) for 1995. The contract rate
on the loan remained at 11.25% per annum. The deferrals, along with interest
thereon, and the outstanding principal balance were to become due and payable
at maturity on January 1, 1996.
In October 1993, the joint venture ceased making the required debt
service payments, but after discussions with the lender, the venture was
unable to secure an additional modification of the loan. Therefore, the loan
had been classified at December 31, 1993 as a current liability in the
accompanying consolidated financial statements. On May 17, 1994, the lender
realized upon its mortgage security and took title to the property. Since the
Partnership had received, through the date of disposition, losses and
distributions in excess of its original cash investment in the property, the
Partnership recognized a gain on disposition in 1994 of $1,334,684 (net of the
venture partner's share of $728,978) for financial reporting purposes. In
addition, the Partnership expects to recognize a gain in 1994 of approximately
$836,000 (net of venture partner's share of approximately $397,000) for
Federal income tax purposes, with no corresponding distributable proceeds.
The venture remitted approximately $123,000 of cash flow debt service payments
to the lender in 1994.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ii) 260 Franklin
The affiliated joint venture reached an agreement with the lender to
modify the terms of the long-term mortgage note secured by the 260 Franklin
Street Building in December 1991. Beginning May 1991, the modified mortgage
note provides for monthly payments of interest only based upon the then
outstanding balance at a rate of 6% per annum through January 1992 and 8% per
annum thereafter. Upon the scheduled or accelerated maturity, or prepayment
of the mortgage loan, the affiliated joint venture shall be obligated to pay
an amount sufficient to provide the lender with an 11% per annum yield on the
mortgage note from January 1, 1991 through the date of maturity or prepayment.
In addition, upon maturity or prepayment, the affiliated joint venture is
obligated to pay to the lender a residual interest amount equal to 60% of the
highest amount, if any, of (i) net sales proceeds, (ii) net refinancing
proceeds, or (iii) net appraisal value, as defined. The affiliated joint
venture is required to (i) escrow excess cash flow from operations (computed
without a deduction for property management fees and leasing commissions to an
affiliate), beginning in 1991, to cover future cash flow deficits (ii) make an
initial contribution to the escrow account of $250,000, of which the
Partnership's share was $175,000, and (iii) make annual escrow contributions
through January 1995, of $150,000, of which the Partnership's share is
$105,000. The escrow account is to be used to cover the costs of capital and
tenant improvement and lease inducements ($1,029,494 used as of June 30,
1994), as defined, with the balance, if any, of such escrowed funds available
at the scheduled or accelerated maturity to be used for the payment of
principal and interest due to the lender as described above.
(iii) 160 Spear Street Building
The Partnership reached an agreement, effective February 10, 1992, with
the first mortgage lender to modify the mortgage note secured by the 160 Spear
Street investment property, which was scheduled to mature on December 10,
1992. Under the terms of the agreement, the modified first mortgage note of
approximately $33,750,000 and the second mortgage note of $5,435,000 require
monthly debt service (reduced to interest only payments) of approximately
$262,000 (9.3% per annum) and $57,000 (12.55% per annum), respectively,
through February 10, 1995. Beginning March 10, 1995, monthly payments of
principal and interest of approximately $337,000 (for combined first and
second mortgage note) are required through maturity of the loan, which is
extended to February 10, 1999. Additionally, the Partnership is required to
escrow net cash flow (as defined) thirty days following each quarter end which
can be withdrawn for expenditures approved by the lender, by the lender upon
default of the note or by the Partnership on February 10, 1997 when the escrow
agreement terminates. As of June 30, 1994, approximately $62,000 has been
placed in, and withdrawn for expenditures approved by the lender, from the
escrow account.
(iv) RiverEdge Place Building
The Partnership ceased making its monthly debt service payments effective
July 1, 1992. The Partnership is currently negotiating with the lender to
restructure the mortgage note (with a balance of $18,166,294 at June 30, 1994)
in order to reduce operating deficits anticipated as a result of the over-
lease buy-out. If the Partnership's negotiations for mortgage note
restructuring are not successful, the Partnership would likely decide, based
upon current market conditions and other considerations relating to the
property and the Partnership's portfolio, not to commit significant additional
amounts to the property. This would result in the Partnership no longer
having an ownership interest in the property and would result in the
recognition of a gain for financial statement and Federal income tax purposes
without any corresponding distributable proceeds. As of June 30, 1994, the
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
amount of such principal and interest payments in arrears is approximately
$7,267,000. Therefore, the loan has been classified at June 30, 1994 and
December 31, 1993 as a current liability in the accompanying consolidated
financial statements.
(v) Villages Northeast
The Villages Northeast joint venture, through a joint venture with an
affiliate of the developer, refinanced the first mortgage loan secured by the
Dunwoody Crossing (Phase II) Apartments (formerly known as Post Crest) located
in Atlanta Georgia. Effective October 6, 1992, the joint venture obtained a
$9,800,000 replacement loan from an institutional lender to retire in full
satisfaction the original first mortgage loan.
The new first mortgage loan, which is collateralized by the property,
requires monthly payments of principal and interest (7.64% per annum) of
$73,316 beginning November 1, 1992 and continuing through November 1, 1997,
when the remaining balance is payable. The new lender required the
establishment of an escrow account for real estate taxes to be deposited on a
monthly basis.
The first mortgage loan secured by the Dunwoody Crossing Phase I and III
Apartments is scheduled to mature in October 1994, and has been classified at
June 30, 1994 and December 31, 1993 as a current liability in the accompanying
consolidated financial statements. The joint venture is negotiating with the
current lender for a new loan, although there can be no assurance the joint
venture will be able to obtain such financing.
An affiliate of the joint venture partner entered into an agreement to
manage the complexes through December 31, 2002 (subject to earlier termination
by either party upon 60 days' prior written notice) for a fee equal to 5% of
the gross revenues of the complexes. In August 1993, an affiliate of the
General Partners assumed management of the property for a fee equal to 5% of
the gross revenues of the complexes.
(vi) California Plaza
Effective March 1, 1993, the joint venture ceased making the scheduled
debt service payments on the mortgage loan secured by the property which was
scheduled to mature on January 1, 1997. Subsequently, the Partnership made
partial debt service payments based on net cash flow of the property through
December 1993 when an agreement was reached with the lender to modify the
loan. The accrual rate of the modified loan remains at 10.375% per annum
while the pay rate is reduced to 8% per annum. The loan modification reduced
the monthly payments to $384,505, effective with the March 1, 1993 payment.
The maturity date is extended, as a result of this modification, to January 1,
2000 when the unpaid balance of principal and interest is due (including the
difference between the accrual interest and pay rate interest). Additionally,
the joint venture entered into a cash management agreement which requires
monthly net cash flow to be escrowed (as defined). The excess (of
approximately $1,109,000) of the monthly cash flow paid from March 1993 to
June 1994 above the 8% interest pay rate was put into escrow for the future
payment of insurance premiums, real estate taxes, and to fund a reserve
account to be used to cover future costs, including tenant improvements, lease
commissions, and capital improvements, approved by the lender ($323,120 was
used as of June 30, 1994). The joint venture also was required to fund
$500,000 into the reserve account, upon the execution of the modification.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(b) Cancellation of Wrap Note
In February 1991, the Partnership entered into an agreement with the
seller of Woodland Hills Apartments. Under the terms of this agreement, the
seller cancelled its wrap-around mortgage note receivable from the Partnership
and assumed management of the property (see notes 2(b) and 6). The
obligations to make payments on the two underlying mortgage loans have been
assumed by the Partnership. The mortgage note receivable wrapped around and
was subordinate to first and second mortgage loans in the principal amounts of
$6,800,000 and $1,256,667, respectively. The first mortgage loan bears
interest at the rate of 12.8% per annum and required monthly payments of
interest only in arrears through June 1, 1994. On July 1, 1994 the maturity
date of the first mortgage loan was extended to September 1, 1994 based on the
original terms of the note, for a fee of $15,000. The second mortgage loan
bears interest at 11.7% per annum and required monthly payments of interest
only in arrears until June 1, 1994 when the entire principal balance and
accrued interest in the amount of $12,253 was due and payable. The
Partnership has reached an agreement in principle with the lender of the
second mortgage loan to refinance both the first and second mortgage notes for
a period of three years beginning September 1, 1994. However, there can be no
assurance that such refinancing will be executed. The mortgage loans have
been classified at June 30, 1994 and December 31, 1993 as current liabilities
in the accompanying consolidated financial statements (see note 2(b)).
(5) PARTNERSHIP AGREEMENT
The Partnership Agreement provides that subject to certain conditions,
the General Partners shall receive as a distribution from the sale of a real
property by the Partnership up to 3% of the selling price, and that the
remaining proceeds (net after expenses and retained working capital) be
distributed 85% to the Limited Partners and 15% to the General Partners.
However, prior to such distribution being made, the Limited Partners are
entitled to receive 99% and the General Partners l% of net sale or refinancing
proceeds until the Limited Partners (i) have received cash distributions of
"sale proceeds" or "refinancing proceeds" in an amount equal to the Limited
Partners' aggregate initial capital investment in the Partnership and (ii)
have received cumulative cash distributions from the Partnership's operations
which, when combined with "sale proceeds" or "refinancing proceeds" previously
distributed, equal a 6% annual return on the Limited Partners' average
adjusted capital investment for each year (their initial capital investment as
reduced by "sale proceeds" or "refinancing proceeds" previously distributed)
commencing with the third fiscal quarter of 1986. Accordingly, up to $561,000
of sale proceeds from Erie-McClurg Parking Facility for the General Partners
has been deferred.
(6) MANAGEMENT AGREEMENTS
For a fee computed as a percentage of rental income, an affiliate of the
Corporate General Partner assumed management of the 9701 Wilshire Building,
the 21900 Burbank Boulevard Building, the 260 Franklin Street Building, the
Springbrook Shopping Center, the Villa Solana Apartments (see note 9(a)),
RiverEdge Place Building and Village Northeast Apartments in June 1986,
January 1988, May 1988, July 1989, December 1989, September 1992, and August
1993, respectively.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(7) NOTES RECEIVABLE
In 1987 and 1988, the Partnership advanced funds to pay for certain
deficits at the 21900 Burbank Boulevard Building which were the obligation of
an affiliate of the seller. Such advances, including unpaid interest, were
approximately $2,082,000 as of June 30, 1994. The Partnership received demand
notes from the seller which are personally guaranteed by certain of its
principals. The seller had been paying interest on the notes at a rate equal
to 3% over the prime rate. In February 1991, the seller ceased paying monthly
interest required under terms of the notes. The Partnership has put the
seller in default and effective October 31, 1991, the notes began accruing
interest at the default rate. The Partnership is pursuing its legal remedies
against the seller and certain of its principals. The collectibility of the
amounts discussed above is uncertain. For financial reporting purposes, the
Partnership ceased accruing interest on the notes receivable as of February
1991. As a matter of prudent accounting policy, a reserve for
uncollectibility for the entire amount recorded for financial reporting
purposes ($1,466,051) has been reflected in the accompanying consolidated
financial statements.
(8) NOTES PAYABLE
Pursuant to the terms of a tenant lease at Cal Plaza, promissory notes
(for certain sub-leasing costs) aggregating $707,009 have been issued by the
Cal Plaza joint venture to a tenant of the investment property. Commencing on
July 1, 1990 and on each July 1st thereafter until the notes are paid in full,
one-tenth of the original principal balance together with 12% annual interest
on the outstanding balance of the notes shall be payable. As the result of a
settlement agreement between the Partnership and its joint venture partner,
the joint venture partner is obligated to pay 40% and the Cal Plaza venture is
obligated to pay 60% (the venture ownership percentages) of the amounts owed
under the promissory notes (to the extent cash flow of the property is
insufficient to pay such amounts, see note 3(e)). During July 1992, July
1993, and June 1994, $70,701 of principal and $68,788; $60,304 and $51,820 of
interest respectively was paid to the tenant from cash flow generated from
operations of the property. As of June 30, 1994, the outstanding balance of
the notes was $361,135.
(9) SALES OF INVESTMENT PROPERTY
(a) Villa Solana Apartments
On March 23, 1994 the Partnership, through Villa Solana Associates, sold
the Villa Solana Apartments located in Laguna Hills, California. The sale
price was $16,600,000 (before selling costs and prorations). The venture
received net sale proceeds after selling costs and the retirement of the debt
secured by the property, of $2,810,896, of which the Partnership's share is
$2,557,915.
For financial reporting purposes, the venture recognized, on the date of
sale, gain of $679,643 of which the Partnership's share is $631,566. The
venture's gain for Federal income taxes is approximately $2,614,000, of which
the Partnership's share is approximately $2,421,000.
(b) Owings Mills
On June 30, 1993, JMB/Owings sold its partnership interest in Owings
Mills Limited Partnership ("OMLP"), which owns an allocated portion of the
land, building and related improvements of the Owings Mills Mall located in
Owings Mills, Maryland. The purchaser, O.M. Investment II Limited
Partnership, is an affiliate of the JMB/Owing's joint venture partner in OMLP.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The sale price of the interest in OMLP was $9,416,000, all of which was
received in the form of a promissory note. In addition, the Partnership and
Carlyle-XVI were relieved of their allocated portion of the debt secured by
the property. The promissory note (which is secured by a guaranty from an
affiliate of the purchaser and of JMB/Owing's joint venture partner in OMLP)
bears interest at a rate of 7% per annum unless a certain specified event
occurs, in which event the rate would increase to 8% per annum for the
remainder of the term of the note. The promissory note requires principal and
interest payments of approximately $109,000 per month with the remaining
principal balance of approximately $5,500,000 due and payable on June 30,
1998. The monthly installment of principal and interest would be adjusted for
the increase in the interest rate if applicable. Early prepayment of the
promissory note may be required under certain circumstances (as defined),
including the sale or further encumbrance of Owings Mills Mall.
The net cash proceeds and gain from sale of the interest in OMLP was
allocated 50% to the Partnership and 50% to Carlyle-XVI in accordance to the
JMB/Owings partnership agreement.
For financial reporting purposes, JMB/Owings recognized, on the date of
sale, gain of $5,254,855, of which the Partnership's share is $2,627,427,
attributable to JMB/Owings being relieved of its obligations under the OMLP
partnership agreement pursuant to the terms of the sale agreement. The
Partnership has adopted the cost recovery method until such time as the
purchaser's initial investment is sufficient in order to recognize gain under
Statement of Financial Accounting Standards No. 66. At June 30, 1994, the
total deferred gain of JMB/Owings including principal and interest payments of
$1,202,605 received through June 30, 1994 is $10,002,431, of which the
Partnership's share is $5,001,215. In April 1994, the Partnership paid
approximately $255,000 of Maryland state withholding taxes related to the sale
on behalf of the Limited Partners of the Partnership.
(c) Harbor
During 1991, the Partnership sold 62% of its general partnership interest
in Harbor, to an affiliate of the Harbor unaffiliated joint venture partners.
The Partnership owned an 80% interest in Harbor prior to sale. Harbor owned a
55% general partnership interest in a joint venture which owned the leasehold
interest on the land and owned the building and related improvements of the
300 East Lombard office building located in Baltimore, Maryland. The sale
price for 62% of the Partnership's general partnership interest was $383,244,
all of which was received in cash at closing. As of the date of the initial
sale, the Partnership had a deficit capital account balance in the Harbor
venture resulting from losses and distributions from the joint venture in an
amount in excess of its original cash investment in the joint venture. As a
result of the Partnership's initial sale of 62% of its interest and its
simultaneous conversion to a limited partner, the Partnership eliminated its
remaining deficit capital balance and recognized a total gain of $9,041,533 in
1991 for financial reporting purposes. In conjunction with the sale, the
Partnership established a put-call option with the buyer on the Partnership's
remaining interest in Harbor. On January 19, 1993, the Partnership sold the
remaining 38% of its limited partnership interest in Harbor based on the
buyer's exercise of the put-call option. The sale price for the Partnership's
remaining interest was $229,140, plus $24,294 of interest accrued at 10% from
September 30, 1991 through the closing date, all of which was received in cash
at closing. For financial reporting purposes in 1993, the Partnership
recognized a gain on sale of the remaining interest of $229,140, which is
included in gain on sale of interests in unconsolidated ventures in the
accompanying financial statements.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(10) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the Partner-
ship (or its consolidated ventures) to the General Partners and their
affiliates as of June 30, 1994 and for the six months ended June 30, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
Unpaid at
1994 1993 June 30, 1994
--------- -------- -------------
<S> <C> <C> <C>
Property management and
leasing fees . . . . . . . . $413,178 456,986 2,071,076
Insurance commissions. . . . . 52,404 63,172 --
Management fee to corporate
general partner. . . . . . . -- -- 724,121
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . . . 90,041 49,720 70
-------- ------- ---------
$555,623 569,878 2,795,267
======== ======= =========
</TABLE>
The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and employees of
the Corporate General Partner and its affiliates relating to the administra-
tion of the Partnership and the operation of the Partnership's properties.
Such costs were $90,404 for the six months ended June 30, 1994, $166,148 for
the year ended December 31, 1993 and $864,110 in the aggregate for the years
ended December 31, 1992, 1991, 1990, 1989 and 1988, of which $845,855 was
unpaid as of June 30, 1994. All of such fees were paid to the Corporate
General Partner and its affiliates in July 1994.
The General Partners and its affiliates have deferred payment of certain
partnership management fees and property management and leasing fees as set
forth in the above table. Effective October 1, 1993, the Partnership began
paying property management and leasing fees on a current basis. In addition,
an affiliate of the General Partner has deferred (through reimbursements made
directly to the Partnership) $2,866,734 for the Partnership's proportionate
share of property management and leasing fees paid by affiliated joint venture
partnerships or their underlying ventures, as the case may be (these
reimbursements are not reflected in the above table). These reimbursements
include the proportionate share of property management fees of two
unconsolidated entities, which are not included in the consolidated financial
statements. Distributions to the General Partners of net cash flow of the
Partnership aggregating $249,571 also have been deferred. The cumulative
deferred amounts (including reimbursement for salaries and direct expenses and
the proportionate reimbursements described above, and the deferral of property
management fees by one of the Partnership's unconsolidated entities that
stopped deferring property management fees by means of reimbursement not
included above) aggregated $7,029,132 at June 30, 1994. These amounts
(approximately $16 per Interest) do not bear interest and are expected to be
paid in future periods (previously deferred partnership management fees of
$724,122 and deferred distributions of $249,571 were paid to the General
Partners in August 1994). In addition, up to approximately $561,000 of sale
proceeds from the sale of the Erie-McClurg Parking Facility for the General
Partners is subordinated to the satisfaction of certain conditions (see note
5).
Effective January 1, 1994, certain officers and directors of the
Corporate General Partner acquired interests in a company which, among other
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
things, has provided and continues to provide certain property management
services to certain of the properties owned by the Partnership. Such
acquisition had no effect on the fees payable by the Partnership under any
existing agreements with such Company. The fees earned by such company from
the Partnership for the six months ended June 30, 1994 were approximately
$12,000.
(11) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary income statement information for JMB/Piper, JMB/Piper II,
JMB/900, South Tower, JMB/Owings and JMB/125, for the six months ended June
30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Total income of properties. . . . . . . . . . $69,341,656 73,350,289
=========== ===========
Operating loss of ventures. . . . . . . . . . $28,368,817 29,145,896
=========== ===========
Gain on sale of interest in investment
property. . . . . . . . . . . . . . . . . . $ -- 11,644,460
=========== ===========
Net loss. . . . . . . . . . . . . . . . . . . $28,368,817 17,501,436
=========== ===========
Partnership's share of loss . . . . . . . . . $ 9,115,268 3,548,470
=========== ===========
</TABLE>
(12) ADJUSTMENTS
In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of June 30, 1994
and for the three and six months ended June 30, 1994 and 1993.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At June 30, 1994, the Partnership and its consolidated ventures had cash
and cash equivalents of approximately $10,618,000. Such funds and short-term
investments of approximately $8,636,000 are available for the Partnership's
share of leasing costs and capital improvements at 9701 Wilshire Building, 160
Spear Street Building, Springbrook Shopping Center, Eastridge Mall and 260
Franklin Street, and the Partnership's share of operating deficits currently
being incurred at 260 Franklin Street Building (to the extent not funded from
escrowed reserves for 260 Franklin as discussed below), 900 Third Avenue,
Eastridge Mall, Springbrook Shopping Center and 9701 Wilshire Building as well
as distributions to partners and working capital requirements, including the
Partnership's share of potential future deficits and financing costs at these
and certain other of the Partnership's investment properties. The Partnership
currently has adequate cash and cash equivalents to maintain the operations of
the Partnership. However, the Partnership has taken steps to preserve its
working capital by deciding to suspend operating distributions (except for
certain withholding requirements) to the Limited and General Partners
effective as of the first quarter of 1992. In addition, the General Partners
and their affiliates have previously deferred cash distributions, management
and leasing fees and reimbursements payable to them in an aggregate amount of
$7,029,132 (approximately $16 per interest) through June 30, 1994. These
amounts, which do not bear interest, are expected to be paid in future
periods. A portion of such deferred distributions and fees was paid to the
General Partners and their affiliates in July and August of 1994. Effective
October 1, 1993, the Partnership and its consolidated ventures began paying
property management and leasing fees on a current basis. Reference is made to
Note 10 relating to this deferral of distributions, fees and reimbursements.
The Partnership and its consolidated ventures have currently budgeted in
1994 approximately $2,194,000 for leasing costs and other capital
expenditures. The Partnership's share of such items and its share of such
similar items for its unconsolidated ventures in 1994 is currently budgeted to
be approximately $4,122,000. Actual amounts expended in 1994 may vary
depending on a number of factors including actual leasing activity, results of
property operations, liquidity considerations and other market conditions over
the course of the year. The source of capital for such items and for both
short-term and long-term future liquidity requirements and distributions is
expected to be primarily through net cash generated by the Partnership's
investment properties, through an existing obligation of a seller (or its
affiliate) to fund deficits at one property, and through the sale or
refinancing of such investments, as well as cash and short-term investments
currently held.
A number of mortgage loans secured by the Partnership's investment
properties will mature in 1994 and will need to be extended or refinanced,
including the mortgage loans related to the Wells Fargo Center, 9701 Wilshire
Building and the Dunwoody Apartments (Phase I and III). In addition, certain
other mortgage loans secured by the Partnership's investment properties are
the subject of discussions with lenders for debt modifications or
restructuring, including the mortgage loans related to 125 Broad, 160 Spear
Street, 900 Third Avenue, Woodland Hills Apartments and RiverEdge Place. The
current status of the attempts to extend, refinance, modify or restructure
these loans, as well as other possible mortgage loan modifications, are
discussed below.
The mortgage note secured by the Villa Solana Apartments matured on
November 1, 1993. The venture had obtained extensions of this note from the
existing lender until August 1, 1994. The venture paid the lender $125,000 in
extension fees in connection with these extensions. The monthly principal and
interest payment, and the interest rate remained the same on the loan as prior
to the original maturity date. The unpaid principal and accrued interest were
to mature on August 1, 1994, however, the venture sold the investment property
on March 23, 1994 for $16,600,000, before closing costs, as described in Note
9.
The first mortgage note secured by the Woodland Hills Apartments in the
principal amount of $6,800,000 is scheduled to mature on September 1, 1994
(due to the Partnership obtaining an extension from June 1, 1994 for a fee of
$15,000). The second mortgage note secured by the property in the principle
amount of $1,256,667 matured June 1, 1994. The Partnership has reached an
agreement in principle with the lender of the second mortgage note to
refinance both notes. However, there can be no assurance that such
refinancing will be executed. The loans have been classified at June 30, 1994
and December 31, 1993 as current liabilities in the accompanying consolidated
financial statements. Reference is made to Note 4(b).
In October 1993, the joint venture ceased making the required debt
service payments on the mortgage note secured by Park at Countryside
Apartments, and commenced discussions with the lender regarding an additional
modification of the loan. However, the venture was unable to secure an
additional modification of the loan. Based on current and anticipated market
conditions, the Partnership and the joint venture partners were unwilling to
commit any additional amounts to the property since the likelihood of
recovering any such amounts was remote. Consequently, the lender realized
upon its mortgage security interest and took title to the property on May 17,
1994. The loan in the principal amount of $3,100,000, was classified at
December 31, 1993 as a current liability in the accompanying consolidated
financial statements. Reference is made to Note 4(a)(i).
The first mortgage loan secured by the Dunwoody Crossing Phase I and III
Apartments is scheduled to mature in October 1994, and has been classified as
a current liability at June 30, 1994 and December 31, 1993 in the accompanying
consolidated financial statements. The joint venture is negotiating with the
current lender for a new loan although there can be no assurance the joint
venture will be able to obtain such financing.
In June 1993, JMB/Owings sold its interest in the Owings Mills Shopping
Center for $9,416,000 represented by a purchase price note. In April 1994,
the Partnership paid approximately $255,000 of Maryland state withholding
taxes related to the sale on behalf of the Limited Partners of the
Partnership. Reference is made to Note 9(b).
The borrowings of the Partnership and its ventures consist of separate
non-recourse mortgage loans secured by the investment properties and
individually are not obligations of the entire investment portfolio. However,
for any particular investment property incurring deficits, the Partnership or
its ventures, if deemed appropriate, may seek a modification or refinancing of
existing indebtedness and, in the absence of a satisfactory debt modification
or refinancing, may decide, in light of then existing and expected future
market conditions for such investment property, not to commit additional funds
to such investment property. This would result in the Partnership no longer
having an ownership interest in such property and would generally result in a
gain to the Partnership for financial reporting and Federal income tax
purposes with no corresponding distributable proceeds.
Certain of the Partnership's investments have been made through joint
ventures. There are certain risks associated with the Partnership's
investments including the possibility that the Partnership's joint venture
partner(s) in an investment might become unable or unwilling to fulfill its
(their) financial or other obligations, or that such joint venture partner(s)
may have economic or business interests or goals that are inconsistent with
those of the Partnership.
Though the economy has recently shown signs of improvement and financing
is generally becoming more available for certain types of higher-quality
properties in healthy markets, real estate lenders are typically requiring a
lower loan-to-value ratio for mortgage financing than in the past. This has
made it difficult for owners to refinance real estate assets at their current
debt levels unless the value of the underlying property has appreciated
significantly. As a consequence, and due to the weakness of some of the local
real estate markets in which the Partnership's properties operate, the
Partnership is taking steps to preserve its working capital. Therefore, the
Partnership is carefully scrutinizing the appropriateness of any possible
discretionary expenditures, particularly in relation to the amount of working
capital it has available to it and its ventures. By conserving working
capital, the Partnership will be in a better position to meet future needs of
its properties without having to rely on external financing sources.
Piper Jaffray Tower
The Minneapolis office market remains competitive due to the significant
amount of new office building developments, which has caused effective rental
rates achieved at Piper Jaffray Tower to be below expectations. During the
fourth quarter of 1993, the joint venture finalized a lease amendment with
Popham, Haik, Schnobrich & Kaufman, Ltd. (104,843 square feet). The amendment
provides for the extension of the lease term from February 1, 1997 to January
31, 2003 in exchange for a rent reduction effective February 1, 1994. In
addition, the tenant will lease an additional 10,670 square feet effective
August 1, 1995. The rental rate on the expansion space approximates market,
which is significantly lower than the reduced rental rate on the tenant's
current occupied space.
During the second quarter of 1994, the manager reached an agreement with
Piper Jaffray, Inc. (275,758 square feet) to expand its leased space by 3,362
square feet in July 1995 and 19,851 square feet in December 1995. Such space
is currently leased to tenants whose leases expire just prior to the effective
dates for Piper's expansions. The expansion space lease expiration date will
be coterminous with Piper's existing lease expiration date of March 2000 and
the net effective rental rate approximates market.
Pursuant to the modification of the mortgage loan made in August 1992, to
the extent the investment property generates cash flow after leasing and
capital costs, and 25% of the ground rent, such amount will be paid to the
lender as a reduction of the principal balance of the mortgage loan. The
excess cash flow generated by the property in 1992 totalled $923,362 was
remitted to the lender during the third quarter of 1993. During 1993, the
excess cash flow generated under this agreement was $1,390,910 and was
remitted to the lender in May 1994. The mortgage note provides for the lender
to earn a minimum internal rate of return which increases over the term of the
note. Accordingly, for financial reporting purposes, interest expense has
been accrued at a rate of 13.59% per annum which is the estimated minimum
internal rate of return per annum assuming the note is held to maturity. On a
monthly basis, the venture deposits the property management fee into an escrow
account to be used for future leasing costs to the extent cash flow is not
sufficient to cover such items. The manager of the property (which is an
affiliate of the Corporate General Partner) has agreed to defer receipt of its
management fee until a later date. As of June 30, 1994, the manager has
deferred approximately $2,094,000 of management fees. In order for the
Partnership to share in future net sale or refinancing proceeds, there must be
a significant improvement in current market and property operating conditions
resulting in a significant increase in value of the property. Reference is
made to Note 3(g) for further discussion of this investment property.
160 Spear Street Building
Due to the rental concessions granted to facilitate leasing, the property
operated at an approximate break-even level in 1993, and is expected to
operate an approximate break-even level in 1994. As more fully discussed in
Note 4(a)(iii), effective February 1992, the Partnership reached an agreement
with the lender to reduce the current debt service payments and to extend the
loan, which was scheduled to mature on December 10, 1992, to February 10,
1999. Additionally, tenant leases comprising approximately 69% of the
building are scheduled to expire in 1995. It is anticipated that there will
be significant costs related to releasing this space. The venture has
approached the lender regarding an additional modification to the loan due to
the increased deficits anticipated in connection with the re-leasing costs.
Should the venture not be successful in obtaining an additional loan
modification or alternative financing, or, should the Partnership decide not
to commit any significant additional funds for the anticipated re-leasing
costs, this may result in the Partnership no longer having an ownership
interest in the property. This would likely result in the Partnership
recognizing a gain for financial reporting and Federal income tax purposes
with no corresponding distributable proceeds.
125 Broad Street Building
Vacancy rates in the downtown Manhattan office market have increased over
the last few years. As vacancy rates rise, competition for tenants increases,
which results in lower effective rental rates. The increased vacancy rate in
the downtown Manhattan office market has resulted primarily from layoffs,
cutbacks and consolidations by many of the financial service companies which,
along with related businesses, dominate this submarket. The Partnership
believes that these adverse market conditions and the negative impact on
effective rental rates may continue over the next few years. The current
competitive market in downtown Manhattan has significantly affected the 125
Broad Street Building, as the occupancy has decreased to 54% at June 30, 1994
partially as a result of a major tenant vacating 395,000 square feet (30% of
the building) at the expiration of its lease during 1991. Additionally, in
October 1993, 125 Broad entered into an agreement with Salomon Brothers Inc.
to terminate its lease covering approximately 231,000 square feet (17% of the
building) at the property on December 31, 1993 rather than its scheduled
termination in January 1997. In consideration for the early termination of
the lease, Salomon Brothers Inc. paid 125 Broad approximately $26,500,000,
plus interest thereon of approximately $200,000 which 125 Broad in turn paid
to its lender to reduce amounts outstanding under the mortgage loan. In
addition, Salomon Brothers Inc. paid JMB/125 $1,000,000 in consideration of
JMB/125's consent to the lease termination. The property will be adversely
affected by low effective rental rates to be achieved upon releasing of the
space. The low effective rental rates coupled with the lower occupancy during
the releasing period are expected to result in the property operating at a
significant deficit in 1994 and for the next several years. The unaffiliated
venture partners (the "O&Y partners"), who are affiliates of Olympia & York
Developments, Ltd. ("O&Y"), are obligated to fund (in the form of interest-
bearing loans) operating deficits and costs of lease-up and capital
improvements through the end of 1995. However, as discussed below, the O&Y
partners are in default in respect to certain of their funding obligations and
it appears unlikely that the O&Y Partners will fulfill their obligations to
125 Broad and JMB/125. Releasing of the building's vacant space will depend
upon, among other things, the O&Y partners advancing the costs associated with
such releasing since JMB/125 does not intend to contribute funds to 125 Broad
to pay such costs. The O&Y partners have made outstanding loans to 125 Broad
of approximately $17,608,000 as of June 30, 1994. Such loans, which are non-
recourse to JMB/125, are payable out of cash flow from property operations or
sale or refinancing proceeds. Based on the facts discussed above and as
described more fully in Note 3(f), 125 Broad recorded a provision for value
impairment as of December 31, 1991 to reduce the net book value of the 125
Broad Street Building to the then outstanding balance of the related non-
recourse financing and O&Y partner loans due to the uncertainty of 125 Broad's
ability to recover the net carrying value of the investment property through
future operations or sale.
O&Y and certain of its affiliates have been involved in bankruptcy
proceedings in the United States and Canada and similar proceedings in
England. Subsequent to December 31, 1992, O&Y emerged from bankruptcy
protection in Canada. In addition, a reorganization of the management of the
company's United States operations has been completed and certain O & Y
affiliates are in the process of renegotiating or restructuring various loan
affecting properties in the United States in which they have an interest. In
view of the present financial condition of O&Y and its affiliates and the
anticipated deficits for the property as well as the existing defaults of the
O&Y partners discussed below, it appears unlikely that the O&Y partners will
meet their financial and other obligations to JMB/125 and 125 Broad.
The O&Y partners have failed to advance necessary funds to 125 Broad as
required under the 125 Broad joint venture agreement, and as a result, 125
Broad defaulted on its mortgage loan, which has an outstanding principal
balance of $277,000,000 in June 1992 by failing to pay approximately
$4,722,000 of the semi-annual interest payment due on the loan. The only
payment that has been made since was in October 1993. In addition, during
1992 affiliates of O&Y defaulted on a "takeover space" agreement with Johnson
& Higgins, Inc. ("J&H"), one of the major tenants at the 125 Broad Street
Building, whereby such affiliates of O&Y agreed to assume certain lease
obligations of J&H at another office building in consideration of J&H's
leasing space in the 125 Broad Street Building. As a result of this default,
J&H has offset rent payable to the joint venture for its lease at the 125
Broad Street Building in the amount of approximately $37,600,000 through June
30, 1994, and it is expected that J&H will continue to offset amounts due
under its lease corresponding to amounts by which the affiliates of O&Y are in
default under the "takeover space" agreement. Due to the O&Y affiliates'
default under the "takeover space" agreement and the continuing defaults of
the O&Y partners to advance funds to cover operating deficits, as of June 30,
1994, the arrearage of principal and interest under the mortgage loan had
increased to approximately $62,990,000. As discussed above, approximately
$26,700,000 was remitted to the lender in October 1993 in connection with the
early termination of the Salomon Brothers lease, and was applied towards the
mortgage principal for financial reporting purposes. Due to their obligations
relating to the "takeover space" agreement, the affiliates of O&Y are
obligated for the payment of the rent receivable associated with the J&H lease
at the 125 Broad Street Building. Based on the continuing defaults of the O&Y
partners, JMB/125 has reserved the entire $37,600,000 of rent offset by J&H
and has also reserved approximately $32,600,000 of accrued rents receivable
relating to such J&H lease, since the ultimate collectibility of such amounts
depends upon the O&Y partners' and the O&Y affiliates' performance of their
obligations. The Partnership's share of such losses was approximately
$2,606,000 and $2,571,000 for the six months ended June 30, 1994 and 1993,
respectively, and is included in the Partnership's share of loss from
operations of unconsolidated ventures. The O&Y partners had attempted to
negotiate a restructuring of the mortgage loan with the lender in order to
reduce the significant operating deficits which the property is expected to
incur during 1994 and for the next several years. JMB/125 has notified the
O&Y partners that their failure to advance funds to cover the operating
deficits constitutes a default under the 125 Broad joint venture agreement.
The negotiations to restructure the loan were not successful and the O&Y
partners are now negotiating to transfer the property to the lender.
Accordingly, it appears unlikely the O&Y partners will fulfill their
obligations to 125 Broad and JMB/125. Also, JMB/125 is not likely to commit
any significant additional amounts to the property. As discussed above, the
O&Y partners are negotiating to transfer the property to the lender. This
would result in the Partnership no longer having an ownership interest in the
property. If this event were to occur, the Partnership would recognize a net
gain for financial reporting and Federal income tax purposes without any
corresponding distributable proceeds. In addition, under certain
circumstances, JMB/125 may be required to make an additional capital
contribution to 125 Broad in order to make up a deficit balance in its capital
account, and the Partnership may, under certain circumstances, be required to
bear a share of additional capital contribution obligation. Reference is made
to Note 3(f).
260 Franklin Street Building
The office market in the Financial District of Boston remains competitive
due to new office building developments and layoffs, cutbacks and
consolidations by financial service companies. The effective rental rates
achieved upon releasing have been substantially below the rates which were
received under the previous leases for the same space. In December 1991, the
affiliated joint venture reached an agreement with the lender to modify the
long-term mortgage note secured by 260 Franklin Street Building. The property
is currently expected to operate at a deficit for 1994 and for several years
thereafter. The loan modification required that the affiliated joint venture
establish an escrow account for excess cash flow from the property's
operations (computed without a deduction for property management fees and
lease commissions to an affiliate) to be used to cover the cost of capital and
tenant improvements and lease inducements, as defined, which are the primary
components of the anticipated operating deficits noted above with the balance,
if any, of such escrowed funds available at the scheduled or accelerated
maturity to be used for the payment of principal and interest due to the
lender. Beginning January 1, 1992, 260 Franklin began escrowing the payment
of property management fees and lease commissions owed to an affiliate of the
Corporate General Partner pursuant to the terms of the debt modification. The
Partnership's share of such fees and lease commissions is approximately
$495,200 at June 30, 1994. In 1995, the leases of tenants occupying
approximately 107,000 square feet (approximately 31% of the property) at the
260 Franklin Street Building expire. It is anticipated that there would be
significant costs related to releasing this space. In addition, the long-term
mortgage loan matures January 1, 1996. If the affiliated joint venture is
unable to refinance or extend the mortgage loan, the Partnership may decide
not to commit any significant additional funds to the property. This may
result in the Partnership no longer having an ownership interest in the
property. This would likely result in the Partnership recognizing a gain for
financial reporting purposes.
900 Third Avenue Building
During the quarter, occupancy of this building remained at 94%, down from
95% at the end of 1993. The midtown Manhattan market remains depressed and
16% of the leases at the property expire during 1994 through 1996. The
property is expected to operate at a deficit in 1994 due to certain leasing
costs expected to be incurred. Such deficit would be paid by cash reserves
currently held by the joint venture.
JMB/900, on behalf of the joint venture, has entered into a non-binding
letter of intent with the existing lender for the extension of its mortgage
loan in the amount of $90,411,000 which matures in December 1994. The
proposed terms of the extension would extend the loan for seven years with
monthly payments of principal and interest based on an interest rate of 9.375%
per annum and a 25 year principal amortization schedule. The current interest
rate is 13% per annum. In addition, net cash flow after debt service and
capital will be paid into an escrow account controlled by the lender to be
used by the joint venture for releasing costs associated with leases which
expire in 1999 and 2000 (approximately 240,000 square feet of space). The
remaining proceeds in this escrow, if any, will be released to the joint
venture once 90% of such leased space has been renewed or released. The
letter of intent contemplates a closing for this extension by the end of
September 1994 with the terms being effective upon the current maturity date
in December 1994. The letter of intent is non-binding with respect to the
loan extension, and consummation of the proposed transaction is subject to the
satisfaction of various conditions, including approval by the unaffiliated
venture partners. Therefore, there can be no assurance that a loan extension
will be consummated on these or any terms.
300 East Lombard Building
Effective September 30, 1991, the Partnership sold, to an affiliate of
the joint venture partners, 62% of its interest in a joint venture that owns a
55% interest in the 300 East Lombard investment property. In conjunction with
the sale, the Partnership and buyer established a put-call option on the
Partnership's remaining interest in the joint venture. In January 1993, the
Partnership sold its remaining interest in accordance with the terms of the
option. Reference is made to Note 9.
Wells Fargo Center
The Wells Fargo Center operates in the Downtown Los Angeles office
market, which has become extremely competitive over the last several years
with the addition of several new buildings that has resulted in a high vacancy
rate of approximately 25% in the marketplace. In 1992, two major law firm
tenants occupying approximately 11% of the building's space approached the
joint venture indicating that they were experiencing financial difficulties
and desired to give back a portion of their leased space in lieu of ceasing
business altogether. The joint venture reached agreements which resulted in a
reduction of the space leased by each of these tenants. The Partnership is
also aware that a major tenant, IBM, leasing approximately 58% of the tenant
space in the Wells Fargo Building, is sub-leasing or attempting to sub-lease
approximately one-half of its space which is scheduled to expire in December
1998. The Partnership expects that the competitive market conditions will
have an adverse affect on the building through lower effective rental rates
achieved on releasing of existing space which expires or is given back over
the next several years. The Partnership's share of distributions from the
joint venture for 1992 and 1993 were insufficient to cover the debt service on
the promissory note secured by the Partnership's interest in the joint
venture. Such shortfall was due to rental concessions granted to facilitate
leasing of space taken back from the two tenants noted above and the expansion
of one of the other major tenants in the building. The property is expected
to produce cash flow in 1994. The mortgage note secured by the property, as
well as the promissory note secured by the Partnership's interest in the joint
venture are scheduled to mature in December 1994. The promissory note secured
by the Partnership's interest in the joint venture has been classified at June
30, 1994 and December 31, 1993 as a current liability in the accompanying
consolidated financial statements. In view of, among other things, current
and anticipated market and leasing conditions affecting the property,
including uncertainty regarding the amount of space, if any, which IBM will
renew when its lease expires in December 1998, the South Tower Venture, as a
matter of prudent accounting practice, recorded a provision for value
impairment of $67,479,871 (of which $20,035,181 has been allocated to the
Partnership and was reflected in the Partnership's share of operations of
unconsolidated ventures). Such provision, made as of August 31, 1993, was
recorded to reduce the net carrying value of the Wells Fargo Center to the
then outstanding balance of the related non-recourse debt. Further, there is
no assurance that the joint venture or the Partnership will be able to
refinance these notes when they mature in December of 1994. In the absence of
an extension or refinancing of the notes, the Partnership may decide not to
commit any significant additional amounts to the property. This would likely
result in the Partnership no longer having an ownership interest in the
property, and would result in a gain for financial reporting and for Federal
income tax purposes with no corresponding distributable proceeds. The
property did not sustain any significant damage as a result of the January
1994 earthquake in southern California. Reference is made to Note 1.
RiverEdge Place Building
The RiverEdge Place Building was 100% leased to an affiliate of the major
tenant, First American Bank, under a long-term over-lease executed in
connection with the purchase of the property. The Bank and its affiliate
approached the Partnership indicating that they were experiencing financial
difficulties. On June 23, 1992, the Partnership reached an agreement with the
Bank and received cash and U.S. Government securities valued at $9,325,000 for
the buy-out of the Bank's over-lease obligations. The Partnership took this
course of action due to the First American Bank's deteriorating financial
condition and the Federal Deposit Insurance Corporation's ability to assume
control of the Bank and to terminate the over-lease obligation. The
$9,325,000 buy-out was concurrently remitted to the lender to reduce the
mortgage loan secured by the RiverEdge Place Building and the Partnership
continues to negotiate with the lender to restructure the mortgage note with a
current outstanding balance of $18,166,294 in order to reduce operating
deficits anticipated as a result of the over-lease buy-out. In connection
with the Partnership's negotiations with the lender, the Partnership ceased
making debt service payments effective July 1, 1992. If the Partnership's
negotiations for mortgage note restructuring are not successful, the
Partnership would likely decide, based upon current market conditions and
other considerations relating to the property and the Partnership's portfolio,
not to commit significant additional amounts to the property. This would
result in the Partnership no longer having an ownership interest in the
property and would result in a gain for financial reporting and Federal income
tax purposes without any corresponding distributable proceeds. The mortgage
note has been classified as a current liability in the accompanying
consolidated financial statements. Additionally, the tenant lease with First
American Bank for approximately 120,000 square feet has been assigned to and
assumed by SouthTrust Bank of Georgia in connection with that bank's
acquisition of most of the remaining assets of First American Bank. Effective
August 1, 1992, the Partnership restructured the lease with SouthTrust Bank of
Georgia reducing the tenant's space to approximately 92,000 square feet, as
well as, reducing the effective rent on the retained space in exchange for an
extension of the lease term from April, 1994 to July, 2002. The restructuring
of SouthTrust Bank's lease reduced the occupied space of the RiverEdge Place
Building from 96% to 85% at that time. The Partnership is actively pursuing
replacement tenants for the building's vacant space including the space taken
back from the SouthTrust lease restructuring.
21900 Burbank Building
The 21900 Burbank Building sustained some damage as a result of the
earthquakes that occurred in January 1994 in southern California. Preliminary
estimates of the damage range from $200,000 to $500,000. Much of this damage
occurred within tenant premises in the building. The Partnership does not
believe it has any significant obligations to reimburse tenants for such
repairs. However, in anticipation of the passage of the Los Angeles
Earthquake Repair Ordinance that will likely initially require inspection of
certain buildings in areas affected by the earthquake, the Partnership has
begun to conduct inspections of certain joints in the structural steel frame
of the building. The Partnership will monitor and comply with the Ordinance.
While the Partnership carried earthquake insurance on this property, it is
anticipated that the total damages will not exceed the policy's deductible
amount. Although the property produced cash flow to the Partnership in 1993,
there is uncertainty as to the Partnership's ability to recover the net
carrying value of the investment property through future operations and sale
as a result of the substantial amount of tenant space (approximately 83% of
the building) under leases that are scheduled to expire during 1995 and 1996.
As a matter of prudent accounting practice, the Partnership made a provision
for value impairment of such investment property of $1,740,533 recorded as of
June 30, 1992. Such provision was recorded to reduce the net carrying value
of the investment property to the June 30, 1992 outstanding balance of the
related non-recourse financing.
NewPark Associates
NewPark Associates commenced a renovation of NewPark Mall in early 1993
and such renovation was substantially completed as of September 30, 1993.
NewPark Mall may be subject to increased competition from a new mall that is
scheduled to open in the vicinity in late 1994.
California Plaza
The property operated at a deficit in 1993 due to the costs incurred in
connection with the leasing of space which was vacant or under leases that
expired in 1993. The property is expected to produce cash flow in 1994,
however, as discussed below, net cash flow is to be escrowed. Effective March
1, 1993, the joint venture ceased making the scheduled debt service payments
on the mortgage loan secured by the property which was scheduled to mature on
January 1, 1997. Subsequently, the Partnership made partial debt service
payments based on cash flow of the property through December, 1993 when an
agreement was reached with the lender to modify the loan on December 22, 1993.
As more fully discussed in Note 4(a)(vi), the loan modification reduced the
pay rate of monthly interest only payments to 8% per annum, effective February
1993, extended the loan maturity date to January 1, 2000, and requires the net
cash flow of the property to be escrowed (as defined). The venture also
funded $500,000 into a reserve account as required by the modification
agreement. This reserve account is to be used to fund future costs, including
tenant improvements, leasing commissions and capital improvements, approved by
the lender ($323,120 used as of June 30, 1994). Additionally, due to the
uncertainty of the Partnership's ability to recover the net carrying value of
the California investment property, the Partnership made, as a matter of
prudent accounting practice, a provision for value impairment of California
Plaza at June 30, 1993 of $2,166,799 (which included $1,558,492 relating to
the venture partner's deficit investment balance at that date). Such
provision reduced the net carrying value of the investment property to the
June 30, 1993 outstanding balance of the related non-recourse mortgage note.
Reference is made to Notes 1 and 4(a)(vi).
Erie-McClurg Parking Facility
On September 25, 1992, the Partnership, through Erie-McClurg Associates,
sold the Erie-McClurg Parking Facility located in Chicago, Illinois.
Concurrently, with the sale of the Erie-McClurg Parking Facility, the
Partnership entered into an agreement with the unaffiliated manager of the
parking facility to induce the manager to re-write the existing long-term
management agreement at less favorable terms. This agreement guarantees the
manager 100% of the compensation which would have been earned under the
agreement prior to the sale in years one through five and 50% of any potential
difference between the management fee under the agreement prior to the sale
and the renegotiated agreement with the purchaser (as defined) in years six
through eighteen.
In connection with this agreement, at closing the Partnership paid the
unaffiliated manager a partial settlement of $400,000 and has estimated the
remaining contingent liability to be $360,000. This contingent liability is
recorded as a long-term liability in the accompanying consolidated financial
statements.
Springbrook Shopping Center
In October 1993, a tenant occupying 20% of the space at the Springbrook
Shopping Center vacated upon expiration of its lease. The Partnership is
actively pursuing replacement tenants for the vacant space, but there is no
assurance that any leases will be consummated. Due to the uncertainty of re-
leasing this space, and due to the property being expected to operate at a
deficit in 1994, there is uncertainty as to the Partnership's ability to
recover the net carrying value of the investment property through future
operations or sale. Thus, as a matter of prudent accounting practice, the
Partnership made a provision for value impairment of such investment property
of $7,534,763 at December 31, 1993. Such provision is recorded to reduce the
net carrying value of the investment property to the December 31, 1993
outstanding balance of the related non-recourse financing. Reference is made
to Note 1.
Other
The mortgage note secured by Eastridge Mall is scheduled to mature on
October 1, 1995. There is no assurance that the venture will be able to
refinance or obtain alternative financing when the note matures. The property
is expected to operate at a deficit in 1994.
The 9701 Wilshire Building operated at a slight deficit in 1993 due to
the costs incurred in connection with the re-leasing of the vacant space in
the building, and is expected to operate at a deficit in 1994. The mortgage
note secured by the property matured on January 1, 1994. The Partnership
obtained extensions of this note from the existing lender until August 15,
1994. The Partnership paid the lender $110,000 in extension fees in
connection with these extensions. The monthly principal and interest payment,
and the interest rate remain the same on the loan as prior to the original
maturity date. The unpaid principal and interest matures on August 15, 1994,
and thus, the loan has been classified at June 30, 1994 and December 31, 1993
as a current liability in the accompanying consolidated financial statements.
The Partnership has entered into a letter of intent with a prospective
purchaser for the sale of the property. There can be no assurance that the
Partnership will be able to finalize this sale. The potential sale of the
property would likely result in a gain for financial reporting purposes and a
loss for Federal income tax purposes. The property did not sustain any
significant damage as a result of the January 1994 earthquake in southern
California.
Due to the factors discussed above, it is likely that the Partnership
will hold certain of its investment properties longer than originally
anticipated in order to maximize the return to the Limited Partners. Although
the Partnership expects to distribute sales proceeds from the disposition of
the Partnership's remaining assets, without a dramatic improvement in market
conditions Limited Partners will receive significantly less than their
original investment. In addition, in connection with sales or other
dispositions (including transfers to lenders) of properties (or interests
therein) owned by the Partnership or its joint ventures, the Limited Partners
may be allocated substantial gain for Federal income tax purposes.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents and corresponding decrease in
short-term investments at June 30, 1994 as compared to December 31, 1993 is
partially due to the 1994 sale of U.S. Government obligations classified as
short-term investments at December 31, 1993 and the purchase of U.S.
Government obligations classified as cash equivalents at June 30, 1994.
Reference is made to Note 1. The increase in cash and cash equivalents is
also due to the receipt of approximately $2,560,000 of net sale proceeds
(after payment of prorations) related to the sale of Villa Solana Apartments
on March 23, 1994 (see Note 9(a)), and the receipt of $2,288,000 of
distributions from the Wells Fargo Center investment property related to 1993
and 1994 operations.
The increase in the balance of escrow deposits and restricted securities
and accrued real estate taxes at June 30, 1994 as compared to December 31,
1993 is primarily due to the timing of real estate tax payments at certain of
the Partnership's investment properties. The increase in escrow deposits and
restricted securities is also due to the continued escrow of excess cash flow
pursuant to the loan modification at the Cal Plaza office building. Reference
is made to Note 4 (a) (vi).
The decrease in land, buildings and improvements, current portion of
long-term debt, accrued interest payable and tenant security deposits at June
30, 1994 as compared to December 31, 1993 is primarily due to the sale of
Villa Solana Apartments on March 23, 1994 and to the lenders obtaining legal
title to the Park at Countryside Apartments on May 17, 1994. In addition,
such actions are the reason for the gain on sale or disposition of investment
properties for the six months ended June 30, 1994 consisting of the $631,566
gain on sale of the Villa Solona Apartments and $1,334,684 gain on disposition
of the Park at Countryside Apartments.
The decrease in current portion of notes payable at June 30, 1994 as
compared to December 31, 1993 is due to the June, 1994 principal payment on
promissory notes related to the California Plaza office building (Reference is
made to Note 8).
The decrease in the balance of accounts payable at June 30, 1994 as
compared to December 31, 1993 is primarily due to the timing of certain
operating expense payments at the 160 Spear Street building, Eastridge Mall
and 260 Franklin Street office building.
The decreases in rental income, mortgage and other interest,
depreciation, property operating expenses and amortization of deferred
expenses for the three and six months ended June 30, 1994 as compared to the
three and six months ended June 30, 1993 are primarily due to the sale of
Villa Solona Apartments on March 23, 1994. Reference is made to Note 9 (a).
The decrease in property operating expenses for the six months ended June 30,
1994 as compared to the six months ended June 30, 1993 is partially offset by
the payment of approximately $210,000 of loan extension fees at the Villa
Solona Apartments and 9701 Wilshire building in the first quarter of 1994.
The increase in interest income for the three and six months ended June
30, 1994 as compared to the three and six months ended June 30, 1993 is
primarily the result of higher balances of U.S. Government obligations in 1994
due to the receipt of approximately $2,560,000 of net sale proceeds from the
sale of Villa Solana and $2,288,000 of distributions from Wells Fargo Center
in 1994 as discussed above.
The provision for value impairment of $2,166,799 for the three and six
months ended June 30, 1993 relates to the provision for value impairment
recorded at June 30, 1993 at Cal Plaza. Reference is made to Note 1.
The decrease in the Partnership's share of loss from operations of
unconsolidated ventures for the three and six months ended June 30, 1994 as
compared to the same period in 1993 is primarily due to the Partnership's
share of losses of JMB/Owings in 1993. JMB/Owings sold its Partnership
interest in Owings Mills Limited Partnership on June 30, 1993, and thus there
are no losses from JMB/Owings in 1994 for financial reporting purposes.
The decrease in venture partners' share of ventures' operations for the
three and six months ended June 30, 1994 as compared to the same period in
1993 is primarily due to the venture partner at the California Plaza
investment property not being allocated any losses in 1994, as a result of the
impairment recorded at California Plaza at June 30, 1993 which resulted in the
write-off of the venture partner's deficit investment balance at June 30,
1993. Reference is made to Note 1.
The gain on sale of interests in unconsolidated ventures for the six
months ended June 30, 1993 relates to the $229,140 gain on sale of the
remaining interest in Harbor Overlook Limited Partnership in January 1993 and
the $2,627,427 gain on the Partnership's sale of interest in JMB/Owings in
June 1993. Reference is made to Notes 9(b) and (c).
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
The mortgage loan secured by the 125 Broad Street property is in default
at June 30, 1994 due to the partial payment of scheduled debt service since
June 1992. The mortgage loan secured by the Park at Countryside Apartments
was in default due to the venture ceasing the required debt service payments
in October 1993, prior to the lender realizing upon its mortgage security
interest in the property on May 17, 1994. The second mortgage loan secured by
the Woodland Hills Apartments matured June 1, 1994. However, the Partnership
has reached an agreement in principle to refinance the loan. In addition, in
July, 1992, the Partnership ceased making debt service payments on the
mortgage loan secured by the RiverEdge Place Building. Reference is made to
Notes 3(f), Notes 4(a)(i), 4(b) and 4(a)(iv) of Notes to Consolidated
Financial Statements filed with this quarterly report and the discussion of
those investment properties in Liquidity and Capital Resources contained in
the Management's Discussions and Analysis of Financial Condition section of
this quarterly report for discussions of such loan defaults, which are hereby
incorporated herein by reference.
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's investment properties.
<CAPTION>
1993 1994
------------------------------- ------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. 900 Third Avenue Building
New York, New York. . . . . . . . . . . . . . . . 91% 94% 94% 95% 94% 94%
2. Piper Jaffray Tower
Minneapolis, Minnesota 97% 98% 98% 98% 99% 99%
3. RiverEdge Place (a)
Fulton County (Atlanta), Georgia. . . . . . . . . 85% 83% 84% 89% 87% 88%
4. Wells Fargo Center - IBM Tower
Los Angeles, California . . . . . . . . . . . . . 98% 98% 98% 98% 97% 97%
5. Villa Solana Apartments
Laguna Hills, California. . . . . . . . . . . . . 94% 91% 91% 91% N/A N/A
6. Eastridge Mall
Casper, Wyoming . . . . . . . . . . . . . . . . . 90% 90% 90% 91% 91% 92%
7. Woodland Hills Apartments
DeKalb County (Atlanta), Georgia. . . . . . . . . 96% 87% 98% 92% 89% 98%
8. Park at Countryside Apartments
Port Orange (Daytona Beach), Florida. . . . . . . 97% 95% 97% 99% 98% N/A
9. 160 Spear Street Building
San Francisco, California . . . . . . . . . . . . 93% 95% 94% 91% 91% 88%
10. 21900 Burbank Boulevard Building
Los Angeles (Woodland Hills), California. . . . . 98% 98% 100% 99% 99% 100%
11. 125 Broad Street Building
New York, New York. . . . . . . . . . . . . . . . 72% 72% 72% 54% 54% 54%
12. Owings Mills Shopping Center
Owings Mills (Baltimore County), Maryland . . . . 93% N/A N/A N/A N/A N/A
13. 260 Franklin Street Building
Boston, Massachusetts . . . . . . . . . . . . . . 97% 98% 97% 99% 99% 99%
14. 9701 Wilshire Building
Beverly Hills, California . . . . . . . . . . . . 92% 96% 93% 93% 89% 89%
15. California Plaza
Walnut Creek, California. . . . . . . . . . . . . 94% 96% 97% 95% 95% 99%
16. Dunwoody Crossing (Phase I, II and III) Apartments
DeKalb County (Atlanta), Georgia (b). . . . . . . 94% 96% 93% 90% 91% 93%
17. NewPark Mall
Newark (Alameda County), California . . . . . . . 71% 73% 80% 81% 80% 80%
18. Springbrook Shopping Center
Bloomingdale, Illinois. . . . . . . . . . . . . . 95% 95% 95% 74% 74% 71%
<FN>
- - --------------------
An N/A indicates that the property, or the Partnership's interest in the
property was sold or was not owned by the Partnership at the end of the
period.
(a) This investment property, formerly the First American Bank Building,
had been 100% leased pursuant to an over-lease since the date the Partnership
acquired the property until June 1992. However, reference is made to
Management's Discussion and Analysis of Financial Condition and Results of
Operations regarding the over-lease buy-out in June, 1992.
(b) Formerly known as Post Crossing, Post Crest and Post Terrace
Apartments, respectively.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4-A. Assignment Agreement set forth as Exhibit B to the
Prospectus is hereby incorporated herein by reference to Exhibit 4-A to the
Partnership's report for December 31, 1992 on Form 10-K (File No. 0-16111)
dated March 19, 1993.
4-B. Documents relating to the modification of the mortgage
loan secured by 260 Franklin Street Building are hereby incorporated herein by
reference to Exhibit 4-B to the Partnership's report for December 31, 1992 on
Form 10-K (File No. 0-16111) dated March 19, 1993.
4-C. Documents relating to the modification of the mortgage
loans secured by the 160 Spear Street Building are hereby incorporated herein
by reference to Exhibit 4-C to the Partnership's report for December 31, 1992
on Form 10-K (File No. 0-16111) dated March 19, 1993.
4-D. Documents relating to the refinancing of the mortgage
note secured by the Post Crest Apartments are hereby incorporated herein by
reference to Exhibit 4-D to the Partnership's report for December 31, 1992 on
Form 10-K (File No. 0-16111) dated March 19, 1993.
10-A. Escrow Deposit Agreement is hereby incorporated herein by
reference to the Partnership Registration Statement on Form S-11 (File No.
2-95382) dated January 18, 1985.
10-B. Acquisition documents relating to the purchase by the
Partnership of an interest in the 900 Third Avenue Building in New York, New
York, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Form S-11 (File No. 2-95382) dated January 18, 1985.
10-C. Acquisition documents relating to the purchase by the
Partnership of an interest in the Piper Jaffray Tower in Minneapolis,
Minnesota, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Form S-11 (File No. 2-95382) dated January 18, 1985.
10-D. Acquisition documents relating to the purchase by the
Partnership of the NBG Building in Fulton County, Georgia, are hereby
incorporated herein by reference to the Partnership's Registration Statement
on Amendment No. 2 to Form S-11 (File No. 2-95382) dated July 5, 1985.
10-E. Acquisition documents relating to the purchase by the
Partnership of an interest in the Crocker Center South Tower in Los Angeles,
California, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Amendment No. 2 to Form S-11 (File No. 2-95382)
dated July 5, 1985.
10-F. Acquisition documents relating to the purchase by the
Partnership of an interest in the Villa Solana Apartments in Laguna Hills,
California, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Post-Effective Amendment No. 1 to Form S-11 (File
No. 2-95382) dated September 13, 1985.
<PAGE>
10-G. Acquisition documents relating to the purchase by the
Partnership of an interest in the Eastridge Mall in Casper, Wyoming, are
hereby incorporated herein by reference to the Partnership's Registration
Statement on Post Effective Amendment No. 1 to Form S-11 (File No. 2-95382)
dated September 13, 1985.
10-H. Acquisition documents relating to the purchase by the
Partnership of the Summit Hills Apartments in DeKalb County, Georgia, are
hereby incorporated herein by reference to the Partnership's Registration
Statement on Post Effective Amendment No. 2 to Form S-11 (File No. 2-95382)
dated December 13, 1985.
10-I. Acquisition documents relating to the purchase by the
Partnership of an interest in the 160 Spear Street Building in San Francisco,
California, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Post-Effective Amendment No. 3 to Form S-11 (File
No. 2-95382) dated March 13, 1986.
10-J. Acquisition documents relating to the purchase by the
Partnership of an interest in the Baltimore Federal Financial Building in
Baltimore, Maryland, are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 3 to Form
S-11 (File No. 2-95382) dated March 13, 1986.
10-K. Acquisition documents relating to the purchase by the
Partnership of the Arthur D. Little Building in Woodland Hills, California,
are hereby incorporated herein by reference to the Partnership's Registration
Statement on Post-Effective Amendment No. 3 to Form S-11 (File No. 2-95382)
dated March 13, 1986.
10-L. Acquisition documents relating to the purchase by the
Partnership of an interest in the Park at Countryside Apartments in Port
Orange, Florida, are hereby incorporated herein by reference to the Partner-
ship's Registration Statement on Post-Effective Amendment No. 3 to Form S-11
(File No. 2-95382) dated March 13, 1986.
10-M. Acquisition documents relating to the purchase by the
Partnership of an interest in the Owings Mills Shopping Center in Owings
Mills, Maryland, are hereby incorporated herein by reference to the Partner-
ship's Registration Statement on Post-Effective Amendment No. 3 to Form S-11
(File No. 2-95382) dated March 13, 1986.
10-N. Acquisition documents relating to the purchase by the
Partnership of an interest in the 125 Broad Street Building, New York, New
York, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Post-Effective Amendment No. 3 to Form S-11 (File
No. 2-95382) dated March 13, 1986.
10-O. Acquisition documents relating to the purchase by the
Partnership of an interest in the Boatmen's Center in Kansas City, Missouri,
are hereby incorporated herein by reference to the Partnership's Registration
Statement on Post-Effective Amendment No. 3 to Form S-11 (File No. 2-95382)
dated March 13, 1986.
10-P. Acquisition documents relating to the purchase by the
Partnership of an interest in the 260 Franklin Street Building in Boston,
Massachusetts, are hereby incorporated herein by reference to the Partner-
ship's Registration Statement on Post-Effective Amendment No. 4 to Form S-11
(File No. 2-95382) dated April 30, 1986.
10-Q. Acquisition documents relating to the purchase by the
Partnership of an interest in the Mitsui Manufacturers Bank Building in
Beverly Hills, California, are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 5 to Form
S-11 (File No. 2-95382) dated July 31, 1986.
10-R. Acquisition documents relating to the purchase by the
Partnership of an interest in the California Plaza office building in Walnut
Creek, California are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 5 to Form
S-11 (File No. 2-95382) dated July 31, 1986.
10-S. Acquisition documents relating to the purchase by the
Partnership of the Springbrook Shopping Center in Bloomingdale, Illinois, are
hereby incorporated herein by reference.
10-T. Acquisition documents relating to the purchase by the
Partnership of the Erie-McClurg Parking Facility in Chicago, Illinois are
hereby incorporated herein by reference.
10-U.* Real Estate Purchase Agreement dated June 30, 1992,
between Erie-McClurg Associates ("Beneficiary") and The Streeterville
Corporation ("Purchaser") for the sale of Erie-McClurg Parking Facility, is
hereby incorporated herein by reference.
10-V.* First Amendment to Real Estate Purchase Agreement dated
August 26, 1992, between Erie-McClurg Associates ("Beneficiary") and The
Streeterville Corporation ("Purchaser") for the sale of Erie-McClurg Parking
Facility, is hereby incorporated herein by reference.
10-W.* Second Amendment to Real Estate Purchase Agreement dated
September 3, 1992, between Erie-McClurg Associates ("Beneficiary") and The
Streeterville Corporation ("Purchaser") for the sale of Erie-McClurg Parking
Facility, is hereby incorporated herein by reference.
10-X. Amended and Restated Articles of Partnership of JMB/125
Broad Building Associates, dated April 21, 1993 between Carlyle Advisors, Inc.
and Carlyle-XV Associates, L.P. relating to the 125 Broad Street Building, is
hereby incorporated herein by reference to the Partnership's report for
December 31, 1993 on Form 10-K (File No. 0-16111) dated March 28, 1994.
10-Y. Documents relating to the modification of the mortgage
loan secured by California Plaza are hereby incorporated herein by reference
to the Partnership's report for December 31, 1993 on Form 10-K (File No. 0-
16111) dated March 28, 1994.
10-Z. Agreement for Purchase and Sale of Real Estate and
Related Property related to the sale of Villa Solana Apartments dated February
7, 1994 between Villa Solana Associates ("Seller") and EQR-Villa Solana
Vistas, Inc. ("Purchasers") is filed herewith.
10-AA. Amendment to the Agreement for Purchase and Sale of Real
Estate and Related Property related to the sale of Villa Solana Apartments
dated February 25, 1994 between Villa Solana Associates ("Seller") and EQR-
Villa Solana Vistas, Inc. ("Purchasers") is filed herewith.
10-BB. Second Amendment to Agreement for Purchase and Sale of
Real Estate and Related Property related to the sale of Villa Solana
Apartments dated March 4, 1994 between Villa Solana Associates ("Seller") and
EQR-Villa Solana Vistas, Inc. ("Purchaser") is filed herewith.
10-CC. Takeover agreement relating to Johnson & Higgins space at
the 125 Broad Building is filed herewith.
---------------
* Previously filed as exhibits 10-U, 10-V and 10-W,
respectively, to the Partnership's report for December 31, 1992 on Form 10-K
of the Securities Exchange Act of 1934 (File No. 0-16111) dated March 19, 1993
and hereby incorporated herein by reference.
(b) The following report on Form 8-K has been filed for the
quarter covered by this report:
(i) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
BY: JMB Realty Corporation
(Corporate General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date: August 12, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person in the capacity and on
the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date: August 12, 1994
