<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-14481
Brauvin Real Estate Fund L.P. 5
(Name of small business issuer in its charter)
Delaware 36-3432071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North LaSalle Street, Chicago, Illinois 60602
(Address of principal executive offices) (Zip Code)
(312) 759-7660
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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 filling
requirements for the past 90 days. Yes X No .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year $1,517,301.
The aggregate sales price of the limited partnership interests of
the issuer (the "Units") to unaffiliated investors of the issuer
was $9,914,500. This does not reflect market value. This is the
price at which the Units were sold to the public. There is no
current established trading market for these Units, nor have any
Units been sold within the last 60 days prior to this filing.
Portions of the Prospectus of the registrant dated March 1, 1985,
as supplemented, and filed pursuant to Rule 424(b) and 424(c)under
the Securities Act of 1933, as amended, are incorporated by
reference into Parts II and III of this Annual Report on Form
10-KSB.
BRAUVIN REAL ESTATE FUND L.P. 5
1998 FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Page
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Properties. . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .12
PART II
Item 5. Market for the Issuer's Limited Partnership
Interests and Related Security Holder Matters. . . . . . . .13
Item 6. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . .13
Item 7. Consolidated Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . . . . . .21
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . .21
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act. . . . . . . . . . . . . . . . . . . . .22
Item 10.Executive Compensation. . . . . . . . . . . . . . . . . . . 24
Item 11.Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . .24
Item 12.Certain Relationships and Related Transactions . . . . . . .25
Item 13.Exhibits, Consolidated Financial Statements and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . .27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
<PAGE>
BRAUVIN REAL ESTATE FUND L.P. 5
(a Delaware limited partnership)
PART I
Item 1. Description of Business.
Brauvin Real Estate Fund L.P. 5 (the "Partnership") is a Delaware
limited partnership formed in 1985 whose business has been devoted
exclusively to acquiring, operating, holding for investment and
disposing of existing office buildings, shopping centers and
industrial and retail commercial buildings, all in greater
metropolitan areas.
The General Partners originally intended to dispose of the
Partnership's properties approximately five to eight years after
acquisition of each property, with a view toward liquidation of the
Partnership. Due to the past real estate market conditions and
economic trends in the areas where the Partnership's properties are
located, the General Partners believed it to be in the best
interest of the Partnership to retain the properties until such
time as the General Partners reasonably believed it was appropriate
to dispose of the Partnership's properties. In order to make this
determination, the General Partners periodically evaluated market
conditions. In 1998, the General Partners notified the Limited
Partners that they are exploring various alternatives to sell the
Partnership's assets. In this regard, the Partnership engaged a
nationally known appraisal firm to value the Partnership's assets.
Additionally, this firm will assist the General Partners in
determining the appropriate method and timing for the disposition
of the Partnership's assets.
The General Partners have determined to pursue the disposition
of the Partnership's assets, and expect to commence the
registration and solicitation process within a few weeks of the
date of this Form 10-KSB for the authorization of the Limited
Partners for the sale of all or substantially all of the
Partnership's properties. That solicitation will be accomplished
by written notice directed by U.S. mail to each Limited Partner at
the address shown on the Partnership's records, in accordance with
the rules of the Securities and Exchange Commission and the
requirements of the Partnership Agreement.
The amended and restated limited partnership agreement (the
"Agreement") provides that the Partnership shall terminate December
31, 2025, unless sooner terminated. The General Partners shall in
no event dispose of the properties after that date.
As of December 31, 1998, the Partnership had acquired one rental
property, a 42% interest in a joint venture which acquired a second
rental property and a 53% interest in a joint venture which
acquired a third rental property. A fourth rental property which
the Partnership had acquired a 54% interest in a joint venture was
foreclosed upon on May 15, 1995 and the joint venture was
terminated and dissolved in 1996. The Partnership will not
purchase any additional properties. Operations currently consist
of operating the real estate properties which have been managed by
Brauvin Management Company (an affiliate of the General Partners).
The focus of property management activities has been improvement in
the economic performance of the properties with the goal of
maximizing value to the Partnership upon disposition.
On December 10, 1998, the Partnership received notice that an
unsolicited tender offer to purchase up to 25% of the outstanding
limited partnership interests of the Partnership (the "Units") was
to commence with a tender price of $80 per Unit. The offer was
being made, in part, by an entity that owned a nominal economic
interest in the Partnership and was scheduled to terminate on
January 15, 1999. As a result of this unsolicited tender offer
approximately 609 economic interests in the Partnership are to be
transferred.
The General Partners remained neutral as to the particular merits
or risks associated with the tender offer to the Limited Partners.
The General Partners believed an informed determination of the true
value of the Units could be made after the receipt of the
appraisals. The General Partners cautioned that the ultimate
amount actually received by each Limited Partner will be affected
by items including, but not limited to, the timing of the
liquidation of the assets, changes in market conditions, necessary
Partnership reserves and the sales prices that can be negotiated.
The General Partners further informed the Limited Partners that,
for those investors who are primarily interested in liquidating
their Units immediately, the tender offer provided such an
opportunity.
The Partnership has no employees.
Market Conditions/Competition
The Partnership faces active competition in all aspects of its
business and must compete with entities which own properties
similar in type to those owned by the Partnership. Competition
exists in such areas as attracting and retaining creditworthy
tenants, financing capital improvements and eventually selling
properties. Many of the factors affecting the ability of the
Partnership to compete are beyond the Partnership's control, such
as softened markets caused by an oversupply of similar rental
facilities, declining performance in the economy in which a
property is located, population shifts, reduced availability and
increased cost of financing, changes in zoning laws or changes in
patterns of the needs of users. The marketability of the
properties may also be affected by prevailing interest rates and
existing tax laws. The Partnership has retained ownership of its
properties for periods longer than anticipated at acquisition.
Market conditions have weakened in several markets resulting in
lower cash flows than were originally anticipated. The Partnership
strives to maximize economic occupancy and, as such, must adjust
rents to attract and retain tenants. One measure of a market's
relative strength or weakness is the current rental rate demanded
by non-anchor tenants. These rates are for tenants who generally
sign leases of three to five years and are an indicator of the
"spot" rental market. The average rental rates for non-anchor
tenants at Sabal Palm in Palm Bay, Florida have remained static at
approximately $10.88 per square foot in 1995 to approximately
$10.91 per square foot in 1998. However, Winn-Dixie moved out which
will likely effect renewal rates and frequency of local tenants.
Similarly, the average rental rates for non-anchor tenants at
Strawberry Fields in West Palm Beach, Florida have decreased from
approximately $12.21 per square foot in 1993 to approximately $8.07
per square foot in 1998. Non-anchor tenant average rental rates,
expressed per square foot per year, have increased at the Crown
Point property located in Kingsport, Tennessee, from approximately
$8.90 per square foot in 1993 to approximately $10.59 per square
foot in 1998. However, the Partnership has not benefitted greatly
from these increases due to the existence of several leases that
were negotiated in prior years.
The Partnership, by virtue of its ownership of real estate, is
subject to federal and state laws and regulations covering various
environmental issues. Management of the Partnership retains the
services of third parties who hold themselves out to be experts in
the field to assess a wide range of environmental issues and
conduct tests for environmental contamination. Management believes
that all real estate owned by the Partnership is in full compliance
with applicable environmental laws and regulations.
Item 2. Description of Properties.
The following is a discussion of the rental properties owned and
operated by the Partnership. For the purpose of the information
disclosed in this section, the following terms are defined as
follows:
Occupancy Rate: The occupancy rate is defined as the occupied
square footage at December 31, divided by the total square
footage excluding square footage of outparcels, if any.
Average Annual Base Rent Per Square Foot: The average annual
base rent per square foot is defined as the total effective base
rental income for the year divided by the average square feet
occupied excluding outparcels, if any.
Average Square Feet Occupied: The average square feet occupied
is calculated by averaging the occupied square feet at the
beginning of the year with the occupied square feet at the end
of the year excluding outparcels, if any.
In the opinion of the General Partners, the Partnership has
provided for adequate insurance coverage of its real estate
investment properties.
During the year ended December 31, 1998, the Partnership owned
the properties described below:
(a) Crown Point Shopping Center ("Crown Point")
On September 12, 1985, the Partnership acquired Crown Point, an
approximately 71,500 square foot shopping center located in
Kingsport, Sullivan County, Tennessee. Crown Point is composed of
a main building, constructed in two phases, and two outparcel
buildings of approximately 6,500 square feet. Phase I of Crown
Point and one outparcel building were completed in 1984. Phase II
of Crown Point and the other outparcel building were completed in
1985. The anchor tenant is a Food City grocery. Burger King, a
division of Grand Metropolitan PLC, is located in one of the
outparcel buildings which is also owned by the Partnership. Crown
Point was 100% occupied at December 31, 1998.
The Partnership purchased Crown Point for $5,341,696 consisting
of approximately $1,775,000 paid in cash at closing and the balance
by assuming an existing first mortgage loan of $3,566,696. The
lender provided the first mortgage loan through the sale of tax-
exempt bonds. The loan had a 30-year term and bore interest at the
rate of 9.69% per annum. On December 28, 1995, the loan balance
was paid in full when the Crown Point property was refinanced with
NationsBanc Mortgage Capital Corporation. The refinancing resulted
in a $3,275,000 non-recourse loan with a fixed interest rate of
7.55%. The outstanding mortgage balance encumbered by the property
is $3,045,656 at December 31, 1998. The outstanding mortgage
balance is currently being amortized based on a twenty year term
and has a maturity of January 1, 2003.
The occupancy rate and average annual base rent per square foot
at December 31, 1998 and 1997 were as follows:
1998 1997
Occupancy Rate 100% 100%
Average Annual Base
Rent Per Square Foot $7.57 $7.42
Crown Point has two tenants which individually occupy ten percent
or more of the rentable square footage. The following is a summary
of the tenant rent roll at December 31, 1998:
Annual Lease
Square Base Expiration Renewal Nature of
Tenant Feet Rent Date Options Business
Food City 39,652 $257,738 8/2004 5/5 yrs ea. Food Store
Contel
Cellular 12,800 64,000 8/99 None Telecom-
munication
Services
Others 19,000 201,207 Various Various
71,452 $522,945
(b) Strawberry Fields Shopping Center ("Strawberry Fields")
On December 12, 1985, the Partnership and Brauvin Real Estate
Fund L.P. 4 ("BREF 4"), an affiliated public real estate limited
partnership, formed a joint venture (the "Strawberry Joint
Venture") to purchase Strawberry Fields located in West Palm Beach,
Florida for $9,875,000. The Partnership has a 42% interest in the
joint venture which owns Strawberry Fields and BREF 4 has a 58%
interest in the joint venture which owns Strawberry Fields. The
purchase was funded with $3,875,000 cash at closing and $6,000,000
from the proceeds of a first mortgage loan.
In February 1993, the Strawberry Joint Venture finalized a
refinancing of the first mortgage loan on Strawberry Fields (the
"Refinancing") with the lender. The Refinancing became effective
retroactive to October 1992. Due to the Refinancing, the interest
rate was reduced to 9% with monthly payments of interest only from
October 1992 through November 1995. The Partnership had the option
to extend the term of the loan and make monthly payments of
principal and interest from December 1995 through November 1998, if
it is not in default of the terms of the Refinancing. On September
18, 1995, the Strawberry Joint Venture notified Lutheran
Brotherhood (the "Strawberry Lender") that it would exercise its
option to extend the term of the Strawberry Fields loan from the
original maturity of November 1, 1995 to December 1, 1998. The
terms of the extension called for all provisions of the loan to
remain the same except for an additional monthly principal payment
of $12,500. Effective November 1, 1995, the Strawberry Joint
Venture and the Strawberry Lender agreed to modify the loan by
reducing the interest rate to 7.5% for November 1, 1995 through
October 31, 1997 and by reducing the monthly principal payment to
$12,000. Commencing November 1, 1997, the interest rate reverted
to the original 9.0% rate.
Effective October 1, 1998, the Strawberry Joint Venture and the
Strawberry Lender agreed to modify and extend the first mortgage
loan. As of October 1, 1998 and through the extended maturity
date, December 1, 1999, the interest rate has been reduced from 9%
to 7% with principal amortization changed from a ten year period to
an eighteen year period. The outstanding mortgage balance
encumbered by the property was $5,454,205 at December 31, 1998.
Strawberry Fields is a neighborhood retail development
constructed on an 11.87 acre site in 1985. Strawberry Fields was
initially anchored by Florida Choice, a combination food, drug and
general merchandise chain. In 1987, the Kroger Company ("Kroger")
purchased Family Mart, the original lessee, and renamed the store.
Kroger then closed the Florida Choice store in November 1988,
however, the original lease terms remained in effect and Kroger
continued to pay rent. Although Kroger is obligated to continue to
pay rent through March 31, 2005, the Strawberry Joint Venture has
located and approved a sublease for a replacement tenant, Syms, a
national discount clothing retailer, to sublease the space for the
remainder of the original lease term. Strawberry Fields' main
building contains 103,614 square feet of retail space and is
complemented by two outparcel sites plus an older 5,400 square foot
Uniroyal tire and automotive outlet. The outparcel sites are
leased to Taco Bell, a division of Tricon Global, and Flagler
National Bank. Strawberry Fields was 86% occupied at December 31,
1998.
With the exception of Kroger, all leases at Strawberry Fields are
net with each tenant paying its pro rata share of operating
expenses. Local tenant leases and outparcel ground leases provide
for the base rent to be increased in accordance with the Consumer
Price Index. Even though Florida Choice has vacated the space and
the space has been sublet to Syms it is still required to pay any
increases in property taxes and insurance above the level incurred
in 1986 (the first year of operation). Syms is not required to
share in the operating expenses.
The occupancy rate and average annual base rent per square foot
at December 31, 1998 and 1997 were as follows:
1998 1997
Occupancy Rate 86% 86%
Average Annual Base
Rent Per Square Foot $7.36 $7.63
Strawberry Fields has one tenant which occupies ten percent or
more of the rentable square footage. The following is a summary of
the tenant rent roll at December 31, 1998:
Annual Lease
Square Base Expiration Renewal Nature of
Tenant Feet Rent Date Options Business
Florida Choice (1)
(sublet by Syms) 54,300 $380,100 3/2005 8/5 yrs ea. Discount
Clothing
Others 34,684 279,771 Various Various
Vacant 14,630 --
103,614 $659,871
(1) Includes Syms and Florida Choice base rent.
(c) Sabal Palm Square ("Sabal Palm")
On October 31, 1986, the Partnership and BREF 4 formed a joint
venture to purchase Sabal Palm, a shopping center in Palm Bay,
Florida, for $5,924,000. The Partnership has a 53% interest and
BREF 4 has a 47% interest in the joint venture which owns Sabal
Palm. The purchase was funded with $2,724,000 cash at closing and
a $3,200,000 interim loan. On February 19, 1987, the joint venture
obtained a first mortgage loan in the amount of $3,200,000 from an
unaffiliated lender. The loan was payable with interest only at
9.5% per annum until February 1992 and now requires payments of
principal and interest based on a 30-year amortization schedule.
Sabal Palm was required to make a balloon mortgage payment in
February 1997. Prior to the scheduled maturity of the First
Mortgage Loan, the lender granted Sabal Palm an extension until
April 1, 1997. On March 31, 1997, Sabal Palm obtained a first
mortgage loan in the amount of $3,200,000 (the "First Mortgage
Loan") secured by its real estate, from NationsBanc Mortgage
Capital Corporation. The First Mortgage Loan bears interest at the
rate of 8.93% per annum, is amortized over a 25-year period,
requires monthly payments of principal and interest of
approximately $26,700 and matures on March 26, 2002. A portion of
the proceeds of the First Mortgage Loan, approximately $3,077,000,
were used to retire Sabal Palm's existing mortgage from Lincoln
National Pension Insurance Company. The outstanding mortgage
balance encumbered by the property was $3,145,598 at December 31,
1998.
The Partnership consolidated the Sabal Palm Joint Venture and has
recorded a minority interest balance to recognize the 47% interest
of BREF 4.
Sabal Palm is a neighborhood shopping center consisting of
approximately 89,000 square feet of retail space situated on
approximately 9.7 acres of land. Sabal Palm was constructed in
1985 and is anchored by a Winn Dixie food store and Walgreens.
Winn-Dixie completed an approximately 6,500 square foot expansion
in the fourth quarter of 1992. Sabal Palm has several outparcels,
which are not owned by the Partnership, but which add to the
center's appearance and customer activity. Sabal Palm was 96%
economically occupied at December 31, 1998.
In the first quarter of 1998, the Partnership became aware that
both Winn-Dixie and Walgreens may vacate their respective spaces at
Sabal Palm prior to their lease termination dates. In the second
quarter of 1998, Winn-Dixie vacated its space at the center. Winn-
Dixie remains liable for rental payments under its lease at Sabal
Palm until April 2005. Walgreens has not given official notice
that they will vacate their space prior to the lease termination.
The General Partners, however, believe that there is a likelihood
that this tenant will vacate. The General Partners are working to
determine the most beneficial steps to be taken by the Partnership.
The occupancy rate and average annual base rental per square foot
at December 31, 1998 and 1997 were as follows:
1998 1997
Occupancy Rate 96% 95%
Average Annual Base
Rental Per Square Foot $6.56 $6.32
Sabal Palm has two tenants which individually occupy ten percent
or more of the net rentable square feet. The following is a
summary of the tenant rent roll at December 31, 1998:
Annual Lease
Square Base Expiration Renewal Nature of
Tenant Feet Rent Date Options Business
Winn-Dixie 41,983 $142,406 4/2005 5/5 yrs ea. Food Store
Walgreens 13,000 81,252 4/2025 2/5 yrs ea. Drug Store
Others 30,650 334,474 Various Various
Vacant 3,300 --
88,933 $558,132
Risks of Ownership
The possibility exists that the tenants of the Partnership's
properties may be unable to fulfill their obligations pursuant to
the terms of the leases, including making base rent payments or
percentage rent payments to the Partnership. Such defaults by one
or more of the tenants could have an adverse effect on the
financial situation of the Partnership. Furthermore, the
Partnership may be unable to replace these tenants due to
competition in the market at the time any vacancy occurs.
Additionally, there are costs to the Partnership when replacing
tenants such as leasing commissions and tenant improvements. Such
improvements may require expenditure of Partnership funds otherwise
available for distribution.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Issuer's Limited Partnership Interests
and Related Security Holder Matters.
At December 31, 1998, there were 796 Limited Partners in the
Partnership. There is currently no established public trading
market for the Units and it is not anticipated that a public market
for the Units will develop. Bid prices quoted by "partnership
exchanges" vary widely and are not considered a reliable indication
of market value. Neither the Partnership nor Brauvin Ventures,
Inc. (the "Corporate General Partner") will redeem or repurchase
outstanding Units.
Pursuant to the terms of the Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partners must consent to any substitution of
a Limited Partner.
There were no cash distributions to Limited Partners for 1998
and 1997.
Item 6. Management's Discussion and Analysis or Plan of Operation.
General
Certain statements in this Annual Report that are not historical
fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Discussions
containing forward-looking statements may be found in this section
and in the section entitled "Description of Business." Without
limiting the foregoing, words such as "anticipates", "expects",
"intends", "plans" and similar expressions are intended to identify
forward-looking statements. These statements are subject to a
number of risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements.
The Partnership undertakes no obligation to update these forward-
looking statements to reflect future events or circumstances.
Year 2000
The "Year 2000" problem concerns the inability of computer
technology systems to correctly identify and process date sensitive
information beyond December 31, 1999. Many computers
automatically add the "19" prefix to the last two digits the
computer reads for the year when date information is needed in
computer software programs. Thus when a date beginning on January
1, 2000 is entered into a computer, the computer may interpret this
date as the year "1900" rather than "2000".
The Partnership's computer information technology systems
consists of a network of personal computers linked to a server
built using hardware and software from mainstream suppliers. The
Partnership does not own any equipment that contains embedded
microprocessors, which may also pose a potential Year 2000 problem.
Additionally, the Partnership has no internally generated software
coding to correct as all of the Partnership's software is purchased
and licensed from external providers. These external providers
have assured management that their systems are, or will be, Year
2000 compliant.
The Partnership has two main software packages that contain date
sensitive information, (i) accounting and (ii) investor relations.
In 1997, the Partnership initiated and completed the conversion
from its existing accounting software to a new software program
that is Year 2000 compliant. In 1998, the investor relations
software was also updated to a new software program that is Year
2000 compliant. Management has determined that the Year 2000 issue
will not pose significant operational problems for its remaining
computer software systems. All costs associated with these
conversions are expensed as incurred, and are not material.
Management does not believe that any further expenditures will be
necessary for the Partnership to be Year 2000 compliant. However,
additional personal computers may be purchased from time to time to
replace existing machines.
Also in 1997, management of the Partnership initiated formal
communications with all of its significant third party vendors,
service providers and financial institutions to determine the
extent to which the Partnership is vulnerable to those third
parties failure to remedy their own Year 2000 issue. There can be
no guarantee that the systems of these third parties will be timely
converted and would not have an adverse effect on the Partnership.
The most reasonably likely worst case scenario for the
Partnership with respect to the Year 2000 issue would be the
inability of certain tenants to timely make their rental payments
beginning in January 2000. This could result in the Partnership
temporarily suffering a depletion of the Partnership's cash
reserves as expenses will need to be paid while the cash flows from
revenues are delayed. The Partnership has no formal Year 2000
contingency plan.
Liquidity and Capital Resources
The Partnership intends to satisfy its short-term liquidity needs
through cash flow from the properties. Long-term liquidity needs
are expected to be satisfied through refinancing of the mortgages
when they mature.
The anchor tenant at Crown Point is Food City. The overall
occupancy level at Crown Point remained at 100% at December 31,
1998 and at December 31, 1997. The Partnership is continuing to
work to sustain the occupancy level of Crown Point.
On December 28, 1995, the loan balance of the acquisition
financing was paid in full when the Crown Point property was
refinanced with NationsBanc Mortgage Capital Corporation. The
refinancing resulted in a $3,275,000 non-recourse loan with a fixed
interest rate of 7.55% and a maturity of January 1, 2003.
The Strawberry Joint Venture secured a replacement tenant, Syms,
a national discount clothing retailer, to sublease the Kroger space
at Strawberry Fields. Syms opened for business in October 1992 and
has signed a sublease for the remainder of the original lease term
which expires March 31, 2005. Customer traffic at Strawberry
Fields has increased with the draw of Syms, making vacant space
more marketable. The property has shown an improvement due to the
occupancy increase from 78% at December 31, 1994 to 86% at December
31, 1998. The Strawberry Joint Venture is aggressively marketing
the property having engaged a prominent local brokerage firm to
assist the Strawberry Joint Venture's on-site leasing
representative in the marketing of the shopping center.
On September 18, 1995, the Strawberry Joint Venture notified the
Strawberry Lender that it would exercise its option to extend the
term of the Strawberry Fields loan from the original maturity of
November 1, 1995 to December 1, 1998. The terms of the extension
called for all provisions of the loan to remain the same except for
an additional monthly principal payment of $12,500. Effective
November 1, 1995, the Strawberry Joint Venture and the Strawberry
Lender agreed to modify the loan by reducing the interest rate to
7.5% for November 1, 1995 through October 31, 1997 and by reducing
the monthly principal payment to $12,000. As of November 1, 1997,
the interest rate reverted to the original 9.0% rate.
Effective October 1, 1998, the Strawberry Joint Venture and the
Strawberry Lender agreed to modify and extend the first mortgage
loan. As of October 1, 1998 and through the extended maturity
date, December 1, 1999, the interest rate has been reduced from 9%
to 7% with principal amortization changed from a ten year period to
an eighteen year period. The outstanding mortgage balance
encumbered by the property was $5,454,205 at December 31, 1998.
In the second and fourth quarters of 1998, the joint venture
partnership recorded impairments of $1,564,101 and $504,935,
respectively, related to other than temporary declines in the value
of real estate for the Strawberry Fields property. These allowance
were allocated to land and building based on the original
acquisition percentages.
At Sabal Palm, the Partnership and its joint venture partner are
working to improve the occupancy level of Sabal Palm which stood at
96% as of December 31, 1998. Although the Sabal Palm retail market
appears to be overbuilt, the occupancy level of the building has
stayed relatively constant and it has generated positive cash flow
since its acquisition in 1986.
In the first quarter of 1998, the Partnership became aware that
both Winn-Dixie and Walgreens may vacate their respective spaces at
Sabal Palm prior to their lease termination dates. In the second
quarter of 1998, Winn-Dixie vacated its space at the center. Winn-
Dixie remains liable for rental payments under its lease at Sabal
Palm until April 2005.
Walgreens has not given official notice that they will vacate the
space prior to their lease termination; the General Partners,
however, believe that there is a likelihood that this tenant will
vacate. The General Partners are working to determine the most
beneficial steps to be taken by the Partnership.
Sabal Palm was required to make a balloon mortgage payment in
February 1997. Prior to the scheduled maturity of the First
Mortgage Loan, the lender granted Sabal Palm an extension until
April 1, 1997. On March 31, 1997, Sabal Palm obtained a first
mortgage loan in the amount of $3,200,000 (the "First Mortgage
Loan"), secured by its real estate, from NationsBanc Mortgage
Capital Corporation. The First Mortgage Loan bears interest at the
rate of 8.93% per annum, is amortized over a 25-year period,
requires monthly payments of principal and interest of
approximately $26,700 and matures on March 26, 2002. A portion of
the proceeds of the First Mortgage Loan, approximately $3,077,000,
was used to retire Sabal Palm's existing mortgage from Lincoln
National Pension Insurance Company.
In the fourth quarter of 1998, the joint venture recorded an
impairment of $1,499,958 related to an other than temporary decline
in the value of real estate for Sabal Palm. This allowance has
been allocated to the land and building based on the original
acquisition percentages.
In 1998, the General Partners notified the Limited Partners that
they are exploring various alternatives to sell the Partnership's
assets. In this regard, the Partnership engaged a nationally known
appraisal firm to value the Partnership's assets. Additionally,
this firm will assist the General Partners in determining the
appropriate method and timing for the disposition of the
Partnership's assets.
On December 10, 1998, the Partnership received notice that an
unsolicited tender offer to purchase up to 25% of the outstanding
Units was to commence with a tender price of $80 per Unit. The
offer was being made, in part, by an entity that owned a nominal
economic interest in the Partnership and was scheduled to terminate
on January 15, 1999. As a result of this unsolicited tender offer
approximately 609 economic interests in the Partnership are to be
transferred.
The General Partners remained neutral as to the particular merits
or risks associated with the tender offer to the Limited Partners.
The General Partners believed an informed determination of the true
value of the Units could be made after the receipt of the
appraisals. The General Partners cautioned that the ultimate
amount actually received by each Limited Partner will be affected
by items including, but not limited to, the timing of the
liquidation of the assets, changes in market conditions, necessary
Partnership reserves and the sales prices that can be negotiated.
The General Partners further informed the Limited Partners that,
for those investors who are primarily interested in liquidating
their Units immediately, the tender offer provided such an
opportunity.
The General Partners have determined to pursue the disposition
of the Partnership's assets, and expect to commence the
registration and solicitation process within a few weeks of the
date of this Form 10-KSB for the authorization of the Limited
Partners for the sale of all or substantially all of the
Partnership's properties. That solicitation will be accomplished
by written notice directed by U.S. mail to each Limited Partner at
the address shown on the Partnership's records, in accordance with
the rules of the Securities and Exchange Commission and the
requirements of the Partnership Agreement.
The General Partners expect to distribute proceeds from operating
cash flow, if any, and from the sale of real estate to Limited
Partners in a manner that is consistent with the investment
objectives of the Partnership. Management of the Partnership
believes that cash needs may arise from time to time which will
have the effect of reducing distributions to Limited Partners to
amounts less than would be available from refinancing or sale
proceeds. These cash needs include, among other things,
maintenance of working capital reserves in compliance with the
Agreement as well as payments for major repairs, tenant
improvements and leasing commissions in support of real estate
operations.
Results of Operations
The Partnership's revenue and expenses are affected primarily by
the operations of the properties. Property operations, and in
particular the components of income, demand for space and rental
rates are, to a large extent, determined by local and national
market conditions. These market conditions, all beyond the control
of the Partnership and its General Partners, have affected the real
estate industry since the late 1980's and have combined to cause
severe economic hardships for real estate owners. Some of the
specific market conditions are as follows:
* The savings and loan crisis resulted in the creation of
the Resolution Trust Corp. (RTC). The RTC sponsored
auctions where large blocks of properties were sold at
distressed prices. The low price paid by the new owners
enabled them to reduce asking rental rates resulting in
significantly lower market rents for all competing
properties.
* The emergence of "Category Killer" retailers who occupied
large "Box" spaces in new developments known as "Power
Centers" attracted tenants from the smaller and more
traditional "Community Centers" resulting in increased
vacancies and downward pressure on market rental rates.
* The continuing softness in retail sales has resulted in
store closings. This has in turn resulted in increased
vacancies and an overall softness in demand for retail
space which results in downward pressure on market rents.
These conditions have generally adversely impacted the
Partnership's property economics. Rental and occupancy rates have
generally improved over the past year at all remaining properties;
however, they remain below where they were when the properties were
acquired. The specific impact of these economic conditions on 1998
and 1997 results are discussed in the section "Results of
Operations - Years Ended December 31, 1998 and 1997", below.
The General Partners conduct an in-depth assessment of each
property's physical condition as well as a demographic analysis to
assess opportunities for increasing occupancy and rental rates and
decreasing operating costs. In all instances, decisions concerning
restructuring of loan terms, reversions and subsequent operation of
the property are made with the intent of maximizing the potential
proceeds to the Partnership and, therefore, return of investment
and income to Limited Partners.
In certain instances and under limited circumstances, management
of the Partnership entered into negotiations with lenders for the
purpose of restructuring the terms of loans to provide for debt
service levels that could be supported by operations of the
properties. When negotiations are unsuccessful, management of the
Partnership considers the possibility of reverting the properties
to the first mortgage lender. Foreclosure proceedings may require
6 to 24 months to conclude.
An affiliate of the Partnership and the General Partners is
assigned responsibility for day-to-day management of the
properties. The affiliate receives a combined management and
leasing fee which cannot exceed 6% of gross revenues generated by
the properties. Management fee rates are determined by the extent
of services provided by the affiliate versus services that may be
provided by third parties, i.e., independent leasing agents. In
all instances, fees paid by the Partnership to the property
management affiliate are, in the General Partners opinion,
comparable to fees that would be paid to independent third parties.
Results of Operations - Years Ended December 31, 1998 and 1997
(Amounts rounded to 000's)
The Partnership generated a net loss of $1,562,000 for the year
ended December 31, 1998 as compared to net income of $51,000 for
the same period in 1997. The $1,613,000 decrease in net income
resulted primarily from the net of a $20,000 increase in total
income, a $1,463,000 increase in total expenses, a $678,000
decrease in Sabal Palm Joint Venture's minority interest in net
income and a $848,000 decrease in the equity interest in Strawberry
Fields Joint Venture net income (primarily due to a provision for
impairment in the total amount of $2,069,000 recorded at Strawberry
Fields).
Total income for the year ended December 31, 1998 was $1,517,000
as compared to $1,497,000 for the same period in 1997, an increase
of $20,000. The $20,000 increase resulted primarily from a
increase in tenant rental income at the Sabal Palm property.
For the year ended December 31, 1998, total expenses were
$2,856,000 as compared to $1,394,000 for the same period in 1997,
an increase of $1,462,000. The $1,462,000 increase in total
expenses resulted primarily from a provision for impairment related
to an other than temporary decline in the value of the real estate
at the Sabal Palm property.
Results of Operations - 1997 Compared to 1996
(Amounts rounded to nearest 000's)
The Partnership generated net income of $51,000 for the year
ended December 31, 1997 as compared to net income of $62,000 for
the same period in 1996. The $11,000 decrease in net income
resulted primarily from the net of a $23,000 decrease in total
income, a $19,000 increase in total expenses and a $36,000 decrease
in the minority interest's share in Sabal Palm Joint Venture's net
income.
Total income for the year ended December 31, 1997 was $1,497,000
as compared to $1,520,000 for the same period in 1996, a decrease
of $23,000. The $23,000 decrease resulted primarily from a
decrease in tenant expense reimbursements at Sabal Palm.
For the year ended December 31, 1997, total expenses were
$1,394,000 as compared to $1,375,000 for the same period in 1996,
an increase of $19,000. The $19,000 increase in total expenses
resulted primarily from an increase in general and administrative
expense at Sabal Palm, due to higher insurance premiums as a result
of the property's location in a hurricane area. Additionally,
landscaping expense increased at Sabal Palm in an effort to attract
potential tenants to the center.
Item 7. Consolidated Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements on Page F-1 of
this Form 10-KSB for consolidated financial statements where
applicable.
The financial information required in Item 310(b) of Regulation
S-B is not applicable.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of The Exchange Act.
The General Partners of the Partnership are:
Brauvin Ventures, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Brauvin Ventures, Inc. was formed under the laws of the State of
Illinois in 1983, with its issued and outstanding shares being owned
by A.G.E. Realty Corporation, Inc. (50%), and Messrs. Jerome J.
Brault (beneficially) (25%) and Cezar M. Froelich (25%).
The principal officers and directors of the Corporate General
Partner are:
Mr. Jerome J. Brault . . . . .Chairman of the Board of Directors,
Director and President
Mr. James L. Brault. . . . . . . . . . . .Vice President and Secretary
Mr. Thomas E. Murphy . . . . . . . . . . . . . . . . . . Treasurer and
Chief Financial Officer
The business experience during the past five years of the General
Partners, officers and directors is as follows:
MR. JEROME J. BRAULT (age 65) chairman of the board of directors,
president and chief executive officer of the Corporate General
Partner, as well as a principal shareholder of the Corporate General
Partner. He is a member and manager of Brauvin Real Estate Funds,
L.L.C. He is a member of Brauvin Capital Trust L.L.C. Since 1979,
he has been a shareholder, president and a director of
Brauvin/Chicago, Ltd. He is an officer, director and one of the
principal shareholders of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. He is an officer, director and one of the principal
shareholders of Brauvin Associates, Inc., Brauvin Management
Company, Brauvin Advisory Services, Inc. and Brauvin Securities,
Inc., Illinois companies engaged in the real estate and securities
businesses. He is a director, president and chief executive officer
of Brauvin Net Lease V, Inc. He is the chief executive officer of
Brauvin Capital Trust, Inc. Mr. Brault received a B.S. in Business
from DePaul University, Chicago, Illinois in 1959.
MR. JAMES L. BRAULT (age 38) is a vice president and secretary
and is responsible for the overall operations of the Corporate
General Partner and other affiliates of the Corporate General
Partner. He is an officer of various Brauvin entities which act as
the general partners of six other publicly registered real estate
programs. Mr. Brault is executive vice president and assistant
secretary and is responsible for the overall operations of Brauvin
Management Company. He is also an executive vice president and
secretary of Brauvin Net Lease V, Inc. He is a manager of Brauvin
Real Estate Funds, L.L.C., Brauvin Capital Trust, L.L.C. and
BA/Brauvin L.L.C. He is the president of Brauvin Capital Trust,
Inc. Prior to joining the Brauvin organization in May 1989, he was
a Vice President of the Commercial Real Estate Division of the First
National Bank of Chicago ("First Chicago"), based in their
Washington, D.C. office. Mr. Brault joined First Chicago in 1983
and his responsibilities included the origination and management of
commercial real estate loans, as well as the direct management of
a loan portfolio in excess of $150 million. Mr. Brault received a
B.A. in Economics from Williams College, Williamstown, Massachusetts
in 1983 and an M.B.A. in Finance and Investments from George
Washington University, Washington, D.C. in 1987. Mr. Brault is the
son of Mr. Jerome J. Brault.
MR. THOMAS E. MURPHY (age 32) is the treasurer and chief
financial officer of the Corporate General Partner and other
affiliates of the Corporate General Partner. He is the chief
financial officer of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. Mr. Murphy is also the chief financial officer of Brauvin
Associates, Inc., Brauvin Management Company, Brauvin Financial,
Inc., Brauvin Securities, Inc. and Brauvin Net Lease V, Inc. He is
the treasurer, chief financial officer and secretary of Brauvin
Capital Trust, Inc. He is responsible for the Partnership's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in July 1994. Prior to joining the
Brauvin organization he was in the accounting department of
Zell/Merrill Lynch and First Capital Real Estate Funds where he was
responsible for the preparation of the accounting and financial
reporting for several real estate limited partnerships and
corporations. Mr. Murphy received a B.S. in Accounting from
Northern Illinois University in 1988. Mr. Murphy is a Certified
Public Accountant and is a member of the Illinois Certified Public
Accountants Society.
Item 10. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner or other affiliates as
described under the caption "Compensation Table" on pages 11 to 13
of the Partnership's Prospectus, as supplemented, and the sections
of the Agreement entitled "Distributions of Operating Cash Flow",
"Allocation of Profits, Losses and Deductions", "Distribution of Net
Sale or Refinancing Proceeds" and "Compensation of General Partners
and Their Affiliates" on pages A-9 to A-13 of the Agreement attached
as Exhibit A to the Partnership's Prospectus. The relationship of
the Corporate General Partner (and its directors and officers) to
its affiliates is set forth above in Item 9. Reference is also made
to Notes 2 and 4 of the Notes to Consolidated Financial Statements
filed with this annual report for a description of such
distributions and allocations.
The General Partners received a share of Partnership loss or
income for 1998 and 1997.
An affiliate of the General Partners of the Partnership is
reimbursed for its direct expenses relating to the administration
of the Partnership.
The Partnership does not have any employees and therefore there
is no compensation paid.
(c - h) Not applicable.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to own
beneficially more than 5% of the outstanding Units of the
Partnership.
(b) The officers and directors of the Corporate General
Partner do not, individually or as a group, own any
Units.
(c) The Partnership is not aware of any arrangements, the
operations of which may result in a change of control of
the Partnership.
No officer or director of the Corporate General Partner possesses
a right to acquire beneficial ownership of Units. The General
Partners will share in the profits, losses and distributions of the
Partnership as outlined in Item 10, "Executive Compensation."
Item 12. Certain Relationships and Related Transactions.
(a & b) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate General Partner
of the Partnership, as described in the section of the Partnership's
Prospectus, as supplemented, entitled "Compensation Table" and
"Conflicts of Interest" at pages 11 to 16 and the section of the
Agreement entitled "Rights, Duties and Obligations of General
Partners" at pages A-15 to A-18 of the Agreement. The relationship
of the Corporate General Partner to its affiliates is set forth in
Item 10. Cezar M. Froelich resigned as an individual general partner
of the Partnership effective 90 days after August 14, 1997 but
remains a shareholder of the Corporate General Partner. He is also
a principal of the law firm of Shefsky & Froelich Ltd., which firm
acted as securities and real estate counsel to the Partnership.
Reference is made to Note 4 of the Notes to Consolidated Financial
Statements filed with this annual report for a summary of
transactions with affiliates.
As a precondition to the new financing at Crown Point, the lender
required that ownership of the property reside in a single purpose
entity ("SPE"). To accommodate the lender's requirements, ownership
of the property was transferred in 1995 to the SPE, Brauvin/Crown
Point L.P., which is owned 99% by the Partnership and 1% by an
affiliate of the General Partners. Distributions of Brauvin/Crown
Point L.P. are subordinated to the Partnership which effectively
precludes any distributions from the SPE to affiliates of the
General Partners. The creation of Brauvin/Crown Point L.P. did not
affect the Partnership's economic ownership of the Crown Point
property. Furthermore, this change in ownership structure had no
material effect on the financial statements of the Partnership.
(c) Not applicable.
(d) There have been no transactions with promoters.
<PAGE>
Item 13. Exhibits, Consolidated Financial Statements and Reports
on Form 8-K.
(a) The following documents are filed as part of this report:
(1) (2) Consolidated Financial Statements. (See Index to
Consolidated Financial Statements filed with this
annual report).
(3) Exhibits required by the Securities and Exchange
Commission Regulation S-B Item 601:
Exhibit No. Description
*3.(a) Restated Limited Partnership
Agreement
*3.(b) Articles of Incorporation of Brauvin
Ventures, Inc.
*3.(c) By-Laws of Brauvin Ventures, Inc.
*3.(d) Amendment to the Certificate of
Limited Partnership of the
Partnership
*10.(a) Escrow Agreement
*10.(b)(1) Management Agreement
21. Subsidiaries of the registrant
27. Financial Data Schedule
*28. Pages 11-16, A-9 to A-13 and A-15 to
A-18 of the Partnership's Prospectus
and the Agreement dated March 1,
1985, as supplemented.
* Incorporated by reference from the exhibits filed with the
Partnership's registration statement (File No. 2-95633) on Form S-11
filed under the Securities Act of 1933.
(b) No portions of the annual report have been incorporated
by reference in this Form 10-KSB.
(c) Form 8-K. None.
(d) An annual report for the fiscal year 1998 will be sent
to the Limited Partners subsequent to this filing.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRAUVIN REAL ESTATE FUND L.P. 5
BY: Brauvin Ventures, Inc.
Corporate General Partner
By: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
By: /s/ James L. Brault
James L. Brault
Vice President and Secretary
By: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
Dated: March 31, 1999
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheet, December 31, 1998. . . . . . . . . . F-3
Consolidated Statements of Operations, for the years
ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Partners' Capital, for the
years ended December 31, 1998 and 1997 . . . . . . . . . . . . .F-5
Consolidated Statements of Cash Flows, for the years
ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . .F-7
All other schedules provided for in Item 13 (a) on Form 10-KSB are
either not required, not applicable, or immaterial.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Brauvin Real Estate Fund L.P. 5
We have audited the accompanying consolidated balance sheet of
Brauvin Real Estate Fund L.P. 5 (a limited partnership) and
subsidiary as of December 31, 1998, and the related consolidated
statements of operations, partners' capital, and cash flows for the
years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Brauvin
Real Estate Fund L.P. 5 and subsidiary at December 31, 1998, and
the results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 16, 1999
CONSOLIDATED BALANCE SHEET
December 31,
1998
ASSETS
Investment in real estate:
Land $2,111,857
Buildings and improvements 8,543,619
10,655,476
Less accumulated depreciation (3,281,844)
Net investment in real estate 7,373,632
Cash and cash equivalents 803,207
Rent receivable (net of an
allowance of $24,700) 108,639
Escrow deposits 171,001
Other assets 109,840
Due from affiliates 35,700
Total Assets $8,602,019
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgage notes payable (Note 3) $6,191,254
Accounts payable and accrued expenses 156,158
Tenant security deposits 44,981
Due to affiliates 5,078
Total Liabilities 6,397,471
MINORITY INTEREST IN SABAL PALM
JOINT VENTURE 104,327
SHARE OF ACCUMULATED LOSSES IN EXCESS
OF INVESTMENT IN STRAWBERRY FIELDS
JOINT VENTURE (NOTE 6) 352,620
PARTNERS' CAPITAL:
General Partners (48,367)
Limited Partners (9,914.5 limited
partnership units issued and
outstanding) 1,795,968
Total Partners' Capital 1,747,601
Total Liabilities and
Partners' Capital $8,602,019
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1998 1997
INCOME
Rental (Note 5) $1,307,725 $1,281,389
Interest 32,589 26,986
Other, primarily expense
reimbursements 176,987 188,995
Total income 1,517,301 1,497,370
EXPENSES
Interest 549,292 560,423
Depreciation and amortization 262,426 270,384
Real estate taxes 137,508 135,761
Repairs and maintenance 55,127 47,532
Management fees (Note 4) 90,979 85,464
Other property operating 54,366 64,810
Provision for impairment 1,499,958 --
General and administrative 206,679 229,141
Total expenses 2,856,335 1,393,515
(Loss) income before minority
and equity interests (1,339,034) 103,855
Minority interest's share of
Sabal Palm's net loss (income) 665,743 (12,412)
Equity interest in Strawberry
Fields Joint Venture's
net loss (888,836) (40,934)
Net (loss) income $(1,562,127) $ 50,509
Net (loss) income allocated
to the General Partners $ (15,621) $ 505
Net (loss) income allocated
to the Limited Partners $(1,546,506) $ 50,004
Net (loss) income Per Limited
Partnership Interest
(9,914.5 Units) $ (155.98) $ 5.04
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998 and 1997
General Limited
Partners Partners Total
Balance, January 1, 1997 $(33,251) $3,292,470 $3,259,219
Net income 505 50,004 50,509
Balance, December 31, 1997 (32,746) 3,342,474 3,309,728
Net loss (15,621) (1,546,506) (1,562,127)
Balance, December 31, 1998 $(48,367) $1,795,968 $1,747,601
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997
Cash Flows From Operating Activities:
Net (loss) income $(1,562,127) $ 50,509
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 262,426 270,384
Provision for doubtful accounts 10,101 25,600
Equity interest in Strawberry Fields Joint
Venture's net loss 888,836 40,934
Minority Interest's share of Sabal
Palm Joint Venture's net (loss) income (665,743) 12,412
Provision for impairment 1,499,958 --
Changes in:
Rent receivable (12,915) (21,796)
Escrow deposits (52,248) (60,083)
Other assets 30,191 27,926
Due from affiliates -- (29,820)
Accounts payable and accrued expenses 45,481 (9,511)
Tenant security deposits 1,248 1,366
Due to affiliates (2,871) 5,841
Net cash provided by operating activities 442,337 313,762
Cash Flows From Investing Activities:
Capital expenditures (1,320) (4,310)
Cash distribution to Minority Partner of
Sabal Palm Joint Venture (79,900) (118,910)
Cash used by investing activities (81,220) (123,220)
Cash Flows From Financing Activities:
Repayment of mortgage notes payable (118,303) (3,183,413)
Proceeds from refinancing -- 3,200,000
Payment of loan costs -- (55,605)
Net cash used in financing activities (118,303) (39,018)
Net increase in cash and cash
equivalents 242,814 151,524
Cash and cash equivalents at beginning
of year 560,393 408,869
Cash and cash equivalents at end of year $803,207 $560,393
Supplemental disclosure of cash
flow information:
Cash paid for interest $519,910 $533,930
See accompanying notes to consolidated financial statements
BRAUVIN REAL ESTATE FUND L.P. 5
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brauvin Real Estate Fund L.P. 5 (the "Partnership") was
organized on June 28, 1985. The General Partners of the
Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. On
August 8, 1997, Mr. Cezar M. Froelich resigned as an Individual
General Partner effective 90 days from August 14, 1997. Brauvin
Ventures Inc. is owned by A.G.E. Realty Corporation Inc. (50%) and
by Messrs. Brault (beneficially) (25%) and Froelich (25%). A. G.
Edwards & Sons, Inc. and Brauvin Securities, Inc., affiliates of
the General Partners, were the selling agents of the Partnership.
The Partnership is managed by an affiliate of the General Partners.
The Partnership was formed on June 28, 1985 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on March 1, 1985. The
sale of the minimum of $1,200,000 of limited partnership interests
of the Partnership (the "Units") necessary for the Partnership to
commence operations was achieved on June 28, 1985. The
Partnership's offering closed on February 28, 1986. A total of
$9,914,500 of Units were subscribed for and issued between March
1, 1985 and February 28, 1986 pursuant to the Partnership's public
offering.
The Partnership has acquired directly or through joint ventures
the land and buildings underlying Crown Point, Strawberry Fields
and Sabal Palm shopping centers.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Accounting Method
The accompanying consolidated financial statements have been
prepared using the accrual method of accounting.
Rental Income
Rental income is recognized on a straight line basis over the
life of the related leases. Differences between rental income
earned and amounts due per the respective lease agreements are
credited or charged, as applicable, to deferred rent receivable.
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision is
made for Federal income taxes in the financial statements.
Consolidation of Special Purpose Entity
The Partnership has one special purpose entity ("SPE"),
Brauvin/Crown Point L.P., which is owned 99% by the Partnership
and 1% by an affiliate of the General Partners. Distributions from
the SPE are subordinated to the Partnership which effectively
precludes any distributions from the SPE to affiliates of the
General Partners. The creation of the SPE did not affect the
Partnership's economic ownership of the property. Furthermore,
this change in ownership structure had no material effect on the
financial statements of the Partnership.
Consolidation of Joint Venture Partnership
The Partnership owns a 53% interest in the Sabal Palm Joint
Venture which owns Sabal Palm Shopping Center. The accompanying
financial statements have consolidated 100% of the assets,
liabilities, operations and partners' capital of Sabal Palm Joint
Venture. The minority interests of the consolidated joint venture
is adjusted for the respective joint venture partner's share of
income or loss and any cash contributions from or distributions to
the joint venture partner, if any. All intercompany items and
transactions have been eliminated.
Investment in Joint Venture Partnership
The Partnership owns a 42% equity interest in a Strawberry
Fields Joint Venture (see Note 6). Strawberry Fields is reported
as an investment in an affiliated joint venture. The accompanying
financial statements include the investment in Strawberry Fields
Joint Venture using the equity method of accounting.
Investment in Real Estate
The Partnership's rental properties are stated at cost including
acquisition costs, leasing commissions, tenant improvements and are
net of provision for impairment. Depreciation and amortization are
recorded on a straight-line basis over the estimated economic lives
of the properties, which approximate 31.5 years, and the term of
the applicable leases, respectively. All of the Partnership's
properties are subject to liens under first mortgages (see Note 3).
The Partnership has performed an analysis of its long-lived
assets, and the Partnership's management determined that there were
no events or changes in circumstances that indicated that the
carrying amount of the assets may not be recoverable at December
31, 1998 and 1997, except as disclosed below.
In the fourth quarter of 1998, the Partnership recorded an
impairment of $1,499,958 related to an other than temporary decline
in the value of real estate for the Sabal Palm property. This
allowance has been allocated to land and building based on the
original acquisition percentages.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from date
of purchase.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of December 31, 1998, but
may not necessarily be indicative of the amounts that the
Partnership could realize in a current market exchange. The use
of different assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
The carrying amounts of the following items are reasonable
estimates of fair value: cash and cash equivalents; rent
receivable; escrow deposits; accounts payable and accrued expenses;
tenant security deposits and due to/from affiliates. The mortgage
notes payable at December 31, 1998 have a fair value of
approximately $6,089,600 based upon the current interest rates
offered for debt of similar instruments in the market.
(2) PARTNERSHIP AGREEMENT
The Partnership Agreement (the "Agreement") provides that 99% of
the net profits and losses from operations of the Partnership for
each fiscal year shall be allocated to the Limited Partners and 1%
of net profits and losses from operations shall be allocated to the
General Partners. The net profit of the Partnership from the sale
or other disposition of a Partnership property shall be allocated
as follows: first, there shall be allocated to the General
Partners the greater of: (i) 1% of such net profits; or (ii) the
amount distributable to the General Partners as Net Sale Proceeds
from such sale or other disposition, as defined in the Partnership
Agreement; and second, all remaining profits shall be allocated to
the Limited Partners. The net loss of the Partnership from any
sale or other disposition of a Partnership property shall be
allocated as follows: 99% of such net loss shall be allocated to
the Limited Partners and 1% of such net loss shall be allocated to
the General Partners.
The Agreement provides that distributions of Operating Cash
Flow, as defined in the Agreement, shall be distributed 99% to the
Limited Partners and 1% to the General Partners. The receipt by
the General Partners of such 1% of Operating Cash Flow shall be
subordinated to the receipt by the Limited Partners of Operating
Cash Flow equal to a 10% per annum, cumulative, non-compounded
return on Adjusted Investment, as such term is defined in the
Agreement (the "Preferential Distribution"). In the event the full
Preferential Distribution is not made in any year (herein referred
to as a "Preferential Distribution Deficiency") and Operating Cash
Flow is available in following years in excess of the Preferential
Distribution for said years, then the Limited Partners shall be
paid such excess Operating Cash Flow until they have paid any
unpaid Preferential Distribution Deficiency from prior years. Net
Sale Proceeds, as defined in the Agreement, received by the
Partnership shall be distributed as follows: (a) first, to the
Limited Partners until such time as the Limited Partners have been
paid an amount equal to the amount of their Adjusted Investment;
(b) second, to the Limited Partners until such time as the Limited
Partners have been paid an amount equal to any unpaid Preferential
Distribution Deficiency; and (c) third, 85% of any remaining Net
Sale Proceeds to the Limited Partners, and the remaining 15% of the
Net Sale Proceeds to the General Partners. The Preferential
Distribution Deficiency at December 31, 1998 equaled $11,077,971.
(3) MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1998 consist of the
following:
Interest Date
1998 Rate Due
Crown Point Shopping
Center (a) $3,045,656 7.55% 1/03
Sabal Palm Square
Shopping Center (b) 3,145,598 8.93% 3/02
$6,191,254
Each shopping center serves as collateral under its respective
nonrecourse debt obligation.
Maturities of the mortgage notes payable are as follows:
1999 $ 128,086
2000 137,877
2001 150,124
2002 3,138,289
2003 2,636,878
$6,191,254
(a) On December 28, 1995, the acquisition loan balance was paid
in full when Crown Point was refinanced by NationsBanc Mortgage
Capital Corporation. The refinancing resulted in a $3,275,000 non-
recourse loan with a fixed interest rate of 7.55%, and amortization
based on a twenty year term with a maturity of January 1, 2003.
As a precondition to the new financing, the Successor Lender
required that ownership of the property reside in a single purpose
entity ("SPE"). To accommodate the lender's requirements,
ownership of the property was transferred to the SPE, Brauvin/Crown
Point L.P., which is owned 99% by the Partnership and 1% by an
affiliate of the General Partners. Distributions of Brauvin/Crown
Point L.P. are subordinated to the Partnership which effectively
precludes any distributions from the SPE to affiliates of the
General Partners. The creation of Brauvin/Crown Point L.P. did not
affect the Partnership's economic ownership of the Crown Point
property. Furthermore, this change in ownership structure had no
material effect on the financial statements of the Partnership.
The carrying value of Crown Point at December 31, 1998 was
approximately $4,150,000.
(b) On February 19, 1987, the Partnership and its joint venture
partner obtained a first mortgage loan in the amount of $3,200,000
from an unaffiliated lender. The loan was payable with interest
only at 9.5% per annum until February 1992 and now requires
payments of principal and interest based on a 30-year amortization
schedule.
Sabal Palm was required to make a balloon mortgage payment in
February 1997. Prior to the scheduled maturity of the First
Mortgage Loan, the lender granted Sabal Palm an extension until
April 1, 1997. On March 31, 1997, Sabal Palm obtained a first
mortgage loan in the amount of $3,200,000 (the "First Mortgage
Loan") secured by its real estate, from NationsBanc Mortgage
Capital Corporation. The First Mortgage Loan bears interest at the
rate of 8.93% per annum, is amortized over a 25-year period,
requires monthly payments of principal and interest of
approximately $26,700 and matures on March 26, 2002. A portion of
the proceeds of the First Mortgage Loan, approximately $3,077,000,
was used to retire Sabal Palm's existing mortgage from Lincoln
National Pension Insurance Company.
In the first quarter of 1998, the Partnership became aware that
both Winn-Dixie and Walgreens may vacate their respective spaces
at Sabal Palm prior to their lease termination dates. In the
second quarter of 1998, Winn-Dixie vacated its space at the center.
Winn-Dixie remains liable for rental payments under its lease at
Sabal Palm until April 2005.
Walgreens has not given official notice that they will vacate
the space prior to their lease termination; the General Partners,
however, believe that there is a likelihood that this tenant will
vacate. The General Partners are working to determine the most
beneficial steps to be taken by the Partnership.
The carrying value of Sabal Palm approximated $3,224,000 at
December 31, 1998.
(4) TRANSACTIONS WITH AFFILIATES
Fees and other expenses paid or payable to the General Partners
or its affiliates for the years ended December 31, 1998 and 1997
were as follows:
1998 1997
Management fees $ 90,979 $ 85,464
Reimbursable office
expenses 92,400 93,091
Legal fees -- 377
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services. As of December 31, 1998, the
Partnership had made all payments to affiliates, except for
management fees of $5,078. An amount of $35,700 due from
affiliates at December 31, 1998 represents an advance made to
Strawberry Fields.
(5) OPERATING LEASES
The Partnership is the lessor in operating lease agreements with
tenants at its various properties. The minimum future rental
income to be received on these operating leases (excluding
escalation amounts) is as follows:
1999 $987,976
2000 793,773
2001 687,595
2002 559,867
2003 547,476
Thereafter 2,125,743
Total $5,702,430
Contingent rental income approximated $141,000 and $133,000, in
1998 and 1997, respectively.
Collection of future rental income under these lease agreements
is subject to the financial stability of the underlying tenants.
Minimum rentals received from Food City, the anchor tenant of Crown
Point, approximated 19.7% and 20.1% of rental income for the years
ended December 31, 1998 and 1997, respectively. Minimum rentals
received from Winn Dixie and Walgreens, the anchor tenants of
Sabal, approximated 10.9% and 11.1% of rental income and 6.2% and
6.3% of rental income for the years ended December 31, 1998 and
1997, respectively.
<PAGE>
(6) EQUITY INVESTMENT
The Partnership owns a 42% interest in Strawberry Fields Joint
Venture, located in West Palm Beach, Florida, and accounts for its
investment under the equity method. The following are condensed
financial statements for Strawberry Fields Joint Venture:
December 31,
1998
Land, building and personal
property, net $4,760,592
Other assets 89,461
$4,850,053
Mortgage note payable $5,454,205
Other liabilities 233,848
5,688,053
Partners' capital (838,000)
$4,850,053
Years Ended
December 31,
1998 1997
Rental income $ 795,811 $ 799,912
Other income 118,960 81,332
914,771 881,244
Mortgage and other
interest 464,050 445,595
Depreciation 176,097 201,311
Provision for impairment 2,069,036 --
Operating and
administrative expenses 321,865 331,801
3,031,048 978,707
Net loss $(2,116,277) $ (97,463)
In the second and fourth quarters of 1998, the joint venture
partnership recorded impairments of $1,564,101 and $504,935,
respectively, related to other than temporary declines in the value
of real estate for the Strawberry Fields property. These allowance
were allocated to land and building based on the original
acquisition percentages.
<PAGE>
EXHIBIT INDEX
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
<PAGE>
Exhibit 21
Name of Subsidiary State of Formation
Brauvin Strawberry Fields
Joint Venture Florida
Brauvin Sabal Palm Joint Venture Florida
Brauvin/Crown Point L.P. Delaware
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 803,207
<SECURITIES> 0 <F1>
<RECEIVABLES> 108,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,655,476 <F2>
<DEPRECIATION> 3,281,844
<TOTAL-ASSETS> 8,602,019
<CURRENT-LIABILITIES> 0
<BONDS> 6,191,254 <F3>
0
0
<COMMON> 1,747,601 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,602,019
<SALES> 0
<TOTAL-REVENUES> 1,517,301 <F5>
<CGS> 0
<TOTAL-COSTS> 2,307,043 <F6>
<OTHER-EXPENSES> 223,093 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 549,292
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,562,127)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE
<F2> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F3> "BONDS" REPRESENTS MORTGAGES PAYABLE
<F4> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F7> "OTHER EXPENSES" REPRESENTS INTEREST IN JOINT VENTURES' NET
INCOME/LOSS
</FN>
</TABLE>
