SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 1)
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of
1934
BALCOR/COLONIAL STORAGE INCOME FUND-85
(Name of Subject Company)
BALCOR/COLONIAL STORAGE INCOME FUND-85
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Thomas E. Meador James R. Pruett
Chairman President
The Balcor Company Colonial Storage 85, Inc.
Bannockburn Lake Office Plaza 4381 Green Oaks Blvd. West,
2355 Waukegan Road, Suite A200 Suite 100
Bannockburn, Illinois 60015 Arlington, Texas 76016
(708) 267-1600 (817) 561-0100
(Name, Address and (Name, Address and
Telephone Number of Telephone Number of
Person Authorized to Person Authorized to
Receive Notice and Receive Notice and
Communications on Behalf Communications on Behalf
of the Person(s) Filing of the Person(s) Filing
Statement) Statement)
Copy To:
Michael P. Morrison, Esq.
Hopkins & Sutter
Three First National Plaza, Suite 4100
Chicago, Illinois 60602
(312) 558-6600
<PAGE>
Amendment No. 1 to Schedule 14D-9
This Amendment No. 1 to Schedule 14D-9 amends the Schedule 14D-9 (the
"Schedule 14D-9") filed by Balcor/Colonial Storage Income Fund-85, an Illinois
limited partnership (the "Partnership"), with the Securities and Exchange
Commission on February 7, 1996. All capitalized terms used herein but not
otherwise defined shall have the meanings ascribed to such terms in the
Schedule 14D-9.
Item 4. The Solicitation and Recommendation
Item 4(b) is hereby amended to include the following additional
considerations:
(vi) In the Schedule 14D-9, the General Partners provided the Limited
Partners with certain information regarding the Darby preliminary estimate
of the value of a Unit. The General Partners believe that the Limited
Partners may find certain additional information as contained in the
valuation report provided to the Partnership by Darby useful in evaluating
the Offer. Therefore, a copy of such report is attached hereto as Exhibit
c(2). Limited Partners should keep in mind that the Darby value is not
intended to be a current liquidation value; rather, it is a 5 year
projection which includes projected distributions of cash flows, and
therefore, may be affected by changing market conditions, economic
factors, interest rates and unforseen events.
Item 9. Material to be Filed as Exhibits
Item 9 is hereby amended to include the following exhibits:
"(a)(3) Letter to Investors, dated March 6, 1996."
"(c)(2) Darby Valuation Report."
Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: March 6, 1996 BALCOR/COLONIAL STORAGE INCOME FUND-85
By: Balcor Storage Partners-85, a general
partner
By: The Balcor Company, a partner
By: /s/Thomas E. Meador
--------------------------
Thomas E. Meador, Chairman
By: Colonial Storage 85, Inc., a general
partner
By: /s/James R. Pruett
--------------------------
James R. Pruett, President
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 85
P.O. Box 7190
Deerfield, Illinois 60015-7190
March 6, 1996
Dear Investor:
As you know, on January 25, 1996 Public Storage, Inc. ("PSI") announced an
unsolicited offer to purchase up to 69,230 (25%) of the outstanding limited
partnership interests ("Units") in Balcor/Colonial Storage Income Fund - 85
(the "Partnership") for a price of $210 per Unit. In our letter to you dated
February 7, 1996, we informed you that we were expressing no opinion and
remaining neutral with respect to PSI's offer. While our position with respect
to the offer has not changed, we wanted to provide you with certain additional
information that may be useful to you in evaluating the offer.
As you may recall, in our February 7 letter, we provided you with certain
information regarding the Valuation Counselors Group and Darby & Associates,
Joint Venture ("Darby") preliminary estimate of the value of a Unit. In
addition to the information regarding the assumptions used by Darby in the
February 7 letter, the General Partners believe that you may find the
information contained in the attached excerpts from the Darby report useful.
As you can see, the attached excerpts summarize the valuation methodology and
numbers that were used by Darby in arriving at the conclusion that the value of
a Unit is $292. In evaluating such information, please keep in mind that the
Darby value is not intended to be a current liquidation value; rather, it is a
5 year projection which includes projected distributions of cash flows, and
therefore, may be affected by changing market conditions, economic factors,
interest rates and unforseen events. If you would like a full copy of the
Darby report, please contact your General Partners and one will be provided to
you at no charge.
Under the terms of PSI's offer, PSI cannot purchase any tendered Units
prior to March 12, 1996. If you wish to withdraw any Units tendered to PSI at
any time prior to 5:00 p.m., E.S.T., on March 12, 1996, you may do so by
complying with the withdrawal procedures set forth in the PSI offer.
Your General Partners will continue to act in the manner that they believe
to be in the best interests of the Partnership and the limited partners.
Very truly yours, Very truly yours,
/s/James R. Pruett /s/Thomas E. Meador
James R. Pruett, President Thomas E. Meador, Chairman
Colonial Storage 85, Inc. Balcor Storage Partners - 85
<PAGE>
VALUATION OF THE EQUITY CASH FLOWS
As of December 31, 1995, the General Partner adopted a current strategy to
terminate the Partnership at year-end 2000. Prior to December 31, 1995, the
valuation of a Limited Partnership Interest was based on a ten-year moving
period. This change results in a minor reduction in the value of a Limited
Partnership Interest.
The fair market value of the Equity Cash Flows is equal to the sum of the
present values of the Operating Cash Flows and the Sales Proceeds. The General
Partner has prepared individual cash flows for each property based on a
termination of the Partnership year-end 2000. The projected Operating Cash
Flows from the properties are increased 4% annually (a reduction from 5% used
in 1988) and have been discounted at an annual rate of 10.00% to a net present
value. The Agreement calls for the General Partner to receive 8% of the
Operating Cash Flows, and the remaining 92% is allocated to the Tax-exempt and
Taxable Limited Partnership Interests on the basis of 58.13% to the Taxable
Limited Partnership Interests and 41.73% to the Tax-exempt Limited Partnership
Interests. The General Partners share, however, is subordinated to the Limited
Partners preferred cumulative rates.
Sales Proceeds are calculated on the basis of a 10.00% capitalization rate for
the year-end 2000, adjusting for a 3% sales commission and a 4% escalation
rate.. The net proceeds from the sale have been discounted at an annual rate
of 10.00% to a net present value.
A summary of the Equity Cash Flows as of December 31, 1995, is as follows:
Taxable & General
Tax Exempt Partner Total
---------- ------- ------
Operating Cash
Flows $28,328,486 $ 0 $28,328,486
Sales Proceeds 50,930,081 0 50,930,081
----------- ---------- ------------
Total $79,258,567 $ 0 $79,258,567
<PAGE>
CONCLUSION OF VALUE
Based on the various analyses of the components of the Partnership's Interests
presented in this report, our conclusions of value are summarized in the
following Schedule C.
SCHEDULE C
SUMMARY OF FAIR MARKET CALCULATION
DECEMBER 31, 1995
Taxable & General
Tax-Exempt Partner Total
---------- ------- ------
Cash:
Working Capital(3) $2,894,867 0 $2,894,867
Undistributed NCR(1) 0 0 0
Fund Admin Expenses(3,049,404) 0 (3,049,404)
----------- ---------- -----------
$(154,537) $ 0 $(154,537)
----------- ---------- -----------
Present Value of Equity
Cash Flows:
Operating Cash
Flows (1) 28,328,486 0 28,328,486
Sales Proceeds 50,930,081 0 50,930,081
------------ ---------- ------------
$79,258,567 $ 0 $79,258,567
------------ ---------- ------------
Present Value of Loan
Cash Flows:
Operating Cash
Flows (2) 357,289 0 357,289
Principal
Proceeds (2) 1,295,915 0 1,295,915
------------ ---------- -----------
$1,653,204 $ 0 $1,653,204
------------ ---------- -----------
Offering Expenses 0 0
Total Value of
Assets $80,757,234
------------
Number of Interests 276,918
------------
Value Per Interest $291.63
------------
Rounded $292.00
------------
Adjusted Original
Capital $250.00
------------
<PAGE>
(1)Current fund distributions are falling short of the L/P's cumulative
preferred return rate, and are projected to continue to fall short such
that cumulative return deficiencies will prohibit the GP from receiving
its 10% share of NCR.
(2)Reflects Notes taken back on sales of storage units.
(3)As of September 30, 1995.
<PAGE>
PRELIMINARY APPRAISAL OF
A TAX-EXEMPT LIMITED PARTNERSHIP INTEREST
AND
A TAXABLE LIMITED PARTNERSHIP INTEREST
IN
BALCOR/COLONIAL STORAGE INCOME FUND-85
(BCSIF-85)
SKOKIE, ILLINOIS
AS OF DECEMBER 31, 1995
<PAGE>
February 2, 1996
The Balcor Company
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, IL 60015
Attn: Mr. John K. Powell, Jr. - First Vice President
Gentlemen:
In accordance with your request, we are pleased to submit our preliminary
opinion of the Fair Market Value of a Tax-Exempt Limited Partnership Interest
and a Taxable Limited Partnership Interest in:
Balcor/Colonial Storage Income Fund-85
("BCSIF-85" and "The Partnership")
(An Illinois Limited Partnership)
as of December 31, 1995.
The term "Fair Market Value" is defined as follows:
The amount, in dollars, which a Limited Partnership Interest in
Balcor/ Colonial Storage Income Fund - 85 is worth to an investor who
purchases the Interest with the intention of holding it to maturity,
who fully understands the complexities of the investment, and has an
interest in the potential interest income and capital appreciation of
the Limited Partnership Interest. The valuation does not represent
the amount that might be received by a holder of a Limited
Partnership Interest should he/she decide to liquidate the Interest
prior to maturity.
<PAGE>
The Balcor Company February 2, 1996
Based on our analyses and conclusions set forth in this report, the preliminary
estimate of the Fair Market Value of a Limited Partnership Interest in
Balcor/Colonial Storage Income Fund-85, as of December 31, 1995, was:
1. Tax-Exempt and Taxable Limited
Partnership Interests $292.00
-------
As of the date of this appraisal audited year-end balance sheet financial data
was not available. Consequently September 30, 1995 Working Capital numbers
were used in the valuation, with the expectation that the Working Capital would
not materially change by December 31, 1995.
In the year ended December 31, 1993, the value of a Limited Partnership
Interest did not materially change. Two properties were sold with seller
financing during the year.
For the year ended December 31, 1994, the value of a Limited Partnership
Interest increased $40.00 as a result of substantial increases in rental rates
and cash flow projections. Earnings increased 18% in 1994 although actual cash
flow was somewhat less due to capital expenditures. The discount rate used to
present future cash flows was increased 0.50% to reflect the general increase
in medium to long term interest rates.
In the year ended December 31, 1995, the preliminary value of a Limited
Partnership Interest decreased $11.00, mainly due to setting the termination of
the Partnership for the end of the year 2000. Certain risk rates were reduced.
On March 3, 1994, a $215,000 Note, previously taken by the Partnership as
partial payment on the sale of a mini-warehouse facility in Alburqueque, NM,
was paid in full.
On September 25, 1989 the Partnership closed on the sale of the property at 661
West San Mateo Road, Santa Fe, NM, at a sales price of $660,000. The Seller
took back a First Mortgage of $355,000 and received net cash proceeds of
$257,062. On January 12, 1990, the property at 1311 Clark Road, Santa Fe, NM
was sold for $1,050,000. The Partnership received $180,000 in cash and took
back a First Mortgage of $870,000.
On July 16, 1993, the Partnership sold two properties located in Albuquerque,
NM for $750,000 and $415,000. The price consisted of cash payments to the
Partnership of $250,000 and $200,000 and first mortgage notes of $530,000 and
$215,000 respectively.
<PAGE>
The Balcor Company February 2, 1996
A balance sheet adjustment has commenced with the allocation of an estimated
portion of future cash flow to be accrued for certain costs to be incurred
relating to the dissolution and termination of the Partnership. These
anticipated costs are comprised of legal fees, accounting fees, management fees
and other administrative costs. The General Partner, for the year ended
December 31, 1995, has accrued an amount equal to the present value of expected
fund charges. For the year ended December 31, 1995, the present value of the
reserve amount is $3,049,404.
In the valuation of BCSIF-85 for the year ended December 31, 1985, all
components of income and expenses which had tax consequences from an investment
in the Partnership were adjusted for an estimated 40% tax rate. Because of the
many permutations and combinations of tax benefits available and/or not
available to the taxable investor under the new tax legislation, and the
confusion surrounding the new tax legislation, it has been decided to delete
any tax benefits from the calculation of the value per interest. The
Partnership will provide the tax benefit data to the taxable investor in order
for the owner of the Partnership Interest to apply it to his or her individual
tax structure.
A copy of this report is retained in our files, together with the information
from which the report was compiled.
Respectfully submitted,
/s/Raymond Ghelardi /s/Clement H. Darby
Valuation Counselors Group, Inc. Darby & Associates
Raymond Ghelardi Clement H. Darby
Senior Vice President President
cc: Mr. Martin Dempski
Ms. Mary J. Mojica
Ms. Jayne Kosik
Ms. Jane Cody
<PAGE>
TABLE OF CONTENTS
Statement of Facts and Limiting Conditions
Introduction
Allocation of Profits and Losses
Payments to the Limited Partners and General Partners
Description of the Assets
Valuation of a Limited Partnership Interest
Valuation of the Equity Cash Flows
Valuation of the Offering Expenses
Conclusion of Value
Schedule
A Balance Sheet
B Amortization of Offering Expenses
C Summary of Fair Market Calculation
<PAGE>
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc./Darby & Associates Joint Venture strives to
clearly and accurately disclose the assumptions and limiting conditions that
directly affect an appraisal analysis, opinion or conclusion. In order to
assist the reader in interpreting this report, such assumptions are set forth
as follows:
Valuation Counselors Group, Inc./Darby & Associates Joint Venture reserves the
right to make adjustments to the analysis, opinion and conclusions set forth in
the report as deemed necessary by consideration of additional or more reliable
data that subsequently may become available.
No opinion is rendered as to legal fee, property title or mortgage notes
related to the appraised assets, which are assumed to be good and marketable.
It is assumed that no opinion is intended in matters that require legal,
engineering or other professional advice which has been or will be obtained
from professional sources; the valuation report will not be used for guidance
in professional matters exclusive of the appraisal and valuation discipline.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and
accurate to the best of the Appraiser's knowledge and belief. No single item
of information was completely relied upon to the exclusion of other
information.
All financial data, operating histories and other data relating to income and
expenses attributed to the assets and the Partnerships have been provided by
Management or its representatives and have been accepted without further
verification except as specifically stated in the report.
It should be specifically noted that the valuation assumes the appraised assets
will be competently managed and maintained by financially sound owners over the
expected period of ownership except where noted, specifically in assets during
the period of foreclosure where Balcor may not have control. This appraisal
engagement does not entail an evaluation of management's effectiveness, nor are
we responsible for future marketing efforts and other management or ownership
actions upon which actual results will depend.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser or Valuation Counselors Group, Inc./Darby
& Associates Joint Venture shall be disseminated to the public through public
relations media, news media, sales media, prospectus or any other public means
of communications without the prior written consent and approval of Valuation
Counselors Group, Inc./Darby & Associates Joint Venture. The date of the
valuation to which the value estimate conclusion applies is set forth in the
report.
The preponderance of working paper support for this valuation is maintained in
the offices of management, Balcor Mortgage Advisors.
Neither the fees nor any of the terms and conditions of the appraisal
assignments given to Valuation Counselors Group, Inc./Darby & Associates Joint
Venture by Balcor Mortgage Advisors are contingent upon the values reported.
<PAGE>
No independent investigation of the fair market value of the underlying real
estate assets has been made by Valuation Counselors Group, Inc./Darby &
Associates Joint Venture. We have reviewed the real estate appraisals for
reasonableness, but have assumed the real estate appraisals obtained by Balcor
Mortgage Advisors are independent and accurate.
In the event that this appraisal is used as basis to set a market price for a
Limited Partnership Interest in Balcor/Colonial Storage Income Fund-85, no
responsibility is assumed for the seller's inability to obtain a purchaser at
the value reported herein.
The reader of this valuation report should be fully conversant with the terms
and conditions of Balcor/Colonial Storage Income Fund-85 Limited Partnership as
set forth in the Prospectus, other related documents, and the prior appraisals
of a Limited Partnership Interest in Balcor/Colonial Storage Income Fund-85.
We have discussed the current status and condition of the Real Estate Owned
with the management of Balcor Mortgage Advisors and have accepted their
comments as being factual.
<PAGE>
INTRODUCTION
Balcor/Colonial Storage Income Fund-85 (the "Partnership" and "BCSIF-85") is a
limited partnership formed in September, 1983 pursuant to the Illinois Limited
Partnership Act and organized during January, 1985. The Partnership Agreement
provides for Balcor Storage Partners-85 (a general partnership) and Colonial
Storage 85, Inc. to be the General Partners and for the admission of additional
Limited Partners through the sale of up to 320,000 Limited Partnership
Interests (Interests) at $250 per Interest.
The Partnership is intended to serve as an investment vehicle for qualified
profit-sharing, pension and other retirement trusts; bank commingled trust
funds for such trusts; HR-10 (Keogh) Plans and Individual Retirement Accounts
(IRAs); government pension and retirement trusts; and other entities intended
to be exempt from Federal income taxation such as certain religious,
charitable, scientific literary and educational corporations, funds and
foundations ("Tax-exempt Investors" or "Tax-exempt Limited Partners"). The
Partnership is also intended to serve as an investment vehicle for taxable
individuals and entities ("Taxable Investors" or "Taxable Limited Partners").
The Partnership commenced the offering of Interests to the Public on June 11,
1985 and sold $69,229,500 in Limited Partnership Interests through March 31,
1986 upon the sale of 276,918 Interests.
The principal purpose of the Partnership is to acquire, own, maintain, operate,
lease and hold for capital appreciation and current income, existing
mini-warehouse facilities offering storage space for business and personal
use. The Partnership owns a total of 69 mini-warehouses, as of December 31,
1995, having acquired 68 and 1 mini-warehouse facilities from affiliates of a
General Partner on September 30, 1985 and October 17, 1985, respectively.
Additionally, the Partnership acquired from non-affiliated entities 3
mini-warehouse facilities on April 30, 1986 and 1 on December 31, 1986. One
was sold on September 25, 1989 for $660,000 and an additional one on January
12, 1990 for $1,050,000. In the year ended December 31, 1993, the Partnership
sold two mini-warehouse facilities in Albuquerque, NM, for $780,000 and
$415,000. As of September 30, 1995, the total Mortgage Notes Receivable on
those sales was $1,656,722.
All of the properties which the Partnership acquired were mini-warehouse
facilities purchased from sellers who are affiliates of Colonial with the four
exceptions listed above. The purchase price and terms of the acquisitions were
negotiated at arm's-length between affiliates of Balcor and the sellers prior
to the affiliation of Balcor and Colonial as General Partners of the
Partnership, consistent with the General Partners' fiduciary duty to the
Limited Partners. The purchase price for each mini-warehouse facility was
derived by applying a capitalization formula to the net operating revenue of
each property during calendar year 1984. In determining the capitalization
formulas, the parties considered values of mini-warehouse facilities owned by
competitors, the locations of the mini- warehouse facilities and the prospects
for long-range appreciation, among other factors.
The Partnership also received independent appraisals for each property it
purchased and the purchase price of each such property did not exceed its
appraised value. It should be noted that appraisals are estimates of value and
should not be relied upon as measures of true worth or realizable value.
<PAGE>
ALLOCATIONS OF PROFITS AND LOSSES
For Federal income tax purposes each item of the Partnership's profits and
losses for the period prior to June 1, 1985 will be allocated 99% to the
General Partners and 1% to the substitute initial Limited Partner. Thereafter,
except for profits and losses arising from the sale or other disposition of
Partnership properties, each item of the Partnership's profits and losses will
be allocated 1% to the General Partners and 99% among the Limited Partners.
When a property is sold or otherwise disposed of, the General Partners will be
allocated profits equal to the greater of (I) 1% of total profits, or (ii) the
amounts of Net Cash Proceeds distributable to the General Partners on account
of such sale (in excess of subordinated Net Cash Receipts), and the balance of
profits will be allocated to the Limited Partners. Any losses from the sale of
a property will be allocated 1% to the General Partners and 99% among the
Limited Partners. Each item of income and loss from operations allocated to
the General Partners will be allocated 50% to Balcor and 50% to Colonial. Each
item of gain and loss from sales of properties allocated to the General
Partners shall be allocated 55% to Balcor and 45% to Colonial. Any ordinary
income arising from recapture as a result of the sale or other disposition of
Partnership property, as provided for in sections 467, 751, 1245 or 1250 of the
Internal Revenue Code, shall be allocated to the Partners to whom or to whose
predecessors in interest the deduction or other benefit to which said recapture
is attributable was allocated. A General Partner may assign a portion of its
interest in the profits, losses and cash distributions from the Partnership to
a partnership for the benefit of certain employees of such General Partner and
its affiliates. The portion of each item of income, gain, loss, deduction or
credit allocated to the holders of Interests may be apportioned among them in
the ratio which the number of Interests owned by each of them bears to the
total number of Interests outstanding on a daily basis or, in the alternative,
the Partnership's accounting period may be separated into monthly segments and
the apportionment made ratably among the holders of Interests during such
segments. Thus it is possible that some holders of Interests may be allocated
greater profits than others or that profits may be allocated to some holders of
Interests while losses may be allocated to others, depending on the portion of
the year in which such persons were holders of Interests. The allocation of
each item of income, gain, loss, deduction or credit to any Interests which may
have been transferred during any accounting period will be accomplished in a
similar manner.
<PAGE>
PAYMENTS TO THE LIMITED PARTNERS AND GENERAL PARTNERS
Net cash receipts available for distribution from operations shall be
distributed 92% to the Limited Partners and 8% to the General Partners, 7% as a
partnership incentive management fee and 1% as their distributable share from
operations. Distributions from operations to the General Partners are
subordinated to receipt by the Limited Partners of 8% of adjusted original
capital during the first 12 month period following the termination of the
offering of interests, 9% during the second twelve month period following the
termination of the offering of interests, and 10% during each twelve month
period thereafter. It is not expected that these rates of return to the
Limited Partners will be achieved on a cumulative basis during the term of
fund; consequently, it is highly unlikely that there will be any distribution
to the General Partner and none has been accrued.
Net cash proceeds from sales or refinancings shall be distributed first to the
Limited Partners until they have received any deficiencies in the
aforementioned minimum cash distributions from operations. Distributions to
the Limited Partners shall then be made in an amount equal to total original
capital plus any deficiency in a cumulative distribution of 12% of adjusted
original capital for the period commencing approximately one year following the
termination of the Offering. If the receipt of any portion of the property
management fee or the General Partners' 8% share of net cash receipts from
operations has been deferred as a result of subordination, then available net
cash proceeds shall be distributed to the extent of such deferred amounts.
Thereafter, remaining net cash proceeds shall be distributed 85% to the Limited
Partners and 15% to the General Partners. The same comments pertaining to
General Partner distributions in the first paragraph pertain to this paragraph.
The Net Cash Receipts and Net Cash Proceeds available for distribution are
determined by the General Partners after they create any reserves or make
expenditures reasonably necessary or appropriate for the operation of the
Partnership. There is no assurance that the Partnership will generate Net Cash
Receipts or Net Cash Proceeds, or that, if generated, they will be available
for distribution.
All Partnership distributions are made quarterly to the persons recognized as
the holders of Interests as of the last day of the immediately preceding
calendar quarter. Distributions commenced early in 1986.
Investors received offering period payments on their Interests from the
approximate time of investment until the earlier of September 30, 1985 or the
termination of the public offering.
Offering Period Interest Payments to Limited Partners
As set forth in the Partnership Agreement, the Partnership paid to the
purchasers of Interests an amount equivalent to interest at the initial rate of
7.5% per annum (subject to adjustment for fluctuations in short-term money
market rates) on the total purchase price of an Interest. The amounts paid
under this provision were approximately $440,000 at September 30, 1985, and
ceased to accumulate at that time.
<PAGE>
Liquidity and Capital Resources
Pursuant to the Partnership Agreement, the General Partners are entitled to 8%
of Net Cash Receipts available for distribution, subject to subordination in
the periods following the termination of the offering.
In February, 1988, the Partnership paid $1,212,891 to the Limited Partners,
representing the quarterly distribution for the fourth quarter of 1987. This
amount represented a reduction of the Special Distribution of nine percent.
The General Partners believe that reduction was necessary in order to maintain
an adequate cash position. Distributions were further reduced to $1,038,443
for the quarter ended December 31, 1988 and further reduced in 1989. As stated
in the partnership agreement, any deficiency in the Special Distribution is
payable from Distributed Net Cash Proceeds. The Partnership expects to make
cash distributions from the cash flow generated by property operations. The
level of distributions will be dependent on future property operations.
As stated in the Partnership Agreement, any deficiency in the Special
Distribution is payable from distributed Net Cash Proceeds. The General
Partners believe the cash flow generated from property operations should enable
the Partnership to continue making quarterly distributions to Limited Partners.
However, the level of future cash distributions to Limited Partners will be
dependent upon the amount of cash flow generated by the Partnership's
properties, as to which there can be no assurance. The General Partners intend
to retain on behalf of the Partnership cash reserves deemed adequate to meet
working capital requirements as they may arise.
Distributions to the Limited Partnership
Average Number Annual
Year of Interests Amount Rate Amount Paid
- ----------------------- ------ ------ -----------
1985 276,835 $5.00 2.00% $1,384,590
1986 276,835 $20.00 8.00% $5,538,360
1987 276,918 $18.14 7.26% $5,023,293
1988 276,918 $16.26 6.50% $4,502,666
1989 276,918 $15.00 6.00% $4,153,770
Average Number Annual
Year of Interests Amount Rate Amount Paid
- ----------------------- ------ ------ -----------
1990 276,918 $16.60 6.64% $4,596,836
1991 276,918 $16.76 6.70% $4,641,144
1992 276,918 $17.16 6.86% $4,715,924
1993 276,918 $19.31 7.72% $5,347,287
1994 276,918 $19.14 7.66% $5,300,211
1995 276,918 $25.00 10.00% $6,922,950
<PAGE>
DESCRIPTION OF THE ASSETS
The Partnership purchased the following mini-warehouse properties from
affiliates of Colonial Storage 85, Inc., a general partner, in September and
October, 1985:
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
3233 East Highway 80 1.3 22,450 156
Odessa, Texas
2306 N. Collins Blvd. 1.7 26,098 248
Arlington, Texas
3107 South Lake Drive 1.1 19,230 155
Texarkana, Texas
6715 Wolflin Road 1.6 21,080 218
Amarillo, Texas
7800 North Broadway 2.4 35,880 264
Oklahoma City, Oklahoma
1604 Camp Lane 1.9 32,942 301
Albany, Georgia
1005 W. Cotton 2.2 24,002 210
Longview, Texas
6046 Financial Drive 2.2 34,708 285
Norcross, Georgia
1320 Norwood Drive 1.8 29,220 254
Bedford, Texas
5311 Apex Highway 3.0 23,000 252
Durham, North Carolina
218 Eisenhower Drive 1.5 21,716 206
Savannah, Georgia
132 Slaton Highway 1.9 16,840 114
Lubbock, Texas
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
2960 South Cobb Drive 1.8 28,892 255
Smyrna, Georgia
3513 Highway 45 North 2.0 24,980 191
Meridian, Mississippi
3194 S. Campbell Avenue 1.7 25,360 242
Springfield, Missouri
5115 San Mateo N.E. 2.0 36,160 216
Albuquerque, New Mexico (SOLD 7/16/93)
1440 North Hairston Road 2.3 30,117 270
Stone Mountain, Georgia
3472 Hillsboro Road 1.9 31,600 315
Durham, North Carolina
4615 West Beryl Road 1.7 28,750 295
Raleigh, North Carolina
2826 S. Clack Street 2.4 32,038 273
Abilene, Texas
1301 S. Stemmons 1.2 21,900 162
Lewisville, Texas
2316 Highway 19 North 2.3 27,880 216
Meridian, Mississippi
3016 South Cooper 1.5 24,912 193
Arlington, Texas
2215 W. Southwest Loop 223 2.5 28,301 241
Tyler, Texas
2000 Country Club Drive 2.0 35,379 237
Carrollton, Texas
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
2331 S. Collins Blvd. 2.0 31,396 273
Arlington, Texas
2990 Pio Nono Avenue 1.7 26,998 220
Macon, Georgia
5513 East Lancaster 1.3 22,104 210
Fort Worth, Texas
5121 North Street 2.0 17,483 146
Nacogdoches, Texas
4917 California Pkwy., SE 1.7 27,132 247
Forth Worth, Texas
2636 Baylor Drive, SE 1.3 18,900 143
Albuquerque, New Mexico (SOLD 7/16/93)
1881 Gordon Highway 1.6 22,464 230
Augusta, Georgia
3208 E Park Row 2.1 35,505 341
Arlington, Texas
5502 Chapel Hill Blvd. 1.7 26,800 260
Chapel Hill, North Carolina
3654 West Pioneer Pkwy. 2.3 34,176 245
Arlington, Texas
1311 Northwest Loop 281 2.0 24,940 200
Longview, Texas
3125 Cherry Street North 1.3 21,500 259
Winston-Salem, North Carolina
1010 Holiday Hill 2.6 42,578 357
Drive North
Midland, Texas
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
1311 Clark Road 2.0 30,490 294
Santa Fe, New Mexico (SOLD 1/12/90)
95 Green Street 1.2 19,940 192
Warner-Robins, Georgia
2115 Silas Creek Pkwy. 1.7 25,350 299
Winston-Salem, North Carolina
3120 Knickerbocker Road 1.8 19,425 146
San Angelo, Texas
2302 Parkview Drive 1.1 19,575 180
San Angelo, Texas
8457 Roswell Road 3.9 60,240 447
Dunwoody, Georgia
5717 Will Ruth Avenue 2.0 33,056 260
El Paso, Texas
1513 Denman Street 1.5 14,362 120
Lufkin, Texas
9303 Abercorn Extension 3.0 34,080 278
Savannah, Georgia
1850 N. Clack Street 1.2 17,280 99
Abilene, Texas
7012 Glenwood 1.5 25,200 196
Raleigh, North Carolina
3730 West Wendover Ave. 1.7 30,600 289
Greensboro, North Carolina
2305 E. Lohman Avenue 1.3 17,380 177
Las Cruces, New Mexico
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
661 W. San Mateo Road 1.3 22,260 148
Santa Fe, New Mexico (SOLD 9/25/89)
4000 I-40 East 1.6 21,860 218
Amarillo, Texas
4701 Osborne Drive 1.3 18,900 183
El Paso, Texas
3229 Highway 80 2.1 31,120 206
Mesquite, Texas
1510 West 7th Street 1.0 13,640 124
Clovis, New Mexico
914 N.E. 8th Street 1.8 27,940 206
Grand Prairie, Texas
7469 Tara Boulevard 1.8 29,082 221
Jonesboro, Georgia
871 N. Forest 2.5 23,379 200
Amarillo, Texas
5808 Highway 271 South 1.1 14,680 123
Fort Smith, Arkansas
5604 Tinker Diagonal 1.6 27,901 278
Midwest City, Oklahoma
3751 Longmire Way 2.1 29,780 300
Doraville, Georgia
818 S. Clack Street 1.5 16,340 165
Abilene, Texas
8400 Canyon Drive 2.2 17,570 157
Amarillo, Texas
<PAGE>
Land Net No. of
Area Rentable Area Rentable
Location (Acres) (Square Feet) Spaces
- -------- ------- ------------- --------
3121 Washington Road 1.4 28,138 255
Augusta, Georgia
4011 Midland Blvd. 1.9 26,580 174
Fort Smith, Arkansas
4141 Snapfinger Woods Drive2.7 36,580 336
Decatur, Georgia
1808 Hampton Road 2.8 28,621 247
Texarkana, Texas
4155 Milgen Road 1.5 24,624 215
Columbus, Georgia
The following were purchased for non-affiliated third parties.
426 S. College Drive 2.3 28,131 290
Wilmington, North Carolina
1412 Poinsett Highway 1.6 19,300 200
Greenville, South Carolina
2815 White Horse Road 2.6 31,500 309
Greenville, South Carolina
1515 Zion Road 5.0 64,539 666
Morrow, Georgia
<PAGE>
VALUATION OF A LIMITED PARTNERSHIP INTEREST
The valuation methodology used in estimating the Fair Market Value of a Limited
Partnership Interest in Balcor/Colonial Storage Income Fund-85 is based upon
substituting the estimated present value of the Equity Cash Flows in place of
the Investment in Real Estate at Cost, Land, Buildings and Improvements. In
addition, the unamortized portions of the Offering Expenses and Loan Fees were
added to the Assets. As of December 31, 1994, the Offering Expenses and Loan
Fees were fully amortized. For financial reporting purposes, initially the
total Offering Expenses and Loan Fees were deducted from the proceeds of the
Limited Partnership Interests. Current Assets and Current Liabilities remained
as stated and subsequently are called "Net Current Assets." Commencing with
the year December 31, 1993, an amount equal to the present value of the Fund
Administration Costs has been deducted from the cash flow in anticipation of
the dissolution and termination of the Partnership.
Cash and the present value of the Equity Cash Flows initially were segregated
into the interests of the Tax-exempt Limited Partnership Interests, Taxable
Limited Partnership Interests and General Partner Interest Shares in accordance
with the terms of the Limited Partnership Agreement and the proportionate share
of the Partnership Interests. Credits are no longer calculated for the Taxable
Limited Partnership Interests for the current tax effect and the present value
of the future tax effect of the tax benefits which accrue to them in accordance
with the Agreement; consequently, the values of the Taxable and the Tax-exempt
Limited Partnership Interest Shares are the same.
<PAGE>
SCHEDULE A
BALCOR/COLONIAL STORAGE INCOME FUND - 85
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
Assets
- ------
Cash and cash equivalents $3,680,597
Net Accounts Receivable 111,693
Mortgage Note Receivable 1,656,722
Other 167,741
-----------
5,616,753
-----------
Mini-warehouse facilities, at cost
Land 14,193,743
Buildings 47,324,952
Furniture, fixtures and equipment 1,077,097
-----------
62,595,792
Less accumulated depreciation 18,735,420
Mini-warehouse facilities, net of -----------
accumulated depreciation 43,860,372
-----------
$49,477,125
===========
Liabilities and Partners' Capital
- ---------------------------------
Accrued Real Estate Taxes $487,918
Accounts payable 4,243
Due to affiliates 119,842
Other accrued liabilities 54,194
Security deposits 59,482
Deferred income 339,485
Total liabilities 1,065,164
-----------
Partners' capital (276,918 Limited Partnership
Interests issued and outstanding) 48,411,961
-----------
$49,477,125
===========
<PAGE>
VALUATION OF THE EQUITY CASH FLOWS
As of December 31, 1995, the General Partner adopted a current strategy to
terminate the Partnership at year-end 2000. Prior to December 31, 1995, the
valuation of a Limited Partnership Interest was based on a ten-year moving
period. This change results in a minor reduction in the value of a Limited
Partnership Interest.
The fair market value of the Equity Cash Flows is equal to the sum of the
present values of the Operating Cash Flows and the Sales Proceeds. The General
Partner has prepared individual cash flows for each property based on a
termination of the Partnership year-end 2000. The projected Operating Cash
Flows from the properties are increased 4% annually (a reduction from 5% used
in 1988) and have been discounted at an annual rate of 10.00% to a net present
value. The Agreement calls for the General Partner to receive 8% of the
Operating Cash Flows, and the remaining 92% is allocated to the Tax-exempt and
Taxable Limited Partnership Interests on the basis of 58.13% to the Taxable
Limited Partnership Interests and 41.73% to the Tax-exempt Limited Partnership
Interests. The General Partners share, however, is subordinated to the Limited
Partners preferred cumulative rates.
Sales Proceeds are calculated on the basis of a 10.00% capitalization rate for
the year-end 2000, adjusting for a 3% sales commission and a 4% escalation
rate.. The net proceeds from the sale have been discounted at an annual rate
of 10.00% to a net present value.
A summary of the Equity Cash Flows as of December 31, 1995, is as follows:
Taxable & General
Tax Exempt Partner Total
---------- ------- ------
Operating Cash
Flows $28,328,486 $ 0 $28,328,486
Sales Proceeds 50,930,081 0 50,930,081
----------- ---------- ------------
Total $79,258,567 $ 0 $79,258,567
<PAGE>
VALUATION OF THE OFFERING EXPENSES
The valuation methodology of the Partnership Interests includes the
capitalization of the Offering Expenses and their amortization over the life of
the equity assets and debt assets. As of December 31, 1995, the total
unamortized portion of the Offering Expenses was $0. The quarterly
amortization of offering expenses for years 2 through 10 is $206,457. This
amount is deducted quarterly from the preceding quarter's net offering
expenses.
SCHEDULE B
TOTAL 7,588,796 AMORTIZATION OF OFFERING EXPENSES:
EQUITY ASSET
QUARTER ENDING TERM # ADJUSTMENTS (S/L 10 YRS) REMAINING
- ---------------------------- -------------------------------------------
31-Dec-85 0 189,720 7,399,076
31-Mar-86 1 33,379 206,457 7,225,998
30-Jun-86 2 206,457 7,019,541
30-Sep-86 3 206,457 6,813,084
31-Dec-86 4 206,457 6,606,627
31-Mar-87 5 206,457 6,400,170
30-Jun-87 6 206,457 6,193,713
30-Sep-87 7 206,457 5,987,255
31-Dec-87 8 206,457 5,780,798
31-Mar-88 9 206,457 5,574,341
30-Jun-88 10 206,457 5,367,884
30-Sep-88 11 206,457 5,161,427
31-Dec-88 12 206,457 4,954,970
31-Mar-89 13 206,457 4,748,513
30-Jun-89 14 206,457 4,542,056
30-Sep-89 15 206,457 4,335,599
31-Dec-89 16 206,457 4,129,142
31-Mar-90 17 206,457 3,922,685
30-Jun-90 18 206,457 3,716,228
30-Sep-90 19 206,457 3,509,770
31-Dec-90 20 206,457 3,303,313
31-Mar-91 21 206,457 3,096,856
30-Jun-91 22 206,457 2,890,399
30-Sep-91 23 206,457 2,683,942
31-Dec-91 24 206,457 2,477,485
31-Mar-92 25 206,457 2,271,028
30-Jun-92 26 206,457 2,064,571
30-Sep-92 27 206,457 1,858,114
31-Dec-92 28 206,457 1,651,657
31-Mar-93 29 206,457 1,445,200
30-Jun-93 30 206,457 1,238,743
30-Sep-93 31 206,457 1,032,285
31-Dec-93 32 206,457 825,828
31-Mar-94 33 206,457 619,371
30-Jun-94 34 206,457 412,914
30-Sep-94 35 206,457 206,457
31-Dec-94 36 206,457 0
<PAGE>
CONCLUSION OF VALUE
Based on the various analyses of the components of the Partnership's Interests
presented in this report, our conclusions of value are summarized in the
following Schedule C.
SCHEDULE C
SUMMARY OF FAIR MARKET CALCULATION
DECEMBER 31, 1995
Taxable & General
Tax-Exempt Partner Total
---------- ------- ------
Cash:
Working Capital(3) $2,894,867 0 $2,894,867
Undistributed NCR(1) 0 0 0
Fund Admin Expenses(3,049,404) 0 (3,049,404)
----------- ---------- -----------
$(154,537) $ 0 $(154,537)
----------- ---------- -----------
Present Value of Equity
Cash Flows:
Operating Cash
Flows (1) 28,328,486 0 28,328,486
Sales Proceeds 50,930,081 0 50,930,081
------------ ---------- ------------
$79,258,567 $ 0 $79,258,567
------------ ---------- ------------
Present Value of Loan
Cash Flows:
Operating Cash
Flows (2) 357,289 0 357,289
Principal
Proceeds (2) 1,295,915 0 1,295,915
------------ ---------- -----------
$1,653,204 $ 0 $1,653,204
------------ ---------- -----------
Offering Expenses 0 0
Total Value of
Assets $80,757,234
------------
Number of Interests 276,918
------------
Value Per Interest $291.63
------------
Rounded $292.00
------------
Adjusted Original
Capital $250.00
------------
<PAGE>
(1)Current fund distributions are falling short of the L/P's cumulative
preferred return rate, and are projected to continue to fall short such
that cumulative return deficiencies will prohibit the GP from receiving
its 10% share of NCR.
(2)Reflects Notes taken back on sales of storage units.
(3)As of September 30, 1995.
