SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
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
(847) 267-1600 (817) 561-0100
(Name, Address and Telephone (Name, Address and Telephone
Number of Person Authorized to Number of Person Authorized to
Receive Notice and Receive Notice and
Communications on Behalf of the Communications on Behalf of the
Person(s) Filing Statement) Person(s) Filing Statement)
Copy To:
Michael P. Morrison, Esq.
Hopkins & Sutter
Three First National Plaza, Suite 4100
Chicago, Illinois 60602
(312) 558-6600
<PAGE>
Item 1. Security and Subject Company
The name of the subject partnership is Balcor/Colonial Storage Income
Fund-85, an Illinois limited partnership (the "Partnership"). The address of
the Partnership's principal executive offices is 2355 Waukegan Road, Suite
A200, Bannockburn, Illinois 60015. The Partnership's general partners are
Balcor Storage Partners-85, an Illinois partnership (the "Balcor General
Partner") and Colonial Storage 85, Inc., a Texas corporation (the "Colonial
General Partner," and together with the Balcor General Partner the "General
Partners"). The title of the class of equity securities to which this
statement relates is the Partnership's limited partnership interests (the
"Units"). (The holder of any Unit is hereinafter referred to as a "Limited
Partner".)
Item 2. Tender Offer of the Bidder
This statement relates to the unsolicited tender offer by Public Storage,
Inc., a California corporation ("Public Storage), to purchase up to 25% (but
not more than 25%) of the Units at a purchase price of $210 per Unit, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated August 29, 1996 (the
"Offer to Purchase"), and the related letter of transmittal (which together
constitute the "Offer"). The Offer is disclosed in a Tender Offer Statement on
Schedule 14D-1 dated August 29,1996 as filed with the Securities and Exchange
Commission (the "Commission"). The Offer to Purchase states that the address
of the principal executive office of Public Storage is 701 Western Avenue,
Suite 200, Glendale, California 91201-2397.
Item 3. Identity and Background
(a) The name and business address of the Partnership, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) The Partnership and its affiliates have the following material
contracts, agreements, arrangements and understandings and actual or potential
conflicts of interest with the Partnership, the General Partners and their
affiliates:
The General Partners each own a nominal interest in the Partnership and,
subject to certain preferential rights of the Limited Partners, the General
Partners are entitled to eight percent of net cash flow resulting from the
operations of the Partnership's properties, 1% as their distributive share and
the remaining 7% as a partnership incentive management fee. In addition, also
subject to certain preferential rights of the Limited Partners, the General
Partners are entitled to a certain percentage of the net cash proceeds realized
by the Partnership from the sale or refinancing of the Partnership's properties
and may be entitled to commissions arising from any property sales. The
preferential rights of the Limited Partners subordinate the General Partners'
rights to receive such distributions to the receipt by the Limited Partners of
an agreed upon rate of return. Because the Limited Partners received
distributions from Partnership operations for the twelve-month period ended
March 31, 1996 equal to 10% of their adjusted original capital,the General
Partners were paid $545,167 for that period. If the Partnership continues to
make distributions to Limited Partners at a rate of at least 10% per annum, the
General Partners will be entitled to receive additional amounts in the future.
<PAGE>
The General Partners are reimbursed by the Partnership for certain
administrative expenses incurred by the General Partners in connection with
their management of the Partnership's business. The Colonial General Partner
and an affiliate of the Balcor General Partner, The Balcor Company (the
"Company"), each fund certain other administrative expenses of the General
Partners that are not reimbursed by the Partnership.
An affiliate of the Colonial General Partner ("Colonial Affiliate") has
entered into a property management and leasing agreement with respect to the
properties owned by the Partnership (the "Property Management Agreement", a
copy of which is attached hereto as Exhibit (c)(1)). The Property Management
Agreement provides for monthly fees to be paid to the Colonial Affiliate in an
amount generally equal to 6% of gross revenues, provided that half of such fee
is to be subordinated to certain distributions to the Limited Partners. Due to
the Limited Partners' receipt of distributions from Partnership operations for
the twelve-month period ended March 31, 1996 equal to 10% on adjusted original
capital, the full 6% management fee, or $659,916, was paid for that period.
The Property Management Agreement is terminable (i) at the option of the
Partnership upon 60 days' prior written notice to the Colonial Affiliate, (ii)
at the option of the Colonial Affiliate upon 270 days' prior written notice to
the Partnership and (iii) automatically upon the withdrawal of the Colonial
General Partner as a general or limited partner of the Partnership.
(b)(2) The Partnership and its affiliates have the following material
contracts, agreements, arrangements and understandings and actual or potential
conflicts of interest with Public Storage, or its affiliates:
The ownership of a substantial number of Units by any person presents a
potential conflict of interest between such person on the one hand and the
General Partners and any non-tendering Limited Partners on the other hand.
Public Storage currently owns 9.3% of all Units. Moreover, if the transactions
contemplated in the Offer were to be consummated, Public Storage could own up
to 34.3% of all Units. The ownership of a large block of Units by Public
Storage would enable Public Storage to significantly influence decisions of the
Partnership with respect to certain Partnership matters. Holders of a majority
of the outstanding Units are entitled to vote to take any of the following
actions: (i) remove the General Partners; (ii) elect or approve of a successor
to any removed or withdrawn General Partners; (iii) dissolve the Partnership;
and (iv) amend the Partnership's partnership agreement. In order to amend
certain provisions of the Partnership's partnership agreement approval by the
General Partners as well as an affirmative vote by the holders of a majority of
the outstanding Units is required. Similarly, the consent of the General
Partners and an affirmative vote by the holders of a majority of the
outstanding Units is required to sell all or substantially all of the assets of
the Partnership in a single transaction or a series of related transactions.
Limited Partners holding more than 10% of the Units are entitled to call a
meeting at which these matters may be submitted to a vote of the Limited
Partners. Therefore, such ownership by Public Storage may increase the
likelihood that any one or more of these actions may or may not be taken by the
Partnership. Such actions may conflict with the General Partners' intentions
and/or any non-tendering Limited Partner's desires with respect to these
Partnership matters.
<PAGE>
Since the principal business of Public Storage is the ownership and
management of self-storage properties which compete with the Partnership's
properties in certain markets, the potential conflict of interest described in
the paragraph above may be magnified. In both informal and written
communications with the General Partners, Public Storage has expressed
particular interest in the management of the Partnership's properties. Public
Storage's interest in managing the properties may not be in the best interest
of the General Partners or non-tendering Limited Partners.
If either of the General Partners are removed as General Partner by the
Limited Partners at some future date, such removal may adversely impact the
employment needs of the Colonial General Partner and/or the Company.
Except as set forth in (b)(1) and (b)(2) above, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest between the Partnership or any of its
affiliates and: (i) the General Partners, their respective executive officers,
directors, or affiliates; or (ii) Public Storage, or its executive officers,
directors or affiliates.
Item 4. The Solicitation and Recommendation
(a) The General Partners are expressing no opinion and are remaining
neutral with respect to the Offer.
(b) The General Partners believe that the decision of whether or not a
Limited Partner should accept the Offer depends on a number of factors,
including the following, which should be considered in connection with such
Limited Partner's individual circumstances:
(i) The General Partners have been operating the Partnership's
properties so as to maximize cash flow and to provide the Limited Partners with
regular quarterly cash distributions. The Partnership made a second quarter
distribution to Limited Partners of $6.25 per Unit, representing an annualized
return to Limited Partners of 10% on their adjusted original capital
investment. Due to consistent improvement in the operating performance of the
properties, the Partnership has increased its quarterly distribution by $1.62
per Unit (35%) since January 1994.
(ii) In light of improvements in the capital markets, the Partnership
recently disseminated information on its properties to several institutional
investors that own mini-warehouse facilities, inviting them to submit bids by
September 30, 1996. There is no assurance that response bids will be received,
or if received, will be at prices acceptable to the General Partners. If the
General Partners receive acceptable firm offers, then the General Partners will
solicit proxies for the necessary Limited Partner approval for a sale.
<PAGE>
(iii) Valuation Counselors Group and Darby & Associates, Joint
Venture ("Darby") has estimated that as of December 31, 1995 the value of a
Unit was $289, based upon an estimate of the present value of the Partnership's
future Operating Cash Flows and the Sale Proceeds from the sale of the
Partnership's assets at year-end 2000, adjusted for (A) the current assets and
current liabilities of the Partnership, (B) the present value of the
Partnership's administrative costs, including management fees, and (C) the
anticipated costs of dissolution and termination of the Partnership. The
valuation does not represent the amount a Limited Partner would receive if the
Partnership were to liquidate its remaining properties in the near future. It
is important to note that the Darby valuation may be affected by an
acceleration in the liquidation of Partnership properties, changing market
conditions, economic factors, interest rates and unforeseen events.
The General Partners believe that the Limited Partners may find
certain additional information 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)(3).
(iv) Public Storage's offering price of $210 is below the range of
prices at which Units have been sold in recent secondary market trades.
According to the most recent issue of Partnership Spectrum (July/August 1996),
trading prices for the Units ranged from $219 to $245 during the 60 day period
ended June 30, 1996. These prices do not reflect any commissions payable by
the sellers to third parties and, therefore, the actual proceeds received by a
seller may be reduced accordingly. Due in part to the inefficiency of these
secondary markets, there can be no assurances that future secondary trades will
occur or result in similar prices.
(v) Public Storage arrived at its offering price in part by
deducting $5,740,000 in deferred amounts payable to the General Partners and
property manager from Public Storage's estimated value of the operating
facilities. The Partnership Agreement, however, provides that deferred amounts
are to be paid to General Partners and the property manager out of sales
proceeds only if and when Limited Partners have received an amount equal to
their adjusted original capital plus a specified return on their investment.
Therefore, it was not appropriate for Public Storage to assume the payment to
the General Partners and property manager of such deferred amounts.
(vi) For Limited Partners who desire immediate cash, Public Storage's
offer provides an opportunity to liquidate their investment in the Partnership.
Item 5. Persons Retained, Employed or to Be Compensated
The Partnership has retained Darby on an on-going basis to provide an
annual valuation of the Units. The Partnership paid Darby a fee of $17,500
plus out-of-pocket expenses of $655 for their December 31, 1995 valuation.
None of the Partnership, the General Partners, or any person acting on behalf
of any of them has retained any other person to make solicitations or
recommendations to holders of Units in connection with the Offer.
<PAGE>
Item 6. Recent Transactions and Intent with Respect to Securities
(a) To the best of the General Partners' knowledge, no transactions in
the Units have been effected during the past 60 days by the Partnership, the
General Partners or any partner, executive officer, director, affiliate or
subsidiary of either such entity.
(b) To the best of the General Partners' knowledge, none of the
Partnership, the General Partners, the Company or any partner, executive
officer, director, affiliate or subsidiary of each such entity presently
intends to tender any Units that are held of record or beneficially owned by
such persons pursuant to the Offer.
Item 7. Certain Negotiations and Transactions by the Subject Company
(a) No negotiations are being undertaken or are underway by the
Partnership in response to the Offer which relate to or would result in: (1)
an extraordinary transaction such as a merger or reorganization involving the
Partnership or any affiliate controlled by the Partnership; (2) a purchase,
sale or transfer of a material amount of assets by the Partnership or any
affiliate controlled by the Partnership; (3) a tender offer for or other
acquisition of securities by or of the Partnership; or (4) any material change
in the present capitalization or distribution policy of the Partnership.
(b) There are no transactions, General Partner resolutions, agreements in
principle or signed contracts in response to the Offer that relate to or would
result in one or more of the events referred to in Item 7(a).
Item 8. Additional Information to be Furnished
Taxable Limited Partners. Limited Partners that are not exempt from
Federal income tax ("Taxable Limited Partners") will recognize gain on the sale
of a Unit pursuant to the Offer to the extent that the amount realized exceeds
the Limited Partner's adjusted tax basis in such Unit. Notably, any gain
realized by a Taxable Limited Partner may possibly be offset by losses from
other "passive activities" under the passive loss rules of Section 469 of the
Internal Revenue Code of 1986, as amended (the "Code"). In the event a Taxable
Limited Partner realizes a loss on disposition, such loss may be deductible
only to the extent permitted under the passive loss rules and other applicable
limitations. If a Taxable Limited Partner sells all Units (and such Units have
not been aggregated for purposes of the passive loss rules with activities not
currently being sold), loss recognized on the sale should be deductible by such
Taxable Limited Partner against non-passive income, subject to any other
applicable limitations (including capital loss limitations).
Limited Partners should consider the possibility of legislative changes in
the taxation of capital gains and losses, as well as other tax law changes, in
evaluating the Offer. In addition, other considerations could affect your tax
liability, including, but not limited to, alternative minimum taxes and state
income taxes.
<PAGE>
Tax-exempt Limited Partners. Limited Partners that are generally exempt
from Federal income taxation (such as qualified profit-sharing, pensions, and
other retirement trusts; bank commingled trust funds for such trusts;
individual retirement accounts (IRAs), HR-10 (Keogh) Plans, and plans for
self-employed individuals; government pension and retirement trusts; and
certain religious, charitable, scientific, literary and educational
corporations, funds and foundations (the "Tax-exempt Limited Partners")) will
generally not be taxable on a sale of Units pursuant to the Offer. However, in
order to avoid tax on the sale, certain entities exempt under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code (such as social clubs and
voluntary employee benefit associations, Supplemental Unemployment Benefit
Trusts and group legal services plans) must set aside or reserve the income
from the sale for purposes related to their tax-exempt status, as described in
Section 512(a)(3) of the Code. In addition, to the extent the Units of a
Tax-exempt Limited Partner are considered debt-financed property as a result of
borrowing by such Partner, all or part of the gain from the sale of the Units
may be taxable as unrelated business taxable income (although certain
educational organizations, qualified trusts under Section 401 of the Code, and
title-holding companies may be excepted from taxation under Section 514(c)(9)
of the Code). Also, a Tax-exempt Limited Partner would be taxable on a sale of
Units in the unlikely event the Units are considered includible in inventory of
the Partner or held primarily for sale to customers in the ordinary course of
business.
Item 9. Material to be Filed as Exhibits
(a)(1) Letter to Investors, dated September 9, 1996.
(c)(1) Management Agreement
(c)(2) Darby Valuation Report.
<PAGE>
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: September 9, 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
September 9, 1996
Dear Investor:
As you will recall, on January 25, 1996, Public Storage, Inc. ("Public
Storage") 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. On August 29,
1996, Public Storage announced another offer to purchase up to 69,230 Units.
The offering price per unit in Public Storage's new offer is $210, the same
price as was offered in January. As with the January offer, your General
Partners, Balcor Storage Partners-85 and Colonial Storage 85, Inc., express no
opinion and are remaining neutral with respect to this offer by Public Storage.
In evaluating Public Storage's new offer to purchase Units, each limited
partner should consider the following:
1. The General Partners have been operating the Partnership's properties
so as to maximize cash flow and to provide the limited partners with regular
quarterly cash distributions. The Partnership made a second quarter
distribution to Limited Partners of $6.25 per Unit, representing an annualized
return to Limited Partners of 10% on their adjusted original capital
investment. Due to consistent improvement in the operating performance of the
properties, the Partnership has increased its quarterly distribution by $1.62
per Unit (35%) since January 1994.
2. In light of improvements in the capital markets, the Partnership
recently disseminated information on its properties to several institutional
investors that own mini-warehouse facilities, inviting them to submit bids by
September 30, 1996. There is no assurance that response bids will be received,
or if received, will be at prices acceptable to the General Partners. If the
General Partners receive acceptable firm offers, then the General Partners will
solicit proxies for the necessary Limited Partner approval for a sale.
3. Valuation Counselors Group and Darby & Associates, Joint Venture
("Darby") has estimated that as of December 31, 1995 the value of a Unit was
$289. The Darby valuation of $289 represents the amount per Unit a Limited
Partner would receive if the Partnership were to liquidate its remaining
properties by year end 2000, and the estimated present value to an investor of
distributions as projected through the year 2000. The Darby valuation may be
affected by an acceleration in the liquidation of Partnership properties,
changing market conditions, economic factors, interest rates and unforeseen
events. Attached you will find an excerpt from the Darby valuation report
which provides a more detailed explanation of Darby's valuation methodology.
4. Public Storage's offering price of $210 is below the range of prices
at which Units have been sold in recent secondary market trades. According to
the most recent issue of Partnership Spectrum (July/August 1996), trading
prices for the Units ranged from $219 to $245 during the 60 day period ended
June 30, 1996. These prices do not reflect any commissions payable by the
sellers to third parties and, therefore, the actual proceeds received by a
seller may be reduced accordingly. Due in part to the inefficiency of these
secondary markets, there can be no assurances that future secondary trades will
occur or result in similar prices.
<PAGE>
5. For investors who desire immediate cash, Public Storage's offer
provides an opportunity to liquidate their investment in the Partnership.
Under the terms of Public Storage's offer, Public Storage cannot purchase
any tendered Units prior to September 30, 1996. You may withdraw Units
tendered to Public Storage at any time prior to 5:00 p.m., E.S.T., on September
30, 1996. You should consult your personal financial, tax and legal advisors
as to your personal situation prior to making a decision regarding the offer.
If you wish to retain your Units, you need not take any action regarding the
offer.
We strongly urge you to read carefully the attached Schedule 14D-9 for a
more thorough discussion of the Partnership's response to the Public Storage
offer. The Exhibits to Schedule 14D-9 have been omitted but may be obtained at
the Partnership's expense by calling 1-800-422-5267.
Your General Partners will continue to act in the manner they believe to
be in the best interest of the Partnership and its limited partners.
Very truly yours, Very truly yours,
/s/ James R. Pruett /s/ Thomas E. Meador
James R. Pruett 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 resulted 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 $28,328,486 $ -0- $28,328,486
Flows
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: $2,826,198 0 $2,826,198
Working Capital/
General Partner Distribution(1) (545,167) 0 (545,167)
Fund Admin. Expenses (3,049,404) 0 (3,049,404)
------------ ------- ------------
$ (768,373) $ 0 $ (768,373)
------------ ------- ------------
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 $80,143,398
-----------
Number of Interests 276,918
-------
Value Per Interest $289.41
-------
Rounded $289.00
-------
<PAGE>
Adjusted Original Capital $250.00
-------
(1) In February, 1996 the General Partners received $545,167 in distributions
for the period April to December 1995. Future projections reflect the General
Partners not receiving NCR distributions.
(2) Reflects notes taken back on sales of storage units.
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as of the 1st day of October, 1985, is entered
into by and between Colonial Storage Management 85, Inc., a Texas corporation
("CSM") and Balcor/Colonial Storage Income Fund - 85, an Illinois limited
partnership (the "Partnership").
WHEREAS, the Partnership intends to acquire and operate certain existing
mini-warehouse facilities identified in Schedule I attached hereto and
incorporated herein by this reference (each such mini-warehouse facility being
referred to as a "Property" and, collectively, as the "Properties"); and
WHEREAS, it is the intention of the Partnership that the Properties be rented
on a rental unit by rental unit basis to corporations, partnerships,
individuals or other entities for use primarily as storage facilities for
personal and business use; and
WHEREAS, the Partnership desires to employ CSM to manage the Properties and CSM
desires to accept said employment, all in accordance with the terms and
conditions of this Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants, promises,
representations and warranties contained herein, the adequacy and accuracy of
which is hereby acknowledged, the parties hereto hereby agree as follows:
SECTION I
EMPLOYMENT
1.1. Employment and Term. The Partnership hereby employs CSM and CSM hereby
accepts such employment as manager of the Properties for a period of twenty
(20) years from the date hereof (or until such Properties are sold) upon the
terms and conditions hereinafter set forth.
1.2. Other Business. The Partnership acknowledges and expressly agrees that CSM
and its affiliates intend to engage in the business of managing mini-warehouse
and other facilities both for their own account and for others (whether or not
such other facilities may be in direct or indirect competition with the
Partnership). It is further expressly agreed that CSM and its affiliates may in
the future engage in other businesses which may compete directly or indirectly
with the activities of the Partnership.
1.3. Independent Contractor. In the performance of its duties under this
Agreement CSM shall occupy the position of an independent contractor with
respect to the Partnership. Nothing contained herein shall be construed as
making the parties hereto partners or joint venturers nor, except as expressly
otherwise provided for herein, construed as making CSM an agent or employee of
the Partnership.
<PAGE>
SECTION II
DUTIES AND AUTHORITY OF CSM
2.1. General Duties and Authority. Subject only to the restrictions,
limitations and covenants provided in Paragraphs 2.2, 2.3 and 2.4 of this
Section II and the right of the Partnership to terminate this Agreement as
provided in Section VI hereof, CSM shall have the sole and exclusive authority
to fully and completely supervise the Properties and supervise and direct the
business and affairs associated with or related to the daily operations thereof
and, to that end, to cause or direct the Partnership to execute such documents
or instruments and hire or discharge such employees as, in the reasonable
judgment of CSM, may be deemed necessary or advisable. Such duties and
authorities shall include, but not be limited to, the following:
(a) Renting of the Properties. CSM shall establish policies and procedures
for directing the marketing activities of Partnership employees. CSM shall
have the sole discretion, which discretion shall be exercised in good
faith and consistent with reasonable business practices in the locality
where each property is situated, to establish the terms and conditions of
occupancy by the lessees of rental units in Properties. CSM is hereby
authorized to direct and control Partnership employees in entering into
rental agreements on behalf of, in the name of and for the account of the
Partnership with such lessees and in collecting rent from such lessees.
CSM shall cause the Partnership to advertise in such media and to the
extent it deems necessary and appropriate.
(b) Repair, Maintenance and Improvements. CSM shall make and execute, or
supervise and have control over the making and executing of, all decisions
concerning the acquisition of furniture, fixtures and supplies for the
Properties, and the purchase, lease or other acquisition of the same on
behalf of, in the name of and for the account of the Partnership. CSM
shall make and execute, or supervise and have control over the making and
executing of, all decisions concerning the maintenance, repair and
landscaping of the Properties; provided, however, that nothing contained
herein shall preclude the Partnership from requiring maintenance and/or
repairs in addition to those recommended by CSM. All costs incurred in
connection therewith shall be on behalf of, in the name of and for the
account of the Partnership. With the prior written approval of the
Partnership, CSM or Partnership employees acting pursuant to CSM's
direction shall, on behalf of, in the name of and for the account of the
Partnership, negotiate and contract for, and supervise the installation
of, all capital improvements relating to the Properties.
(c) Personnel. CSM or Partnership employees acting pursuant to CSM's
direction shall select all vendors, suppliers, contractors, subcontractors
and employees with respect to the Properties and shall hire, discharge and
supervise all labor and employees required for the operation (including
billings and collections) and maintenance of the Properties, including
attorneys, accountants, consultants and clerical employees. All such acts
shall be on behalf of, in the name of and for the account of the
Partnership and any employee so hired shall be carried on the payroll of
the Partnership and shall not be deemed to be an employee of CSM.
Employees of the Partnership may include, but shall not be limited to,
regional managers, resident managers, assistant managers, relief managers
and administrative and clerical personnel. Where appropriate, CSM may
cause the Partnership to hire employees of CSM (other than CSM's executive
<PAGE>
officers and directors) on a reasonable hourly rate basis (not to exceed
the rate otherwise payable to such employees by CSM) to perform the
necessary management, administrative and clerical services. In such event,
salaries of such personnel payable by CSM may be reduced correspondingly.
All personnel employed by the Partnership in connection with the foregoing
shall be supervised by CSM.
CSM and its employees shall be responsible for the disbursement of
Partnership funds in payment of all expenses incurred in connection with
the operation of the Properties. CSM shall be separately reimbursed for
the direct cost of furnishing such services, but shall not be reimbursed
for the time of its executive officers and directors devoted to
Partnership affairs.
(d) Agreements. CSM and Partnership employees acting pursuant to CSM's
direction shall negotiate and execute on behalf of, in the name of and for
the account of the Partnership such agreements as CSM deems necessary or
advisable for the furnishing of utilities, services, concessions and
supplies and for the maintenance, repair and operation of the Properties
and such other agreements as may benefit the Properties or be incidental
to the matters for which CSM is responsible hereunder.
(e) Other Decisions. CSM shall have control over the daily operation of
the Properties.
(f) Regulations and Permits. CSM shall use its best efforts to cause all
things to be done on behalf of, in the name of and for the account of the
Partnership on the Properties necessary to comply with any statute,
ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Properties with respect to
the use of the Properties or the construction, maintenance, or operation
thereof, and with all orders and requirements of the local Board of Fire
Underwriters or any other body which may hereafter exercise similar
functions. CSM shall cause the Partnership to apply for and attempt to
obtain and maintain on behalf of, in the name of and for the account of
the Partnership all licenses and permits required or advisable (in CSM's
sole judgment) in connection with the management and operation of the
Properties.
(g) Accounting. CSM shall establish, supervise, direct and maintain the
operation of an accounting system and shall cause to be prepared and
delivered to the Partnership, at the Partnership's expense, financial
statements as follows:
(i) On or before thirty (30) days after the close of each calendar
month, a statement of operations showing the results of operation of
each of the Properties for such month and of the fiscal year to date
having annexed thereto a computation of the Property Management Fee,
as such fee is defined in Section IV of this Agreement, for such
month and for the fiscal year to date.
(ii) On or before sixty (60) days after the close of the fiscal year,
a balance sheet and related statement of operations showing the
result of the operations of the Properties during the fiscal year,
both audited and reported on by an independent certified public
accounting firm approved by and retained on behalf of, in the name of
and for the account of the Partnership by CSM and having annexed
<PAGE>
thereto a computation of the Property Management Fee for such fiscal
year. Fees for the independent certified public accounting firm shall
be borne by the Partnership.
(h) Deposits and Disbursements. CSM shall cause the establishment of bank
accounts insured by the Federal-Deposit Insurance Corporation in the name
of the Partnership and shall deposit therein all receipts and monies
arising from the operation of the Properties or otherwise received for and
on behalf of the Partnership. CSM shall disburse Partnership funds from
said accounts on behalf of, in the name of and for the account of the
Partnership in such amounts and at such time as disbursement of such
revenues for payment of payroll and other obligations of the Partnership
is required. CSM shall establish and be responsible for administering a
policy for specifying the identity of signatories to the Partnership's
bank accounts and establishing the number of signatures required for
checks of various amounts. Expenses for deposits and disbursements shall
be borne by the Partnership.
(i) Collections. CSM shall supervise and direct personnel in the
collection and billing of all accounts payable and due to the Partnership
with respect to the Properties and shall be responsible for establishing
policies and procedures to minimize the amount of bad debts. Expenses of
collections shall be borne by the Partnership.
(j) Legal Actions. CSM shall cause to be instituted on behalf of, in the
name of and for the account of the Partnership any and all legal actions
or proceedings CSM deems necessary or advisable to collect charges, rents
or other income due to the Partnership with respect to the Properties or
to oust or dispossess lessees or other persons unlawfully in possession
under any lease or otherwise, and to collect damages for breach thereof,
or default thereunder by such lessee or other occupant. The cost of all
such legal actions or proceedings shall be borne by the Partnership.
(k) Insurance. CSM shall use its best efforts to assure that there is
obtained and kept in force fire, comprehensive, liability and other
insurance policies in amounts and from carriers approved by the
Partnership and in amounts generally carried with respect to similar
facilities. CSM shall also obtain and maintain in force on behalf of the
Partnership such additional insurance with respect to the Properties as
the Partnership shall from time to time instruct. All insurance expenses
shall be borne by the Partnership.
(l) Taxes. CSM shall disburse from Partnership funds when due or in
installments (where allowed) all taxes, personal and real, and assessments
properly levied on the Partnership with respect to the Properties on
behalf of, in the name of and for the account of the Partnership. CSM
shall use its best efforts to assure that the Partnership maintains and
implements a procedure for review by Partnership employees of all amounts
assessed on the Properties. All expenses for the disbursement of taxes
shall be borne by the Partnership.
(m) Budget and Reports. CSM shall submit to the Partnership on or before
December 31 of each calendar year during the term hereof an annual budget
containing an estimate of the projected income (including rent increases
and when same, if any, are scheduled) and necessary expenditures during
the forthcoming calendar year in connection with the management and
operation of the Properties by CSM on behalf of the Partnership. CSM shall
<PAGE>
also provide to the Partnership such periodic reports concerning the
management and operation of the Properties by CSM as the Partnership may
reasonably request.
2.2. Restrictions. Notwithstanding anything to the contrary set forth in this
Section II, CSM shall not be required to do, or cause to be done, anything for
the account of the Partnership (i) which may make CSM liable to third parties,
(ii) which may not be commenced, undertaken or pleaded because of insufficient
funds available on the accounts of the Partnership established pursuant to this
Section II after reasonable request from CSM to the Partnership, (iii) which
may, under applicable law, constitute an impermissible delegation of duties and
responsibilities, including but not limited to the purchase or construction of
capital improvements, the sale or disposition of all or substantially all of
the Partnership's assets, and any action which may result in a change in the
Partnership's primary business, (iv) which cannot be done because of acts of
God, strikes, governmental regulations or laws, acts of war or other types of
events beyond CSM's control, whether similar or dissimilar to the foregoing, or
(v) which would violate the terms of the Agreement and Certificate of Limited
Partnership, any other agreement known to CSM by which the Partnership may be
bound, or that certain Registration Statement No. 95752 on Form S-11, as
amended from time to time, filed with the Securities and Exchange Commissions
and declared effective on June 11, 1985 (the "Registration Statement").
2.3. Limitations on CSM's Authority. Notwithstanding anything to the contrary
set forth in this Section II, CSM shall not, without obtaining the prior
written consent of the Partnership, (i) alter the buildings or other structures
on the Properties in any material manner, (ii) make any arrangements for a term
exceeding one (1) year which are not terminable on thirty (30) days notice at
the will of the Partnership, without penalty, payment or surcharge, or (iii)
incur any unbudgeted expenditure of Partnership funds in excess of Five
Thousand Dollars ($5,000) on any Property without the prior approval of the
Partnership.
2.4. Covenants. Notwithstanding anything to the contrary set forth in this
Section II, CSM hereby covenants to use its best efforts to assure that the
Partnership does not derive any revenues or income from or for (i) the sale of
locks and keys to lessees of rental units in the Properties; (ii) lease
application or credit check fees collected from prospective lessees of rental
units in the Properties; (iii) vending machine or concessionaire operations on
the Properties; (iv) maintenance charges assessed against lessees of rental
units in the Properties in addition to the basic rent paid by such lessees
(other than amounts received as payments for damages caused by a lessee, which
amounts shall be treated as additional rents); or (v) the provision of parking
facilities on the Properties, other than the rental of a parking space subject
to a month-to-month lease. CSM further covenants that it will operate the
Properties in a manner similar to that in which affiliates of CSM have
typically operated other mini-warehouse facilities and that the services to be
provided to lessees of rental units in the Properties will not exceed those
customarily rendered in connection with the rental of mini-warehouse
facilities.
<PAGE>
SECTION III
DUTIES OF THE PARTNERSHIP
The Partnership hereby agrees to cooperate with CSM in the performance of its
duties under this Agreement and, to that end, upon the request of CSM, to
provide reasonable temporary office space for CSM's employees on the premises
of the Properties, to give CSM access to all files, books and records of the
Partnership relevant to the Properties and to execute all documents or
instruments and hire and discharge such employees as CSM in its good faith
judgment deems reasonably necessary or advisable to enable it to fulfill its
duties under this Agreement. Such employees shall include, but not be limited
to, regional managers, resident managers, assistant managers, relief managers
and administrative and clerical personnel. It is understood and acknowledged
that some or all of such employees may be employed part-time by the Partnership
and part-time by CSM or its affiliates and/or by owners of other mini-warehouse
or other facilities managed by CSM, some of which may compete with the
Properties.
SECTION IV
COMPENSATION TO CSM
4.1. Property Management Fee. The Partnership shall pay CSM, as the full amount
due for the services herein provided which are actually rendered by CSM
pursuant to this Agreement, a Property Management Fee equal to six percent (6%)
of the "Gross Revenue" derived from or connected with the Properties so long as
the Partnership owns the Properties, but not exceeding that customary for
similar property management and leasing services in the relevant geographical
area. In the event the Partnership consents to a net lease for a term of ten
(10) or more years on any Property, the compensation otherwise payable to CSM
shall be reduced to one percent (1%) of the "Gross Revenue" derived from or
connected with such Property, except for a one time initial leasing fee of
three percent (3%) of the "Gross Revenue" on such lease payable over the first
five (5) full years of the original term of the lease. The term "Gross Revenue"
shall mean all receipts (excluding security deposits, unless and until the
Partnership recognizes such security deposits as income, and amounts received
as payments for damages by lessees) of the Partnership (whether or not received
by CSM on behalf of, in the name of or for the account of the Partnership)
arising from the operation of the Properties in the ordinary course of business
including, but not limited to, rental payments of lessees of rental units of
the Properties and all other funds, whether or not otherwise described herein,
paid for the use of the Properties. Gross Revenue shall be determined on a cash
basis. The Management Fee for each month shall be paid on or before 30 days
after the close of such month and shall be calculated on the basis of Gross
Revenue for such month.
4.2. Subordination. Fifty percent (50%) of the Property Management Fee
otherwise payable to CSM pursuant to Paragraph 4.1 shall be subordinated to the
prior receipt by Limited Partners of the Partnership of a "Special
Distribution" of eight percent (8%) during the first twelve (12) month period
after termination of the public offering of limited partnership interests in
Balcor/Colonial Storage Income Fund - 85 pursuant to the Registration
Statement, nine percent (9%) during the second twelve (12) month period and ten
percent (10%) during each twelve (12) month period thereafter. If and to the
extent required to accomplish the subordination of its Property Management Fee
as required by this Paragraph 4.2, CSM hereby agrees that it shall annually
<PAGE>
refund to the Partnership any payments theretofore received by CSM which are
required to be subordinated by the terms hereof. If the receipt of any portion
of CSM's Property Management Fee has been subordinated to the Limited Partners
"Special Distributions", such amount shall be deferred and paid to CSM, without
interest, from and only to the extent of the "Net Cash Proceeds" of the
Partnership remaining after distributions of such "Net Cash Proceeds" to the
Limited Partners in an amount equal to their "Original Capital" plus any
deficiency in their "Special Distributions" and a twelve percent (12%)
"Cumulative Distribution." The terms "Special Distribution," "Net Cash
Proceeds," "Original Capital" and "Cumulative Distribution" shall have the same
meaning in this Paragraph 4.2 as defined in the Registration Statement, as from
time to time supplemented or amended.
4.3. Employees Compensated by Partnership. It is understood and agreed that the
Property Management Fee payable to CSM will be in addition to, and shall not be
reduced by, the cost to the Partnership of employing or engaging those
employees and independent contractors engaged by or for the Partnership,
including, but not limited to, the categories of personnel specifically
referred to in Paragraph 2.1(c).
SECTION V
USE OF TRADEMARKS, SERVICE MARKS
AND RELATED ITEMS
It is understood and agreed that the name, trademark and service mark,
"Colonial Self Storage" and related trademarks, service marks, slogans,
caricatures, designs and other trade or service items shall be utilized for the
non-exclusive benefit of the Partnership in the rental and operation of the
Properties, and in comparable operations elsewhere. It is further understood
and agreed that this name and all such trademarks, service marks, slogans,
caricatures, designs and other trade or service items shall remain and be at
all times the property of CSM or its affiliates, and that, except during the
term hereof, the Partnership shall have no right whatsoever therein. Upon
termination of this Agreement, at any time or for any reason, all such use by
and for the benefit of the Partnership of any such name, trademark, service
mark, slogan, caricature, design or other trade or service item in connection
with the Properties shall, in any event, be terminated and any signs bearing
any of the foregoing shall be removed from view and no longer used by the
Partnership. It is understood and agreed that CSM will use and shall be
unrestricted in its use of such name, trademark, service mark, slogan,
caricature, design or other trade or service item in the management and
operation of mini-warehouse and other facilities both during and after the
expiration of the term or the termination of this Agreement. CSM represents and
warrants that CSM has the right to the non-exclusive use of the name, trademark
and service mark "Colonial Self Storage" and hereby agrees to indemnify and
defend the Partnership and its general partners from any and all costs,
expenses, attorneys' fees, suits, liabilities, judgments, damages and claims
arising in connection with any claim that the use of the name, trademark and
service mark "Colonial Self Storage" infringes the name, trademark or service
mark of any other person.
<PAGE>
SECTION VI
TERMINATION
Upon sixty (60) days written notice to CSM pursuant to Section XI hereof, the
Partnership may terminate this Agreement with or without cause. Upon two
hundred seventy (270) days written notice to the Partnership pursuant to
Section XI hereof, CSM may terminate this Agreement with or without cause. This
Agreement shall automatically terminate in the event Colonial Storage 85, Inc.,
an affiliate of CSM, shall voluntarily withdraw as a general or limited partner
of the Partnership.
SECTION VII
INDEMNIFICATION
The Partnership hereby agrees to indemnify and hold CSM and its executive
officers, directors, employees and affiliates harmless from any and all costs,
expenses, attorneys' fees, suits, liabilities, judgments, damages and claims
arising from the Partnership's breach of this Agreement or in connection with
the management of the Properties (including the loss of the use thereof
following any damage, injury or destruction) arising from any cause except for
the willful misconduct, negligence or negligent omissions on the part of CSM or
its executive officers, directors, employees or affiliates. CSM and its
executive officers, directors, employees and affiliates also shall not be
liable for any error of judgment or for any mistake of fact or law, or for
anything which it may do or refrain from doing hereinafter, except in cases of
willful misconduct or negligence. CSM and its affiliates hereby agree to
indemnify and hold the Partnership and its general partners harmless from any
and all costs, expenses, attorneys' fees, suits, liabilities, judgments,
damages and claims arising from CSM's breach of this Agreement or in connection
with the management of the Properties arising from the willful misconduct or
negligence of CSM or its executive officers, directors, employees or
affiliates.
SECTION VIII
ASSIGNMENTS
Neither this Agreement nor any right hereunder shall be assignable by the
Partnership and any attempt to do so shall be void ab initio. CSM shall have
the right to assign this Agreement to an affiliate, provided, however, that any
such assignee must assume all obligations of CSM hereunder. The Partnership's
rights hereunder will be enforceable against any such assignee and CSM shall
not be released from its liabilities hereunder unless the Partnership shall
expressly agree thereto in writing.
SECTION IX
HEADINGS
The headings contained herein are for convenience of reference only and are not
intended to define, limit or describe the scope or intent of any provision of
this Agreement.
<PAGE>
SECTION X
GOVERNING LAW
The validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties shall be governed by the
laws of the State of Texas. This Agreement shall be deemed performable and
venue for any action brought hereunder shall be in Tarrant County, Texas.
SECTION XI
NOTICES
Any notice required or permitted herein to be given shall be given in writing
and shall be personally delivered or mailed, first class postage prepaid, to
the respective addresses of the parties set forth below their signatures on the
signature page hereof, or to such other address as any party may give to the
others in writing.
SECTION XII
SEVERABILITY
Should any term or provision hereof be deemed invalid, void or unenforceable
either in its entirety or in a particular application, the remainder of this
Agreement shall nonetheless remain in full force and effect and, if the
subject, term or provision is deemed to be invalid, void or unenforceable only
with respect to a particular application, such term or provision shall remain
in full force and effect with respect to all other applications. The parties
recognize that broad discretionary authority has been granted by the
Partnership to CSM in the management and direction of the Partnership's
business and financial affairs and it is their intent that such authority be
fully exercised by CSM within the limitations imposed by applicable law. If,
however, any court of competent jurisdiction should render a final judgment
that the authority granted to CSM herein exceeds the bounds of permissible
delegation under applicable law, the parties agree that this Agreement shall be
deemed amended, modified and reformed to the extent necessary to reduce the
scope of authority delegated by the Partnership to CSM as to limit such
authority to that permissible under applicable law as evidenced by the written
legal opinion of counsel to CSM. The parties agree that no determination that
the discretion and authority granted to CSM hereunder exceeds permissible
bounds shall result in this Agreement being declared or adjudged invalid, void
or unenforceable in its entirety; rather, the parties request that any court
examining such issue employ great latitude in reforming this Agreement so as to
make the same, as reformed, valid and enforceable.
SECTION XIII
AFFILIATES
"Affiliate", with respect to CSM shall mean (i) any person directly or
indirectly owning, controlling, or holding with power to vote, 10% or more of
the outstanding voting securities or interests of CSM; (ii) any person, 10% or
more of whose outstanding voting securities or interests are directly or
indirectly owned, controlled, or held with power to vote, by CSM; (iii) any
person directly or indirectly controlling, controlled by or under common
control with CSM; (iv) any officer, director or partner directly or indirectly
<PAGE>
controlling, controlled by or under common control with CSM; (iv) any officer,
director or partner of CSM; and (v) any company for which CSM acts as an
officer, director or partner.
SECTION XIV
SUCCESSORS
This Agreement shall be binding upon and inure to the benefit of the respective
parties hereto and their permitted assigns and successors in interest.
SECTION XV
ATTORNEYS' FEES
If it shall become necessary for either party hereto to engage attorneys to
institute legal action for the purpose of enforcing its rights hereunder or for
the purpose of defending legal action brought by the other party hereto, the
party or parties prevailing in such litigation shall be entitled to receive all
costs, expenses and fees (including reasonable attorneys' fees) incurred by it
in such litigation (including appeals).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COLONIAL STORAGE MANAGEMENT 85, INC.
By: /s/James R. Pruett
----------------------
James R. Pruett,
Its President
1141 West Pioneer Parkway
Suite 200
Arlington, Texas 76013
BALCOR/COLONIAL STORAGE
INCOME FUND - 85
By: Balcor Storage
Partners - 85
By: Balcor Storage
Partners, Inc.
By: /s/Michael C. Schindler
--------------------------
--------------------------
Its
----------------------
4849 Golf Road
Skokie, Illinois 60077
AND By: Colonial Storage 85, Inc.
By: /s/James R. Pruett
---------------------------
James R. Pruett, Its
President
SCHEDULE I
<PAGE>
The Initial Facilities
1. 3233 East Highway 80
Odessa, Texas
2. 2306 N. Collins Blvd.
Arlington, Texas
3. 3107 South Lake Drive
Texarkana, Texas
4. 6715 Wolflin Road
Amarillo, Texas
5. 7800 North Broadway
Oklahoma City, Oklahoma
6. 1604 Camp Lane
Albany, Georgia
7. 1005 W. Cotton
Longview, Texas
8. 6046 Financial Drive
Norcross, Georgia
9. 1320 Norwood Drive
Bedford, Texas
10. 5311 Apex Highway
Durham, North Carolina
11. 218 Eisenhower Drive
Savannah, Georgia
12. 132 Slaton Highway
Lubbock, Texas
13. 2960 South Cobb Drive
Smyrna, Georgia
14. 3513 Highway 45 North
Meridian, Mississippi
15. 3194 S. Campbell Ave.
Springfield, Missouri
16. 5115 San Mateo N.E.
Albuquerque, New Mexico
17. 1440 North Hairston Road
Stone Mountain, Georgia
18. 3472 Hillsboro Road
Durham, North Carolina
19. 4615 West Beryl Road
Raleigh, North Carolina
20. 2826 S. Clack Street
Abilene, Texas
21. 1301 S. Stemmons
Lewisville, Texas
22. 2316 Highway 19 North
Meridian, Mississippi
23. 3016 South Cooper
Arlington, Texas
24. 2215 W. Southwest Loop 223
Tyler, Texas
25. 2000 Country Club Drive
Carrollton, Texas
26. 2331 S. Collins Blvd.
Arlington, Texas
27. 2990 Pio Nono Avenue
Macon, Georgia
<PAGE>
28. 5513 East Lancaster
Fort Worth, Texas
29. 5121 North Street
Nacogdoches, Texas
30. 4917 California Pkwy., SE
Fort Worth, Texas
31. 2636 Baylor Drive, SE
Albuquerque, New Mexico
32. 1881 Gordon Highway
Augusta, Georgia
33. 3208 E. Park Row
Arlington, Texas
34. 5502 Chapel Hill Blvd.
Chapel Hill, North Carolina
35. 3654 West Pioneer Pkwy.
Arlington, Texas
36. 1311 Northwest Loop 281
Longview, Texas
37. 3125 Cherry Street North
Winston-Salem, North Carolina
38. 1010 Holiday Hill Drive North
Midland, Texas
39. 1311 Clark Road
Santa Fe, New Mexico
40. 95 Green Street
Warner-Robins, Georgia
41. 2115 Silas Creek Pkwy.
Winston-Salem, North Carolina
42. 3120 Knickerbocker Rd.
San Angelo, Texas
43. 2302 Parkview Drive
San Angelo, Texas
44. 8457 Roswell Rd.
Dunwoody, Georgia
45. 5717 Will Ruth Ave.
El Paso, Texas
46. 1513 Denman Street
Lufkin, Texas
47. 9303 Abercorn Extension
Savannah, Georgia
48. 1850 N. Clack Street
Abilene, Texas
49. 7012 Glenwood
Raleigh, North Carolina
50. 3730 West Wendover Ave.
Greensboro, North Carolina
The Additional Facilities
51. 2305 E. Lohman Avenue
Las Cruces, New Mexico
52. 661 W. San Mateo Road
Santa Fe, New Mexico
53. 4000 I-40 East
Amarillo, Texas
54. 4701 Osborne Drive
El Paso, Texas
<PAGE>
55. 3229 Highway 80
Mesquite, Texas
56. 1510 West 7th Street
Clovis, New Mexico
57. 914 N.E. 8th Street
Grand Prairie, Texas
58. 7469 Tara Boulevard
Jonesboro, Georgia
59. 831 N. Forest
Amarillo, Texas
60. 5808 Highway 271 South
Fort Smith, Arkansas
61. 5604 Tinker Diagonal
Midwest City, Oklahoma
62. 3751 Longmire Way
Doraville, Georgia
63. 818 S. Clack Street
Abilene, Texas
64. 8400 Canyon Drive
Amarillo, Texas
65. 3121 Washington Road
Augusta, Georgia
66. 4011 Midland Blvd.
Fort Smith, Arkansas
67. 4141 Snapfinger Woods Drive
Decatur, Georgia
68. 1808 Hampton Road
Texarkana, Texas
69. 4155 Milgen Road
Columbus, Georgia
<PAGE>
FIRST AMENDMENT TO
MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO MANAGEMENT AGREEMENT, dated as of the 30th day of
April, 1986, is entered into by and between Colonial Storage Management 85,
Inc., a Texas corporation ("CSM") and Balcor/Colonial Storage Income Fund - 85,
an Illinois limited partnership (the "Partnership").
W I T N E S S E T H:
WHEREAS, CSM and the Partnership have previously entered into a certain
Management Agreement dated as of the 1st day of October, 1985, a copy of which
is attached hereto as Exhibit A and incorporated herein by reference, pursuant
to which the Partnership retained CSM to manage the Properties (as defined
therein); and
WHEREAS, the Partnership intends to acquire and operate three (3) additional
existing mini-warehouse facilities, identified in Schedule I-A attached hereto
and incorporated herein by reference (each such mini-warehouse facility being
referred to as an "Additional Property" and, collectively, as the "Additional
Properties"; and
WHEREAS, it is the intention of the Partnership that the Additional Properties
be rented on a rental unit by rental unit basis to corporations, partnerships,
individuals or other entities for use primarily as storage facilities for
personal and business use; and
WHEREAS, the Partnership desires to employ CSM to manage the Additional
Properties and CSM desires to accept said employment, all in accordance with
the terms and conditions of the Management Agreement attached hereto;
NOW, THEREFORE, in consideration of the mutual covenants, promises,
representations and warranties contained herein, the adequacy of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Employment and Term. The Partnership hereby employs CSM and CSM hereby
accepts such employment as manager of the Additional Properties for a period of
twenty (20) years from October 1, 1985 (or until such Additional Properties are
sold) upon the terms and conditions set forth in the Management Agreement.
2. Definitions. From and after the date hereof, "Property" shall be deemed to
include an Additional Property and "Properties" shall be deemed to include the
Additional Properties for all purposes, as if originally set forth in Schedule
I to the Management Agreement.
3. Subordination. With respect to the Properties, including the Additional
Properties, the first sentence of 4.2 of the Management Agreement shall read as
follows:
"Fifty percent (50%) of the Property Management Fee otherwise payable to
CSM pursuant to Paragraph 4.1 shall be subordinated to the prior receipt
by Limited Partners of the Partnership of a "Special Distribution" of
eight percent (8%) during the first twelve (12) month period after April
1, 1986, nine percent (9%) during the second twelve (12) month period, and
ten percent (10%) during each twelve (12) month period thereafter
<PAGE>
4. Integration. Except as specifically set forth herein, the terms and
conditions of the Management Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Management Agreement as of the date first above written.
COLONIAL STORAGE MANAGEMENT 85, INC.
By:/s/James R. Pruett
---------------------------
James R. Pruett, President
Suite 200
1141 West Pioneer Parkway
Arlington, Texas 76013
BALCOR/COLONIAL STORAGE INCOME
FUND - 85
By: Balcor Storage Partners -
85
By: Balcor Storage Partners, Inc.
By: /s/Michael C. Schindler
---------------------------
Michael C. Schindler,
Its First Vice President
------------------------
4849 Golf Road
Skokie, Illinois 60077
AND By: Colonial Storage 85, Inc.
/s/James R. Pruett
------------------------
James R. Pruett,
President
<PAGE>
SCHEDULE I-A
70 426 South College Drive, Wilmington, North Carolina
71 2815 White House Road, Greenville, South Carolina
72 1412 Poinsett Highway, Greenville, South Carolina
<PAGE>
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>
March 20, 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 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 the maturity of the Partnership.
Based on our analyses and conclusions set forth in this report, the 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 $289.00
-------
For the year ended December 31, 1995, the value of a Limited Partnership
Interest decreased $14.00 from the year ended December 31, 1994 value of
$303.00, mainly due to setting the termination of the Partnership to the end of
the year 2000. Also certain risk rates were reduced. The reduction of $3.00
per Limited Partnership Interest from the preliminary estimate of $292.00 per
Limited Partnership Interest for the year ended December 31, 1995, was the
result of an accrual to distribute $545,167 to the General Partners for the
period April to December 1995. Future projections reflect the General Partners
not receiving NCR distributions.
<PAGE>
On February 2, 1996, a 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 provided to the General Partners. Year-end Balance
Sheet financial data was not available, consequently September 30, 1995 Working
Capital numbers were used in the valuation. The preliminary conclusion of the
value of a Limited Partnership Interest was $292.00, which was a decrease of
$11.00 per Limited Partnership Interest from the December 31, 1994 value of
$303.00. Much of this decrease was caused by setting the termination date of
the Partnership to the year ended December 31, 2000.
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.
For 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.
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 Albuquerque, 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.
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.
<PAGE>
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
Managing Director 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. For the period April to December 1995 the General Partners
received $545,167, paid in February 1996. It is not expected that the General
Partners will receive future NCR distributions.
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
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 9.06% $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
DECEMBER 31, 1995
(AUDITED)
Assets
- ------
Cash and cash equivalents $3,643,915
Net Accounts Receivable 148,300
Mortgage Note Receivable 1,649,953
Other 120,545
-----------
5,562,713
-----------
Mini-warehouse facilities, at cost
Land 14,193,743
Buildings 47,445,774
Furniture, fixtures and equipment 1,060,425
-----------
62,699,942
Less accumulated depreciation 19,271,250
Mini-warehouse facilities, net of -----------
accumulated depreciation 43,428,692
-----------
$48,991,405
===========
Liabilities and Partners' Capital
- ---------------------------------
Accrued Real Estate Taxes $372,527
Accounts payable 1,503
Due to affiliates 746,459
Other accrued liabilities 81,290
Security deposits 54,741
Deferred income 296,468
-----------
Total liabilities 1,552,988
Partners' capital (276,918 Limited Partnership
Interests issued and outstanding) 47,438,417
-----------
$48,991,405
===========
<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 resulted 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, 1994, the Offering
Expenses were fully amortized.
SCHEDULE B
AMORTIZATION OF OFFERING EXPENSES
Total Offering Expenses 7,588,796
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 $2,826,198 0 $2,826,198
General Partner
Distribution(1) (545,167) 0 (545,167)
Fund Admin Expenses(3,049,404) 0 (3,049,404)
----------- ---------- -----------
$(768,373) $ 0 $(768,373)
----------- ---------- -----------
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 $80,143,398
------------
Number of Interests 276,918
------------
Value Per Interest $289.41
------------
Rounded $289.00
------------
Adjusted Original
Capital $250.00
------------
<PAGE>
(1)In February, 1996 the General Partners received $545,167 in
distributions for the period April to December 1995. Future projections
reflect the General Partners not receiving NCR distributions.
(2)Reflects Notes taken back on sales of storage units.
<PAGE>
