UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14350
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BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3333344
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Realty Investors 85-Series III A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois, which raised $59,087,000 from sales of Limited Partnership
Interests. The Registrant's operations consist exclusively of investment in and
operation of income-producing real property, and all financial information
included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
real property. The Registrant has since disposed of three of these properties.
The five remaining properties and the minority joint venture interest held at
December 31, 1994 are described under "Properties" (Item 2). The Partnership
Agreement generally provides that the proceeds of any sale or refinancing of
the Registrant's properties will not be reinvested in new acquisitions.
During 1994, institutionally owned and managed multi-family residential
properties in many markets continued to experience favorable operating
conditions combined with relatively low levels of new construction. These
favorable operating conditions were supported by the strong pattern of national
economic growth which contributed to job growth and rising income levels in
most local economies. However, some rental markets continue to remain extremely
competitive; therefore, the General Partner's goals are to maintain high
occupancy levels, while increasing rents where possible, and to monitor and
control operating expenses and capital improvement requirements at the
properties. All of the Registrant's five remaining properties generated
positive cash flow during 1994 and the property in which the Registrant holds a
minority joint venture interest, generated a marginal cash flow deficit in
1994. (See Item 7. Liquidity and Capital Resources for additional information.)
Historically, real estate investments have experienced the same cyclical
characteristics affecting most other types of long-term investments. While real
estate values have generally risen over time, the cyclical character of real
estate investments, together with local, regional and national market
conditions, has resulted in periodic devaluations of real estate in particular
markets, as has been experienced in the last few years. As a result of these
factors, it has become necessary for the Registrant to retain ownership of many
of its properties for longer than the holding period for the assets originally
described in the prospectus. The General Partner examines the operations of
each property and each local market in conjunction with the Registrant's long-
term dissolution strategy when determining the optimal time to sell each of the
Registrant's properties.
North Hill Apartments is owned by a joint venture ("Joint Venture") consisting
of the Registrant and an affiliate. During December 1994, the Joint Venture
completed the refinancing of the North Hill Apartments mortgage loan. See Note
3 of Notes to Financial Statements and Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information.
The Registrant, by virtue of its ownership of real estate is subject to federal
and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of
environmental consultants to assess a wide range of environmental issues and to
conduct tests for environmental contamination as appropriate. The General
Partner is not aware of any potential liability due to environmental issues or
conditions that would be material to the Registrant.
The officers and employees of Balcor Partners-XVIII, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Item 2. Properties
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As of December 31, 1994, the Registrant owns the five properties described
below:
Location Description of Property
- -------- -----------------------
Farmington Hills, Michigan Country Ridge Apartments: a 252-unit apartment
complex located on approximately 22.5 acres.
DeKalb County, Georgia * North Hill Apartments: a 420-unit apartment
complex located on approximately 30 acres.
Plymouth, Minnesota Park Place Apartments Phase II: a 250-unit
apartment complex located on approximately 14.9
acres.
Las Vegas, Nevada * Shadowridge Apartments: a 312-unit apartment
complex located on approximately 13.6 acres.
Duluth, Georgia Howell Station Apartments (formerly Tempo
Station): a 228-unit apartment complex located on
approximately 28.6 acres.
* Owned by Registrant through a joint venture with an affiliated partnership.
The Registrant also holds a minority joint venture interest in Lakeville Resort
Apartments in Petaluma, California.
Each of these properties is held subject to various forms of financing.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
- -------------------------
The Registrant is not subject to any material pending legal proceedings, nor
were any such proceedings terminated during the fourth quarter of 1994.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1994.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
- -------
There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop; therefore, the
market value of the Limited Partnership Interests cannot be reasonably
determined. For information regarding distributions, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 1994, the number of record holders of Limited Partnership
Interests of the Registrant was 5,286.
Item 6. Selected Financial Data
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Year ended December 31,
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1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Total income $11,194,480 $11,489,788 $12,706,318 $12,021,222 $11,823,777
Loss before
extraordinary
items (471,133) (1,079,762) (2,009,380) (2,607,265) (3,560,723)
Net (loss) income (70,139) 2,213,346 (2,009,380) (2,607,265) (2,920,211)
Net (loss) income
per Limited
Partnership
Interest (1.18) 37.08 (33.66) (43.68) (48.92)
Total assets 47,696,255 48,168,158 60,949,491 63,108,896 65,369,251
Mortgage notes
payable 50,987,329 51,850,501 65,816,872 65,800,830 65,736,340
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Summary of Operations
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During 1993, the Partnership recognized a gain on foreclosure of property and a
gain on forgiveness of debt. These are the primary reasons Balcor Realty
Investors 85-Series III A Real Estate Limited Partnership (the "Partnership")
recognized net income during 1993 as compared to a net loss for 1994 and 1992.
Further discussion of the Partnership's operations is summarized below.
Operations
- ----------
1994 Compared to 1993
- ---------------------
Due to the foreclosure of Oakland Hills Apartments in June 1993, rental and
service income, interest on mortgage notes payable, depreciation expense,
amortization expense, property operating expense, maintenance and repairs
expense and property management fees decreased for 1994 as compared to 1993.
Increased rental rates and/or occupancy at all of the Partnership's remaining
properties partially offset the decrease in rental and service income due to
the Oakland Hills Apartments foreclosure.
Interest income on short-term investments increased during 1994 as compared to
1993 due to higher average cash balances in 1994 as a result of cash flow from
property operations, as well as an increase in short term interest rates. In
addition, interest income was recognized in 1994 on the funds held in escrow
relating to the previous North Hill Apartments mortgage bond financing. (See
Liquidity and Capital Resources below for additional information.)
During December 1993, the Howell Station Apartments mortgage loan was
refinanced. The new loan bears interest at a rate of 7.94% per annum whereas
the previous loan had a rate of 10%. The Howell Station loan refinancing, the
Oakland Hills Apartments foreclosure and an interest rate adjustment in 1993 in
accordance with the mortgage loan agreement on Shadowridge Apartments all
contributed to the decrease in interest expense on mortgage notes payable for
1994 as compared to 1993.
During 1993, the Park Place - Phase II and the Howell Station Apartments
mortgage loans were refinanced and the remaining deferred expenses relating to
the previous mortgage loans were written-off. This, along with the decrease due
to the foreclosure of Oakland Hills Apartments during 1993, resulted in a
decrease in the amortization of deferred expenses for 1994 as compared to 1993.
The decrease in property operating expense as a result of the Oakland Hills
foreclosure was partially offset by increases in insurance expense at all of
the Partnership's properties an increase in contract services at the Park Place
- - Phase II Apartments and increases in utilities and payroll expense at the
Shadowridge Apartments during 1994 as compared to 1993.
Maintenance and repairs expense decreased during 1994 as compared to 1993
primarily as a result of the 1993 foreclosure of Oakland Hills Apartments. This
decrease was partially offset by increases in exterior repairs at the North
Hill Apartments.
Real estate tax expense decreased during 1994 as compared to 1993 primarily as
a result of a decrease in the tax rate at the Country Ridge and Park Place -
Phase II apartment complexes. This decrease was partially offset by an increase
in the tax rate at the Howell Station Apartments.
<PAGE>
Administrative expense increased for 1994 as compared to 1993 primarily due to
an increase in accounting, portfolio management, and data processing expenses.
A decrease in legal fees partially offset the increase in administrative
expense for 1994 as compared to 1993.
The Partnership holds a minority interest in the Lakeville Resort Apartments.
Increased exterior painting and carpet replacement expenses at the Lakeville
Resort Apartments resulted in the Partnership recognizing a loss from joint
venture with an affiliate in 1994 as compared to income in 1993.
In June 1993, title to the Oakland Hills Apartments was relinquished through
foreclosure and the Partnership recognized a $3,101,599 extraordinary gain for
financial statement purposes.
Improved operations at the North Hill and Shadowridge apartment complexes, as
well as a reduction in interest expense at both properties, resulted in a
decrease in affiliates' participation in loss from joint venture in 1994 as
compared to 1993.
North Hill Apartments is owned by a joint venture ("Joint Venture") consisting
of the Partnership and an affiliate. In connection with the December 1994 North
Hill Apartments mortgage loan refinancing, the Joint Venture received a refund
of the escrow account held by the trustee representing the amount which would
have been paid to Mutual Benefit Life Insurance Company as its 1% guarantee fee
on the original North Hill Apartments mortgage loan. As a result, the
Partnership recognized a $534,659 extraordinary gain on forgiveness of debt in
1994, of which $133,665 represents the affiliate's share.
The Partnership refinanced the Howell Station Apartments mortgage loan in 1993,
received a discount on the prepayment of the previous mortgage note and
recognized a $191,509 extraordinary gain on debt forgiveness in 1993.
1993 Compared to 1992
- ---------------------
In June 1993, title to the Oakland Hills Apartments was relinquished through
foreclosure. As a result, rental and service income, interest expense,
depreciation expense, property operating expense, maintenance and repairs
expense, real estate taxes and property management fees decreased for 1993 as
compared to 1992. In addition, the Partnership recognized an extraordinary gain
on the foreclosure of this property.
Rental and service income decreased for 1993 as compared to 1992 due to the
foreclosure of Oakland Hills Apartments. This decrease was partially offset by
increased rental and/or occupancy rates at all of the Partnership's remaining
properties.
During 1992, the Partnership reached a settlement with the seller of the
Oakland Hills and Beverly Glen apartment complexes for proration amounts the
seller owed the Partnership pursuant to the terms of the original management
and guarantee agreements. The Partnership received $326,458 in 1992, pursuant
to the terms of the settlement. The final payment of $86,318 was received in
March 1993. In connection with these payments, the Partnership recognized
income of $342,179 for 1992.
Increased rental revenues at the Lakeville Resort Apartments, combined with
decreased interest expense on mortgage notes payable due to the 1993
refinancing of the underlying mortgage loan resulted in income from joint
venture with an affiliate during 1993 as compared to a loss in 1992.
Pursuant to the terms of the loan agreement, the interest rate on the
Shadowridge Apartments first mortgage loan was adjusted to 7.75% effective
April 1, 1993, from the previous rate of 9.75%. This interest rate adjustment
contributed to the decrease in interest on mortgage notes payable for 1993 as
compared to 1992.
<PAGE>
The Park Place Phase - II and Howell Station apartments mortgage loans were
refinanced in 1993 and the remaining deferred expenses related to the previous
mortgage loans were written-off. This resulted in an increase in the
amortization of deferred expenses for 1993 as compared to 1992.
Maintenance and repair expense decreased for 1993 as compared to 1992 primarily
due to the Oakland Hills Apartments foreclosure and decreased decorating costs
at Park Place Phase II Apartments. This decrease was partially offset by
increased asphalt paving costs at Country Ridge Apartments, increased painting
and decorating costs at the Howell Station Apartments and increased painting
and carpet replacement costs at the Shadowridge Apartments.
The decrease in real estate tax expense in 1993 as compared to 1992 was due
primarily to the Oakland Hills Apartments foreclosure. This decrease was
partially offset by higher North Hill Apartments real estate tax expense in
1993 due to a refund received in 1992.
Increased portfolio management fees and legal fees incurred in connection with
the Park Place Phase II and Lakeville Resort apartment complexes refinancings
were the primary reasons administrative expense increased for 1993 as compared
to 1992.
Affiliate's participation in losses from joint ventures decreased for 1993 as
compared to 1992 due to improved operations at North Hill Apartments and
reduced interest expense at the Shadowridge Apartments as a result of the
interest rate adjustment.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased slightly as of December 31, 1994
as compared to December 31, 1993. The Partnership's cash flow provided by
operating activities was generated primarily from the Partnership's properties,
and was partially offset by the payment of administrative expenses. The cash
flow provided by investing activities consisted of a net distribution received
from a joint venture with an affiliate. The net cash provided by operating and
investing activities, along with the proceeds received in connection with the
North Hill Apartments mortgage loan refinancing were used to fund financing
activities which consisted of the repayment of the original North Hill
Apartments mortgage loan, funding of capital improvement escrows and the
payment of fees relating to the 1994 refinancing. Financing activities also
included net contributions received from joint venture partners - affiliates
and principal payments on mortgage notes payable.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments. For 1994 and 1993, all of the Partnership's properties generated
positive cash flow. However, the Lakeville Resort Apartments, in which the
Partnership holds a minority joint venture interest, generated a marginal cash
flow deficit in 1994 as compared to cash flow in 1993 due to an increase in
insurance and maintenance and repairs expenditures.
While the cash flow of the Partnership's properties has improved, the General
Partner continues to pursue a number of actions aimed at further improving the
cash flow of the Partnership's properties including refinancing mortgage loans,
improving property operating performance, and seeking rent increases where
market conditions allow. As of December 31, 1994, the occupancy rates of the
Partnership's properties ranged from 94% to 99%. Despite recent improvements in
the local economies and rental markets where certain of the Partnership's
properties are located, the General Partner believes that continued ownership
of many of the properties is in the best interest of the Partnership in order
<PAGE>
to maximize returns to Limited Partners. As a result, the Partnership will
continue to own these properties for longer than the holding period for the
assets originally described in the prospectus.
Each of the Partnership's properties is owned through the use of third party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. See Note 3 of Notes to Financial
Statements for information concerning outstanding balances, maturity dates,
interest rates and other terms related to each of these mortgage loans. In
certain instances, it may be difficult for the Partnership to refinance a
property in an amount sufficient to retire in full the current mortgage
financing with respect to the property. In the event negotiations with the
existing lender for a loan modification or with new lenders for a refinancing
are unsuccessful, the Partnership may sell the collateral property or other
properties to satisfy an obligation, or may relinquish title to the collateral
property in satisfaction of the outstanding mortgage loan balance. As a result
of the General Partner's successful efforts to obtain loan modifications, as
well as refinancings of many existing loans with new lenders, the Partnership
has no third-party financing which matures prior to 1996.
North Hill Apartments is owned by a joint venture ("Joint Venture") consisting
of the Partnership and an affiliate. The $18,700,000 tax exempt bond issue
which funded the first mortgage financing collateralized by the property went
into technical default in July 1991 due to the insolvency of the guarantor of
the bonds. In April 1993, the Joint Venture and the trustee for the bondholders
entered into an agreement in which the loan was modified and the trustee agreed
to forebear from commencing foreclosure proceedings while the Joint Venture
sought alternative financing. In conjunction with the agreement, as of February
1994 the Joint Venture agreed to pay 50% of monthly net cash flow into an
escrow account to be applied to amounts due under the mortgage loan upon
refinancing. On December 22, 1994, the Joint Venture refinanced the mortgage
loan. See Note 3 of Notes to Financial Statements for additional information.
In conjunction with the refinancing, $828,605 held in escrow representing the
50% of net cash flow and the guarantee fee previously paid to the trustee, but
not paid to the guarantor due to its insolvency, were released to the Joint
Venture, which was used to help repay the previous bond financing. In addition,
the Joint Venture received proceeds of $1,350,000 from a non-affiliated party
which was also used to help repay the previous bond financing. See Note 3 of
Notes to Financial Statements for additional information.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions will depend on improved cash flow
from the Partnership's remaining properties, proceeds from future property
sales, successful mortgage loan refinancings and sufficient Partnership
reserves, as to all of which there can be no assurances. In light of results to
date and current market conditions, the General Partner does not anticipate
that investors will recover all of their original capital.
The General Partner has recently completed the outsourcing of the financial
reporting and accounting services, transfer agent and investor records
services, and computer operations and systems development functions that
provided services to the Partnership. All of these functions are now being
provided by independent third parties. Additionally, Allegiance Realty Group,
Inc., which has provided property management services to all of the
Partnership's properties, was sold to a third party. Each of these transactions
occurred after extensive due diligence and competitive bidding processes. The
General Partner does not believe that the cost of providing these services to
the Partnership, in the aggregate, will be materially different to the
Partnership during 1995 when compared to 1994.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1994 December 31, 1993
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $47,696,255 $35,256,710 $48,168,158 $36,535,076
Partners' capital
accounts (deficit):
General Partner (574,251) (838,192) (573,550) (830,961)
Limited Partners (4,273,438) (14,411,474) (4,204,000) (13,693,970)
Net (loss) income:
General Partner (701) (7,231) 22,133 42,893
Limited Partners (69,438) (717,504) 2,191,213 4,694,191
Per Limited Part-
nership Interest (1.18) (12.14) 37.08 79.44
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XVIII, its General Partner, has
a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Executive Vice President, Allan Wood
Chief Financial Officer and
Chief Accounting Officer
Senior Vice President Alexander J. Darragh
First Vice President Daniel A. Duhig
First Vice President Josette V. Goldberg
First Vice President Alan G. Lieberman
First Vice President Brian D. Parker
and Assistant Secretary
First Vice President John K. Powell, Jr.
First Vice President Reid A. Reynolds
First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company.
Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and
Savings Bank in the commercial real estate division where he was involved in
various lending activities. Mr. Meador received his M.B.A. degree from the
Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief
Financial Officer and Chief Accounting Officer, is responsible for the
financial and administrative functions. He is also a Director of The Balcor
Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor,
he was employed by Price Waterhouse where he was involved in auditing public
and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has
primary responsibility for the Portfolio Advisory Group. He is responsible for
due diligence analysis and real estate advisory services in support of asset
management, institutional advisory and capital markets functions. Mr. Darragh
has supervisory responsibility of Balcor's Investor Services, Investment
Administration, Fund Management and Land Management departments. Mr. Darragh
received masters' degrees in Urban Geography from Queens's University and in
Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is
responsible for the Asset Management Department relating to real estate
investments made by Balcor and its affiliated partnerships, including
negotiations for modifications or refinancings of real estate mortgage
investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's administrative and MIS departments.
Ms. Goldberg has been designated as a Senior Human Resources Professional
<PAGE>
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified
Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for
Balcor's corporate and property accounting, treasury and budget activities.
Mr. Parker is a Certified Public Accountant and holds an M.S. degree in
Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is
responsible for the administration of the investment portfolios of Balcor's
partnerships and for Balcor's risk management functions. Mr. Powell received a
Master of Planning degree from the University of Virginia. He has been
designated a Certified Real Estate Financier by the National Society for Real
Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with
the asset management of residential properties for Balcor. Mr. Reynolds is a
licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has
responsibility for various Asset Management functions, including oversight of
the residential portfolio. From January 1986 through September 1994, Mr. Selby
was Regional Vice President and then Senior Vice President of Allegiance Realty
Group, Inc., an affiliate of Balcor providing property management services.
Mr. Selby was responsible for supervising the management of residential
properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1994.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. Certain of these
officers receive compensation from The Balcor Company (but not from the
Registrant) for services performed for various affiliated entities, which may
include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 9 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Partners-XVIII and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 1,180 Interests Less than 2%
<PAGE>
Relatives and affiliates of the officers and partners of the General Partner
own an additional 35 Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 2 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership,
set fourth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-11 dated August 2,1985 (Registration No. 2-97249), is
incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
to the Registrant's Registration Statement on Form S-11 dated August 2, 1985
(Registration No. 2-97249), and Form of Confirmation regarding Interests in the
Partnership set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1992 (Commission File No. 0-14350) are
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule attached to this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Allan Wood
---------------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Partners-XVIII,
the General Partner
Date: March 27, 1995
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XVIII,
/s/Thomas E. Meador the General Partner March 27, 1995
- --------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Partners-XVIII,
/s/Allan Wood the General Partner March 27, 1995
- -------------------- --------------
Allan Wood
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Deficit, for the years ended December 31, 1994, 1993
and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993
and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1994
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 85-Series III
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Realty Investors 85-Series III A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Realty Investors
85-Series III A Real Estate Limited Partnership at December 31, 1994 and 1993,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 2, 1995
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 1,965,737 $ 1,916,800
Prepaid expenses, principally
real estate taxes 227,783 109,517
Deferred expenses, net of accumulated
amortization of $221,054 in 1994
and $831,576 in 1993 1,369,030 736,766
Other assets, principally escrow deposits 1,376,853 900,839
------------- -------------
4,939,403 3,663,922
------------- -------------
Investment in real estate, at cost:
Land 6,536,422 6,536,422
Buildings and improvements 56,884,371 56,884,371
------------- -------------
63,420,793 63,420,793
Less accumulated depreciation 20,663,941 18,916,557
------------- -------------
Investment in real estate, net of
accumulated depreciation 42,756,852 44,504,236
------------- -------------
$ 47,696,255 $ 48,168,158
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 129,946 $ 55,921
Due to affiliates 64,125 57,977
Accrued liabilities, principally interest 11,687
Security deposits 295,948 298,425
Loss in excess of investment in
joint venture with an affiliate 1,124,922 935,788
Mortgage notes payable 50,987,329 51,850,501
------------- -------------
Total liabilities 52,602,270 53,210,299
Affiliates' participation in joint ventures (58,326) (264,591)
Partners' deficit (59,092 Limited
Partnership Interests issued and
outstanding) (4,847,689) (4,777,550)
------------- -------------
$ 47,696,255 $ 48,168,158
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT
for the years ended December 31, 1994, 1993 and 1992
Partners' Deficit Accounts
-------------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1991 $ (4,981,516) $ (575,589) $ (4,405,927)
Net loss for the year
ended December 31, 1992 (2,009,380) (20,094) (1,989,286)
------------- ------------- -------------
Balance at December 31, 1992 (6,990,896) (595,683) (6,395,213)
Net income for the year
ended December 31, 1993 2,213,346 22,133 2,191,213
------------- ------------- -------------
Balance at December 31, 1993 (4,777,550) (573,550) (4,204,000)
Net loss for the year
ended December 31, 1994 (70,139) (701) (69,438)
------------- ------------- -------------
Balance at December 31, 1994 $ (4,847,689) $ (574,251) $ (4,273,438)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------- -------------
Income:
Rental and service income $ 11,036,707 $ 11,437,845 $ 12,307,082
Interest on short-term
investments 157,773 51,943 57,057
Settlement income 342,179
------------- ------------- -------------
Total income 11,194,480 11,489,788 12,706,318
------------- ------------- -------------
Expenses:
Interest on mortgage notes
payable 4,099,437 4,767,770 5,823,562
Depreciation 1,747,384 1,908,944 2,135,125
Amortization of deferred
expenses 210,353 291,383 218,081
Property operating 2,484,400 2,656,409 2,953,177
Maintenance and repairs 950,592 1,006,498 1,099,053
Real estate taxes 1,136,617 1,180,830 1,647,724
Property management fees 550,710 573,228 615,482
Administrative 397,661 340,827 267,344
Participation in loss
(income) of joint venture
with an affiliate 104,619 (13,140) 194,657
------------- ------------- -------------
Total expenses 11,681,773 12,712,749 14,954,205
------------- ------------- -------------
Loss before affiliates'
participation in joint
ventures and extraordinary
items (487,293) (1,222,961) (2,247,887)
Affiliates' participation in
loss from joint ventures
before extraordinary item 16,160 143,199 238,507
------------- ------------- -------------
Loss before extraordinary items (471,133) (1,079,762) (2,009,380)
------------- -------------
Extraordinary items:
Gain on foreclosure of
property 3,101,599
Gain on forgiveness of debt 534,659 191,509
Affiliate's participation in
gain on forgiveness of debt (133,665)
------------- ------------
Total extraordinary items 400,994 3,293,108
------------- ------------- -------------
Net (loss) income $ (70,139) $ 2,213,346 $ (2,009,380)
============= ============= =============
Loss before extraordinary items
allocated to General Partner $ (4,711) $ (10,798) $ (20,094)
============= ============= =============
Loss before extraordinary items
allocated to Limited Partners$ (466,422) $ (1,068,964) $ (1,989,286)
============= ============= =============
Loss before extraordinary items
per Limited Partnership
<PAGE>
Interest (59,092 issued
and outstanding) $ (7.89) $ (18.09) $ (33.66)
============= ============= =============
Extraordinary items allocated
to General Partner $ 4,010 $ 32,931 None
============= ============= =============
Extraordinary items allocated
to Limited Partners $ 396,984 $ 3,260,177 None
============= ============= =============
Extraordinary items per Limited
Partnership Interest (59,092
issued and outstanding) $ 6.72 $ 55.17 None
============= ============= =============
Net (loss) income allocated to
General Partner $ (701) $ 22,133 $ (20,094)
============= ============= =============
Net (loss) income allocated to
Limited Partners $ (69,438) $ 2,191,213 $ (1,989,286)
============= ============= =============
Net (loss) income per Limited
Partnership Interest (59,092
issued and outstanding) $ (1.18) $ 37.08 $ (33.66)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------- -------------
Operating activities:
Net (loss) income $ (70,139) $ 2,213,346 $ (2,009,380)
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Gain on foreclosure of
investment property (3,101,599)
Gain on forgiveness of
debt (534,659) (191,509)
Release of escrow
deposits 534,659
Affiliates' participation
in losses from joint
ventures (16,160) (143,199) (238,507)
Affiliate's participation
in gain on forgivness
of debt 133,665
Participation in losses
(income) of joint
venture with an
affiliate 104,619 (13,140) 194,657
Depreciation of
properties 1,747,384 1,908,944 2,135,125
Amortization of deferred
expenses 210,353 291,383 218,081
Deferred interest expense 222,609
Net change in:
Accounts and accrued
interest receivable 495,423 (345,988)
Prepaid expenses (118,266) (2,229) (733)
Other assets (266,569) (95,754) 62,847
Accounts payable 74,025 (94,259) (38,593)
Due to affiliates 6,148 (16,006) (30,973)
Accrued liabilities (11,687) (50,823) 118,495
Security deposits (2,477) 13,497 (23,458)
------------- ------------- -------------
Net cash provided by
operating activities 1,790,896 1,214,075 264,182
------------- ------------- -------------
Investing activities:
Contributions to joint
venture with an affiliate (47,041) (123,638) (45,902)
Distributions from joint
venture with an affiliate 131,556 18,729
------------- ------------- -------------
Net cash provided by or used
in investing activities 84,515 (123,638) (27,173)
------------- ------------- -------------
Financing activities:
<PAGE>
Distributions to
joint venture
partner - affiliate (163,551) (54,171) (120,515)
Contributions from joint
venture partner - affiliate 252,311
Repayment of mortgage notes
payable (18,700,000) (14,744,366)
Proceeds from issuance of
mortgage notes payable 16,795,600 15,820,400
Proceeds from issuance of
note payable 1,350,000
Funding of capital
improvement escrows (209,445) (444,382)
Payment of deferred expenses (842,617) (512,912)
Principal payments on
mortgage notes payable (308,772) (281,956) (206,567)
------------- ------------- -------------
Net cash used in financing
activities (1,826,474) (217,387) (327,082)
------------- ------------- -------------
Net change in cash and cash
equivalents 48,937 873,050 (90,073)
Cash and cash equivalents at
beginning of year 1,916,800 1,043,750 1,133,823
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 1,965,737 $ 1,916,800 $ 1,043,750
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
The Partnership records its investments in real estate at cost, and
periodically assesses possible impairment to the value of its properties. In
the event that the General Partner determines that a permanent impairment in
value has occurred, the carrying basis of the property is reduced to its
estimated fair value.
Interest incurred while properties were under construction was capitalized.
(b) Loan commitment fees and deferred expenses, which consist of loan financing
fees and loan modification fees, are amortized over the terms of the respective
agreements.
(c) Loss in excess of investment in joint venture with an affiliate represents
the recording of the Partnership's 40.25% interest, under the equity method of
accounting, in a joint venture with an affiliate. Under the equity method of
accounting, the Partnership records its initial investment at cost and adjusts
its investment account for additional capital contributions, distributions and
its share of joint venture income or loss. Depreciation recognized in
connection with the ownership of real estate by the joint venture has resulted
in the Partnership's share of cumulative losses exceeding the net amounts
invested in the joint venture. This has resulted in the classification of the
investment as "Loss in excess of investment in joint venture with an affiliate"
in the accompanying financial statements.
(d) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(e) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(f) Certain reclassifications have been made to the previously reported 1993
and 1992 statements in order to provide comparability with the 1994 statements.
These reclassifications have not changed the 1993 and 1992 results.
2. Partnership Agreement:
The Partnership was organized on October 25, 1984. The Partnership Agreement
provides for Balcor Partners-XVIII to be the General Partner and for the
admission of Limited Partners through the sale of up to 70,000 Limited
Partnership Interests at $1,000 per Interest, 59,092 of which were sold on or
prior to December 31, 1985, the termination date of the offering.
Pursuant to the Partnership Agreement, Partnership losses will be allocated 99%
to the Limited Partners and 1% to the General Partner. One hundred percent of
<PAGE>
Net Cash Receipts available for distribution shall be distributed to the
holders of Interests in proportion to their participating percentages as of the
record date for such distributions. In addition, there shall be accrued for the
General Partner as its distributive share from operations an amount equal to
approximately 1% of the total Net Cash Receipts being distributed which will be
paid only out of distributed Net Cash Proceeds. The accrued amount will be paid
as a part of the General Partner's share of distributed Net Cash Proceeds and
will be paid only out of distributed Net Cash Proceeds in excess of total
Original Capital plus a 6% Cumulative Distribution. Under certain
circumstances, the General Partner may participate in the Net Cash Proceeds of
the sale or refinancing of Partnership properties. The General Partner's
participation is limited to 15% of Net Cash Proceeds and is subordinated to the
return of Original Capital plus any deficiency in a Cumulative Distribution of
6% on Adjusted Original Capital to the holders of Interests.
3. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1994 and 1993 consisted of the
following:
Carrying Carrying Current Final
Property Amount of Amount of Inter- Matur- Current Estimated
Pledged as Notes at Notes at est ity Monthly Balloon
Collateral 12/31/94 12/31/93 Rate Date Payment Payment
- -------------- ---------- ---------- ------ ------ ------- ---------
Apartment Complexes:
Country Ridge $8,859,773 $8,915,152 10.875% 1996 $85,183 $8,765,000
Howell Station (A) 6,593,783 6,650,000 7.94% 2001 48,517 6,153,000
North Hill (B) 16,795,600 18,700,000 8.09% 2024 124,920 14,859,981
1,350,000 None (B) (B) (B) 1,350,000
Park Place -
Phase II (C) 9,084,774 9,135,197 8.70% 2028 66,470 None
Shadow Ridge 8,303,399 8,450,152 7.75% 1998 65,826 7,655,000
----------- -----------
Total $50,987,329 $51,850,501
=========== ===========
(A) In December 1993, this loan was refinanced. The interest rate decreased
from 10% to 7.94%, the maturity date was extended from January 1996 to January
2001 and the monthly payments decreased from $59,849 to $48,517. A portion of
the proceeds from the new $6,650,000 first mortgage loan were used to repay the
existing first mortgage loan of $6,385,403.
(B) North Hill Apartments is owned by a joint venture ("Joint Venture")
consisting of the Partnership and an affiliate. In December 1994, the bonds
which funded the previous North Hill Apartments mortgage loan were repaid. The
interest rate increased from 6.75% to 8.09% and the maturity date was extended
from December 1994 to December 2024. As a condition of the new agreement, on
January 1, 2005, at the discretion of both the Joint Venture and the lender,
the bonds will either be repaid or remarketed. Under the terms of the loan,
monthly payments increased from $105,188 to $124,920.
The Joint Venture repaid the existing mortgage loan of $18,700,000 with
proceeds from the new mortgage loan of $16,795,600, which was net of a discount
of $84,400, proceeds of a $1,350,000 note from an unaffiliated party, and Joint
Venture cash reserves, which included amounts previously held in escrow by the
trustee which were refunded to the Joint Venture in conjunction with the
refinancing (see Note 10 of Notes to Financial Statements).
The $1,350,000 note to an unaffiliated party is non-interest bearing and is not
<PAGE>
collateralized by the North Hill Apartments. It will be repaid only to the
extent North Hill Apartments net sales proceeds exceed a certain predetermined
level. The note is included with Mortgage Notes Payable due to its relationship
to the North Hill Apartments.
(C) In March 1993, this loan was refinanced. The interest rate decreased from
13.85% to 8.70%. The maturity date was extended from November 1995 to April
2028 and monthly payments of $66,470 are payable through maturity. A portion of
the proceeds from the new $9,170,400 first mortgage loan was used to repay the
existing first mortgage loan of $8,550,472.
During 1994, 1993 and 1992, the Partnership incurred interest expense on
mortgage notes payable of $3,564,778, $4,767,770 and $5,823,562 and paid
interest expense of $3,576,465, $4,756,083 and $5,646,279, respectively.
The Partnership's loans described above require current monthly payments of
principal and interest.
Scheduled principal maturities of the above notes payable during each of the
next five years are approximately as follows:
1995 $ 474,000
1996 9,245,000
1997 483,000
1998 8,027,000
1999 351,000
4. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are
under management agreements with a third-party management company. These
management agreements provide for annual fees of 5% of gross operating
receipts.
5. Affiliates' Participation in Joint Ventures:
a) North Hill Apartments, in DeKalb County, Georgia, is owned by a joint
venture between the Partnership and an affiliate. All assets, liabilities,
income and expenses of the joint venture are included in the financial
statements of the Partnership with the appropriate adjustment of profit or loss
for the affiliate's participation in the joint venture. Profits and losses of
the joint venture are allocated 75% to the Partnership and 25% to the
affiliate.
b) Shadowridge Apartments is owned by a joint venture between the Partnership
and an affiliate. All assets, liabilities, income and expenses of the joint
venture are included in the financial statements of the Partnership with the
appropriate adjustment of profit or loss for the affiliate's participation in
the joint venture. Profits and losses are allocated 70% to the Partnership and
30% to the affiliate.
6. Investment in Joint Venture with an Affiliate:
The Partnership owns a 40.25% joint venture interest in Lakeville Resort
Apartments. The joint venture partner is an affiliate with investment
objectives similar to those of the Partnership. During 1994, the Partnership
received net distributions from property operations of $84,515 and made capital
contributions of $123,638 and $27,173, in 1993 and 1992, respectively.
7. Settlement Income:
The Partnership reached a settlement with the seller of the Oakland Hills and
Beverly Glen apartment complexes for proration amounts the seller owed the
Partnership pursuant to the terms of the original management and guarantee
agreements. The Partnership received $326,458 in 1992, pursuant to the terms of
the settlement. The final payment of $86,318 was received in March 1993. In
<PAGE>
connection with these proration payments, the Partnership recognized $342,179
of settlement income in 1992.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net loss for 1994 in the financial statements is $654,596 less than the tax
loss of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/94 12/31/93 12/31/92
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees $500,733 None $593,008 $44,310 $631,814 $64,090
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 64,274 $23,131 44,684 3,694 44,036 3,317
Data processing 36,034 9,534 21,877 4,438 24,143 1,990
Investor communica-
tions 12,306 4,134 10,189 842 9,055 682
Legal 8,561 3,118 5,270 436 6,810 513
Portfolio management 45,636 20,651 44,898 3,712 25,224 1,900
Other 13,887 3,557 6,591 545 20,476 1,491
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
five of the Partnership's properties until the affiliate was sold to a third
party in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program. The Partnership's premiums to the deductible
insurance program were $104,139, $71,202 and $65,376 for 1994, 1993 and 1992,
respectively.
10. Extraordinary Items:
(a) North Hill Apartments is owned by a joint venture ("Joint Venture")
consisting of the Partnership and an affiliate. In connection with the December
1994 North Hill Apartments mortgage loan refinancing, the Joint Venture
received a refund of the escrow account held by the trustee representing the
amount which would have been paid to Mutual Benefit Life Insurance Company as
its 1% guaranty fee on the original North Hill Apartments mortgage loan. As a
result, the Partnership recognized a $534,659 extraordinary gain on forgiveness
of debt in 1994, of which $133,665 represents the affiliate's share.
(b) During 1993, title to the Oakland Hills Apartments was relinquished through
foreclosure. The Partnership wrote-off the first mortgage loan of $12,842,863,
an equity note balance of $67,928, a second mortgage loan of $1,658,149,
accrued real estate taxes of $514,988, security deposits of $31,581 and the
property basis of $12,013,910, net of accumulated depreciation of $4,816,560.
An extraordinary gain on foreclosure of $3,101,599 was recognized in 1993.
<PAGE>
(c) During 1993, the Partnership completed the refinancing of the $6,385,403
Howell Station Apartments first mortgage loan and obtained a $6,650,000 new
first mortgage loan from an unaffiliated lender. The Partnership received a
$191,509 discount from the previous lender for prepayment of the mortgage note,
which was recorded as an extraordinary gain on debt forgiveness in 1993.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
<CAPTION>
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
-------------------- ---------------------------------
Buildings Carrying Reduction
Encum- and Im- Improve- Costs of Basis
Description brances Land provements ments (a)
- --------------------- ------- -------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Country Ridge Apts.,
a 252 unit complex in
Farmington Hills, MI (d) $ 756,000 $9,089,000 None $ 602,777 None
Howell Station Apts.,
a 228 unit complex in
Duluth, GA (d) 765,000 7,314,000 None 93,803 $(82,212)(f)
North Hill Apts.,
a 420 unit complex in
DeKalb County, GA (d) 2,460,000 20,903,000 None 20,235 (544,251)(f)
Park Place Phase II,
Apts., a 250 unit com-
plex in Plymouth, MN (d) 475,000 8,645,000 $25,800 339,847 None
Shadowridge Apts.,
a 312 unit complex in
Las Vegas, NV (d) 2,141,417 10,416,377 None None None
----------- ----------- ------- ---------- ---------
Total $ 6,597,417 $56,367,377 $25,800 $1,056,662 $(626,463)
=========== =========== ======= ========== =========
</TABLE>
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
(Continued)
<CAPTION>
Col. A Col. E Col. F Col. G Col. H Col. I
------------------ -------------------------------- -------- -------- ------ --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (b)(c) tion(c) struction uired is Computed
- ------------------- -------- ---------- ---------- --------- ---------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Country Ridge Apts.,
a 252 unit complex in
Farmington Hills, MI $ 757,315 $9,690,462 $10,447,777 $3,270,633 1986 9/85 (e)
Howell Station Apts.,
a 228 unit complex in
Duluth, GA 757,168 7,333,423 8,090,591 2,679,427 1985 8/85 (e)
North Hill Apts.,
a 420 unit complex in
DeKalb County, GA 2,404,824 20,434,160 22,838,984 7,332,207 1985 7/85 (e)
Park Place Phase II,
Apts., a 250 unit com-
plex in Plymouth, MN 475,698 9,009,949 9,485,647 3,490,688 1986 9/85 (e)
Shadowridge Apts.,
a 312 unit complex
in Las Vegas, NV 2,141,417 10,416,377 12,557,794 3,890,986 1984 9/85 (e)
----------- ----------- ----------- -----------
Total $ 6,536,422 $56,884,371 $63,420,793 $20,663,941
=========== =========== =========== ===========
</TABLE>
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction-period interest.
(b) The aggregate cost of land for Federal income tax purposes is $5,961,160
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $54,089,740. The total of these is $60,050,900.
(c) Reconciliation of Real Estate
-----------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $63,420,793 $80,251,263 $80,251,263
Deductions during year:
Foreclosure of investment
property (16,830,470)
----------- ----------- -----------
Balance at close of year $63,420,793 $63,420,793 $80,251,263
=========== =========== ===========
Reconciliation of Accumulated Depreciation
------------------------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $18,916,557 $21,824,173 $19,689,048
Depreciation expense for
the year 1,747,384 1,908,944 2,135,125
Accumulated depreciation of
foreclosed investment
property (4,816,560)
----------- ----------- -----------
Balance at close of year $20,663,941 $18,916,557 $21,824,173
=========== =========== ===========
(d) See description of Mortgage Notes Payable in Note 3 of Notes to Financial
Statements.
(e) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5
(f) Guaranteed income earned on properties under the terms of certain
management and guarantee agreements was recorded by the Partnership as a
reduction of the basis of the property to which the guaranteed income related.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1966
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2194
<PP&E> 63421
<DEPRECIATION> 20664
<TOTAL-ASSETS> 47696
<CURRENT-LIABILITIES> 490
<BONDS> 50987
<COMMON> 0
0
0
<OTHER-SE> (4848)
<TOTAL-LIABILITY-AND-EQUITY> 47696
<SALES> 0
<TOTAL-REVENUES> 11194
<CGS> 0
<TOTAL-COSTS> 5211
<OTHER-EXPENSES> 2355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4099
<INCOME-PRETAX> (471)
<INCOME-TAX> 0
<INCOME-CONTINUING> (471)
<DISCONTINUED> 0
<EXTRAORDINARY> 401
<CHANGES> 0
<NET-INCOME> (70)
<EPS-PRIMARY> (7.89)
<EPS-DILUTED> (7.89)
</TABLE>
