SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
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
-------------------------------------------------------
(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.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
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
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<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
(Unaudited)
ASSETS
1997 1996
-------------- --------------
Cash and cash equivalents $ 5,130,396 $ 5,888,040
Escrow deposits 696,354
Accounts and accrued interest receivable 146,777 93,191
Prepaid expenses 59,888
Deferred expenses, net of accumulated
amortization of $250,656 in 1996 781,323
Investment in joint venture with an affiliate 1,046,660
-------------- --------------
5,277,173 8,565,456
-------------- --------------
Investment in real estate:
Land 3,161,992
Buildings and improvements 27,767,583
--------------
30,929,575
Less accumulated depreciation 11,739,654
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Investment in real estate, net of
accumulated depreciation 19,189,921
-------------- --------------
$ 5,277,173 $ 27,755,377
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 132,706 $ 39,006
Due to affiliates 235,673 85,504
Security deposits 159,650
Mortgage notes payable 24,324,028
-------------- --------------
Total liabilities 368,379 24,608,188
Affiliates' participation in joint ventures 156,230 (499,671)
-------------- --------------
524,609 24,108,517
<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
(Unaudited)
(Continued)
1997 1996
-------------- --------------
Commitments and contingencies
Limited Partners' capital
(59,092 Limited Partnership Interests
issued and outstanding) 5,061,081 3,995,822
General Partner's deficit (308,517) (348,962)
-------------- --------------
Total partners' capital 4,752,564 3,646,860
-------------- --------------
$ 5,277,173 $ 27,755,377
============== ==============
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 nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
-------------- --------------
Income:
Rental and service $ 2,914,033 $ 7,864,170
Interest on short-term investments 144,631 160,776
Participation in income of joint
venture with an affiliate 27,460
-------------- --------------
Total income 3,058,664 8,052,406
-------------- --------------
Expenses:
Interest on mortgage notes payable 1,122,982 2,716,613
Depreciation 505,448 1,157,846
Amortization of deferred expenses 67,582 103,396
Property operating 984,639 2,453,937
Real estate taxes 259,058 736,689
Property management fees 147,902 399,871
Administrative 304,287 324,931
-------------- --------------
Total expenses 3,391,898 7,893,283
-------------- --------------
(Loss) income before gains on sales,
affiliates' participation in joint
ventures and extraordinary items (333,234) 159,123
Gains on sales of properties 11,416,395 19,513,258
Affiliates' participation in income
from joint ventures before
extraordinary items (1,448,795) (1,231,126)
-------------- --------------
Income before extraordinary items 9,634,366 18,441,255
Extraordinary items:
Debt extinguishment expense (1,081,599) (440,081)
Affiliate's participation in debt
extinguishment expense 175,580 7,165
Gain on forgiveness of debt 1,350,000
Affiliate's participation in gain on
forgiveness of debt (337,500)
-------------- --------------
Total extraordinary items 106,481 (432,916)
-------------- --------------
Net income $ 9,740,847 $ 18,008,339
============== ==============
<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1997 and 1996
(Unaudited)
(Continued)
1997 1996
-------------- --------------
Income before extraordinary items
allocated to General Partner $ 40,003 $ 184,412
============== ==============
Income before extraordinary items
allocated to Limited Partners $ 9,594,363 $ 18,256,843
============== ==============
Income before extraordinary items
per Limited Partnership Interest (59,092
issued and outstanding) $ 162.36 $ 308.95
============== ==============
Extraordinary items allocated
to General Partner $ 442 $ (4,329)
============== ==============
Extraordinary items allocated
to Limited Partners $ 106,039 $ (428,587)
============== ==============
Extraordinary items per Limited Partnership
Interest (59,092 issued and outstanding) $ 1.79 $ (7.25)
============== ==============
Net income allocated to General Partner $ 40,445 $ 180,083
============== ==============
Net income allocated to Limited Partners $ 9,700,402 $ 17,828,256
============== ==============
Net income per Limited Partnership
Interest (59,092 issued and outstanding) $ 164.15 $ 301.70
============== ==============
Distributions to Limited Partners $ 8,037,694 $ 8,125,150
============== ==============
Distributions per Limited Partnership
Interest $ 136.02 $ 137.50
============== ==============
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 quarters ended September 30, 1997 and 1996
(Unaudited)
1997 1996
-------------- --------------
Income:
Rental and service $ 554,435 $ 2,036,202
Interest on short-term investments 49,282 58,716
Participation in income of joint
venture with an affiliate 2,193
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Total income 603,717 2,097,111
-------------- --------------
Expenses:
Interest on mortgage notes payable 238,740 670,302
Depreciation 106,457 306,296
Amortization of deferred expenses 14,044 32,735
Property operating 191,327 619,241
Real estate taxes 46,747 149,630
Property management fees 31,262 111,083
Administrative 88,461 90,083
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Total expenses 717,038 1,979,370
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(Loss) income before gains on sales,
affiliates' participation in joint
ventures and extraordinary items (113,321) 117,741
Gains on sales of properties 6,569,949 10,439,697
Affiliates' participation in income
from joint ventures before
extraordinary items (1,460,587) (1,226,356)
-------------- --------------
Income before extraordinary items 4,996,041 9,331,082
Extraordinary items:
Debt extinguishment expense (702,319) (315,081)
Affiliate's participation in debt
extinguishment expense 175,580 7,165
Gain on forgiveness of debt 1,350,000
Affiliate's participation in gain on
forgiveness of debt (337,500)
-------------- --------------
Total extraordinary items 485,761 (307,916)
-------------- --------------
Net income $ 5,481,802 $ 9,023,166
============== ==============
<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1997 and 1996
(Unaudited)
(Continued)
1997 1996
-------------- --------------
(Loss) income before extraordinary items
allocated to General Partner $ (6,380) $ 93,310
============== ==============
Income before extraordinary items
allocated to Limited Partners $ 5,002,421 $ 9,237,772
============== ==============
Income before extraordinary items per
Limited Partnership Interest (59,092
issued and outstanding) $ 84.65 $ 156.32
============== ==============
Extraordinary items allocated to
General Partner $ 4,235 $ (3,079)
============== ==============
Extraordinary items allocated to
Limited Partners $ 481,526 $ (304,837)
============== ==============
Extraordinary items per Limited Partnership
Interest (59,092 issued and outstanding) $ 8.15 $ (5.15)
============== ==============
Net(loss)income allocated to General Partner $ (2,145) $ 90,231
============== ==============
Net income allocated to Limited Partners $ 5,483,947 $ 8,932,935
============== ==============
Net income per Limited Partnership
Interest (59,092 issued and outstanding) $ 92.80 $ 151.17
============== ==============
Distribution to Limited Partners $ 2,954,600 $ 7,238,770
============== ==============
Distribution per Limited Partnership
Interest $ 50.00 $ 122.50
============== ==============
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 nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
-------------- --------------
Operating activities:
Net income $ 9,740,847 $ 18,008,339
Adjustments to reconcile net income to
net cash provided by operating activities:
Gains on sales of properties (11,416,395) (19,513,258)
Debt extinguishment expense 798,141 315,081
Affiliate's participation in
debt extinguishment expense (175,580) (7,165)
Gain on forgiveness of debt (1,350,000)
Affiliate's participation in gain
on forgiveness of debt 337,500
Affiliates' participation in income
from joint ventures 1,448,795 1,231,126
Participation in income of joint
venture with an affiliate (27,460)
Depreciation of properties 505,448 1,157,846
Amortization of deferred expenses 67,582 103,396
Net change in:
Escrow deposits 696,354 7,370
Accounts and accrued interest
receivable (53,586) (175,433)
Prepaid expenses 59,888 137,270
Accounts payable 93,700 155,759
Due to affiliates 150,169 31,521
Accrued liabilities, principally
real estate taxes 105,992
Security deposits (159,650) (166,647)
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Net cash provided by operating activities 743,213 1,363,737
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Investing activities:
Proceeds from sales of properties 14,516,409 31,678,988
Payment of selling costs (899,132) (716,045)
Distributions from joint venture with an
affiliate 1,046,660 216,382
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Net cash provided by
investing activities 14,663,937 31,179,325
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<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(Unaudited)
(Continued)
1997 1996
-------------- --------------
Financing activities:
Distributions to Limited Partners (8,037,694) (8,125,150)
Deemed distribution to Limited Partners (597,449)
Principal payments on mortgage notes
payable (130,892) (321,210)
Repayment of mortgage notes payable (6,443,945) (16,731,937)
Distributions to joint venture
partners - affiliates (954,814) (1,352,685)
Contributions from joint venture
partners - affiliates 54,711
Release of capital improvement escrows 639,000
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Net cash used in financing activities (16,164,794) (25,837,271)
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Net change in cash and cash equivalents (757,644) 6,705,791
Cash and cash equivalents at beginning
of period 5,888,040 2,310,596
------------- -------------
Cash and cash equivalents at end of period $ 5,130,396 $ 9,016,387
============== ==============
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) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the income
(loss) allocations between the partners have been adjusted for financial
statement purposes in 1997.
(b) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1997, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold three properties and the
property in which the Partnership held a minority joint venture interest. In
addition, the Partnership sold the Howell Station Apartments in May 1997 and
its remaining property, the North Hill Apartments, which was owned by a joint
venture consisting of the Partnership and an affiliate, was sold in September
1997. The timing of the termination of the Partnership and final distribution
of cash will depend upon the nature and extent of liabilities and contingencies
which exist or may arise. The Partnership has retained a portion of the
proceeds from the sales to satisfy obligations of the Partnership, as well as
establish a reserve for contingencies. Such contingencies may include legal and
other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 8 of Notes to
Financial Statements. In the absence of any such contingency, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
3. Interest Expense:
During the nine months ended September 30, 1997 and 1996, the Partnership
incurred and paid interest expense on mortgage notes payable of $1,122,982 and
$2,716,613, respectively.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1997 are:
<PAGE>
Paid
----------------------
Nine Months Quarter Payable
------------ --------- ----------
Reimbursement of expenses to
the General Partner, at cost $ 128,707 $ 40,511 $ 66,837
As of September 30, 1997, the Partnership owed $168,836 to the affiliated joint
venture partner on North Hill Apartments for its share of property operations
for the third quarter of 1997. The Partnership distributed the cash flow to the
joint venture partner in November 1997.
5. Property Sales:
(a) In May 1997, the Partnership sold the Howell Station Apartments in an all
cash sale for $10,000,000. From the proceeds of the sale, the Partnership paid
$6,443,945 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $283,458 of prepayment penalties and $272,478 in selling costs.
In addition, the Partnership paid a state withholding tax of $214,203 on behalf
of the Limited Partners relating to the gain on sale of the property which has
been recorded as a deemed distribution for financial statement purposes. The
basis of the property was $4,881,076, which is net of accumulated depreciation
of $3,209,515. For financial statement purposes, the Partnership recognized a
gain of $4,846,446 from the sale of this property.
(b) The North Hill Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The Partnership and the affiliate held
participating percentages in the joint venture of 75% and 25%, respectively. In
September 1997, the joint venture sold the property for a sales price of
$21,000,000. The purchaser of the property took title subject to the existing
first mortgage loan in the amount of $16,483,591, which represents a noncash
transaction to the Partnership. Accordingly, the noncash aspect of this
transaction is not presented in the Partnership's Statements of Cash Flows.
From the proceeds of the sale, the joint venture paid $164,705 in fees relating
to the assumption of the mortgage loan by the purchaser and $461,949 in selling
costs. In addition, a state withholding tax of $383,246 was paid relating to
the gain on sale of the property which has been recorded as a deemed
distribution for financial statement purposes. The basis of the property was
$13,803,397, which is net of accumulated depreciation of $9,035,587. For
financial statement purposes, the joint venture recognized a gain of $6,569,949
from the sale of this property, of which $1,481,822 is the minority joint
venture partner's share.
6. Investment in Joint Venture with an Affiliate:
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. During October 1996, the joint venture sold the
property. Pursuant to the sale agreement, $500,000 of the sale proceeds were
retained by the joint venture until February 1997 at which time the funds were
released in full. The Partnership's share of the holdback was $201,250. The
Partnership also received a distribution from the joint venture of $845,410,
principally consisting of its share of repair escrows released during 1997.
<PAGE>
7. Extraordinary Items:
(a) In connection with the sale of the Howell Station Apartments during May
1997, the Partnership wrote off the remaining unamortized financing fees of
$95,822 and paid a prepayment penalty of $283,458. In connection with the sale
of the North Hill Apartments during September 1997, the joint venture that
owned the property wrote off the remaining unamortized deferred financing fees
of $617,919, of which $154,480 represents the North Hill Apartments minority
joint venture partner's share. Additionally, in connection with the 1994 bond
refinancing of the North Hill Apartments, the joint venture paid a bond
discount fee of $84,400 which was recorded as a reduction of the underlying
mortgage balance. In connection with the 1997 sale of the property, the bond
discount fee was written off. The minority joint venture partner's share of
this amount was $21,100. These amounts were recognized as extraordinary items
and classified as debt extinguishment expense for financial statement purposes.
(b) In connection with the 1994 bond refinancing of the North Hill Apartments,
the joint venture was obligated under a $1,350,000 non-interest bearing note
from an unaffiliated party, which was to be repaid only to the extent that net
sales proceeds exceeded a certain predetermined level. The net proceeds
received from the sale of the property did not meet the required level.
Therefore, the note will not be repaid and has been forgiven, which resulted in
an extraordinary gain on forgiveness of debt of $1,350,000 for financial
statement purposes, of which $337,500 represents the minority joint venture
partner's share.
8. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain federal securities law violations with regard
to the adequacy and accuracy of disclosures of information concerning, as well
as marketing efforts related to, the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
these actions. A plaintiff class has not been certified in either action and,
no determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
9. Subsequent Event:
In October 1997, the Partnership paid $2,245,496 ($38.00 per Interest) to the
holders of Limited Partnership Interests, representing a special distribution
of Net Cash Proceeds received from the sale of the North Hill Apartments in
September 1997.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series III A Real Estate Limited Partnership (the
"Partnership") was formed in 1984 to invest in and operate income-producing
real property. The Partnership raised $59,092,000 from the sale of Limited
Partnership Interests and utilized these proceeds to acquire eight real
properties and a minority joint venture interest in one additional real
property. Prior to 1997, the Partnership had disposed of six properties and the
property in which it held a minority joint venture interest. The Partnership
sold the Howell Station Apartments in May 1997 and its remaining property, the
North Hill Apartments, in September 1997.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1996 for a more complete understanding of
the Partnership's financial position.
Summary of Operations
- ---------------------
The Partnership sold the Howell Station and North Hill apartment complexes
during the nine months ended September 30, 1997 and the Country Ridge,
Shadowridge and Park Place - Phase II apartment complexes during the nine
months ended September 30, 1996. The gains recognized in connection with the
1996 sales were higher than the gains recognized in connection with the 1997
sales. This was the primary reason for the decrease in net income for the nine
months and quarter ended September 30, 1997 as compared to the same periods in
1996. Further discussion of the Partnership's operations is summarized below.
1997 Compared to 1996
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1997 and 1996 refer
to both the nine months and quarters ended September 30, 1997 and 1996.
The Partnership sold the Country Ridge, Shadowridge and Park Place - Phase II
apartment complexes during 1996 and the Howell Station and North Hill apartment
complexes in 1997. As a result, rental and service income, interest expense on
mortgage notes payable, depreciation, amortization, property operating expense,
real estate taxes and property management fees decreased during 1997 as
compared to 1996.
Due to higher average cash balances resulting from the investment of the
proceeds from the 1996 sales of the Country Ridge, Shadowridge and Park Place -
Phase II apartment complexes prior to distribution to Limited Partners,
interest income on short-term investments decreased during 1997 as compared to
1996.
<PAGE>
The Partnership owned a minority joint venture interest in the Lakeville Resort
Apartments. As a result of the 1996 sale of the property, participation in
income of joint venture with an affiliate ceased during 1996.
The Partnership sold the Howell Station and North Hill apartment complexes
during the nine months ended September 30, 1997 and the Country Ridge,
Shadowridge and Park Place-Phase II apartment complexes during the same period
in 1996. As a result, the Partnership recognized gains on sales of properties
of $11,416,395 during 1997 and $19,513,258 during 1996.
The North Hill and Shadowridge apartment complexes were both owned by joint
ventures consisting of the Partnership and an affiliate. Primarily as a result
of the larger gain recognized in connection with the 1997 sale of the North
Hill Apartments as compared to the gain recognized in connection with the 1996
sale of the Shadowridge Apartments, affiliates' participation in income from
joint ventures increased during 1997 as compared to 1996.
In connection with the sale of the Howell Station Apartments during May 1997,
the Partnership wrote off the remaining unamortized deferred financing fees
of $95,822 and paid a prepayment penalty of $283,458. In connection with
the sale of the North Hill Apartments during September 1997, the joint
venture that owned the property wrote off the remaining unamortized deferred
financing fees of $617,919, of which $154,480 represents the North Hill
Apartments minority joint venture partner's share. Additionally, in
connection with the 1994 bond refinancing of the North Hill Apartments,
the joint venture paid a bond discount fee of $84,400 which was
recorded as a reduction of the underlying mortgage balance. In connection
with the 1997 sale of the property, the bond discount fee was written off.
The minority joint venture partner's share of this amount was $21,100.
During 1996, the Partnership wrote-off the remaining unamortized deferred
financing fees of $440,081 in connection with the sales of the Country Ridge,
Shadowridge and Park Place - Phase II apartment complexes, of which $7,165
represents the Shadowridge Apartments' minority joint venture partner's
share. These amounts were recognized as extraordinary items and classified as
debt extinguishment expense for financial statement purposes.
As a result of the sale of the North Hill Apartments, the Partnership
recognized an extraordinary gain on forgiveness of debt of $1,350,000, of which
$337,500 represents the North Hill Apartments' minority joint venture partner's
share. See Note 7 of Notes to Financial Statements for additional information.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $758,000 as of
September 30, 1997 when compared to December 31, 1996 primarily due to
distributions paid to Limited Partners during January, April, and July 1997
from proceeds received from the 1996 and 1997 property sales. Cash flow of
approximately $743,000 was provided by the Partnership's operating activities
which consisted primarily of cash flow generated from property operations,
interest income on short-term investments and the release of funds held in
escrow on the Partnership's properties, which was partially offset by the
payment of expenses on sold properties and administrative expenses. Investing
activities consisted primarily of net proceeds of approximately $13,617,000
received from the 1997 property sales and a distribution from the joint venture
<PAGE>
with an affiliate of approximately $1,047,000. Financing activities consisted
primarily of the payment of distributions of approximately $8,038,000 to
Limited Partners, the repayment of mortgage notes payable in connection with a
1997 sale of approximately $6,444,000, principal payments on mortgage notes
payable of approximately $131,000 and distributions to the joint venture
partner - affiliate of approximately $955,000. In October 1997, the Partnership
made a special distribution of $2,245,496 to Limited Partners consisting
primarily of available proceeds received in connection with the sale of North
Hill Apartments.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold three properties, and the
property in which the Partnership held a minority joint venture interest. In
addition, the Partnership sold its remaining properties, the Howell Station and
North Hill apartment complexes during 1997. The timing of the termination of
the Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. The
Partnership has retained a portion of the proceeds from the sales to satisfy
obligations of the Partnership, as well as establish a reserve for
contingencies. Such contingencies may include legal and other fees and costs
stemming from litigation involving the Partnership including, but not limited
to, the lawsuits discussed in Note 8 of Notes to Financial Statements. In the
absence of any such contingency, the reserves will be paid within twelve months
of the last property being sold. In the event a contingency continues to exist
or arises, reserves may be held by the Partnership for a longer period of time.
The Lakeville Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. Pursuant to the sale agreement for the Lakeville
Resort Apartments, $500,000 of the sale proceeds was retained by the joint
venture and was unavailable for distribution until February 1997, at which time
the funds were released in full to the joint venture. The Partnership's share
of the funds was $201,250. The Partnership also received a distribution from
the joint venture of $845,410, principally consisting of its share of repair
escrows released during 1997.
In May 1997, the Partnership sold the Howell Station Apartments in an all cash
sale for $10,000,000. From the proceeds of the sale, the Partnership paid
$6,443,945 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $238,458 of prepayment penalties and $272,478 in selling costs.
In addition, the Partnership paid a state withholding tax of $214,203 relating
to the gain on the sale of the property. Pursuant to the terms of the sale,
$100,000 of the proceeds was retained by the Partnership and was unavailable
for distribution until August 1997, at which time the funds were released in
full. The remainder of the available proceeds were distributed to Limited
Partners in July 1997.
The North Hill Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In September 1997, the joint venture sold the
property for a sales price of $21,000,000. The purchaser of the property took
title subject to the existing first mortgage loan in the amount of $16,483,591.
Since the sales proceeds did not exceed a certain predetermined level as set
forth in the loan agreement, the $1,350,000 non-interest bearing note from an
<PAGE>
unaffiliated party was forgiven in connection with the sale. From the proceeds
of the sale, the joint venture paid $164,705 in fees relating to the assumption
of the mortgage loan by the purchaser and $461,949 in selling costs. In
addition, a state withholding tax of $383,246 was paid relating to the gain on
the sale of the property. The joint venture received the remaining sale
proceeds of $3,506,509, of which approximately $2,630,000 was the Partnership's
share. In addition, pursuant to the terms of the sale, $500,000 of the proceeds
will be retained by the Partnership and be unavailable for distribution until
December 1997. The Partnership distributed the joint venture partners' share of
the available sales proceeds in September 1997. The Partnership's share of the
available proceeds was distributed to the Limited Partners in October 1997. In
addition, the Partnership paid a distribution to its joint venture partner in
November 1997 representing its share of property operations for the third
quarter of 1997. This amount is included in due to affiliate - joint venture
partner in the financial statements at September 30, 1997. See Note 4 of Notes
to Financial Statements for additional information.
In October 1997, the Partnership paid $2,245,496 ($38.00 per Interest) to the
holders of Limited Partnership Interests, representing a special distribution
of available Net Cash Proceeds from the sale of the North Hill Apartments. To
date, including the October 1997 distribution, Limited Partners have received
cumulative distributions of Net Cash Receipts of $52.50 per $1,000 Interest and
Net Cash Proceeds of $359.02 per $1,000 Interest, totaling $411.52 per $1,000
Interest. Since all of the Partnership's properties have been sold, no
additional quarterly distributions are expected. Investors will not recover a
substantial portion of their original investment.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 5. Other Information
- --------------------------
North Hill Apartments
- ---------------------
As previously reported, on May 22, 1997, the joint venture (the "Joint
Venture") consisting of the Partnership and an affiliate which owns the North
Hill Apartments, DeKalb County, Georgia, contracted to sell the property to ERP
Operating Limited Partnership, an Illinois limited partnership, for a sale
price of $22,500,000. The Joint Venture and the purchaser subsequently agreed
to reduce the sale price to $21,000,000. The closing was extended and the sale
closed on September 4, 1997. The purchaser assumed the existing first mortgage
loan collateralized by the property which had an outstanding principal balance
of $16,483,591 at closing. From the proceeds of the sale, the Joint Venture
paid $164,705 in fees relating to the assumption of the mortgage loan by the
purchaser, $420,000 as a brokerage commission to an affiliate of the third
party providing property management services for the property and $41,949 in
closing costs. In addition, the Joint Venture paid state withholding taxes of
$383,246 in connection with the sale. The Joint Venture received the remaining
sale proceeds of $3,506,509. Of such proceeds, $500,000 is being retained by
the Joint Venture and will not be available for use or distribution by the
Joint Venture until December 1997. The Partnership's share of the total sale
proceeds will be approximately $2,630,000.
Pursuant to a refinancing of the property in 1994, the Joint Venture received
the proceeds of a $1,350,000 non-interest bearing note funded by an
unaffiliated party. The net proceeds of the sale does not exceed the
predetermined level requiring repayment of the note. No sale proceeds has been
utilized towards repayment of the note and the note has been forgiven.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
to the Partnership'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 Partnership's Report on Form 10-Q
for the quarter ended September 30, 1992 (Commission File No. 0-14350) are
incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto relating to the sale of Country
Ridge Apartments previously filed as Exhibit (2)(a) to the Registrant's Current
Report on Form 8-K dated April 23, 1996, is incorporated herein by reference.
<PAGE>
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Country Ridge Apartments previously filed as Exhibit (99)(a) to the
Registrant's Current Report on Form 8-K dated July 5, 1996, is incorporated
herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Country Ridge Apartments previously filed as Exhibit (99)(b) to the
Registrant's Current Report on Form 8-K dated July 5, 1996, is incorporated
herein by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of
Lakeville Resort Apartments previously filed as Exhibit (2)(b) to the
Registrant's Current Report on Form 8-K dated April 23, 1996, is incorporated
herein by reference.
(ii) Letter Agreements dated May 22, 1996 and July 8, 1996 relating to the sale
of Lakeville Resort Apartments previously filed as Exhibit (99)(c) to the
Registrant's Current Report on Form 8-K dated July 5, 1996, is incorporated
herein by reference.
(iii) Letter Agreement dated August 20, 1996 relating to the sale of Lakeville
Resort Apartments previously filed as Exhibit (99)(a) to the Registrant's
Current Report on Form 8-K dated August 20, 1996, is incorporated herein by
reference.
(iv) Letter Agreement dated September 19, 1996 relating to the sale of
Lakeville Resort Apartments previously filed as Exhibit (10)(b)(iv) to the
Registrant's Current Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(v) Letter Agreement dated September 30, 1996 relating to the sale of Lakeville
Resort Apartments previously filed as Exhibit (10)(b)(v) to the Registrant's
Current Report on Form 10-Q for the quarter ended September 30, 1996, is
incorporated herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Park
Place Apartments - Phase II previously filed as Exhibit (2)(c) to the
Registrant's Current Report on Form 8-K dated April 23, 1996, is incorporated
herein by reference.
(ii) Letter Agreements dated May 22, 1996 and July 8, 1996 relating to the sale
of Park Place Apartments - Phase II previously filed as Exhibit (99)(d) to the
Registrant's Current Report on Form 8-K dated July 5, 1996, is incorporated
herein by reference.
(iii) First Amendment to Agreement of Sale relating to the sale of Park Place
Apartments - Phase II previously filed as Exhibit (10)(c)(iii) to the
Registrant's Current Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of
Shadowridge Apartments previously filed as Exhibit (2)(a) to the Registrant's
Current Report on Form 8-K dated July 5, 1996, is incorporated herein by
reference.
<PAGE>
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Shadowridge Apartments previously filed as Exhibit (99) to the
Registrant's Current Report on Form 10-Q dated June 30, 1996, is incorporated
herein by reference.
(e)(i) Agreement of Sale relating to the sale of North Hill Apartments, DeKalb
County, Georgia, previously filed as Exhibit (2) to the Registrant's Current
Report on Form 8-K dated May 22, 1997, is incorporated herein by reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(ii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(iii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(iv) Third Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(iv) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(v) Fourth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(v) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(vi) Fifth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(vi) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(vii) Sixth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(vii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(viii) Letter Agreement dated June 30, 1997 relating to the sale of North Hill
Apartments, DeKalb County, Georgia, previously filed as Exhibit (10)(e)(viii)
to the Registrant's Current Report on Form 10-Q dated June 30, 1997, is
incorporated herein by reference.
(ix) Seventh Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(ix) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(x) Eighth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, is attached hereto.
(f)(i) Agreement of Sale relating to the sale of Howell Station Apartments
previously filed as Exhibit (2)(b)(ii) to the Registrant's Current Report on
Form 8-K dated February 21, 1997, is incorporated herein by reference.
<PAGE>
(ii) Amendment No.1 relating to the sale of Howell Station Apartments
previously filed as Exhibit (2)(b)(ii) to the Registrant's Current Report on
Form 8-K dated February 21, 1997, is incorporated herein by reference.
(iii) Agreement relating to the sale of Howell Station Apartments previously
filed as Exhibit (2)(b)(iii) to the Registrant's Current Report on Form 8-K
dated February 21, 1997, is incorporated herein by reference.
(iv) Amendment No. 2 to Agreement of Sale relating to the sale of Howell
Station Apartments previously filed as Exhibit (2)(b)(iv) to the Registrant's
Current Report on Form 8-K dated February 21, 1997, is incorporated herein by
reference.
(v) Amendment No. 3 to Agreement of Sale relating to Howell Station Apartments,
previously filed as Exhibit (10)(f)(v) to the Registrant's Current Report on
Form 10-K for the year ended December 31, 1996, is incorporated herein by
reference.
(vi) Amendment No. 4 to Agreement of Sale relating to Howell Station
Apartments, previously filed as Exhibit (10)(f)(vi) to the Registrant's Current
Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated
herein by reference.
(vii) Amendment No. 5 to Agreement of Sale relating to Howell Station
Apartments, previously filed as Exhibit (10)(f)(vii) to the Registrant's
Current Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
(27) Financial Data schedule of the Partnership for the nine months ended
September 30, 1997 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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/Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVIII, the
General Partner
By:/s/Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Managing Director and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Partners-XVIII, the General Partner
Date: November 13, 1997
-----------------------
<PAGE>
EIGHTH AMENDMENT TO AGREEMENT OF SALE AND ESCROW AGREEMENT
[North Hill Apartments, Atlanta, Georgia]
THIS EIGHTH AMENDMENT TO AGREEMENT OF SALE AND ESCROW AGREEMENT (this
"Amendment") is made as of the 20th day of August, 1997, by and between N.H.
ASSOCIATES, an Illinois limited partnership ("Seller"), and ERP OPERATING
LIMITED PARTNERSHIP, an Illinois limited partnership ("Purchaser").
RECITALS
Purchaser and Seller are parties to an Agreement of Sale dated as of May
16, 1997 (as the same has been amended from time to time, the "Purchase
Agreement") and an Escrow Agreement dated as of May 16, 1997 (as the same has
been amended from time to time, the "Escrow Agreement"). All capitalized terms
which are used but not defined in this Amendment shall have the same respective
meanings ascribed to such terms in the Purchase Agreement. Purchaser and
Seller desire to amend the Purchase Agreement and Escrow Agreement as more
particularly set forth below.
NOW, THEREFORE, in consideration of the Purchase Agreement, the mutual
covenants and agreements therein and hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Purchaser and Seller agree as follows:
1. Closing Date. The Closing Date is hereby extended to September 4,
1997.
2. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which shall be deemed to be an original, and all of such counterparts shall
constitute one agreement. To facilitate execution of this Amendment, the
parties may execute and exchange by telephone facsimile counterparts of the
signature pages.
3. Effect of Amendment. Except as expressly amended hereby, the Purchase
Agreement and Escrow Agreement shall remain in full force and effect and
otherwise unmodified.
<PAGE>
SIGNATURE PAGE TO EIGHTH AMENDMENT TO
AGREEMENT OF SALE AND ESCROW AGREEMENT
[North Hill Apartments, Atlanta, Georgia]
IN WITNESS WHEREOF, Seller and Purchaser have executed and delivered this
Amendment as of the date first above written.
SELLER: N.H. ASSOCIATES, an Illinois limited partnership
By: North Hill Partners, an Illinois joint venture,
its general partner
By: Thornhill Limited Partnership, an Illinois
limited partnership, a joint venture partner
By: Balcor Partners-XVI, an Illinois general
partnership, its general partner
By: RGF-Balcor Associates-II, an Illinois
general partnership, a partner
By: The Balcor Company, a
Delaware corporation, a
general partner
By: /s/Michael J. Becker
-----------------------------
Name: Michael J. Becker
Its: Managing Director
PURCHASER: ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Equity Residential Properties Trust, its general partner
By: /s/Christopher J. Beda
-------------------------------
Name: Christopher J. Beda
Its: A.V.P.
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5130
<SECURITIES> 0
<RECEIVABLES> 147
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5277
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5277
<CURRENT-LIABILITIES> 368
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4753
<TOTAL-LIABILITY-AND-EQUITY> 5277
<SALES> 0
<TOTAL-REVENUES> 13026
<CGS> 0
<TOTAL-COSTS> 1392
<OTHER-EXPENSES> 877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1123
<INCOME-PRETAX> 9634
<INCOME-TAX> 0
<INCOME-CONTINUING> 9634
<DISCONTINUED> 0
<EXTRAORDINARY> 107
<CHANGES> 0
<NET-INCOME> 9741
<EPS-PRIMARY> 164.15
<EPS-DILUTED> 164.15
</TABLE>
