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, 1998
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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 0-14348
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BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3354308
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 Equity Pension Investors-III A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1985 under the laws of the
State of Illinois. The Registrant raised $170,801,000 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant originally funded four first mortgage loans, two of which were
jointly funded with affiliates, and acquired five real property investments and
a minority joint venture interest in another real property investment and has
since disposed of all of these investments. The Partnership Agreement provides
that the proceeds of any sale or refinancing of the Registrant's properties
will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Registrant sold its final real estate investment in October
1997. The Registrant has retained a portion of the cash from the property sales
to satisfy obligations of the Registrant as well as to establish a reserve for
contingencies. The timing of the termination of the Registrant and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Registrant
including, but not limited to, the lawsuit discussed in "Item 3. Legal
Proceedings". Due to this litigation, the Registrant will not be dissolved and
reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Equity Partners-III, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1998, the Registrant did not own any properties.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
<PAGE>
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
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 1998.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".
As of December 31, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 29,913.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $192,068 $6,589,569 $20,284,354 $17,804,510 $16,938,456
Provision for
investment
property
writedown None 2,255,673 3,777,000 None None
(Loss) income
before gain on
on sales of proper-
ties and seller's
participation
in joint venture (219,466) (1,672,693) 6,033,505 6,150,471 4,820,354
Net (loss) income (219,466) 4,251,167 20,642,345 6,150,471 4,820,354
Net (loss) income
per Limited
Partnership
Interest-
Basic and Diluted (0.32) 5.32 29.23 7.63 5.88
Total assets 3,079,469 8,945,676 71,472,288 103,241,269 105,268,922
Distributions per
Taxable Limited
Partnership
Interest (A) 0.28 5.90 16.35 7.90 7.00
Distributions per
Tax-exempt
Limited
Partnership
Interest (A) 8.86 102.83 78.24 10.51 9.32
(A) These amounts include distributions of original capital of $8.49, $94.98
and $56.50 per Tax-exempt Limited Partnership Interest during 1998, 1997 and
<PAGE>
1996, respectively. No distributions of original capital were paid to Taxable
Limited Partners during the last five years.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Equity Pension Investors - III A Real Estate Limited Partnership (the
"Partnership") sold two properties and the three properties in which it held
minority joint venture interests in 1996 and sold its remaining five properties
in 1997. The Partnership recognized net gains from these property sales in each
of 1997 and 1996. During 1998, administrative expenses were higher than
interest income earned on short-term investments. As a result, the Partnership
recognized a net loss for 1998 as compared to net income in 1997. Primarily as
a result of lower net gains resulting from the property sales in 1997 as
compared to 1996 and lower income from property operations in 1997 due to the
property sales, net income decreased during 1997 as compared to 1996. The
Partnership also recognized provisions for investment property writedowns in
each of 1997 and 1996. Further discussion of the Partnership's operations is
summarized below.
1998 Compared to 1997
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During 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings, the Belmont Apartments, the Erindale Centre Shopping Center,
the Bingham Farms Office Plaza - Phase IV and the Arborland Consumer Mall. As
a result, rental income, service income, depreciation, amortization of deferred
expenses, property operating expenses, real estate taxes and property
management fees ceased during 1997.
Higher average cash balances were available for investment during 1997 due to
proceeds received in connection with 1996 and 1997 property sales prior to
distribution to Limited Partners in 1997 and January 1998. This resulted in a
decrease in interest income on short-term investments during 1998 as compared
to 1997.
The Perimeter 400 Office Building, which was owned by a joint venture
consisting of the Partnership and three affiliates, was sold in December 1996.
During 1998, the Partnership received $12,457 representing its share of a
refund of 1996 real estate taxes which had been under appeal. This amount was
recognized as other income during 1998. The Partnership recognized other income
of $7,753 during 1997 in connection with partial refunds of prior years'
insurance premiums relating to the Partnership's properties.
<PAGE>
The Partnership incurred lower accounting, data processing, portfolio
management, legal and professional fees, bank charges and postage costs during
1998 as compared to 1997 resulting in a decrease in administrative expenses
during 1998 as compared to 1997.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represented estimations based on many variables which affect the
value of real estate, including economic and demographic conditions. During
1997, the Partnership recognized provisions for investment property writedown
of $605,157 related to the Bingham Farms Office Plaza - Phase IV and $1,650,516
related to the Arborland Consumer Mall based on the properties' sales prices
less closing costs.
The Partnership sold the Ammendale Technology Park - Phase II office buildings,
the Belmont Apartments and the Erindale Centre Shopping Center in 1997, and
recognized gains totaling $6,086,360 on these property sales. See Note 11 of
Notes to Financial Statements for additional information.
The Arborland Consumer Mall was owned by a joint venture between the
Partnership and the seller prior to its sale in October 1997. The seller
received a cash flow distribution of $162,500 during 1997 pursuant to the joint
venture agreement. The amount was recognized as seller's participation in
income from joint venture in 1997.
1997 Compared to 1996
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In addition to the 1997 property sales, the Partnership sold the Westlake
Meadows and Green Trails apartment complexes during 1996. As a result, rental
income, service income, depreciation, property operating expenses, real estate
taxes and property management fees decreased during 1997 when compared to 1996.
The Partnership participated in the income generated by the operations of the
1275 K Street, Westech 360 and Perimeter 400 office buildings, in which it held
minority joint venture interests, prior to their sales in 1996. As a result of
these sales, the Partnership's participation in income of joint ventures with
affiliates ceased. The Partnership's participation in 1996 included its share
of the gains from the sales of the Westech 360 and Perimeter 400 office
buildings and its share of the loss from the sale of the 1275 K Street office
building.
The Partnership had higher average cash balances available for investment
during 1996 due to the timing of the proceeds received from the 1996 property
sales and the subsequent distribution to Partners. As a result, interest
income on short-term investments decreased during 1997 as compared to 1996.
In connection with the sales of the Ammendale Technology Park - Phase II office
buildings and the Bingham Farms Office Plaza - Phase IV, the Partnership wrote
off the remaining unamortized deferred leasing commissions on the properties.
As a result, amortization of deferred expenses increased during 1997 as
compared to 1996.
<PAGE>
The Partnership incurred higher consulting, investor processing, legal, postage
and printing costs in connection with its response to a tender offer and
related litigation during 1996. As a result, administrative expenses decreased
during 1997 as compared to 1996.
During 1996, the Partnership recognized a provision for investment property
writedown of $3,777,000 to provide for a change in the estimate of the fair
value of the Arborland Consumer Mall.
The Partnership sold the Westlake Meadows and Green Trails apartment complexes
in 1996 and recognized gains totaling $14,608,840 on these property sales. See
Note 11 of Notes to Financial Statements for additional information.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $5,677,000 as
of December 31, 1998 when compared to December 31, 1997 primarily due to the
distribution made to Tax-exempt Limited Partners in January 1998 consisting
primarily of proceeds received in connection with the October 1997 sale of the
Arborland Consumer Mall. Operating activities used cash of approximately
$18,000 consisting of the payment of administrative expenses which was
partially offset by the collection of certain operating accounts receivable,
the collection of an escrow deposit relating to the Erindale Centre Shopping
Center and interest income earned on short-term investments. Financing
activities consisted of distributions to the Partners of approximately
$5,659,000.
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. The Partnership sold its final real estate investment in October
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to establish a
reserve for contingencies. 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. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuit discussed in "Item 3.
Legal Proceedings". Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
The Partnership sold the Arborland Consumer Mall in October 1997. In connection
with the sale, $109,526 related to tenant reimbursements was placed in escrow
at closing and will be held in escrow until such time as payment of these
reimbursements are received from the tenants. The Partnership expects to
receive the full amount of the escrow.
The Partnership sold the Erindale Centre Shopping Center in August 1997. In
connection with the sale, $25,000 of the sale proceeds was placed in escrow at
closing until the settlement of a dispute with a vendor at the property was
<PAGE>
reached. In March 1998, the Partnership paid $3,600 to the vendor in settlement
of the dispute. In April 1998, the $25,000 escrow was released to the
Partnership in full.
The Partnership made distributions totaling $0.28, $5.90 and $16.35 per Taxable
Interest and $8.86, $102.83 and $78.24 per Tax-exempt Interest in 1998, 1997
and 1996, respectively. Distributions to Taxable Limited Partners were
comprised of Net Cash Receipts in all three years. Distributions to Tax-exempt
Limited Partners were comprised of $0.37 of Net Cash Receipts and $8.49 of Net
Cash Proceeds in 1998, $7.85 of Net Cash Receipts and $94.98 of Net Cash
Proceeds in 1997 and $21.74 of Net Cash Receipts and $56.50 of Net Cash
Proceeds in 1996.
Limited Partners have received Net Cash Receipts distributions of $103.98 per
$250 Taxable Interest and $138.36 per $250 Tax-exempt Interest, and Net Cash
Proceeds of $159.97 per $250 Tax-exempt Interest. Distributions to Tax-exempt
Limited Partners total $298.33 per $250 Interest. In accordance with the
Partnership Agreement, Net Cash Proceeds from property sales were distributed
to the Tax-exempt Limited Partners. Taxable and Tax-exempt Limited Partners
received quarterly distributions from Net Cash Receipts. No additional
distributions are anticipated to be made prior to the termination of the
Partnership. However, after paying final partnership expenses, any remaining
cash reserves will be distributed in accordance with the Partnership Agreement.
Amounts allocated to the Repurchase Fund will also be distributed at that time.
Taxable Limited Partners will not receive aggregate distributions from the
Partnership equal to their original investment. However, Taxable Limited
Partners will receive a distribution from amounts allocated to the Repurchase
Fund.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 19,585 Interests and cash
of $2,770,137 in the Repurchase Fund.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Tax-exempt Limited
Partners in 1996 and 1997. Since the Partnership no longer has any operating
assets, the number of computer systems and programs necessary to operate the
Partnership has been significantly reduced. The Partnership relies on third
party vendors to perform most of its functions and has implemented a plan to
determine the Year 2000 compliance status of these key vendors. The Partnership
is within its timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
<PAGE>
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements 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, 1998 December 31, 1997
----------------------- -----------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
----------- ----------- ----------- -----------
Total assets $ 3,079,469 $20,001,621 $ 8,945,676 $26,018,174
Partners' (deficit)
capital accounts:
General Partner (597,306) (3,367,443) (566,735) (3,328,530)
Limited Partners 3,575,406 23,267,694 9,423,550 29,281,653
Net (loss) income:
General Partner (2,976) (11,318) 615,824 (2,634,615)
Limited Partners (216,490) (382,305) 3,635,343 (18,817,276)
Per Limited Part-
nership Interest (0.32)(A) (B) 5.32(A) (B)
<PAGE>
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
(B) The net (loss) income is ($0.62) per Tax-exempt Interest and $0.17 per
Taxable Interest for 1998 and ($34.66) per Tax-exempt Interest and $64.30 per
Taxable Interest for 1997.
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 Equity Partners - III, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences 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
Senior Vice President Alexander J. Darragh
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) 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 member of the board of directors of
The Balcor Company. He is also a Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. 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.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
<PAGE>
(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 1998.
Item 11. Executive Compensation
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The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive 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 10 of Notes to Financial Statements for
the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- -----------------------------------------------------------
Limited Walton 31,041.45 4.54%
Partnership Street Limited
Interests Capital Partnership
Acquisition Interests
Co. II, L.C.C.
Chicago,
Illinois
Limited Beattie 16,714.63 2.45%
Partnership Place Limited
Interests Greenville, Partnership
South Interests
Carolina
While Walton Street Capital Acquisition Co. II, L.C.C. and Beattie Place
individually each own less than 5% of the Interests, for purposes of this Item
12, Walton Street Capital Acquisition Co. II, L.C.C. is an affiliate of Beattie
Place and, collectively, they own 6.99% of the Interests.
(b) Balcor Equity Partners-III (principally through the Repurchase Fund) and
its officers and partners own as a group the following Limited Partnership
Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
------------------- --------------- ----------------
Limited Partnership
Interest 20,148 Interests 2.95%
Relatives of the officers and affiliates of the partners of the General Partner
do not own any additional interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 1,064 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operations of which
may result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 10 of Notes to Financial Statements for 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 and Reports on Form 8-K
- -----------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 2 to Registrant's Registration
Statement on Form S-11 dated September 25, 1985 (Registration Statement No.
2-97579) is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3
to the Registrant's Registration Statement on Form S-11 dated September 25,
1985 (Registration Statement No. 2-97579) and Form of Confirmation regarding
Interests in the Registrant 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. 0-14348)
are incorporated herein by reference.
(10) Material Contracts:
(a) (i) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (10)(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 is incorporated herein by reference.
(a) (ii) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (99)(b)(i) to the Registrant's Current Report on Form 8-K
dated June 17, 1997, is incorporated herein by reference.
(a) (iii) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously filed as
Exhibit (99)(b)(ii) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(b) Agreement of Sale and attachment thereto relating to the sale of Belmont
Apartments, Renton, Washington, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated May 16, 1997, is incorporated
herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(i) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
(c)(ii) First Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(ii) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
<PAGE>
(c)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (99)(a) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of
Arborland Consumer Mall, Ann Arbor, Michigan, previously filed as Exhibit
(2)(a) to the Registrant's Current Report on Form 8-K dated June 17, 1997, is
incorporated herein by reference.
(d)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Arborland Consumer Mall, Ann Arbor, Michigan, previously filed
as Exhibit (2)(b) to the Registrant's Current Report on Form 8-K dated June 17,
1997, is incorporated herein by reference.
(27)Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended December 31, 1998.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Jayne A. Kosik
--------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Equity Partners-III,
the General Partner
Date: March 31, 1999
--------------
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 Equity
/s/ Thomas E. Meador Partners-III, the General Partner March 31, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Equity Partners-III,
/s/ Jayne A. Kosik the General Partner March 31, 1999
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital, for the years ended December 31, 1998, 1997
and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules 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 Equity Pension Investors-III
A Real Estate Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital, of income and expenses and of cash flows present fairly, in
all material respects, the financial position of Balcor Equity Pension
Investors-III A Real Estate Limited Partnership (An Illinois Limited
Partnership, the "Partnership") at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 12 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 24, 1999
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 2,961,482 $ 8,638,754
Accounts and accrued interest receivable 8,461 172,396
Escrow deposits - restricted 109,526 134,526
-------------- --------------
$ 3,079,469 $ 8,945,676
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 47,555 $ 44,712
Due to affiliates 53,814 44,149
-------------- --------------
Total liabilities 101,369 88,861
-------------- --------------
Commitments and Contingencies
Limited Partners' capital (683,204
Interests issued and outstanding) 3,575,406 9,423,550
General Partner's deficit (597,306) (566,735)
-------------- --------------
Total partners' capital 2,978,100 8,856,815
-------------- --------------
$ 3,079,469 $ 8,945,676
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
--------------- -------------- ---------------
General Limited
Total Partner Partners
--------------- -------------- ---------------
Balance at December 31,1995 $ 102,073,773 $ 352,981 $ 101,720,792
Cash distributions to:
Limited Partners (A) (50,413,243) (50,413,243)
General Partner (1,620,895) (1,620,895)
Net income for the year
ended December 31, 1996 20,642,345 669,960 19,972,385
--------------- -------------- ---------------
Balance at December 31,1996 70,681,980 (597,954) 71,279,934
Cash distributions to:
Limited Partners (A) (65,491,727) (65,491,727)
General Partner (584,605) (584,605)
Net income for the year
ended December 31, 1997 4,251,167 615,824 3,635,343
--------------- -------------- ---------------
Balance at December 31,1997 8,856,815 (566,735) 9,423,550
Cash distributions to:
Limited Partners (A) (5,631,654) (5,631,654)
General Partner (27,595) (27,595)
Net loss for the year
ended December 31, 1998 (219,466) (2,976) (216,490)
--------------- -------------- ---------------
Balance at December 31,1998 $ 2,978,100 $ (597,306) $ 3,575,406
=============== ============== ===============
(A) Summary of cash distributions paid per Interest:
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Taxable
- -------------
First Quarter None $ 2.80 $ 1.75
Second Quarter $ 0.28 2.60 2.80
Third Quarter None 0.50 2.80
Fourth Quarter None None 9.00
Tax-Exempt
- -------------
First Quarter 8.86 41.50 2.33
Second Quarter None 18.46 3.72
Third Quarter None 0.67 3.72
Fourth Quarter None 42.20 68.47
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
--------------- -------------- ---------------
Income:
Rental $ 4,268,955 $ 10,311,282
Service 1,481,271 2,290,095
Participation in income
of joint ventures
with affiliates 6,501,382
Interest on short-term
investments $ 179,611 831,590 1,181,595
Other income 12,457 7,753
----------------------------------------------
Total income 192,068 6,589,569 20,284,354
----------------------------------------------
Expenses:
Depreciation 1,141,476 2,487,264
Amortization of deferred
expenses 131,377 73,059
Property operating 2,639,204 4,961,218
Real estate taxes 999,035 1,379,433
Property management fees 264,904 585,864
Administrative 411,534 830,593 987,011
Provisions for investment
property writedowns 2,255,673 3,777,000
----------------------------------------------
Total expenses 411,534 8,262,262 14,250,849
----------------------------------------------
(Loss) income before gain on
sales of properties and
seller's participation
in joint venture (219,466) (1,672,693) 6,033,505
Gain on sales of properties 6,086,360 14,608,840
Seller's participation in
income from joint venture (162,500)
--------------- -------------- ---------------
Net (loss) income $ (219,466) $ 4,251,167 $ 20,642,345
=============== ============== ===============
Net (loss) income allocated
to General Partner $ (2,976) $ 615,824 $ 669,960
=============== ============== ===============
Net (loss) income allocated
to Limited Partners $ (216,490) $ 3,635,343 $ 19,972,385
=============== ============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Net (loss) income per Limited
Partnership Interest
(683,204 issued and
outstanding) - Basic
and Diluted $ (0.32) $ 5.32 $ 29.23
=============== ============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
--------------- -------------- ---------------
Operating activities:
Net (loss) income $ (219,466) $ 4,251,167 $ 20,642,345
Adjustments to reconcile
net (loss) income to
net cash (used in) or
provided by operating
activities:
Gain on sales of
properties (6,086,360) (14,608,840)
Participation in
income of joint
ventures with
affiliates (6,501,382)
Seller's participation
in income from
joint venture 162,500
Depreciation of
properties 1,141,476 2,487,264
Amortization of
deferred expenses 131,377 73,059
Provisions for
investment property
writedowns 2,255,673 3,777,000
Funding of escrows in
connection with the
sale of real estate (134,526)
Net change in:
Accounts and accrued
interest receivable 163,935 429,165 572,749
Escrow deposits -
restricted 25,000
Prepaid expenses 469,833 61,716
Accounts payable 2,843 (344,676) 100,197
Due to affiliates 9,665 (75,066) 89,242
Accrued liabilities (106,625) 3,074
Security deposits (175,080) (154,019)
----------------------------------------------
Net cash (used in) or
provided by operating
activities (18,023) 1,918,858 6,542,405
----------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Investing activities:
Capital contribution to
joint venture with
an affiliate $ (39,705) $ (62,975)
Distributions from joint
ventures with affil-
iates 2,112,148 27,509,153
Improvements to properties (359,039)
Proceeds from sales of
properties 37,787,530 43,850,000
Payment of selling costs (1,405,574) (1,202,530)
Payment of leasing costs (1,018,942)
-------------- ---------------
Net cash provided by
investing activities 37,435,457 69,734,609
-------------- ---------------
Financing activities:
Distributions to
Limited Partners $ (5,631,654) (65,491,727) (50,413,243)
Distributions to
General Partner (27,595) (584,605) (1,620,895)
Distributions to joint
venture partner - seller (162,500)
----------------------------------------------
Cash used in financing
activities (5,659,249) (66,238,832) (52,034,138)
----------------------------------------------
Net change in cash and
cash equivalents (5,677,272) (26,884,517) 24,242,876
Cash and cash equivalents
at beginning of year 8,638,754 35,523,271 11,280,395
----------------------------------------------
Cash and cash equivalents
at end of year $ 2,961,482 $ 8,638,754 $ 35,523,271
=============== ============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
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. The Partnership sold its final real estate investment in October
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to establish a
reserve for contingencies. 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. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuit discussed in Note 12 of
Notes to Financial Statements. Due to this litigation, the Partnership will not
be dissolved and reserves will be held by the Partnership until the conclusion
of all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 31
Furniture and fixtures 4 to 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) The Partnership recorded its investments in real estate at the lower of
cost or fair value, and periodically assessed, but not less than on an annual
basis, possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. In the event the General Partner determined an
impairment in value had occurred, and the carrying amount of the real estate
asset would not be recovered, a provision was recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considered the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Investment in joint ventures with affiliates represented the Partnership's
39.48%, 43.3% and 21.95% interests, under the equity method of accounting, in
three joint ventures with affiliated partnerships. Under the equity method of
accounting, the Partnership recorded its initial investment at cost and
adjusted its investment account for additional capital contributions,
distributions and its share of joint venture income or loss.
(e) Deferred expenses consisted of leasing commissions which were amortized
over the life of each respective lease. Upon sale of the property, the
remaining unamortized balance was written off to amortization expense.
(f) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(g) The Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(i) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(j) 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.
(k) For financial statement purposes, prior to 1998, the partners were
allocated income and losses in accordance with the provisions in the
<PAGE>
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the (loss) income allocations have been adjusted.
(l) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
(m) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized in April 1985. The Partnership Agreement provided
for the admission of Limited Partners through the sale of up to 1,000,000
Limited Partnership Interests at $250 per Interest, 683,204 of which were sold
on or prior to August 1, 1986, the termination date of the offering.
The Partnership Agreement provides for different allocations of profits and
losses and cash distributions to Limited Partners depending on whether the
investor originally acquiring the Interest was a taxable or tax-exempt entity.
Pursuant to the Partnership Agreement, "Operating Income" of the Partnership is
allocated 10% to the General Partner and 90% to the Limited Partners; however,
certain components are specially allocated as described in the Partnership
Agreement. "Operating Losses" and certain other components are allocated 1% to
the General Partner and 99% to the Limited Partners pursuant to terms set forth
in the Partnership Agreement. For financial statement purposes, prior to 1998,
the partners were allocated income and losses in accordance with the provisions
in the Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the (loss) income allocations have been adjusted.
"Net Cash Receipts" available for distribution were distributed as follows: 90%
to Limited Partners, 7.5% to the General Partner as its distributive share from
Partnership operations and 2.5% of such "Net Cash Receipts" was paid to the
General Partner for allocation to the Repurchase Fund.
At the sole discretion of the General Partner and subject to certain
limitations as set forth in the Partnership Agreement, amounts placed in the
Repurchase Fund were available to repurchase Interests from Limited Partners.
Distributions of "Net Cash Receipts" and "Net Cash Proceeds" pertaining to such
repurchased Interests were paid to the Repurchase Fund and were utilized to
repurchase additional Interests. In February 1997, the Partnership discontinued
the repurchase of Interests from Limited Partners. An amount not to exceed the
dollars originally allocated to the Repurchase Fund is obligated to be returned
by the Repurchase Fund to the Partnership at liquidation, which will be
accounted for as a capital contribution from the General Partner. As of
December 31, 1998, there were 19,585 Interests and cash of $2,770,137 in the
Repurchase Fund.
<PAGE>
The Partnership has disposed of all of its real property investments. The "Net
Cash Proceeds" resulting therefrom, which were available for distribution, were
distributed to the Tax-exempt Limited Partners in accordance with the
Partnership Agreement. Since the required subordination levels as set forth in
the Partnership Agreement were not met, the General Partner has not received
any distributions of Net Cash Proceeds during the lifetime of the Partnership.
5. Investment Property Writedowns:
(a) During 1996, the Partnership determined that an impairment to the asset
value of the Arborland Consumer Mall had occurred. The property was written
down to its estimated sales price less closing costs, and a $3,777,000
provision for investment property writedown was recognized. The Partnership
sold the Arborland Consumer Mall in October 1997. During 1997, the Partnership
recognized an additional provision for investment property writedown of
$1,650,516. See Note 11 of Notes to Financial Statements for additional
information.
(b) In 1997, the Partnership sold the Bingham Farms Office Plaza - Phase IV.
In connection with the sale, the property was written down to its sales price,
less closing costs, and a $605,157 provision for investment property writedown
was recognized. See Note 11 of Notes to Financial Statements for additional
information.
6. Management Agreements:
The Partnership's properties were managed by third party management companies
prior to the sale of the properties. These management agreements provided for
annual fees of 3% to 6% of gross operating receipts.
7. Seller's Participation in Joint Venture:
The Arborland Consumer Mall was owned by a joint venture between the
Partnership and the seller. The property was sold in 1997. See Note 11 of
Notes to Financial Statements for additional information. Prior to the sale,
the seller retained an interest in the property through its interest in the
joint venture. All assets, liabilities, income and expenses of the joint
venture were included in the financial statements of the Partnership with the
appropriate deduction from income or loss, if any, for the seller's
participation in the joint venture. The seller shared in the cash flow of the
property only after the Partnership received a preferential distribution. The
Partnership made a distribution to the seller of $162,500 during 1997 pursuant
to the joint venture agreement, and as a result, the seller was allocated
$162,500 of income. The seller did not receive any proceeds from the sale of
the property and was not allocated any loss on sale for financial statement
purposes. The Partnership made no distribution to the seller in 1996.
8. Investment in Joint Ventures with Affiliates:
(a) In 1986, the Partnership and an affiliate acquired the 1275 K Street Office
Building. Profits and losses, all capital contributions and distributions were
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage was 39.48%. In December 1996, the joint
<PAGE>
venture sold the property in an all cash sale for $28,300,000. From the
proceeds of the sale, the joint venture paid $911,470 in selling costs.
Pursuant to the terms of the sale, $2,287,500 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of these
proceeds was $903,105. For financial statement purposes, the joint venture
recognized a loss of $5,028,903 from the sale of this property in 1996, of
which $1,924,848 was the Partnership's share. In addition, during 1997 and
1996, the Partnership received distributions from this joint venture totaling
$1,123,988 and $11,236,549, respectively.
(b) In 1988, the Partnership and an affiliate acquired the Westech 360 Office
Building. Profits and losses, all capital contributions and distributions were
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage was 43.30%. In December 1996, the joint
venture sold the property in an all cash sale for $18,330,000. From the
proceeds of the sale, the joint venture paid $477,653 in selling costs.
Pursuant to the terms of the sale, $1,395,000 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of these
proceeds was $604,035. For financial statement purposes, the joint venture
recognized a gain of $9,904,922 from the sale of this property in 1996, of
which $4,288,415 was the Partnership's share. In addition, during 1997 and
1996, the Partnership received distributions from this joint venture totaling
$604,035 and $7,560,143, respectively, and made a contribution of $39,705 in
1997.
(c) In 1990, the Partnership and three affiliates acquired the Perimeter 400
Office Center. Profits and losses, all capital contributions and distributions
were allocated in accordance with the participants' original funding
percentages. The Partnership's sharing percentage was 21.95%. In December 1996,
the joint venture sold the property in an all cash sale for $40,700,000. From
the proceeds of the sale, the joint venture paid $882,765 in selling costs.
Pursuant to the terms of the sale, $1,750,000 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of
these proceeds was $384,125. The joint venture recognized a gain of $12,420,982
from the sale of this property in 1996, of which $2,725,820 was the
Partnership's share. In addition, during 1997 and 1996, the Partnership
received distributions from this joint venture totaling $384,125 and
$8,712,461, respectively, and made contributions of $62,975 in 1996.
The following combined information has been summarized from the financial
statements of the joint ventures:
1996
----------
Net investment in real estate as of
December 31 None
Total liabilities as of December 31 $200,899
Total income 14,019,918
Loss before net gain on sales (6,559,548)
Net gain on sales 17,297,001
Net income 10,737,453
<PAGE>
9. 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 ("GAAP"), 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 1998 in the financial statements is $174,157 less than
the tax loss for the same period.
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $24,298 $14,237 $56,979 $9,696 $19,529 $14,768
Data processing 2,535 872 5,929 None 2,596 None
Investment processing None None None None 8,340 None
Legal 11,926 7,360 26,081 4,175 10,885 8,231
Portfolio management 52,043 31,345 200,556 29,077 121,685 92,017
Other 1,201 None 12,778 1,201 5,554 4,200
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
which received no fee for administering the program. However, the General
Partner was reimbursed for program expenses. The Partnership paid premiums to
the deductible insurance program relating to claims for periods prior to May 1,
1995 of $15,835 for 1996.
11. Property Sales:
(a) In February 1997, the Partnership sold the Ammendale Technology Park -
Phase II office buildings in an all cash sale for $5,768,000. From the proceeds
of the sale, the Partnership paid $289,417 in selling costs. The basis of the
property was $4,708,238 which is net of accumulated depreciation of $426,041.
For financial statement purposes, the Partnership recognized a gain of $770,345
from the sale of the property.
(b) In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase
IV in an all cash sale for $12,700,000. In connection with the sale, leasing
costs in the amount of $3,000,412 were incurred related to the renewal of the
lease of the largest tenant in the building. Of these costs, $1,018,942 was
<PAGE>
paid by the Partnership prior to the sale of the property and the purchaser
received a credit for $1,981,470. From the proceeds of the sale, the
Partnership paid $393,328 in selling costs. In connection with the sale, the
Partnership wrote off $600,811 of accounts receivable related to rental
abatements and scheduled rent increases. The basis of the property was
$10,325,202 which is net of accumulated depreciation of $6,597,332. For
financial statement purposes, the Partnership recognized a $605,157 provision
for investment property writedown during 1997 and no gain or loss was
recognized on the sale of the property.
(c) In August 1997, the Partnership sold the Belmont Apartments in an all cash
sale for $7,676,000. From the proceeds of the sale, the Partnership paid
$244,852 in selling costs. The basis of the property was $5,284,309 which is
net of accumulated depreciation of $3,411,823. For financial statement
purposes, the Partnership recognized a gain of $2,146,839 from the sale of the
property.
(d) In August 1997, the Partnership sold the Erindale Centre shopping center in
an all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,674 in selling costs. The basis of the property was $4,833,150 which
is net of accumulated depreciation of $5,674,448. For financial statement
purposes, the Partnership recognized a gain of $3,169,176 from the sale of the
property.
(e) The Arborland Consumer Mall was owned by a joint venture consisting of the
Partnership and the seller of the property. In October 1997, the joint venture
sold the property in an all cash sale for $7,000,000. In connection with the
sale, the purchaser received a credit of $1,625,000 to remedy certain
environmental issues at the property. The General Partner believes that the
Partnership will have no further liability relating to the environmental issues
at the property. From the proceeds of the sale, the joint venture paid $230,303
in selling costs. In the connection with the sale, $109,526 related to tenant
reimbursements was placed in escrow at closing and will be held in escrow until
such time as payment of these reimbursements are received from the tenants.
The basis of the property was $5,144,697 which is net of accumulated
depreciation of $10,632,690. For financial statement purposes, the
Partnership recognized a $1,650,516 provision for investment property writedown
during 1997 and recognized no gain or loss from the sale of the property. The
seller did not receive any sale proceeds and was not allocated any gain or loss
from the sale of the property for financial statement purposes.
(f) In June 1996, the Partnership sold the Westlake Meadows Apartments in an
all cash sale for $10,800,000. From the proceeds of the sale, the Partnership
paid $344,963 in selling costs. The basis of the property was $5,607,034 which
is net of accumulated depreciation of $2,884,709. For financial statement
purposes, the Partnership recognized a gain of $4,848,003 from the sale of this
property.
(g) In July 1996, the Partnership sold the Green Trails Apartments in an all
cash sale for $33,050,000. In addition, the buyer assumed a $415,682 liability
for accrued real estate taxes. From the proceeds of the sale, the Partnership
paid $857,567 in selling costs. The basis of the property was $22,847,278 which
is net of accumulated depreciation of $3,240,631. For financial statement
purposes, the Partnership recognized a gain of $9,760,837 from the sale of this
property.
<PAGE>
12. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice, which dismissal was affirmed by the Illinois Appellate Court.
Plaintiffs have filed a further appeal to the Illinois Supreme Court. It is not
determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.
<PAGE>
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<PERIOD-END> DEC-31-1998
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