UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-14349
COMMERCIAL DEVELOPMENT FUND 85
---------------------------------
Exact name of registrant as specified in its charter
Connecticut 06-1141277
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State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor
New York, NY ATTN: Andre Anderson 10285
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Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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 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 the 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
Documents Incorporated by Reference:
Portions of Prospectus dated August 9, 1985 filed with the Securities and
Exchange Commission pursuant to rule 424(b) on August 16, 1985 are incorporated
by reference into Parts I, II, III and IV of this report.
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996
filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Commercial Development Fund 85, A Real Estate Limited Partnership (the
"Partnership" or "Registrant") was formed on May 20, 1985 under the Uniform
Limited Partnership Act of the State of Connecticut. The Partnership was
originally formed to acquire, own and operate the following three commercial
properties (the "Properties" or individually a "Property"): Oakbrook Corners, a
service center complex located in Atlanta, Georgia; North Pointe, a four-story
office building located in Greensboro, North Carolina; and Atrium I, a
five-story atrium office building located in Mt. Laurel, New Jersey. Oakbrook
Corners was sold on November 20, 1989 for $9,050,000 resulting in net proceeds
to the Partnership of $8,713,538. North Pointe was sold on October 24, 1994 for
$4,900,000 resulting in net proceeds to the Partnership of $4,684,491. The
Partnership began marketing Atrium I for sale in 1997, as detailed under
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The General Partners of the Partnership were originally Shearson Lehman
Brothers Real Estate Services I, Inc. (see below), a Delaware corporation and
an affiliate of Lehman Brothers Inc. (see below), and Phoenix Realty
Management, Inc. ("Phoenix"), a Connecticut corporation and a wholly owned
subsidiary of Phoenix Mutual Life Insurance Company ("Phoenix Mutual"). On
December 3, 1990 and December 6, 1990, Phoenix sent a notice of resignation as
co-General Partner of the Partnership to CDF85 Real Estate Services Inc. ("RE
Services" or the "General Partner"), formerly Shearson Lehman Brothers Real
Estate Services I, Inc. (See Item 10. "Certain Matters Involving Affiliates of
RE Services") and to the Limited Partners, respectively. The effective date of
the resignation was May 4, 1991. As a result of the resignation of Phoenix, RE
Services, as sole General Partner manages the affairs of the Partnership.
Details of Phoenix's withdrawal are incorporated by reference to Note 1
"Organization" of the Notes to the Financial Statements contained in the Annual
Report to Unitholders for the year ended December 31, 1996 filed as an exhibit
under Item 14.
(b) Financial Information About Industry Segment
The Partnership's sole business is the ownership and operation of the Property.
All of the Partnership's revenues, operating profits or losses and assets
relate solely to such industry segment.
(c) Narrative Description of Business
Incorporated by reference to Note 1 "Organization" and Note 4 "Real Estate
Investments" of the Notes to the Financial Statements contained in the Annual
Report to Unitholders for the year ended December 31, 1996 filed as an exhibit
under Item 14.
(d) Competition
Incorporated by reference to the section entitled "Message to Investors" in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996
filed as an exhibit under Item 14.
(e) Employees
The Registrant has no employees.
Item 2. Properties
Description of Property and material leases incorporated by reference to the
section entitled "Message to Investors" and Note 4 "Real Estate Investments" of
the Notes to the Financial Statements contained in the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996 filed as an exhibit
under Item 14.
Item 3. Legal Proceedings
Neither the Registrant nor the Property is subject to any material pending
legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during the fourth
quarter of 1996.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related
Unitholder Matters
(a) Market Information
An established public market for Interests does not exist and is not likely to
develop. Furthermore, the transfer of Interests is subject to certain
limitations. Reference is made to the information contained under the caption
"Risk Factors - No Market for Interests" on page 18 and "Summary of the Limited
Partnership Agreement - Transferability of Interests" on pages 73 and 74 of the
Prospectus dated August 9, 1985.
(b) Holders
As of December 31, 1996, the number of holders of Units was 2,796.
(c) Distributions
For the periods ended December 31,
1996 1995
1st Quarter $3.00 $3.00
2nd Quarter _ 3.00
3rd Quarter _ 3.00
4th Quarter _ 3.00
Total $3.00 $12.00
The Partnership paid cash distributions to limited partners totaling $3.00 per
Unit for the year ended December 31, 1996. Since inception, the Partnership has
paid total cash distributions of $804.68 per original $1,000 Unit, including
$505.81 per Unit in return of capital payments which have reduced the Unit size
from $1,000 to $494.19.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled "Financial Highlights" in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996
filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
In light of the Property's stable tenant base and improving conditions in the
market where the Property is located, the General Partner has recently engaged
a broker to market the Property for sale. As a result of the possible pending
sale, the Property was reclassified on the balance sheet as of December 31,
1996, as Real estate held for sale. As of December 31, 1996, the Partnership
had cash and cash equivalents totaling $38,638, compared with $676,893 at
December 31, 1995. The decrease is primarily attributable to the payment of
cash distributions and tenant and building improvements in excess of cash flow
from operations in 1996. The cash and cash equivalents balance includes a
working capital reserve to cover anticipated costs associated with the lease-up
of vacant space at Atrium I.
Accounts receivable totaled $20,583 at December 31, 1996, compared to $45,962
at December 31, 1995. The decrease primarily reflects the timing of rental
payments. Prepaid expenses decreased to $7,293 at December 31, 1996, from
$159,429 at December 31, 1995. Deferred rent receivable decreased to $0 at
December 31, 1996 from $141,390 at December 31, 1995. Both decreases are mainly
due to the reclassification of the property as held for sale as of December 31,
1996.
Accounts payable and accrued expenses totaled $126,121 at December 31, 1996,
compared to $83,619 at December 31, 1995. The increase is primarily due to the
timing of payments and accruals for property operating expenses.
A discussion of leasing activity at the Property is incorporated herein by
reference to the section entitled Message to Investors contained in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996
filed as an exhibit under Item 14.
The Partnership paid cash distributions to limited partners totaling $3.00 per
Unit for the year ended December 31, 1996. Since inception, the Partnership has
paid total cash distributions of $804.68 per original $1,000 Unit, including
$505.81 per Unit in return of capital payments which have reduced the Unit size
from $1,000 to $494.19.
The Partnership has been using cash from operations and cash reserves to fund
leasing commissions and tenant improvement costs associated with recent
significant leasing activity at the Property. To ensure that the Partnership
has sufficient funds available to meet these expenses, cash distributions were
suspended beginning with the 1996 second quarter distribution which would have
been paid in August 1996. The majority of these tenant improvements have been
completed and the tenants have taken occupancy of their space. The ability of
the Partnership to make future distributions will be dependent upon the cash
flow generated from Property operations and the adequacy of cash reserves,
which need to be replenished following the completion of the tenant
improvements discussed above. The General Partner intends to continually
evaluate the Partnership's cash position, however, since the Partnership has
recently commenced marketing the Property for sale, any future payments to
limited partners would likely be in the form of a liquidating distribution.
On February 15, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change of
Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution.
Results of Operations
- ---------------------
1996 Versus 1995
Operations resulted in a net loss of $1,547,568 for the year ended December 31,
1996 compared to net income of $10,669 for the year ended December 31, 1995.
The change from net income to net loss is primarily attributable to a
$1,373,990 loss recognized on the write down of the Atrium I property when
reclassified as Real Estate Held for Sale in accordance with Financial
Accounting Standards No. 121. This write down was recorded on the 1996
Financial Statements only and had no impact on Limited Partners' tax basis
capital accounts nor does it have any impact or affect on the property's
operations or cash flow. See Note 2 "Significant Accounting Policies -
Accounting for Impairment", Note 4 "Real Estate Investments" of the Notes to
the Financial Statements in the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996 filed as an exhibit under Item 14.
Rental income totaled $1,225,519 for the year ended December 31, 1996, largely
unchanged from $1,210,977 for the year ended December 31, 1995. Tenant expense
reimbursements declined from $115,866 for the year ended December 31, 1995 to
$32,877 for the year ended December 31, 1996 mainly due to lower electric and
miscellaneous income. Interest and other income totaled $26,845 for the year
ended December 31, 1996 compared to $94,741 for the year ended December 31,
1995, reflecting lower average cash balances maintained in 1996 and the receipt
in 1995 of a lease termination payment.
Depreciation and amortization totaled $509,806 for the year ended December 31,
1996 compared to $456,171 for the year ended December 31, 1995. The increase
is primarily due to a higher depreciable asset base resulting from tenant
improvements completed in 1995 and 1996. General and administrative expenses
were $83,929 for the year ended December 31, 1996 compared to $75,103 for the
year ended December 31, 1995. The increase is mainly due to higher Partnership
administration fees.
The lease level at Atrium I as of December 31, 1996 was 84%.
1995 Versus 1994
As a result of the sale of North Pointe during the fourth quarter of 1994, the
Partnership's results of operations for the year ended December 31, 1995 are
not comparable to the corresponding period in 1994. Operations resulted in net
income of $10,669 for the year ended December 31, 1995 compared with $304,624
for the year ended December 31, 1994. The decrease primarily reflects the sale
of North Pointe.
Rental income totaled $1,210,977 for the year ended December 31, 1996, compared
to $2,037,817 for the year ended December 31, 1994, of which $1,204,285 related
to Atrium I. Tenant expense reimbursements decreased by $41,512 to $115,866
for the year ended December 31, 1995 from $157,378 for the year ended December
31, 1994, as a result of the sale of North Pointe. Interest and other income
totaled $94,741 for the year ended December 31, 1995, compared to $57,241 for
the year ended December 31, 1994. The increase at Atrium I is largely
attributable to the receipt of a lease termination payment in 1995.
Property operating expenses totaled $829,542 for the year ended December 31,
1995, compared to $1,097,188 for the year ended December 31, 1994, of which
$756,264 related to Atrium I. The increase at Atrium I is primarily due to
repairs and maintenance completed during 1995 and to legal fees related to the
real estate tax appeal. Depreciation and amortization totaled $456,171 for the
year ended December 31, 1995, compared to $723,853 for the year ended December
31, 1994, of which $440,429 related to Atrium I. The increase at Atrium I is
primarily due to a higher depreciable asset base at Atrium I resulting from
tenant and building improvements completed during 1995.
Bad debt expenses totaled $13,880 for the year ended December 31, 1995 compared
with $93,786 for the year ended December 31, 1994. The decrease of $79,906
primarily reflects the 1995 amount related to a tenant at Atrium I, while the
1994 balance represented a reserve for outstanding rent, escalation and tenant
receivables associated with a tenant at North Pointe.
The lease level at Atrium I as of December 31, 1995 was 84%.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an exhibit under Item 14.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Registrant is CDF85 Real Estate Services Inc. ("RE
Services"), formerly Shearson Lehman Brothers Real Estate Services I, Inc., an
affiliate of Lehman Brothers Inc. ("Lehman"). See the section captioned
"Certain Matters Involving Affiliates of RE Services" for a description of the
sale of certain of Shearson Lehman Brothers, Inc. ("Shearson") domestic retail
brokerage and asset management businesses to Smith Barney, Harris Upham & Co.
Incorporated, which resulted in a change in the general partner's name. Brief
descriptions of the business experience of the directors and officers of the
General Partner are provided below. There is no family relationship among any
of the persons currently serving as directors or officers of the General
Partner.
Certain officers and directors of RE Services are now serving (or in the past
have served) as officers and directors of entities which act as general
partners of a number of real estate limited partnerships that have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships that have filed bankruptcy petitions own real estate that has been
adversely affected by the economic conditions in the markets in which that real
estate is located and, consequently, the partnerships sought the protection of
bankruptcy laws to protect the partnership's assets from losses through
foreclosure.
The executive officers and directors of RE Services are listed below.
Name Office
Kenneth L. Zakin Director and President
William Caulfield Vice President and Chief Financial Officer
Moshe Braver Vice President
Kenneth L. Zakin, 49, is a Senior Vice President of Lehman Brothers and has
held such title since November 1988. He is currently a senior manager in
Lehman Brothers' Diversified Asset Group and was formerly group head of the
Commercial Property Division of Shearson Lehman Brothers' Direct Investment
Management Group responsible for the management and restructuring of limited
partnerships owning commercial properties throughout the United States. From
January 1985 through November 1988, Mr. Zakin was a Vice President of Shearson
Lehman Brothers Inc. Mr. Zakin was a director of Lexington Corporate
Properties, Inc. from 1993 to 1996. He is a member of the Bar of the State of
New York and previously practiced as an attorney in New York City from 1973 to
1984 specializing in the financing, acquisition, disposition, and restructuring
of real estate transactions. Mr. Zakin is a member of the Real Estate Lender's
Association and is currently an associate member of the Urban Land Institute
and a member of the New York District Council Advisory Services Committee. He
received a Juris Doctor degree from St. John's University School of Law in 1973
and a B.A. degree from Syracuse University in 1969.
William Caulfield, 37, is a Vice President of Lehman Brothers and is
responsible for investment management of commercial real estate in the
Diversified Asset Group. Prior to the Shearson/Hutton merger in 1988, Mr.
Caulfield was a Senior Analyst with E.F. Hutton since October 1986 in Hutton's
Partnership Administration Group. Before joining Hutton, Mr. Caulfield was a
Business Systems Analyst at Eaton Corp. from 1985 to 1986. Prior to Eaton, he
was an Assistant Treasurer with National Westminster Bank USA. Mr. Caulfield
holds a B.S. degree in Finance from St. John's University and an M.B.A. from
Long Island University - C.W. Post Campus.
Moshe Braver, 43, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
Certain Matters Involving Affiliates of RE Services
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the
Partnership's General Partner. However, the assets acquired by Smith Barney
included the name "Shearson." Consequently, the Shearson Lehman Real Estate
Services I, Inc. general partner changed its name to CDF85 Real Estate Services
Inc. to delete any reference to "Shearson."
Item 11. Executive Compensation
The General Partner and its Affiliates receive certain fees, commissions, and
reimbursements for expenses incurred as provided for on pages 11 through 15 of
the Prospectus under "Management Compensation." See Exhibit 28a incorporated
herein by reference.
The General Partner is entitled to receive a share of cash distributed when and
as cash distributions are made to Limited Partners and a share of taxable
income or loss, and may be reimbursed for certain out-of-pocket expenses. See
"Item 8. Financial Statements and Supplementary Data," and Note 6 "Transactions
with Related Parties" of the Notes to the Financial Statements. The General
Partner's share of cash distributions for 1996 and 1995 was $9,158 and $18,316,
respectively. In addition, the General Partner is entitled to receive various
fees and distributions during the liquidation stages of the Partnership.
Descriptions of such fees, distribution allocations, and reimbursements are
contained on pages 11 through 15 of the Prospectus. See Appendix B
incorporated herein by reference.
Officers and directors of the General Partner are employees of Lehman Brothers
Inc. and are not compensated by the Registrant or the General Partner for
services rendered in connection with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
No person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) is known to the Registrant to be the
beneficial owner of more than five percent of the outstanding Units as of
December 31, 1996.
(b) Security Ownership of Management
No officer or director of the General Partner beneficially owned directly or
indirectly any Units of the Registrant as of December 31, 1996.
(c) Changes in Control
None
Item 13. Certain Relationships and Related Transactions
(a) Transactions With Management and Others
Incorporated by reference to Note 6 "Transactions with Related Parties" of the
Notes to the Financial Statements contained in the Annual Report to Unitholders
for the year ended December 31, 1996 filed as an exhibit under Item 14.
(b) Certain Business Relationships
There have been no business transactions between any of the Directors and the
Partnership.
First Data Investor Services Group (formerly "The Shareholder Services Group")
("FDISG") provides partnership accounting and investor relations services for
the Registrant. Prior to May 1993, these services were provided by an
affiliate of a general partner. The Registrant's transfer agent and certain
tax reporting services are provided by Service Data Corporation ("SDC"). Both
FDISG and SDC are unaffiliated companies. Disclosure relating to amounts paid
to the General Partner or their affiliates during the past three years is
incorporated by reference to Note 6 "Transactions With Related Parties" of
Notes to the Financial Statements contained in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1996 filed as an exhibit under
Item 14.
(c) Indebtedness of Management
No management person is indebted in any amount to the Partnership.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
Report of Independent Auditors (1)
Balance Sheets - At December 31, 1996 and 1995 (1)
Statements of Partners' Capital - For the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Operations - For the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows - For the years ended
December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which is filed as an
exhibit under Item 14.
(a)(2) Financial Statement Schedule:
Independent Auditors' Report on Schedule III F-1
Schedule III - Real Estate and Accumulated Depreciation F-2
(a)(3) Exhibits:
(3) Agreement of the Limited Partnership of Commercial Development
Fund 85, A Real Estate Limited Partnership as of October 18, 1985.
Reference is made to Exhibit A of the Prospectus (the "Prospectus")
contained in Amendment No.2 to Registrant's Form S-11 Registration
Statement filed with the Securities and Exchange Commission on August
14, 1985 (the "Registration Statement").
(10)(A) Forms of Management Agreements between the Registrant and the
property managers for property management services. Reference is
made to Exhibit 10a to the Registration Statement.
(10)(B) Form of Subscription Agreement. Reference is made to Exhibit
B of the Prospectus.
(10)(C) Settlement Statement dated October 24, 1994 regarding sale of
North Pointe. Reference is made to Exhibit 10c to Form 10-K for the
year ended December 31, 1994.
(13) Annual Report to the Unitholders for the year ended December 31, 1996.
(27) Financial Data Schedule.
(28)(A) Pages 11-15, 18, 73 and 74 of the Prospectus. Reference is made
to Exhibit 28c to Form 10-K filed on March 28, 1991.
(b)(3) Reports on Form 8-K: No reports on Form 8-K were filed during
the fourth quarter of 1996. Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMMERCIAL DEVELOPMENT FUND 85
BY: CDF85 Real Estate Services Inc.
General Partner
Dated: March 27, 1997 BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
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 in the capacities and on the dates indicated.
CDF85 REAL ESTATE SERVICES INC.
General Partner
Dated: March 27, 1997 BY: /s/Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Dated: March 27, 1997 BY: /s/ William Caulfield
William Caulfield
Vice President and
Chief Financial Officer
Dated: March 27, 1997 BY: /s/ Moshe Braver
Moshe Braver
Vice President
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
-------------------------------------------
The Partners
Commercial Development Fund 85:
Under date of March 21, 1997 we reported on the balance sheets of Commercial
Development Fund 85 (a Connecticut limited partnership) as of December 31, 1996
and 1995, and the related statements of operations, partners' capital and cash
flows for each of the years in the three-year period ended December 31, 1996,
as contained in the 1996 annual report to unit holders. These financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1996. In connection with our audits of the
aforementioned financial statements, we also have audited the related financial
statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 21, 1997
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Atrium I
Location Mount Laurel, NJ
Construction date 1985
Acquisition date 12/30/85
Life on which depreciation
in latest income statements
is computed 5 - 35 yrs
Encumbrances
Initial cost to Partnership (1):
Land $639,650
Building and
improvements 9,052,712
Costs capitalized
subsequent to acquisition:
Land, building
and improvements 2,442,649
Retirements (1,830,065)
Accumulated depreciation (2,970,986)
Net write down adjustment (1,033,960)
Gross amount at which
carried at close of period (2)(3):
Real estate held for sale $ 6,300,000
(1) The initial cost to the Partnership represents the original purchase
price of the property.
(2) The aggregate cost of real estate at December 31, 1996, 1995, 1994, for
Federal Income tax purposes is $12,334,743, $11,792,664 and
$10,658,416.
(3) In accordance with FAS 121, the Partnership reclassified the Property
to Real estate held for sale as of December 31, 1996.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 9,942,344 $9,681,503 $15,589,380
Additions 762,350 526,568 268,479
Retirements (399,748) (265,727) (94,631)
North Point Sale - - (6,081,725)
Net write down adjustment (1,033,960) - -
End of year $ 9,270,986 $9,942,344 $ 9,681,503
Accumulated depreciation:
Beginning of year $ 2,911,280 $2,770,841 $ 3,787,932
Depreciation expense 459,454 406,166 688,254
Retirements (399,748) (265,727) (94,631)
North Point Sale - - (1,610,714)
End of year $ 2,970,986 $2,911,280 $ 2,770,841
-------------------------
Exhibit (13)
-------------------------
Commercial Development Fund 85
1996 Annual Report to Unitholders
Commercial Development Fund 85
Commercial Development Fund 85 is a limited partnership
formed in 1985 to invest in, own and operate commercial real
estate properties. The Partnership's original investments
were comprised of three commercial properties. Oakbrook
Corners, located in Atlanta, Georgia, was sold on
November 20, 1986 and North Pointe, located in Greensboro,
North Carolina, was sold on October 24, 1994. The
Partnership's remaining property is Atrium I (the
"Property"), a five-story Class A office building containing
96,746 leasable square feet which is located on Route 73 in
Mt. Laurel, New Jersey. The Property was 84% leased at
December 31, 1996, unchanged from year-end 1995.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
----------------------
Presented for your review is the 1996 Annual Report for Commercial Development
Fund 85. This report includes an update on conditions for commercial real
estate in Burlington County and a review of operations at Atrium I, the
Partnership's remaining property.
Market Overview
The commercial office market continued to recover throughout the year,
particularly in the suburban office sector. Overall, demand for office space
continues to increase, bringing about lower vacancy rates and, in many regions
of the country, the opportunity for property owners to raise rental rates.
Following the national trend, the Southern New Jersey market, including Mt.
Laurel, New Jersey, where the property is located, saw vacancy rates decrease
from 18.27% at year-end 1995 to 12.84% at year-end 1996. We believe this
improvement for office properties locally and nationally, combined with
continued strong property operations as detailed below, may present an
opportunity to sell Atrium I. As such, the Partnership has engaged a broker to
assist with the marketing of the Property. However, there can be no assurance
that any sale will actually be consummated or that any particular price can be
obtained.
Property Update
The General Partner executed one new lease for 9,507 square feet during 1996.
Two tenants, occupying 9,507 square feet and 4,414 square feet, respectively,
executed lease renewals and expanded their leasable areas to 11,460 square feet
and 13,833 square feet, respectively. However, another tenant reduced its
leasable space by 1,535 and two tenants occupying a total of 18,511 square feet
vacated the premises upon expiration of their respective leases. As a result,
occupancy at Atrium I remained unchanged at 84% at December 31, 1996, compared
to a year ago.
Leases with three of the Property's tenants generated revenues in excess of 10%
of the Partnership's 1996 rental income. The first tenant leased 23,947 square
feet pursuant to two leases which generated approximately 26% of the
Partnership's rental income. One of the leases, totaling 17,110 square feet, is
scheduled to expire in March 2001, while the other lease, totaling 6,837 square
feet, expired on March 31, 1996. The tenant vacated this space. The second
tenant leases 16,023 square feet pursuant to two leases which generated
approximately 23% of the Partnership's rental income. Both leases are scheduled
to expire in December 1999. Leases with the third tenant generated
approximately 14% of the Partnership's 1996 rental income. As discussed above,
the tenant expanded its space by 1,953 square feet and now leases a total of
11,460 square feet. This lease is scheduled to expire in September 2002.
General Information
As you are probably aware, a third party has commenced a partial tender offer
to purchase Units of the Partnership at a price which is substantially below
the Partnership's Net Asset Value. In response to the offer, we have
recommended that limited partners reject the offer because it does not reflect
the underlying value of the Partnership's assets. According to published
industry sources, most investors who hold units of limited partnerships similar
to the Partnership have rejected these types of tender offers due to their
inadequacy. Please be assured that if any additional tender offers are made
for your Units, we will make every effort to provide you with our position
regarding those offers on a timely basis.
Summary
We anticipate that our marketing efforts will result in the sale of the
Property in 1997. As you are aware, distributions were suspended during the
1996 second quarter for the purpose of funding tenant improvements. While
these improvements were recently completed, it is anticipated that
distributions will remain suspended for the foreseeable future, and any cash
reserves held by the Partnership at the time of the sale of Atrium I will be
distributed together with proceeds resulting from such a sale. We will keep
you apprised of significant developments affecting your investment in future
reports.
Very truly yours,
CDF85 Real Estate Services Inc.
General Partner
/s/Kenneth L. Zakin
Kenneth L. Zakin
President
March 27, 1997
Financial Highlights
------------------------
Selected Financial Data
For the Years Ended December 31,
(dollars in thousands, except per Unit data)
1996 1995 1994 1993 1992
Total income $ 1,285 $ 1,422 $ 2,252 $ 2,393 $ 2,353
Total expenses 2,833 1,411 2,165 2,034 2,002
Net income (loss) (1,548) 11 305(1) 359 351
Total assets 6,367 8,055 8,486 13,736 14,649
Net income (loss) per
Limited Partnership Unit: (51.49) (0.35) 9.09 10.58 10.37
Cash distributions
per Unit 3.00 12.00 183.64(2) 40.00 20.00
(1) Includes gain of $216,998 from the sale of North Pointe.
(2) Includes a $157.64 return of capital payment resulting from the sale of
North Pointe.
The above selected financial data should be read in conjunction with the
financial statements and related notes included in this report.
- - The decrease in total income is primarily due to lower tenant reimbursable
income and interest and other income.
- - The increase in total expenses and the change from net income to net loss is
primarily attributable to a $1,373,990 loss recognized on the write down of
Atrium I, due to its reclassification as a property held for sale as of
December 31, 1996, in accordance with Financial Accounting Standards No. 121.
Please see Notes 2 and 4 to the Financial Statements for more details. This
write down was recorded on the 1996 Financial Statements only and had no
impact on Limited Partners' tax basis capital accounts nor does it have any
impact or affect on the property's operations or cash flow.
Net Asset Value
- ----------------
In accordance with the Partnership Agreement, the General Partner annually
obtains an appraisal of the Partnership's Property and uses the appraised value
to compute the net asset value of the Partnership's Units. The calculation of
net asset value assumes a hypothetical sale of the Partnership's Property at
its appraised value and the distribution of the net proceeds of such sale,
together with the Partnership's working capital, to the Partners. Consistent
with prior practice, the net asset value is computed by dividing the total
value of the Partnership's assets by the total number of Units outstanding.
This average per Unit value was $211.37 per $494.19 Unit as of December 31,
1996.
Pursuant to the Partnership Agreement, distributions to individual unit holders
upon a liquidation of the Partnership will vary from distributions of proceeds
from a sale or refinancing of a property when the Partnership is not
liquidating. Distributions from a sale or refinancing when the Partnership is
not liquidating will generally be distributed equally to each Unit held by
Limited Partners. In a liquidation, however, distributions are made in
proportion to positive capital account balances which vary for the Units
depending upon whether a Unit was originally issued to a taxable or a tax
exempt investor. Assuming a hypothetical liquidation of December 31, 1996, the
amount distributable to an average taxable Unit would be approximately $117.21
per Unit, and the amount distributable to a non-taxable Unit would be
approximately $467.57 per Unit. Upon liquidation of the Partnership, taxable
investors would be able to use suspended passive losses on this investment, to
the extent that they are available, to offset taxable income or gain.
The calculation of net asset value does not take into account numerous other
factors which would determine the actual value received for individual Units,
such as the timing of the property sale and distribution of related proceeds,
as well as the actual values realizable upon a sale of the property. In
addition, as a result of these factors and the lack of a public market for the
resale of Units, the price at which Units may be resold is likely to be
significantly different from the computed net asset value per Unit. Fiduciaries
of Limited Partners which are subject to ERISA or other provisions of law
requiring valuation of Units should consider all relevant factors, including,
but not limited to net asset value per Unit, in determining the fair market
value of the investment in the Partnership for such purposes.
Balance Sheets
At December 31, At December 31,
1996 1995
Assets
Real estate investments, at cost:
Land $ - $ 639,650
Buildings and personal property - 8,158,131
Tenant improvements - 1,144,563
- 9,942,344
Less accumulated depreciation - (2,911,280)
- 7,031,064
Real estate held for sale 6,300,000 -
Cash and cash equivalents 38,638 676,893
Accounts receivable 20,583 45,962
Prepaid expenses, net of accumulated
amortization of $164,640 in 1995 7,293 159,429
Deferred rent receivable - 141,390
Total Assets $ 6,366,514 $ 8,054,738
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 126,121 $ 83,619
Security deposits 12,227 12,227
Tenant improvements payable 36,544 36,544
Total Liabilities 174,892 132,390
Partners' Capital:
General Partner 541 64,105
Limited Partners (29,000 units outstanding) 6,191,081 7,858,243
Total Partners' Capital 6,191,622 7,922,348
Total Liabilities and Partners' Capital $ 6,366,514 $ 8,054,738
Statements of Partners' Capital
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $117,158 $13,481,240 $13,598,398
Net income 40,964 263,660 304,624
Cash distributions (96,543) (5,528,440) (5,624,983)
Balance at December 31, 1994 61,579 8,216,460 8,278,039
Net income (loss) 20,842 (10,173) 10,669
Cash distributions (18,316) (348,044) (366,360)
Balance at December 31, 1995 64,105 7,858,243 7,922,348
Net loss (54,406) (1,493,162) (1,547,568)
Cash distributions (9,158) (174,000) (183,158)
Balance at December 31, 1996 $ 541 $ 6,191,081 $ 6,191,622
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $ 1,225,519 $1,210,977 $2,037,817
Tenant expense reimbursements 32,877 115,866 157,378
Interest and other 26,845 94,741 57,241
Total Income 1,285,241 1,421,584 2,252,436
Expenses
Property operating 825,781 829,542 1,097,188
Depreciation and amortization 509,806 456,171 723,853
Write-offs related to sale of real estate - - 126,423
Bad debt expense - 13,880 93,786
General and administrative 83,929 75,103 85,270
Professional fees 39,303 36,219 38,290
Unrealized losses on real estate held
for sale 1,373,990 - -
Total Expenses 2,832,809 1,410,915 2,164,810
Income (loss) before gain on sale of
real estate (1,547,568) 10,669 87,626
Gain on sale of real estate - - 216,998
Net Income (Loss) $(1,547,568) $ 10,669 $ 304,624
Net Income (Loss) Allocated:
To the General Partner $ (54,406) $ 20,842 $ 40,964
To the Limited Partners (1,493,162) (10,173) 263,660
$(1,547,568) $ 10,669 $ 304,624
Per limited partnership unit
(29,000 outstanding) $(51.49) $(.35) $9.09
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income (Loss) $(1,547,568) $ 10,669 $ 304,624
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities:
Depreciation 459,454 406,166 688,255
Amortization 50,352 50,005 35,598
Unrealized losses on real estate held
for sale 1,373,990 - -
Gain on sale of real estate - - (216,998)
Write-offs related to sale of real estate - - 126,423
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts receivable 25,379 (16,213) 146,245
Prepaid expenses (136,584) (11,646) (173,372)
Deferred rent receivable 39,728 157,182 214,698
Accounts payable and accrued expenses 42,502 (19,862) 4,294
Security deposits - - 10,155
Tenant improvements payable - (55,254) 55,254
Net cash provided by operating activities 307,253 521,047 1,195,176
Cash Flows From Investing Activities
Proceeds from sale of real estate - - 4,684,491
Additions to real estate (762,350) (526,568) (268,479)
Net cash provided by (used for) investing
activities (762,350) (526,568) 4,416,012
Cash Flows From Financing Activities
Cash distributions (183,158) (366,360) (5,624,983)
Net cash used for financing activities (183,158) (366,360) (5,624,983)
Net decrease in cash and cash equivalents (638,255) (371,881) (13,795)
Cash and cash equivalents, beginning of period 676,893 1,048,774 1,062,569
Cash and cash equivalents, end of period $ 38,638 $ 676,893 $1,048,774
Supplemental Disclosure of Cash Flow
Information
Write-off of fully depreciated tenant
improvements $ 99,748 $ 265,727 $ 94,631
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Commercial Development Fund 85 (a Connecticut limited partnership) (the
"Partnership") was formed on May 20, 1985, under the Uniform Limited
Partnership Act of the State of Connecticut. The Partnership was formed to own
and operate three commercial properties located in Georgia, New Jersey and
North Carolina. The Oakbrook property, located in Georgia, was sold during
1986 and the North Pointe property, located in North Carolina, was sold during
1994. The Partnership's remaining property (the "Property") is located in New
Jersey. The General Partners were originally Shearson Lehman Brothers Real
Estate Services I, Inc. (see below), a Delaware corporation and a wholly owned
subsidiary of Lehman Brothers Inc. (see below), and Phoenix Realty Management,
Inc. ("Phoenix"), a Connecticut corporation and a wholly owned subsidiary of
Phoenix Mutual Life Insurance Company ("Phoenix Mutual"). The Partnership
commenced operations on October 9, 1985.
On December 3, 1990 and December 6, 1990, Phoenix notified Shearson and the
Limited Partners, respectively, of its intention to withdraw as a General
Partner of the Partnership. As a result of the withdrawal of Phoenix as a
General Partner of the Partnership, the Partnership was to be dissolved in
accordance with the terms of the Partnership Agreement unless, prior to the
effective date of such withdrawal, Limited Partners holding a majority of the
interests voted to continue the business of the Partnership. On April 12,
1991, Shearson mailed consent solicitation materials to the Limited Partners
seeking their approval to continue the Partnership with Shearson as sole
General Partner. On May 4, 1991, Limited Partners holding 52.29% in Limited
Partnership interests outstanding voted for the continuation of the Partnership
and Phoenix withdrew as a General Partner on this date.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the general partner. However, the assets acquired by
Smith Barney included the name "Shearson." Consequently, effective October 22,
1993, Shearson Lehman Brothers Real Estate Services I, Inc. changed its name to
CDF 85 Real Estate Services Inc. to delete any references to "Shearson."
The Partnership will terminate on December 31, 2050, unless dissolved sooner as
provided within the Partnership Agreement.
On February 15, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change of
Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a form 8-K disclosing this resolution on February 23, 1996.
2. Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
Real Estate Held for Sale - Prior to December 31, 1996, the Property was stated
at cost, less accumulated depreciation and amortization as of December 31,
1995. Costs related to the acquisition of the Property and tenant improvements
were also capitalized. Through December 31, 1996 depreciation and amortization
on buildings and personal property was provided over the estimated economic
life of the Property (26 - 35 years and 5 years, respectively) using the
straight-line method. Tenant improvement and leasing costs were amortized over
the term of the related lease agreements using the straight-line method.
During the fourth quarter of 1996, the General Partner decided to market the
property for sale. As a result, as of December 31, 1996 the Partnership's real
estate investments (as discussed in Note 4), which had a carrying value of
approximately $7.3 million, were reclassified as "Real estate held for sale"
and depreciation and amortization will be suspended in accordance with FAS 121.
Subsequent to December 31, 1996, the General Partner signed an agreement with a
commercial real estate broker to sell the Property and anticipates that the
Property will be sold before the end of 1997.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 requires that assets held for
sale or disposal be carried at the lower of carrying amount or fair value less
cost to sell and prohibits depreciation from being recorded during the periods
which the asset is being held for sale or disposal. The Partnership adopted
FAS 121 in the fourth quarter of 1995.
Cash and Cash Equivalents - Cash and cash equivalents consist of short-term,
highly liquid debt instruments purchased with an original maturity of three
months or less. The carrying value approximates fair value because of the
short maturity of these instruments.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Rental Income and Deferred Rent - The Partnership rents its Property to tenants
under operating leases with terms of one to seven years. Deferred rent
receivable consists of rental income which is recognized on a straight-line
basis over the lease terms, but will not be received until later periods as a
result of rental concessions and step rents.
Income Taxes - The Partnership files Federal and applicable state partnership
income tax returns, which indicate each partner's share of taxable income or
loss to be reported on each partner's individual income tax return. As a
result, no provision for income taxes has been made in the accompanying
financial statements.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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 differ from those estimates.
Reclassification - Certain 1995 and 1994 amounts have been reclassified to
conform with the financial presentation used in 1996.
3. Partnership Allocations
Allocations of Income and Loss All items of income, gain, loss, deduction and
credit other than that occurring from a sale or refinancing will be allocated
95% to the Limited Partners and 5% to the General Partner, except that all
depreciation shall be allocated to those partnership interests which were
originally sold to those Partners who were subject to Federal income tax at the
time of such sale unless this allocation of depreciation would reduce the
capital accounts of such interests below zero.
Pursuant to the Partnership Agreement, a net gain from the sale or other
disposition of a property shall be allocated 99% to the Limited Partners and 1%
to the General Partner. A net loss shall generally be allocated 99% to the
Limited Partners and 1% to the General Partner, until the Limited Partners'
capital accounts equal zero, thereafter 100% to the General Partner. Cash
Distributions Cash flow from operations, as defined, will be distributed at
the discretion of the General Partner no less than quarterly, 95% to the
Limited Partners and 5% to the General Partner. Distributions of cash flow
from operations will be applied to reduce any unpaid Preferred Return, as
defined in the Partnership Agreement.
All net proceeds from sales or refinancings distributed to the Limited Partners
will be applied first to reduce their unreturned original investment and then
to reduce any unpaid Preferred Return.
As of December 31, 1996, the Partnership had returned $14,668,440 of the
Limited Partners' original capital of $29,000,000, of which $8,712,000 related
to the 1986 sale of Oakbrook, $1,385,000 represented original contributions not
invested in property and $4,571,440 related to the 1994 sale of North Pointe.
The Partnership distributed $174,000 and $348,044 to the Unit Holders in 1996
and 1995, respectively. In addition, the Partnership distributed $9,158 and
$18,316 to the General Partner in 1996 and 1995 respectively.
4. Real Estate Investments
North Pointe - On October 31, 1985, the Partnership acquired North Pointe, a
4-story office building located in Greensboro, North Carolina, containing
approximately 76,000 square feet of net leasable space.
On October 24, 1994, the Partnership sold North Pointe for a gross sales price
of $4,900,000 to Cone Mills, a major tenant occupying 72% of the property's
leasable area. The Partnership received proceeds from the sale in the amount
of $4,684,491 net of selling costs. The Partnership recognized a gain on sale
of $216,998. Write-offs related to the sale of the property consisted of
deferred rent receivable and leasing costs.
Atrium I - On December 30, 1985, the Partnership acquired Atrium I, a 5-story
atrium office building located in Mt. Laurel, New Jersey, containing
approximately 97,000 square feet of net leasable space. At both December 31,
1996 and 1995 the property was approximately 84% leased.
Leases with three of the Property's tenants generated revenues in excess of 10%
of the Partnership's 1996 rental income. The first tenant leased 23,947 square
feet pursuant to two leases which generated approximately 26% of the
Partnership's rental income. One of the leases, totaling 17,110 square feet, is
scheduled to expire in March 2001, while the other lease, totaling 6,837 square
feet, expired on March 31, 1996. The tenant vacated this space. The second
tenant leases 16,023 square feet pursuant to two leases which generated
approximately 23% of the Partnership's rental income. Both leases are
scheduled to expire in December 1999. Leases with the third tenant generated
approximately 14% of the Partnership's 1996 rental income. This tenant
executed an early lease renewal, consolidating its two prior leases into a
single lease, and expanded its space by 1,953 square feet. The lease now
represents 11,460 square feet and is scheduled to expire in September 2002.
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Property and related accounts
based upon estimated undiscounted cash flows expected to result from the
Property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the Property for long-term investment and
therefore management concluded that the sum of the undiscounted future cash
flows estimated to be generated over the investment's holding period was
greater than its carrying value. In light of the Property's stable tenant base
and improving conditions in the market where the property is located,
management reassessed its investment strategy at December 31, 1996. As a
result of the Partnership's intention to pursue a sale of the Property during
1997 and in accordance with FAS 121, the Partnership has reclassified the
Property on the Partnership's balance sheet as real estate held for sale. In
addition, the carrying value of the Property was reduced as of December 31,
1996 from the prior carrying value of approximately $7.3 million to $6.3
million. The write-down of the Property's carrying value was based on
management's assessment of the estimated fair market value less costs to sell
of the Property as of December 31, 1996. The determination of fair market
value of the Property as of that date was based upon the appraisal of the
Property as of December 31, 1996.
5. Leases The following is a schedule of minimum annual future rental payments
based upon noncancelable leases as of December 31, 1996, assuming no exercise
of tenant renewal options:
1997 $1,069,816
1998 1,355,353
1999 1,357,518
2000 951,366
2001 667,587
Thereafter 708,927
$6,110,567
Certain leases contain provisions whereby the rent can change annually based
upon changes in the Consumer Price Index. Certain leases also provide that
tenants pay their pro-rata share of any increases in operating expenses over a
base amount.
6. Transactions with Related Parties
Pursuant to the Partnership Agreement, the General Partner will receive a
Subordinated Disposition Fee in an amount not to exceed the lesser of (i) one
half of the competitive real estate commission applicable at the date of sale
or (ii) 3% of the sales price of a property for services rendered in connection
with the sales of the Partnership's properties. The fee is payable only after
the Limited Partners have been returned their original investment and any
unpaid Preferred Return. As of December 31, 1996 the Limited Partners have not
been returned all of their original investment.
Certain cash and cash equivalents were on deposit with an affiliate of a
General Partner during a portion of 1996 and all of 1995. As of December 31,
1996, no cash and cash equivalents were on deposit with an affiliate of the
General Partner or the Partnership.
7. Reconciliation of Financial Statement Net Income (Loss) and
Partners' Capital to Federal Income Tax Basis Net Income (Loss) and Partners'
Capital
Reconciliation of financial statement net income (loss) to federal income tax
basis net income (loss):
Year Ended December 31,
1996 1995 1994
Financial statement basis net income (loss) $(1,547,568) $ 10,669 $ 304,624
Financial statement depreciation over (under)
tax basis depreciation (5,327) (51,803) 41,652
Financial statement rental income under
tax basis rental income 39,727 157,181 316,211
Financial statement write-down of real estate 1,373,990 - -
Financial statement bad debt deduction under
tax basis bad debt deduction - - (69,714)
Financial statement Sec 1231 loss under
tax loss - - (218,223)
Financial statement miscellaneous income under
tax basis miscellaneous income - 137 86,660
1,408,390 105,515 156,586
Federal income tax basis net income (loss) $ (139,178) $116,184 $ 461,210
Reconciliation of financial statement partners' capital to
federal income tax basis partners' capital:
Year Ended December 31,
1996 1995 1994
Financial statement basis partners' capital $ 6,191,622 $ 7,922,348 $ 8,278,039
Current year financial statement basis
net income (loss) over federal income
tax basis net income (loss) 1,408,390 105,515 156,586
Cumulative Federal income tax basis
net income over financial statement
net income 2,912,935 2,807,420 2,650,834
Federal income tax basis partners' capital $10,512,947 $10,835,283 $11,085,459
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
Report of Independent Auditors
----------------------------------
The Partners
Commercial Development Fund 85:
We have audited the accompanying balance sheets of Commercial Development Fund
85 (a Connecticut limited partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commercial Development Fund 85
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 21, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 38,638
<SECURITIES> 000
<RECEIVABLES> 20,583
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 66,514
<PP&E> 6,300,000
<DEPRECIATION> 000
<TOTAL-ASSETS> 6,366,514
<CURRENT-LIABILITIES> 126,121
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 6,191,622
<TOTAL-LIABILITY-AND-EQUITY> 6,366,514
<SALES> 1,225,519
<TOTAL-REVENUES> 1,285,241
<CGS> 000
<TOTAL-COSTS> 825,781
<OTHER-EXPENSES> 633,038
<LOSS-PROVISION> 1,373,990
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> (1,547,568)
<INCOME-TAX> 000
<INCOME-CONTINUING> (1,547,568)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,547,568)
<EPS-PRIMARY> (51.49)
<EPS-DILUTED> (51.49)
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