<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1995
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Commission file number 0-23766
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CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
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(Exact name of registrant as specified in charter)
Maryland 52-1388957
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive officer) (Zip Code)
(301) 468-9200
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(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
- -------------------------- ---------------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Page
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the three
months ended March 31, 1995 and 1994 . . . . 2
Consolidated Statements of Cash Flows - for the three
months ended March 31, 1995 and 1994 . . . 3
Notes to Consolidated Financial Statements . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships $ 3,526,025 $ 3,751,252
Cash and cash equivalents 1,082,278 876,995
Escrow and cash reserves 536,797 531,069
Acquisition fees, principally paid to
related parties, net of accumulated
amortization of $127,997 and $124,464,
respectively 296,003 299,536
Property purchase costs, net of accumulated
amortization of $128,323 and $124,855,
respectively 287,859 291,327
Other assets 3,451 607
------------ ------------
Total assets $ 5,732,413 $ 5,750,786
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 5,590,900 $ 5,590,900
Accrued interest payable 7,918,158 7,548,895
Accounts payable and accrued expenses 50,108 60,646
------------ ------------
Total liabilities 13,559,166 13,200,441
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 21,202,500 21,202,500
------------ ------------
21,204,500 21,204,500
Less:
Offering costs (2,570,535) (2,570,535)
Accumulated losses (26,460,718) (26,083,620)
------------ ------------
Total partners' deficit (7,826,753) (7,449,655)
------------ ------------
The accompanying notes are an integral part of
these consolidated financial statements.
- 1 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
Total liabilities and partners'
deficit $ 5,732,413 $ 5,750,786
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 63,400 $ 72,783
------------ ------------
Other revenue and expenses:
Revenue:
Interest income 25,228 13,027
------------ ------------
Expenses:
Interest 388,329 354,424
General and administrative 29,182 30,167
Management fee 24,482 24,482
Professional fees 16,732 17,295
Amortization 7,001 7,001
------------ ------------
465,726 433,369
------------ ------------
Total other revenue and expenses (440,498) (420,342)
------------ ------------
Net loss (377,098) (347,559)
Accumulated losses, beginning of period (26,083,620) (24,458,338)
------------ ------------
Accumulated losses, end of period $(26,460,718) $(24,805,897)
============ ============
Loss allocated to General Partners (1.51%) $ (5,694) $ (5,248)
============ ============
Loss allocated to Initial and Special
Limited Partners (2.49%) $ (9,390) $ (8,654)
============ ============
Loss allocated to BAC Holders (96%) $ (362,014) $ (333,657)
============ ============
Loss per BAC based on 21,200 BACs
The accompanying notes are an integral part of
these consolidated financial statements.
- 3 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
outstanding $ (17.08) $ (15.74)
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
- 4 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (377,098) $ (347,559)
Adjustments to reconcile net loss to net
cash used in operating activities:
Share of income from partnerships (63,400) (72,783)
Increase in accrued interest receivable
on advances to partnerships (5,906) (5,906)
Amortization of deferred costs 7,001 7,001
Payment of purchase money note interest (19,066) (85,176)
Changes in assets and liabilities:
(Increase) decrease in other assets (2,844) 814
Increase in accrued interest payable 388,329 354,424
Decrease in accounts payable
and accrued expenses (10,538) (10,693)
------------ ------------
Net cash used in operating
activities (83,522) (159,878)
------------ ------------
Cash flows from investing activities:
(Increase) decrease in escrow and cash
reserves (5,728) 18
Receipt of distributions from partnerships 196,834 232,536
Repayment of advances to partnerships 97,699 14,000
------------ ------------
Net cash provided by investing
activities 288,805 246,554
------------ ------------
Net increase in cash and cash equivalents 205,283 86,676
Cash and cash equivalents, beginning of
period 876,995 871,533
------------ ------------
Cash and cash equivalents, end of period $ 1,082,278 $ 958,209
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
- 5 -
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements contain all adjustments
of a normal recurring nature necessary to present fairly the consolidated
financial position of Capital Realty Investors-85 Limited Partnership (the
Partnership) as of March 31, 1995 and December 31, 1994 and its consolidated
results of operations for the three months ended March 31, 1995 and 1994 and its
consolidated cash flows for the three months ended March 31, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the Managing General Partner believes that
the disclosures presented are adequate to make the information not misleading,
it is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes included in
the Partnership's Annual Report filed on Form 10-K for the year ended December
31, 1994.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
As of March 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$5,098,000 plus the accrued interest of $7,786,058, are payable upon the earlier
of (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$2,500,000 mature in December 1995, as discussed below. Purchase money notes in
an aggregate principal amount of $230,000 mature in 1996. The remaining
purchase money notes mature from 1999 to 2003. The purchase money notes are
generally secured by the Partnership's interest in the respective Local
Partnership. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership. The Managing General Partner is continuing to
investigate possible alternatives to reduce the Partnership's long-term debt
obligations. These alternatives include, among others, retaining the cash
available for distribution to meet the purchase money note requirements, buying-
out certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, or refinancing the respective properties'
underlying debt and using the proceeds to pay-off or buy-down certain purchase
money note obligations.
Interest expense on the Partnership's purchase money notes for the three
months ended March 31, 1995 and 1994 was $388,329 and $354,424, respectively.
The accrued interest on the purchase money notes of $7,786,058 and $7,416,795 as
of March 31, 1995 and December 31, 1994, respectively, is due on the respective
maturity dates of the purchase money notes or earlier if the Local Partnerships
have distributable net cash flow, as defined in the relevant Local Partnership
agreements.
-6-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
As of March 31, 1995 and December 31, 1994, the Partnership's obligations
with respect to its investments in Local Partnerships included $492,900 due to
local general partners, plus accrued interest on these obligations of $132,100.
Deerfield Partners Limited Partnership (Deerfield Apartments) was unable to
generate sufficient cash flow to pay its debt service and therefore was unable
to meet its obligations under the terms of the loan documents. The Local
Partnership defaulted on its mortgage loan in 1990, and after negotiations with
the Department of Housing and Urban Development (HUD), submitted a one-year
workout proposal to the local HUD office, effective May 1, 1991, to which HUD
did not respond. On July 1, 1992, a second one-year workout proposal was
submitted, effective September 1, 1992, to which HUD did not respond. On
September 17, 1993, a six-year workout proposal, effective October 1, 1993, was
submitted in accordance with HUD's new workout guidelines. At HUD's request, a
nine-year workout proposal was submitted to HUD on April 15, 1994. As of April
24, 1995, no response to the new proposal had been received from HUD. If the
workout proposal is not accepted and another alternative is not found, then HUD
could foreclose on the property. On April 15, 1995, Deerfield Apartments was
notified by HUD that HUD plans to offer Deerfield Apartment's mortgage loan for
sale in July 1995. If the mortgage is sold by HUD, a new mortgagee would
service the defaulted loan and could foreclose on the property. The uncertainty
about the Local Partnership's continued ownership of the property does not
impact the Partnership's financial condition because the related purchase money
note is nonrecourse and collateralized solely by the Partnership's partnership
interest in the Local Partnership. Therefore, should the investment in
Deerfield Apartments not produce sufficient value to satisfy the purchase money
note related to Deerfield Apartments, the Partnership's exposure to loss is
limited since the amount of the nonrecourse indebtedness exceeds the carrying
amount of the investment in and advances to the Local Partnership. Thus, even a
complete loss of this investment would not have a material impact on the
operations of the Partnership. There is no assurance that the proposal will be
approved to allow the Local Partnership to retain ownership of Deerfield
Apartments. Currently, debt service payments are being made from available cash
flow in accordance with the proposed workout. During 1989 and 1988, the
Partnership loaned a total of $196,746 to the Local Partnership to fund
operating deficits. The Partnership does not expect to advance any additional
funds. The loans do not bear interest and repayment is due upon sale or
refinancing of the property; however, there is no assurance that the Local
Partnership will be able to repay any loans in accordance with the terms.
The Pointe, located in El Paso, Texas, modified its mortgage loan in 1987.
In connection with the loan modification, the Partnership loaned $262,500 to the
Local Partnership in 1987. Repayment of this loan, with simple interest at 9%
per annum, is expected to occur upon sale or refinancing of the property. As of
March 31, 1995 and December 31, 1994, accrued interest was $182,684 and
$176,778, respectively.
Debt service on Springfield Apartments (Springfield) is due to the lender
on the first day of each month with no "grace period" and substantial late
payment penalties. Therefore, prior to February 1994, the Partnership had
advanced approximately $65,000 per month to Springfield in the form of a bridge
loan which was to be repaid by the fifteenth of the following month. The
February 1994 advance to Springfield was held by the Local Partnership to
establish a one-month debt service reserve to eliminate the need for a monthly
-7-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
bridge loan from the Partnership. Springfield began repaying a portion of the
non-interest-bearing advances made by the Partnership in April 1994. As of
March 31, 1995 and December 31, 1994, non-interest-bearing loans to Springfield
totalled $442,239 and $509,438, respectively.
Debt service on Devonshire Apartments (Devonshire) is due to the lender on
the first day of each month with no "grace period" and substantial late payment
penalties. Therefore, prior to February 1994, the Partnership had advanced
approximately $10,000 per month to Devonshire in the form of a bridge loan which
was to be repaid by the fifteenth of the following month. The February 1994
advance to Devonshire was held by the Local Partnership to establish a one-month
debt service reserve to eliminate the need for a monthly bridge loan from the
Partnership. Devonshire began repaying a portion of the non-interest-bearing
advances made by the Partnership in July 1994. As of December 31, 1994, non-
interest-bearing loans to Devonshire totalled $30,500. Devonshire paid off the
balance of its loans in January 1995.
The letter of credit and mortgage loan on Sheridan West Limited Partnership
(Semper Village) matured on December 20, 1994. By way of an agreement dated
January 1, 1995, the Resolution Trust Corporation (RTC), acting as a receiver
for the original mortgagee, assumed the note in lieu of mandatory redemption by
drawing on the letter of credit. The RTC has extended the maturity date of the
letter of credit and mortgage loan to June 30, 1995. The Managing General
Partner and the local general partner are currently negotiating refinancing
terms with a potential new lender. While there is no assurance that a
refinancing will be completed, the local general partner's objective is to
complete refinancing prior to June 30, 1995. If a refinancing or pay-off does
not occur and an alternative is not found, the mortgage lender could foreclose
on the property. The uncertainty about the Local Partnership's continued
ownership of the property does not impact the Partnership's financial condition
because the Partnership's exposure to loss is limited since the carrying amount
of the investment in the Local Partnership has been reduced to zero for
financial statement purposes. Thus, even a complete loss of this investment
would not have a material impact on the operations of the Partnership.
Purchase money notes relating to River Place totaling $2,500,000 plus
accrued interest mature December 31, 1995. The Managing General Partner is
investigating possible alternatives to paying these notes at maturity, including
the extension of purchase money note due dates or the possible refinancing of
the purchase money note obligations. There is no assurance that any such
agreement will be reached with the noteholders, or that refinancing efforts will
be successful.
The following are combined statements of operations for the Local
Partnerships in which the Partnership has invested. The statements are compiled
from information supplied by the management agents of the projects and are
unaudited.
-8-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
<S> <C> <C>
1995 1994
------------ ------------
Revenue:
Rental revenue $ 2,301,942 $ 2,264,857
Other 113,676 87,398
------------ ------------
2,415,618 2,352,255
------------ ------------
Expenses:
Operating 1,188,960 1,247,468
Interest 979,947 870,638
Depreciation and amortization 445,616 445,185
------------ ------------
2,614,523 2,563,291
------------ ------------
Net loss $ (198,905) $ (211,036)
============ ============
</TABLE>
As of March 31, 1995 and December 31, 1994, the Partnership's share of
cumulative losses to date for five and six, respectively, of the eight Local
Partnerships exceeds the amount of the Partnership's investments in and advances
to those Local Partnerships by $6,666,052 and $6,405,470, respectively. As the
Partnership has no further obligation to advance funds or provide financing to
these Local Partnerships, the excess losses have not been reflected in the
accompanying consolidated financial statements.
3. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. The
Partnership paid $19,340 and $14,129 for the three months ended March 31, 1995
and 1994, respectively, as direct reimbursement of expenses incurred on behalf
of the Partnership. Additionally, the Partnership paid the Managing General
Partner a Management Fee of $24,482 for each of the three month periods ended
March 31, 1995 and 1994.
From January 1991 through January 1994, CRICO Management Northwest, Inc.
(CRICO Northwest), an affiliate of the Managing General Partner, provided
-9-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. RELATED PARTY TRANSACTIONS - Continued
property management services to Springfield and Devonshire. CRICO Management
Corporation (CRICO), an affiliate of the Managing General Partner, provided
consulting, accounting and other services to Deerfield from November 1993
through January 1994. Fees paid or accrued to CRICO Northwest or CRICO amounted
to $5,470, $3,770 and $2,275, respectively, for the month ended January 31,
1994. On February 1, 1994, CRICO Northwest and CRICO contributed their property
management or consulting contracts and personnel to CAPREIT Residential
Corporation (CAPREIT). CAPREIT was formed by CRI but is not currently owned or
controlled by CRI and/or its affiliates. On April 12, 1995, HUD approved
CAPREIT as the new Deerfield management agent.
-10-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Financial Condition/Liquidity
-----------------------------
Capital Realty Investors-85 Limited Partnership's (the Partnership)
liquidity, with unrestricted cash resources of $1,082,278 and $876,995 as of
March 31, 1995 and December 31, 1994, respectively, along with future cash
distributions from Local Partnerships, is expected to meet its current and
anticipated operating cash needs. The Partnership's remaining obligations with
respect to its investment in Local Partnerships of $625,000, excluding purchase
money notes and accrued interest, is not in excess of its capital resources. As
of April 24, 1995, there are no material commitments for capital expenditures.
As of March 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$5,098,000 plus the accrued interest of $7,786,058, are payable upon the earlier
of (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$2,500,000 mature in December 1995, as discussed below. Purchase money notes in
an aggregate principal amount of $230,000 mature in 1996. The remaining
purchase money notes mature from 1999 to 2003. The purchase money notes are
generally secured by the Partnership's interest in the respective Local
Partnership. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership. The Managing General Partner is continuing to
investigate possible alternatives to reduce the Partnership's long-term debt
obligations. These alternatives include, among others, retaining the cash
available for distribution to meet the purchase money note requirements, buying-
out certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, or refinancing the respective properties'
underlying debt and using the proceeds to pay-off or buy-down certain purchase
money note obligations.
Purchase money notes relating to River Place totaling $2,500,000 plus
accrued interest mature December 31, 1995. The Managing General Partner is
investigating possible alternatives to paying these notes at maturity, including
the extension of purchase money note due dates or the possible refinancing of
the purchase money note obligations. There is no assurance that any such
agreement will be reached with the noteholders, or that refinancing efforts will
be successful.
As of March 31, 1995 and December 31, 1994, the Partnership's obligations
with respect to its investments in Local Partnerships included $492,900 due to
local general partners, plus accrued interest on these obligations of $132,100.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating
requirements. For the three months ended March 31, 1995, the receipt of
distributions from Local Partnerships and the repayment of advances to Local
Partnerships was adequate to support operating cash requirements.
Results of Operations
---------------------
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Partnership's net loss for the three months ended March 31, 1995
increased from the corresponding period in 1994 primarily due an increase in
purchase money note interest expense as a result of compounding interest.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's recognized losses for the three months ended March
31, 1995 did not include losses of $260,582, compared to excluded losses of
$281,120 for the three months ended March 31, 1994.
Deerfield Partners Limited Partnership (Deerfield Apartments) was unable to
generate sufficient cash flow to pay its debt service and therefore was unable
to meet its obligations under the terms of the loan documents. The Local
Partnership defaulted on its mortgage loan in 1990, and after negotiations with
the Department of Housing and Urban Development (HUD), submitted a one-year
workout proposal to the local HUD office, effective May 1, 1991, to which HUD
did not respond. On July 1, 1992, a second one-year workout proposal was
submitted, effective September 1, 1992, to which HUD did not respond. On
September 17, 1993, a six-year workout proposal, effective October 1, 1993, was
submitted in accordance with HUD's new workout guidelines. At HUD's request, a
nine-year workout proposal was submitted to HUD on April 15, 1994. As of April
24, 1995, no response to the new proposal had been received from HUD. If the
workout proposal is not accepted and another alternative is not found, then HUD
could foreclose on the property. On April 15, 1995, Deerfield Apartments was
notified by HUD that HUD plans to offer Deerfield Apartment's mortgage loan for
sale in July 1995. If the mortgage is sold by HUD, a new mortgagee would
service the defaulted loan and could foreclose on the property. The uncertainty
about the Local Partnership's continued ownership of the property does not
impact the Partnership's financial condition because the related purchase money
note is nonrecourse and collateralized solely by the Partnership's partnership
interest in the Local Partnership. Therefore, should the investment in
Deerfield Apartments not produce sufficient value to satisfy the purchase money
note related to Deerfield Apartments, the Partnership's exposure to loss is
limited since the amount of the nonrecourse indebtedness exceeds the carrying
amount of the investment in and advances to the Local Partnership. Thus, even a
complete loss of this investment would not have a material impact on the
operations of the Partnership. There is no assurance that the proposal will be
approved to allow the Local Partnership to retain ownership of Deerfield
Apartments. Currently, debt service payments are being made from available cash
flow in accordance with the proposed workout. During 1989 and 1988, the
Partnership loaned a total of $196,746 to the Local Partnership to fund
operating deficits. The Partnership does not expect to advance any additional
funds. The loans do not bear interest and repayment is due upon sale or
refinancing of the property; however, there is no assurance that the Local
Partnership will be able to repay any loans in accordance with the terms.
The Pointe, located in El Paso, Texas, modified its mortgage loan in 1987.
In connection with the loan modification, the Partnership loaned $262,500 to the
Local Partnership in 1987. Repayment of this loan, with simple interest at 9%
per annum, is expected to occur upon sale or refinancing of the property. As of
March 31, 1995 and December 31, 1994, accrued interest was $182,684 and
$176,778, respectively.
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Debt service on Springfield Apartments (Springfield) is due to the lender
on the first day of each month with no "grace period" and substantial late
payment penalties. Therefore, prior to February 1994, the Partnership had
advanced approximately $65,000 per month to Springfield in the form of a bridge
loan which was to be repaid by the fifteenth of the following month. The
February 1994 advance to Springfield was held by the Local Partnership to
establish a one-month debt service reserve to eliminate the need for a monthly
bridge loan from the Partnership. Springfield began repaying a portion of the
non-interest-bearing advances made by the Partnership in April 1994. As of
March 31, 1995 and December 31, 1994, non-interest-bearing loans to Springfield
totalled $442,239 and $509,438, respectively.
Debt service on Devonshire Apartments (Devonshire) is due to the lender on
the first day of each month with no "grace period" and substantial late payment
penalties. Therefore, prior to February 1994, the Partnership had advanced
approximately $10,000 per month to Devonshire in the form of a bridge loan which
was to be repaid by the fifteenth of the following month. The February 1994
advance to Devonshire was held by the Local Partnership to establish a one-month
debt service reserve to eliminate the need for a monthly bridge loan from the
Partnership. Devonshire began repaying a portion of the non-interest-bearing
advances made by the Partnership in July 1994. As of December 31, 1994, non-
interest-bearing loans to Devonshire totalled $30,500. Devonshire paid off the
balance of its loans in January 1995.
The letter of credit and mortgage loan on Sheridan West Limited Partnership
(Semper Village) matured on December 20, 1994. By way of an agreement dated
January 1, 1995, the Resolution Trust Corporation (RTC), acting as a receiver
for the original mortgagee, assumed the note in lieu of mandatory redemption by
drawing on the letter of credit. The RTC has extended the maturity date of the
letter of credit and mortgage loan to June 30, 1995. The Managing General
Partner and the local general partner are currently negotiating refinancing
terms with a potential new lender. While there is no assurance that a
refinancing will be completed, the local general partner's objective is to
complete refinancing prior to June 30, 1995. If a refinancing or pay-off does
not occur and an alternative is not found, the mortgage lender could foreclose
on the property. The uncertainty about the Local Partnership's continued
ownership of the property does not impact the Partnership's financial condition
because the Partnership's exposure to loss is limited since the carrying amount
of the investment in the Local Partnership has been reduced to zero for
financial statement purposes. Thus, even a complete loss of this investment
would not have a material impact on the operations of the Partnership.
No other significant changes in the Partnership's operations have taken
place during this period.
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No Reports on Form 8-K were filed with the Commission during the quarter
ended March 31, 1995.
All other items are not applicable.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS-85
LIMITED PARTNERSHIP
(Registrant)
By: C.R.I., Inc.
Managing General Partner
May 3, 1995 /s/Richard J. Palmer
- ------------------------- -----------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
-14-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,082,278
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,732,413
<CURRENT-LIABILITIES> 0
<BONDS> 13,509,058
<COMMON> 0
0
0
<OTHER-SE> (7,826,753)
<TOTAL-LIABILITY-AND-EQUITY> 5,732,413
<SALES> 0
<TOTAL-REVENUES> 88,628
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77,397
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 388,329
<INCOME-PRETAX> (377,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (377,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377,098)
<EPS-PRIMARY> (17.08)
<EPS-DILUTED> (17.08)
</TABLE>
