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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-23766
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
Organized pursuant to the Laws of the State of Maryland
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Internal Revenue Service - Employer Identification No. 52-1388957
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
The total number of shares of the registrant's Common Stock, outstanding on
September 30, 2000, is not applicable.
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<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- September 30, 2000 and December 31, 1999.................... 1
Consolidated Statements of Operations and Accumulated Losses
- for the three and nine months ended September 30, 2000
and 1999 ................................................... 2
Consolidated Statements of Cash Flows
- for the nine months ended September 30, 2000 and 1999....... 3
Notes to Consolidated Financial Statements
- September 30, 2000 and 1999................................. 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 9
PART II - OTHER INFORMATION
Item 3. Defaults upon Senior Securities.................................. 11
Item 5. Other Information................................................ 11
Item 6. Exhibits and Reports on Form 8-K................................. 11
Signature ........................................................... 12
Exhibit Index............................................................... 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships $ 581,062 $ 585,343
Cash and cash equivalents 8,425,417 8,086,701
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $112,390 and $106,606, respectively 118,965 124,749
Property purchase costs,
net of accumulated amortization of $102,641 and $97,422, respectively 106,120 111,339
Other assets 2,758 --
----------- -----------
Total assets $ 9,234,322 $ 8,908,132
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 2,522,600 $ 2,522,600
Accrued interest payable 8,598,573 7,643,493
Accounts payable and accrued expenses 91,222 127,126
----------- -----------
Total liabilities 11,212,395 10,293,219
----------- -----------
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:
Accumulated distributions to partners (4,908,656) (4,908,656)
Offering costs (2,570,535) (2,570,535)
Accumulated losses (15,703,382) (15,110,396)
----------- -----------
Total partners' deficit (1,978,073) (1,385,087)
----------- -----------
Total liabilities and partners' deficit $ 9,234,322 $ 8,908,132
=========== ===========
</TABLE>
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
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Share of income from partnerships $ 156,900 $ 374,663 $ 247,465 $ 734,299
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest 132,764 84,270 374,968 256,273
------------ ------------ ------------ ------------
Expenses:
Interest 324,284 288,445 972,851 861,335
General and administrative 37,592 23,555 110,849 104,790
Management fee 24,483 24,483 73,447 73,447
Professional fees 16,136 18,779 47,269 53,060
Amortization of deferred costs 3,668 3,667 11,003 11,976
------------ ------------ ------------ ------------
406,163 358,929 1,215,419 1,104,608
------------ ------------ ------------ ------------
Total other revenue and expenses (273,399) (274,659) (840,451) (848,335)
------------ ------------ ------------ ------------
(Loss) income before gain on disposition
of investments in partnerships (116,499) 100,004 (592,986) (114,036)
Gain on disposition of investments in partnerships -- 3,481,140 -- 9,604,879
------------ ------------ ------------ ------------
Net (loss) income (116,499) 3,581,144 (592,986) 9,490,843
Accumulated losses, beginning of period (15,586,883) (18,540,133) (15,110,396) (24,449,832)
------------ ------------ ------------ ------------
Accumulated losses, end of period $(15,703,382) $(14,958,989) $(15,703,382) $(14,958,989)
============ ============ ============ ============
Net (loss) income allocated to General Partners (1.51%) $ (1,759) $ 54,075 $ (8,954) $ 143,312
============ ============ ============ ============
Net (loss) income allocated to Initial
and Special Limited Partners (2.49%) $ (2,901) $ 89,170 $ (14,765) $ 236,322
============ ============ ============ ============
Net (loss) income allocated to BAC Holders (96%) $ (111,839) $ 3,437,899 $ (569,267) $ 9,111,209
============ ============ ============ ============
Net (loss) income per BAC based on 21,158 BACs
outstanding $ (5.29) $ 162.49 $ (26.91) $ 430.63
============ ============ ============ ============
</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 CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (592,986) $ 9,490,843
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Share of income from partnerships (247,465) (734,299)
Amortization of deferred costs 11,003 11,976
Gain on disposition of investments in partnerships -- (9,604,879)
Changes in assets and liabilities:
Increase in accrued interest receivable on advances to
partnerships (17,719) (17,719)
(Increase) decrease in other assets (2,758) 55,663
Increase in accrued interest payable 972,851 861,335
Payment of purchase money note interest (17,771) --
(Decrease) increase in accounts payable and accrued expenses (35,904) 67,956
----------- -----------
Net cash provided by operating activities 69,251 130,876
----------- -----------
Cash flows from investing activities:
Receipt of distributions from partnerships 269,465 600,739
Proceeds from disposition of investments in partnerships -- 6,370,090
----------- -----------
Net cash provided by investing activities 269,465 6,970,829
----------- -----------
Cash flow used in financing activities:
Distribution to BAC Holders -- (2,496,644)
----------- -----------
Net increase in cash and cash equivalents 338,716 4,605,061
Cash and cash equivalents, beginning of period 8,086,701 2,154,057
----------- -----------
Cash and cash equivalents, end of period $ 8,425,417 $ 6,759,118
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated
financial statements.
-3-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position of Capital Realty Investors-85 Limited
Partnership (the Partnership) as of September 30, 2000, and the results of its
operations for the three and nine months ended September 30, 2000 and 1999, and
its cash flows for the nine months ended September 30, 2000 and 1999. The
results of operations for the interim periods ended September 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States and with the instructions to Form 10-QSB. Certain information and
accounting policies and footnote disclosures normally included in financial
statements prepared in conformity with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to such
instructions. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Partnership's annual report on Form 10-KSB at December 31, 1999.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships and accrued interest payable
---------------------------------------------------------------
Purchase money notes
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate accrued interest of $8,523,173 as of
September 30, 2000, are payable in full upon the earliest 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. A
purchase money note in the principal amount of $230,000 matured on January 30,
1996 but has not been paid or extended, as discussed below. The remaining
purchase money notes mature in 2001 and 2003.
Interest expense on the Partnership's purchase money notes for the
three and nine month periods ended September 30, 2000 was $324,284 and $972,851,
respectively, and $288,445 and $861,335 for the three and nine month periods
ended September 30, 1999, respectively. The accrued interest payable on the
purchase money notes of $8,523,173 and $7,568,093 as of September 30, 2000 and
December 31, 1999, respectively, is due on the respective maturity dates of the
purchase money notes or earlier, in some instances, if (and to the extent of a
portion thereof) the related Local Partnership has distributable net cash flow,
as defined in the relevant Local Partnership agreement.
The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay
-4-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 respective Local Partnership. The Partnership's inability to pay
certain of the purchase money note principal and accrued interest balances when
due, and the resulting uncertainty regarding the Partnership's continued
ownership interest in the related Local Partnerships, does not adversely impact
the Partnership's financial condition because the purchase money notes are
nonrecourse and secured solely by the Partnership's interest in the related
Local Partnerships. Therefore, should the investment in any of the Local
Partnerships with maturing purchase money notes not produce sufficient value to
satisfy the related purchase money notes, the Partnership's exposure to loss is
limited because the amount of the nonrecourse indebtedness of each of the
maturing purchase money notes exceeds the carrying amount of the investment in,
and advances to, each of the related Local Partnerships. Thus, even a complete
loss of the Partnership's interest in one of these Local Partnerships would not
have a material adverse impact on the financial condition of the Partnership.
Paradise Foothills
The Partnership defaulted on its purchase money note relating to
Paradise Associates, L.P. (Paradise Foothills) when the note matured on January
30, 1996 and was not paid. The default amount included principal and accrued
interest of $230,000 and $371,464, respectively. As of November 2, 2000,
principal and accrued interest totaling $230,000 and $716,687, respectively,
were due. The Managing General Partner proposed an extension of the purchase
money note maturity date until May 31, 2003, coterminous with the expiration of
the related Local Partnership's provisional workout agreement related to its
mortgage loan. As of November 2, 2000, the Managing General Partner is awaiting
a response from the purchase money noteholder. There is no assurance that the
Managing General Partner will reach an agreement of any kind with the
noteholder. Should the noteholder begin foreclosure proceedings on the
Partnership's interest in the Local Partnership, the Managing General Partner
intends to contest such action vigorously. Due to a possible foreclosure by the
noteholder, there can be no assurance that the Partnership will be able to
retain its interest in the Local Partnership. The uncertainty regarding the
continued ownership of the Partnership's interest in the related Local
Partnership does not adversely impact the Partnership's financial condition, as
discussed above. In the event of a foreclosure, the excess of the nonrecourse
indebtedness over the carrying amount of the Partnership's investment in the
related Local Partnership would be deemed cancellation of indebtedness income,
which would be taxable to Limited Partners at a federal tax rate of up to 39.6%.
Additionally, in the event of a foreclosure, the Partnership would lose its
investment in the Local Partnership and, likewise, its share of any future cash
flow distributed by the Local Partnership from rental operations, mortgage debt
refinancings, or the sale of the real estate. The Partnership did not receive
any distributions from Paradise Foothills during the nine month periods ended
September 30, 2000 and 1999, and its aggregate share of income from this Local
Partnership was $0 for the three and nine month periods ended September 30,
2000, respectively, and $0 for the three and nine month periods ended September
30, 1999, respectively.
The amount due to a local general partner of Paradise Foothills of
$174,600, plus accrued interest of $75,400 at September 30, 2000, will be paid
upon the occurrence of specified events, as outlined in the respective Local
Partnership's partnership agreement.
-5-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
b. Advances to Local Partnership
The Pointe
Mesa Partners Limited Partnership (The Pointe), located in El Paso,
Texas, modified its mortgage loan in 1987. In connection with the mortgage loan
modification, the Partnership advanced $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 September 30, 2000 and
December 31, 1999, accrued interest was $310,782 and $293,063, respectively.
c. Property matters
Devonshire and Springfield
In June 1998, the local managing general partners of Devonshire
Development Limited Partnership (Devonshire) and Springfield Properties Limited
Partnership (Springfield) received offers from third parties to purchase the
respective properties. The local managing general partners of Devonshire and
Springfield entered into contracts to sell the respective properties to a real
estate investment trust (REIT) (in the case of Springfield) and the REIT's
affiliate (in the case of Devonshire) on or before January 15, 1999. In
September 1998, prior to the expiration of the due diligence period, the
purchaser, in accordance with its rights under the sale contract, terminated the
sale contract for Devonshire.
On January 22, 1999, pursuant to the Springfield sale contract, the
Local Partnership sold Springfield Apartments, located in Redmond, Washington,
to ASN-Washington Holdings (1) Incorporated, an affiliate of the REIT. The sale
resulted in a financial statement gain of approximately $6.1 million, a federal
tax gain of approximately $10.2 million, and net cash proceeds of approximately
$6.4 million to the Partnership. As a result of the sale, CRICO of Springfield,
Inc., the managing general partner of the Local Partnership and an affiliate of
the Managing General Partner, received an additional management fee of $636,789,
pursuant to the Local Partnership Agreement, all of which was paid in 1999.
Following the termination of the sales contract for Devonshire, on June
28, 1999, the Local Partnership entered into a contract with a different
unrelated third party to sell the property. On September 30, 1999, pursuant to
the Devonshire sale contract, the Local Partnership sold Devonshire Apartments,
located in Kirkland, Washington, to Kirkland Rrestoration LLC. The sale resulted
in a financial statement gain of approximately $3.5 million, a federal tax gain
of approximately $5.8 million, and net cash proceeds of approximately $3.5
million to the Partnership, which net cash proceeds were received by the
Partnership on October 1, 1999. As a result of the sale, CRICO of Devonshire,
Inc., the managing general partner of the Local Partnership and an affiliate of
the Managing General Partner, received an additional management fee of $300,086,
of which $269,485 was paid in 1999 and $30,601 was paid in January 2000,
pursuant to the Local Partnership Agreement.
-6-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
d. Summarized financial information
Combined statements of operations for the four Local Partnerships in
which the Partnership was invested as of September 30, 2000 and 1999, follow.
The combined statements have been compiled from information supplied by the
management agents of the projects and are unaudited. The combined statements of
operations for the three and nine months ended September 30, 1999, include
information for Springfield and Devonshire through the dates of their respective
sales.
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 1,448,590 $ 1,723,966 $ 4,369,317 $ 5,270,489
Other 104,717 98,654 307,621 288,724
------------ ------------ ------------ ------------
Total revenue 1,553,307 1,822,620 4,676,938 5,559,213
------------ ------------ ------------ ------------
Expenses:
Operating 757,299 904,091 2,240,836 2,744,100
Interest 513,072 628,081 1,539,221 1,935,657
Depreciation and amortization 271,229 266,683 813,691 815,554
------------ ------------ ------------ ------------
Total expenses 1,541,600 1,798,855 4,593,748 5,495,311
------------ ------------ ------------ ------------
Net income $ 11,707 $ 23,765 $ 83,190 $ 63,902
============ ============ ============ ============
</TABLE>
As of September 30, 2000 and 1999, the Partnership's share of
cumulative losses to date for three and four, respectively, of the Local
Partnerships exceeded the amount of the Partnership's investments in and
advances to those Local Partnerships by $6,697,888 and $7,284,054, 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 connection with managing the Partnership. The Partnership
paid $13,731 and $60,486 for the three and nine month periods ended September
30, 2000, respectively, and $15,909 and $74,743 for the three and nine month
periods ended September 30, 1999, respectively, to the Managing General Partner
as direct reimbursement of expenses incurred on behalf of the Partnership. Such
expenses are included in the accompanying consolidated statements of operations
as general and administrative expenses.
-7-
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
3. RELATED PARTY TRANSACTIONS - Continued
In accordance with the terms of the Partnership Agreement, the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (Management Fee) after all other expenses of the Partnership are
paid. The Partnership paid the Managing General Partner a Management Fee of
$24,483 and $73,447 for each of the three and nine month periods ended September
30, 2000 and 1999, respectively.
On January 22, 1999, Springfield Properties Limited Partnership, one of
the Local Partnerships in which the Partnership has invested, sold Springfield
Apartments. As a result of the successful sale, CRICO of Springfield, Inc., the
local managing general partner of the Local Partnership (and an affiliate of the
Managing General Partner), earned an additional management fee of $636,789,
pursuant to the Local Partnership Agreement, all of which was paid in 1999.
On September 30, 1999, Devonshire Development Limited Partnership, one
of the Local Partnerships in which the Partnership has invested, sold Devonshire
Apartments. As a result of the successful sale, CRICO of Devonshire, Inc., the
local managing general partner of the Local Partnership (and an affiliate of the
Managing General Partner), earned an additional management fee of $300,086,
pursuant to the Local Partnership Agreement; $269,485 was paid during 1999, and
the remainder was paid in 2000.
-8-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Capital Realty Investors-85 Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, governmental
regulations affecting the Partnership and interpretations of those regulations,
the competitive environment in which the Partnership operates, and the
availability of working capital.
Financial Condition/Liquidity
The Partnership's liquidity, with unrestricted cash resources of
$8,425,417 as of September 30, 2000, along with anticipated future cash
distributions from Local Partnerships, is expected to be adequate to meet its
current and anticipated operating cash needs. As of November 2, 2000, there were
no material commitments for capital expenditures.
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate accrued interest of $8,523,173 as of
September 30, 2000, are payable in full upon the earliest 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. A
purchase money note in the principal amount of $230,000 matured on January 30,
1996 and has not been paid or extended. The remaining purchase money notes
mature in 2001 and 2003. See the notes to the consolidated financial statements
for additional information concerning these purchase money notes.
The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships. 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 respective Local Partnership. The Partnership's inability to pay certain of
the purchase money note principal and accrued interest balances when due, and
the resulting uncertainty regarding the Partnership's continued ownership
interest in the related Local Partnerships, does not adversely impact the
Partnership's financial condition because the purchase money notes are
nonrecourse and secured solely by the Partnership's interest in the related
Local Partnerships. Therefore, should the investment in any of the Local
Partnerships with maturing purchase money notes not produce sufficient value to
satisfy the related purchase money notes, the Partnership's exposure to loss is
limited because the amount of the nonrecourse indebtedness of each of the
maturing purchase money notes exceeds the carrying amount of the investment in,
and advances to, each of the related Local Partnerships. Thus, even a complete
loss of the Partnership's interest in one of these Local Partnerships would not
have a material adverse impact on the financial condition of the Partnership.
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, paying off 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
Partnership's share of the proceeds to pay off or pay down certain purchase
money note obligations.
-9-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
Included in due on investments in partnerships is $174,600 due to a
local general partner related to Paradise Associates, L.P. (Paradise Foothills)
at both September 30, 2000, and December 31, 1999; accrued interest payable
thereon was $75,400 at both September 30, 2000, and December 31, 1999. These
amounts will be paid upon the occurrence of certain specified events, as
outlined in the respective Local Partnership's partnership agreement.
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 nine month periods ended September 30, 2000 and 1999,
operating activities provided positive cash flow. Cash and cash equivalents
increased during the nine months ended September 30, 2000, primarily due to the
receipt of distributions from partnerships, in addition to net cash provided by
operating activities.
During the periods covered by this report, on May 3, 1999, the Managing
General Partner distributed $2,496,644 (or $118 per Beneficial Assignee
Certificate (BAC)) from the proceeds generated from the sale of Springfield
Properties Limited Partnership (Springfield), to the BAC holders of record as of
January 22, 1999. The Managing General Partner currently intends to retain all
of the Partnership's remaining undistributed cash for the possible repayment,
prepayment or retirement of the Partnership's outstanding purchase money notes
related to the Local Partnerships.
Results of Operations
The Partnership recognized a net loss for the three month period ended
September 30, 2000, as compared to net income during the corresponding period in
1999 primarily due to the gain on disposition of investment in partnership
related to the sale of Devonshire Development Limited Partnership (Devonshire)
in 1999. Contributing to the net loss were an increase in interest expense on
purchase money notes due to the compounding of interest, an increase in general
and administrative expenses related to higher reimbursed payroll costs, and a
decrease in share of income from partnerships as a result of the sales of
Springfield and Devonshire in January and September 1999, respectively.
Offsetting the net loss was an increase in interest income due to higher cash
and cash equivalents balances and generally higher interest rates.
The Partnership recognized a net loss for the nine month period ended
September 30, 2000, as compared to net income during the corresponding period in
1999 primarily due to the gain on disposition of investments in partnerships
related to the sales of Springfield and Devonshire in 1999. Contributing to the
net loss were an increase in interest expense and a decrease in share of income
from partnerships, both as discussed above. Offsetting the net loss was an
increase in interest income, also as discussed above.
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 share of income from partnerships for the three and
nine month periods ended September 30, 2000 did not include losses of $80,796
and $242,391, respectively, compared to excluded losses of $99,894 and $299,690
for the three and nine month periods ended September 30, 1999, respectively.
No other significant changes in the Partnership's operations have taken
place during this period.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
See Note 2.a. of the notes to consolidated financial statements
contained in Part I, Item 1, hereof, for information concerning the
Partnership's default on a purchase money note.
Item 5. Other Information
On April 5, 2000, Peachtree Partners (Peachtree) mailed an offer letter
to Beneficial Assignee Certificate (BAC) holders of the Partnership. The offer
letter indicated that Peachtree was willing to offer to purchase outstanding BAC
units at a price of $90 per unit; the offer expired in May 2000. Peachtree is
unaffiliated with the Managing General Partner. The price offered was determined
solely at the discretion of Peachtree and does not necessarily represent the
fair market value of each BAC. There is no established market for the purchase
and sale of BACs, although various informal secondary market services exist. Due
to the limited markets, however, investors may be unable to sell or otherwise
dispose of their BACs.
If more than 5% of the total outstanding BAC units are transferred in
any one calendar year (not counting certain exempt transfers), the Partnership
could be taxed as a "publicly traded partnership," with potentially severe tax
implications for the Partnership and its investors. Specifically, the
Partnership would be taxed as a corporation and the income and losses from the
Partnership would no longer be considered a passive activity. From January 1,
2000 through April 28, 2000, approximately 4.9% of outstanding BAC units were
sold. Accordingly, to remain within the 5% safe harbor, effective May 5, 2000,
the General Partner of the Partnership halted recognition of any transfers that
would exceed the safe harbor limit through December 31, 2000. As a result,
transfers of BAC units due to sales transactions will not be recognized by the
Partnership between May 5 and December 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
a. None
b. No reports on Form 8-K were filed with the Commission during
the quarter ended September 30, 2000.
All other items are not applicable.
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<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
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
November 2, 2000 by: /s/ Michael J. Tuszka
---------------- --------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Method of Filing
------- --------------------------------
27 Financial Data Schedule Filed herewith electronically
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