UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327914
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan
Bannockburn, IL 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $59,791,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income-producing real property, and all
financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
property. The Registrant has since disposed of three properties, including the
property in which it held a minority joint venture interest. As of December 31,
1995, the Registrant owned the six properties described under " Item 2.
Properties". The Registrant sold two additional properties in March 1996. The
Partnership Agreement generally provides that the proceeds of any sale or
refinancing of the Registrant's properties will not be reinvested in new
acquisitions.
Overall, the investment real estate market saw gradual improvement over the
last year. This improvement has taken place in an environment of generally low
interest rates and little or no new supply, parameters which may not exist in
the next few years. Demand for real estate space, while projected to improve in
line with the overall economy, is also vulnerable to external forces. The major
challenges facing the real estate industry today include increased
international competition, corporate restructurings, new computer and
communications technologies, an aging population and potential revisions of the
tax code. In addition, the increased flow of capital to real estate through new
vehicles such as commercial mortgage-backed securities and REITs could spur new
construction at unsupportable levels, as well as impact existing property
values.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
The General Partner had previously advised the Limited Partners that its
strategy was to sell the Registrant's remaining assets over the next four to
five years. The General Partner also stated that the timing of the liquidation
could be lengthened or shortened due to changes in market conditions, economic
factors, interest rates and unforeseen events. Since November 1995, the
General Partner believes that the market for multifamily housing properties has
become increasingly favorable to sellers of these properties. This belief is
based on the results of the sales and marketing activities of the Registrant as
described below and based upon the similar results of such activities by
various other partnerships affiliated with the Registrant. These favorable
market conditions are in part attributable to the increasing strength of the
<PAGE>
capital markets and the re-entry of REITs into the acquisition market. Since
November 1995, the Registrant has sold two of its properties. Of its remaining
four properties, the General Partner (i) has entered into a letter of intent to
sell one of the properties; (ii) is actively marketing one of the properties
for sale; and (iii) if the market remains favorable, intends to begin actively
marketing more of the remaining properties for sale. If the current market
conditions for sales remain favorable and the General Partner can obtain
appropriate sales prices, the Registrant's liquidation strategy may be
accelerated.
The Registrant received notice of an unsolicited offer for the purchase of
limited partnership interests ("tender offer") in November 1995. The tender
offer was made by Walton Street Capital Acquisition Co. L.L.C. ("Walton
Street"). Walton Street stated that their primary motive in making the offer
was to make a profit from the purchase of the interests. Walton Street acquired
3.35% of the total interests outstanding in the Registrant and assigned the
interests to its affiliate, WIG 86-I Partners. The Registrant incurred
administrative costs in responding to the tender offer.
The Registrant received notice of an unsolicited offer for the purchase of
limited partnership interests ("tender offer") on March 11, 1996. The tender
offer was made by Metropolitan Acquisition VII, L.L.C. ("Metropolitan").
Metropolitan is an affiliate of Insignia Financial Group, Inc., which provides
property management services to all of the Registrant's properties.
Metropolitan has stated that their primary motive in making the offer is to
make a profit from the purchase of the interests. Metropolitan is seeking to
acquire up to 30% of the total interests outstanding in the Registrant. The
Registrant will incur administrative costs in responding to the tender offer
and may incur additional costs if additional tender offers are made in the
future. The General Partner cannot predict with any certainty what the impact
of this tender offer or any future tender offers will have on the operations or
management of the Registrant.
During 1995, the Registrant completed the refinancing of the Lakeville Resort
Apartments' mortgage note. See Note 4 of Notes to Financial Statements for
additional information.
During March 1996, the Registrant sold the Pines of Cloverlane and Lakeside
apartment complexes. See Other Information and Note 10 of Notes to Fiancial
Statements for additional information.
The Registrant, by virtue of its ownership of real estate, is subject to
federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware
of any potential liability due to environmental issues or conditions that would
be material to the Registrant.
The officers and employees of Balcor Partners-XIX, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Other Information
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Pines of Cloverlane
- --------------------
In 1986, the Registrant acquired Phases I and II of the Pines of Cloverlane
apartment complex (together, the "Property") utilizing approximately $7,200,000
of offering proceeds. The Registrant financed the acquisition of the Property
with a first mortgage loan in the amount of $16,300,000.
On January 26, 1996, the Registrant contracted to sell the Property for a sale
price of $19,300,000 to an unaffiliated party, ERP Operating Limited
Partnership, an Illinois limited partnership. The sale price was subsequently
reduced to $18,974,000 and the sale closed on March 12, 1996. From the proceeds
of the sale, the Registrant paid the outstanding balance of the first mortgage
loan of $14,208,240, a brokerage commission of $189,740 to an unaffiliated
party and closing costs of $98,720. A portion of the sale proceeds in the
amount of $335,000 has been placed in escrow to reimburse the purchaser for the
costs of certain inspections of the Property required by new local ordinances
and corrective work which may be required by the inspections. Any funds not
disbursed within six years, unless the escrow agreement is extended by the
parties, will be returned to the Registrant. The escrow may be terminated and
any remaining funds returned to the Registrant in the event the existing
litigation regarding the repeal of the ordinances is settled in favor of the
Registrant or the ordinances are otherwise repealed. The General Partner will
be reimbursed by the Registrant for its actual expenses incurred in connection
with the sale.
Lakeside Apartments
- -------------------
In 1986, the Registrant acquired the Lakeside apartment complex (the
"Property") utilizing approximately $6,800,000 of offering proceeds. The
Registrant financed the acquisition of the Property with a first mortgage loan
in the amount of $12,800,000.
On February 21, 1996, the Registrant contracted to sell the Property for a sale
price of $14,100,000 to an unaffiliated party, Mid-America Apartments, L.P., a
Tennessee limited partnership. The sale closed on March 12, 1996. From the
proceeds of the sale, the Registrant paid $423,000 to an unaffiliated party as
a brokerage commission, closing costs of $87,650, and $12,894,356 to the holder
of the first mortgage loan which is equal to the outstanding balance of the
loan of $12,426,799 and an additional amount of $467,557, which is equal to 50%
of the net sale proceeds in excess of $12,654,000. The General Partner will be
reimbursed by the Registrant for its actual expenses incurred in connection
with the sale. The Registrant received $211,500 from the broker for services
rendered. The purchaser paid from its own funds a brokerage commission of
$132,400 to an affiliate of the company which provides property management
services at the Property.
<PAGE>
Item 2. Properties
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As of December 31, 1995, the Registrant owns the six properties described
below:
Location Description of Property
- -------- -----------------------
Washington County, Oregon Brighton Townhomes: a 232-unit apartment complex
located on approximately 15 acres.
Overland Park, Kansas * Cedar Crest Apartments: a 466-unit apartment
complex located on approximately 40 acres.
Jacksonville, Florida ** Lakeside Apartments: a 416-unit apartment complex
located on approximately 28 acres.
Petaluma, California * Lakeville Resort Apartments: a 492-unit apartment
complex located on approximately 33 acres.
Fresno, California Lake Ridge Apartments: a 200-unit apartment
complex located on approximately 11 acres.
Pittsfield Township, ** The Pines of Cloverlane Phases I and II: a
Michigan 592-unit apartment complex located on
approximately 62 acres.
*Owned by the Registrant through a joint venture with an affiliated
partnership. See Note 6 of Notes to Financial Statements for additional
information.
** These properties were sold in 1996. See Note 10 of Notes to Financial
Statements for additional information.
Each of the above properties is held subject to various mortgages.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
<PAGE>
Item 3. Legal Proceedings
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On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' actions; recovery from the defendants of all
profits received by them as a result of their actions relating to the Defendant
Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the defendants believes they
have meritorious defenses to contest the claims. It is not determinable at this
time whether or not an unfavorable decision in this action would have a
material adverse impact on the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1995.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop; therefore, the
market value of the Limited Partnership Interests cannot reasonably be
determined. For information regarding distributions, see Item 7. Liquidity and
Capital Resources, below.
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was approximately 5,381.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------
Total income $16,504,017 $16,104,170 $15,556,850 $14,850,044 $14,568,343
Loss before gains
on disposition
of assets and
extraordinary
items (1,270,329) (1,284,604) (1,466,532) (2,805,340) (2,681,046)
Net loss (1,357,201) (1,284,604) (185,093) (2,805,340) (2,681,046)
Net loss per
Limited Partner-
ship Interests (22.47) (21.27) (3.06) (46.45) (44.39)
Total assets 64,231,391 64,717,186 67,387,602 70,842,488 74,143,639
Mortgage notes
payable 74,196,579 73,208,295 74,429,557 77,183,221 77,840,780
Distributions per
Limited Partnership
Interest (A) 2.50 None None None None
(A) No distributions of original capital were made in any of the last five
years.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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No material events occurred during 1995 or 1994 which significantly impacted
the net loss of Balcor Realty Investors 86 - Series I (the "Partnership").
However, the Partnership recognized an extraordinary gain on forgiveness of
debt during 1993 in connection with the refinancing of the Lake Ridge
Apartments' mortgage note. Further discussion of the Partnership's operations
is summarized below.
1995 Compared to 1994
- ---------------------
Higher rental and occupancy rates at the Cedar Crest, Lakeville Resort and
Brighton Townhomes apartment complexes resulted in an increase in rental and
service income during 1995 as compared to 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments during 1995 as compared to 1994.
The Lakeville Resort Apartments is owned by a joint venture consisting of the
Partnership and an affiliate. In June 1995, the mortgage note was refinanced
with a new lender. The former mortgage note carried an interest rate based on a
market index and increases in this index had caused an increase in interest
expense during 1995 as compared to 1994. This increase was partially offset by
the lower fixed rate on the new loan. In connection with this transaction, the
Partnership also recognized an extraordinary debt extinguishment expense of
$145,393 relating to the full amortization of deferred loan fees on the former
mortgage note, of which $58,521 represents the affiliate's share.
The amortization of deferred loan fees on the current Lakeville mortgage note
is less than the amortization related to the former mortgage note, resulting in
a decrease in amortization expense for 1995 as compared to 1994.
Higher expenditures in 1994 at the Lakeville Resort apartment complex relating
to exterior painting and carpeting expenses, resulted in a decrease in property
operating expense during 1995 as compared to 1994.
The Partnership incurred legal, consulting, printing and postage costs in
connection with a tender offer during the fourth quarter of 1995. The
Partnership also reimbursed the General Partner for legal fees previously
advanced by the General Partner with respect to a lawsuit which was dismissed.
These events resulted in an increase in administrative expenses during 1995 as
compared to 1994.
Improved operations at the Lakeville Resort Apartments, which were partially
offset by higher interest expense on the mortgage note, resulted in affiliates'
participation in income from joint ventures during 1995 as compared to
affiliates participation in losses during 1994.
<PAGE>
1994 Compared to 1993
- ---------------------
Higher rental rates at the Lakeside, Brighton Townhomes, Pines of Cloverlane
and Cedar Crest apartment complexes resulted in an increase in rental and
service income during 1994 as compared to 1993.
Higher average cash balances and an increase in interest rates resulted in an
increase in interest income on short-term investments during 1994 as compared
to 1993.
The refinancings of the Lake Ridge and Lakeville Resort apartment complexes in
April 1993 reduced the interest expense incurred on mortgage notes payable.
Additionally, the interest rate on the Cedar Crest Apartments mortgage note was
adjusted from 9.75 percent to 7.875 percent effective July 1993 in accordance
with the loan agreement. The combination of these transactions caused interest
expense on mortgage notes payable to decrease during 1994 as compared to 1993.
The Lake Ridge Apartments refinancing also resulted in a gain on forgiveness of
debt during 1993 due to a discounted prepayment of the original mortgage note.
The Partnership incurred higher expenditures for exterior painting and
carpeting at the Lakeville Resort Apartments during 1994. In addition,
increases in insurance expense at all properties, landscaping and utility costs
at the Cedar Crest Apartments and leasing costs at the Pines of Cloverlane
Apartments, resulted in higher property operating expense during 1994 as
compared to 1993.
Higher insurance costs and exterior painting expenses in 1994 at the Lakeville
Resort Apartments resulted in affiliates' participation in losses from joint
ventures during 1994 as compared to income during 1993.
Liquidity and Capital Resources
- -------------------------------
The Partnership's cash position increased slightly as of December 31, 1995 when
compared to December 31, 1994. The Partnership's cash flow provided by
operating activities during 1995 was generated primarily from the operation of
the Partnership's properties which was partially offset by the payment of
administrative expenses. The Partnership's financing activities included
proceeds received in connection with the Lakeville Resort Apartments' mortgage
note refinancing. These proceeds were used to repay the former mortgage note,
fund capital improvement escrows and pay deferred expenses incurred in
connection with the refinancing. The financing activities also included the
payment of principal on the properties' mortgage notes, a net capital
contribution by the joint venture partner-affiliate and a distribution to the
Limited Partners.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered significant if it exceeds $250,000 annually or 20% of the property's
rental and service income. The Partnership defines cash flow generated from its
properties as an amount equal to the property's revenue receipts less property
related expenditures, which include debt service payments. During 1995 and
1994, the Brighton Townhomes, Cedar Crest, Lake Ridge, and Pines of Cloverlane
apartment complexes generated positive cash flow. The Lakeville Resort
Apartments generated positive cash flow during 1995 as compared to a marginal
<PAGE>
deficit during 1994 due to higher rental income and lower property operating
expenses in 1995. The Lakeside Apartments generated positive cash flow during
1995 as compared to a marginal deficit during 1994 due to slightly lower
property operating expenses in 1995. As of December 31, 1995, the occupancy
rates of the Partnership's properties ranged from 92% to 100%.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties, including improving operating
performance and seeking rent increases where market conditions allow.
The General Partner had previously advised Limited Partners that its strategy
was to sell the Partnership's remaining assets over the next four to five
years. The General Partner also stated that the timing of the liquidation could
be lengthened or shortened due to changes in market conditions, economic
factors, interest rates and unforeseen events. Since November 1995, the
General Partner believes that the market for multifamily housing properties has
become increasingly favorable to sellers of these properties. This belief is
based on the results of the sales and marketing activities of the Partnership
as described below and based upon the similar results of such activities by
various other partnerships affiliated with the Partnership. These favorable
market conditions are in part attributable to the increasing strength of the
capital markets and the re-entry of REITs into the acquisition market. Since
November 1995, the Partnership has sold two of its properties. Of its
remaining four properties, the General Partner (i) has entered into a letter of
intent to sell one of the properties; (ii) is actively marketing one of the
properties for sale; and (iii) if the market remains favorable, intends to
begin actively marketing more of the remaining properties for sale. If the
current market conditions for sales remain favorable and the General Partner
can obtain appropriate sales prices, the Partnership's liquidation strategy may
be accelerated.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. At December 31, 1995, the
Partnership owned three properties with third-party financing which was due to
mature in 1996. The Partnership has sold two of these properties as described
below, and is exploring a possible sale of the third property. During June
1995, the Lakeville Resort Apartments' mortgage note was refinanced. See Note 4
of Notes to Financial Statements for additional information.
During March 1996, the Partnership sold the Pines of Cloverlane and Lakeside
apartment complexes in all cash sales for $18,974,000 and $14,100,000,
respectively. From the proceeds, the Partnership paid $14,208,240 and
$12,894,356, respectively, to the third party mortgage holders in full
satisfaction of the first mortgage loans on the properties. After payment of
closing costs, the sales generated proceeds of approximately $5,400,000. The
Partnership will distribute available proceeds to the Limited Partners in April
1996. See Note 10 of Notes to Financial Statements for additional information.
<PAGE>
During January 1996, the Partnership paid $149,478 ($2.50 Per Interest) to the
holders of Limited Partnership Interests for the fourth quarter of 1995. During
October 1995, the Partnership commenced distributions and paid $149,478 to the
holders of Limited Partnership Interests for the third quarter of 1995. The
General Partner expects to continue quarterly distributions to Limited Partners
based on the current performance of the Partnership's properties. However, the
level of future distributions, if available, will depend on cash flow from the
Partnership's remaining properties and proceeds from future property sales, as
to all of which there can be no assurances. In light of results to date and
current market conditions, the General Partner does not anticipate that
investors will recover all of the their original investment.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1995 December 31, 1994
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $64,231,391 $51,295,140 $ 4,717,186 $ 52,445,528
Partners' deficit
accounts:
General Partner (617,172) (966,767) (603,600) (949,298)
Limited Partners (8,962,989) (17,708,648) (7,469,882) (15,636,631)
Net loss:
General Partner (13,572) (17,469) (12,846) (21,614)
Limited Partners (1,343,629) (1,922,539) (1,271,758) (1,930,571)
Per Limited Part-
nership Interest (22.47) (32.15) (21.27) (32.29)
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Partners-XIX, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was
employed at the Harris Trust and Savings Bank in the commercial real estate
division where he was involved in various lending activities. Mr. Meador
received his M.B.A. degree from the Indiana University Graduate School of
Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. Mr.
Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy
from DePaul University.
<PAGE>
John K. Powell Jr. (June 1950) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell has been designated a
Certified Real Estate Financier by the National Society for Real Estate Finance
and is a full member of the Urban Land Institute.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1995.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers of Balcor Partners - XIX, the General Partner. Certain of
these officers receive compensation from The Balcor Company (but not from the
Registrant) for services performed for various affiliated entities, which may
include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 8 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Partners-XIX and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 236 Interests Less than 1%
Relatives and affiliates of the officers and partners of the General Partner
own an additional 5 Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 8 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
is set forth as Exhibit 3 to Amendment No. 1 to Registrant's Registration
Statement on Form S-11 dated December 16, 1985 (Registration No. 33-361), and
said Agreement and Certificate is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), and Form of Confirmation regarding Interests in the
Partnership set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1992 (Commission File No. 0-15649) are
incorporated herein by reference.
(10) Material Contracts:
(i) The Agreement of Sale and attachment thereto relating to the sale of Pines
of Cloverlane Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated January 25, 1996 is incorporated herein by
reference.
(ii) First Amendment to Agreement of Sale relating to the sale of Pines of
Cloverlane Apartments attached hereto.
(iii) Second Amendment to Agreement of Sale relating to the sale of Pines of
Cloverlane Apartments attached hereto.
(iv) Third Amendment to Agreement of Sale relating to the sale of Pines of
Cloverlane Apartments attached hereto.
(v) The Agreement of Sale and attachment thereto relating to the sale of the
Lakeside Apartments previously filed as Exhibit 2 to the Registrant's Current
Report on Form 8-K dated February 21, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: Current Reports on Form 8-K dated January 25, 1996 and
February 21, 1996 were filed reporting the contracts to sell the Pines of
Cloverlane Apartments in Pittsfield Township, Michigan, and Lakeside Apartments
in Jacksonville, Florida, respectively.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: See Index to Financial Statements and
Financial Statement Schedule in this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Brian D. Parker
-------------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners-XIX, the
General Partner
Date: March 29, 1996
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------- --------------------------------- --------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XIX,
/s/Thomas E. Meador the General Partner March 29, 1996
- -------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Partners-XIX,
/s/Brian D. Parker the General Partner March 29, 1996
- -------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Deficit, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1995
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 86-Series I
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedule 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 disclosures 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 Balcor Realty Investors
86-Series I A Real Estate Limited Partnership at December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 23, 1996
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 1,093,098 $ 1,058,935
Escrow deposits 2,246,696 379,730
Accounts and accrued interest receivable 5,857 67,036
Prepaid expenses 229,129
Deferred expenses, net of accumulated
amortization of $378,475 in 1995 and
$671,472 in 1994 619,028 382,247
------------ ------------
4,193,808 1,887,948
------------ ------------
Investment in real estate:
Land 11,137,023 11,137,023
Buildings and improvements 83,187,367 83,187,367
------------ ------------
94,324,390 94,324,390
Less accumulated depreciation 34,286,807 31,495,152
------------ ------------
Investment in real estate, net of
accumulated depreciation 60,037,583 62,829,238
------------ ------------
$ 64,231,391 $ 64,717,186
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 119,006 $ 169,360
Due to affiliates 28,823 74,467
Accrued liabilities, principally
real estate taxes 330,070 169,874
Security deposits 420,724 440,214
Mortgage notes payable 74,196,579 73,208,295
------------ ------------
Total liabilities 75,095,202 74,062,210
Affiliates' participation in
joint ventures (1,283,650) (1,271,542)
Limited Partners' deficit (59,791
Interests issued and outstanding) (8,962,989) (7,469,882)
General Partner's deficit (617,172) (603,600)
------------ ------------
Total partners' deficit (9,580,161) (8,073,482)
------------ ------------
$ 64,231,391 $ 64,717,186
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT
for the years ended December 31, 1995, 1994 and 1993
Partners' Deficit Accounts
-----------------------------------------
General Limited
Total Partner Partners
------------- ------------ ------------
Balance at December 31, 1992 $ (6,603,785)$ (588,903)$ (6,014,882)
Net loss for the year
ended December 31, 1993 (185,093) (1,851) (183,242)
------------- ------------ ------------
Balance at December 31, 1993 (6,788,878) (590,754) (6,198,124)
Net loss for the year
ended December 31, 1994 (1,284,604) (12,846) (1,271,758)
------------- ------------ ------------
Balance at December 31, 1994 (8,073,482) (603,600) (7,469,882)
Cash distribution to Limited
Partners (A) (149,478) (149,478)
Net loss for the year
ended December 31, 1995 (1,357,201) (13,572) (1,343,629)
------------- ------------ ------------
Balance at December 31, 1995 $ (9,580,161)$ (617,172)$ (8,962,989)
============= ============ ============
(A) Represents a cash distribution paid in fourth quarter 1995 of
$2.50 per Limited Partnership Interest.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------- ------------- ------------
Income:
Rental and service $ 16,418,264 $ 16,036,758 $ 15,518,993
Interest on short-term
investments 85,753 67,412 37,857
------------- ------------- ------------
Total income 16,504,017 16,104,170 15,556,850
------------- ------------- ------------
Expenses:
Interest on mortgage
notes payable 6,558,223 6,287,058 6,739,733
Depreciation 2,791,655 2,791,654 2,791,654
Amortization of deferred
expenses 117,694 150,206 156,921
Property operating 5,350,302 5,698,854 4,831,279
Real estate taxes 1,422,161 1,391,861 1,350,610
Property management fees 816,124 800,216 777,519
Administrative 718,055 373,708 366,880
------------- ------------- ------------
Total expenses 17,774,214 17,493,557 17,014,596
------------- ------------- ------------
Loss before affiliates'
participation in joint
ventures and extraordinary
items (1,270,197) (1,389,387) (1,457,746)
Affiliates' participation in
(income) losses from joint
ventures (132) 104,783 (8,786)
------------- ------------- ------------
Loss before extraordinary items (1,270,329) (1,284,604) (1,466,532)
------------- ------------- ------------
Extraordinary items:
Gain on forgiveness of debt 1,281,439
Debt extinguishment expense (145,393)
Affiliates' participation in
debt extinguishment expense 58,521
------------- ------------- ------------
Net loss $ (1,357,201)$ (1,284,604)$ (185,093)
============= ============= ============
Loss before extraordinary items
allocated to General Partner $ (12,703)$ (12,846)$ (14,665)
============= ============= ============
Loss before extraordinary items
allocated to Limited Partners $ (1,257,626)$ (1,271,758)$ (1,451,867)
============= ============= ============
Loss before extraordinary items
Per Limited Partnership
Interest (59,791 issued
and outstanding) $ (21.03)$ (21.27)$ (24.28)
============= ============= ============
Extraordinary items allocated
to General Partner $ (869) None $ 12,814
============= ============= ============
Extraordinary items allocated
to Limited Partners $ (86,003) None $ 1,268,625
============= ============= ============
Extraordinary items per Limited
Partnership Interest (59,791
issued and outstanding) $ (1.44) None $ 21.22
============= ============= ============
Net loss allocated to General
Partner $ (13,572)$ (12,846)$ (1,851)
============= ============= ============
Net loss allocated to Limited
Partners $ (1,343,629)$ (1,271,758)$ (183,242)
============= ============= ============
Net loss per Limited
Partnership Interest (59,791
issued and outstanding) $ (22.47)$ (21.27)$ (3.06)
============= ============= ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Operating activities:
Net loss $ (1,357,201)$ (1,284,604)$ (185,093)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Extraordinary gain on
forgiveness of debt (1,281,439)
Debt extinguishment expense 145,393
Affiliates' participation
in debt extinguishment
expense (58,521)
Affiliates' participation
in income (losses) from
joint ventures 132 (104,783) 8,786
Depreciation of properties 2,791,655 2,791,654 2,791,654
Amortization of deferred
expenses 117,694 150,206 156,921
Payment of insurance claim
expenditures (94,425)
Collection of insurance
proceeds 94,425 529,874
Net change in:
Escrow deposits (262,415) 127,029 (230,901)
Accounts and accrued
interest receivable 61,179 9,312 85,867
Prepaid expenses (229,129)
Accounts payable (50,354) (33,523) 3,068
Due to affiliates (45,644) (5,674) (9,167)
Accrued liabilities 160,196 43,222 (239,468)
Security deposits (19,490) 20,725 26,569
------------ ------------ ------------
Net cash provided by
operating activities 1,253,495 1,807,989 1,562,246
------------ ------------ ------------
Financing activities:
Distribution to Limited
Partners (149,478)
Capital contributions by joint
venture partner - affiliate 374,657 47,039 123,638
Distributions to joint venture
partner - affiliate (328,376) (131,556)
Issuance of mortgage notes
payable 20,932,600 24,010,000
Repayment of mortgage notes
payable (18,728,280) (24,950,147)
Principal payments on
mortgage notes payable (1,216,036) (1,221,262) (888,913)
Payment of deferred expenses (499,868) (392,399)
Funding of improvement escrows (1,604,551)
------------ ------------ ------------
Net cash used in financing
activities (1,219,332) (1,305,779) (2,097,821)
------------ ------------ ------------
Net change in cash and cash
equivalents 34,163 502,210 (535,575)
Cash and cash equivalents at
beginning of year 1,058,935 556,725 1,092,300
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 1,093,098 $ 1,058,935 $ 556,725
============ ============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership is
engaged principally in the operation of residential real estate located in
various markets within the United States.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense is computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation are based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership records its investments in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties by dividing the property's
expected net operating income by a risk adjusted rate of return which considers
economic and demographic conditions in the market. In the event the General
Partner determines an impairment in value has occurred, and the carrying amount
of the real estate asset will not be recovered, a provision is recorded to
reduce the carrying basis of the property to its estimated fair value. The
General Partner considers the method referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicate otherwise.
(d) Deferred expenses consist of financing fees which are amortized over the
terms of the respective loan agreements.
<PAGE>
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(f) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less.
(g) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(h) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(i) Reclassifications have been made to the previously reported 1994 and 1993
Financial Statements to conform with the classifications used in 1995. These
reclassifications have not changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized on October 1, 1984. The Partnership Agreement
provides for Balcor Partners-XIX to be the General Partner and for the
admission of Limited Partners through the sale of up to 250,000 Limited
Partnership Interests at $1,000 per Interest, 59,791 of which were sold on or
prior to July 31, 1986, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
1% of all profits and losses. One hundred percent of Net Cash Receipts
available for distribution will be distributed to the holders of Interests in
proportion to their Participating Percentages as of the record date for such
distributions. There will, however, be accrued for the benefit of the General
Partner as its distributive share from operations, an amount equivalent to
approximately 1% of the total Net Cash Receipts being distributed. The accrued
amount will be paid as a part of the General Partner's share of distributed Net
Cash Proceeds. Under certain circumstances, the General Partner may participate
in the Net Cash Proceeds of the sale or refinancing of Partnership properties.
The General Partner's participation is limited to 15% of remaining Net Cash
Proceeds after the return of Original Capital plus any deficiency in the
Cumulative Distribution of 6% on Adjusted Original Capital to the holders of
Interests.
<PAGE>
4. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1995 and 1994 consisted of the
following:
Carrying Carrying Current Final
Property Amount of Amount of In- Matur- Current Estimated
Pledged as Notes at Notes at terest ity Monthly Balloon
Collateral 12/31/95 12/31/94 Rate % Date Payment Payment
- -------------- ---------- ---------- -------- ------ ------- ----------
Apartment Complexes:
Brighton
Townhomes $7,069,078 $ 7,217,998 7.50% 1996 $45,112 $7,218,000
(A)
Cedar Crest 15,294,576 15,579,305 7.875 1998 123,717 14,293,000
Lakeside(D) 12,445,156 12,550,009
Lakeville
Resort 20,879,579 18,991,478 8.20 2030 151,727 None
(B)
Lake Ridge 4,241,100 4,269,113 10.05 2000 37,983 3,999,000
(C)
Pines of
Cloverlane(D) 14,267,090 14,600,392
----------- -----------
Total $74,196,579 $73,208,295
=========== ===========
(A) The lender also receives 70% of all net cash flow annually (as defined in
the loan agreement) which is applied as a reduction of the principal balance of
the loan with the Partnership retaining the remaining 30%. Additional interest,
calculated as 35% of the sales price, or the appraised value of the property
upon prepayment or refinancing, in excess of the outstanding principal balance
of the loan plus unpaid accrued interest, commissions and closing costs, will
also be payable to the lender upon the maturity of the loan, sale or
refinancing of the property.
(B) In June 1995, the mortgage note was refinanced with a new lender. The
interest rate decreased from a variable rate of approximately 10.4% to a fixed
rate of 8.2%. The maturity date was extended from April 1997 to July 2030 and
the monthly payment of principal and interest decreased from a variable payment
(of approximately $209,000) to a fixed payment of $151,727. A portion of the
proceeds from the new $20,932,600 first mortgage loan was used to repay the
existing mortgage note of $18,728,280 as well as pay deferred loan fees of
$499,868 and fund an improvement escrow of $1,604,551.
The Lakeville Resort Apartments is owned by a joint venture consisting of the
Partnership and an affiliate. In connection with this refinancing, the
Partnership recognized an extraordinary debt extinguishment expense of $145,393
relating to the full amortization of deferred loan fees on the former mortgage
note, of which $58,521 represents the affiliate's share.
<PAGE>
(C) These mortgage loans were refinanced in 1993. The original loan, which had
an outstanding balance of $6,339,368, including accrued interest of $429,555,
was repaid at a cost of $4,985,209 which, after netting the real estate tax
escrow balance of $72,720, represents a discount to the Partnership of
$1,281,439, which has been recognized as an extraordinary gain.
(D) These properties were sold in March 1996. The mortgage maturity amounts are
included in 1996 on the maturity schedule below. See Note 10 for additional
information.
The Partnership's loans described above require current monthly payments of
principal and interest, except for the Brighton Townhomes mortgage loan which
requires interest only payments.
Real estate with an aggregate carrying value of $60,037,583 at December 31,
1995 was pledged as collateral for repayment of mortgage loans.
Future annual maturities of the above mortgage notes payable during each of the
next five years are approximately as follows:
1996 $34,233,000
1997 490,000
1998 14,610,000
1999 186,000
2000 4,253,000
During 1995, 1994 and 1993, the Partnership incurred interest expense on
mortgage notes payable of $6,558,223, $6,287,058 and $6,739,733 and paid
interest expense of $6,558,223, $6,287,058 and $6,899,920, respectively.
5. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are
under management agreements with a third-party management company. These
management agreements provide for annual fees of 5% of gross operating
receipts.
6. Affiliates' Participations in Joint Ventures:
The Cedar Crest and Lakeville Resort apartment complexes are each owned by
the Partnership and an affiliate. Profits and losses are allocated 96.36%
to the Partnership and 3.64% to the affiliate for Cedar Crest Apartments,
and 59.75% to the Partnership and 40.25% to the affiliate for Lakeville
Resort Apartments. All assets, liabilities, income and expenses of the
joint ventures are included in the financial statements of the Partnership
with the appropriate adjustment to profit or loss for each affiliate's
participation. Net contributions (distributions) of $46,281, $(84,517),
and $123,638 were made to joint venture partners during 1995, 1994 and
1993, respectively.
<PAGE>
7. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder, and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net loss for 1995 in the financial statements is $582,807 less than the tax
loss of the Partnership for the same period.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees None None $734,296 None $789,204 $65,796
Reimbursement of expenses
to General Partner,
at cost:
Accounting $42,252 $2,280 60,490 $29,580 46,332 3,833
Data processing 28,190 2,113 44,397 10,161 28,828 4,601
Investor communica-
tions 5,112 None 12,506 6,116 10,558 873
Legal 27,962 2,944 12,847 6,283 15,602 1,291
Portfolio management 105,436 12,199 28,114 13,749 35,244 2,915
Property sales admin-
istration 11,838 9,169 None None None None
Other 10,960 118 17,542 8,578 12,453 832
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $97,161, $149,324, and $97,447 for 1995, 1994 and 1993,
respectively.
9. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
<PAGE>
Mortgage Notes Payable: Based on borrowing rates available to the Partnership
at the end of 1995 for mortgage loans with similar terms and maturities, the
fair value of the mortgage notes payable approximates the carrying value.
10. Subsequent Events:
(a) In January 1996, the Partnership paid $149,478 ($2.50 per Interest) to the
holders of Limited Partnership Interests for the fourth quarter of 1995.
(b) In March 1996, the Partnership sold the Pines of Cloverlane apartment
complex in an all cash sale for $18,974,000. From the proceeds of the sale, the
Partnership paid $14,208,240 to the third party mortgage holder in full
satisfaction of the first mortgage loan, as well as brokerage commissions and
other closing costs totaling $288,460. The basis of the property was
$12,369,952, net of accumulated depreciation of $10,441,365. The Partnership
will recognize a gain of $6,315,588 in its 1996 financial statements related to
this sale.
(c) In March 1996, the Partnership sold the Lakeside apartment complex in an
all cash sale for $14,100,000. From the proceeds of the sale, the Partnership
paid $12,894,356 to the third party mortgage holder in full satisfaction of the
first mortgage loan, as well as brokerage commissions and other closing costs
totaling $299,150. The amount paid to the mortgage holder includes the
outstanding principal balance of the loan and an additional $467,557 which is
equal to 50% of the net sale proceeds in excess of $12,654,000. The basis of
the property was $9,316,152, net of accumulated depreciation of $4,876,088. The
Partnership will recognize a gain of $4,484,698 in its 1996 financial
statements related to this sale.
(d) On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Partnership, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Partnership and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' actions; recovery from the defendants of all
profits received by them as a result of their actions relating to the Defendant
Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the defendants believes they
have meritorious defenses to contest the claims. It is not determinable at this
time whether or not an unfavorable decision in this action would have a
material adverse impact on the Partnership.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1995
<CAPTION>
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
------------------- ---------------------------------
Buildings Carrying
Encum- and Im- Improve- Costs Reduction
Description brances Land provements ments (a) of Basis
- --------------------- ------- -------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Brighton Townhomes,
232-unit complex in
Washington County, OR (d) $ 1,096,000 $ 7,916,500 $ 38,116 $ (148,970)(e)
Cedar Crest Apts.,
466-unit complex in
Overland Park, KS (d) 2,875,000 14,825,000 $429,206 500,986 (449,392)(e)
Lakeside Apts.,
416-unit complex in
Jacksonville, FL (i) (d) 2,086,922 11,981,203 124,115
Lakeville Resort Apts.,
492-unit complex in
Petaluma, CA (d) 2,900,000 20,471,320 31,925
Lake Ridge Apts.,
200-unit complex in
Fresno, CA (d) 1,177,569 6,518,958 17,995 (879,380)(g)
The Pines of Clover-
lane-Phases I and
II, 592-unit
complex in Pitts-
field Township, MI (i) (d) 1,195,665 21,554,362 19,772 41,518
----------- ----------- -------- -------- -----------
Total $11,331,156 $83,267,343 $448,978 $754,655 $(1,477,742)
=========== =========== ======== ======== ===========
</TABLE>
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1995
(Continued)
<CAPTION>
Col. A Col. E Col. F Col. G Col. H Col. I
- ------------------- --------------------------------- -------- -------- ------ --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
--------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (b) tion(c) struction uired is Computed
- ------------------- -------- ---------- ---------- --------- --------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brighton Townhomes,
232-unit complex in
Washington County, OR $1,082,501 $ 7,819,145 $ 8,901,646 $3,187,178 1986 11/86 (f)
Cedar Crest Apts.,
466-unit complex in
Overland Park, KS 2,817,501 15,363,299 18,180,800 5,928,429 1986 10/85 (f)
Lakeside Apts.,
416-unit complex in
Jacksonville, FL 2,089,440 12,102,800 14,192,240 4,815,514 1986 1/86 (f)
Lakeville Resort Apts.,
492-unit complex in
Petaluma, CA 2,903,958 20,499,287 23,403,245 7,789,020 1985 1/86 (f)
Lake Ridge Apts.,
200-unit complex in
Fresno, CA 1,045,776 5,789,366 6,835,142 2,277,987 1986 2/86 (f)
The Pines of Clover-
lane-Phases I and
II, 592-unit
complex in Pitts-
field Township, MI 1,197,847 21,613,470 22,811,317 10,288,679 (h) 4/86 (f)
----------- ----------- ----------- -----------
Total $11,137,023 $83,187,367 $94,324,390 $34,286,807
=========== =========== =========== ===========
</TABLE>
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A Real Estate Limited Partnership
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction period interest.
(b) The aggregate cost of land for Federal income tax purposes is $11,361,137
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $83,918,777. The total of these is $95,279,914.
(c) Reconciliation of Accumulated Depreciation
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
Balance at beginning of year $31,495,152 $28,703,498 $25,911,844
Depreciation expense for
the year 2,791,655 2,791,654 2,791,654
----------- ----------- -----------
Balance at end of year $34,286,807 $31,495,152 $28,703,498
=========== =========== ===========
(d) See description of Mortgage Notes Payable in Note 4 of Notes to Financial
Statements.
(e) Guaranteed income earned on properties under the terms of certain
management and guarantee agreements was recorded by the Partnership as a
reduction of the basis of the property to which the guaranteed income relates.
(f) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
(g) Lake Ridge Apartments had a reduction of basis due to an impairment of the
asset value in 1988.
(h) This property was constructed in two phases. Phase I was completed in 1975
and Phase II was completed in 1979.
(i) This property was sold in March 1996.
<PAGE>
FIRST AMENDMENT TO
AGREEMENT OF SALE
THIS FIRST AMENDMENT TO AGREEMENT OF SALE (this "Amendment"), is made as
of this 23rd day of February, 1996, by and between PINES OF CLOVERLANE
INVESTORS, an Illinois corporation ("Seller") and ERP OPERATING LIMITED
PARTNERSHIP, an Illinois limited partnership ("Purchaser)". All initially
capitalized terms used herein which are not otherwise defined herein shall have
the meanings ascribed to them in the Agreement (as such term is defined below).
RECITALS
---------------
A. Seller and Purchaser have entered into that certain Agreement of Sale,
dated January 24, 1996 (the "Agreement)") for the purchase and sale of certain
real property (the "Property") commonly known as "Pines of Cloverlane
Apartments" and located in Pittsfield Township, Michigan all as more
particularly described in the Purchase Agreement.
B. Purchaser and Seller desire to amend the Agreement for the purpose of
extending the Approval Period provided for in Paragraph 16.a. of the Agreement,
all in accordance with the terms of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller and Purchase agree as follows:
1. Extension of Approval Period. The Agreement is hereby amended to
extend the Approval Period provided for in Paragraph 16.a. of the Agreement
until 3:00 p.m. Central Daylight Time on Friday, March 1, 1996.
2. Closing Date. Paragraph 8 of the Agreement is hereby amended to
extend the Closing Date from March 7, 1996 to March 8, 1996.
3. Reaffirmation. Except as expressly amended and modified under this
Amendment, the terms and provisions of the Agreement are hereby ratified and
affirmed in their entirety.
4. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
5. Counterparts. This Amendment may be signed in any number of
counterparts each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
<PAGE>
In witness whereof, the parties have executed and delivered this Amendment
as of the date first written above.
SELLER:
PINES OF CLOVERLANE INVESTORS, an
Illinois limited partnership
By: Balcor Partners-XIX, an Illinois
general partnership, its general partner
By: The Balcor Company,
a Delaware Company,
a general partner
By: /s/ Phillip Schechter
------------------------
Its: Authorized Agent
PURCHASER:
ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Equity Residential Properties Trust,
a Maryland real estate investment trust,
its general partner
By: /s/Shelley Dunck
----------------------------------
Its: Assistant Vice President
<PAGE>
SECOND AMENDMENT TO
AGREEMENT OF SALE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE (this "Amendment"), is made as
of this 28th day of February, 1996, by and between PINES OF CLOVERLANE
INVESTORS, an Illinois corporation ("Seller") and ERP OPERATING LIMITED
PARTNERSHIP, an Illinois limited partnership ("Purchaser)". All initially
capitalized terms used herein which are not otherwise defined herein shall have
the meanings ascribed to them in the Agreement (as such term is defined below).
RECITALS
---------------
A. Seller and Purchaser have entered into that certain Agreement of Sale,
dated January 24, 1996, as amended by that certain First Amendment to Agreement
of Sale dated February 23, 1996 (as amended, the "Agreement") for the purchase
and sale of certain real property (the "Property") commonly known as "Pines of
Cloverlane Apartments" and located in Pittsfield Township, Michigan all as more
particularly described in the Purchase Agreement.
B. Purchaser and Seller desire to furhter amend the Agreement for the
purpose of extending the Approval Period provided for in Paragraph 16.a. of the
Agreement, all in accordance with the terms of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller and Purchase agree as follows:
1. Extension of Approval Period. The Agreement is hereby amended to
extend the Approval Period provided for in Paragraph 16.a. of the Agreement
until 5:00 p.m. Central Daylight Time on Tuesday, March 5, 1996.
2. Reaffirmation. Except as expressly amended and modified under this
Amendment, the terms and provisions of the Agreement are hereby ratified and
affirmed in their entirety.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
4. Counterparts. This Amendment may be signed in any number of
counterparts each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
<PAGE>
In witness whereof, the parties have executed and delivered this Amendment
as of the date first written above.
PURCHASER:
ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Equity Residential Properties Trust,
a Maryland real estate investment trust,
its general partner
By: /s/ Shelley Dunck
----------------------------------
Its: Assistant Vice President
SELLER:
PINES OF CLOVERLANE INVESTORS, an
Illinois limited partnership
By: Balcor Partners-XIX, an Illinois
general partnership, its general partner
By: The Balcor Company,
a Delaware Company,
a general partner
By: /s/ Phillip Schechter
------------------------
Its: Authorized Agent
<PAGE>
THIRD AMENDMENT TO
AGREEMENT OF SALE
THIS THIRD AMENDMENT TO AGREEMENT OF SALE (this "Amendment"), is made as
of this 5th day of March, 1996, by and between PINES OF CLOVERLANE INVESTORS,
an Illinois corporation ("Seller") and ERP OPERATING LIMITED PARTNERSHIP, an
Illinois limited partnership ("Purchaser)". All initially capitalized terms
used herein which are not otherwise defined herein shall have the meanings
ascribed to them in the Agreement (as such term is defined below).
RECITALS
---------------
A. Seller and Purchaser have entered into that certain Agreement of Sale,
dated January 24, 1996, as amended by that certain First Amendment to Agreement
of Sale dated February 23, 1996, as further amended by that certain Second
Amendment to Agreement of Sale dated February 28, 1996 (as amended, the
"Agreement") for the purchase and sale of certain real property (the
"Property") commonly known as "Pines of Cloverlane Apartments" and located in
Pittsfield Township, Michigan all as more particularly described in the
Purchase Agreement.
B. Purchaser and Seller desire to further amend the Agreement for the
purpose of (i) amending the Purchase Price, (ii) amending the Closing Date
provided for in Pargraph 8 of the Agreement and (iii) to agree to the terms of
an escrow to be deposited by Seller at Closing, all in accordance with the
terms of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller and Purchase agree as follows:
1. Amendment of Purchase Price. The Purchase Price referenced under
Paragraph 1 of the Agreement is hereby amended to read Eighteen Million Nine
Hundred Seventy-Four Thousand and No/100 Dollars ($18,974,000).
2. Amendment of Closing Date. The closing Date established in Paragraph
8 of the Agreement is hereby amended to read Tuesday, March 12, 1996.
3. Escrow Agreement. The Township of Pittsfield (the "Township") in
which the Property is located has passed Property Inspection Ordinance No. 194
and Property Maintenance Ordinance No. 195 (collectively, the _Inspection
Ordinances_) pursuant to which certain costs will be incurred by Purchaser upon
the Township's Inspection of the Property. Therefore, in connection with the
Inspection Ordinances Seller has agreed to deposit in escrow, at Closing, with
the Title Insurer, the amount of Three Hundred Thirty-Five Thousand and No/100
Dollars ($335,000) to cover all projected costs and to enter into an escrow
Agreement with Purchaser and the Title Insurer, such Escrow Agreement to be in
the form attached hereto as Exhibit A.
4. Reaffirmation. Except as expressly amended and modified under this
Amendment, the terms and provisions of the Agreement are hereby ratified and
affirmed in their entirety.
5. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
<PAGE>
6. Counterparts. This Amendment may be signed in any number of
counterparts each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
In witness whereof, the parties have executed and delivered this Amendment
as of the date first written above.
SELLER:
PINES OF CLOVERLANE INVESTORS, an
Illinois limited partnership
By: Balcor Partners-XIX, an Illinois
general partnership, its general partner
By: The Balcor Company,
a Delaware Company,
a general partner
By: /s/ Phillip Schechter
------------------------
Its: Authorized Agent
PURCHASER:
ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Equity Residential Properties Trust,
a Maryland real estate investment trust,
its general partner
By: /s/Shelley Dunck
----------------------------------
Its: Assistant Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1093
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3575
<PP&E> 94324
<DEPRECIATION> 34287
<TOTAL-ASSETS> 64231
<CURRENT-LIABILITIES> 899
<BONDS> 74197
0
0
<COMMON> 0
<OTHER-SE> (9580)
<TOTAL-LIABILITY-AND-EQUITY> 64231
<SALES> 0
<TOTAL-REVENUES> 16504
<CGS> 0
<TOTAL-COSTS> 7588
<OTHER-EXPENSES> 3628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6558
<INCOME-PRETAX> (1270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1270)
<DISCONTINUED> 0
<EXTRAORDINARY> (87)
<CHANGES> 0
<NET-INCOME> (1357)
<EPS-PRIMARY> (22.47)
<EPS-DILUTED> (22.47)
</TABLE>
