SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
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
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3327914
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
---------------
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
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<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 3,887,710 $ 1,093,098
Escrow deposits 2,620,961 2,246,696
Accounts and accrued interest receivable 43,103 5,857
Prepaid expenses 172,652 229,129
Deferred expenses, net of accumulated
amortization of $102,779 in 1996 and
$378,475 in 1995 568,724 619,028
-------------- --------------
7,293,150 4,193,808
-------------- --------------
Investment in real estate:
Land 6,767,234 11,137,023
Buildings and improvements 41,651,953 83,187,367
-------------- --------------
48,419,187 94,324,390
Less accumulated depreciation 16,962,671 34,286,807
-------------- --------------
Investment in real estate, net of
accumulated depreciation 31,456,516 60,037,583
-------------- --------------
$ 38,749,666 $ 64,231,391
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 52,344 $ 119,006
Due to affiliates 73,030 28,823
Accrued liabilities, principally
real estate taxes and interest 254,779 330,070
Security deposits 323,791 420,724
Mortgage notes payable 40,079,917 74,196,579
-------------- --------------
Total liabilities 40,783,861 75,095,202
Affiliates' participation in
joint ventures (1,469,324) (1,283,650)
Limited Partners' deficit
(59,791 Interests issued
and outstanding) (85,087) (8,962,989)
General Partner's deficit (479,784) (617,172)
-------------- --------------
Total partners' deficit (564,871) (9,580,161)
-------------- --------------
$ 38,749,666 $ 64,231,391
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
-------------- --------------
Income:
Rental and service $ 8,782,979 $ 12,241,703
Interest on short-term investments 79,005 63,902
-------------- --------------
Total income 8,861,984 12,305,605
-------------- --------------
Expenses:
Interest on mortgage notes payable 5,221,334 4,946,323
Depreciation 1,319,448 2,093,742
Amortization of deferred expenses 50,304 96,399
Property operating 3,121,336 3,909,489
Real estate taxes 625,757 983,502
Property management fees 457,112 608,953
Administrative 450,051 455,084
-------------- --------------
Total expenses 11,245,342 13,093,492
-------------- --------------
Loss before gain on sales of properties,
affiliates' participation in joint
ventures and extraordinary item (2,383,358) (787,887)
Gain on sales of properties 16,152,846
Affiliates' participation in (income)
loss from joint ventures (30,708) 15,509
-------------- --------------
Income (loss) before extraordinary item 13,738,780 (772,378)
Extraordinary item:
Debt extinguishment expense (145,393)
Affiliate's participation in
debt extinguishment expense 58,521
--------------
Total extraordinary item (86,872)
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Net income (loss) $ 13,738,780 $ (859,250)
============== ==============
Income (loss) before extraordinary item
allocated to General Partner $ 137,388 $ (7,724)
============== ==============
Income (loss) before extraordinary item
allocated to Limited Partners $ 13,601,392 $ (764,654)
============== ==============
Income (loss) before extraordinary item
Per Limited Partnership Interest
(59,791 issued and outstanding) $ 227.48 $ (12.79)
============== ==============
Extraordinary item allocated
to General Partner None $ (869)
============== ==============
<PAGE>
Extraordinary item allocated
to Limited Partners None $ (86,003)
============== ==============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) None $ (1.44)
============== ==============
Net income (loss) allocated to
General Partner $ 137,388 $ (8,593)
============== ==============
Net income (loss) allocated to
Limited Partners $ 13,601,392 $ (850,657)
============== ==============
Net income (loss) per Limited
Partnership Interest (59,791
issued and outstanding) $ 227.48 $ (14.23)
============== ==============
Distributions to Limited Partners $ 4,723,490 None
============== ==============
Distributions per Limited Partnership
Interest $ 79.00 None
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
-------------- --------------
Income:
Rental and service $ 2,363,414 $ 4,126,592
Interest on short-term investments 29,719 27,596
-------------- --------------
Total income 2,393,133 4,154,188
-------------- --------------
Expenses:
Interest on mortgage notes payable 2,294,159 1,591,943
Depreciation 350,141 697,914
Amortization of deferred expenses 13,145 21,296
Property operating 881,999 1,540,105
Real estate taxes 160,459 307,246
Property management fees 118,107 204,080
Administrative 136,307 133,237
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Total expenses 3,954,317 4,495,821
-------------- --------------
Loss before gain on sale of property, and
affiliates' participation in joint
ventures (1,561,184) (341,633)
Gain on sale of property 5,352,560
Affiliates' participation in (income)
loss from joint ventures (1,292) 2,484
-------------- --------------
Net income (loss) $ 3,790,084 $ (339,149)
============== ==============
Net income (loss) allocated to
General Partner $ 37,901 $ (3,392)
============== ==============
Net income (loss) allocated to
Limited Partners $ 3,752,183 $ (335,757)
============== ==============
Net income (loss) per Limited
Partnership Interest (59,791
issued and outstanding) $ 62.75 $ (5.62)
============== ==============
Distribution to Limited Partners $ 149,478 None
============== ==============
Distribution per Limited Partnership
Interest $ 2.50 None
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
-------------- --------------
Operating activities:
Net income (loss) $ 13,738,780 $ (859,250)
Adjustments to reconcile net income
(loss) to net cash (used in) or
provided by operating activities:
Gain on sales of properties (16,152,846)
Debt extinguishment expense 145,393
Affiliates' participation in debt
extinguishment expense (58,521)
Affiliates' participation in income
(loss) from joint ventures 30,708 (15,509)
Depreciation of properties 1,319,448 2,093,742
Amortization of deferred expenses 50,304 96,399
Net change in:
Escrow deposits (39,265) (392,483)
Accounts and accrued interest
receivable (37,246) 31,633
Prepaid expenses 56,477 (484,054)
Accounts payable (66,662) 11,235
Due to affiliates 44,207 (47,761)
Accrued liabilities (75,291) 302,680
Security deposits (96,933) (21,585)
-------------- --------------
Net cash (used in) or provided by
operating activities (1,228,319) 801,919
-------------- --------------
Investing activities:
Proceeds from sales of properties 44,224,000
Payment of selling costs (809,535)
Funding of escrow in connection
with sale of property (335,000)
--------------
Net cash provided by investing
activities 43,079,465
--------------
Financing activities:
Capital contribution by joint venture
partner - affiliate 361,175
Distributions to joint venture
partner - affiliate (216,382) (328,376)
Distributions to Limited Partners (4,723,490)
Principal payments on mortgage notes
payable (622,979) (995,181)
Issuance of mortgage note payable 20,932,600
Repayment of mortgage notes payable (33,493,683) (18,728,280)
Payment of deferred expenses (499,868)
Funding of improvement escrow (1,604,551)
<PAGE>
-------------- --------------
Net cash used in financing activities (39,056,534) (862,481)
-------------- --------------
Net change in cash and cash equivalents 2,794,612 (60,562)
Cash and cash equivalents at beginning
of period 1,093,098 1,058,935
-------------- --------------
Cash and cash equivalents at end of
period $ 3,887,710 $ 998,373
============== ==============
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. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the nine months and quarter
ended September 30, 1996, and all such adjustments are of a normal and
recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1996 and 1995, the Partnership
incurred and paid interest expense on mortgage notes payable of $5,221,334 and
$4,946,323, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1996 are:
Paid
-----------------------
Nine Months Quarter Payable
------------ --------- ----------
Reimbursement of expenses to
the General Partner, at cost $87,528 $19,692 $73,030
4. Property Sales:
(a) In March 1996, the Partnership sold the Pines of Cloverlane Apartments 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, and paid $288,460 in selling costs.
The Partnership also funded an escrow of $335,000 required in connection with
the sale. The basis of the property was $12,369,952, which is net of
accumulated depreciation of $10,441,365. For financial statement purposes, the
Partnership recognized a gain of $6,315,588 from the sale of this property.
(b) In March 1996, the Partnership sold the Lakeside Apartments 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, and paid $299,150 in selling costs. The amount paid to the
mortgage holder includes the outstanding principal balance of the loan and
additional interest expense of $467,557 as required by the loan documents,
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, which is net of accumulated depreciation
of $4,876,088. For financial statement purposes, the Partnership recognized a
gain of $4,484,698 from the sale of this property.
<PAGE>
(c) In August 1996, the Partnership sold the Brighton Townhomes Apartments in
an all cash sale for $11,150,000. From the proceeds of the sale, the
Partnership paid $8,235,800 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $221,925 in selling costs.
The amount paid to the mortgage holder includes the outstanding principal
balance of the loan and additional interest expense of $1,377,156 as required
by the loan documents, which is equal to 35% of the sales price less the
principal balance of the loan and certain selling costs. The basis of the
property was $5,575,515, which is net of accumulated depreciation of
$3,326,131. For financial statement purposes, the Partnership recognized a gain
of $5,352,560 from the sale of this property.
5. Subsequent Events:
(a) In October 1996, the Partnership paid $2,391,640 ($40.00 per Interest) to
the holders of Limited Partnership Interests representing a special
distribution of a significant portion of the Net Cash Proceeds received from
the sale of Brighton Townhomes Apartments.
(b) The Lakeville Resort Apartments was owned by a joint venture consisting of
the Partnership and an affiliate. The Partnership and the affiliate hold
participating percentages in the joint venture of 59.75% and 40.25%,
respectively. In October 1996, the joint venture sold the property in an all
cash sale for $27,200,000. The purchaser took title subject to the existing
first mortgage loan in the amount of $20,795,872. From the proceeds of the
sale, the joint venture paid $355,000 in selling costs. For financial statement
purposes, the Partnership will recognize a gain during the fourth quarter of
1996 of approximately $11,800,000 from the sale of this property, of which
approximately $4,700,000 is the minority joint venture partner's share.
(c) The Cedar Crest Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The Partnership and the affiliate hold
participating percentages in the joint venture of 96.36% and 3.64%,
respectively. In November 1996, the joint venture sold the property in an all
cash sale for $21,550,000. From the proceeds of the sale, the joint venture
paid $14,851,661 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $416,239 in selling costs. For financial
statement purposes, the Partnership will recognize a gain during the fourth
quarter of 1996 of approximately $9,300,000 from the sale of this property, of
which approximately $340,000 is the minority joint venture partner's share.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to invest in and operate
income-producing real property. The Partnership raised $59,791,000 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
eight real property investments and a minority joint venture interest in one
additional real property. Prior to 1996, title to two of these properties and
the property in which the Partnership held a minority joint venture interest
were relinquished through foreclosure. During the nine months ended September
30, 1996, the Partnership sold three properties. In addition, the Partnership
sold two properties in October and November 1996. The Partnership, while
continuing to operate the Lake Ridge Apartments, has entered into a contract to
sell this property during the fourth quarter of 1996.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The Partnership sold two properties in March 1996 and one property in August
1996. Additional interest payments made to the lenders in connection with two
property sales resulted in an increase in net loss before gain on sales of
properties during the nine months and quarter ended September 30, 1996 as
compared to the same periods in 1995. As a result of the gains recognized on
these sales, the Partnership generated net income during the nine months and
quarter ended September 30, 1996 as compared to a net loss for the same periods
in 1995. Further discussion of the Partnership's operations is summarized
below.
1996 Compared to 1995
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the nine months and quarters ended September 30, 1996 and 1995.
The Partnership sold the Pines of Cloverlane and Lakeside apartment complexes
in March 1996 and Brighton Townhomes Apartments in August 1996. As a result,
the Partnership recognized gains totaling $16,152,846 during 1996. These sales
also resulted in decreases in rental and service income, depreciation,
amortization of deferred expenses, property operating, real estate taxes and
property management fees during 1996 as compared to 1995.
<PAGE>
Higher average cash balances due to the investment of the proceeds from the
property sales prior to distribution to Limited Partners in July and October
1996, resulted in an increase in interest income on short-term investments
during 1996 as compared to 1995.
Interest expense on mortgage notes payable increased during 1996 as compared to
1995 due to additional interest payments made to the lenders, in connection
with sales of the Lakeside and Brighton Townhomes apartment complexes, as
required by the loan documents. The increase was partially offset by the 1996
property sales and lower interest expense at the Lakeville Resort Apartments
due to the 1995 loan refinancing at a lower interest rate.
The amortization of deferred loan fees on the Lakeville Resort Apartments
mortgage note is lower than the amortization related to the former mortgage
note, which contributed to the decrease in amortization expense for the nine
months ended September 30, 1996 as compared to the same period in 1995.
Legal fees incurred in 1995 resulted in a decrease in administrative expenses
during the nine months ended September 30, 1996 as compared to the same period
in 1995. Increased professional fees related to property sales and increased
printing and postage costs related to the Partnership's response to a tender
offer during 1996, partially offset this decrease and resulted in an increase
in administrative expenses for the quarter ended September 30, 1996 as compared
to the same period in 1995.
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. In connection with the transaction, the Partnership
recognized an extraordinary debt extinguishment expense of $145,393 in 1995
relating to the full amortization of deferred loan fees on the former mortgage
note, of which $58,521 represents the affiliate's share. In addition, higher
rental rates and lower interest expense and amortization expense at the
Lakeville Resort Apartments due to the June 1995 refinancing, resulted in
affiliates' participation in income from joint ventures during 1996 as compared
to affiliates' participation in loss from joint ventures during 1995.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Partnership's cash position increased by approximately $2,795,000 as of
September 30, 1996 when compared to December 31, 1995 primarily due to the
sales of three properties. The Partnership used cash of approximately
$1,228,000 in its operating activities which consisted primarily of operating
cash flow from the properties which was offset by the payment of approximately
$1,845,000 of additional interest expense relating to the sales of Lakeside and
Brighton Townhomes apartment complexes as well as administrative expenses. Cash
provided by investing activities of approximately $43,079,000 consisted of
proceeds received from the sales of properties net of closing costs and the
funding of an escrow required in connection with the sale of Pines of
Cloverlane Apartments. Cash used in financing activities of approximately
$39,057,000 consisted of the repayment of mortgage notes payable in the amount
of approximately $33,494,000, principal payments on mortgage notes payable,
distributions to Limited Partners in the amount of approximately $4,723,000,
and distributions to the joint venture partner - affiliate.
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 the nine
months ended September 30, 1996 and 1995, the Partnership's three remaining
properties generated positive cash flow. The Lakeside Apartments was sold in
March 1996 and generated a significant cash flow deficit prior to its sale in
1996 as compared to a marginal cash flow deficit in 1995. The Pines of
Cloverlane Apartments was sold in March 1996 and generated a significant cash
flow deficit prior to its sale in 1996 as compared to positive cash flow in
1995. The Brighton Townhomes was sold in August 1996 and generated positive
cash flow prior to its sale in 1996 and in 1995. As of September 30, 1996, the
occupancy rates of the Partnership's three remaining properties ranged from 92%
to 98%.
The Partnership's remaining property is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by the loan, which matures in 2000. The
Partnership has entered into a contract to sell this property.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties and has accelerated the
Partnership's liquidation strategy. During 1996, the Partnership sold the
Brighton Townhomes, Cedar Crest, Lakeside, Lakeville Resort, and Pines of
Cloverlane apartment complexes. Currently, the Partnership has entered into a
contract to sell the Lake Ridge Apartments, the Partnership's remaining
property, for a sale price of $5,400,000.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. Such contingencies may include legal and other fees
stemming from litigation involving the Partnership. In the absence of any
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held by
the Partnership for a longer period of time.
<PAGE>
In March 1996, the Partnership sold the Pines of Cloverlane Apartments in 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, paid $288,460 in selling costs and also funded an escrow
of $335,000 required in connection with the sale. The majority of the proceeds
were distributed as a special distribution to the Limited Partners in April
1996. See Note 4(a) of Notes to Financial Statements for additional
information.
In March 1996, the Partnership sold the Lakeside Apartments 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 and paid $299,150 in selling costs. The amount paid to the
mortgage holder includes the outstanding principal balance of the loan and
additional interest expense of $467,557, as required by the loan documents. The
majority of the proceeds were distributed as a special distribution to the
Limited Partners in April 1996. See Note 4(b) of Notes to Financial Statements
for additional information.
In August 1996, the Partnership sold the Brighton Townhomes Apartments in an
all cash sale for $11,150,000. From the proceeds of the sale, the Partnership
paid $8,235,800 to the third party mortgage holder in full satisfaction of the
first mortgage loan and paid $221,925 in selling costs. The amount paid to the
mortgage holder includes the outstanding principal balance of the loan and
additional interest expense of $1,377,156, as required by the loan documents.
The majority of the proceeds were distributed as a special distribution to the
Limited Partners in October 1996. See Notes 4(c) of Notes to Financial
Statements for additional information.
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In October 1996, the joint venture sold the
property in an all cash sale for $27,200,000. The purchaser took title subject
to the existing first mortgage loan in the amount of $20,795,872. From the
proceeds of the sale, the joint venture paid $355,000 in selling costs. The net
proceeds of the sale were approximately $6,049,000, of which approximately
$3,614,000 was the Partnership's share. Pursuant to the terms of the sale,
$500,000 of the proceeds will be retained by the joint venture until February
1997. The remaining proceeds received by the joint venture are expected to be
distributed to the Limited Partners in January 1997. See Note 5(b) of Notes to
Financial Statements for additional information.
The Cedar Crest Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In November 1996, the joint venture sold the
property in an all cash sale for $21,550,000. From the proceeds of the sale,
the joint venture paid $14,851,661 to the third party mortgage holder in full
satisfaction of the first mortgage loan and paid $416,239 in selling costs. The
net proceeds of the sale were approximately $6,282,000, of which approximately
$6,053,000 was the Partnership's share. Pursuant to the terms of the sale,
$500,000 of the proceeds will be retained by the joint venture until March
1997. The remaining proceeds received by the joint venture will be distributed
to the Limited Partners in January 1997. See Note 5(c) of Notes to Financial
Statements for additional information.
<PAGE>
During October 1996, the Partnership made a special distribution of Net Cash
Proceeds of $2,391,640 ($40.00 Per Interest) to the holders of Limited
Partnership Interests. The special distribution was made primarily from Net
Cash Proceeds received from the sale of the Brighton Townhomes Apartments. To
date, including the October 1996 distribution, Limited Partners have received
cumulative distributions of Net Cash Receipts of $7.50 per $1,000 Interest and
Net Cash Proceeds of $114.00 per $1,000 Interest, totaling $121.50 per $1,000
Interest, as well as certain tax benefits. As the properties are sold, the
Partnership will distribute the proceeds to investors. In light of results to
date and current market conditions, the General Partner does not anticipate
that investors will recover a substantial portion of their original investment.
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
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Proposed Class Action
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., (Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Partnership, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Partnership and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended 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; equitable
relief, including rescission, on certain counts; punitive damages; treble
damages on certain counts; recovery from the defendants of all profits received
by them as a result of their actions relating to the Defendant Partnerships;
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>
Item 5. Other Information
- --------------------------
Lakeville Resort Apartments
- ---------------------------
As previously reported, on April 23, 1996, a joint venture consisting of the
Partnership and an affiliate (the "Joint Venture") which owns Lakeville Resort
Apartments, Petaluma, California, contracted to sell the property to an
unaffiliated party, ERP Operating Limited Partnership, an Illinois limited
partnership, for a sale price of $27,200,000. The closing date was extended and
the sale closed on October 31, 1996. The purchaser assumed the first mortgage
loan which had an outstanding principal balance of $20,795,872 at closing. From
the proceeds of the sale, the Joint Venture paid legal fees of approximately
$15,000, $136,000 to an unaffiliated party as a brokerage commission and
$204,000 to an affiliate of the third party providing property management
services for the property for services rendered in connection with the sale of
the property. The Joint Venture received approximately $6,049,000 of remaining
proceeds. Of such amount, $500,000 is being retained by the Joint Venture and
will not be available for use or distribution by the Joint Venture until
February 1997. The Partnership_s share of the total proceeds is $3,614,000.
Cedar Crest Apartments
- ----------------------
As previously reported, the limited partnership (the "Limited Partnership") in
which the Partnership and an affiliate of the General Partner are limited
partners and which owns the Cedar Crest Apartments, Overland Park, Kansas,
contracted to sell the property to ERP Operating Limited Partnership, an
Illinois limited partnership, for a sale price of $21,550,000. The sale closed
on November 1, 1996. From the proceeds of the sale, the Limited Partnership
repaid the outstanding balance of the first mortgage loan of $14,851,661 and
also paid $215,500 to an unaffiliated party as a brokerage commission, $161,625
to an affiliate of the third party providing property management services for
the property for services rendered in connection with the sale of the property
and $39,114 in closing costs. The Limited Partnership received approximately
$6,282,000 in remaining proceeds. Of such proceeds, $500,000 will be retained
by the Limited Partnership and will not be available for use or distribution by
the Limited Partnership until March 1997. The Partnership_s share of the total
proceeds is approximately $6,053,000.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(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:
(a)(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, Second and Third Amendments to Agreement of Sale relating to the
sale of Pines of Cloverlane Apartments previously filed as Exhibits (10)(ii),
(10)(iii) and (10)(iv), respectively, to the Registrant's Report on Form 10-K
for the year ended December 31, 1995 is incorporated herein by reference.
(b)(i) 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.
(c)(i) The Agreement of Sale and attachment thereto relating to the sale of
Lakeville Resort Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated April 23, 1996 is incorporated herein by
reference.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Lakeville Resort Apartments, Petaluma, California, previously filed as Exhibit
(10)(c)(ii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iii) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated herein by reference.
(iv) Letter Agreements dated May 22, 1996 and July 8,1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iv) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated by reference.
(v) Letter Agreements dated August 20, 1996, September 19, 1996 and September
30, 1996 relating to the sale of Lakeville Resort Apartments, Petaluma,
California, previously filed as Exhibit (99)(a) to the Registrant's Report on
Form 8-K dated August 16, 1996 are incorporated herein by reference.
(d)(i) The Agreement of Sale relating to the sale of Brighton Townhomes
Apartments previously filed as Exhibit (10)(v) to the Registrant's Report on
Form 10-Q for the quarter ending March 31, 1996 is incorporated herein by
reference.
<PAGE>
(ii) First Amendment to Agreement of Sale and Escrow Agreement dated May 31,
1996 relating to the sale of Brighton Townhomes, Washington County, Oregon,
previously filed as Exhibit (10)(d)(ii) to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996 is incorporated herein by reference.
(iii) Letter of Termination dated June 12, 1996 relating to the sale of
Brighton Townhomes, Washington County, Oregon, previously filed as Exhibit
(10)(d)(iii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iv) Reinstatement and Second Amendment to Agreement of Sale and Escrow
Agreement dated June 13, 1996 relating to the sale of Brighton Townhomes,
Washington County, Oregon, previously filed as Exhibit (10)(d)(iv) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated herein by reference.
(v) Letter of Extension dated July 8, 1996 relating to the sale of Brighton
Townhomes, Washington County, Oregon, previously filed as Exhibit (10)(d)(v) to
the Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated herein by reference.
e) Agreement of Sale and attachment thereto relating to the sale of Cedar Crest
Apartments, Overland Park, Kansas, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated August 16, 1996 is incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1996 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated August 16, 1996
was filed reporting the contracts to sell the Cedar Crest Apartments, Overland
Park, Kansas and Lake Ridge Apartments, Fresno, California, the closing of the
sale of Brighton Townhomes, Washington County, Oregon and the extension of the
closing of the sale of Lakeville Resort Apartments, Petaluma, California.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
--------------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Partners-XIX, the General Partner
By: /s/Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Vice President, and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Partners-XIX, the General Partner
Date: November 14, 1996
------------------------
<PAGE>
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