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, 1998
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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 Road
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
-----------------------------
(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
- ----------------
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 has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
real property and has since disposed of all of these investments. The
Partnership Agreement provides that the proceeds of any sale or refinancing of
the Registrant's properties will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Registrant sold its final real estate investment in January
1997. The Registrant has retained a portion of the cash from the property sales
to satisfy obligations of the Registrant as well as establish a reserve for
contingencies. The timing of the termination of the Registrant 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 and costs stemming from litigation involving the Registrant
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings." Due to this litigation, the Registrant will not be dissolved and
reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurance as to the time frame for the
conclusion of these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by 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.
Item 2. Properties
- ------------------
As of December 31, 1998, the Registrant did not own any properties.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Klein, et al. vs. Lehman Brothers, Inc., et al.
- -----------------------------------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors, and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third 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 Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged 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 alleged actions relating to the Affiliated Partnerships;
attorneys' fees and other costs.
In June 1998, the defendants filed a motion to dismiss the complaint for
failure to state a cause of action. Oral arguments were heard by the court on
August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendants' motion to dismiss the complaint. On October 23, 1998,
the judge announced that he would enter an order dismissing the complaint
without prejudice, but stated that the plaintiffs would be required to file any
new pleading in a separate action and would not be allowed to amend the
existing complaint. The plaintiffs moved for a reconsideration of the judge's
ruling, which was denied on November 20, 1998. On December 28, 1998, plaintiffs
filed a notice of appeal from both the judge's October 23 and November 20, 1998
rulings.
On March 11, 1999, an order was entered by the Superior Court of New Jersey,
Appellate Division, dismissing the appeal in this action with prejudice.
Therefore, this will be this final report to investors regarding this matter.
<PAGE>
Masri vs. Lehman Brothers, Inc., et al.
- ---------------------------------------
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, 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' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged 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. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time how the outcome of
this action will impact the remaining cash reserves of the Registrant.
Plaintiffs' lead counsel also represents the plaintiffs in the Lenore Klein
matter discussed above. Plaintiffs' counsel has indicated an intent to withdraw
this complaint. Raymond Masri has joined as an additional plaintiff in the
Lenore Klein matter discussed above.
Bruss et al. vs. Lehman Brothers, Inc., et al.
- ----------------------------------------------
On January 25, 1999, a proposed class action complaint was filed, Dorothy
Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-000898-99). The Registrant,
additional limited partnerships which were sponsored by The Balcor Company
(together with the Registrant, the "Affiliated Partnerships"), The Balcor
Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc.,
American Express Financial Corporation, and other affiliated entities and
various individuals are named defendants in the action. Lead counsel
representing the plaintiffs in this case is the same counsel representing the
plaintiffs in each of the Lenore Klein and Raymond Masri cases discussed above.
The complaint relates largely to the same issues as those raised in the Lenore
Klein and the Raymond Masri cases. The 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 and other similar
state statutes relating to the disclosure of information in the offering of
limited partnership interests in the Affiliated Partnerships, the marketing of
interests in the Affiliated Partnerships and the acquisition of real property
for the Affiliated Partnerships. The complaint seeks judgement for
<PAGE>
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged 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 alleged actions relating to the Affiliated Partnerships; and
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes that it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of 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 1998.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
- -------
There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
As of December 31, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 5,033.
Item 6. Selected Financial Data
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Year ended December 31, 1998
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1998 1997 1996 1995 1994
----------- ----------- ---------- ----------- ------------
Total income $87,854 $196,047 $9,793,385 $16,504,017 $16,104,170
Loss before gain
on sales of
properties,
affiliates
participation in
joint ventures and
extraordinary
items (118,276) (270,825)(2,556,051) (1,270,197) (1,284,604)
Net (loss) income (118,276) 396,165 29,092,474 (1,357,201) (1,284,604)
Net (loss) income
per Limited
Partnership
Interest- Basic
and Diluted (1.98) 6.47 481.70 (22.47) (21.27)
Total assets 1,887,220 2,260,714 17,991,055 64,231,391 64,717,186
Mortgage notes
payable None None 4,210,138 74,196,579 73,208,295
Distributions
per Limited
Partnership
Interest (A) 4.24 177.50 119.00 2.50 None
(A) These amounts include distributions of Original Capital of $4.24, $172.50,
and $114.00 per Limited Partnership Interest during 1998, 1997 and 1996,
respectively.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
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Operations
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Summary of Operations
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Balcor Realty Investors 86 - Series I A Real Estate Limited Partnership (the
"Partnership") sold five properties during 1996 and its remaining property
during 1997. The Partnership recognized gains in 1997 and 1996 in connection
with the sales. During 1998, administrative and property operating expenses
were higher than interest earned on short-term investments, which resulted in a
net loss during 1998 as compared to net income during 1997. The gain related to
the 1997 property sale was significantly lower than the total gains related to
the five 1996 property sales. As a result, the Partnership recognized lower net
income during 1997 as compared to 1996. Further discussion of the Partnership's
operations is summarized below.
1998 Compared to 1997
- ---------------------
The Partnership sold the Lake Ridge Apartments during January 1997 and
recognized a gain of $828,751 in connection with the property sale. As a result
of this sale, rental and service income, interest expense on mortgage notes
payable, depreciation, amortization, real estate taxes and property management
fees ceased during 1997.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the sale of the Lake Ridge Apartments
prior to distribution to Limited Partners in April 1997. This resulted in a
decrease in interest income on short-term investments during 1998 as compared
to 1997.
The Partnership recognized other income during 1997 primarily in connection
with a partial refund of prior years' insurance premiums relating to the
Partnership's properties.
Property operating expense decreased in 1997 due to the sale of the
Partnership's remaining property. The Partnership paid additional expenditures
during 1997 and 1998 relating to certain of the properties sold in prior years.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account to provide for certain costs the
purchaser might incur at the property related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 out of the escrow funds to cover such costs. The Partnership
recognized these payments as other expense in 1997. No additional
reimbursements were made in 1998.
<PAGE>
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as an extraordinary item for
financial statement purposes during 1997.
1997 Compared to 1996
- ---------------------
The Partnership sold the Lake Ridge Apartments during 1997 and sold the Pines
of Cloverlane, Lakeside, Brighton Townhomes, Lakeville and Cedar Crest
apartment complexes during 1996. As a result, rental and service income,
interest expense on mortgage notes payable, depreciation, amortization of
deferred expenses, property operating expense, real estate taxes and property
management fees decreased during 1997 as compared to 1996. The Partnership
recognized gains in connection with the 1997 and 1996 sales totaling $828,751
and $37,198,777, respectively.
Interest income on short-term investments decreased in 1997 as compared to 1996
due to higher average cash balances in 1996 resulting from the investment of
sales proceeds prior to distribution to Limited Partners.
The Partnership paid to the lenders participation fees of $467,557 and
$1,377,156 in connection with the 1996 sales of the Lakeside and Brighton
Townhomes apartment complexes, respectively. The lender participations
represent additional interest paid to the lenders calculated as a percentage of
the sales price in excess of amounts specified in the loan agreements.
Administrative expenses decreased in 1997 as compared to 1996 primarily due to
lower legal and portfolio management fees. Additional consulting, printing and
postage costs incurred in 1996 in connection with a response to a tender offer
also contributed to the decreases in 1997.
The Lakeville and Cedar Crest apartment complexes were owned through joint
ventures with affiliates. As a result of the sales, affiliates' participation
in income from joint venture ceased in 1996. The Partnership's participation in
1996 includes its share of the gains on the sales.
In connection with the sales of the Pines of Cloverlane, Cedar Crest and
Lakeville Resort apartment complexes in 1996, the Partnership wrote-off the
remaining unamortized deferred financing fees of $531,135, of which $195,204
represents the affiliates' share from the Cedar Crest and Lakeville Resort
apartment complexes. These amounts were recognized as debt extinguishment
expenses and classified as extraordinary items for financial statement
purposes.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership as of December 31, 1998 decreased by
approximately $367,000 as compared to December 31, 1997 primarily due to the
<PAGE>
payment of a distribution to Limited Partners in January 1998 from remaining
available Net Cash Proceeds. The Partnership used cash of approximately
$114,000 for its operating activities to pay administrative and property
operating expenses related to a sold property which was partially offset by
interest income earned on short-term investments. The Partnership used cash to
fund its financing activities which consisted of a distribution of
approximately $254,000 to Limited Partners.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in January
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. 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 and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings." Due to this litigation, the Partnership will not be dissolved and
reserves will be held by the Partnership until the conclusion of all
contingencies. There can be no assurance as to the time frame for the
conclusion of these contingencies.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account of $335,000 to provide for certain
costs the purchaser might incur related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 to date out of the escrow funds to cover such costs. The
additional escrow funds are available to cover future inspections through March
2002. Any funds remaining in the escrow at that time will be released to the
Partnership.
The Partnership made distributions in 1998, 1997 and 1996 totaling $4.24,
$177.50 and $119.00 per Limited Partnership Interest, respectively. See
Statement of Partners' Capital (Deficit) for additional information.
Distributions were comprised of $4.24 per Interest of Net Cash Proceeds in
1998, $5.00 per Interest of Net Cash Receipts and $172.50 per Interest of Net
Cash Proceeds in 1997 and $5.00 per Interest of Net Cash Receipts and $114.00
per Interest of Net Cash Proceeds in 1996.
Limited Partners have received distributions of Net Cash Receipts of $12.50 and
Net Cash Proceeds of $290.74, totaling $303.24 per $1,000 Interest, as well as
certain tax benefits. No additional distributions are anticipated to be made
prior to the termination of the Partnership. However, after paying final
partnership expenses, any remaining cash reserves will be distributed. Limited
Partners will not recover a substantial portion of their original investment.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
<PAGE>
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements 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:
<PAGE>
December 31, 1998 December 31, 1997
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $1,887,220 $9,375,456 $2,260,714 $9,805,387
Partners' capital
(deficit) accounts:
General Partner (316,961) (314,401) (316,961) (316,961)
Limited Partners 2,125,413 9,612,436 2,497,404 10,091,535
Net (loss) income:
General Partner None 2,560 9,286 (312,031)
Limited Partners (118,276) (225,384) 386,879 1,286,106
Per Limited Part-
nership Interest (1.98)(A) 3.77 6.47(A) 21.51
(A) Amount represents basic and diluted net (loss) income per Limited
Partnership Interest.
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 Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) 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 member of the board of directors 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.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
<PAGE>
(d) There is no family relationship between any of the foregoing officers.
(e) 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 1998.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive 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 9 of Notes to Financial Statements for
information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ---------------- ---------------- ----------------
Limited WIG 86-I 1,996 3.34%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 1,526 2.55%
Partnership Acquisition VII, L.L.C. Limited
Interests Greenville, Partnership
South Carolina Interests
While WIG 86-I Partners and Metropolitan Acquisition VII, L.L.C. individually
own less than 5% of the Interests, for purposes of this Item 12, WIG 86-I
Partners is an affiliate of Metropolitan Acquisition VII, L.L.C. and,
collectively, they own 5.89% of the Interests.
(b) Balcor Partners-XIX and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 209 Interests Less than 1%
Relatives of the officers and affiliates of the General Partner do not own any
Limited Partnership Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 53 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 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 and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements 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 Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992 are incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1998.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Jayne A. Kosik
-------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners-XIX, the
General Partner
Date: March 19, 1999
---------------
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 19, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer) of
Balcor Partners-XIX,
/s/ Jayne A. Kosik the General Partner March 19, 1999
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital (Deficit), for the years ended December 31,
1998, 1997 and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules 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:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital (deficit), of income and expenses and of cash flows present
fairly, in all material respects, the financial position of Balcor Realty
Investors 86 - Series I A Real Estate Limited Partnership (An Illinois Limited
Partnership, the "Partnership") at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 13 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
------------- -------------
Cash and cash equivalents $ 1,605,485 $ 1,972,846
Escrow deposits 274,906 274,906
Accounts and accrued interest receivable 6,829 12,962
------------- -------------
$ 1,887,220 $ 2,260,714
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 58,395 $ 52,096
Due to affiliates 20,373 28,175
------------- -------------
Total liabilities 78,768 80,271
------------- -------------
Commitments and contingencies
Limited Partners' capital (59,791
Interests issued and outstanding) 2,125,413 2,497,404
General Partner's deficit (316,961) (316,961)
------------- -------------
Total partners' capital 1,808,452 2,180,443
------------- -------------
$ 1,887,220 $ 2,260,714
============= =============
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' CAPITAL (DEFICIT)
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
--------------- -------------- ---------------
General Limited
Total Partner Partners
--------------- -------------- ---------------
Balance at December 31, 1995 $ (9,580,161) $ (617,172) $ (8,962,989)
Cash distributions to Limited
Partners (A) (7,115,132) (7,115,132)
Net income for the year
ended December 31, 1996 29,092,474 290,925 28,801,549
--------------- -------------- ---------------
Balance at December 31, 1996 12,397,181 (326,247) 12,723,428
Cash distributions to Limited
Partners (A) (10,612,903) (10,612,903)
Net income for the year
ended December 31, 1997 396,165 9,286 386,879
--------------- -------------- ---------------
Balance at December 31, 1997 2,180,443 (316,961) 2,497,404
Cash distribution to Limited
Partners (A) (253,715) (253,715)
Net loss for the year
ended December 31, 1998 (118,276) (118,276)
--------------- -------------- ---------------
Balance at December 31, 1998 $ 1,808,452 $ (316,961) $ 2,125,413
=============== ============== ===============
(A) Summary of distributions per Limited Partnership Interest:
1998 1997 1996
--------------- -------------- ---------------
First Quarter $ 4.24 $ 165.00 $ 2.50
Second Quarter None 12.50 74.00
Third Quarter None None 2.50
Fourth Quarter None None 40.00
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, 1998, 1997 and 1996
1998 1997 1996
--------------- -------------- ---------------
Income:
Rental and service $ 2,484 $ 9,578,314
Interest on short-term
investments $ 87,854 159,550 215,071
Other income 34,013
--------------- -------------- ---------------
Total income 87,854 196,047 9,793,385
--------------- -------------- ---------------
Expenses:
Interest on mortgage
notes payable 37,810 3,512,383
Lender participations 1,844,713
Depreciation 4,393 1,459,148
Amortization of deferred
expenses 260 52,094
Property operating 8,146 151,488 3,698,151
Real estate taxes 1,870 683,574
Property management fees 1,113 501,502
Administrative 197,984 209,844 597,871
Other expense 60,094
--------------- -------------- ---------------
Total expenses 206,130 466,872 12,349,436
--------------- -------------- ---------------
Loss before gain on sales of
properties, affiliates'
participation in joint
ventures and extraordinary
items (118,276) (270,825) (2,556,051)
Gain on sales of properties 828,751 37,198,777
Affiliates' participation in
income from joint ventures (5,214,321)
--------------- -------------- ---------------
(Loss) income before
extraordinary items (118,276) 557,926 29,428,405
--------------- -------------- ---------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Extraordinary items:
Debt extinguishment expense (161,761) (531,135)
Affiliates' participation in
debt extinguishment expense 195,204
-------------- ---------------
Total extraordinary items (161,761) (335,931)
--------------- -------------- ---------------
Net (loss) income $ (118,276) $ 396,165 $ 29,092,474
=============== ============== ===============
Income (loss) before
extraordinary items
allocated to General Partner None $ 12,578 $ 294,284
=============== ============== ===============
(Loss) income before
extraordinary items
allocated to Limited Partners $ (118,276) $ 545,348 $ 29,134,121
=============== ============== ===============
(Loss) income before
extraordinary items per
Limited Partnership
Interest (59,791 issued
and outstanding) - Basic and
Diluted $ (1.98) $ 9.12 $ 487.26
=============== ============== ===============
Extraordinary items allocated
to General Partner None $ (3,292) $ (3,359)
=============== ============== ===============
Extraordinary items allocated
to Limited Partners None $ (158,469) $ (332,572)
=============== ============== ===============
Extraordinary items per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted None $ (2.65) $ (5.56)
=============== ============== ===============
Net income allocated to
General Partner None $ 9,286 $ 290,925
=============== ============== ===============
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Net (loss) income allocated to
Limited Partners $ (118,276) $ 386,879 $ 28,801,549
=============== ============== ===============
Net (loss) income per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted $ (1.98) $ 6.47 $ 481.70
=============== ============== ===============
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, 1998, 1997 and 1996
1998 1997 1996
--------------- -------------- ---------------
Operating activities:
Net (loss) income $ (118,276) $ 396,165 $ 29,092,474
Adjustments to reconcile net
(loss) income to net cash
used in operating activities:
Gain on sales of properties (828,751) (37,198,777)
Debt extinguishment expense 35,539 531,135
Affiliates' participation
in debt extinguishment
expense (195,204)
Affiliates' participation
in income from joint
ventures 5,214,321
Depreciation of properties 4,393 1,459,148
Amortization of deferred
expenses 260 52,094
Net change in:
Escrow deposits 258,377 983,862
Accounts and accrued
interest receivable 6,133 158,116 (165,221)
Prepaid expenses 14,178 214,951
Accounts payable 6,299 (81,276) 14,366
Due to affiliates (7,802) (89,186) 88,538
Accrued liabilities (35,921) (294,149)
Security deposits (32,222) (388,502)
--------------- -------------- ---------------
Net cash used in operating
activities (113,646) (200,328) (590,964)
--------------- -------------- ---------------
Investing activities:
Proceeds from sales of
properties 5,400,000 72,178,128
Payment of selling costs (196,656) (1,575,774)
Funding of escrow in connection
with sale of property (335,000)
-------------- ---------------
Net cash provided by investing
activities 5,203,344 70,267,354
-------------- ---------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
--------------- -------------- ---------------
Financing activities:
Distributions to Limited
Partners (253,715) (10,612,903) (7,115,132)
Distributions to joint venture
partner - affiliate (1,064,860) (2,670,607)
Repayment of mortgage notes
payable (4,210,138) (48,345,344)
Principal payments on
mortgage notes payable (845,225)
Release of improvement escrows 1,064,551
--------------- -------------- ---------------
Net cash used in financing
activities (253,715) (15,887,901) (57,911,757)
--------------- -------------- ---------------
Net change in cash and cash
equivalents (367,361) (10,884,885) 11,764,633
Cash and cash equivalents at
beginning of year 1,972,846 12,857,731 1,093,098
--------------- -------------- ---------------
Cash and cash equivalents at
end of year $ 1,605,485 $ 1,972,846 $ 12,857,731
=============== ============== ===============
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 (the
"Partnership") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in January
1997. The Partnership has retained a portion of the cash to satisfy obligations
of the Partnership, as well as to establish a reserve for contingencies. 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 and
costs stemming from litigation involving the Partnership, including, but not
limited to, the lawsuits discussed in Note 13 of Notes to Financial Statements.
Due to this litigation, the Partnership will not be dissolved and reserves will
be held by the Partnership until the conclusion of all contingencies. There can
be no assurances as to the time frame for conclusion of these contingencies.
3. 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 was computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) The Partnership recorded its investments in real estate at the lower of
cost or fair value, and periodically assessed, but not less than on an annual
basis, possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sale price less
estimated closing costs. The General Partner determined that no impairment in
value had occurred prior to the sales of the properties. The General Partner
considered 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
indicated otherwise.
(d) Deferred expenses consisted of financing fees which were amortized over the
terms of the respective loan agreements. Upon sale, any remaining balance was
recognized as debt extinguishment expense and classified as an extraordinary
item.
(e) The Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(f) For financial statement purposes, prior to 1997, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is invested
or held primarily in one financial institution.
(h) 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.
(i) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
<PAGE>
(k) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. 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 the profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. For financial statement purposes, prior to 1997, the
partners were allocated income and losses in accordance with the provisions in
the Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
One hundred percent of Net Cash Receipts available for distribution have been
distributed to the holders of Interests in proportion to their Participating
Percentages as of the record date for such distributions. Under certain
circumstances, the General Partner would have participated in the Net Cash
Proceeds of the sale or refinancing of Partnership properties. The General
Partner's participation was 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, as
defined in the Partnership Agreement. Since the required subordination levels
were not met, the General Partner has not received any distributions of Net
Cash Receipts or Net Cash Proceeds during the lifetime of the Partnership.
5. Mortgage Note Payable:
During 1997 and 1996, the Partnership incurred and paid interest expense on
mortgage notes payable of $37,810 and $3,512,383, respectively.
6. Management Agreements:
The Partnership's properties were managed by a third-party management company
prior to the sale of the properties. These management agreements provided for
annual fees of 5% of gross operating receipts.
7. Affiliates' Participation in Joint Venture:
The Cedar Crest and Lakeville Resort apartment complexes were each owned by the
Partnership and an affiliate. Both properties were sold in 1996. Profits and
losses were 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
expense of the joint ventures were included in the financial statements of the
Partnership with the appropriate adjustment to profit or loss for each
affiliate's participation.
<PAGE>
Pursuant to the terms of the sale for Lakeville Resort Apartments, the joint
venture was required to retain $500,000 of the sale proceeds until February
1997, at which time the funds were released in full. The affiliate's share of
the proceeds was $201,250. The affiliate also received a distribution of
$845,410, principally consisting of its share of repair escrows released during
1997. Pursuant to the terms of the sale for Cedar Crest Apartments, the joint
venture was required to retain $500,000 of the sale proceeds until March 1997,
at which time the funds were released in full. The affiliate's share of the
proceeds was $18,200.
Net distributions of $1,064,860 and $2,670,607 were made to joint venture
partners during 1997 and 1996, respectively. In addition, joint venture
partners were allocated their pro rata share of the gain on the sales of the
Lakeville and Cedar Crest apartment complexes of $4,877,854 and $334,258,
respectively, in 1996.
8. 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 1998 in the financial statements is $104,548 less than the tax
loss of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of expenses
to General Partner,
at cost:
Accounting $ 6,323 $3,898 $31,273 $6,185 $13,192 $18,021
Data processing 2,120 872 1,910 1,399 3,036 None
Legal 4,878 3,016 27,041 5,435 12,364 16,499
Portfolio management 20,258 12,587 64,110 15,156 55,030 74,298
Property sales admin-
istration None None 8,543 None 28,393 8,543
Other None None None None 118 None
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
<PAGE>
properties. The program was administered by an affiliate of the General Partner
which received no fee for administering the program. However, the General
Partner was reimbursed for program expenses. The Partnership paid premiums to
the deductible insurance program relating to claims for periods prior to May 1,
1995 of $12,750 in 1996.
10. Other Expense:
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account to provide for certain costs the
purchaser might incur at the property related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 out of the escrow funds to cover such costs. The Partnership
recognized these payments as other expense in 1997.
11. Property Sales:
(a) In January 1997, the Partnership sold the Lake Ridge Apartments in an all
cash sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first and second mortgage loans, and paid $196,656 in selling costs and
$126,222 in prepayment penalties. The basis of the property was $4,374,593,
which is net of accumulated depreciation of $2,460,549. For financial statement
purposes, the Partnership recognized a gain of $828,751 from the sale of this
property.
(b) 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 to provide for certain costs
the purchaser might incur at the property related to Pittsfield Township,
Michigan inspections and subsequent improvements at the property. The purchaser
has been reimbursed $60,094 out of the escrow funds to cover such costs. The
additional escrow funds are available to cover future inspections through March
2002. Any funds remaining in the escrow at that time will be released to the
Partnership. 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.
(c) 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
$12,426,799 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $299,150 in selling costs and $467,557 in lender
participation. Lender participation represents additional interest paid to the
lender calculated as a percentage of the sales price in excess of amounts
specified in the loan agreement. 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>
(d) 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 $6,858,644 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $221,925 in selling costs and
$1,377,156 in lender participation. Lender participation represents additional
interest paid to the lender calculated as a percentage of the sales price in
excess of amounts specified in the loan agreement. The basis of the property
was $5,575,515, which is net of accumulated depreciation of $3,326,331. For
financial statement purposes, the Partnership recognized a gain of $5,352,560
from the sale of this property.
(e) 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. The basis of the
property was $15,083,209, which is net of accumulated depreciation of
$8,320,036. For financial statement purposes, the Partnership recognized a gain
of $11,761,791 from the sale of this property, of which $4,877,854 is the
minority joint venture partner's share.
(f) 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 $411,239 in selling costs. The basis of the
property was $11,854,621 which is net of accumulated depreciation of
$6,326,179. For financial statement purposes, the Partnership recognized a gain
of $9,284,140 from the sale of this property, of which $334,258 is the minority
joint venture partner's share.
12. Extraordinary Items:
(a) In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as extraordinary items.
(b) The Partnership wrote-off the remaining unamortized deferred financing fees
in the amount of $531,135 as a result of the sales of the Pines of Cloverlane,
Cedar Crest and Lakeville Resort apartment complexes during 1996. This amount
was recognized as debt extinguishment expense and classified as extraordinary
items, of which $195,204 represents the affiliates' share.
13. Contingencies:
The Partnership is currently involved in two related lawsuits, Masri vs.
Lehman Brothers, Inc., et al. and Bruss, et al. vs. Lehman Brothers, Inc.,
et al., whereby the Partnership and certain affiliates have been named as
defendants alleging certain state securities and common law violations with
regard to the property acquisition process of the Partnership, and to the
adequacy and accuracy of disclosures of information concerning, as well as
the marketing efforts related to the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
these actions. A plaintiff class has not been certified in either action.
With respect to the Masri case, no determinations upon any significant issues
have been made. The Bruss complaint was filed on January 25, 1999. It is not
determinable at this time how the outcome of either action will impact the
remaining cash reserves of the Partnership. The Partnership believes it has
meritorious defenses to contest the claims.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1605
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1612
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1887
<CURRENT-LIABILITIES> 79
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1808
<SALES> 0
<TOTAL-REVENUES> 88
<CGS> 0
<TOTAL-COSTS> 8
<OTHER-EXPENSES> 198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118)
<EPS-PRIMARY> (1.98)
<EPS-DILUTED> (1.98)
</TABLE>
