UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-15459
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McNEIL REAL ESTATE FUND XXIII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0139793
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Current Income Limited Partnership Units
Growth/Shelter Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate 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 ]
11,507,696 of the Registrant's 11,512,696 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.
Documents Incorporated by Reference: See Item 14, Page 37
TOTAL OF 39 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
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ORGANIZATION
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McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd. was organized on March 4, 1985 as a limited
partnership under the provisions of the California Uniform Limited Partnership
Act to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner
was elected at a meeting of limited partners on March 30, 1992, at which time an
amended and restated partnership agreement (the "Amended Partnership Agreement")
was adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
On February 25, 1986, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-1620)
and commenced a public offering for sale of $45,000,000 of limited partnership
units. Two classes of limited partnership units were offered, designated as
Current Income Units and Growth/Shelter Units (referred to collectively as
"Units"). The Units represent equity interests in the Partnership and entitle
the holders thereof to participate in certain allocations and distributions of
the Partnership. The sale of Units closed on February 24, 1987, with 16,204,041
Units (9,461,580 Current Income Units and 6,742,461 Growth/Shelter Units) sold
at $1 each, or gross proceeds of $16,204,041. The Partnership subsequently filed
a Form 8-A Registration Statement with the SEC and registered its Units under
the Securities Exchange Act of 1934 (File No. 0-15459). In 1991, 76,000 Units
were rescinded and in 1994, 20,000 Units were relinquished. On January 1, 1996,
pursuant to the Partnership's bankruptcy reorganization plan, the Partnership
redeemed 4,485,345 Units for cash consideration equal to 1/1,000th of a dollar
per Unit redeemed, leaving 11,622,696 Units (6,681,985 Current Income Units and
4,940,711 Growth/Shelter Units) outstanding at December 31, 1996.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
- --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General
Partner nor the Original General Partner were included in the filing.
Southmark's reorganization plan became effective August 10, 1990. Under the
plan, most of Southmark's assets, which included Southmark's interests in the
Original General Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and
various of their affiliates entered into an asset purchase agreement on October
12, 1990, providing for, among other things, the transfer of control of 34
limited partnerships (including the Partnership) in the Southmark portfolio to
McNeil or his affiliates.
On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of
McNeil, acquired the assets relating to the property management and partnership
administrative business of Southmark and its affiliates and commenced management
of the Partnership's properties pursuant to an assignment of the existing
property management agreements from the Southmark affiliates.
On March 30, 1992, the limited partners approved a restructuring proposal that
provided for (i) the replacement of the Original General Partner with a new
general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended
Partnership Agreement which substantially alters the provisions of the original
partnership agreement relating to, among other things, compensation,
reimbursement of expenses and voting rights; (iii) the approval of an amended
property management agreement with McREMI, the Partnership's property manager;
and (iv) the approval to change the Partnership's name to McNeil Real
<PAGE>
Estate Fund XXIII, L.P. Under the Amended Partnership Agreement, the Partnership
began accruing an asset management fee, retroactive to February 14, 1991, which
is payable to the new General Partner. For a discussion of the methodology for
calculating the asset management fee, see Item 13 - Certain Relationships and
Related Transactions. The proposals approved at the March 30, 1992, meeting were
implemented as of that date.
Concurrent with the approval of the restructuring, the General Partner acquired
from Southmark and its affiliates, for aggregate consideration of $350,466 (i)
the right to receive payment on the advances owing from the Partnership to
Southmark and its affiliates in the amount of $4,375,661, and (ii) the general
partner interest of the Original General Partner. The General Partner owns in
the aggregate less than 1% of the Units.
CURRENT OPERATIONS
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General:
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential real estate. At December 31,
1996, the Partnership owned one income-producing property as described in Item 2
- - Properties.
The Partnership filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on June 30, 1994. The Partnership's
reorganization plan was confirmed by the Bankruptcy Court on May 17, 1995. See
Chapter 11 Reorganization below.
The Partnership does not directly employ any personnel. The General Partner
conducts the business of the Partnership directly and through its affiliates.
The Partnership reimburses affiliates of the General Partner for such services
rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note
3 "Transactions with Affiliates."
The business of the Partnership to date has involved only one industry segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The business of the Partnership is not seasonal.
Chapter 11 Reorganization:
On June 30, 1994, the Partnership filed a voluntary petition for Chapter 11
reorganization with the United States Bankruptcy Court - Northern District of
Texas, Dallas Division (the "Bankruptcy Court"). The Partnership continued to
conduct its affairs as a debtor-in-possession, subject to the jurisdiction and
supervision of the Bankruptcy Court. Concurrent with the Chapter 11 filing, the
General Partner contributed to the Partnership $4,375,661 of advances and
$704,482 of accrued interest on advances that were payable by the Partnership to
the General Partner. See Item 8 - Note 3 - "Transactions with Affiliates." The
Partnership's financial statements include the accounts of Beckley Associates
("Beckley"). Beckley, which owns Harbour Club II Apartments, is 99.99% owned by
the Partnership. Beckley was excluded from the Chapter 11 filing.
Woodbridge Apartments, one of the Partnership's former properties, was
encumbered by two mortgage notes payable. The first lien mortgage note payable
was co-insured by the Federal Housing Administration and was, therefore,
regulated by the United States Department of Housing and Urban Development
("HUD"). The second lien mortgage note payable was payable in monthly
installments of interest only. Such payments were limited to "surplus cash" as
defined by HUD and as calculated at June 30 and December 31 of each year. No
"surplus cash" was available to make the interest payments on the second lien;
therefore, the Partnership ceased making such payments in April 1994. The
Partnership was unsuccessful in attempting to negotiate a restructuring of the
mortgage, and the second lienholder was expected to initiate foreclosure
proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure
proceedings.
<PAGE>
The Partnership's First Amended Plan of Reorganization (the "Reorganization
Plan"), which contemplated a sale of Woodbridge Apartments, was submitted to the
Bankruptcy Court on February 13, 1995. The Partnership's Disclosure Statement of
Debtor-in-Possession (the "Disclosure Statement") was approved by the Bankruptcy
Court on February 14, 1995.
The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995 to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with an Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court did grant an order to sell
Woodbridge Apartments but denied confirmation of the Reorganization Plan. The
Partnership filed an appeal of the Bankruptcy Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors which
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 17, 1995.
Woodbridge Apartments was sold on May 25, 1995 and, in accordance with the
Reorganization Plan, the first and second mortgage notes payable and the related
outstanding accrued interest were paid. The Partnership also utilized $156,566
of the proceeds from the sale to pay the settlement and legal fees to the
judgment lien creditors, as discussed above.
On September 11, 1995, the Bankruptcy Court entered an Order Regarding
Objections to Claims that allowed the Partnership to pay outstanding
pre-petition claims totaling approximately $12,000 in October 1995.
As outlined in the Reorganization Plan, any payments of advances and fees owed
to affiliates of the General Partner were limited to remaining cash, after the
pre-petition and reorganization related costs were paid. The Partnership had
$37,228 of such cash available to distribute to affiliate creditors. The
remaining amounts owed to affiliates of the General Partner as of May 17, 1995
were discharged resulting in an extraordinary gain of $1,435,024.
On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1,000th of a dollar per Unit. The
limited partners were required to respond within 30 days, and at the close of
the 30 day period, 311 limited partners had elected to redeem 4,485,345 Units.
In connection with the redemption, the partnership obtained a "no-action" letter
from the SEC that provided that (1) the redemption could be accomplished without
compliance with Rule 13e-3 of the Securities Exchange Act of 1934, and (2) the
SEC did not intend to pursue an enforcement action if the Reorganization Plan
was consummated. Redemption of the affected Units was effective on January 1,
1996.
On November 18, 1995, the Partnership submitted to the Bankruptcy Court a
request for an Application to Close Case, which was entered on December 11,
1995, and was approved on February 15, 1996.
Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "reorganization expenses" in the accompanying Statements
of Operations. Interest earned on funds restricted by the Bankruptcy Court are
presented as "interest on reorganization funds" on the Statements of Operations.
<PAGE>
Business Plan:
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence an orderly liquidation of the
Partnership's asset in accordance with the terms of the Amended Partnership
Agreement. Although there can be no assurance as to the timing of the
liquidation due to real estate market conditions, the general difficulty of
disposing of real estate, and other general economic factors, it is anticipated
that such liquidation would result in the dissolution of the Partnership
followed by a liquidating distribution to Unitholders by December 2001. Until
such time as the Partnership's asset is liquidated, the Partnership's plan of
operations is to preserve or increase the net operating income of its property
whenever possible, while at the same time making whatever capital expenditures
are reasonable under the circumstances in order to preserve and enhance the
value of the Partnership's asset. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Competitive Conditions:
Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local economic or rent controls. The illiquidity of
real estate investments generally impairs the ability of the Partnership to
respond promptly to changed circumstances. The Partnership competes with
numerous established companies, private investors (including foreign investors),
real estate investment trusts, limited partnerships and other entities (many of
which have greater resources than the Partnership) in connection with the sale,
financing and leasing of properties. The impact of these risks on the
Partnership, including losses from operations and foreclosure of the
Partnership's property, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. For a detailed
discussion of the competitive conditions for the Partnership's property see Item
2 - Properties.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after December 31, 1996. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate the sale or refinancing of its
property and respond to changing economic and competitive factors.
Other Information:
The environmental laws of the Federal government and of certain state and local
governments impose liability on current property owners for the clean-up of
hazardous and toxic substances discharged on the property. This liability may be
imposed without regard to the timing, cause or person responsible for the
release of such substances onto the property. The Partnership could be subject
to such liability in the event that it owns property having such environmental
problems. The Partnership has no knowledge of any pending claims or proceedings
regarding such environmental problems.
<PAGE>
ITEM 2. PROPERTIES
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The following table sets forth the investment portfolio of the Partnership at
December 31, 1996. The buildings and the land on which the property is located
are owned by the Partnership in fee, subject to a first lien deed of trust as
described more fully in Item 8 - Note 6 - "Mortgage Note Payable." See also Item
8 - Note 5 - "Real Estate Investment" and Schedule III - "Real Estate Investment
and Accumulated Depreciation." In the opinion of management, the property is
adequately covered by insurance.
<TABLE>
<CAPTION>
Net Basis of 1996 Date
Property Description Property Debt Property Taxes Acquired
- -------- ----------- ------------- ---- -------------- --------
<S> <C> <C> <C> <C> <C>
Harbour Club II (1) Apartments
Belleville, MI 220 units $ 3,354,442 $ 3,758,380 $ 101,291 6/86
</TABLE>
(1) Harbour Club II Apartments is owned by Beckley Associates which is 99.99%
owned by the Partnership.
The following table sets forth the property's occupancy rate and rent per square
foot for the last five years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Harbour Club II
Occupancy Rate............ 92% 92% 86% 85% 92%
Rent Per Square Foot...... $ 6.60 $ 6.55 $ 5.96 $ 5.79 $ 5.43
</TABLE>
Occupancy rate represents all units leased divided by the total number of units
of the property as of December 31 of the given year. Rent per square foot
represents all revenue, except interest, derived from the property's operations
divided by the leasable square footage of the property. No residential tenant
leases 10% or more of the available rental space.
Competitive conditions
Harbour Club II, located in Belleville, Michigan, was built in 1971 as a part of
a four-phase apartment complex. The property offers a complete package of
amenities including a golf course, clubhouse, exercise room, tanning beds,
tennis courts, saunas, boat docks and launch, and playgrounds. The Belleville
market has significantly rebounded to an average area occupancy rate of 95%. The
property's closest competitor has rental rates approximately $100 per month
above Harbour Club II's rates. The lack of capital improvements at Harbour Club
II Apartments has materially constricted the property's ability to increase
rental rates. Security concerns are prompting demands from tenants for improved
lighting, limited access gates and fencing, as offered by competitors. The
property has a large amount of deferred maintenance due to high debt service and
is unable to generate cash to meet its capital improvement needs. Management is
currently seeking alternatives to fund the needed capital improvements. The
ability of the property to compete in the market will be directly determined by
the amount of capital dollars spent to upgrade the property to community
standards.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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The Partnership is not party to, nor is the Partnership's property the subject
of, any material pending legal proceedings other than ordinary, routine
litigation incidental to the Partnership's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
- ------- ------------------------------------------------------------
RELATED SECURITY HOLDER MATTERS
-------------------------------
(A) There is no established public trading market for limited partnership units,
nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
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Limited partnership units 792 as of January 31, 1997
(C) No distributions were made to the partners during 1996 or 1995 and none
are anticipated in 1997. See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations and Item 8 - Note 1 -
"Organization and Summary of Significant Accounting Policies -
Distributions."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8 - Financial
Statements and Supplementary Data.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1996 1995 1994 1993 1992
- ------------------ ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 1,324,331 $ 1,591,118 $ 1,894,443 $ 1,904,708 $ 1,922,007
Write-down for permanent
impairment of real estate... - - (661,921) - (1,783,702)
Gain on disposition of real
estate...................... - 554,047 - - -
Income (loss) before
extraordinary items......... (180,141) 14,174 (1,465,830) (806,303) (2,860,788)
Extraordinary items.......... - 1,435,024 - - 79,627
Net income (loss)............ (180,141) 1,449,198 (1,465,830) (806,303) (2,781,161)
Net income (loss) per
thousand limited partner-
ship units:
Income (loss) before
extraordinary items:
Current Income Units....... $ (2.43) $ 28.89 $ (14.01) $ (7.70) $ (27.33)
Growth/Shelter Units....... (32.81) (38.59) (197.23) (108.16) (383.77)
Extraordinary items:
Current Income Units....... - 88.20 - - .76
Growth/Shelter Units....... - 88.20 - - 10.68
Net income (loss):
Current Income Units....... (2.43) 117.09 (14.01) (7.70) (26.57)
Growth/Shelter Units....... (32.81) 49.61 (197.23) (108.16) (373.09)
As of December 31,
Balance Sheets 1996 1995 1994 1993 1992
- -------------- ------------- ------------- -------------- ------------- --------------
Real estate investment, net.. $ 3,354,442 $ 3,428,097 $ 3,546,322 $ 6,855,858 $ 7,056,300
Asset held for sale.......... - - 2,373,130 - -
Total assets................. 3,701,423 3,825,824 6,520,408 7,486,894 7,798,950
Mortgage notes payable, net.. 3,758,380 3,787,802 3,814,667 6,300,793 6,347,862
Liabilities subject to
compromise................ - - 4,184,977 - -
Partners' deficit............ (475,390) (290,769) (1,739,967) (5,354,280) (4,547,977)
</TABLE>
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Woodbridge Apartments was sold on May 25, 1995. This property was placed on the
market for sale during 1994 and was classified as an asset held for sale at
December 31, 1994.
As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership were subject to
significant uncertainties. The Partnership's balance sheet as of December 31,
1994, reflects the liabilities that were deferred under the Chapter 11
proceeding as "Liabilities subject to compromise."
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership's operating activities provided $204,752 of cash in 1996
compared with $26,451 of cash used in 1995. The disposition of Woodbridge
Apartments on May 25, 1995 was the principal cause of the decreases in cash
received from tenants, cash paid to suppliers, cash paid to affiliates, interest
paid and property taxes paid in 1996. Reorganization costs paid in 1996
decreased to $5,362 from $248,057 in 1995 as the Chapter 11 bankruptcy filing
was closed on February 15, 1996. The Partnership received a $53,233 refund of
property taxes due to a successful appeal of the property tax assessments on
Harbour Club II in 1995. No such refund was received in 1996.
The Partnership's operating activities used $26,451 of cash in 1995 as compared
with $149,667 provided by operating activities in 1994. The decrease in cash
flow from operating activities in 1995 was primarily due to $248,057 of
reorganization costs paid by the Partnership in connection with its Chapter 11
bankruptcy filing. No such costs were paid in 1994. Also, due to the
Partnership's Reorganization Plan, the Partnership was allowed to pay
pre-petition claims in October 1995. Other changes in cash flows were primarily
the result of the sale of Woodbridge Apartments in May 1995 including decreases
in cash received from tenants, cash paid to suppliers, cash paid to affiliates
and property taxes paid.
Cash used for capital expenditures totaled $193,424, $124,698 and $105,422
during 1996, 1995 and 1994, respectively. Cash provided from the sale of
Woodbridge Apartments totaled $3,078,096. $2,641,421 of the proceeds from the
sale of Woodbridge Apartments were used to retire the mortgage notes secured by
the property in 1995.
Scheduled principal payments during 1996 totaled $46,258 as compared to $58,616
and $84,774 in 1995 and 1994, respectively. The decrease since 1995 was due to
the sale of Woodbridge Apartments. In accordance with the terms of the
Partnership's Reorganization Plan, the Partnership redeemed 4,485,345 limited
partnership units from the Limited Partners for a total of $4,480 in 1996.
At December 31, 1996, the Partnership held cash and cash equivalents of
$193,812.
Short-term liquidity:
The General Partner anticipates rental operations at Harbour Club II Apartments
in 1997 will provide sufficient rental revenue to pay for the operating expenses
of the property and debt service payments on the property's mortgage note.
However, rental operations at Harbour Club II Apartments are not expected to be
sufficient to fund necessary capital improvements to the property nor to pay the
Partnership's other expenses. To the extent available, the Partnership will use
its cash reserves to fund limited capital improvements and the Partnership's
other expenses.
Although the sale of Woodbridge Apartments provided some additional cash
reserves for the Partnership, the Partnership still faces liquidity problems
because of urgently needed capital improvements at Harbour Club II Apartments
for which no financing has been secured. Operating activities at Harbour Club II
Apartments for 1997 are expected to provide sufficient positive cash flow for
normal operating expenses and debt service payments. However, the needed capital
improvements will require the use of other sources of cash. No such sources have
been identified. The Partnership has no established lines of credit from outside
sources. Effective January 23, 1997, the mortgage note payable was sold by HUD
to an unaffiliated lender. The Partnership is attempting to negotiate a
restructuring or refinancing of the mortgage note with the new lender.
Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership to fund working capital requirements. Such advances were discharged
as a result of the Chapter 11 proceedings. The General Partner is not obligated
to advance funds to the Partnership and there is no assurance that the
Partnership will receive additional funds.
<PAGE>
Long-term liquidity:
The Partnership has been in a distressed cash situation for several years.
Although Harbour Club II is able to operate in such a manner to provide for
operating expenses and debt service payments, the property has not proven the
capability to produce the cash flow necessary for capital improvements nor to
support Partnership operations. The inability to make necessary capital
improvements has led to deteriorating conditions at the property. In the opinion
of management, if capital improvements are not made to make the property more
marketable, the net realizable value of the property may be further impaired.
Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and III of the complex are owned by partnerships
in which the General Partner is the general partner; while Phase IV is owned by
University Real Estate Fund 12, Ltd., ("UREF 12") whose general partner is an
affiliate of Southmark. McREMI managed all four phases of the complex until
December 1992, when the property management agreement between McREMI and UREF 12
was canceled. Additionally, in January 1993, Phase I defaulted on its mortgage
note. Unless a refinancing agreement can be reached with the lender, the
property is subject to foreclosure. If Phase I is lost to foreclosure, it would
be extremely difficult to operate Phases II and III because the pool and
clubhouse used by all three phases are located on Phase I. As of year end, no
steps have been taken to foreclose on Phase I.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
The Partnership determined to evaluate market and other economic conditions to
establish the optimum time to commence liquidation of the Partnership's asset in
accordance with the terms of the Amended Partnership Agreement. Although there
can be no assurance as to the timing of the liquidation due to real estate
market conditions, the general difficulty of disposing of real estate, and other
general economic factors, it is anticipated that such liquidation would result
in the dissolution of the Partnership followed by a liquidating distribution to
Unitholders by December 2001.
Distributions
To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distributions to
Growth/Shelter Unit holders. Distributions to Unit holders will remain suspended
for the foreseeable future. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine when
cash flows will support distributions to the Unit holders.
FINANCIAL CONDITION
- -------------------
Harbour Club II Apartments was 92% occupied at the end of December 1996 and 1995
as compared to 86% at the end of December 1994. Harbour Club II was able to
provide enough cash flow from operations to meet ordinary operating expenses as
well as the debt service for its related mortgage during 1996; however, the
property is in need of major capital repairs and improvements in order to
compete in its local market. The Partnership is attempting to negotiate a
restructuring or refinancing of the mortgage note payable to fund the necessary
improvements; however, such restructuring or refinancing is not assured.
Until the Partnership is able to generate cash from operations or sales, the
Partnership will be dependent on its present cash reserves, operation of its
property, or financial support from affiliates. Distributions will remain
suspended until cash reserves are judged adequate.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
1996 compared to 1995
Revenue:
Total Partnership revenues in 1996 decreased $880,256 or 40% as compared to
1995. Rental revenue decreased $266,787 or 16.8% primarily due to the May 25,
1995 sale of Woodbridge Apartments. Rental revenue at Harbour Club II Apartments
increased $10,053 or less than 1% in 1996 compared to 1995. The Partnership
increased base rental rates an average of 2% at Harbour Club II Apartments, but
the increase was offset by increased vacancy and other rental losses.
In 1995, the Partnership recognized a $554,047 gain related to the sale of
Woodbridge Apartments and received a $53,233 refund of property taxes due to a
successful appeal of the property tax assessments on Harbour Club II Apartments.
Both of these transactions were non-recurring events.
Expenses:
Total Partnership expenses decreased $685,941 or 31% in 1996 compared to 1995.
Most of the decrease is the result of the sale of Woodbridge Apartments in May
1995. The Partnership incurred no operating expenses pertaining to Woodbridge
Apartments in 1996. For 1995, expenses incurred at Woodbridge Apartments
amounted to $79,426 of interest, $63,740 of depreciation, and $205,606 of all
other operating expenses.
Rental expenses incurred at Harbour Club II Apartments were practically
unchanged for the year. Such expenses increased only $3,857 in 1996 compared to
1995.
As a result of the Partnership's bankruptcy filing, all interest-bearing debt
due to affiliates was discharged. Consequently, there was no interest expense on
affiliate debt in 1996 compared to $17,846 in 1995. Reorganization expenses
decreased 98% to $5,362 as the Partnership's bankruptcy filing was substantially
completed by the end of 1995. Finally, because of the disposition of Woodbridge
Apartments during 1995, expenses charged to the Partnership by affiliates of the
General Partner also decreased. Such expenses decreased 23% to $144,560 in 1996.
The Reorganization Plan, confirmed by the Bankruptcy Court on May 17, 1995,
allowed for the discharge of $459,364 of advances from the General Partner and
from various affiliates of the General Partner, as well as $88,429 of accrued
interest related to such advances. The Reorganization Plan also provided for the
discharge of $887,231 of reimbursable costs and asset management fees due to the
General Partner. The discharge of debts due to the General Partner and its
affiliates resulted in an extraordinary gain of $1,435,024 in 1995.
<PAGE>
1995 compared to 1994
Revenue:
Rental revenue decreased $303,325 in 1995 compared to 1994 due to the sale of
Woodbridge Apartments in May 1995. However, rental revenue increased $118,455 or
9.9% at Harbour Club II Apartments as the Partnership was able to implement
modest increases in base rental rates accompanied by increased occupancy. Total
revenue increased $312,283 to $2,212,756 in 1995. The increased revenue was the
result of a $554,047 gain related to the sale of Woodbridge Apartments and
receipt of a $53,233 refund of property taxes due to a successful appeal of the
property tax assessments on Harbour Club II Apartments.
Expenses:
Total expenses decreased $1,167,721 during 1995 compared to 1994. Three one-time
transactions affect the comparison. First, the 1994 expenses include a $661,921
write-down for permanent impairment of real estate related to Woodbridge
Apartments. No such write-down was recorded in 1995. Second, the sale of
Woodbridge Apartments on May 25, 1995 eliminated operating expenses for that
property for seven months in 1995, whereas twelve months of operating expenses
at Woodbridge Apartments are reported in the Partnership's 1994 Statement of
Operations. Finally, the 1995 income statement includes a one-time charge of
$257,303 for reorganization expenses related to the Partnership's Chapter 11
Bankruptcy filing. No such expenses were recorded in 1994. Expenses related to
Harbour Club II Apartments decreased $67,911 or 5.0% in 1995 compared to 1994.
For comparability, the discussion of expenses to follow will generally exclude
the consideration of expenses incurred at Woodbridge Apartments.
Property taxes assessed against Harbour Club II Apartments decreased $15,123 or
12.2% in 1995 compared to 1994. The Partnership succeeded in having the assessed
value of Harbour Club II Apartments reduced for property tax purposes. Not only
were current year property taxes reduced, the Partnership also received a
$53,233 refund of prior year property taxes. The refund was recorded as an
income item on the 1995 Statement of Operations.
Repairs and maintenance expenses at Harbour Club II Apartments decreased $19,258
or 10.8% in 1995 compared to 1994. Expenses incurred for interior painting and
replacement of appliances were the significant items that led to the decrease.
These decreases were partially offset by increased expenses for grounds
maintenance and security on the property.
Other property operating expense incurred at Harbour Club II Apartments
decreased $14,943 or 11.9% in 1995. Due to significant efforts by management, as
well as an improving local economy, bad debt expenses, expenses for evictions
and other legal and credit-related expenses were significantly reduced.
General and administrative - affiliates expense decreased $33,184 or 15.0% in
1995 compared to 1994 due to the decreased reimbursable expenses incurred by
affiliates of the General Partner for administering the affairs of the
Partnership. Such expenses are generally incurred based upon the proportion of
properties owned by the Partnership to the total number of properties managed by
the General Partner and its affiliates for the Partnership and other affiliated
partnerships. The sale of Woodbridge Apartments reduced the costs allocated to
the Partnership in 1995.
<PAGE>
Interest - affiliates decreased $186,321 during 1995 as compared to 1994. The
discharge of affiliated advances resulting from the Partnership's Reorganization
Plan also effectively reduced the interest charges on such debt.
All other expense line items (after eliminating expenses pertaining to
Woodbridge Apartments), both individually and as a group, changed less than 8%
in 1995 compared to 1994.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
<TABLE>
<CAPTION>
Page
Number
------
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
<S> <C>
Report of Independent Public Accountants....................................... 14
Balance Sheets at December 31, 1996 and 1995................................... 15
Statements of Operations for each of the three years in the period
ended December 31, 1996........................................................ 16
Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1996.......................................... 17
Statements of Cash Flows for each of the three years in the period
ended December 31, 1996........................................................ 18
Notes to Financial Statements.................................................. 20
Financial Statement Schedule -
Schedule III - Real Estate Investment and Accumulated
Depreciation............................................................. 30
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of McNeil Real Estate Fund XXIII, L.P.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund
XXIII, L.P. (a California limited partnership), as of December 31, 1996 and
1995, and the related statements of operations, partners' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund XXIII,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 8 to the
financial statements, the Partnership has suffered recurring losses from
operations and the Partnership's only property is in need of major capital
improvements in order to maintain occupancy and rental rates at a level to
continue to support operations and debt service. Additionally, the property is
part of a four phase complex. Phase I of the complex defaulted on its mortgage
loan in January 1993. Phase I is subject to foreclosure unless a refinancing
agreement can be reached with the lender. If Phase I is lost to foreclosure, it
would have a significant impact on the operations of Phase II, owned by the
Partnership, as the pool and clubhouse are located in Phase I. As of year end,
no steps have been taken towards the foreclosure of Phase I. Management's plans
in regard to these matters are also described in Note 8. These conditions raise
substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
March 10, 1997
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
ASSETS
- ------
<S> <C> <C>
Real estate investment:
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 6,029,898 5,836,474
-------------- -------------
6,269,864 6,076,440
Less: Accumulated depreciation.......................... (2,915,422) (2,648,343)
-------------- -------------
3,354,442 3,428,097
Cash and cash equivalents................................... 193,812 233,222
Cash segregated for security deposits....................... 43,296 54,921
Accounts receivable and other assets........................ 13,249 18,288
Escrow deposits............................................. 96,624 91,296
-------------- -------------
$ 3,701,423 $ 3,825,824
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage note payable, net of discount...................... $ 3,758,380 $ 3,787,802
Accounts payable and accrued expenses....................... 73,579 120,611
Accrued property taxes...................................... 43,519 43,142
Payable to affiliates - General Partner..................... 258,782 114,218
Security deposits and deferred rental revenue............... 42,553 50,820
-------------- -------------
4,176,813 4,116,593
-------------- -------------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,622,696 and 16,108,041 Units outstanding at
December 31, 1996 and 1995, respectively (6,681,985
and 9,419,080 Current Income Units outstanding at
December 31, 1996 and 1995, respectively, and
4,940,711 and 6,688,961 Growth/Shelter Units
outstanding at December 31, 1996 and 1995,
respectively).......................................... (5,327,850) (5,145,030)
General Partner.......................................... 4,852,460 4,854,261
-------------- -------------
(475,390) (290,769)
-------------- -------------
$ 3,701,423 $ 3,825,824
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenue:
Rental revenue.............................. $ 1,324,331 $ 1,591,118 $ 1,894,443
Interest.................................... 8,169 5,112 6,030
Interest on reorganization funds............ - 9,246 -
Gain on sale of real estate................. - 554,047 -
Property tax refund......................... - 53,233 -
------------- ------------- --------------
Total revenue............................. 1,332,500 2,212,756 1,900,473
------------- ------------- --------------
Expenses:
Interest.................................... 366,156 450,654 634,412
Interest - affiliates....................... - 17,846 204,167
Depreciation................................ 267,079 306,663 379,907
Property taxes.............................. 101,291 118,771 160,787
Personnel expenses ......................... 193,887 240,099 296,234
Utilities................................... 97,183 141,102 172,355
Repairs and maintenance..................... 156,587 207,619 289,921
Property management fees - affiliates....... 65,869 73,021 92,207
Other property operating expenses........... 77,842 161,210 217,410
General and administrative.................. 36,825 35,755 35,259
Reorganization expenses..................... 5,362 257,303 -
General and administrative - affiliates..... 144,560 188,539 221,723
Write-down for permanent
impairment of real estate................. - - 661,921
------------- ------------- --------------
Total expenses............................ 1,512,641 2,198,582 3,366,303
------------- ------------- --------------
Income (loss) before extraordinary
item........................................ (180,141) 14,174 (1,465,830)
Extraordinary gain on discharge of
payable to affiliates....................... - 1,435,024 -
------------- ------------- --------------
Net income (loss).............................. $ (180,141) $ 1,449,198 $ (1,465,830)
============= ============= ==============
Net income (loss) allocated to limited
partners - Current Income Units............. $ (16,213) $ 1,102,877 $ (131,925)
Net income (loss) allocated to limited
partners - Growth/Shelter Units............. (162,127) 331,829 (1,319,247)
Net income (loss) allocated to General
Partner..................................... (1,801) 14,492 (14,658)
------------- ------------- --------------
Net income (loss).............................. $ (180,141) $ 1,449,198 $ (1,465,830)
============= ============= ==============
Net income (loss) per thousand limited
partnership units:
Current Income Units:
Income (loss) before extraordinary
item.................................... $ (2.43) $ 28.89 $ (14.01)
Extraordinary item........................ - 88.20 -
------------- ------------- --------------
Net income (loss)......................... $ (2.43) $ 117.09 $ (14.01)
============= ============= ==============
Growth/Shelter Units:
Loss before extraordinary item............ $ (32.81) $ (38.59) $ (197.23)
Extraordinary item........................ - 88.20 -
------------- ------------- --------------
Net income (loss)......................... $ (32.81) $ 49.61 $ (197.23)
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $ (225,716) $ (5,128,564) $ (5,354,280)
Contribution of advances purchased
by the General Partner and
accrued interest....................... 5,080,143 - 5,080,143
Net loss:
General Partner........................ (14,658) - (14,658)
Current Income Units................... - (131,925) (131,925)
Growth/Shelter Units................... - (1,319,247) (1,319,247)
------------- ------------- -------------
Total net loss............................ (14,658) (1,451,172) (1,465,830)
------------- ------------- -------------
Balance at December 31, 1994.............. 4,839,769 (6,579,736) (1,739,967)
Net income:
General Partner........................ 14,492 - 14,492
Current Income Units................... - 1,102,877 1,102,877
Growth/Shelter Units................... - 331,829 331,829
------------- ------------- -------------
Total net income.......................... 14,492 1,434,706 1,449,198
------------- ------------- -------------
Balance at December 31, 1995.............. 4,854,261 (5,145,030) (290,769)
Redemption of limited partner units:
Current Income Units................... - (2,737) (2,737)
Growth/Shelter Units................... - (1,743) (1,743)
------------- ------------- -------------
Total redemption.......................... - (4,480) (4,480)
------------- ------------- -------------
Net loss:
General Partner........................ (1,801) - (1,801)
Current Income Units................... - (16,213) (16,213)
Growth/Shelter Units................... - (162,127) (162,127)
------------- ------------- -------------
Total net loss............................ (1,801) (178,340) (180,141)
------------- ------------- -------------
Balance at December 31, 1996.............. $ 4,852,460 $ (5,327,850) $ (475,390)
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants.............. $ 1,339,047 $ 1,582,674 $ 1,852,058
Cash paid to suppliers.................. (621,756) (653,089) (901,337)
Cash paid to affiliates................. (65,865) (75,627) (105,129)
Reorganization costs paid, net.......... (5,362) (248,057) -
Interest received....................... 8,169 5,112 6,030
Interest paid........................... (349,610) (571,305) (518,122)
Property taxes paid..................... (99,871) (119,392) (183,833)
Property taxes refunded................. - 53,233 -
------------- ------------- --------------
Net cash provided by (used in)
operating activities.................... 204,752 (26,451) 149,667
------------- ------------- --------------
Cash flows from investing activities:
Additions to real estate
investments........................... (193,424) (124,698) (105,422)
Proceeds from disposition of
real estate........................... - 3,078,096 -
------------- ------------- --------------
Net cash provided by (used in)
investing activities.................... (193,424) 2,953,398 (105,422)
------------- ------------- --------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (46,258) (58,616) (84,774)
Redemption of limited partner units..... (4,480) - -
Advances from affiliates - General
Partner............................... - - 59,033
Repayment of advances from
affiliates - General Partner............... - (1,129) -
Repayment of claims settlement.......... - (100,374) -
Retirement of mortgage notes
payable due to disposition of
real estate investment................ - (2,641,421) -
------------- ------------- --------------
Net cash used in financing activities...... (50,738) (2,801,540) (25,741)
------------- ------------- --------------
Net increase (decrease) in cash and
cash equivalents...................... (39,410) 125,407 18,504
Cash and cash equivalents at
beginning of year..................... 233,222 107,815 89,311
------------- ------------- --------------
Cash and cash equivalents at end
of year............................... $ 193,812 $ 233,222 $ 107,815
============= ============= ==============
</TABLE>
See discussion of noncash investing and financing activities in Note 3 -
"Transactions with Affiliates."
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by (Used in)
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Net income (loss).......................... $ (180,141) $ 1,449,198 $ (1,465,830)
------------- -------------- --------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation............................ 267,079 306,663 379,907
Amortization of discounts on
mortgage notes payable................ 16,836 23,859 33,301
Interest added to advances from
affiliates - General Partner.......... - 17,846 204,167
Write-down for permanent
impairment of real estate............. - - 661,921
Gain on sale of real estate............. - (554,047) -
Extraordinary gain on discharge
of payable to affiliates.............. - (1,435,024) -
Changes in assets and liabilities:
Cash segregated for security
deposits............................ 11,625 21,386 (17,787)
Accounts receivable and
other assets........................ 5,039 34,127 (346)
Escrow deposits....................... (5,328) 273,123 66,717
Accounts payable and accrued
expenses............................ (47,032) (211,621) 59,327
Accrued property taxes................ 377 (98,239) 10,712
Claims settlement payable............. - (12,788) 6,919
Payable to affiliates - General
Partner............................. 144,564 185,934 208,801
Security deposits and deferred
rental revenue...................... (8,267) (26,868) 1,858
------------- ------------- --------------
Total adjustments................. 384,893 (1,475,649) 1,615,497
------------- ------------- --------------
Net cash provided by (used in)
operating activities.................... $ 204,752 $ (26,451) $ 149,667
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil. The General Partner was elected
at a meeting of limited partners on March 30, 1992, at which time an amended and
restated partnership agreement (the "Amended Partnership Agreement") was
adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. The Partnership has determined to evaluate market and other
economic conditions to establish the optimum time to commence a liquidation of
the Partnership's asset in accordance with the terms of the Amended Partnership
Agreement. At December 31, 1996, the Partnership owned one income-producing
property as described in Note 5 Real Estate Investment.
Chapter 11 Reorganization
- -------------------------
On June 30, 1994, the Partnership filed a voluntary petition for protection
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The
Partnership filed its First Amended Plan of Reorganization (the "Reorganization
Plan") with the United States Bankruptcy Court - Northern District of Texas,
Dallas Division (the "Bankruptcy Court") on February 13, 1995. The Partnership
conducted its affairs as a debtor-in-possession until the Reorganization Plan
was confirmed by the Bankruptcy Court on May 17, 1995. Pursuant to the
Reorganization Plan, the Partnership sold its interest in Woodbridge Apartments
to an unaffiliated buyer on May 25, 1995. The Partnership used the proceeds from
the sale of Woodbridge Apartments to satisfy all pre-petition liabilities of the
Partnership that were not otherwise discharged by the Bankruptcy Court. See Note
2 - "Chapter 11 Reorganization."
<PAGE>
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management 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 differ from those estimates.
The Partnership's financial statements include the accounts of Beckley
Associates ("Beckley"), a single asset limited partnership formed to accommodate
the refinancing of Harbour Club II Apartments. The Partnership is the general
partner of Beckley, and holds a 99.99% interest in Beckley. The Partnership
exercises effective control of Beckley. The minority interest is not presented
as it is both negative and immaterial.
Real Estate Investments
- -----------------------
The Partnership's real estate investment is generally stated at the lower of
depreciated cost or fair value. The Partnership reviews its real estate
investment for impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. When the carrying value of the
property exceeds the sum of all estimated future cash flows, an impairment loss
is recognized. At such time, a write-down is recorded to reduce the basis of the
property to its estimated recoverable amount.
The Partnership's method of accounting for real estate investments is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The
adoption of SFAS 121 did not have a material impact on the accompanying
financial statements.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
Depreciation
- ------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 25 years.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash on deposit in financial
institutions with original maturities of three months or less. Carrying amounts
for cash and cash equivalents approximate fair value.
<PAGE>
Escrow Deposits
- ---------------
The Partnership is required to maintain escrow accounts in accordance with the
terms of various mortgage indebtedness agreements. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes, hazard
insurance, capital improvements and/or property replacements. Carrying amounts
for escrow deposits approximate fair value.
Discounts on Mortgage Notes Payable
- -----------------------------------
Discounts on mortgage notes payable are being amortized over the remaining terms
of the related mortgage notes using the effective interest method. Amortization
of discounts on mortgage notes payable is included in interest expense on the
Statements of Operations.
Rental Revenue
- --------------
The Partnership leases its residential property under short-term operating
leases. Lease terms generally are less than one year in duration. Rental revenue
is recognized as earned.
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss
- -------------------------------------
The Amended Partnership Agreement generally provides that net income (other than
net income arising from sales or refinancing) shall be allocated one percent
(1%) to the General Partner and ninety-nine percent (99%) to the limited
partners equally as a group, and net loss shall be allocated one percent (1%) to
the General Partner, nine percent (9%) to the limited partners owning Current
Income Units and ninety percent (90%) to the limited partners owning
Growth/Shelter Units.
For financial statement purposes, net income arising from sales or refinancings
shall be allocated 1% to the General Partner and 99% to the limited partners
equally as a group.
For tax reporting purposes, net income arising from sales or refinancing shall
be allocated as follows: (a) first, amounts of such net income shall be
allocated among the General Partner and limited partners in proportion to, and
to the extent of, the portion of such partner's share of the net decrease in
Partnership Minimum Gain determined under Treasury Regulations, (b) second, to
the General Partner and limited partners in proportion to, and to the extent of,
the amount by which their respective capital account balances are negative by
more than their respective remaining shares of the Partnership's Minimum Gain
attributable to property still owned by the Partnership and (c) third, 1% of
such net income shall be allocated to the General Partner and 99% of such net
income shall be allocated to the limited partners.
<PAGE>
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704 (b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1996, 1995 and 1994 have been made
in accordance with these criteria.
Distributions
- -------------
At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancings) shall be distributed 100% to the limited partners,
with such distributions first paying the Current Income Priority Return and then
the Growth/Shelter Priority Return. Also at the discretion of the General
Partner, the limited partners will receive 100% of distributable cash from sales
or refinancing with such distributions first paying the Current Income Priority
Return, then the Growth/Shelter Priority Return, then repayment of Original
Invested Capital, and of the remainder, 5.88% to limited partners owning Current
Income Units and 94.12% to limited partners owning Growth/Shelter Units. The
limited partners' Current Income and Growth/Shelter Priority Returns represent a
10% and 8%, respectively, cumulative return on their Adjusted Invested Capital
balance, as defined. No distributions of Current Income Priority Return have
been made since 1988, and no distributions of Growth/Shelter Priority Return
have been made since the Partnership began.
In connection with a Terminating Disposition, as defined, cash from sales or
refinancing and any remaining reserves shall be allocated among, and distributed
to, the General Partner and limited partners in proportion to, and to the extent
of, their positive capital account balances after the net income has been
allocated pursuant to the above.
Net Income (Loss) Per Thousand Limited Partnership Units
- --------------------------------------------------------
Net income (loss) per thousand limited partner Current Income and Growth/Shelter
units ("Units") is computed by dividing net income (losses) allocated to the
limited partners by the weighted average number of Units outstanding expressed
in thousands. Per thousand Unit information has been computed based on 6,682,
9,419 and 9,419 weighted average Current Income Units (in thousands) outstanding
in 1996, 1995 and 1994, respectively, and 4,941, 6,689 and 6,689 weighted
average Growth/Shelter Units outstanding in 1996, 1995 and 1994, respectively.
Reclassifications
- -----------------
Certain reclassifications have been made to prior period amounts to conform with
current year presentation.
<PAGE>
NOTE 2 - CHAPTER 11 REORGANIZATION
- ----------------------------------
On June 30, 1994, the Partnership, excluding Beckley, filed a voluntary petition
for Chapter 11 reorganization. The Partnership continued to conduct its affairs
as a debtor-in-possession, subject to the jurisdiction and supervision of the
Bankruptcy Court. Concurrent with the Chapter 11 filing, the General Partner
contributed to the Partnership $4,375,661 of advances and $704,482 of accrued
interest on advances that were payable by the Partnership to the General
Partner. See Note 3 - "Transactions with Affiliates."
Woodbridge Apartments, one of the Partnership's former properties, was
encumbered by two mortgage notes payable. The first lien mortgage note payable
was co-insured by the Federal Housing Administration and was, therefore,
regulated by the United States Department of Housing and Urban Development
("HUD"). The second lien mortgage note payable was payable in monthly
installments of interest only. Such payments were limited to "surplus cash," as
defined by HUD and as calculated at June 30 and December 31 of each year. No
"surplus cash" was available to make the interest payments on the second lien,
and therefore, the Partnership ceased making such payments in April 1994. The
Partnership was unsuccessful in attempting to negotiate a restructuring of the
mortgage, and the second lienholder was expected to initiate foreclosure
proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure
proceedings.
The Partnership's Reorganization Plan, which contemplated a sale of Woodbridge
Apartments, was submitted to the Bankruptcy Court on February 13, 1995. The
Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure
Statement") was approved by the Bankruptcy Court on February 14, 1995.
The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995, to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with an Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court granted an order to sell
Woodbridge Apartments but denied confirmation of the Reorganization Plan. The
Partnership filed an appeal of the Bankruptcy Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors that
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 17, 1995.
The Partnership sold Woodbridge Apartments on May 25, 1995, and, in accordance
with the Reorganization Plan, the first and second mortgage notes payable and
the related outstanding accrued interest were paid. The Partnership also
utilized $156,566 of the proceeds from the sale to pay the settlement and legal
fees to the judgment lien creditors, as discussed above.
On September 11, 1995, the Bankruptcy Court entered an Order Regarding
Objections to Claims that allowed the Partnership to pay outstanding
pre-petition claims totaling approximately $12,000 in October 1995.
<PAGE>
As outlined in the Reorganization Plan, any payments of advances and fees owed
to affiliates of the General Partner were limited to remaining cash, after the
pre-petition and reorganization related costs were paid. The Partnership had
$37,228 of such cash available to distribute to affiliate creditors. The
remaining amounts owed to affiliates of the General Partner as of May 17, 1995
were discharged resulting in an extraordinary gain of $1,435,024.
On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1000th of a dollar per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 311 limited partners had elected to redeem 4,485,345 Units. In
connection with the redemption, the partnership obtained a "no-action" letter
from the Securities and Exchange Commission ("SEC") that provided that (1) the
redemption could be accomplished without compliance with Rule 13e-3 of the
Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an
enforcement action if the Reorganization Plan was consummated. Redemption of the
affected Units was completed on January 1, 1996.
On November 18, 1995, the Partnership submitted to the Bankruptcy Court a
request for an Application to Close Case, which was entered on December 11,
1995, and approved on February 15, 1996.
Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "reorganization expenses" on the accompanying Statements
of Operations. Interest earned on funds restricted by the Bankruptcy Court are
presented as "interest on reorganization funds" on the Statements of Operations.
<PAGE>
Summarized below are statements of operations for that portion of the
Partnership included in the Chapter 11 filing for the period from the June 30,
1994 filing date through December 31, 1994 and for the period from January 1,
1995 through December 11, 1995, the date that the Partnership requested the
Bankruptcy Court close the bankruptcy filing. The revenues and expenses
pertaining to Beckley, which was excluded from the bankruptcy filing, are
excluded.
<TABLE>
<CAPTION>
For the period For the period
January 1, 1995 June 30, 1994
through through
RESULTS OF OPERATIONS December 11, 1995 December 31, 1994
--------------------- ----------------- -----------------
<S> <C> <C>
Rental revenue..................................... $ 279,120 $ 376,280
Interest........................................... - 1,342
Interest on reorganization funds................... 9,246 -
Gain on sale of real estate........................ 554,047 -
------------ -----------
Total revenue.................................... 842,413 377,622
------------ -----------
Interest........................................... 81,695 143,776
Interest - affiliates.............................. 17,846 23,779
Depreciation....................................... 63,740 77,717
Property taxes..................................... 10,121 18,168
Personnel expenses................................. 52,858 60,719
Utilities.......................................... 34,449 31,224
Repairs and maintenance............................ 48,732 40,927
Property management fees - affiliates.............. 8,735 17,980
Other property operating expenses.................. 50,711 47,189
General and administrative......................... 35,755 20,130
Reorganization expenses............................ 257,303 -
General and administrative - affiliates............ 188,539 117,926
------------ -----------
Total expenses................................... 850,484 599,535
------------ -----------
Loss before extraordinary item..................... (8,071) (221,913)
Extraordinary gain on discharge of
payable to affiliates............................ 1,435,024 -
------------ -----------
Net income (loss).................................. $ 1,426,953 $ (221,913)
============ ===========
</TABLE>
<PAGE>
NOTE 3 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The Partnership pays property management fees equal to 5% of the Partnership's
gross rental receipts to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management and leasing
services for the Partnership's residential properties. The Bankruptcy Court
required that the property management fees for Woodbridge Apartments be reduced
to 3% of the property's gross rental receipts for the period from December 1,
1994 until May 25, 1995, the date the Partnership sold Woodbridge Apartments.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. Reimbursable costs that were incurred
prior to the Partnership's bankruptcy filing, in the amount of $520,902, were
discharged under terms of the Partnership's Reorganization Plan during 1995.
Under the terms of the Amended Partnership Agreement, the Partnership incurs an
asset management fee payable to the General Partner. Through 1999, the asset
management fee is calculated as 1% of the Partnership's tangible asset value.
Tangible asset value is determined by using the greater of (i) an amount
calculated by applying a capitalization rate of 9% to the annualized net
operating income of each property or (ii) a value of $10,000 per apartment unit
for each property to arrive at the property tangible asset value. The property
tangible asset value is then added to the book value of all other assets
excluding intangible items. The fee percentage decreases subsequent to 1999.
Asset management fees that were incurred but unpaid prior to the Partnership's
bankruptcy filing, in the amount of $366,329, were discharged under terms of the
Partnership's Reorganization Plan during 1995.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- ------------- ---------------
<S> <C> <C> <C>
Property management fees - affiliates........ $ 65,869 $ 73,021 $ 92,207
Charged to interest - affiliates:
Interest on advances from
affiliates - General Partner............ - 17,846 204,167
Charged to general and
administrative - affiliates:
Partnership administration................ 70,979 104,908 147,404
Asset management fees..................... 73,581 83,631 74,319
------------- ------------ --------------
$ 210,429 $ 279,406 $ 518,097
============= ============ ==============
</TABLE>
<PAGE>
Prior to 1992, affiliates of the Original General Partner advanced funds (the
"Purchased Advances") to enable the Partnership to meet its working capital
requirements. The Purchased Advances were purchased by, and were payable to, the
General Partner. Concurrent with the Partnership's bankruptcy filing, the
General Partner contributed the Purchased Advances to the Partnership. The
Purchased Advances contributed to the Partnership totaled $4,375,661 plus
accrued interest of $704,482.
The General Partner established a revolving credit facility not to exceed
$5,000,000 in the aggregate which was available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
were met. Borrowings under the facility could be used to fund deferred
maintenance, refinancing obligations and working capital needs. The Partnership
received advances under the revolving credit facility to fund additions to the
Partnership's real estate investments and costs incurred in connection with the
refinancing of the Partnership's mortgage notes payable. This commitment expires
on March 30, 1997. The balance of the Partnership's outstanding loans under
terms of the revolving credit facility, in the amount of $75,670 together with
$6,696 of accrued interest thereon, were discharged during 1995 under terms of
the Partnership's Reorganization Plan.
Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility to fund working capital
requirements of the Partnership. The advances were unsecured, due on demand and
accrued interest at the prime lending rate of Bank of America plus 1%. The
General Partner is not obligated to advance funds to the Partnership and there
is no assurance that the Partnership will receive additional funds. The
Partnership's other advances from the General Partner, in the amount of $280,694
together with $49,090 of accrued interest thereon, were discharged during 1995
under terms of the Partnership's Reorganization Plan.
During 1992, the Partnership received an unsecured loan of $113,000 for working
capital requirements from McNeil Real Estate Fund XXV, L.P. ("Fund XXV"). Fund
XXV owns Phase I of the Harbour Club Apartments (the Partnership owns Phase II
of Harbour Club Apartments), and is affiliated with the General Partner. The
$113,000 unsecured loan due to Fund XXV, together with $32,643 of accrued
interest thereon, were discharged during 1995 under terms of the Partnership's
Reorganization Plan.
Payable to affiliates - General Partner at December 31, 1996 and 1995 consists
of property management fees, reimbursable costs and asset management fees that
are due and payable from current operations.
NOTE 4 - TAXABLE INCOME (LOSS)
- ------------------------------
McNeil Real Estate Fund XXIII, L.P. is a partnership and is not subject to
Federal and state income taxes. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements of the Partnership since
the income or loss of the Partnership is to be included in the tax returns of
the individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
<PAGE>
The Partnership's net assets and liabilities for tax reporting purposes exceeded
the net assets and liabilities for financial purposes by $2,271,179, $2,256,527
and $2,787,669 at December 31, 1996, 1995 and 1994, respectively.
NOTE 5 - REAL ESTATE INVESTMENT
- -------------------------------
The basis and accumulated depreciation of the Partnership's real estate
investment at December 31, 1996 and 1995, are set forth in the following table:
Harbour Club II December 31,
Belleville, MI 1996 1995
----------------- ------------- ---------
Land $ 239,966 $ 239,966
Building and improvements 6,029,898 5,836,474
---------- ------------
6,269,864 6,076,440
Accumulated depreciation (2,915,422) (2,648,343)
---------- ------------
Net book value $ 3,354,442 $ 3,428,097
========== ============
The Partnership's real estate investment is encumbered by a mortgage note as
discussed in Note 6 - "Mortgage Note Payable."
NOTE 6 - MORTGAGE NOTE PAYABLE
- ------------------------------
The following table sets forth the mortgage note payable of the Partnership at
December 31, 1996 and 1995. The mortgage note payable is secured by the
Partnership's real estate investment.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position(a) Rates % Maturity 1996 1995
- -------- ----------- ------- -------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Harbour Club II First 7.50 $ 31,170 05/24 $ 4,345,052 $ 4,391,310
Discount (b) (586,672) (603,508)
---------- --------------
$ 3,758,380 $ 3,787,802
========== ==============
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) The discount for Harbour Club II mortgage note is based on an effective
interest rate of 9.13%.
<PAGE>
Scheduled principal maturities of the mortgage note under the existing
agreement, excluding the $586,672 discount, are as follows:
1997 .............................. $ 49,851
1998 .............................. 53,721
1999 .............................. 57,891
2000 .............................. 62,385
2001............................... 67,229
Thereafter ........................ 4,053,975
------------
Total $ 4,345,052
============
Based on borrowing rates currently available to the Partnership for a mortgage
loan with similar terms and average maturities, the fair value of the mortgage
note payable was approximately $3,958,000 and $4,112,000 at December 31, 1996
and 1995, respectively.
NOTE 7 - SALE OF REAL ESTATE
- ----------------------------
On May 25, 1995, the Partnership sold Woodbridge Apartments to an unrelated
third party for a cash purchase price of $3,200,000. Cash proceeds from the
sale, as well as the gain on sale of Woodbridge Apartments, are shown below:
Gain on Sale Cash Proceeds
------------ -------------
Sales Price............................... $ 3,200,000 $ 3,200,000
Selling costs............................. (121,904) (121,904)
Write-off mortgage discounts.............. (214,659) -
Basis of real estate sold................. (2,309,390) -
----------
Gain on disposition of real estate........ $ 554,047
==========
Proceeds from disposition of real estate.. 3,078,096
Retirement of mortgage notes.............. (2,641,421)
-----------
Net cash proceeds......................... $ 436,675
===========
NOTE 8 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS
- -------------------------------------------------------------
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership had suffered
recurring losses from operations and has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements.
<PAGE>
Operations at Harbour Club II Apartments, the Partnership's sole remaining
property, are expected to be sufficient to provide cash for operating expenses
and debt service for 1997. However, the property is in need of major capital
improvements in order to maintain occupancy and rental rates at a level
sufficient to fund operating expenses and debt service in future years. The
Partnership's cash reserves are inadequate to fund the needed capital
improvements, and it is unlikely that cash flow from operating activities will
be sufficient to provide for the needed capital improvements. No outside sources
of financing have been identified. Although affiliates of the Partnership have
previously provided working capital for the Partnership, there can be no
assurance that the Partnership will receive additional funds from the General
Partner or other affiliates. Management is currently attempting to negotiate a
restructuring or refinancing of the mortgage note payable to fund the needed
capital improvements; however, such financing is not assured. If the property is
unable to obtain additional funds and cannot maintain operations at a level to
pay operating expenses and debt service, the property may ultimately be
foreclosed on by the lender.
Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. The General Partner also serves as general partner of the
partnerships that own Phases I and III. Phase IV is owned by University Real
Estate Fund 12, Ltd. ("UREF 12"), whose general partner is an affiliate of
Southmark. McREMI had been managing all four phases of the complex until
December 1992, when the property management agreement between McREMI and UREF 12
was canceled. Additionally, in January 1993, Phase I defaulted on its mortgage
loan, and, unless a refinancing agreement can be reached with the lender, the
property is subject to foreclosure. If Phase I is lost to foreclosure, it would
be extremely difficult to operate Phases II and III because the pool and
clubhouse are located in Phase I. As of year end, no steps have been taken
towards the foreclosure of Phase I.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 9 - LEGAL PROCEEDINGS
- --------------------------
The Partnership is not party to, nor is the Partnership's property the subject
of, any material pending legal proceedings other than ordinary, routine
litigation incidental to the Partnership's business.
<PAGE>
NOTE 10 - PRO FORMA DISCLOSURE (UNAUDITED)
- ------------------------------------------
The following unaudited pro forma information for the years ended December 31,
1995 and 1994, reflects the results of operations of the Partnership as if the
sale of Woodbridge Apartments had occurred as of January 1, 1994. The unaudited
pro forma information is not necessarily indicative of the results of operations
that actually would have occurred or those which might be expected to occur in
the future.
For the Years Ended December 31,
--------------------------------
1995 1994
--------------- ---------------
Total revenue........................ $ 1,379,589 $ 1,220,924
Net loss............................. (210,648) (609,919)
Net loss per thousand
limited partner units:
Current Income units............... (2.01) (3.41)
Growth/Shelter units............... (28.34) (34.08)
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Cumulative Costs
Initial Cost (a) Write-down Capitalized
Related Buildings and and Permanent Subsequent
Description Encumbrances Land Improvements Impairment (b) To Acquisition
- ----------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
APARTMENTS:
Harbour Club II (c)
Belleville, MI $ 3,758,380 $ 311,119 $ 7,488,130 $ (2,104,290) $ 574,905
============= ============= ============= =========== ============
</TABLE>
(a) The initial cost and encumbrances reflect the present value of future loan
payments discounted, if appropriate, at a rate estimated to be the
prevailing interest rate at the date of acquisition.
(b) The carrying value of Harbour Club II Apartments was reduced by $1,783,702
in 1992 and $320,588 in 1989.
(c) For Federal income tax purposes, the properties are depreciated over lives
ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost
of real estate investments for Federal income tax purposes was
approximately $8,979,483 and accumulated depreciation was $5,427,983
at December 31, 1996.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total and Amortization
- ----------- ---- ------------- ------ ----------------
<S> <C> <C> <C> <C>
APARTMENTS:
Harbour Club II
Belleville, MI $ 239,966 $ 6,029,898 $ 6,269,864 $ (2,915,422)
============= ============= =============== =============
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
<S> <C> <C> <C>
APARTMENTS:
Harbour Club II (c)
Belleville, MI 1971 6/86 5-25
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
Notes to Schedule III
Real Estate Investments and Accumulated Depreciation
A summary of activity for the Partnership's real estate investments and
accumulated depreciation is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
-------------- --------------- ----------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year............... $ 6,076,440 $ 5,951,742 $ 10,226,009
Improvements............................... 193,424 124,698 105,422
Reclassification to asset held for sale.... - - (3,717,768)
Write-down for permanent
impairment of real estate........... - - (661,921)
------------- ------------- --------------
Balance at end of year..................... $ 6,269,864 $ 6,076,440 $ 5,951,742
============= ============= ==============
Accumulated depreciation:
Balance at beginning of year............... $ 2,648,343 $ 2,405,420 $ 3,370,151
Depreciation............................... 267,079 242,923 379,907
Reclassification to asset held for sale.... - - (1,344,638)
------------- ------------- --------------
Balance at end of year..................... $ 2,915,422 $ 2,648,343 $ 2,405,420
============= ============= ==============
Asset held for sale:
Balance at beginning of year............... $ - $ 2,373,130 $ -
Depreciation............................... - (63,740) -
Reclassification from real estate
investment, net......................... - - 2,373,130
Sale of real estate........................ - (2,309,390) -
------------- ------------- --------------
Balance at end of year..................... $ - $ - $ 2,373,130
============= ============= ==============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
Robert A. McNeil, 76 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI"), which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and real estate acquisitions,
syndications and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners L.P. began
in February 1991, Mr. McNeil was a
private investor. Mr. McNeil is a member
of the International Board of Directors
of the Salk Institute, which promotes
research in improvements in health care.
Carole J. McNeil 53 Mrs. McNeil is Co-Chairman, with
Co-Chairman of the husband Robert A. McNeil, of McNeil
Board Investors, Inc. Mrs. McNeil has twenty
years of real estate experience, most
recently as a private investor from 1986
to 1993. In 1982, she founded Ivory &
Associates, a commercial real estate
brokerage firm in San Francisco, CA.
Prior to that, she was a commercial real
estate associate with the Madison
Company and, earlier, a commercial sales
associate and analyst with Marcus and
Millichap in San Francisco. In 1978,
Mrs. McNeil established Escrow Training
Centers, California's first accredited
commercial training program for title
company escrow officers and real estate
agents needing college credits to
qualify for brokerage licenses. She
began in real estate as Manager and
Marketing Director of Title Insurance
and Trust in Marin County, CA. Mrs.
McNeil serves on the International Board
of Directors of the Salk Institute.
<PAGE>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
Ron K. Taylor 39 Mr. Taylor is the President and Chief
President and Executive Officer of McNeil Real Estate
Chief Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.
Each director shall serve until his successor shall have been duly elected and
qualified.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1996, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1996. The Partnership has no plans to
pay any such remuneration to any directors or officers of the General Partner in
the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of
compensation and reimbursements paid by the Partnership to the General Partner
and its affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the registrant is the beneficial owner
of more than 5 percent of the Partnership's Units.
(B) Security ownership of management.
The General Partner owns 5,000 limited partnership units, which
represents less than 1% of the outstanding Units.
(C) Change in control.
None.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items. The fee percentage
decreases subsequent to 1999. For the year ended December 31, 1996, the
Partnership accrued $73,581 of such asset management fees. Total accrued but
unpaid asset management fees of $125,897 were outstanding at December 31, 1996.
The Partnership pays property management fees equal to 5% of the gross rental
receipts of its residential properties to McREMI, an affiliate of the General
Partner, for providing property management services. Additionally, the
Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. For the year ended December 31, 1996,
the Partnership incurred $136,848 of such property management fees and
reimbursements.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
See accompanying Index to Financial Statements at Item 8.
(A) Exhibits
Exhibit
Number Description
------- -----------
4. Amended and Restated Limited Partnership
Agreement dated March 30, 1992. (Incorporated
by reference to the Current Report of the
Registrant on Form 8-K dated March 30, 1992,
as filed on April 10, 1992).
10.1 Portfolio Services Agreement dated February
14, 1991, between Southmark Realty Partners
III, Ltd. and McNeil Real Estate Management,
Inc. (1)
10.2 Modification of Note and Mortgage dated
May 1, 1984, between Knoblinks Associates II
and Samuel R. Pierce, Jr., as Secretary of
Housing and Urban Development relating to
Harbour Club II. (1)
10.3 Property Management Agreement dated March
30, 1992, between McNeil Real Estate Fund
XXIII, L.P. and McNeil Real Estate
Management, Inc. (2)
10.4 Amendment of Property Management Agreement
dated March 5, 1993. (2)
10.5 Revolving Credit Agreement dated August 6,
1991, between McNeil Partners, L.P. and
various selected partnerships, including the
Registrant. (3)
10.6 Property Management Agreement dated March
30, 1992 between Beckley Associates and
McNeil Real Estate Management, Inc. (3)
10.7 Disclosure Statement of Debtor-in-Possession
pursuant to Section 1125 of the Bankruptcy
Code. (4)
10.8 Debtor's First Amended Plan of Reorganization
(as Modified), dated February 13, 1995. (5)
10.9 Order Confirming Plan, dated May 17,
1995. (5)
11. Statement regarding computation of Net Loss
per Limited Partnership Unit (see Note 1 to
Financial Statements appearing in Item 8).
22. Following is a list of subsidiaries of the
Partnership:
<TABLE>
<CAPTION>
Names Under
Jurisdiction Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------
<S> <C> <C> <C>
Beckley Associates Michigan None
</TABLE>
<PAGE>
The Partnership has omitted certain documents pertaining to the
Partnership's Chapter 11 filing and other instruments with respect to
long-term debt where the total amount of the securities authorized
thereunder does not exceed 10% of the total assets of the Partnership.
The Partnership agrees to furnish a copy of each such instrument to the
Commission upon request.
(1) Incorporated by reference to the Quarterly
Report of the registrant, on Form 10-Q for
the period ended March 31, 1991, as filed on
May 14, 1991.
(2) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1992, as filed
on March 30, 1993.
(3) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1993, as filed
on March 30, 1994.
(4) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1994, as filed
on March 30, 1995.
(5) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1995, as filed on
April 1, 1996.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed by
the Partnership during the quarter ended December 31, 1996.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SIGNATURE PAGE
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.
McNEIL REAL ESTATE FUND XXIII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 28, 1997 By: /s/ Robert A. McNeil
- -------------- ---------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer
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.
March 28, 1997 By: /s/ Ron K. Taylor
- -------------- ----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
March 28, 1997 By: /s/ Carol A. Fahs
- -------------- ----------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 193,812
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,269,864
<DEPRECIATION> (2,915,422)
<TOTAL-ASSETS> 3,701,423
<CURRENT-LIABILITIES> 0
<BONDS> 3,758,380
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,701,423
<SALES> 1,324,331
<TOTAL-REVENUES> 1,332,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,146,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366,156
<INCOME-PRETAX> (180,141)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,141)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
