SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 1)
BALCOR PENSION INVESTORS-VII
(Name of Subject Company)
BALCOR PENSION INVESTORS-VII
(Name of Person(s) Filing Statement)
Limited Partnership Interests
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Thomas E. Meador
Chairman
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
(847) 267-1600
(Name, Address and Telephone Number of Persons Authorized to Receive Notice
and Communications on Behalf of the Person(s) Filing Statement)
Copy To:
Herbert S. Wander
Lawrence D. Levin
Katten Muchin & Zavis
Suite 1600
525 West Monroe Street
Chicago, Illinois 60661-3693
(312)902-5200
<PAGE>
This Amendment No. 1 to Schedule 14D-9 amends the Schedule 14D-9 (the
"Schedule 14D-9") filed by Balcor Pension Investors-VII, an Illinois limited
partnership (the "Partnership"), filed with the Securities and Exchange
Commission on May 29, 1996. All capitalized terms used herein but not
otherwise defined shall have the meanings ascribed to such terms in the
Schedule 14D-9.
Item 9. Material to be Filed as Exhibits
Item 9 hereby is amended by removing "4. (c)(3) The Darby Valuation
Report [to be filed by amendment]" and substituting in its place "4. (c)(3)
The Darby Valuation Report"
Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: June 3, 1996 BALCOR PENSION INVESTORS-VII
By: Balcor Mortgage Advisors-VII,
its general partner
By: The Balcor Company, a
general partner
By:./s/Thomas E. Meador
---------------------------
Thomas E. Meador, Chairman
<PAGE>
AN APPRAISAL OF
A LIMITED PARTNERSHIP INTEREST
IN
BALCOR PENSION INVESTORS - VII
SKOKIE, ILLINOIS
AS OF MARCH 31, 1996
Valuation Counselors
<PAGE>
May 8, 1996
Balcor Mortgage Advisors - VII
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
Attention: Mr. John K. Powell, Jr. - First Vice President
Gentlemen:
In accordance with your request, we are pleased to submit our opinion of the
Value of a Limited Partnership Interest in:
Balcor Pension Investors - VII
(an Illinois Limited Partnership)
as of March 31, 1996.
The term "Value" is defined as follows:
The amount, in dollars, which a Limited Partnership Interest in Balcor
Pension Investors - VII is worth to an investor who owns the Interest with
the intention of holding it to maturity, who fully understands the
complexities of the investment, and has an interest in the potential
interest income and capital appreciation of the Limited Partnership
Interest. The valuation does not represent the amount that would be
received by a holder of a Limited Partnership Interest should he/she
decide to liquidate the Interest prior to the maturity of the Partnership.
The value is subject to the terms and limiting conditions set forth in
this report.
It is anticipated that Balcor Pension Investors - VII will close at the end of
year 1999.
Based on our analyses and conclusions set forth in this report, the estimated
Value of a Limited Partnership Interest in Balcor Pension Investors - VII, as
of March 31, 1996, was in the rounded amount of:
$189.00
=======
Adjusted Original Capital, as of March 31, 1996 was $213.67. Subsequently, a
distribution of $2.16 per Limited Partnership Interest was made as a Return of
Capital, reducing the Adjusted Original Capital to $211.51.
For the quarter ended June 30, 1995, there were no changes in the value of a
Limited Partnership Interest.
For the quarter ended September 30, 1995, the value of a Limited Partnership
Interest decreased $8.00 due to a distribution of $8.33 per Limited Partnership
Interest in July 1995 as a Return of Capital.
<PAGE>
For the quarter ended December 31, 1995, the value of a Limited Partnership
Interest decreased $4.00, mainly the result of a reduction in the values of
U.S. Direct and Sand Pebble II, totaling $1,440,000 ($3.12 per Limited
Partnership Interest).
For the quarter ended March 31, 1996, the value of a Limited Partnership
Interest increased $1.00 due mainly to an increase in cash.
It is noted that this is prior to any distributions to the Limited Partners
under the Early Investment Incentive Fund. The present value of a unit of the
Early Investment Incentive Fund, as of March 31, 1996, was in the rounded
amount of:
Level 1 $4.00
=====
Level 2 $4.00
=====
Level 3 $4.00
=====
The variable components in the total Value of a Limited Partnership Interest
and their values, as estimated by Valuation Counselors Group, Inc./Darby &
Associates Joint Venture (Schedule E), are as follows:
Net Investment in Loans Receivable $13,650,000
Unamortized Portion of the Offering Expenses 4,087,875
Real Estate Acquired through Foreclosure or Purchase 65,872,643
A copy of this report is retained in our files, together with the information
from which the report was compiled.
Respectively submitted.
Sincerely,
/s/Raymond Ghelardi /s/Clement H. Darby
Valuation Counselors Group, Inc. Darby & Associates
Raymond Ghelardi Clement H. Darby
Managing Director President
REG/CHD/ded
cc: Ms. Mary J. Mojica
Ms. Jayne Kosik
Ms. Jane Cody
Ms. Terri Thompson
<PAGE>
TABLE OF CONTENTS
Statement of Facts and Limiting Conditions
Introduction
Payments to the Limited Partners and General Partner
Early Investment Incentive Fund
Valuation of a Limited Partnership Interest
Valuation of "The Net Investment in Loans Receivable"
(1) Discussion of Risk Rates
(2) The Present Value of the Return on Funds Advanced and
the Return of Principal
(3) The Present Value of the Equity Buildup and Accrued Interest
(4) The Present Value of the "Kickers"
Conclusions of Value of the "Net Investment in Loans Receivable"
Valuation of the "Real Estate Acquired Through Foreclosure
Calculation of the Unamortized Portion of the Offering Expenses
Calculation of the Value of a Limited Partnership Interest in
Balcor Pension Investors - VII
Calculation of an Interest in the Early Investment Incentive Fund
Schedule
A Distributions to the Limited Partnership
B-1 Unadjusted Balance Sheet of Balcor Pension Investors -
VII as of March 31, 1996
B-2 Statements of Income and Expenses for the quarters
ended March 31, 1996 and 1995
B-3 Statements of Cash Flows for the quarters ended
March 31, 1996 and 1995
C Loan Portfolio Summary
D-1 Real Estate Asset Summary
D-2 Real Estate Appraisal Projections
E Adjusted Balance Sheet of Balcor Pension Investors - VII
as of March 31, 1996
<PAGE>
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc./Darby & Associates Joint Venture strives to
clearly and accurately disclose the assumptions and limiting conditions that
directly affect an appraisal analysis, opinion or conclusion. In order to
assist the reader in interpreting this report, such assumptions are set forth
as follows:
Valuation Counselors Group, Inc./Darby & Associates Joint Venture reserves the
right to make adjustments to the analysis, opinion and conclusions set forth in
the report as deemed necessary by consideration of additional or more reliable
data that subsequently may become available.
No opinion is rendered as to legal fee, property title or mortgage notes
related to the appraised assets, which are assumed to be good and marketable.
It is assumed that no opinion is intended in matters that require legal,
engineering or other professional advice which has been or will be obtained
from professional sources; the valuation report will not be used for guidance
in professional matters exclusive of the appraisal and valuation discipline.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and
accurate to the best of the Appraiser's knowledge and belief. No single item
of information was completely relied upon to the exclusion of other
information.
All financial data, operating histories and other data relating to income and
expenses attributed to the assets and the Partnerships have been provided by
Management or its representatives and have been accepted without further
verification except as specifically stated in the report.
It should be specifically noted that the valuation assumes the appraised assets
will be competently managed and maintained by financially sound owners over the
expected period of ownership except where noted, specifically in assets during
the period of foreclosure where Balcor may not have control. This appraisal
engagement does not entail an evaluation of management's effectiveness, nor are
we responsible for future marketing efforts and other management or ownership
actions upon which actual results will depend.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser or Valuation Counselors Group, Inc./Darby
& Associates Joint Venture shall be disseminated to the public through public
relations media, news media, sales media, prospectus or any other public means
of communications without the prior written consent and approval of Valuation
Counselors Group, Inc./Darby & Associates Joint Venture. The date of the
valuation to which the value estimate conclusion applies is set forth in the
report.
The preponderance of working paper support for this valuation is maintained in
the offices of management, Balcor Mortgage Advisors.
Neither the fees nor any of the terms and conditions of the appraisal
assignments given to Valuation Counselors Group, Inc./Darby & Associates Joint
Venture by Balcor Mortgage Advisors are contingent upon the values reported.
<PAGE>
No independent investigation of the fair market value of the underlying real
estate assets has been made by Valuation Counselors Group, Inc./Darby &
Associates Joint Venture. We have reviewed the real estate appraisals for
reasonableness, but have assumed the real estate appraisals obtained by Balcor
Mortgage Advisors are independent and accurate. Valuation Counselors assumes
responsibility for real estate appraisals prepared by their own staff.
No independent investigation of the terms and conditions of the mortgage loans
made by Balcor Pension Investors - VII has been made. We have relied on data
furnished to us by Balcor Mortgage Advisors and the validity of the information
was assumed to be correct.
In the event that this appraisal is used as basis to set a market price for a
Limited Partnership Interest in Balcor Pension Investors - VII, no
responsibility is assumed for the seller's inability to obtain a purchaser at
the value reported herein.
The reader of this valuation report should be fully conversant with the terms
and conditions of Balcor Pension Investors - VII Limited Partnership as set
forth in the Prospectus, other related documents, and the prior appraisals of a
Limited Partnership Interest in Balcor Pension Investors - VII.
We have discussed the current status and condition of the mortgage loans and
real estate owned with the management of Balcor Mortgage Advisors and have
accepted their comments as being factual.
<PAGE>
INTRODUCTION
Balcor Pension Investors - VII ("BPI - VII") is a Limited Partnership organized
October 25, 1985, pursuant to the Uniform Limited Partnership Act of the State
of Illinois. The Partnership serves as an investment vehicle for qualified
pension, profit-sharing and other retirement trusts; bank commingled trust
funds for such trusts; Individual Retirement Accounts and plans for
self-employed individuals; government pension and retirement trusts; and other
entities intended to be exempt from Federal income taxation such as certain
religious, charitable, scientific, literary and educational corporations, funds
and foundations. The Limited Partnership provides for Balcor Mortgage Advisors
- - VII to be the General Partner. The sale of the Limited Partnership Interests
were at $250 per interest up to a maximum of 1,600,000 interests. The offering
period, during which interests were sold by Balcor Pension Investors - VII,
commenced March 11, 1986, and terminated January 31, 1987. As of January 31,
1987, the closing date, 461,470 Limited Partnership Interests had been sold.
The Partnership's investment objective was to make first mortgage loans,
wrap-around mortgage loans and other junior mortgage loans. As of March 31,
1996, the loan portfolio consisted of one participating first mortgage loan
(Whispering Hills Apts.). The portfolio contains six Real Estate Owned
properties; U.S. West Direct Center (Busch Forum), Sand Pebble Village I, which
was formerly a mortgage loan but was taken back through foreclosure, Sand
Pebble Village II, an acquisition, Hickory Creek Apts. which was foreclosed on
March 11, 1994, Butler Plaza, acquired through foreclosure January 5, 1995 and
a 53% interest in Jonathan's Landing acquired through foreclosure in July 1995.
Unfunded monies totaling $9,228,073 were invested in short-term money market
instruments and in demand deposit bank accounts.
In June 1987, the Partnership and an affiliated Partnership entered into an
agreement to fund a $15,700,000 first mortgage loan collateralized by the
Whispering Hills Apartments located in Overland Park, Kansas. The Partnership
participates ratably in 75% of the loan. Major structural defects were
uncovered in the Property. The borrower had defaulted on certain payments due
under the terms of the loan. Pursuant to a settlement agreement between the
Participants and the borrowers, which was effective March 15, 1989, the
interest on the loan was changed from a rate ranging from 8.5% to 9.5% to a
rate ranging from 4.0% to 10.0% over the term of the loan. All delinquent
interest due from the borrowers through the settlement date was forgiven.
Effective on the settlement date, Balcor Property Management, Inc., an
affiliate of the General Partner, was appointed to manage the property on
behalf of the borrowers. Additionally, the Participants agreed to lend
additional funds on a noninterest bearing basis to be used to make certain
repairs to the property, to pay for costs and fees incurred by the borrower,
and to fund operating deficits during the time that the affiliate is managing
the property. Repairs were completed. An appraisal of the property was
completed which concluded on a value of $14,000,000 as of August 11, 1992.
This resulted in an allocation of $10,500,000 for Balcor Pension Investors -
VIII vs. a former estimate of value of $9,525,000. It should be noted that an
additional portion of this mortgage loan is in Balcor Pension Investors - V.
In September 1994, the Whispering Hills litigation was settled when the
Partnership received $750,000. The property was reappraised as of February 8,
1995, for $18.2 million. In addition certain funds were recapitalized into
funds advanced. The allocated appraised value, as of March 31, 1996, is
$13,650,000.
<PAGE>
An additional $7,550,000 was advanced on the Hickory Creek Apartments mortgage
loan in the quarter ending September 30, 1988, and $2,000,000 on the Butler
Plaza Shopping Center in the quarter ending December 31, 1988.
On June 6, 1990, the Partnership received a partial paydown of principal,
equity kicker and interest on Jonathan's Landing Apts. mortgage loan totaling
$2,738,969. The principal reduction was $1,590,000 and the remaining
$10,865,000 was reset into a one year loan. Subsequently, the loan was
extended until May 1997. In January 1995 the loan was placed in default and
accelerated. A foreclosure sale was held on July 14, 1995 and the asset is now
carried as Real Estate Owned at a value of $11,333,612 based on projected 1996
cash flow.
The U.S. West Direct Center Office Building (Busch Forum) loan was classified
as Real Estate owned as of July 1990, having been acquired through foreclosure.
It was appraised for $10,100,000 as of January 1, 1991, and reappraised, on the
basis of its projected 1996 cash flow, for $11,755,033 as of March 31, 1996.
In April 1991, the Sand Pebble Village Apartments mortgage loan went into
default. As a result the Partnership and an affiliated partnership cashed a
letter of credit of $750,000. The Partnership's share of the proceeds of
$412,500 was applied against the principal balance of the loan. On July 31,
1992, the property was acquired through foreclosure and the loan was
reclassified to Investment in Real Estate Owned. Its allocated value (55.36%)
was $11,985,440 based on an appraisal of $21,650,000 for the entire property as
of September 5, 1991. The asset has been revalued on the basis of its
projected 1996 cash flow, as of March 31, 1996, for its allocated value of
$10,650,423.
A joint venture consisting of the Partnership and an affiliate (Balcor Pension
Investors - VI) purchased the Sand Dune Apartments, in Riverside, California
(Sand Pebble Village II), adjacent to the Sand Pebble Apartments, on October
26, 1993, for $9,300,000. The joint venture took out a $5,000,000 first
mortgage loan to finance the purchase. As of March 31, 1996, its allocated
value (55.36%) is $6,669,748, based on projected 1996 cash flow.
In July 1994, the loan collateralized by Eastgate MHP was prepaid for net
proceeds of $6,267,693. The Hickory Creek Apartments mortgage loan became Real
Estate Owned on March 11, 1994 and is valued at $15,663,827 based on projected
1996 cash flow.
In the quarter ended June 30, 1992, the value of the Butler Plaza S.C. mortgage
loan was reduced $1.2 million as the result of revised projections. In the
quarter ended September 30, 1993, the value was reduced to funds advanced of
$12,245,538 and for the quarter ended March 31, 1994, its value was further
reduced to $9.1 million based on an appraisal. For the quarter ended December
31, 1994, it was valued at $9.8 million. On January 5, 1995, the property was
foreclosed and became Real Estate Owned and is valued at $9,800,000.
On October 25, 1993, the Skyway MHP mortgage loan was paid off. The
Partnership's 33 1/3% share was $3,711,112, a gain of $223,000 over the June
30, 1993 valuation.
The stated objectives of Balcor Pension Investors - VII are as follows:
1. Preservation and protection of Limited Partners' capital;
<PAGE>
2. Provide the Limited Partners with regular quarterly cash distributions;
3. Provide the Limited Partners with additional cash distributions through
the receipt of deferred interest;
4. Maximize cash distributions over the life of the Partnership (estimated
to be 12 years) through the receipt of additional interest in the form of
equity participations.
On wrap-around mortgage loans the intent is to generate a higher total return
on investment through the "equity buildup" portion of a wrap-around mortgage
whereby there is a spread in the principal reduction between the wrap-around
mortgage and the underlying mortgage loans. Although there is a mathematical
buildup of this equity during the life of the loan, the material benefit of the
equity buildup normally is not realized until the maturity of the wrap-around
loan - which usually occurs in a period of from ten to fifteen years from the
initial funding of the loan. To date, the Partnership has not funded any
wrap-around mortgages where there is the benefit of equity buildup.
Furthermore, there are potential additional earnings available from a
participation in the future gross income as well as a participation in the
appreciated value of the properties on which Balcor Pension Investors - VII has
made first mortgage loans to date. These potential earnings are commonly known
as "kickers."
(1) Source: Balcor Pension Investors - VII Balance Sheet as of March 31, 1996,
Schedule B-1. The Net Investment in Loans Receivable includes funds advanced
as well as earned equity buildup and earned accrued interest, discounted to a
present value, and miscellaneous adjustments.
<PAGE>
PAYMENTS TO THE LIMITED PARTNERS AND GENERAL PARTNER
The Limited Partnership, Balcor Pension Investors - VII, is a partial self-
liquidating real estate investment fund. As of March 31, 1996, the Partners'
capital was invested in six real estate owned properties and one real estate
loan (Whispering Hills Apts.). Interest income and amortization, as well as
interests in gross income of certain properties, after deducting the General
Partners' expenses, income and reserves, is distributed to the Limited Partners
under certain formulae, terms and conditions set forth in the Limited
Partnership Agreements and described in the summary in the previous section.
The remaining Limited Partners' capital, and interests in the appreciation of
certain properties is distributed to the Limited Partners upon the maturity
and/or the successful payoff of the loans.
The Prospectus of Balcor Pension Investors - VII indicated that during the
offering period, which expired on January 31, 1987, as well as during the term
of the Partnership, distributions are to be made to the investors. The
following schedule sets forth the actual distributions made to the Partnership
to date.
<PAGE>
SCHEDULE A
DISTRIBUTIONS TO THE LIMITED PARTNERSHIP
Effective Number of Annual
Date Interests Rate Amount Paid
thru 3/87 various Offering $2,482,859
period
Interest
of 7.25%
5/31/87 461,470 6.13 1,767,429
6/87 461,470 - 253,808
($0.55 per Interest as a Return of Capital)
8/31/87 461,470 5.90 1,698,209
9/87 461,470 - 323,029
($0.70 per Interest as a Return of Capital)
12/31/87 461,470 7.04 2,021,238
3/31/88 461,470 7.04 2,021,239
6/30/88 461,470 4.82 1,384,410
9/30/88 461,470 4.82 1,384,410
12/31/88 461,470 5.21 1,495,163
1/89 461,470 119,982
($0.26 per Interest as a Return of Capital)
3/31/89 461,470 5.04 1,444,401
4/89 461,470 $55,376
($0.12 per Interest as a Return of Capital)
6/30/89 461,470 4.54 1,301,345
7/89 461,470 - 175,358
($0.38 per Interest as a Return of Capital)
9/30/89 461,470 4.03 1,153,675
12/31/89 461,470 4.03 1,153,675
3/31/90 461,470 4.03 1,153,675
4/90 461,470 - 7,780,384
($16.86 per Interest as a Return of Capital)
6/30/90 461,470 7.96 2,122,762
7/90 - 913,711
($1.98 per Interest as a Return of Capital)
9/30/90 461,470 4.36 1,153,675
12/31/90 461,470 4.36 1,153,675
3/31/91 461,470 5.24 1,384,410
6/30/91 461,470 5.24 1,384,410
9/30/91 461,470 5.24 1,384,410
12/31/91 461,470 5.24 1,384,410
3/31/92 461,470 5.24 1,384,410
6/30/92 461,470 5.24 1,384,410
7/92 461,470 - 1,845,880
($4.00 per Interest as a Return of Capital from
prior Note Repayments)
9/30/92 461,470 5.33 1,384,410
12/31/92 461,470 5.33 1,384,410
3/31/93 461,470 5.33 1,384,410
6/30/93 461,470 5.33 1,384,410
9/30/93 461,470 5.33 1,384,410
12/31/93 461,470 5.33 1,384,410
3/31/94 461,470 5.33 1,384,410
<PAGE>
Effective Number of Annual
Date Interests Rate Amount Paid
6/30/94 461,470 5.33% $1,384,410
9/30/94 461,470 5.33 1,384,410
12/31/94 461,470 5.33 1,384,410
1/95 461,470 - 1,453,631
($3.15 per Interest as a Return of Capital)
3/31/95 461,470 3.60 922,940
6/30/95 461,470 3.60 922,940
7/95 461,470 - 3,842,353
($8.33 per Interest as a Return of Capital)
9/30/95 461,470 5.62 922,940
12/31/95 461,470 5.62 1,384,410
3/31/96 461,470 5.62 1,384,410
($3.00 per Interest)
4/96 461,470 - 996,775
($2.16 per Interest as a Return of Capital)
The Partnership Agreement provides that the General Partner will receive loan
application and loan processing fees paid by borrowers, subject to certain
limitations, when the Partnership funds mortgage loans or issues commitments to
fund mortgage loans and may receive additional loan fees paid by the
Partnership upon full specificity of the offering and the funding of all loans.
The General Partner will service the Partnership's mortgages and will receive a
mortgage servicing fee, payable not more frequently than monthly, at an annual
rate equal to 1/4 of 1% of the amounts advanced by the Partnership and
outstanding from time to time. The General Partner is also reimbursed for
certain expenses incurred in connection with the organization of and the day to
day operations of the Partnership.
Pursuant to the Partnership Agreement, all profits of the Partnership will be
allocated 90% to the Limited Partners and 10% to the General Partner, and all
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partner.
After the termination of the offering and then to the extent that Cash Flow is
distributed, distributions will be made as follows: (I) 90% of such Cash Flow
will be distributed to the Limited Partners, (ii) 7.5% of such Cash Flow will
be distributed to the General Partner, and (iii) an additional 2.5% of such
Cash Flow will be distributed to the General Partner and shall constitute the
Early Investment Incentive Fund. Upon the liquidation of the Partnership, the
General Partner will return to the Partnership for distribution to Early
Investors amounts available in the Early Investment Incentive Fund, if
necessary for Early Investors to receive a return of their Original Capital
plus a specified Cumulative Return based on the date of investment. Subject to
certain limitations, the General Partner may repurchase Interests from existing
Limited Partners from amounts available in the Early Investment Incentive Fund.
As set forth in the Partnership Agreement, the Partnership is obligated to pay
to the purchasers of Limited Partnership Interests an amount equivalent to
interest at the initial rate of 7.25% per annum on the total purchase price of
an Interest. This rate may be increased or decreased at the sold discretion of
the General Partner. The amounts payable under this provision ceased to
accumulate on January 31, 1987, the termination date of the offering.
<PAGE>
EARLY INVESTMENT INCENTIVE FUND
Cash Flow available for distribution will be distributed on a quarterly basis
after the close of the first full operating quarter following the termination
of the offering. Ninety per cent of such Cash Flow will be distributed to
Limited Partners. Ten per cent of such Cash Flow will be paid to the General
Partner as its distributive share from Partnership operations, provided that
25% of the General Partner's share will be allocated to the Early Investment
Incentive Fund described below, and will be returned to the Partnership by the
General Partner at the dissolution of the Partnership if necessary to enable
Early Investors to receive a return of their Original Capital plus a Cumulative
Return determined as follows: (I) for Interests purchased on or before August
30, 1986, 13.0% per year.
Originally the Prospectus provided that, upon liquidation of the Partnership,
the General Partner will return to the Partnership 25% of its 10% share of Cash
Flow to the extent necessary to permit the Partnership to pay any deficiency in
the return to Limited Partners of their Original Capital and their applicable
Cumulative Returns in the following amounts: 13% per annum for Interests
purchased on or before June 30, 1986, and 11% per annum for Interests purchased
on or after July 1, 1986.
Subsequently the General Partner decided to extent the early investment
incentive period to August 29, 1986. Consequently, subject to the limitations
described below, the Cumulative Return will be increased from 11% to 13% per
annum for Interests purchased on or subsequent to June 30, 1986 and prior to
August 30, 1986. However, in order to ensure that Limited Partners who
purchased Interests on or before June 30, 1986 will not receive a lower return
as a result of the extension of the early investment period, distributions from
the General Partner's share of Cash Flow, to the extent necessary, will be made
as follows: first, to all Limited Partners, until they shall have received a
Cumulative Return of 11% per annum; next, to all Limited Partners who purchased
Interests on or before June 30, 1986 until they shall have received a
Cumulative Return of 13% per annum; and finally, to all Limited Partners who
purchased Interests subsequent to June 30, 1986 but prior to August 30, 1986,
until they shall have received a Cumulative Return of 13% per annum. The
Cumulative Return for Interests purchased by Limited Partners after August 29,
1986 will remain at 11% per annum.
In the event that on dissolution of the Partnership, cash available for
distribution and the amounts allocated to the Early Investment Incentive Fund
are not sufficient to return to Early Investors their Original Capital plus the
Cumulative Return, the amount of any funds in the Early Investment Incentive
Fund will be distributed first to all Early Investors until they shall have
received a Cumulative Return equal to the rate described in period (ii) above,
and then to those Early Investors who purchased Interests in period (I) above.
As noted above, 25% of the General Partner's share of Cash Flow shall be
allocated to the Early Investment Incentive Fund when and as distributions of
Cash Flow are made to the Limited Partners and the General Partner. The
amounts in the Early Investment Incentive Fund will be commingled with other
assets of the General Partner and may be utilized to repurchase Interests from
Limited Partners as set forth under "Description of the Partnership Agreement
- -- Repurchase of Interests."
<PAGE>
VALUATION OF A LIMITED PARTNERSHIP INTEREST
The methodology used in estimating the Value of a Limited Partnership Interest
in Balcor Pension Investors - VII is based upon substituting the estimated
value of the mortgage loan portfolio in place of the "Net Investment in Loans
Receivable" as shown on the March 31, 1996, Balance Sheet of Balcor Pension
Investors - VII. In addition, the unamortized portion of the Offering Expenses
is added to the Assets on the same Balance Sheet. The amortization is
calculated by reducing the total Offering Expenses, as set forth in the
financial statements, on a straight line basis, quarterly, to the expiration
date of the loan portfolio. For financial reporting purposes, Balcor Pension
Investors - VII initially deducted the total Offering Expenses from the
proceeds of the Limited Partnership Interest. Where equities exist, they are
included in the Balance Sheet (Schedule E) at their market value based on
independent real estate appraisals or estimates based on the cash flows of the
properties. Schedules D-1 and D-2 summarize the calculations of Partnership
Asset Values for the Real Estate Acquired Through Foreclosure.
Future General Partner fees and related expenses are not present valued as an
expense because of their unpredictability but rather are taken as a charge in
the quarter incurred.
Valuation Counselors Group, Inc./Darby & Associates Joint Venture has been
retained by Balcor Mortgage Advisors - VII to estimate the Value of a Limited
Partnership Interest in Balcor Pension Investors - VII on a quarterly basis.
In order to accomplish this, we valued the "Net Investment in Loans Receivable"
as well as calculated the "Unamortized Portion of the Offering Expenses."
Cash and Investments in Certificates of Deposit and Marketable Securities are
considered short term investments since eventually all but a working capital
reserve will be funded in real estate loans and real estate owned or returned
to the investor. Consequently, they remain in the valuation at face value in
both Schedules B-1 and E.
A simplified version of the Balance Sheet of Balcor Pension Investors - VII,
prepared by Balcor Mortgage Advisors - VII, before the aforementioned
adjustments, is on the following Schedule B-1. Schedules B-2 and B-3 are
Statements of Income and Expense.
<PAGE>
SCHEDULE B-1
UNADJUSTED BALANCE SHEET
BALCOR PENSION INVESTORS - VII
AS OF MARCH 31, 1996
(UNAUDITED)
Assets
Cash and Cash Equivalents $ 1,274,587
Marketable Securities 7,953,486
Escrow deposits 172,428
Interest Receivable on Short-term Investments 29,932
Accounts and Accrued Interest Receivable 200,133
Interest Receivable on First Mortgage Loans 177,656
Capital Contribution due from joint venture
partner - affiliate (89,873)
Deferred Expenses 88,984
Prepaid Expenses 29,570
Net Investment in Loans Receivable (Whispering Hills) 10,595,842
Real Estate Held for Sale (net of allowance for
potential losses of $4,537,000)(1) 70,835,852
-----------
Total Assets $91,268,597
===========
Liabilities
Accounts Payable $ 236,517
Accrued liabilities, principally real estate taxes 539,623
Security Deposit 425,323
Due to Affiliates 46,625
Mortgage note payable (Sand Pebble Village Apts. II) 4,873,519
-----------
Total Liabilities $6,121,607
Affiliate's participation in joint venture 18,496,983
(Sand Pebble Village Apartments)
Partners' Capital
(461,470 Limited Partnership Interests) 66,650,007
-----------
Total Liabilities and Partners' Capital $91,268,597
===========
(1) U.S. West Direct, Jonathan's Landing, Sand Pebble Village I and II, Hickory
Creek and Butler Plaza.
<PAGE>
SCHEDULE B-2
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Income:
Interest on loans
receivable, net of
amortization of loan
application and processing
fees of $11,124 in 1995 $ 155,721
Income from operations of
real estate held for sale $ 2,203,981 1,759,757
Interest on short-term
investments 111,678 179,960
------------- -------------
Total income 2,315,659 2,095,438
------------- -------------
Expenses:
Administrative 138,713 152,139
------------- -------------
Total expenses 138,713 152,139
------------- -------------
Income before affiliates'
participation in income
of joint ventures 2,176,946 1,943,299
Affiliates' participation in
income of joint ventures (564,019) (367,648)
------------- -------------
Net income $ 1,612,927 $ 1,575,651
============= =============
Net income allocated to
General Partner $ 161,293 $ 157,565
============= =============
Net income allocated to
Limited Partners $ 1,451,634 $ 1,418,086
============= =============
Net income per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 3.15 $ 3.07
============= =============
Distribution to General Partner $ 153,823 $ 102,549
============= =============
Distribution to Limited Partners $ 1,384,410 $ 2,376,571
============= =============
Distribution per Limited Partnership
Interest $ 3.00 $ 5.15
============= =============
<PAGE>
SCHEDULE B-3
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -----------
Operating activities:
Net income $ 1,612,927 $ 1,575,651
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Affiliates'
participation in
income of joint ventures 564,019 367,648
Amortization of
deferred expenses 6,712 6,712
Amortization of loan
application and
processing fees 11,124
Net change in:
Escrow deposits (91,909) (49,799)
Accounts and accrued
interest receivable (41,427) (42,553)
Prepaid expense 91,332
Accounts payable (13,115) (47,782)
Due to affiliates 20,009 38,957
Accrued liabilities 257,847 167,505
Escrow liabilities 86,850
Security deposits 14,705 (1,025)
----------- -----------
Net cash provided by
operating activities 2,421,100 2,113,288
----------- -----------
Investing activity:
Costs incurred in connection
with real estate acquired
through foreclosure (229,111)
-----------
Net cash used in investing
activity (229,111)
-----------
Financing activities:
Distribution to Limited
Partners (1,384,410) (2,376,571)
Distribution to General
Partner (153,823) (102,549)
Distributions to joint
venture partners -
affiliates (236,194)
Principal payments on
mortgage note payable (14,111) (13,146)
----------- -----------
Net cash used in financing
activities (1,788,538) (2,492,266)
----------- -----------
Net change in cash and cash
equivalents 632,562 (608,089)
Cash and cash equivalents at
beginning of year 8,595,511 13,194,808
----------- -----------
Cash and cash equivalents at
end of period $ 9,228,073 $ 12,586,719
=========== ===========
<PAGE>
VALUATION OF "THE NET INVESTMENT IN LOANS RECEIVABLE"
The value of the "Net Investment in Loans Receivable" (the loan portfolio) is
equal to the present value of the various income and equity components of the
loan portfolio, discounted at current market rates of interest, commensurate
with the risks, as of March 31, 1996.
The income and equity components of the loan portfolio are as follows:
(1) The present value of the average annual rate of return on funds advanced
(cash received) over the life of the loans,
(2) The present value of the funds advanced, due at maturity,
(3) The present value of the equity buildup and accrued interest, and
(4) The present value of the "kicker" income, i.e., a share in the future gross
income and the appreciated value, "equity kickers," in certain properties.
(1) Discussion of Risk Rates
The discount rate applied to the cash flow mathematically expresses risk. Risk
represents the uncertainty related to achievement of the prospective cash
flows. The primary components of risk exposure in fixed income securities are
interest rate risk, inflation risk, market risk, liquidity risk and risk of
default. As previously discussed, the valuation of the assets in question have
been predicated upon the present valuing of the components of the loan
portfolio. Therefore, determination of an appropriate risk rate is essential
in the valuation of the net investment in loans receivable.
Financial theory dictates the necessity of incremental return resulting from
incremental risk. Accordingly, the typical risk/return tradeoff indicates that
investors should demand greater rates of return as the perceived riskiness of
the asset or security increases. In examining an investment situation, a
hypothetical investor would weigh the perceived level of risk against the
return expected from the subject investment. In determining the required rate
of return or discount rate on a particular asset or investment, the
hypothetical investor would also consider returns available from alternative
investment opportunities such as government securities, corporate bonds,
mortgages, real estate and common stock, if applicable.
The subject assets consist of a self-liquidating real estate investment fund
with investments in both real estate loans with varying maturities and real
estate assets. Accordingly, in determining an appropriate risk rate associated
with the subject assets, we have considered alternative and comparable rates of
return in the lending and real estate marketplace as indicated by such sources
as the Wall Street Journal, Real Estate Research Corporation Real Estate
Report, Investment Dealers Digest, Corporate Financing Week, American Council
of Life Insurance Investment Bulletin and the National Association of Real
Estate Investment Trusts.
The following table presents yield rates associated with various types of
government and corporate securities as indicated by the March 29,1996 and
January 3, 1996 Wall Street Journals.
<PAGE>
Yield Rates as Indicated by the Wall Street Journal
Security First Quarter 1996 Fourth Quarter 1995
Three Month U.S. Treasury Bills 4.99% 5.04%
Six Month U.S. Treasury Bills 4.97% 5.03%
Prime Rate 8.25% 8.50%
Ten Year U.S. Treasury Bonds 6.60% 5.64%
Twenty Year U.S. Treasury Bonds 6.90% 6.02%
Corporate Bonds
Aaa, Aa 6.72% to 7.60% 6.02% to 6.96%
A, Baa 6.95% to 7.91% 6.23% to 7.31%
Ba, C 9.8% 9.7%
Collateralized Mortgage
Obligations
10 Year 7.90% 6.94%
20 year 8.05% 7.17%
Additionally, information from Moody's Corporate Bond Survey and the Investment
Dealer's Digest indicates the corporate original issue Real Estate Mortgage
Investment Conduit (REMIC) yields from 1988 to 1995 ranged from 7% to 11.3% for
obligations with terms in excess of ten years. A yield difference of one to
three points was exhibited within multiple class REMIC issues where accrued
interest payments did not commence on the (higher yielding) security until
senior class notes were paid in full. A short term issuance collateralized by
elderly living properties exhibited a four point yield differential between
classes.
According to information from the Mortgage-Based Securities Letter, REMIC
issuances in 1994 have decreased substantially from the levels exhibited during
1992 and 1993. Reportedly, many REMIC underwriters and investors incurred
losses due to price corrections in the derivative mortgage securities market.
The price decline was believed to be attributable to several factors including
rising interest rates, increased volatility, average-life extension and lack of
liquidity. According to the Wall Street Journal, new issues of mortgage-backed
securities were down 57% in 1994 as compared to the prior year.
In addition to the previously noted yields on various market securities, we
have also considered mortgage rates associated with various types of commercial
real estate properties. This data is relevant in that it provides an
indication of rates of return associated with similar types of investments.
These statistics have been extracted from the December 29, 1995 and October 1,
1995 editions of the Investment Bulletin published by the American Council of
Life Insurance, is as follows:
<PAGE>
Averages
Contract Interest
Rate
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 7.83% 8.23%
Apartment 7.64% 8.13%
Office Building 7.98% 8.23%
Retail 7.79% 8.17%
Industrial 7.84% 8.21%
Other Commercial 7.73% 8.47%
Yield With
Fees
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 7.85% 8.24%
Apartment 7.67% 8.15%
Office Building 8.00% 8.24%
Retail 7.81% 8.18%
Industrial 7.85% 8.22%
Other Commercial 7.74% 8.51%
Maturity
(Years/Months)
Type of Loan
Property Type Third Quarter Second Quarter
1995 1995
FIXED RATE-FIXED TERM 11/06 11/02
Apartment 10/11 10/09
Office Building 10/0 09/07
Retail 13/05 10/06
Industrial 10/08 10/00
Other Commercial 11/04 12/02
Additionally, we have considered expected capitalization rates and internal
rates of return extracted from "Korpacz Real Estate Investor Surveys, First
Quarter 1996". For comparative purposes, we have also presented similar data
extracted from "Korpacz Real Estate Investor Surveys, Fourth Quarter 1995".
<PAGE>
National Market Indicators: First Quarter 1996
National Market Indicators: First Quarter 1996
Retail Office
(National Regional (Central Business
Malls) District)
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.50% 10.00%-15.00% 12.10%
Free and Clear Equity Cap
Rate 6.25%-11.00% 8.11% 8.00%-12.50% 9.58%
Terminal Cap Rate 7.00%-11.00% 8.56% 8.25%-12.00% 9.62%
Office National
(National Suburban) Industrial
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.90% 9.00%-14.00% 11.27%
Free and Clear Equity Cap
Rate 8.00%-11.00% 9.47% 7.25%-13.00% 9.29%
Terminal Cap Rate 8.50%-12.00% 9.68% 8.00%-11.00% 9.51%
National
Apartment
Range Average
Free and Clear Equity IRR 10.50%-13.00% 11.38%
Free and Clear Equity Cap
Rate 7.50%-10.50% 8.97%
Terminal Cap Rate 8.00%-11.00% 9.29%
<PAGE>
National Market Indicators: Fourth Quarter 1995
Retail Office
(National Regional (Central Business
Malls) District)
Range Average Range Average
Free and Clear Equity IRR 10.00%-14.00% 11.55% 10.00%-15.00% 12.15%
Free and Clear Equity Cap
Rate 6.25%-11.00% 7.86% 7.50%-12.50% 9.52%
Terminal Cap Rate 7.00%-11.00% 8.45% 8.25%-12.00% 9.63%
Office National
(National Suburban) Industrial
Range Average Range Average
Free and Clear Equity IRR 10.00%-15.00% 12.04% 9.00%-14.00% 11.31%
Free and Clear Equity Cap
Rate 8.00%-11.50% 9.57% 7.25%-13.00% 9.36%
Terminal Cap Rate 8.50%-12.00% 9.75% 8.00%-11.00% 9.58%
National
Apartment
Range Average
Free and Clear Equity IRR 10.00%-13.00% 11.50%
Free and Clear Equity Cap
Rate 7.50%-10.50% 8.99%
Terminal Cap Rate 8.00%-11.00% 9.31%
Our discount rates have been selected based upon the returns exhibited on
alternative securities and real estate properties as previously presented, in
conjunction with the attributes of the subject assets.
Risk Measurement in Real Estate
As previously discussed, the primary components of risk exposure for fixed
income securities include interest rate risk, inflation risk, market risk,
liquidity risk and default risk. For real estate, these risks are similar and
can be segmented into two categories. The first is systematic risk which
includes all risks external to the property. The remaining risks can be
categorized as nonsystematic risk and includes all risks directly related to
the property. Generally, systematic risk affects the overall market as a whole
and is often referred to as market risk. However, nonsystematic risk is
generally more attributable to the property specifics. Nonsystematic risk can
be further broken down into risk relative to the immediate neighborhood or
local market with the residual risks being unique to the property.
<PAGE>
When viewing an investment in a single property, the systematic overall market
risk, the nonsystematic local market risk and the nonsystematic unique property
risks must be weighed in the derivation of an appropriate risk rate (discount
rate) to be applied to anticipated cash flows. The overall market risks would
include such factors which effect the market as a whole. Among these factors
would be the level of interest rates, the economic condition of the nation,
federal tax incentives related to real estate and the expected inflation rate.
Each of these factors can have a direct effect on real estate throughout the
nation.
Nonsystematic local market risks are those that effect a regional area or
neighborhood and are not part of the overall market risk. There are many types
of possible local market risks. Some examples of local market risk include
fluctuations in the local economy, changes in transportation systems, local
crime rates and over building. These local market risks may be severe enough
to override the effects of the overall market risk.
Property unique risks are those which effect the subject property in a manner
more specific than the local market risks. Many of the property unique risks
are similar to the local market risks but are more significant for the subject
property. Some examples of property specific risks would include dependence on
single industries or tenants, crime frequency on the property, changes in
immediate traffic patterns, changes in adjacent zoning or adjacent property
conditions and unanticipated capital improvement requirements. These property
specific risks may have a material impact on the property but may not be
reflected in the local market risks.
Investments in individual property would reflect three groups of risks
including the systematic overall market risks, the nonsystematic local market
risks and the nonsystematic property unique risks. However, modern portfolio
theory recognizes that through investment diversification, the nonsystematic
risks associated with the local market and the unique attributes of the
property can be reduced. Furthermore, with sufficient diversification, a
portfolio can virtually eliminate nonsystematic risk.
The benefits of portfolio diversification are reflected in the improvement of
the portfolio's return-risk ratio. The return-risk ratio measures the return
of the investment relative to the volatility of the return. Generally, the
volatility of return is measured by the standard deviation of the return over a
period of time. Therefore, the return-risk ratio is simply the return of the
investment divided by the standard deviation of the return.
As an example of the application of this ratio, assume that portfolio A invests
in only one type of property in one local market and experiences an average
annual return of 13% over fifteen years with a standard deviation of return of
17%. The return-risk ratio is computed to be 0.76 (13% divided by 17%).
Portfolio A's risk-return ratio can then be compared to the ratio of other
portfolios to evaluate the level of return relative to the risk taken.
To illustrate, assume portfolio B invests in a wide variety of property types
in a numerous geographical regions and only generated an annual return of 12%
over fifteen years. However, the standard deviation of return was only 13%.
The return-risk ratio is computed to be 0.86 (12% divided by 13%). Even though
portfolio A's return exceeded portfolio B's return, the superior return was not
enough to offset the increase in risk. Therefore, an investor would likely
prefer an investment in Portfolio B.
<PAGE>
It should be noted, however, that with the reduction in the volatility of
returns, modern portfolio theory also recognizes that there is a reduction in
the level of potential return. This is because that volatility generally
provides the opportunity for added returns. This is the basis for the axiom
that greater risk equals greater reward. However, an investor generally
requires that the increase in risk is offset by an increase in potential
return. Conversely, if an investor is looking for a lower risk, the investor
would expect lower returns.
In the instant case, the discount rates selected for the appraisal of
individual properties which are expected to be sold in the near future reflect
all the systematic and nonsystematic risks associated with each individual
property. The discount rates are derived considering overall market factors,
local market factors and property unique factors. However, for those
properties which are valued as real estate investments on the basis of their
cash flows, the discount rate applied reflects the benefits of reduced
nonsystematic risks through portfolio diversification. These benefits include
the offsetting of local market risks and property unique risks of each property
with the local market risks and property unique risks of the other properties
in the portfolio. As a result, the volatility of returns for each property is
offset by the volatility of returns of the other properties in the portfolio.
The discount rates applied to the latter category of properties are derived
from market data on portfolio returns, which reflect the dichotomies described
above.
(2) The Present Value of the Return on Funds Advanced and the Return of
Principal
Schedule C lists one first mortgage loan (Whispering Hills Apts.), with total
funds advanced of $14,428,076.
In the case of the Whispering Hills first mortgage loan, the loan is valued on
the basis of its 75% allocation of the appraised value of $18,200,000, or
$13,650,000
-----------
(3) The Present Value of the Equity Buildup and Accrued Interest
As of March 31, 1996, no accrued interest is attributed to the mortgage loan in
this portfolio.
(4) The Present Value of the Income and Equity Kickers
No values have been assigned to kickers as of March 31, 1996.
<PAGE>
SCHEDULE C
BALCOR PENSION INVESTORS VII
LOAN PORTFOLIO SUMMARY
AS OF: 31-Mar-96
DISCOUNT RATES: FIRSTS
DATE DATE DISCOUNTING CURRENT
LOAN OF OF TERM FUNDS
DEAL TYPE FUNDING MATURITY (IN QUARTERS) ADVANCED
- --------------------------------------------------------------------------
WHISPERING HILLS APTS FIRST 23-Jun-87 01-Jul-99 13.00 14,428,076
1,2
-----------
14,428,076
1. Valued at less than the amount of Funds Advanced
2. Valued at allocated appraised value of $13,650,000.
75% in BPI-VI, 25% in BPI-V
DISCOUNT RATES: FIRSTS 10.25% 10.25% 10.25% 10.25%
DISCOUNTED DISCOUNTED DISCOUNTED
FUNDS DEBT EQUITY DISCOUNTED
DEAL ADVANCED SERVICE BUILD-UP NOTES
- ---------------------- ----------------------------------------------
WHISPERING HILLS APTS 13,650,000 0 0 0
----------------------------------------------
13,650,000 0 0 0
LESS: GP 10% SHARE 0 0 0
LESS: GP 5% SHARE (on Loans Valued
at Funds Outstanding) 0
----------------------------------------------
NET TO LIMITED PARTNERS 13,650,000 0 0 0
==============================================
DISCOUNT RATES: FIRSTS 10.25% 15.00% 15.00%
<PAGE>
DISCOUNTED DISCOUNTED DISCOUNTED TOTAL
ACCRUED INCOME EQUITY CURRENT
DEAL INTEREST KICKERS KICKERS VALUATION
- ---------------------- ----------------------------------------------
WHISPERING HILLS APTS 0 0 0 13,650,000
----------------------------------------------
0 0 0 13,650,000
LESS: GP 10% SHARE 0 0 0 0
LESS: GP 5% SHARE (on Loans Valued
at Funds Outstanding) 0
----------------------------------------------
NET TO LIMITED PARTNERS 0 0 0 13,650,000
==============================================
<PAGE>
CONCLUSIONS OF VALUE OF THE "NET INVESTMENT IN LOANS RECEIVABLE"
The value of the "Net Investment in Loans Receivable" is the sum of the present
values of the various components of the loans described in the foregoing
sections of this report. Our conclusions are summarized as follows:
(1) The Present Value of the Return on Funds
Advanced and Return of Principal $13,650,000
(2) The Present Value of the Accrued Interest 0
(3) The Present Value of the Income and
Equity Kickers 0
-----------
Total Value of the "Net Investment in Loans
Receivable" as of March 31, 1996 $13,650,000
===========
<PAGE>
VALUATION OF THE "REAL ESTATE ACQUIRED THROUGH FORECLOSURE"
Balcor Pension Investors - VII began in 1987 as a Limited Partnership with an
investment objective to make mortgage loans. Because of the general decline in
the real estate market over the past several years, it was necessary for the
Partnership to acquire a number of the assets, secured by the mortgage loans,
through foreclosure or accepting the deed in lieu of foreclosure. As of March
31, 1996, the Partnership owned five Real Estate Assets Acquired Through
Foreclosure and one property acquired outright. Several others have been sold
or liquidated prior to this date.
In arriving at an estimate of the value of each asset a number of factors were
considered. Important to the analysis was the Partnership's policy on the
assets as to whether an asset would be retained until the maturity of the
Partnership or sold in the near-term. The decision to sell in the near-term
might be on the basis that there is no long-term potential for the asset to
materially increase in value or that substantial dollars might be necessary to
renovate and repair the asset. Also, the Partnership may have received an
offer to purchase the property for a price that would be difficult to refuse,
based on the factors known at this time. The decision to hold an asset until
the maturity of the Partnership indicates it is to be considered as an
investment with the assumption that the asset will grow in value.
Schedule D-1 lists the six Real Estate Assets in Balcor Pension Investors - VII
presently owned by the Partnership. Hickory Creek Apts. was added through
foreclosure in March 1994, Butler Plaza in January 1995 and Jonathan's Landing
in July 1995. The first column indicates the Asset Present Value without
regard to potential payments to the General Partner. The remaining columns set
forth the calculations to determine if there is Excess Value, and, if so, what
amount is due the General Partner. The last column is the Partnership Asset
Value, which is equal to the Asset Present Value minus the General Partner
Share of Excess. The Partnership Asset Value includes the Underlying Mortgage,
where applicable, since the Underlying Mortgage is deducted later in Schedule E
- - Liabilities.
Schedule D-2 is a summary of the calculations of the Asset Present Value for
each real estate asset in Balcor Pension Investors - VII. With the exception
of Butler Plaza, which is valued on the basis of an appraisal, the assets are
valued as real estate investments on the basis of their projected 1996 cash
flows. The projected cash receipts up to the projected sale date are
discounted at 10.00% to a present value. The final years' net cash receipts
are capitalized at 9% and the residual is discounted at 10.50% to a present
value. There is a sales cost allowance of 2.50% on the gross price.
<PAGE>
The valuation methodology of the Real Estate Assets Acquired Through
Foreclosure represents a procedure modification commencing with the quarterly
valuation as of December 31, 1992. Prior to that date we relied heavily on
independent appraisals which, by the very nature of the ever changing real
estate market, quickly became obsolete. In addition, it is noted that, in many
cases, when Balcor took over the management of the assets, there was a marked
improvement in the cash flow. In those funds where it is expected that the
assets may be held to maturity to maximize their value, the assets are
generally valued on the basis of each asset's predicted cash flows. These cash
flows and the residual values are discounted at rates more related to holding
the asset to its maturity rather than forcing a sale in today's market. As
previously stated, where the intention is to sell the asset in the near-term,
an independent appraisal or an internal estimate of value predicated on a
near-term sale may be more appropriate.
It should be noted that, as we made the modifications in the valuation
procedures, there were significant changes in the asset value of some of the
individual Real Estate Assets Acquired Through Foreclosure, however, the
overall value of the portfolio did not change substantially. It is believed
that individual values arrived as a result of the revised procedures would
better represent their current asset values based on the assumptions set forth
herein.
<PAGE>
SCHEDULE D-1
Real Estate Asset Summary
BALCOR PENSION INVESTORS VII
ASSET
PRESENT LESS: LESS:
VALUE UNDERLYING FUNDS EXCESS
PROPERTY 31-Mar-96 MORTGAGE OUTSTANDING VALUE
- --------------------------------------------------------------------------
U.S. West Direct (Busch Forum)11,755,033 0 12,087,611 (332,578)
Sandpebble Village (55.36%) 10,650,423 0 11,987,500 (1,337,077)
Sandpebble Village II (55.36%) 6,669,748 4,873,519 2,424,539 (628,311)
Hickory Creek Apartments 16,069,031 0 12,017,000 4,052,031
Butler Plaza 9,800,000 0 11,856,166 (2,056,166)
Jonathan's Landing (53.00%) 11,385,680 0 10,865,000 520,680
--------------------------------------------
66,329,914 4,873,519 61,237,816 218,579
GENERAL
PARTNER
SHARE OF NET PARTNERSHIP
EXCESS EXCESS ASSET VALUE
PROPERTY AT 10% VALUE 31-Mar-96
- ------------------------------ ---------------------------------
U.S. West Direct (Busch Forum) 0 (332,578)11,755,033
Sandpebble Village (55.36%) 0 (1,337,077)10,650,423
Sandpebble Village II (55.36%) 0 (628,311) 6,669,748
Hickory Creek Apartments 405,203 3,646,827 15,663,827
Butler Plaza 0 (2,056,166) 9,800,000
Jonathan's Landing (53.00%) 52,068 468,612 11,333,612
---------------------------------
457,271 (238,692)65,872,643
<PAGE>
SCHEDULE D-2
Real Estate Appraisal Projections
BALCOR PENSION INVESTORS VII
REO - Discounted Cash Flow Analysis as of 31-Mar-96
PROJECTION SOURCE: APPRAISAL PROJECTIONS
DISCOUNT RATES:
Net Cash Receipts 10.00%
Residual Value 10.50%
Sales Commission 2.50%(on Gross Price)
Quarter Factor (for formula reference) 1
ACTUAL ACTUAL ACTUAL ACTUAL
1992 1993 1994 1995
Net Cash Receipts --------------------------------------------
Reo Investments
U.S. Direct (Busch Forum)
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 1,026,569 994,514 1,007,592
TI/LC/Capital 0 219,313 175,827 150,561
--------------------------------------------
Net Cash Receipts 0 807,256 818,687 857,031
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sandpebble Village (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 577,734 887,846 918,347
TI/LC/Capital 0 23,893 112,742 95,184
--------------------------------------------
Net Cash Receipts 0 553,841 775,104 823,163
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sandpebble Village II (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 0 589,960 559,108
TI/LC/Capital 0 0 70,389 62,552
--------------------------------------------
Net Cash Receipts 0 0 519,571 496,556
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hickory Creek Apartments
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 0 1,081,189 1,416,591
TI/LC/Capital 0 0 606,884 153,324
--------------------------------------------
Net Cash Receipts 0 0 474,305 1,263,266
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
<PAGE>
Butler Plaza
Appraised Value at 1/95
NOI B4 TI/LC/Capital 0 0 0 0
TI/LC/Capital 0 0 0 0
--------------------------------------------
Net Cash Receipts 0 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Jonathan's Landing (53.00%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 0 0 293,694
TI/LC/Capital 0 0 0 181,979
--------------------------------------------
Net Cash Receipts 0 0 0 111,715
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS 0 1,361,097 2,587,667 3,551,731
Budget Pro-ject Pro-ject Pro-ject
1996 1997 1998 1999
--------------------------------------------
U.S. Direct (Busch Forum)
Balcor Internal Projections
NOI B4 TI/LC/Capital 1,018,733 950,469 1,200,578 0
TI/LC/Capital 291,574 492,363 60,571 0
--------------------------------------------
Net Cash Receipts 727,159 458,106
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 12,945,691
Sandpebble Village (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 936,588 971,538 1,008,490 1,046,825
TI/LC/Capital 94,710 97,434 97,434 170,509
--------------------------------------------
Net Cash Receipts 841,878 874,105 911,057 876,316
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 11,659,890
Sandpebble Village II (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 586,843 608,694 631,826 655,824
TI/LC/Capital 63,398 60,675 60,675 106,180
--------------------------------------------
Net Cash Receipts 523,445 548,019 571,152 549,643
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 7,303,439
<PAGE>
Hickory Creek Apartments
Balcor Internal Projections
NOI B4 TI/LC/Capital 1,435,338 1,485,425 1,537,415 1,591,225
TI/LC/Capital 152,061 148,800 145,080 154,380
--------------------------------------------
Net Cash Receipts 1,283,277 1,336,625 1,392,335
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 17,087,750
Butler Plaza
Appraised Value at 1/95
NOI B4 TI/LC/Capital 0 0 0 0
TI/LC/Capital 0 0 0 0
--------------------------------------------
Net Cash Receipts 0 0 0
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 0
Jonathan's Landing (53.00%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 995,636 1,038,394 1,083,992 1,131,555
TI/LC/Capital 228,439 122,112 152,640 152,640
--------------------------------------------
Net Cash Receipts 767,197 916,282 931,352 978,915
GROWTH RATE 1.04
CAPPED VALUE @ 9.00% 12,626,891
TOTAL NCR FROM INVESTMENTS 4,142,956 4,133,137 3,805,895 2,404,874
Pro-ject Pro-ject Pro-ject Pro-ject
2000 2001 2002 2003
--------------------------------------------
U.S. Direct (Busch Forum)
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 0 0 0
TI/LC/Capital 0 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
<PAGE>
Sandpebble Village (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 1,086,592 0 0 0
TI/LC/Capital 114,385 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sandpebble Village II (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 680,717 0 0 0
TI/LC/Capital 72,817 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hickory Creek Apartments
Balcor Internal Projections
NOI B4 TI/LC/Capital 0 0 0 0
TI/LC/Capital 0 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Butler Plaza
Appraised Value at 1/95
NOI B4 TI/LC/Capital 0 0 0 0
TI/LC/Capital 0 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Jonathan's Landing (53.00%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 1,181,168 0 0 0
TI/LC/Capital 173,427 0 0 0
--------------------------------------------
Net Cash Receipts
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS 0 0 0 0
<PAGE>
Asset PV as of
31-Mar-96
-----------
U.S. Direct (Busch Forum)
Balcor Internal Projections
NOI B4 TI/LC/Capital 894,725 NCR Present Value
TI/LC/Capital 10,860,308 Residual Present Value
-----------
Net Cash Receipts 11,755,033 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sandpebble Village (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 2,639,421 NCR Present Value
TI/LC/Capital 8,011,002 Residual Present Value
-----------
Net Cash Receipts 10,650,423 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Sandpebble Village II (55.36%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 1,651,874 NCR Present Value
TI/LC/Capital 5,017,874 Residual Present Value
-----------
Net Cash Receipts 6,669,748 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Hickory Creek Apartments
Balcor Internal Projections
NOI B4 TI/LC/Capital 3,096,057 NCR Present Value
TI/LC/Capital 12,972,973 Residual Present Value
-----------
Net Cash Receipts 16,069,031 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
Butler Plaza
Appraised Value at 1/95
NOI B4 TI/LC/Capital 0 NCR Present Value
TI/LC/Capital 9,800,000 Residual Present Value
-----------
Net Cash Receipts 9,800,000 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
<PAGE>
Jonathan's Landing (53.00%)
Balcor Internal Projections
NOI B4 TI/LC/Capital 2,710,295 NCR Present Value
TI/LC/Capital 8,675,385 Residual Present Value
-----------
Net Cash Receipts 11,385,680 Asset Present Value
GROWTH RATE 1.04
CAPPED VALUE @ 9.00%
TOTAL NCR FROM INVESTMENTS
Total Net Cash Receipts PV 10,992,372 Total NCR PV
Total Residual Value PV 55,337,542 Total Residual PV
-----------
TOTAL PRESENT VALUES 66,329,914 TOTAL PRESENT VALUES
<PAGE>
CALCULATION OF THE UNAMORTIZED PORTION OF
THE OFFERING EXPENSES
The expected termination date of Balcor Pension Investors - VII is December
1999. The unamortized portion of the offering expenses, as of March 31, 1996,
is calculated on a straight line basis over the life of the mortgage loan
portfolio as follows:
Total Offering Expenses through March 31, 1996 - $13,081,178
----------
Quarterly Amortization based on 48 quarters - $272,525
--------
Unamortized Portion as of March 31, 1996 = $13,081,178 - 8,993,303 =
$4,087,875
==========
(15 Remaining Quarters)
<PAGE>
CALCULATION OF THE VALUE OF A LIMITED PARTNERSHIP INTEREST
IN BALCOR PENSION INVESTORS - VII
The calculation of the Value of a Limited Partnership Interest in Balcor
Pension Investors - VII calls for the substitution of the value of the assets
appraised for the related accounting numbers. The following Schedule E, which
is Schedule B-1 modified for the values of the appraised assets, summarizes the
calculations.
<PAGE>
SCHEDULE E
ADJUSTED BALANCE SHEET
BALCOR PENSION INVESTORS - VII
AS OF MARCH 31, 1996
(UNAUDITED)
Assets
Cash and Cash Equivalents $ 1,274,587
Marketable Securities 7,953,486
Escrow deposits 172,428
Interest Receivable on Short-Term Investments 29,932
Accounts and Accrued Interest Receivable 200,133
Interest Receivable on First Mortgage Loans 177,656
Capital contribution due from joint venture
partner - affiliate (89,873)
Deferred Expenses 88,984
Prepaid Expenses 29,570
Net Investment in Loans Receivable (1) 13,650,000
Unamortized Portion of Offering Expenses 4,087,875
Investment in Real Estate (2) 65,872,643
-----------
Total Assets $93,447,421
===========
Liabilities
Total Liabilities (including mortgage note payable
of $4,873,519 (Sand Pebble Village Apts. II) $ 6,121,607
Partners' Capital, adjusted
for Value (461,470 Limited
Partnership Interests) 87,325,814
-----------
Total Liabilities and Partners' Capital $93,447,421
===========
(1) From Schedule C.
(2) From Schedule D-1.
<PAGE>
The Value of a Limited Partnership Interest in Balcor Pension Investors - VII
as of March 31, 1996 =
Partners' Capital, Adjusted for Value of the Assets
--------------------------------------------------- =
Number of Partnership Interests
$87,325,814
----------- = $189.23
461,470 =======
Rounded $189.00
=======
<PAGE>
CALCULATION OF AN INTEREST IN THE EARLY INVESTMENT
INCENTIVE FUND ("FUND")
As described in an earlier section of this report, the Partnership Agreement
provides that, under certain terms and conditions, 2.5% of the cash flow
distributed be set aside in the Early Incentive Investment Fund for payment, on
the dissolution of the Partnership, to three levels of investors who purchased
Interests (1) on or before June 30, 1986 (2) subsequent to September 30, 1986
but prior to August 30, 1986, and (3) on or after August 30, 1986. For the
purpose of this valuation 142,415 Early Investor Interests qualified for level
(1), 133,485 for level (2) and 185,750 for level (3).
The valuation is based on the sum of (1) the present value of the Early
Investors' 25% share in the General Partners' 10% share of certain designated
earnings of the Partnership, (2) the Early Investors Capital as of March 31,
1996, and (3) the present value of the future earnings from repurchased
interests.
General Partners' 10% Share of 3/31/96 Valuation $ 0
Early Investor 25% Share of future earnings 0
Early Investor Capital 1,891,201
Present Value of Future Earnings on Repurchased
Shares 0
----------
$1,891,201
==========
Value per unit, level 1 $4.10
=====
level 2 $4.10
=====
level 3 $4.10
=====
Rounded Value per unit, level 1 $4.00
=====
level 2 $4.00
=====
level 3 $4.00
=====
