UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15528
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BALCOR PENSION INVESTORS-VII
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(Exact name of registrant as specified in its charter)
Illinois 36-3390487
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Pension Investors-VII (the "Registrant") is a limited partnership formed
in 1985 under the laws of the State of Illinois. The Registrant raised
$115,367,500 from sales of Limited Partnership Interests. The Registrant's
operations consists of an investment in one first mortgage loan and the
operation of six properties, five of which were acquired through foreclosure.
All financial information included in this report relates to this industry
segment.
The Registrant originally funded eight loans. As a result of the repayments and
foreclosures of seven loans, the Registrant had one loan in its portfolio as of
December 31, 1996 which is accounted for as real estate held for sale. Five
properties were acquired through foreclosure and one property adjacent to a
property acquired through foreclosure was purchased. The Registrant sold four
properties in 1996. As of December 31, 1996, the Registrant had two properties
in its portfolio. See "Item 2. Properties" for additional information.
The Registrant's remaining properties face various levels of competition for
retention of their tenants from similar types of properties in the vicinities
in which they are located. The Registrant has no plans to change the current
use of or to renovate any of its remaining properties.
Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction. While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997. However, values
could begin to level off as they approach replacement cost triggering new
construction and an increase in capitalization rates.
The investment market for apartments was excellent during 1996 due to a number
of factors. Investor interest was strong, driven primarily by institutions, as
Real Estate Investment Trusts aggressively expanded their portfolios and
pension funds viewed apartments as an attractive asset class due to their
perceived low volatility and the emergence of large professional property
management companies. Operationally, existing apartment properties registered
on a national basis occupancy in the mid 90's and rental rate increases of
3-4% in 1996. While above the rate of inflation, the rate of rental growth in
1996 was below that of the previous two years suggesting that the apartment
cycle may have plateaued, especially as the impact of new construction in many
areas is being felt. While 1997 is projected to be another solid year, values
should begin to level off as capitalization rates move upward continuing a
trend which began during the second half of 1996.
Currently, office properties are attracting the most interest from real estate
investors. While new apartment construction has been underway since 1995, the
office sector has just entered its development phase in most markets and new
construction is generally only proceeding with strong tenant pre-leasing.
Occupancy rates are at their highest level in years, reaching the 90s in a
vast number of markets. As a result, rents have finally begun to increase at
<PAGE>
rates well in excess of inflation in many markets around the country. As a
result of these fundamentals, office properties have increasingly become in
strong demand by investors. Values increased significantly during 1996 and are
expected to do so again in 1997. Suburban properties are attracting attention
as well. Still, office properties remain a highly volatile sector where one
new build-to-suit office building for a major tenant could throw a market into
relapse. In addition, office space is highly vulnerable to corporate
restructuring and the growing "telecommuting" trend. The Registrant believes
the combination of strong price increases and future volatility make this an
excellent time to sell office assets.
The outlook for the retail sector of the investment real estate industry is
uncertain for 1997. The retail industry is being simultaneously impacted by a
number of factors which are likely to affect values for quite some time. As
retailers battle to gain market dominance, tenant bankruptcies have grown.
Consolidation among retailers has and is expected to continue to occur. Unlike
other asset classes, new construction of power centers went unabated in the
early 1990's, creating an oversupply of space including "big box" anchor
tenant space. Regional malls, which are not the dominant center in the market,
face continued out-migration of retailers to the power centers. Finally
shopping patterns continue to shift due to the aging baby boomers, high
consumer debt, alternative distribution channels, and the greater emphasis on
entertainment. As a result, the capital requirements necessary to maintain a
shopping center's competitiveness are all significant, but with uncertain
returns. The Registrant believes there is significant risk to holding retail
assets for future upside potential.
During 1996, the Registrant sold the Hickory Creek - Phases I and II, Sand
Pebble Village - Phases I and II and Jonathan's Landing apartment complexes.
Currently, the Registrant has entered into contracts for the sale of the U.S.
West Direct Center Office Building and the Butler Plaza Shopping Center. See
"Other Information", below, for additional information. The Registrant is
actively marketing the Whispering Hills Apartments for sale. The timing of the
termination of the Registrant and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Registrant including, but not limited to the lawsuit
described in "Item 3. Legal Proceedings." In the absence of any contingency,
the reserves will be paid within twelve months of the last property being sold.
In the event a contingency exists, reserves may be held by the Registrant for a
longer period of time.
During August, September and November 1996, the Registrant sold the Sand Pebble
Village - Phases I and II, Hickory Creek and Jonathan's Landing apartment
complexes in all cash sales for $31,500,000, $14,300,000 and $21,300,000,
respectively. See "Item 7. Liquidity and Capital Resources" for additional
information.
The Registrant received notice of an unsolicited offer for the purchase of
Limited Partnership Interests ("tender offer") on January 1, 1997. The tender
offer was made by First Trust Co., L.P. and stated that their primary motive in
making the offer is to make a profit from the purchase of the interest. First
Trust Co., L.P. is seeking to acquire up to 4.9% of the total interest
outstanding of the Registrant.
<PAGE>
The Registrant received notice of an unsolicited offer for the purchase of
Limited Partnership Interests ("tender offer") on March 14, 1997. The tender
offer was made by Madison Partnership Liquidity Investors XXII, LLC and stated
that their primary motive in making the offer is to make a profit from the
purchase of the interest. Madison Partnership Liquidity Investors XXII, LLC is
seeking to acquire up to 4.9% of the total interest outstanding of the
Registrant. The Registrant will incur administrative costs in responding to the
tender offer and may incur additional costs if additional tender offers are
made in the future. The General Partner cannot predict with any certainty what
impact this tender offer or any future tender offers will have on the
operations or management of the Registrant.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure is subject to federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate.
The General Partner is not aware of any potential liability due to
environmental issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-VII, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Other Information
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U.S. West Direct Center Office Building
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As previously reported, on January 14, 1997, the Registrant contracted to sell
the U.S. West Direct Center Office Building, Murray, Utah, to an unaffiliated
party, Office Opportunity Fund III, L.P., a California limited partnership, for
a sale price of $14,250,000. Pursuant to an amendment, the closing was extended
from February 14, 1997 to April 15, 1997.
Butler Plaza Shopping Center
- ----------------------------
In 1986, the Registrant funded a $13,000,000 loan evidenced by promissory note
and secured by a first mortgage on the Butler Plaza shopping center,
Casselberry, Florida. In 1995 the Registrant obtained title to the property
through foreclosure.
On March 25, 1997, the Registrant contracted to sell the property for a sale
price of $5,500,000 to an unaffiliated party, Sterling Investment Co., Inc., a
Florida corporation. The purchaser has deposited $200,000 into an escrow
account as earnest money. The remainder of the sale price will be payable in
cash at closing, scheduled to occur no later than April 30, 1997. From the
proceeds of the sale, the Registrant will pay $137,500 to an affiliate of the
third party providing property management services for the property as a
brokerage commission. The Registrant will receive the remaining proceeds of
approximately $5,362,500, less closing costs. Neither the General Partner nor
any affiliate will receive a brokerage commission in connection with the sale
of the property. The General Partner will be reimbursed by the Registrant for
actual expenses incurred in connection with the sale.
<PAGE>
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the property may not occur.
Item 2. Properties
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As of December 31, 1996, the Registrant directly owns the two properties
described below, both of which are owned in fee simple.
Location Description of Property
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Murray, Utah U.S. West Direct Center: a six-story office
building containing approximately 134,000 square
feet.
Orlando, Florida Butler Plaza: a shopping center containing
222,903 square feet located on approximately 23
acres.
The Whispering Hills Apartments loan is accounted for as real estate held for
sale; however, the Registrant presently does not hold title to this property.
The property is located in Overland Park, Kansas.
The average occupancy rates and effective average rent per square foot for each
of the last five years for the two commercial properties owned by the
Registrant at December 31, 1996, are described below.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
U.S. West Direct
Occupancy rate 99% 93% 93% 100% 100%
Effective rent $13.02 $12.78 $13.55 $11.94 $11.85
Butler Plaza
Occupancy rate 71% 84% N/A N/A N/A
Effective rent $6.21 $6.64
The Butler Plaza Shopping Center was acquired by the Registrant through
foreclosure in January 1995.
Information regarding tenants occupying 10% or more of the leasable square feet
of each commercial property is provided below.
<PAGE>
Scheduled
Lease Lease
Square Base Rent Expiration Renewal
Property Tenant Feet Per Annum Date Option
--------- ------- ------ --------- ------- -------
U.S. West Health 57,184 $785,012 6/1999 No
Direct Center Benefits
(Health Care
-Claims
Benefits)
U.S. West 25,029 $405,434 8/2001 Yes
Direct
(Telephone,
Insurance
Conglomerate)
Butler Plaza Publix 34,000 $98,600 2/1998 Yes
Supermarket
(Grocery
Store)
Ross Dress 42,862 $201,232 1/2003 Yes
for Less
(Discount
Department
Store)
Real estate taxes incurred in 1996 for the above properties totaled $287,842.
The Federal tax basis of the Registrant's properties totaled $17,968,756 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the properties are depreciated over a useful life of 40 years using the
straight-line method. Other minor assets are depreciated over the applicable
recovery periods.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate held for sale.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726, U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates were the
defendants. The complaint alleged violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in the Related Partnerships and alleged breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
<PAGE>
and Corrupt Organizations Act. The complaint sought compensatory and punitive
damages.
A settlement of these proceedings was approved by the District Court on
November 20, 1996 on the terms previously described in the form of settlement
agreement attached as Exhibit 99 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996. Distributions to be paid pursuant to the
settlement were paid in February 1997. All proceedings relating to this matter
are now dismissed.
Proposed Class and Derivative Action Lawsuits
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims again the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the Balcor Defendants' and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs amended their complaint on October 8, 1996,
adding additional claims. The plaintiffs requested certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers. Each of the defendants filed motions to dismiss the complaint.
On January 7, 1997, the Chancery Court denied the plaintiffs' motion for leave
to amend the complaint and dismissed the matter with prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time whether or
not an unfavorable decision in this action would have a material adverse impact
on the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources", below.
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 15,251.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total income $8,479,046 $7,382,764 $9,012,908 $7,000,942 $7,051,802
Recovery of losses on
loans, real estate
and accrued interest
receivable 2,080,943 None 1,137,000 None None
Provision for
potential losses on
loans, real estate
and accrued interest
receivable 3,935,000 None 1,137,000 4,150,000 3,000,000
Income before extra-
ordinary item 7,248,516 5,424,542 6,238,369 2,400,958 2,319,684
Net income 7,167,815 5,424,542 6,238,369 2,400,958 2,319,684
Net income per
Limited Partnership
Interest 13.97 10.58 12.17 4.68 4.52
Total assets 43,826,611 94,180,552 89,991,386 90,585,381 88,668,751
Mortgage note
payable None 4,887,630 4,941,641 4,991,956 None
Distributions per
Limited Partnership
Interest (A) 72.16 20.48 12.00 12.00 16.00
(A) These amounts include distributions of original capital of $58.16, $11.48
and $4.00 per Limited Partnership Interest for the years 1996, 1995 and 1992,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
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<PAGE>
Operations
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Summary of Operations
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During 1996, Balcor Pension Investors-VII (the "Partnership") sold the Hickory
Creek, Sand Pebble Village - Phase II and Jonathan's Landing apartment
complexes, and recognized significant gains for financial statement purposes in
connection with these sales. In addition, the Partnership sold the Sand Pebble
Village - Phase I Apartments and recognized a recovery of a previously
established loss allowance related to this property. The Partnership also
recognized a provision for potential losses related to the Butler Plaza
Shopping Center. The combined effect of these events resulted in an increase in
net income during 1996 as compared to 1995.
The Partnership recognized lower net income in 1995 as compared to 1994 due to
a decrease in interest income on loans receivable as a result of a loan
prepayment and three foreclosures in 1995 and 1994. The additional income
recognized from the operations of real estate held for sale in 1995 partially
offset the decrease in interest income on loans receivable. Further discussion
of the Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
Interest income on loans receivable ceased in July 1995 as a result of the
foreclosure of the Jonathan's Landing Apartments' loan. As a result, interest
income on loans receivable ceased during 1996 as compared to 1995.
Income from operations of real estate held for sale represents the net
operations of seven properties, four of which were sold during 1996. Original
funds advanced by the Partnership total approximately $37,775,000 for the three
remaining properties. The Partnership sold the Sand Pebble Village - Phases I
and II, Hickory Creek and Jonathan's Landing apartment complexes in August,
September and November 1996, respectively. The property sales resulted in a
decrease in income from operations of real estate held for sale of
approximately $1,305,000 during 1996 as compared to 1995. The Partnership
acquired the Jonathan's Landing Apartments through foreclosure in July 1995.
The Partnership recognized its share of the additional income generated by the
property in 1996 of approximately $503,000, which partially offset this
decrease.
As a result of higher cash balances due to proceeds received from the 1996
property sales and held by the Partnership prior to distribution to Limited
Partners in October 1996, interest income on short-term investments increased
in 1996 as compared to 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties. Determinations of fair
value are made periodically, but not less than annually, on the basis of
assessments of property operations. Determinations of fair value represent
estimates based on many variables which affect the value of real estate,
including economic and demographic conditions. During 1996, the Partnership
recognized a provision of $3,935,000, a recovery of $2,080,943 and write off of
$2,456,057 of a previously established loss allowance related to the
Partnership's real estate held for sale. The recovery and write off were
<PAGE>
recognized in connection with the sale of the Sand Pebble Village - Phase I
Apartments. The provision was recognized to provide for changes in the estimate
of the fair value of the Butler Plaza Shopping Center. The Partnership did not
recognize any provisions during 1995.
The Partnership incurred higher legal, consulting, printing, postage and
investor processing costs in connection with its response to a tender offer
during the second quarter of 1996. As a result, administrative expenses
increased during 1996 as compared to 1995.
During 1996, the Partnership sold the Sand Pebble Village - Phase II, Hickory
Creek and Jonathan's Landing apartment complexes. As a result, the Partnership
recognized gains in connections with these sales totaling $8,104,310 for
financial statement purposes.
As mentioned above, during 1996 the Partnership recognized gains of the sales
of the Sand Pebble Village - Phase II and the Jonathan's Landing apartment
complexes, the minority joint venture partner's share of which was $1,097,289
and $999,473, respectively. In addition, the Partnership recognized a recovery
of a previously established loss allowance in connection with the sale of the
Sand Pebble Village Apartments - Phase I, of which the minority joint venture
partner's share was $928,725. The combined effect of these events resulted in
an increase in affiliates' participation in income from joint ventures during
1996 as compared to 1995.
In connection with the sale of Sand Pebble Village Apartments - Phase II, the
Partnership incurred a prepayment penalty of $145,775 which was recognized as
an extraordinary item and classified as debt extinguishment expense. The
minority joint venture partner's share of the extraordinary item is $65,074.
1995 Compared to 1994
- ---------------------
The prepayment of the Eastgate Village Mobile Home Park loan in July 1994 and
the foreclosures of the Hickory Creek Apartments' loan in March 1994, the
Butler Plaza Shopping Center loan in January 1995 and the Jonathan's Landing
Apartments' loan in July 1995, resulted in a decrease in interest income on
loans receivable during 1995 as compared to 1994.
Income from operations of real estate held for sale represents the net
operations of the seven properties owned by the Partnership during 1995.
Original funds advanced by the Partnership total approximately $77,360,000 for
these seven properties. The Partnership acquired the Butler Plaza Shopping
Center in January 1995 and the Jonathan's Landing Apartments in July 1995, both
of which generated income during 1995. In addition, income from operations at
Hickory Creek Apartments - Phases I and II increased substantially in 1995 as a
result of maintenance expenditures which were deferred by the former owner of
the property and then completed by the Partnership in 1994 after the
foreclosure. These were the primary reasons for the increase in income from
operations of real estate held for sale during 1995 as compared to 1994.
As a result of higher average cash balances in 1995 resulting from the
discounted prepayment of the Eastgate Village Mobile Home Park loan in 1994 and
higher interest rates in 1995, interest income on short-term investments
increased during 1995 when compared to 1994. The proceeds from the Eastgate
loan repayment were distributed in July 1995.
<PAGE>
During 1994, the Partnership recognized a recovery of $1,137,000 relating to
its loans, and recognized a provision of $1,137,000 related to the Sand Pebble
Village Apartments - Phase I to provide for changes in the estimate of the fair
value of this property.
Legal fees were incurred in 1994 in connection with the Whispering Hills
Apartments' litigation and the foreclosures of the loans secured by the Butler
Plaza Shopping Center and the Hickory Creek Apartments - Phases I and II. This
was the primary reason for the decrease in administrative expenses during 1995
as compared to 1994.
The joint venture partner's share of income generated from the operations of
the Jonathan's Landing Apartments, which was acquired through foreclosure in
July 1995, and the recognition in 1994 of the joint venture partner's share of
a loss provision related to the change in the estimate of the fair value of the
Sand Pebble Village Apartments - Phase I, resulted in an increase in
affiliates' participation in income from joint ventures during 1995 as compared
to 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $8,702,000 as
of December 31, 1996, when compared to December 31, 1995 primarily due to the
Partnership's share of the net proceeds received in connection with the sale of
the Jonathan's Landing Apartments. In January 1997, the Partnership made a
special distribution of $9,690,870 to Limited Partners consisting primarily of
net proceeds received in connection with this sale. Cash flow of approximately
$4,863,000 was provided by operating activities consisting of cash flow from
the operations of the Partnership's properties and interest income earned on
short-term investments, net of the payment of administrative expenses and loan
prepayment penalties. Cash received from investing activities consisted of net
proceeds of approximately $65,249,000 received in connection with the 1996
property sales and approximately $114,000 of proceeds received in connection
with the land condemnation settlement at Butler Plaza, as described below.
Financing activities consisted primarily of distributions to Partners of
approximately $34,018,000, distributions of Cash Flow and sale proceeds to
joint venture partners of approximately $22,619,000, principal payments on the
mortgage note payable of approximately $28,000, and the repayment of the
$4,859,000 mortgage note payable in connection with the sale of the Sand Pebble
Village Apartments - Phase II.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures,
which include debt service payments. Sand Pebble Village Apartments - Phase II
was the only property that had underlying debt prior to its sale in August
1996. During 1995 and 1996, the Whispering Hills Apartments, U.S. West Direct
Center Office Building and Butler Plaza Shopping Center generated positive cash
flow. In addition, during 1995 and prior to being sold in 1996, the Hickory
Creek - Phases I and II, Sand Pebble Village - Phases I and II and Jonathan's
Landing apartment complexes also generated positive cash flow. As of December
31, 1996, the occupancy rates of the Partnership's remaining residential
property, Whispering Hills Apartments, was 99%. The occupancy rates at the U.S.
West Direct Center Office Building and the Butler Plaza Shopping Center were
99% and 71%, respectively.
<PAGE>
In 1996, the Partnership was awarded $303,200 in connection with the
condemnation of a parcel of land at Butler Plaza, of which the Partnership has
received $113,900. The proceeds are recorded as a reduction of the carrying
value of the property in the financial statements. The Partnership expects to
receive the remaining proceeds during the second quarter of 1997.
During 1996, the Partnership sold the Hickory Creek - Phases I and II, Sand
Pebble Village - Phases I and II and Jonathan's Landing apartment complexes.
Currently, the Partnership has entered into contracts for the sale of the U.S.
West Direct Center Office Building and the Butler Plaza Shopping Center. See
"Item 1. Other Information" for additional information. The Partnership is
actively marketing the Whispering Hills Apartments for sale. The timing of the
termination of the Partnership and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Partnership including, but not limited to the lawsuit
described in "Item 3. Legal Proceedings." In the absence of any contingency,
the reserves will be paid within twelve months of the last property being sold.
In the event a contingency exists, reserves may be held by the Partnership for
a longer period of time.
The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $19,411,765. From the
proceeds of the sale, the joint venture paid $431,822 in selling costs. The net
proceeds of the sale were $18,979,943, of which $10,509,194 was the
Partnership's share. The sale proceeds were distributed to the Limited Partners
in October 1996. See Note 10 of Notes to Financial Statements for additional
information.
The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $12,088,235. From the
proceeds of the sale, the joint venture paid $4,859,155 to the third party
mortgage holder in full satisfaction of the first mortgage loan, paid a
prepayment penalty of $145,775 and paid $272,701 in selling costs. The net
proceeds of the sale were $6,810,604 of which $3,771,031 was the Partnership's
share. The sale proceeds were distributed to the Limited Partners in October
1996. See Note 10 of Notes to Financial Statements for additional information.
In September 1996, the Partnership sold the Hickory Creek Apartments in an all
cash sale for $14,300,000. From the proceeds of the sale, the Partnership paid
$349,622 in selling costs. Pursuant to the terms of the sale, $250,000 of the
proceeds will be retained by the Partnership until March 1997. The remainder of
the proceeds were distributed to the Limited Partners in October 1996. The
holdback was released in full in March 1997. See Note 10 of Notes to Financial
Statements for additional information.
The Jonathan's Landing Apartments was owned by a joint venture consisting of
the Partnership and an affiliate. In November 1996, the joint venture sold the
property in an all cash sale for $21,300,000. From the proceeds of the sale,
the joint venture paid $796,475 in selling costs. The net proceeds of the sale
were $20,503,525, of which $10,969,386 was the Partnership's share. The
remainder of the proceeds were distributed to the Limited Partners in January
1997. See Note 10 of Notes to Financial Statements for additional information.
<PAGE>
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
The Partnership made four distributions in each of 1996, 1995 and 1994 totaling
$72.16, $20.48 and $12.00 per Interest, respectively. See Financial Statements,
Statements of Partners' Capital. Distributions per Interest were comprised of
$14.00 of Cash Flow and $58.16 of Mortgage Reductions in 1996, $9.00 of Cash
Flow and $11.48 of Mortgage Reductions for 1995 and $12.00 of Cash Flow in
1994. Distributions from Cash Flow increased in 1996 as compared to 1995
primarily due to a special distribution of $2.00 per Interest from Cash Flow
reserves in October 1996 and the foreclosure of the Jonathan's Landing
Apartments in July 1995. Distributions of Cash Flow decreased in 1995 as
compared to 1994 due to the loan prepayment and foreclosures in 1995 and 1994.
Distributions of Mortgage Reductions in 1996 represented proceeds received from
the 1996 property sales. Distributions of Mortgage Reductions in 1995
represented proceeds received from the prepayment of the Eastgate Village
Mobile Home Park loan in 1994.
In January 1997, the Partnership paid $11,075,280 ($24.00 per Interest) to the
holders of Limited Partnership Interests. This amount includes the regular
quarterly distribution from Cash Flow of $3.00 per Interest for the fourth
quarter of 1996, and a special distribution of Mortgage Reductions of $21.00
per Interest from the November 1996 sale of the Jonathan's Landing Apartments.
The level of the regular quarterly distribution was consistent with the amount
distributed for the third quarter of 1996. In January 1997, the Partnership
also paid $115,367 to the General Partner as its share of the Cash Flow
distributed for the fourth quarter of 1996 and $38,456 as its contribution to
the Early Investment Incentive Fund. Including the January 1997 distribution,
Limited Partners have received $119.56 of Cash Flow from operations and a
return of Original Capital of $115.49, totaling $235.05 per $250 Interest. In
February 1997, the General Partner made a settlement payment of $103,831 ($.22
per $250 Interest) to members of the class pursuant to the settlement approved
by the court in November 1996 in the Paul Williams and Beverly Kennedy et. al.
v. Balcor Pension Investors, et. al. class action lawsuit. Future distributions
will be made from remaining reserves and from future property sales, as to
which there can be no assurances.
During 1996, the General Partner used amounts placed in the Early Investment
Incentive Fund to repurchase 8,680 Interests from Limited Partners at a cost of
$971,568. In February 1997, the Partnership discontinued the repurchase of
Interests from Limited Partners.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
<PAGE>
plans relating to properties of the Partnership, as well as assumptions
relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
On September 14, 1995 the Partnership approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Partnership effective September 14, 1995. The General Partner
of the Partnership approved the change in auditors.
The reports of Ernst & Young LLP on the Partnership's financial statements for
each of the two fiscal years ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Partnership's financial statements for
each of the two fiscal years ended December 31, 1994, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP would have caused Ernst & Young LLP to make reference to the
matter in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Mortgage Advisors-VII, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He
is also Senior Vice President of American Express Company and is responsible
for its real estate operations worldwide. Prior to joining Balcor, Mr.
Meador was employed at the Harris Trust and Savings Bank in the commercial
real estate division where he was involved in various lending activities.
Mr. Meador received his M.B.A. degree from the Indiana University Graduate
School of Business.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility
for Balcor's environmental matters. Mr. Darragh received masters' degrees in
Urban Geography from Queen's University and in Urban Planning from
Northwestern University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible
for Balcor's property sales activities. He also has supervisory
responsibility for Balcor's accounting, financial, treasury, investor
services and investment administration functions. From 1989 to 1995, Mr.
Mendelson was Vice President - Transaction Management and Vice President -
Senior Transaction Manager and had responsibility for various asset
management matters relating to real estate investments made by Balcor,
including negotiations for the restructuring of mortgage loan investments.
Mr. Mendelson received his M.B.A. degree from the University of Chicago.
<PAGE>
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's
risk management function. He received a Master of Planning degree from the
University of Virginia. Mr. Powell has been designated a Certified Real
Estate Financier by the National Society for Real Estate Finance and is a
full member of the Urban Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and
private partnerships. She is also Treasurer and a Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $3,026 in 1996 with respect to one of the executive
officers and directors of Balcor Mortgage Advisors - VII, the General Partner.
Certain of the remaining officers receive compensation from The Balcor Company
(but not from the Registrant) for services performed for various affiliated
entities, which may include services performed for the Registrant. The
Registrant has not paid and does not intend to pay any remuneration to the
remaining executive officers and directors of the General Partner. However, the
General Partner believes that any such compensation attributable to services
performed for the Registrant is immaterial to the Registrant. See Note 9 of
Notes to Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Mortgage Advisors-VII, principally through the Early Investment
Incentive Fund, and its officers and partners own as a group the following
Limited Partnership Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership 18,457 Interests 4%
Interest
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership,
previously filed as Exhibit 3 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 dated March 6, 1986 (Registration No.
33-01630), is incorporated herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated March 6,
1986 (Registration No. 33-01630) and Form of Confirmation regarding Interests
in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1992 are incorporated herein by reference.
(10) Material Contracts
(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
U.S. West Office Building, Murray, Utah, previously filed as Exhibit (99) to
the Registrant's Current Report on Form 8-K dated January 14, 1997, is
incorporated herein by reference.
(a)(ii) First Amendment to Agreement of Sale relating to the sale of the
U.S. West Office Building, Murray, Utah, is attached hereto.
(a)(iii) Second Amendment to Agreement of Sale relating to the sale of
the U.S. West Office Building, Murray, Utah, is attached hereto.
(a)(iv) Third Amendment to Agreement of Sale relating to the sale of the U.S.
West Office Building, Murray, Utah, is attached hereto.
(b) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase I previously filed as Exhibit (2)(a) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
(c) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase II previously filed as Exhibit (2)(b) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
(d)(i) Agreement of Sale and attachments thereto relating to the sale of
Hickory Creek Apartments previously filed as Exhibit (10)(i) to the
Registrant's Form 10-Q dated June 30, 1996, is incorporated herein by
reference.
(d)(ii) Letter Agreement dated August 14, 1996, relating to the sale of Hickory
Creek Apartments previously filed as Exhibit (10)(c)(ii) to the Registrant's
Form 10-Q dated September 30, 1996 is incorporated herein by reference.
<PAGE>
(e)(i) Agreement of Sale and attachment thereto relating to the sale of
Jonathan's Landing Apartments previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated August 30, 1996, is incorporated
herein by reference.
(e)(ii) First Amendment to the Agreement of Sale relating to the sale of
Jonathan's Landing Apartments previously filed as Exhibit (10)(d)(ii) to the
Registrant's Form 10-Q dated September 30, 1996 is incorporated herein by
reference.
(f) Agreement of Sale and attachment thereto relating to the sale of Butler
Plaza Shopping Center, Orlando, Florida, is attached hereto.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
File No. 0-15528), is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al.
previously filed as Exhibit (99) to the Registrant's Report on From 10-Q for
the quarter ended June 30, 1996 is incorporated herein by reference.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant
during the quarter ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-VII
By: /s/Jayne A. Kosik
--------------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal Accounting
Officer) of Balcor Mortgage
Advisors-VII, the General Partner
Date: March 28, 1997
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- --------------------------------- --------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
/s/Thomas E. Meador Advisors-VII, the General Partner March 28, 1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor Mortgage
/s/Jayne A. Kosik Advisors-VII, the General Partner March 28, 1997
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Pension Investors-VII:
We have audited the accompanying balance sheets of Balcor Pension Investors-VII
(An Illinois Limited Partnership) as of December 31, 1996 and 1995 and the
related statements of partners' capital, income and expenses, and cash flows
for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors-VII
(An Illinois Limited Partnership) at December 31, 1996 and 1995 and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As described in Note 2 to financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. The Partnership is presently marketing for sale its
remaining real estate assets. Upon disposition of its remaining real estate
assets and resolution of the litigation described in Note 13 to the financial
statements, the Partnership intends to cease operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-VII:
We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Pension Investors-VII (An Illinois Limited
Partnership) for the year ended December 31, 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Balcor
Pension Investors-VII for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 14, 1995
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
------------ ------------
Cash and cash equivalents $ 17,297,262 $ 8,595,511
Escrow deposits 80,519
Accounts and accrued interest receivable 411,712 188,638
Prepaid expenses 61,204 120,902
Deferred expenses, net of accumulated
amortization of $177,082 in 1996 and
$151,560 in 1995 70,174 95,696
------------ ------------
17,840,352 9,081,266
------------ ------------
Real estate held for sale (net of allowance
of $3,935,000 in 1996 and $4,537,000 25,986,259 85,099,286
in 1995) ------------ ------------
$ 43,826,611 $ 94,180,552
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 251,125 $ 249,632
Due to affiliates 88,416 26,616
Accrued real estate taxes 106,465 281,776
Security deposits 70,823 410,618
Mortgage note payable 4,887,630
------------ ------------
Total liabilities 516,829 5,856,272
------------ ------------
Commitments and contingencies
Affiliates' participation in joint ventures 3,584,170 21,748,967
Limited Partners' capital (461,470
Interests issued and outstanding) 41,621,252 68,469,893
General Partner's deficit (1,895,640) (1,894,580)
------------ ------------
Total partners' capital 39,725,612 66,575,313
------------ ------------
$ 43,826,611 $ 94,180,552
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995, and 1994
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners
------------- ------------ --------------
Balance at December 31, 1993 $ 70,977,710 $ (1,984,109)$ 72,961,819
Cash distributions to:
Limited Partners (A) (5,537,640) (5,537,640)
General Partner (615,292) (615,292)
Net income for the year
ended December 31, 1994 6,238,369 623,837 5,614,532
------------- ------------ --------------
Balance at December 31, 1994 71,063,147 (1,975,564) 73,038,711
Cash distributions to:
Limited Partners (A) (9,450,906) (9,450,906)
General Partner (461,470) (461,470)
Net income for the year
ended December 31, 1995 5,424,542 542,454 4,882,088
------------- ------------ --------------
Balance at December 31, 1995 66,575,313 (1,894,580) 68,469,893
Cash distributions to:
Limited Partners (A) (33,299,674) (33,299,674)
General Partner (717,842) (717,842)
Net income for the year
ended December 31, 1996 7,167,815 716,782 6,451,033
------------- ------------ --------------
Balance at December 31, 1996 $ 39,725,612 $ (1,895,640)$ 41,621,252
============= ============ ==============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994
------------- ---------------------------
First Quarter $3.00 $5.15 $3.00
Second Quarter 5.16 2.00 3.00
Third Quarter 3.00 10.33 3.00
Fourth Quarter 61.00 3.00 3.00
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
------------- ------------ --------------
Income:
Interest on loans
receivable, net of
amortization of loan
application and processing
fees of $156,676 in 1995,
and $350,617 in 1994 $ 323,053 $ 2,890,249
Income from operations of
real estate held for sale $ 5,629,880 6,431,686 4,608,100
Interest on short-term
investments 768,223 628,025 377,559
Recovery of losses on loans,
real estate and accrued
interest receivable 2,080,943 1,137,000
------------- ------------ --------------
Total income 8,479,046 7,382,764 9,012,908
------------- ------------ --------------
Expenses:
Provision for potential
losses on loans, real
estate and accrued interest
receivable 3,935,000 1,137,000
Administrative 880,486 639,708 916,483
------------- ------------ --------------
Total expenses 4,815,486 639,708 2,053,483
------------- ------------ --------------
Income before gain on sales,
affiliates' participation in
income of joint ventures and
extraordinary item 3,663,560 6,743,056 6,959,425
Gain on sales of real estate 8,104,310
Affiliates' participation in
income of joint ventures (4,519,354) (1,318,514) (721,056)
------------- ------------ --------------
Income before extaordinary
item 7,248,516 5,424,542 6,238,369
------------- ------------ --------------
Extraordinary item:
Debt extinguishment expense (145,775)
Affiliate's participation in
debt extinguishment expense 65,074
-------------
Total extraordinary item (80,701)
------------- ------------ --------------
Net income $ 7,167,815 $ 5,424,542 $ 6,238,369
============= ============ ==============
Income before extraordinary items
allocated to General Partner $ 724,852 $ 542,454 $ 623,837
============= ============ ==============
<PAGE>
Income before extraordinary items
allocated to Limited Partners $ 6,523,664 $ 4,882,088 $ 5,614,532
============= ============ ==============
Income before extraordinary
items per Limited Partnership
Interest (461,470 issued
and outstanding) $ 14.13 $ 10.58 $ 12.17
============= ============ ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
(Continued)
1996 1995 1994
------------- ------------ --------------
Extraordinary item allocated to
General Partner $ (8,070) None None
============= ============ ==============
Extraordinary item allocated to
Limited Partners $ (72,631) None None
============= ============ ==============
Extraordinary item allocated per
Limited Partnership Interest
(461,470 issued and
outstanding) $ (0.16) None None
============= ============ ==============
Net income allocated to
General Partner $ 716,782 $ 542,454 $ 623,837
============= ============ ==============
Net income allocated to
Limited Partners $ 6,451,033 $ 4,882,088 $ 5,614,532
============= ============ ==============
Net income allocated per Limited
Partnership Interest (461,470
issued and outstanding) $ 13.97 $ 10.58 $ 12.17
============= ============ ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
------------- ------------ --------------
Operating activities:
Net income $ 7,167,815 $ 5,424,542 $ 6,238,369
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Affiliates'
participation in income
of joint ventures 4,519,354 1,318,514 721,056
Affiliate's participation
in debt extinquishment
expense (65,074)
Gain on sales of
real estate (8,104,310)
Amortization of
deferred expenses 25,522 26,849 34,487
Amortization of loan
application and
processing fees 156,676 350,617
Recovery of losses on
loans, real estate and
accrued interest
receivable (1,137,000)
Recovery of loss on
real estate (2,080,943)
Provision for potential
losses on loans, real
estate and accrued
interest receivable 3,935,000 1,137,000
Payment of leasing
commissions (68,662)
Net change in:
Escrow deposits 80,519 2,312 (22,241)
Accounts and accrued
interest receivable (223,074) 99,754 401,194
Prepaid expense 59,698 (120,902)
Accounts payable 1,493 35,590 (98,993)
Due to affiliates 61,800 (43,236) (4,217)
Accrued liabilities (175,311) 22,004 174,510
Security deposits (339,795) 35,923 164,066
------------- ------------ --------------
Net cash provided by
operating activities 4,862,694 6,889,364 7,958,848
------------- ------------ --------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
(Continued)
1996 1995 1994
------------- ------------ --------------
Investing activities:
Proceeds relating to land
condemnation $ 113,900
Proceeds from sales of
real estate 67,100,000
Payment of selling costs (1,850,620)
Costs incurred in connection
with real estate acquired
through foreclosure $ (283,490)
Improvements to properties $ (114,721)
Collection of principal payments
on loan receivable 6,789,760
Proceeds from litigation
settlement 1,000,000
------------- ------------ --------------
Net cash provided by or (used
in) investing activities 65,363,280 (283,490) 7,675,039
------------- ------------ --------------
Financing activities:
Distributions to Limited
Partners (33,299,674) (9,450,906) (5,537,640)
Distributions to General
Partner (717,842) (461,470) (615,292)
Distributions to joint
venture partners -
affiliates (22,619,077) (1,238,784) (1,479,385)
Repayment of mortgage
note payable (4,859,155) (54,011) (50,315)
Principal payments on mortgage
note payable (28,475)
------------- ------------ --------------
Cash used in financing
activities (61,524,223) (11,205,171) (7,682,632)
------------- ------------ --------------
Net change in cash and cash
equivalents 8,701,751 (4,599,297) 7,951,255
Cash and cash equivalents at
beginning of year 8,595,511 13,194,808 5,243,553
------------- ------------ --------------
Cash and cash equivalents at
end of year $ 17,297,262 $ 8,595,511 $ 13,194,808
============= ============ ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Pension Investors-VII (the "Partnership") is engaged principally in the
operation of residential, commercial and retail real estate located in various
markets within the United States.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold the Sand Pebble Village - Phases
I and II, Hickory Creek and Jonathan's Landing apartment complexes. Currently,
the Partnership has entered into contracts for the sale of the U.S. West Direct
Center Office Building and Butler Plaza Shopping Center. The Partnership is
actively marketing the Whispering Hills Apartments for sale. The timing of the
termination of the Partnership and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
as discussed in Note 13 of Notes to Financial Statements. In the absence of any
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held by
the Partnership for a longer period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Income on loans was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which were
otherwise not performing in accordance with their terms was recorded on a cash
basis.
Various loan agreements provided for participation by the Partnership in
increases in value of the collateral property when the loan was to be repaid or
refinanced. In addition, certain loan agreements allowed the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income was reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate held for sale is reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
<PAGE>
(c) Loan losses on mortgage notes receivable were charged to income and an
allowance account was established when the General Partner believed the loan
balance would not be recovered. The General Partner assessed the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance was transferred to real estate
held for sale after the fair value of the property, less costs of disposal was
assessed. Upon the transfer to real estate held for sale, a new basis in the
property was established.
Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121,
the General Partner periodically assesses, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimates the fair value of its properties based on the current sales
price less estimated closing costs. Changes in the property's fair value are
recorded by an adjustment to the property allowance account and is recognized
in the income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value is determined. The
General Partner considers the methods referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicate otherwise.
(d) Deferred expenses consisted of loan application and processing fees and
mortgage brokerage fees which were amortized over the terms of the respective
agreements, and leasing commissions which are amortized over the life of each
respective lease.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the term of the respective lease. Service income includes
reimbursements for operating costs such as real estate taxes, maintenance and
insurance and is recognized as revenue in the period the applicable costs are
incurred.
(f) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
<PAGE>
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) Several reclassifications have been made to the previously reported 1994
financial statements to conform with the classification used in 1996 and 1995,
including a reclassification of mortgage servicing fees to administrative
expenses. These reclassifications have not changed the 1994 results.
4. Partnership Agreement:
The Partnership was organized on October 25, 1985. The Partnership Agreement
provides for Balcor Mortgage Advisors-VII to be the General Partner and for the
admission of Limited Partners through the sale of up to 1,600,000 Limited
Partnership Interests at $250 per Interest, 461,470 of which were sold on or
prior to January 31, 1987, the termination date of the offering.
For financial statement purposes, the Partnership's results of operations are
allocated 90% to Limited Partners and 10% to the General Partner, of which 2.5%
relates to the Early Investment Incentive Fund.
To the extent that Cash Flow is distributed, distributions are made as follows:
(i) 90% is distributed to the Limited Partners, (ii) 7.5% is distributed to the
General Partner, and (iii) an additional 2.5% is distributed to the General
Partner and constitutes the Early Investment Incentive Fund (the "Fund"). Upon
the liquidation of the Partnership, the General Partner will return to the
Partnership for distribution to Early Investors an amount not to exceed the
amount originally allocated to the 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.
Amounts placed in the Fund were available, at the sole discretion of the
General Partner and subject to certain limitations, to be used to repurchase
Interests from existing Limited Partners. During 1996, the Fund repurchased
8,680 Interests at a cost of $971,568. In February 1997, the Partnership
discontinued the repurchase of Interests from Limited Partners. All
repurchases of Interests were made at 90% of the then current valuation of such
Limited Partnership Interests at the previous quarter end less any
distributions made after the previous quarter end. Distributions of Cash Flow
and Mortgage Reductions pertaining to such repurchased Interests are paid to
the Fund and were available to repurchase additional Interests.
5. Investment in Loan Receivable:
The Jonathan's Landing loan receivable was on non-accrual status in 1994 and
prior to the foreclosure of the property in 1995. Loans, and loans whose
payment terms have been restructured, were thereafter referred to as impaired
loans. Interest income relating to impaired loans would have been approximately
$480,000 in 1995 and $1,001,000 in 1994. Interest income from impaired loans
included in the accompanying Statements of Income and Expenses amounted to
approximately $480,000 ($567,000 cash basis) in 1995 and $1,001,000 ($994,000
cash basis) in 1994.
<PAGE>
6. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1996 is described in the
table below.
1996 1995 1994
------------ ----------- -----------
Loans:
Balance at beginning of
year None $ 1,166,260 $ 5,854,326
Recovery of provision
previously charged
to income None None (1,137,000)
Direct write-off of
loans against allowance None (1,166,260) (3,551,066)
------------ ----------- -----------
Balance at the end of
the year None None $ 1,166,260
============ =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year $ 4,537,000 $ 4,537,000 $ 3,400,000
Provision charged to
income 3,935,000 None 1,137,000
Recovery of provision
previously charged
to income (2,080,943) None None
Direct write-off of
loans against allowance (2,456,057) None None
----------- ----------- -----------
Balance at the end of
the year $ 3,935,000 $ 4,537,000 $ 4,537,000
=========== =========== ===========
7. Mortgage Note Payable:
At December 31, 1995, the loan collateralized by the Sand Pebble Village
Apartments - Phase II had a balance of $4,887,630. In connection with the sale
of the property in August 1996, $4,859,155 of the proceeds from the sale was
paid to the first mortgage holder in full satisfaction of the loan. During 1996
and 1995, the Partnership incurred and paid interest expense on the mortgage
note payable of $202,127 and $349,613, respectively. See Note 10 of Notes to
Financial Statements for additional information.
8. Management Agreements:
As of December 31, 1996, all of the remaining properties owned by the
Partnership are managed by third-party management companies. These management
agreements provide for annual fees of 5% of gross operating receipts for the
residential property and a range of 3% to 6% of gross operating receipts for
commercial properties.
9. Transactions with Affiliates:
Commissions, fees and expenses paid and payable by the Partnership to
affiliates are:
<PAGE>
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $41,703 $2,453 $17,013 None $71,178 $2,264
Property management fees None None None None 477,796 None
Reimbursement of expenses
to the General Partner
at cost:
Accounting 15,468 10,460 41,452 $4,120 70,376 16,061
Data processing 3,531 2,388 29,144 3,158 49,777 10,164
Investor communica-
tions None None 9,035 None 22,578 7,610
Legal 11,735 7,936 11,955 1,525 8,591 2,647
Portfolio management 80,149 54,197 129,125 17,813 59,323 25,221
Other 16,240 10,982 9,075 None 17,005 5,885
Allegiance Realty Group, Inc., an affiliate of the General Partner managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $23,141, $66,840 and $99,135 for 1996, 1995 and 1994, respectively.
10. Property Sales:
(a) The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the joint venture of 55.37% and
44.63%, respectively. In August 1996, the joint venture sold the property in
an all cash sale for $19,411,765. From the proceeds of the sale, the joint
venture paid $431,822 in selling costs. The basis of the property was
$21,436,000. The Partnership recognized no gain or loss on the sale of this
property for financial statement purposes. The Partnership recognized a
recovery of the loss allowance of $2,080,943, of which $928,725 is the minority
joint venture partner's share. In addition, the Partnership wrote off
$2,456,057 against the previously established loss allowance.
(b) The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the joint venture of 55.37% and
44.63%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $12,088,235. From the proceeds of the sale, the joint venture
paid $4,859,155 to the third party mortgage holder in full satisfaction of the
first mortgage loan and $272,701 in selling costs. The basis of the property
was $9,357,449. For financial statement purposes, the Partnership recognized a
gain of $2,458,085 from the sale of this property, of which $1,097,043 is the
minority joint venture partner's share.
<PAGE>
(c) In September 1996, the Partnership sold the Hickory Creek Apartments in an
all cash sale for $14,300,000. From the proceeds of the sale, the Partnership
paid $349,622 in selling costs. The basis of the property was $10,453,558. For
financial statement purposes, the Partnership recognized a gain of $3,496,820
from the sale of this property.
(d) The Jonathan's Landing Apartments was owned by a joint venture consisting
of the Partnership and an affiliate. The Partnership and the affiliate held
participating percentages in the joint venture of 53.50% and 46.50%,
respectively. In November 1996, the joint venture sold the property in an all
cash sale for $21,300,000. From the proceeds of the sale, the joint venture
paid $796,475 in selling costs. The basis of the property was $18,354,120. For
financial statement purposes, the Partnership recognized a gain of $2,149,405
from the sale of this property, of which $999,473 is the minority joint venture
partner's share.
11. Affiliates' Participation in Joint Ventures:
(a) The Partnership has classified the first mortgage loan investment
collateralized by the Whispering Hills Apartments as real estate held for sale.
This investment is owned by a joint venture consisting of the Partnership and
an affiliate. Profits and losses are allocated 75% to the Partnership and 25%
to the affiliate.
(b) The Sand Pebble Village - Phases I and II apartment complexes were owned by
a joint venture consisting of the Partnership and an affiliate. Profits and
losses were allocated 55.37% to the Partnership and 44.63% to the affiliate.
The joint venture sold these properties during 1996. See Note 10 of Notes to
Financial Statements for additional information.
(c) Jonathan's Landing Apartments was owned by a joint venture consisting of
the Partnership and an affiliate. Profits and losses were allocated 53.5% to
the Partnership and 46.5% to the affiliate. The joint venture sold this
property during 1996. See Note 10 of Notes to Financial Statements for
additional information.
All assets, liabilities, income and expenses of the joint ventures are included
in the financial statements of the Partnership with the appropriate adjustment
of profit or loss for each affiliate's participation.
Distributions of $22,619,077, $1,238,784 and $1,479,385 were made to the joint
venture partners during 1996, 1995 and 1994, respectively. In addition, the
minority joint venture partner of the Sand Pebble Village - Phase I Apartments
was allocated its share of a recovery of a previously established loss
allowance during 1996 of $928,725 and was also allocated its share of a
provision for potential losses during 1994 of $512,000. During 1996, the
minority joint venture partner of the Sand Pebble Village - Phase II and
Jonathan's Landing apartment complexes was allocated its share of the gains on
the sales of these properties of $1,097,043 and $999,473, respectively.
<PAGE>
12. Real Estate Held for Sale:
(a) The Partnership acquired the following properties through foreclosure:
Jonathan's Landing Apartments was acquired in July 1995 and sold in November
1996; Butler Plaza Shopping Center was acquired in January 1995 and classified
as real estate held for sale at December 31, 1994; and Hickory Creek Apartments
- - Phases I and II was acquired in March 1994 and sold in September 1996. The
Partnership recorded the costs of the properties at $18,299,740 in 1995 and
$9,100,000 in 1994. These amounts represented the outstanding loan balances
plus any accrued interest receivable. In addition, the Partnership increased
the basis of the properties by $283,490 in 1995 for costs incurred in
connection with the foreclosures. At the date of foreclosure, each property was
transferred to real estate held for sale at its fair value, net of allowances
previously recorded.
(b) In 1996, the Partnership was awarded $303,200 in connection with the
condemnation of a parcel of land at Butler Plaza, of which the Partnership has
received $113,900. The proceeds are recorded as a reduction of the carrying
value of the property in the financial statements. The Partnership expects to
receive the remaining proceeds during the second quarter of 1997.
13. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the financial position, operations and
liquidity of the Partnership. The Partnership believes that it has meritorious
defenses to contest the claims.
14. Settlement of Litigation:
A settlement has received final approval by the court in November 1996 in
the class action, Paul Willams and Beverly Kennedy et. al. v. Balcor Pension
Investors, et. al. upon the terms described in the notice to class members
in September 1996. The settlement had no material impact on the Partnership.
15. Fair Value of Financial Instruments:
As of December 31, 1996 and 1995, the carrying amounts of cash and cash
equivalents, accounts and accrued interest receivable, and accounts payable
approximates fair value.
As of December 31, 1995, the fair value of the mortgage note payable
approximated the carrying value, based on borrowing rates available to the
Partnership at the end of 1995 for mortgage loans with similar terms and
maturities.
16. Extraordinary Item:
In connection with the sale of Sand Pebble Village Apartments - Phase II in
August 1996, the joint venture paid a prepayment penalty in the amount of
$145,775 which was recognized as an extraordinary item and classified as debt
extinguishment expense. The minority joint venture partner's share of the
extraordinary item is $65,074.
<PAGE>
17. Subsequent Events:
(a) In January 1997, the Partnership paid $11,075,280 ($24.00 per Interest) to
the holders of Limited Partnership Interests. This amount includes the regular
distribution from Cash Flow of $3.00 per Interest for the fourth quarter of
1996, and a special distribution of Mortgage Reductions of $21.00 per Interest
from the November 1996 sale of the Jonathan's Landing Apartments.
(b) In February 1997, the General Partner made a settlement payment of $103,831
($.22 per $250 Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly Kennedy
et. al. v. Balcor Pension Investors, et. al. class action lawsuit.
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF SALE
THIS FIRST AMENDMENT TO AGREEMENT OF SALE (this "Amendment") is entered
into as of the 30th day of January, 1997, by and between OFFICE OPPORTUNITY
FUND III, L.P. ("Purchaser") and BUSCH FORUM LIMITED PARTNERSHIP ("Seller").
W I T N E S S E T H:
A. Purchaser and Seller have heretofore entered into a certain Agreement
of Sale dated January 14, 1997 ("Agreement") for the purchase and sale of the
property commonly known as The US West Building, Murray, Utah.
B. Purchaser and Seller now desire to amend the Agreement to extend the
Inspection Period.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. The expiration of the Inspection Period (as defined in Paragraph 7.1
of the Agreement) is hereby extended to 2:00 p.m. Chicago time on February 6,
1997.
2. The Escrow Agreement is hereby modified to conform with 1.
3. Except as specifically modified herein, the terms and conditions of
the Agreement shall remain unchanged and in full force and effect.
4. All capitalized terms used in this Amendment, unless otherwise
defined herein, shall have the meanings given to them in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
PURCHASER:
OFFICE OPPORTUNITY FUND III, L.P.,
a California limited partnership
By: Opportunity Capital Partners III, LLC,
a California limited liability company
Its: General Partner
By: /s/R. Matthew Maoran
----------------------------------
Name: R. Matthew Moran
Its: Manager
SELLER:
BUSCH FORUM LIMITED PARTNERSHIP
By: Busch Forum Partners, Inc., an Illinois
corporation, its general partner
By: /s/Terri Thompson
-------------------------------------
Name: Terri Thompson
-------------------------------------
Its: Authorized Representative
-------------------------------------
<PAGE>
SECOND AMENDMENT TO AGREEMENT OF SALE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE (this "Amendment") is entered
into as of the 6th day of February, 1997, by and between OFFICE OPPORTUNITY
FUND III, L.P. ("Purchaser") and BUSCH FORUM LIMITED PARTNERSHIP ("Seller").
W I T N E S S E T H:
A. Purchaser and Seller have heretofore entered into a certain Agreement
of Sale dated January 14, 1997 (as amended from time to time, the "Agreement")
for the purchase and sale of the property commonly known as The US West
Building, Murray, Utah. The Agreement has been amended pursuant to that
certain First Amendment to Agreement of Sale dated as of January 30, 1997.
B. Purchaser and Seller now desire to amend the Agreement to extend the
Inspection Period and delay the Closing Date.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. The expiration of the Inspection Period (as defined in Paragraph 7.1
of the Agreement) is hereby extended to 2:00 p.m. Chicago time on March 6, 1997
solely for the purpose of allowing Purchaser to investigate and approve or
reject the Open Items (as hereinafter defined). "Open Items" shall mean
Purchaser's review of the Title Commitment, Survey and environmental condition
of the Premises, including, without limitation, the soil and groundwater.
Except for its right to review and approve or reject the Open Items, Purchaser
hereby waives any other rights it has to conduct inspections of the Premises
under the terms of Section 7.1 of the Agreement. Except as to Section 7.1 of
the Agreement, nothing contained in this Amendment is intended to modify, waive
or alter the other conditions precedent to the closing set forth in the
Agreement.
2. The Closing Date (as defined in Paragraph 8 of the Agreement) shall
be changed to March 13, 1997.
3. The Escrow Agreement is hereby modified to conform with 1 and 2.
4. Except as specifically modified herein, the terms and conditions of
the Agreement shall remain unchanged and in full force and effect.
5. All capitalized terms used in this Amendment, unless otherwise
defined herein, shall have the meanings given to them in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
PURCHASER:
OFFICE OPPORTUNITY FUND III, L.P.,
a California limited partnership
By: Opportunity Capital Partners III, LLC,
a California limited liability company
Its: General Partner
By: /s/
--------------------------------------
Name: R. Matthew Moran
--------------------------------------
Its: Manager
--------------------------------------
SELLER:
BUSCH FORUM LIMITED PARTNERSHIP
By: Busch Forum Partners, Inc., an Illinois
corporation, its general partner
By: /s/ John K. Powell, Jr.
--------------------------------------
Name: John K. Powell, Jr.
--------------------------------------
Its: Senior Vice President
--------------------------------------
<PAGE>
THIRD AMENDMENT TO AGREEMENT OF SALE
THIS THIRD AMENDMENT TO AGREEMENT OF SALE (this "Amendment") is entered
into as of the 6th day of March, 1997, by and between OFFICE OPPORTUNITY FUND
III, L.P. ("Purchaser") and BUSCH FORUM LIMITED PARTNERSHIP ("Seller").
W I T N E S E T H:
A. Purchaser and Seller have heretofore entered into a certain Agreement
of Sale dated January 14, 1997 (as amended from time to time, the "Agreement")
for the purchase and sale of the property commonly known as The US West
Building, Murray, Utah. The Agreement has been amended pursuant to that
certain First Amendment to Agreement of Sale dated as of January 30, 1997 and
that certain Second Amendment to Agreement of Sale dated as of February 6,
1997.
B. Purchaser and Seller now desire to amend the Agreement in accordance
with the terms set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. The Inspection Period (as defined in Paragraph 7.1 of the Agreement)
has terminated as of 2:00 p.m. Chicago time on March 6, 1997.
2. The Closing Date (as defined in Paragraph 8 of the Agreement) shall
be changed to April 15, 1997.
3. At Closing, Seller shall deposit funds in the amount of FIVE HUNDRED
SIXTY THOUSAND AND NO/100 DOLLARS ($560,000.00) from the purchase proceeds into
a Soil Removal Escrow to be established and governed substantially in
accordance with the terms of the Soil Removal Escrow Agreement attached hereto
as Exhibit "A". Purchaser and Seller agree that they will execute the Soil
Removal Escrow Agreement at the Closing and fulfill their respective
obligations under the Soil Removal Escrow Agreement thereafter.
4. At Closing, Seller shall deposit funds in the amount of FIVE HUNDRED
FORTY THOUSAND AND NO/100 DOLLARS ($540,000.00) from the purchase proceeds into
a Condemnation Proceeds Escrow to be established and governed substantially in
accordance with the terms of the Condemnation Proceeds Escrow Agreement
attached hereto as Exhibit "B". Purchaser and Seller agree that they will
execute the Condemnation Proceeds Escrow Agreement at the Closing and fulfill
their respective obligations under the Condemnation Proceeds Escrow Agreement
thereafter.
5. At Closing, Purchaser shall receive a credit against the Purchase
Price in the aggregate amount of up to THREE HUNDRED SIXTY NINE THOUSAND FIVE
HUNDRED EIGHTEEN AND NO/100 DOLLARS ($369,518.00), representing each of the
tenant improvements concessions identified on Exhibit "C" attached hereto, to
the extent such amounts have not been paid by Seller at or before the Closing
(the "Tenant Improvement Credits"). Purchaser shall be responsible to each of
the tenants for the fulfillment of each of the lease obligations evidenced by
the Tenant Improvement Credits at all times from and after the Closing.
<PAGE>
6. Notwithstanding the terms of Clause (e) of the second sentence of
Section 3.1 of the Agreement, Purchaser and Seller agree that title to the
Property shall be conveyed in accordance with the terms of the proforma title
policy attached hereto as Exhibit "D." Nothing contained in this Amendment is
intended to alter, modify or affect the parties' respective obligations for
paying the costs of title insurance as set forth in the Agreement.
7. All obligations set forth in this Amendment shall survive the Closing
and shall not merge into the deed.
8. The Escrow Agreement is hereby modified to conform with the terms of
this Amendment.
9. Except as specifically modified herein, the terms and conditions of
the Agreement shall remain unchanged and in full force and effect.
10. All capitalized terms used in this Amendment, unless otherwise
defined herein, shall have the meanings given to them in the Agreement.
11. Notwithstanding the terms of this Amendment, Purchaser and Seller
agree to cooperate reasonably to make any adjustments or modifications to the
form of the Escrow Agreements attached as Exhibits hereto that either party may
deem reasonably necessary to better evidence the intent of the parties. If
either Purchaser or Seller has any objections to the Escrow Agreements attached
as Exhibits hereto, such party shall notify the other party of such objections
on or before March 19, 1997 and, if objections are raised, each party agrees to
make every reasonable effort to resolve any issues promptly after such issues
are raised.
SIGNATURES FOLLOW ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
PURCHASER:
OFFICE OPPORTUNITY FUND III, L.P.,
a California limited partnership
By: Opportunity Capital Partners III, LLC,
a California limited liability company
Its: General Partner
By: /s/John Hamilton
--------------------------------
Name: John Hamilton
--------------------------------
Its: Manager
--------------------------------
SELLER:
BUSCH FORUM LIMITED PARTNERSHIP
By: Busch Forum Partners, Inc., an Illinois
corporation, its general partner
By: /s/John K. Powell, Jr.
---------------------------------
Name: John K. Powell, Jr.
---------------------------------
Its: Senior Vice President
---------------------------------
<PAGE>
AGREEMENT OF SALE
Butler Plaza
THIS AGREEMENT OF SALE (this "Agreement"), is entered into as of the 25th
day of March, 1997, by and between STERLING INVESTMENT CO., INC., a Florida
corporation ("Purchaser"), and BUTLER LIMITED PARTNERSHIP, an Illinois limited
partnership ("Seller").
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Purchaser do hereby
agree as follows:
W I T N E S E T H:
1. PURCHASE AND SALE. Purchaser agrees to purchase and Seller agrees to sell
that certain property commonly known as Butler Plaza, Casselberry, Florida
legally described on Exhibit A attached hereto (the "Property"). Included in
the Purchase Price is all of the personal property set forth on Exhibit B
attached hereto (the "Personal Property"). The "Purchase Price" for the
Property and the Personal Property shall equal Five Million Five Hundred
Thousand and No/100 Dollars ($5,500,000.00).
2. PURCHASE PRICE. The Purchase Price shall be paid by Purchaser as follows:
2.1. Upon the execution of this Agreement, the sum of Two Hundred
Thousand and No/100 Dollars ($200,000.00) (the "Earnest Money") to be held in
escrow by and in accordance with the provisions of the Escrow Agreement
("Escrow Agreement") attached hereto as Exhibit C; and
2.2. On the "Closing Date" (hereinafter defined), the balance of the
Purchase Price, adjusted in accordance with the prorations, by federally wired
"immediately available" funds, on or before 11:00 a.m Chicago time.
3. TITLE COMMITMENT AND SURVEY.
3.1. Attached hereto as Exhibit D is a copy of a title commitment for an
owner's standard title insurance policy issued by Lawyers Title Insurance
Company (hereinafter referred to as "Title Insurer") dated February 17, 1997
for the Property (the "Title Commitment"). For purposes of this Agreement,
"Permitted Exceptions" shall mean: (a) the general printed exceptions contained
in the standard title policy to be issued by Title Insurer based on the Title
Commitment; (b) general real estate taxes, association assessments, special
assessments, special district taxes and related charges not yet due and
payable; (c) matters shown on the "Updated Survey" (hereinafter defined); (d)
matters caused by the actions of Purchaser; and (e) the title exceptions set
forth in Schedule B of the Title Commitment as Numbers 1, 2, and 4 through 23
inclusive, to the extent that same affect the Property. All other exceptions
to title shall be referred to as "Unpermitted Exceptions". The Title
Commitment shall be conclusive evidence of good title as therein shown as to
all matters to be insured by the title policy, subject only to the exceptions
therein stated. On the Closing Date, Title Insurer shall deliver to Purchaser
a standard title policy for the insured amount of the Purchase Price in
conformance with the previously delivered Title Commitment, subject to
Permitted Exceptions and Unpermitted Exceptions waived by Purchaser (the "Title
Policy"). Seller and Purchaser shall each pay for the costs of the Title
Commitment and Title Policy and Purchaser shall pay for the cost of any
endorsements to, or extended coverage on, the Title Policy.
<PAGE>
3.2. Purchaser has received a preliminary survey of the Property prepared
by Doudney Surveyors, Inc. dated December 5, 1996 ("Updated Survey"). Seller
and Purchaser shall each pay for the costs of and Seller shall deliver a
recertified copy of the Updated Survey to Purchaser prior to Closing.
Purchaser hereby acknowledges that all matters disclosed by the Updated Survey
are acceptable to Purchaser.
3.3. The obligation of Purchaser to pay various costs set forth in
Paragraphs 3.1 and 3.2 shall survive the termination of this Agreement.
4. PAYMENT OF CLOSING COSTS. In addition to the costs set forth in
Paragraphs 3.1 and 3.2, Purchaser and Seller shall each pay for one-half of the
costs of the documentary or transfer stamps to be paid with reference to the
"Deed" (hereinafter defined) and all other stamps, intangible, transfer,
documentary, recording, sales tax and surtax imposed by law with reference to
any other sale documents delivered in connection with the sale of the Property
to Purchaser and all other charges of the Title Insurer in connection with this
transaction. The stamps purchased and taxes paid pursuant to this Paragraph 4
shall be based upon the Purchaser Price.
5. CONDITION OF TITLE.
5.1. If, prior to "Closing" (as hereinafter defined), a date-down to the
Title Commitment or a date-down to the Updated Survey discloses any new
Unpermitted Exception, Seller shall have thirty (30) days from the date of the
date-down to the Title Commitment or the Updated Survey, as applicable, at
Seller's expense, to (i) bond over, cure and/or have any Unpermitted Exceptions
which, in the aggregate, do not exceed $50,000.00, removed from the Title
Commitment or to have the Title Insurer commit to insure against loss or damage
that may be occasioned by such Unpermitted Exceptions, or (ii) have the right,
but not the obligation, to bond over, cure and/or have any Unpermitted
Exceptions which, in the aggregate, equal or exceed $50,000.00, removed from
the Title Commitment or to have the Title Insurer commit to insure against loss
or damage that may be occasioned by such Unpermitted Exceptions. In such
event, the time of Closing shall be delayed, if necessary, to give effect to
said aforementioned time periods. If Seller fails to cure or have said
Unpermitted Exception removed or have the Title Insurer commit to insure as
specified above within said thirty (30) day period or if Seller elects not to
exercise its rights under (ii) in the preceding sentence, Purchaser may
terminate this Agreement upon notice to Seller within seven (7) days after the
expiration of said thirty (30) day period. Absent notice from Purchaser to
Seller in accordance with the preceding sentence, Purchaser shall be deemed to
have elected to take title subject to said Unpermitted Exception. If Purchaser
terminates this Agreement in accordance with the terms of this Paragraph 5.1,
this Agreement shall become null and void without further action of the parties
and all Earnest Money theretofore deposited into the escrow by Purchaser
together with any interest accrued thereon, shall be returned to Purchaser, and
neither party shall have any further liability to the other, except for
Purchaser's obligation to indemnify Seller and restore the Property, as more
fully set forth in Paragraph 7.
5.2. Seller agrees to convey fee simple title to the Property to
Purchaser by special warranty deed (the "Deed") in recordable form subject only
to the Permitted Exceptions and any Unpermitted Exceptions waived by Purchaser.
<PAGE>
6. CONDEMNATION, EMINENT DOMAIN, DAMAGE AND CASUALTY.
6.1. Except as provided in the indemnity provisions contained in
Paragraph 7.1 of this Agreement, Seller shall bear all risk of loss with
respect to the Property up to the earlier of the dates upon which either
possession or title is transferred to Purchaser in accordance with this
Agreement. Notwithstanding the foregoing, in the event of damage to the
Property by fire or other casualty prior to the Closing Date, repair of which
would cost less than or equal to $100,000.00 (as determined by Seller in good
faith) Purchaser shall not have the right to terminate its obligations under
this Agreement by reason thereof, but Seller shall have the right to elect to
either repair and restore the Property (in which case the Closing Date shall be
extended until completion of such restoration) or to assign and transfer to
Purchaser on the Closing Date all of Seller's right, title and interest in and
to all insurance proceeds paid or payable to Seller on account of such fire or
casualty, together with a credit for any deductible applicable to the claim
relating to such insurance proceeds. Seller shall promptly notify Purchaser in
writing of any such fire or other casualty and Seller's determination of the
cost to repair the damage caused thereby. In the event of damage to the
Property by fire or other casualty prior to the Closing Date, repair of which
would cost in excess of $100,000.00 (as determined by Seller in good faith),
then this Agreement may be terminated at the option of Purchaser, which option
shall be exercised, if at all, by Purchaser's written notice thereof to Seller
within five (5) business days after Purchaser receives written notice of such
fire or other casualty and Seller's determination of the amount of such
damages, and upon the exercise of such option by Purchaser this Agreement shall
become null and void, the Earnest Money deposited by Purchaser shall be
returned to Purchaser together with interest thereon, and neither party shall
have any further liability or obligations hereunder. In the event that
Purchaser does not exercise the option set forth in the preceding sentence, the
Closing shall take place on the Closing Date and Seller shall assign and
transfer to Purchaser on the Closing Date all of Seller's right, title and
interest in and to all insurance proceeds paid or payable to Seller on account
of the fire or casualty, together with a credit for any deductible applicable
to the claim relating to such insurance proceeds.
6.2. If between the date of this Agreement and the Closing Date, any
condemnation or eminent domain proceedings are initiated which might result in
the taking of any part of the Property or the taking or closing of any right of
access to the Property, Seller shall immediately notify Purchaser of such
occurrence. In the event that the taking of any part of the Property shall:
(i) materially impair access to the Property; (ii) cause any material
non-compliance with any applicable law, ordinance, rule or regulation of any
federal, state or local authority or governmental agencies having jurisdiction
over the Property or any portion thereof; or (iii) materially and adversely
impair the use of the Property as it is currently being operated (hereinafter
collectively referred to as a "Material Event"), Purchaser may:
6.2.1. terminate this Agreement by written notice to Seller, in
which event the Earnest Money deposited by Purchaser, together with interest
thereon, shall be returned to Purchaser and all rights and obligations of the
parties hereunder will cease except as specifically survives the termination of
the Agreement as set forth herein; or
6.2.2. proceed with the Closing, in which event Seller shall assign
to Purchaser all of Seller's right, title and interest in and to any award made
in connection with such condemnation or eminent domain proceedings.
<PAGE>
6.3. Purchaser shall then notify Seller, within five (5) business days
after Purchaser's receipt of Seller's notice, whether Purchaser elects to
exercise its rights under Paragraph 6.2.1 or Paragraph 6.2.2. Closing shall be
delayed, if necessary, until Purchaser makes such election. If Purchaser fails
to make an election within such five (5) business day period, Purchaser shall
be deemed to have elected to exercise its rights under Paragraph 6.2.2. If
between the date of this Agreement and the Closing Date, any condemnation or
eminent domain proceedings are initiated which do not constitute a Material
Event, Purchaser shall be required to proceed with the Closing, in which event
Seller shall assign to Purchaser all of Seller's right, title and interest in
and to any award made in connection with such condemnation or eminent domain
proceedings.
6.4. Notwithstanding anything contained herein to the contrary, Purchaser
acknowledges that certain real estate (the "Condemned Property") adjacent to
the Property has been condemned by Seminole County, State of Florida, pursuant
to the Order of Taking Howell Branch Road, Phase II, Relating to Parcel Numbers
113/713 pursuant to Case No. 95-2295-CA-13-A (the "Previous Condemnation") and
Purchaser hereby acknowledges that Seller is entitled to all condemnation
proceeds arising out of the Previous Condemnation and that the Property does
not include the Condemned Property. In addition, Purchaser acknowledges that
the parking on the southwest portion of the Property will need to be
reconfigurated in connection with the Previous Condemnation.
7. INSPECTION AND AS-IS CONDITION.
7.1. During the period commencing on February 10, 1997 and ending at 5:00
p.m. Chicago time on April 4, 1997 (said period being herein referred to as the
"Inspection Period"), Purchaser and the agents, engineers, employees,
contractors and surveyors retained by Purchaser may enter upon the Property, at
any reasonable time and upon reasonable prior notice to Seller, to inspect the
Property, including a review of leases located at the Property, and to conduct
and prepare such studies, tests and surveys as Purchaser may deem reasonably
necessary and appropriate. In connection with Purchaser's review of the
Property, Seller agrees to deliver to Purchaser copies of the current rent roll
for the Property, the most recent tax and insurance bills, utility account
numbers, service contracts, and unaudited year end 1995 and 1996 and
year-to-date operating statements. Furthermore, if the following are
reasonably available to Seller, Seller shall deliver to Purchaser plans and
specifications.
All of the foregoing tests, investigations and studies to be conducted
under this Paragraph 7.1 by Purchaser shall be at Purchaser's sole cost and
expense and Purchaser shall restore the Property to the condition existing
prior to the performance of such tests or investigations by or on behalf of
Purchaser. Purchaser shall defend, indemnify and hold Seller and any
affiliate, parent of Seller, and all shareholders, employees, officers and
directors of Seller or Seller's affiliate or parent (hereinafter collectively
referred to as "Affiliate of Seller") harmless from any and all liability, cost
and expense (including without limitation, reasonable attorney's fees, court
costs and costs of appeal) suffered or incurred by Seller or Affiliates of
Seller for injury to persons or property caused by Purchaser's investigations
and inspection of the Property. Purchaser shall undertake its obligation to
defend set forth in the preceding sentence using attorneys selected by
Purchaser, approved by Seller in Seller's reasonable discretion.
<PAGE>
Prior to commencing any such tests, studies and investigations, Purchaser
shall furnish to Seller a certificate of insurance evidencing comprehensive
general public liability insurance insuring the person, firm or entity
performing such tests, studies and investigations and listing Seller and
Purchaser as additional insureds thereunder.
If Purchaser is dissatisfied with the results of the tests, studies or
investigations performed or information received pursuant to this Paragraph
7.1, Purchaser shall have the right to terminate this Agreement by giving
written notice of such termination to Seller at any time prior to the
expiration of the Inspection Period. If written notice is not received by
Seller pursuant to this Paragraph 7.1 prior to the expiration of the Inspection
Period, then the right of Purchaser to terminate this Agreement pursuant to
this Paragraph 7.1 shall be waived. If Purchaser terminates this Agreement by
written notice to Seller prior to the expiration of the Inspection Period: (i)
Purchaser shall promptly deliver to Seller copies of all studies, reports and
other investigations obtained by Purchaser in connection with its due diligence
during the Inspection Period; and (ii) the Earnest Money deposited by Purchaser
shall be immediately paid to Purchaser, together with any interest earned
thereon, and neither Purchaser nor Seller shall have any right, obligation or
liability under this Agreement, except for Purchaser's obligation to indemnify
Seller and restore the Property, as more fully set forth in this Paragraph 7.1.
Notwithstanding anything contained herein to the contrary, the terms of this
Paragraph 7.1, shall survive the Closing and the delivery of the Deed and
termination of this Agreement.
7.2. Seller (sometimes Seller's predecessor-in-interest) acquired title
to the Property by foreclosure (or deed-in-lieu thereof) and, therefore, Seller
can make no representations or warranties relating to the condition of the
Property or the Personal Property. Purchaser acknowledges and agrees that it
will be purchasing the Property and the Personal Property based solely upon its
inspections and investigations of the Property and the Personal Property, and
that Purchaser will be purchasing the Property and the Personal Property "AS
IS" and "WITH ALL FAULTS", based upon the condition of the Property and the
Personal Property as of the date of this Agreement, wear and tear and loss by
fire or other casualty or condemnation excepted. Without limiting the
foregoing, Purchaser acknowledges that, except as may otherwise be specifically
set forth elsewhere in this Agreement, neither Seller nor its consultants,
brokers or agents have made any representations or warranties of any kind upon
which Purchaser is relying as to any matters concerning the Property or the
Personal Property, including, but not limited to, the condition of the land or
any improvements comprising the Property, the existence or non-existence of
"Hazardous Materials" (as hereinafter defined), economic projections or market
studies concerning the Property, any development rights, taxes, bonds,
covenants, conditions and restrictions affecting the Property, water or water
rights, topography, drainage, soil, subsoil of the Property, the utilities
serving the Property or any zoning or building laws, rules or regulations or
"Environmental Laws" (hereinafter defined) affecting the Property. Seller
makes no representation or warranty that the Property complies with Title III
of the Americans with Disabilities Act or any fire code or building code.
Purchaser hereby releases Seller and the Affiliates of Seller from any and all
liability in connection with any claims which Purchaser may have against Seller
or the Affiliates of Seller, and Purchaser hereby agrees not to assert any
claims for contribution, cost recovery or otherwise, against Seller or the
Affiliates of Seller, relating directly or indirectly to the existence of
asbestos or Hazardous Materials on, or environmental conditions of, the
Property, whether known or unknown. As used herein, "Environmental Laws" means
<PAGE>
all federal, state and local statutes, codes, regulations, rules, ordinances,
orders, standards, permits, licenses, policies and requirements (including
consent decrees, judicial decisions and administrative orders) relating to the
protection, preservation, remediation or conservation of the environment or
worker health or safety, all as amended or reauthorized, or as hereafter
amended or reauthorized, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Section 6901 et seq., the Emergency Planning and Community
Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C. Section 11001 et seq., the
Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq., the Federal Water
Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section 1251 et seq., the
Toxic Substances Control Act ("TSCA"), 15 U.S.C. Section 2601 et seq., the Safe
Drinking Water Act ("Safe Drinking Water Act"), 42 U.S.C. Section 300f et seq.,
the Atomic Energy Act ("AEA"), 42 U.S.C. Section 2011 et seq., the Occupational
Safety and Health Act ("OSHA"), 29 U.S.C. Section 651 et seq., and the
Hazardous Materials Transportation Act (the "Transportation Act"), 49 U.S.C.
Section 1802 et seq. As used herein, "Hazardous Materials" means:
(1) "hazardous substances," as defined by CERCLA; (2) "hazardous wastes," as
defined by RCRA; (3) any radioactive material including, without limitation,
any source, special nuclear or by-product material, as defined by AEA; (4)
asbestos in any form or condition; (5) polychlorinated biphenyls; and (6) any
other material, substance or waste to which liability or standards of conduct
may be imposed under any Environmental Laws. Notwithstanding anything
contained herein to the contrary, the terms of this Paragraph 7.2 shall survive
the Closing and the delivery of the Deed and termination of this Agreement.
7.3. Seller has provided to Purchaser certain unaudited historical
financial information regarding the Property relating to certain periods of
time in which Seller owned the Property. Except as set forth in Paragraph
16.2, Seller makes no representation or warranty that such material is complete
or accurate or that Purchaser will achieve similar financial or other results
with respect to the operations of the Property, it being acknowledged by
Purchaser that Seller's operation of the Property and allocations of revenues
or expenses may be vastly different than Purchaser may be able to attain.
Purchaser acknowledges that it is a sophisticated and experienced purchaser of
real estate and further that Purchaser has relied upon its own investigation
and inquiry with respect to the operation of the Property and releases Seller
and the Affiliates of Seller from any liability with respect to such historical
information. Notwithstanding anything contained herein to the contrary, the
terms of this Paragraph 7.3 shall survive the Closing and the delivery of the
Deed and termination of this Agreement.
7.4. Seller has provided to Purchaser the following existing report:
Environmental Site Update Assessment Report, Project No. 45004.29 prepared by
Hygienetics Environmental Services, Inc., dated August 10, 1994 ("Existing
Report"). Seller makes no representation or warranty concerning the accuracy
or completeness of the Existing Report. Purchaser hereby releases Seller and
the Affiliates of Seller from any liability whatsoever with respect to the
Existing Report, or, including, without limitation, the matters set forth in
the Existing Report, and the accuracy and/or completeness of the Existing
Report. Furthermore, Purchaser acknowledges that it will be purchasing the
Property with all faults disclosed in the Existing Report. Notwithstanding
anything contained herein to the contrary, the terms of this Paragraph 7.4
shall survive the Closing and the delivery of the Deeds and termination of this
Agreement.
<PAGE>
7.5. Purchaser acknowledges that Purchaser has reviewed the sub-subleases
between Fashion Bug & Fashion Bug Plus, Click's Billiards, Great Khan
Restaurant, The Closet Door, Ross Dress For Less, and International Grocery
("Sub-Subtenants") and Seller, and Purchaser acknowledges that certain of the
terms of the Sub-Subtenants' leases extend past January 31, 1998. Purchaser
hereby releases and indemnifies Seller and the Affiliates of Seller from any
and all liability in connection with any claims brought by or on behalf of the
Sub-Subtenants against Seller as sub-sublessor of Seller's interest in the
Sublease ("Sub-Subtenants Claims"). Purchaser hereby agrees not to assert any
claims for indemnity, contribution, breach of contract or lease, business
interruption or interference, cost recovery or otherwise, against Seller or the
Affiliates of Seller, relating directly or indirectly to any Sub-Subtenants
Claims. Notwithstanding anything contained herein to the contrary, the terms
of this Paragraph 7.5 shall survive the Closing and the delivery of the Deeds
and termination of this Agreement.
8. CLOSING. The closing of this transaction (the "Closing") shall be on or
before April 30, 1997 (the "Closing Date"), at the office of Title Insurer,
Orlando, Florida at which time Seller shall deliver possession of the Property
to Purchaser. Purchaser may accelerate the Closing Date to an earlier date by
providing Seller seven (7) days advance notice of the intended new "Closing
Date." In no event shall the Closing Date be later than April 30, 1997. This
transaction shall be closed through an escrow with Title Insurer, in accordance
with the general provisions of the usual and customary form of deed and money
escrow for similar transactions in Florida or at the option of either party,
the Closing shall be a "New York style" closing at which the Purchaser shall
wire the Purchase Price to Title Insurer on the Closing Date and prior to the
release of the Purchase Price to Seller, Purchaser shall receive the Title
Policy or marked up commitment dated the date of the Closing Date. In the
event of a New York style closing, Seller shall deliver to Title Insurer any
customary affidavit in connection with a New York style closing. All closing
and escrow fees shall be divided equally between the parties hereto.
9. CLOSING DOCUMENTS.
9.1. On or prior to the Closing Date, Seller and Purchaser shall execute
and deliver to one another a joint closing statement. In addition, Purchaser
shall deliver to Seller the balance of the Purchase Price, an assumption of the
documents set forth in Paragraph 9.2.3 and 9.2.4 and such other documents as
may be reasonably required by the Title Insurer in order to consummate the
transaction as set forth in this Agreement.
9.2. On the Closing Date, Seller shall deliver to Purchaser the
following:
9.2.1. the Deed (in the form of Exhibit E attached hereto),
subject to Permitted Exceptions and those Unpermitted Exceptions waived by
Purchaser;
9.2.2. a quit claim bill of sale conveying the Personal Property
(in the form of Exhibit F attached hereto);
9.2.3. assignment and assumption of intangible property (in the form
attached hereto as Exhibit G), including, without limitation, the service
contracts listed in Exhibit H;
<PAGE>
9.2.4. an assignment and assumption of leases and security deposits
(in the form attached hereto as Exhibit I);
9.2.5. non-foreign affidavit (in the form of Exhibit J attached
hereto);
9.2.6. original, and/or copies of, leases affecting the Property in
Seller's possession (which shall be delivered at the Property);
9.2.7. all documents and instruments required by the Title Insurer
to issue the Title Policy;
9.2.8. possession of the Property to Purchaser, subject to the terms
of leases;
9.2.9. evidence of the termination of the management agreement;
9.2.10. notice to the tenants of the Property of the transfer of
title and assumption by Purchaser of the landlord's obligation under the leases
and the obligation to refund the security deposits (in the form of Exhibit K);
9.2.11. an updated rent roll.; and
9.2.12. assignment and assumption of Sublease and all Sub-Subleases
(in a form similar to Exhibit I).
10. PURCHASER'S DEFAULT. ALL EARNEST MONEY DEPOSITED INTO THE ESCROW IS TO
SECURE THE TIMELY PERFORMANCE BY PURCHASER OF ITS OBLIGATIONS AND UNDERTAKINGS
UNDER THIS AGREEMENT. IN THE EVENT OF A DEFAULT OF THE PURCHASER UNDER THE
PROVISIONS OF THIS AGREEMENT, SELLER SHALL RETAIN ALL OF THE EARNEST MONEY AND
THE INTEREST THEREON AS SELLER'S SOLE RIGHT TO DAMAGES OR ANY OTHER REMEDY,
EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND RESTORE THE PROPERTY
AS SET FORTH IN PARAGRAPH 7.1 HEREOF AND PURCHASER'S RIGHT TO RECEIVE FROM
SELLER ITS ACTUAL, DOCUMENTED THIRD PARTY EXPENSES INCURRED IN THE PERFORMANCE
OF ITS DUE DILIGENCE HEREUNDER, THE PREPARATION OF PURCHASER'S FINANCING, AND
THE PREPARATION OF THIS AGREEMENT, NOT TO EXCEED $50,000 IN THE AGGREGATE. THE
PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY
PURCHASER, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICAL TO DETERMINE.
THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE
EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES'
REASONABLE ESTIMATE OF SELLER'S DAMAGES.
11. SELLER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF SELLER'S
DEFAULT, PURCHASER'S SOLE REMEDY SHALL BE THE RETURN OF ALL EARNEST MONEY
TOGETHER WITH ANY INTEREST ACCRUED THEREON, AND THIS AGREEMENT SHALL THEN
BECOME NULL AND VOID AND OF NO EFFECT AND THE PARTIES SHALL HAVE NO FURTHER
LIABILITY TO EACH OTHER AT LAW OR IN EQUITY, EXCEPT FOR PURCHASER'S OBLIGATIONS
TO INDEMNIFY SELLER AND RESTORE THE PROPERTY AS SET FORTH MORE FULLY IN
PARAGRAPH 7. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IF
SELLER'S DEFAULT IS ITS WILLFUL REFUSAL TO DELIVER THE DEED, THEN PURCHASER
WILL BE ENTITLED TO SUE FOR SPECIFIC PERFORMANCE.
12. PRORATIONS.
12.1. Rents (exclusive of delinquent rents, but including prepaid rents);
refundable security deposits (which will be assigned to and assumed by
Purchaser and credited to Purchaser at Closing); water and other utility
charges; fuels; prepaid operating expenses; management fees in the amount of
<PAGE>
6%; real and personal property taxes prorated on a "net" basis (i.e. adjusted
for all tenants' liability, if any, for such items) and taking into account the
full discount available for payment of real estate taxes which remain unpaid;
100% of operating expenses which are reimbursable by Eckards, Publix, Beall's
Outlet, Fashion Bug, Click's Billiards, Kimsworth Inc. and Ross Dress for Less
and 75% of the operating expenses which are reimbursable by the balance of the
tenants for the period prior to the Closing Date less any amount previously
paid by the Tenants shall be credited to Seller; and other similar items shall
be adjusted ratably as of 11:59 p.m. on the Closing Date, and credited against
the balance of the cash due at Closing. Assessments payable in installments
which are due subsequent to the Closing Date shall be paid by Purchaser. If
the amount of any of the items to be prorated is not then ascertainable, the
adjustments thereof shall be on the basis of the most recent ascertainable
data. All prorations will be final except as to delinquent rent referred to in
Paragraph 12.2 below.
12.2. All basic rent paid following the Closing Date by any tenant of the
Property who is indebted under a lease for basic rent for any period prior to
and including the Closing Date after the payment to Purchaser of all current
basis rent shall be deemed a "Post-Closing Receipt" until such time as all such
indebtedness is paid in full. Within ten (10) days following each receipt by
Purchaser of a Post-Closing Receipt, Purchaser shall pay such Post-Closing
Receipt to Seller. Purchaser shall use its best efforts to collect all amounts
which, upon collection, would constitute Post-Closing Receipts hereunder.
Within 120 days after the Closing Date, Purchaser shall deliver to Seller a
reconciliation statement of Post-Closing Receipts through the first 90 days
after the Closing Date. Upon the delivery of the Post-Closing Receipts
reconciliation, Purchaser shall deliver to Seller any Post-Closing Receipts
owing to Seller and not previously delivered to Seller in accordance with the
terms hereof. Seller retains the right to conduct an audit, at reasonable
times and upon reasonable notice, of Purchaser's books and records to verify
the accuracy of the Post-Closing Receipts reconciliation statement and upon the
verification of additional funds owing to Seller, Purchaser shall pay to Seller
said additional Post-Closing Receipts and, if the additional Post-Closing
Receipts equal an amount greater than $5,000, the cost of performing Seller's
audit. Seller retains the right to bring suit for collection of delinquent
rent against any tenant owing more than $5,000 of delinquent rent to Seller.
Paragraph 12.2 of this Agreement shall survive the Closing and the delivery and
recording of the deed.
12.3. Percentage rent payable under the leases shall be prorated as of
the Closing Date as follows:
12.3.1. Any percentage rent attributable to a specified period
("Percentage Rent Period") ending prior to the Closing Date shall be promptly
paid over to the Seller if and when collected. Seller shall be entitled to all
percentage rent attributable to the period prior to Closing Date for any
Percentage Rent Period ending prior to Closing Date.
12.3.2. Percentage rent payable with respect to a Percentage Rent
Period a portion of which occurs prior to the Closing Date and a portion of
which occurs subsequent to the Closing Date shall be apportioned between
Purchaser and Seller on the basis of their respective period of ownership
during the applicable Percentage Rent Period. Seller shall be entitled to
percentage rent determined by multiplying the total percentage rent for such
Percentage Rent Period by a fraction, the numerator of which shall be the total
number of days in such Percentage Rent Period prior to the Closing Date and the
<PAGE>
denominator of which shall be the total number of days in the Percentage Rent
Period. Purchaser shall be entitled to the remainder of such percentage rent.
The amount of such percentage rent allocated to Seller shall be adjusted by the
parties and paid by Purchaser or Seller to the other, as appropriate, on the
Closing Date based upon the most recently ascertainable financial data for
calendar year 1996 and for calendar year 1997 (with percentage rent for
calendar year 1997 being based on 75% of the percentage rent payable in
calendar year 1996 with no other reproration). Seller shall have similar audit
rights as contained in Paragraph 12.2 above.
13. RECORDING. Neither this Agreement nor a memorandum thereof shall be
recorded and the act of recording by Purchaser shall be an act of default
hereunder by Purchaser and subject to the provisions of Paragraph 10 hereof.
14. ASSIGNMENT. The Purchaser shall not have the right to assign its interest
in this Agreement without the prior written consent of the Seller. Any
assignment or transfer of, or attempt to assign or transfer, Purchaser's
interest in this Agreement shall be an act of default hereunder by Purchaser
and subject to the provisions of Paragraph 10 hereof. Notwithstanding the
foregoing, Purchaser may assign its interest in this Agreement without the
consent of Seller to any entity affiliated with Purchaser, or the principals of
Purchaser, or to any fund sponsored by Purchaser or its affiliate, provided
that the assignee assumes the obligations of Purchaser hereunder. If any
assignee of Purchaser under this Agreement petitions or applies for relief in
bankruptcy or Assignee is adjudicated as a bankrupt or insolvent, or Assignee
files any petition, application for relief or answer-seeking or acquiescing in
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for itself under any present or future federal,
state or other statute, law, code or regulation relating to bankruptcy,
insolvency, or other relief for debtors (collectively, a "Bankruptcy Filing")
on or before the Closing Date, said Bankruptcy Filing shall be a default under
this Agreement and Purchaser shall indemnify Seller for all costs, attorney's
fees and expenses of Seller resulting from Seller's efforts to obtain the
Earnest Money as liquidated damages and to clear title to the Property from any
encumbrance resulting from the Bankruptcy Filing.
15. BROKER. The parties hereto represent and warrant that no broker
commission or finder fee is due and payable in connection with this transaction
other than to Insignia Mortgage and Investment Company, Inc. ("Insignia") (to
be paid by Seller) and the Aztec Group, Inc. ("Aztec") (to be paid by
Purchaser). Seller's commission to Insignia shall only be payable out of the
proceeds of the sale of the Property in the event the transaction set forth
herein closes. Purchaser and Seller shall indemnify, defend and hold the other
party hereto harmless from any claim whatsoever (including without limitation,
reasonable attorney's fees, court costs and costs of appeal) from anyone
claiming by or through the indemnifying party any fee, commission or
compensation on account of this Agreement, its negotiation or the sale hereby
contemplated other than to Insignia and Aztec. The indemnifying party shall
undertake its obligations set forth in this Paragraph 15 using attorneys
selected by the indemnifying party and reasonably acceptable to the indemnified
party. The provisions of this Paragraph 15 will survive the Closing and
delivery of the Deed.
<PAGE>
16. REPRESENTATIONS AND WARRANTIES.
16.1. Any reference herein to Seller's knowledge or notice of any matter
or thing shall only mean such knowledge or notice that has actually been
received by Mike Conter (the "Seller's Representative"), and any representation
or warranty of the Seller is based upon those matters of which the Seller's
Representative has actual knowledge. Any knowledge or notice given, had or
received by any of Seller's agents, servants or employees shall not be imputed
to Seller, the general partner or limited partners of Seller, the subpartners
of the general partner or limited partners of Seller or Seller's
Representative.
16.2. Subject to the limitations set forth in Paragraph 16.1, Seller
hereby makes the following representations and warranties, which
representations and warranties are made to Seller's knowledge and which shall
not survive Closing: (i) Seller has no knowledge of any pending or threatened
litigation, claim, cause of action or administrative proceeding concerning the
Property; (ii) Seller has the power to execute and deliver this Agreement and
consummate the transactions contemplated herein; (iii) the rent roll attached
hereto as Exhibit M which Seller will update as of the Closing Date is accurate
as of the date set forth thereon; (iv) the operating statements delivered by
Seller to Purchaser pursuant to Paragraph 7.1 are the operating statements
prepared by Seller's third-party property manager in the normal course of
business; and (v) except as may be set forth in the Existing Report, Seller has
not received any notice from any governmental authority having jurisdiction
over the Property of any uncured violation of any Environmental Law with
respect to the Property.
16.3. Purchaser hereby represents and warrants to Seller that
Purchaser has the full right, power and authority to execute and deliver this
Agreement and consummate the transactions contemplated herein.
17. LIMITATION OF LIABILITY.
17.1. Neither Seller, nor any Affiliate of Seller, nor any of their
respective beneficiaries, shareholders, partners, officers, directors, agents
or employees, heirs, successors or assigns shall have any personal liability of
any kind or nature for or by reason of any matter or thing whatsoever under, in
connection with, arising out of or in any way related to this Agreement and the
transactions contemplated herein, and Purchaser hereby waives for itself and
anyone who may claim by, through or under Purchaser any and all rights to sue
or recover on account of any such alleged personal liability.
17.2. Neither Purchaser, nor any affiliate, parent of Purchaser, or
all shareholders, employees, officers or directors of Purchaser or Purchaser's
affiliate or parent, nor any of their respective beneficiaries, shareholders,
partners, officers, directors, agents or employees, heirs, successors or
assigns shall have any personal liability of any kind or nature for or by
reason of any matter or thing whatsoever under, in connection with, arising out
of or in any way related to this Agreement and the transactions contemplated
herein, and Seller hereby waives for itself and anyone who may claim by,
through or under Seller any and all rights to sue or recover on account of any
such alleged personal liability, except Purchaser shall be liable for the
delivery of the Earnest Money and Purchaser's indemnities of Seller pursuant to
Paragraphs 7.1, 7.5 and 15 hereof.
<PAGE>
18. TIME OF ESSENCE. Time is of the essence of this Agreement.
19. NOTICES. Any notice or demand which either party hereto is required or
may desire to give or deliver to or make upon the other party shall be in
writing and may be personally delivered or given or made by overnight courier
such as Federal Express, by facsimile transmission or made by United States
registered or certified mail addressed as follows:
TO SELLER: c/o The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Ilona Adams
with copies to: The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: James Mendelson
(847) 317-4367
(847) 317-4462 (FAX)
and to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Daniel J. Perlman, Esq.
(312) 902-5532
(312) 902-1061 (FAX)
TO PURCHASER: Sterling Investment Co., Inc.
Real Estate Investment & Management
209 Phipps Plaza
Palm Beach, Florida 33480
Attention: Duane J. Stiller
(561) 835-1810
(561) 833-4118 (FAX)
and one copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401-6112
Attention: Marvin S. Rosen, Esq.
(561) 838-4501
(561) 832-3036 (FAX)
subject to the right of either party to designate a different address for
itself by notice similarly given. Any notice or demand so given shall be
deemed to be delivered or made on the next business day if sent by overnight
courier, or the same day as given if sent by facsimile transmission and
received by 5:00 p.m. Chicago time or on the 4th business day after the same is
deposited in the United States Mail as registered or certified matter,
addressed as above provided, with postage thereon fully prepaid. Any such
notice, demand or document not given, delivered or made by registered or
certified mail, by overnight courier or by facsimile transmission as aforesaid
<PAGE>
shall be deemed to be given, delivered or made upon receipt of the same by the
party to whom the same is to be given, delivered or made. Copies of all
notices shall be served upon the Escrow Agent.
20. EXECUTION OF AGREEMENT AND ESCROW AGREEMENT. Purchaser will execute two
(2) copies of this Agreement and three (3) copies of the Escrow Agreement and
forward them to Seller for execution, accompanied with the Earnest Money
payable to the Escrow Agent set forth in the Escrow Agreement. Seller will
forward one (1) copy of the executed Agreement to Purchaser and will forward
the following to the Escrow Agent:
(A) Earnest Money;
(B) One (1) fully executed copy of this Agreement; and
(C) Three (3) copies of the Escrow Agreement signed by the parties with a
direction to execute two (2) copies of the Escrow Agreement and deliver a fully
executed copy to each of the Purchaser and the Seller.
21. GOVERNING LAW. The provisions of this Agreement shall be governed by the
laws of the State of Florida.
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all other negotiations, understandings and
representations made by and between the parties and the agents, servants and
employees.
23. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
24. CAPTIONS. Paragraph titles or captions contained herein are inserted as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or any provision hereof.
25. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT
HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH
RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED
FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA.
ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE OBTAINED FROM
YOUR COUNTY PUBLIC HEALTH UNIT. THIS PARAGRAPH IS PROVIDED FOR INFORMATIONAL
PURPOSES PURSUANT TO SECTION 404.056(8), FLORIDA STATUTES, (1988).
26. NEW LEASES.
On or before Five (5) business days prior to the expiration of the
Inspection Period, Seller may execute any new lease or modify or renew any
existing lease affecting the Property without Purchaser's consent. Seller
shall deliver a copy of any such new lease or existing lease modification or
renewal (together with an estimation of the "New Lease Costs" (as hereinafter
defined)), as applicable, to Purchaser within three (3) business days of
execution by Seller and the new tenant or existing tenant, as applicable, but
in any event on or before Four (4) business days prior to the expiration of the
Inspection Period. In the event Purchaser disapproves of such new lease or
existing lease modification or renewal, Purchaser's sole remedy shall be to
terminate this Agreement in accordance with Paragraph 7 hereof. In the event
that Purchaser does not terminate this Agreement as aforesaid, Purchaser shall
be responsible for the costs of all tenant improvements, leasing costs and
<PAGE>
commissions and reasonable attorney's fees (up to a maximum amount of $1000.00
of attorney's fees per new lease or existing lease modification or renewal)
associated with the negotiation and execution of any such new lease or existing
lease modification or renewal ("New Lease Costs"). Seller shall receive a
credit at Closing for any New Lease Cost incurred by Seller prior to Closing.
After the date Five (5) business days prior to the expiration of the
Inspection Period, Seller shall not execute any new lease or existing lease
modification or renewal affecting the Property without Purchaser's prior
written consent, which shall not be unreasonably withheld. Purchaser's consent
shall be deemed given if Purchaser has not responded to the contrary within
five (5) business days after Seller's written request and Purchaser's receipt
of such new lease or existing lease modification or renewal (together with an
estimation of the New Lease Costs). If approved by Purchaser, a complete copy
of any such new lease or existing lease modification or renewal shall be
delivered to Purchaser within ten (10) days of the full execution thereof. All
New Lease Costs shall be paid by Purchaser and Seller shall receive a credit at
Closing for any New Lease Costs incurred by Seller prior to Closing.
Purchaser acknowledges that there currently exists the unsatisfied tenant
improvement obligations and leasing commissions set forth on Exhibit N attached
hereto. Seller agrees to pay the leasing commission obligations set forth on
Exhibit N with respect to The Junkyard on or before the Closing. With respect
to all other tenant improvements and leasing commission obligations set forth
on Exhibit N, Purchaser shall assume the obligations for the payment thereof
and credit Seller at Closing for any amounts paid toward the aforesaid tenant
improvements or leasing commission obligations (other than The Junkyard) set
forth on Exhibit N. In the event the current leases for the Property include
unsatisfied tenant improvement obligations or leasing commissions not listed on
Exhibit N, Seller shall be solely responsible for such tenant improvement
obligations and leasing commissions.
27. TENANT CERTIFICATE CONDITION TO CLOSING.
27.1. The following terms have been defined as follows for convenience
of reference:
(i) "Tenant Certificate" means a certificate, commonly known as an
estoppel certificate, signed by a tenant with respect to its Lease, either in
the form set forth on Exhibit L hereto or on such other form as is
substantially consistent with the requirements of the tenant's lease for such
certificates;
(ii) "Seller Tenant Certificate" means a Tenant Certificate signed by
the Seller with respect to a particular Lease for which the Tenant in question
has failed to execute and deliver a Tenant Certificate, in which case the
Seller Tenant Certificate shall be in the form of Exhibit L; provided further
that a Seller Tenant Certificate shall in all cases be limited to Seller's
knowledge as defined in Paragraph 16.1 hereof;
(iii) "Qualification" means any assertion in a Tenant Certificate
(whether in the form of Exhibit L or otherwise) of (i) a claim, counterclaim,
offset or defense against the landlord, (ii) a default on the part of the
landlord, (iii) unpaid credits, allowances or other sums due from the landlord
prior to the date of the estoppel (other than disclosed in Paragraph 12.1
herein or pursuant to a new lease pursuant to Paragraph 26 herein), (iv) an
unfulfilled construction or other obligation on the part of the landlord prior
<PAGE>
to the date of estoppel (other than disclosed in Paragraph 12.1 herein or
pursuant to a new lease pursuant to Paragraph 26 herein), or (v) information
which is contrary (in an adverse respect to the landlord) (x) to the
information contained in the rent roll attached hereto as Exhibit M, or (y) the
information pertaining to tenant allowances and concessions and leasing
commissions contained in Paragraph 12.1;
(iii) "Unacceptable Qualification" means any Qualification other
than the following:
(a) a Qualification which is expressly disclosed on the rent
roll attached hereto as Exhibit M or a Qualification relating to non-payment of
March, 1997 or April, 1997 rent, provided the same is not as a result of a
default by Landlord;
(b) a Qualification which is specifically and clearly disclosed
in the Lease of the Tenant in question which was delivered or made available to
Purchaser prior to the expiration of the Inspection Period;
(c) a Qualification expressly disclosed in this Agreement or
the Exhibits hereto; or
(d) a disclosure by a Tenant of physical defects to the portion
of the Property generally known as the common area.
27.2. If a Qualification is not an Unacceptable Qualification, it
shall not affect Purchaser's obligations to close hereunder or give rise to any
liability from Seller to Purchaser.
27.3. Seller shall promptly request a Tenant Certificate in the form
of Exhibit L from all tenants, and shall vigorously, in good faith, pursue the
collection of the same. Seller shall deliver to Purchaser, upon Seller's
receipt thereof, all Tenant Certificates signed by tenants (whether in the form
of Exhibit L or otherwise). Purchaser shall have the right to assist Seller in
obtaining the Tenant Certificates.
27.4. It shall be a condition to Purchaser's obligations hereunder
(the "Estoppel Condition") that Seller deliver to Purchaser, at or prior to
5:00 p.m. Chicago time on April __, 1997 (i) a Tenant Certificate from Eckards,
Ross Dress for Less, Beall's Outlet, Fashion Bug, Clicks Billiards, and
Kimsworth, Inc., (ii) a Seller Tenant Certificate from Publix and (iii) a
Tenant Certificate or Seller Tenant Certificate from tenants occupying the
remainder of the occupied leasable area of the Property. Seller shall be
required to deliver to Purchaser all Tenant Certificates received by Seller
from the tenants at the Property. Notwithstanding the foregoing to the
contrary, Seller shall not have satisfied the Estoppel Condition if any of the
Tenant Certificates received by Seller, disclose Unacceptable Qualifications
other than Unacceptable Qualifications with an "Estoppel Qualification Sum"
(hereinafter defined) of less than $50,000 in the aggregate. The "Estoppel
Qualification Sum" shall mean the following:
(i) if the claim asserted arises out of a defect which can be cured,
with the expenditure of money on a one time basis, such as a physical defect,
then such sum shall be calculated by a reasonable estimate of the cost to
repair or remediate said defect; and
<PAGE>
(ii) if the claim asserted affects a continuing obligation of a
tenant under the lease, such as the payment of rent, then the claim shall be
calculated by (i) determining the amount of the claim on a per annum basis,
(ii) multiplying said amount by the number of years or partial years said claim
would affect the monetary obligations under the lease and (iii) discounting
said product on a present value basis using a discount rate of 10% per annum.
If the Unacceptable Qualifications have an Estoppel Qualification Sum of
less than $50,000 in the aggregate, then Seller shall either (i) grant
Purchaser a credit at Closing for an amount equal to the Estoppel Qualification
Sum, or (ii) cure all conditions giving rise to an Unacceptable Qualification
on or before the Closing. The determination to perform the covenant contained
in subparagraphs (i) or (ii) in the preceding sentence shall be made by Seller.
Provided Seller performs its covenant in this Paragraph 27.4, the disclosure of
Unacceptable Qualifications having an Estoppel Qualification Sum of less than
$50,000 in the aggregate shall not affect Purchaser's obligations to close
hereunder or give rise to any additional liability from Seller to Purchaser.
27.5. If Seller has not satisfied the Estoppel Condition on or before
5:00 p.m. Chicago time on April 14, 1997, then Purchaser shall have the right
to terminate this Agreement by delivering written notice to Seller on or before
5:00 p.m. Chicago time on April 16, 1997. If Purchaser exercises its rights to
terminate in accordance with the terms of this Paragraph 27.5, this Agreement
shall be null and void without further action of the parties and all Earnest
Money theretofore deposited by Purchaser together with any interest accrued
thereon, shall be returned to Purchaser, and neither party shall have any
further liability to the other, except for Purchaser's obligation to indemnify
Seller and restore the Property, as more fully set forth in Paragraph 7 hereof.
If Purchaser does not terminate this Agreement pursuant to the first sentence
of this Paragraph 27.5, the parties shall proceed to Closing and (i) Purchaser
shall receive a credit at Closing equal to the amount of the Estoppel
Qualification Sum of the Unacceptable Qualifications contained in the Tenant
Certificates, up to an aggregate amount of $50,000 or (ii) Seller shall cure
all conditions giving rise to an Unacceptable Qualification Sum up to an
aggregate amount of $50,000. The determination to perform the covenant
contained in subparagraphs (i) or (ii) in the preceding sentence shall be made
by Seller.
27.6. Notwithstanding anything contained herein to the contrary, if
Seller does not satisfy the Estoppel Condition because the estoppel
qualification sum exceeds $50,000 and Purchaser has terminated the Agreement
pursuant to Paragraph 27.5, Seller shall have the right to vitiate Purchaser's
termination by written notice on or before 5:00 p.m. Chicago time on April 18,
1997 in which case the parties shall proceed to Closing and Seller shall either
(i) grant Purchaser at Closing for an amount to the Estoppel Qualification Sum
or (ii) cure all conditions giving rise to an Unacceptable Qualification on or
before the Closing. The determination to perform the covenant contained in
subparagraphs (i) or (ii) in the preceding sentence shall be made by Seller.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as of
the date first set forth above.
PURCHASER:
STERLING INVESTMENT CO., INC., a Florida
corporation
By: /s/Duane J. Stiller
----------------------------------
Name: Duane J. Stiller
----------------------------------
Its: Vice President
----------------------------------
SELLER:
BUTLER LIMITED PARTNERSHIP, an Illinois limited
partnership
By: Butler Partners, Inc., an Illinois
corporation, its general partner
By: /s/James E. Mendelson
---------------------------------
Name: James E. Mendelson
---------------------------------
Its: Sr. V.P.
---------------------------------
<PAGE>
[Butler Plaza]
Al Lieberman of Insignia Mortgage and Investment Company, Inc.("Seller's
Broker") executed this Agreement in its capacity as a real estate broker and
acknowledges that the fee or commission due it from Seller as a result of the
transaction described in this Agreement is as set forth in that certain Listing
Agreement, dated August 5, 1996 between Seller and Seller's Broker (the
"Listing Agreement"). Seller's Broker also acknowledges that payment of the
aforesaid fee or commission is conditioned upon the Closing and the receipt of
the Purchase Price by the Seller. Seller's Broker agrees to deliver a receipt
to the Seller and Purchaser at the Closing for the fee or commission due
Seller's Broker and a release and indemnity, in the appropriate form, stating
that no other fees or commissions are due to it from Seller or Purchaser.
Insignia Mortgage and Investment Company,
Inc.
By: /s/Al Leiberman
--------------------------------
<PAGE>
[Butler Plaza]
_________________ of Aztec Group Inc. ( "Buyer's Broker") executed this
Agreement in its capacity as a real estate broker and acknowledges that the fee
or commission due it from Purchaser as a result of the transaction described in
this Agreement is as set forth in that certain Listing Agreement, dated
______________, 199_ between Purchaser and Buyer's Broker (the "Listing
Agreement"). Buyer's Broker also acknowledges that payment of the aforesaid
fee or commission is conditioned upon the Closing and the receipt of the
Purchase Price by the Seller. Buyer's Broker agrees to deliver a receipt to
the Seller and Purchaser at the Closing for the fee or commission due Buyer's
Broker and a release and indemnity, in the appropriate form, stating that no
other fees or commissions are due to it from Seller or Purchaser.
Aztec Group Inc.
By: ______________________________
<PAGE>
Exhibits
A - Legal
B - Personal Property
C - Escrow Agreement
D - Title Commitment
E - Deed
F - Bill of Sale
G - Assignment and Assumption of Intangible Property
H - Service Contracts
I - Assignment and Assumption of Leases and Security Deposits
J - Non-Foreign Affidavit
K - Notice to Tenants
L - Tenant Certificate
M - Rent Roll
N - Tenant Improvements and Leasing Commissions
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 17279
<SECURITIES> 0
<RECEIVABLES> 412
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17770
<PP&E> 25986
<DEPRECIATION> 0
<TOTAL-ASSETS> 43827
<CURRENT-LIABILITIES> 517
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39726
<TOTAL-LIABILITY-AND-EQUITY> 43827
<SALES> 0
<TOTAL-REVENUES> 12064
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 880
<LOSS-PROVISION> 3935
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7249
<INCOME-TAX> 0
<INCOME-CONTINUING> 7249
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<EXTRAORDINARY> (81)
<CHANGES> 0
<NET-INCOME> 7168
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<EPS-DILUTED> 13.97
</TABLE>
