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FORM 10-K/A
Amendment No. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1999 0-15753
HIGH EQUITY PARTNERS L.P. - SERIES 86
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(Exact name of Registrant as specified in its charter)
Delaware 13-3314609
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5 Cambridge Center, 9th Floor, Cambridge, MA 02142
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 234-3000
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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:
UNITS OF LIMITED PARTNERSHIP INTEREST
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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There is no public market for the Limited Partnership Units. Accordingly,
information with respect to the aggregate market value of Limited Partnership
Units held by non-affiliates of Registrant has not been supplied.
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 ]
Documents incorporated by reference
None
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The Annual Report on Form 10-K for the Year ended December 31, 1999 of High
Equity Partners, L.P. - Series 86 is hereby amended by deleting (i) Item 1. -
Competition; (ii) Item 1 - Employees, (iii) Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -Real Estate Market,
and (iv) Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Impairment of Assets in their entirety and inserting
the following in lieu thereof:
(i) Item 1 - Competition
Competition
The real estate business is highly competitive and, as discussed more
particularly in "Item 2. Properties" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Real Estate Market",
the properties acquired by the Partnership may have active competition from
similar properties in the vicinity. In addition, various limited partnerships
have been formed by the Managing General Partner and/or its affiliates and
agents that engage in businesses that may be competitive with the Partnership.
The Partnership will also experience competition for potential buyers at such
time as it seeks to sell any of its properties.
(ii) Item 1 - Employees
Employees
On-site personnel perform services for the Partnership at the properties.
Salaries for such on-site personnel are paid by unaffiliated management
companies that service the Partnership's properties. Services are also performed
by the Managing General Partner and by Resources Supervisory Management Corp.
("Resources Supervisory"), an affiliate of the Managing General Partner.
Resources Supervisory currently provides supervisory management and leasing
services for all of the Partnership's properties and subcontracts certain
management and leasing functions to unaffiliated third parties.
The Partnership does not have any employees. Presidio previously retained
Wexford Management LLC ("Wexford") to provide consulting and administrative
services to Presidio and its affiliates, including the Managing General Partner
and the Partnership. The agreement with Wexford expired on May 3, 1998 at which
time Presidio entered into a management agreement with NorthStar Presidio
Management Company, LLC ("NorthStar Presidio"). Under the terms of the
management agreement, NorthStar Presidio provided the day-to-day management of
Presidio and its direct and indirect subsidiaries and affiliates.
Presidio determined that it would be more cost effective to retain AP-PCC
III, L.P. (the "Agent") to provide asset management and investor services for
the Partnership. Accordingly, on October 21, 1999 Presidio entered into a
Services Agreement with the Agent pursuant to which the
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Agent was retained to provide asset management and investor relation services to
Partnership and other entities affiliated with Partnership.
As a result of this agreement, the Agent has the duty to direct the day to
day affairs of Partnership, including, without limitation, reviewing and
analyzing potential sale, financing or restructuring proposals regarding the
Partnership's assets, preparation of all reports, maintaining records and
maintaining bank accounts of Partnership. The Agent is not permitted, however,
without the consent of Presidio, or as otherwise required under the terms of the
Limited Partnership Agreement to, among other things, cause Partnership to sell
or acquire an asset or file for bankruptcy protection.
In order to facilitate the Agent's provision of the asset management
services and the investor relation services, effective October 25, 1999, the
officers and directors of the General Partner resigned and nominees of the Agent
were elected as the officers and directors of the General Partner. See Item 10,
"Directors and Executive Officers of the Partnership", The Agent is an affiliate
of Winthrop Financial Associates, a Boston based company that provides asset
management services, investor relation services and property management services
to over 150 limited partnerships which own commercial property and other assets.
The General Partner does not believe this transaction will have a material
effect on the operations of Partnership.
(iii) Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Real Estate Market
Real Estate Market
In the markets in which the Partnership's properties are located, the
market values of existing properties continue to recover from the effects of the
substantial decline in the real estate market in the early 1990's. However, in
select markets, values have been slow to recover, and high vacancy rates
continue to exist in some areas. The geographic diversity of the Partnership's
properties decreases the risk of a significant partnership devaluation resulting
from an isolated market slump in a particular region. The overall economic
outlook for the specific markets in which the Partnership's properties are
located continues to be stable to improving.
The outlook is particularly positive for 568 Broadway as office and retail
space in the Midtown South sub-market in which 568 Broadway is located is
becoming increasingly popular. Little new office and retail space inventory have
been introduced to offset demand in the area, resulting in a favorable operating
environment for the property. Rents are thus anticipated to continue to increase
at the property for the foreseeable future.
Likewise, the outlook for Seattle Tower is positive as extraordinary
business development in the Puget Sound region and the demand for space in the
central business district of Seattle continue. Nonetheless, due to the age of
many of the leases at the building, and the functional obsolescence of the
building for many potential tenants, much of the space at Seattle Tower is
currently leased at below market rental rates. The property thus has the
potential for substantially
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improved operations as current leases expire and the capital needs of the
property are addressed. In an effort to maximize rents, over the next four
years, in excess of $2.5 million is budgeted for capital improvements at Seattle
Tower. This capital work will attempt to address the extremely outdated
mechanical systems and the lack of technological infrastructure at the property,
both of which are currently impeding the property's realization of market rental
rates. It is anticipated that these improvements coupled with expected overall
growth in the office market in downtown Seattle would position the property for
a substantial improvement in operations in the future.
The expectations are also positive for improving market conditions in
Columbus, Ohio, a market in which the Partnership has an interest in three
warehouse properties. Columbus has become a hub for North American distribution
facilities and substantial construction activity is producing increased
competition for the Partnership's properties. Nevertheless, values are expected
to continue to improve for properties comparable to those in which the
Partnership has an interest. The realization of any market appreciation will
however be subject to the terms of the existing leases which are not due to
expire for several years at the Partnership's properties in these locations.
The prospects for the Partnership's retail properties are also generally
favorable. Sutton Square Shopping Center is located in the Raleigh Durham market
that is experiencing high demand for retail space and low vacancy. Matthew's
Festival is located in the Charlotte, North Carolina market which is also
experiencing generally favorable economic conditions resulting largely from
investment in the area by foreign manufacturers. Both areas are experiencing
household formation and income growth, and the properties' sub-markets are
deemed to be middle to upper middle-income areas. While it is still meeting its
leasehold obligations, the anchor tenant at Matthew's Festival no longer
operates a store at the site and this has hindered leasing efforts at the
property. Therefore, while both properties are well positioned to benefit from a
forecasted improvement in regional market conditions, the lack of an operating
anchor tenant at Matthew's Festival is expected to continue to adversely affect
that property's ability to lease in-line space.
The Partnership's property in Melrose Park, Illinois continues to
experience extremely poor operating conditions. While the broader Chicago market
is experiencing economic and population growth which is creating a positive
environment for real estate appreciation, the trade area in which the property
is located is experiencing a decline in population. This decline coupled with
the related flight from the area by big box retailers has left many retail
properties, including the Partnership's property, suffering from high vacancy
and low rental rates. Vehicular access to the Partnership's property is also
difficult, further contributing to the negative outlook for the property in the
foreseeable future.
Operations at Commonwealth Industrial Park are expected to be positively
influenced by generally favorable industrial trends in the Orange County market
in which the property is located. Vacancy in the market for comparable
properties is low and the property's market is a mature one with consistent
recent growth in rental rates. Commonwealth is not considered, however, to be
among the most highly demanded industrial properties in the area as many tenants
in the market are seeking highly planned newer properties in the region that
have more technologically advanced space. Commonwealth is therefore more
appealing to local or regional tenants that do not require highly functional
state of the art facilities.
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Demand for office and research and development space in the Kearny Mesa
office sub-market in which Century Park is located is very strong contributing
to historically high occupancy levels in the area. New supply that is entering
the marketplace is, however, expected to slow the growth of rental rates and the
market has begun to soften slightly. Nonetheless, overall growth in the real
estate market is expected to continue and the property is believed to be well
situated and adequately configured to benefit from this anticipated improvement.
The extent to which Century Park will realize the benefit of any market
appreciation will, however, be subject to the terms of the existing leases at
the property, which are not scheduled to expire for several years.
Commonwealth Park is located in the northwestern section of Richmond,
Virginia, an area that has seen generally good economic conditions in the recent
past. The property is in an expanding neighborhood that is considered to be the
primary suburban office sub-market in the Richmond area. Several developments in
the area have produced an increase in competitive space for the property. The
most significant of these developments, Innsbrook Office Park has been
established as the most desirable office location in the immediate area,
resulting in Commonwealth becoming a secondary alternative with lower rental
rates. Nonetheless, Commonwealth's operations are expected to benefit from the
overall ongoing growth in the area.
Technological changes are also occurring which may reduce the space needs
of many tenant and potential tenants and may alter the demand for amenities and
power supplies at the Partnership's properties. As a result of these changes and
the continued risk for overall market volatility, the Partnership's potential
for realizing the full value of its investment in the properties is at continued
risk.
(iv) Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impairment of Assets.
Impairment of Assets
The Partnership evaluates the recoverability of the net carrying value of
its real estate and related assets at least annually, and more often if
circumstances dictate. If there is an indication that the carrying amount of a
property may not be recoverable, the Partnership prepares an estimate of the
future undiscounted cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding period. In
performing this review, management takes into account, among other things, the
existing occupancy, the expected leasing prospects of the property and the
economic situation in the region where the property is located.
If the sum of the expected future undiscounted cash flow is less than the
carrying amount of the property, the Partnership recognizes an impairment loss,
and reduces the carrying amount of the asset to its estimated fair value. Fair
value is the amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. Management estimates fair value using discounted cash flows or
market comparables, as most appropriate for each property. Independent certified
appraisers are utilized to assist management, when warranted.
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Impairment adjustments to reduce the carrying value of the real estate
assets recorded by the Partnership do not affect the tax basis of the assets and
are not included in the determination of taxable income or loss.
Management is not aware of any other current trends, events, or commitments
that will have a significant impact on the long-term value of the properties.
However, because the cash flows used to evaluate the recoverability of the
assets and their fair values are based upon projections of future economic
events such as property occupancy rates, rental rates, operating cost inflation
and market capitalization rates which are inherently subjective, the amounts
ultimately realized at disposition may differ materially from the net carrying
values at the balance sheet dates. The cash flows and market comparables used in
this process are based on good faith estimates and assumptions developed by
management. Unanticipated events and circumstances may occur and some
assumptions may not materialize. Actual results may vary from the estimates and
the variances may be material.
All of the Partnership's properties have experienced varying degrees of
operating difficulties and the Partnership recorded significant impairment
adjustments in prior years. Improvements in the real estate market and in
property operations resulted in no adjustments for impairment being needed from
1997 through December 31, 1999.
The following table represents the write-downs for impairment recorded
against the Partnership's assets held at December 31, 1999.
Century Park I $11,700,000
568 Broadway 10,821,150
Seattle Tower 6,050,000
Commonwealth 5,800,000
Commerce Plaza I 2,700,000
Melrose Crossing 12,100,000
Matthews Festival 5,300,000
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$54,471,150
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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 of the undersigned, thereunto duly authorized.
HIGH EQUITY PARTNERS, L.P.-SERIES 86
By: RESOURCES CAPITAL CORP.
Administrative General Partner
Dated: September 14, 2000 By: /s/ Michael L. Ashner
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Michael L. Ashner
President and Director
(Principal Executive Officer
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