SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year
ended December 31, 1997 Commission file number 0-16516
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(Exact name of registrant as specified in its charter)
Illinois 36-3437938
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- -------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
AND ASSIGNEE INTERESTS THEREIN
(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 ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
Documents incorporated by reference: None
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . 8
PART II
Item 5. Market for the Partnership's
Limited Partnership Interests and
Related Security Holder Matters. . . . . . . . 8
Item 6. Selected Financial Data. . . . . . . . . . . . 9
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . 14
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk. . . . . . . . . 20
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . 64
PART III
Item 10. Directors and Executive Officers
of the Partnership . . . . . . . . . . . . . . 64
Item 11. Executive Compensation . . . . . . . . . . . . 67
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . 68
Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . . 69
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . 69
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 72
i
<PAGE>
PART I
ITEM 1. BUSINESS
Unless otherwise indicated all references to "Notes" are to Notes to
Consolidated Financial Statements contained in this report. Capitalized
terms used herein, but not defined, have the same meanings as used in the
Notes.
The registrant, Carlyle Real Estate Limited Partnership-XVI (the
"Partnership"), is a limited partnership formed in December of 1985 and
currently governed by the Revised Uniform Limited Partnership Act of the
State of Illinois to invest in income-producing commercial and residential
real property. On August 27, 1986, the Partnership commenced an offering
to the public of $250,000,000 (subject to increase by up to $250,000,000)
of Limited Partnership Interests (and assignee interests therein)
("Interests") pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933 (No. 33-3567). A total of 140,342.82534 Interests
were sold to the public at $1,000 per Interest. The offering closed on
December 31, 1987. Subsequent to admittance to the Partnership, no holder
of Interests (hereinafter, a "Holder" or "Holder of Interests") has made
any additional capital contribution. The Holders of Interests of the
Partnership share in their portion of the benefits of ownership of the
Partnership's real property investments according to the number of
Interests held.
The Partnership is engaged solely in the business of the acquisition,
operation and sale and disposition of equity real estate investments. Such
equity investments are held by fee title, leasehold estates and/or joint
venture partnership interests. The Partnership's real property investments
are located throughout the nation, and it has no real estate investments
located outside of the United States. A presentation of information about
industry segments, geographic regions, raw materials or seasonality is not
applicable and would not be material to an understanding of the
Partnership's business taken as a whole. Pursuant to the Partnership
Agreement, the Partnership is required to terminate no later than
December 31, 2036. The Partnership is self-liquidating in nature. At sale
of a particular property, the net proceeds, if any, are generally
distributed or reinvested in existing properties rather than invested in
acquiring additional properties. As discussed further in Item 7, the
Partnership currently expects to conduct an orderly liquidation of its
remaining investment portfolio as quickly as practicable and to wind up its
affairs not later than December 31, 1999, barring any unforeseen economic
developments.
The Partnership has made the real property investments set forth in
the following table:
<PAGE>
<TABLE>
<CAPTION>
SALE DATE OR IF OWNED
AT DECEMBER 31, 1997,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
1. Owings Mills Shopping
Center
Owings Mills
(Baltimore County),
Maryland. . . . . . 325,000 12/31/85 6/30/93 fee ownership of land
sq.ft. and improvements
g.l.a. (through joint venture
partnerships) (c)(g)
2. 125 Broad Street
Building
New York, New York. 1,336,000 12/31/85 11/15/94 fee ownership of
sq.ft. improvements and
n.r.a. ground leasehold
interest in land
(through joint venture
partnerships)
(c)(g)
3. 260 Franklin Street
Building
Boston,
Massachusetts . . . 348,901 5/21/86 12% fee ownership of land
sq.ft. and improvements
n.r.a. (through joint venture
partnership)
(b)(c)(e)(f)(h)
4. Dunwoody Crossing
Apartments
(Phase I, II and III)
DeKalb County (Atlanta),
Georgia. . . . . . . 810 units 9/18/86 5/7/96 fee ownership of land
and improvements
(through joint venture
partnerships) (c)(g)
5. NewPark Mall
Newark (Alameda County),
California. . . . . 423,748 12/2/86 2% fee ownership of land
sq.ft. and improvements
g.l.a. (through joint venture
partnerships) (c)
<PAGE>
SALE DATE OR IF OWNED
AT DECEMBER 31, 1997,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
6. Blue Cross Building
Woodland Hills
(Los Angeles),
California. . . . . 421,716 12/18/87 11/2/93 fee ownership of land
sq.ft. and improvements
n.r.a. (through a joint
venture partnership)
7. Palm Desert Town
Center
Palm Desert
(Palm Springs),
California. . . . . 373,000 12/23/88 20% fee ownership of
sq.ft. improvements and
g.l.a. ground leasehold
interest in land
(through joint venture
partnership) (c)(d)(e)(f)
<PAGE>
<FN>
- -----------------------
(a) The computation of this percentage for properties held at
December 31, 1997 does not include amounts invested from sources other than
the original net proceeds of the public offering as described above and in
Item 7.
(b) Reference is made to the Notes and the Schedule III's to the
financial statements of 260 Franklin Street Associates and the Consolidated
Financial Statements filed with this annual report for the current
outstanding principal balances and a description of the long-term mortgage
indebtedness secured by certain of the Partnership's real property
investments.
(c) Reference is made to the Notes for a description of the joint
venture partnership or partnerships through which the Partnership has made
this real property investment.
(d) Reference is made to the Notes for a description of the
leasehold interest, under a ground lease, in the land on which this real
property investment is situated.
(e) Reference is made to Item 8 - Schedule III to the
Consolidated Financial Statements and the 260 Franklin Street Associates
Financial Statements filed with this annual report for further information
concerning real estate taxes and depreciation.
(f) Reference is made to Item 6 - Selected Financial Data for
additional operating and lease expiration data concerning this investment
property.
(g) This property has been sold or transferred. Reference is
made to the Notes for further discussion of such sale.
(h) This property was sold in January 1998. Reference is made to
the Notes for further discussion of such sale.
</TABLE>
<PAGE>
The Partnership's real property investments are subject to competition
from similar types of properties (including properties owned by affiliates
of the General Partners) in the respective vicinities in which they are
located. Such competition is generally for the retention of existing
tenants. Additionally, the Partnership is in competition for new tenants
in markets where significant vacancies are present. Reference is made to
Item 7 below for a discussion of competitive conditions of the Partnership
and its investment properties. Approximate occupancy levels for the
properties are set forth in the table in Item 2 below to which reference is
hereby made. The Partnership maintains the suitability and competitiveness
of its properties in its markets primarily on the basis of effective rents,
tenant allowances and service provided to tenants. In the opinion of the
Corporate General Partner of the Partnership, all the investment properties
held at December 31, 1997 are adequately insured. Although there is
earthquake insurance coverage for a portion of the value of the
Partnership's investment properties, the Corporate General Partner does not
believe that such coverage for the entire replacement cost of the
investment properties is available on economic terms.
Reference is made to the Notes for a schedule of minimum lease
payments to be received in each of the next five years, and in the
aggregate thereafter, under leases in effect at certain of the
Partnership's properties as of December 31, 1997.
In November 1994, effective as of October 31, 1994, JMB/125 Broad
Building Associates, L.P. ("JMB/125"), an Illinois limited partnership,
made an agreement with its venture partners in the 125 Broad Street Company
("125 Broad") to settle their dispute regarding 125 Broad and its property.
Pursuant to the agreement, JMB/125 assigned its approximate 48.25% interest
in 125 Broad, which owned the 125 Broad Street Building and a leasehold
interest in the underlying land located in New York, New York to an
affiliate of the venture partners and released the venture partners from
any claims of JMB/125 related to 125 Broad. The Partnership owns
indirectly an approximate 40% limited partnership interest in JMB/125. An
affiliate of the Partnership owns indirectly substantially all of the
remaining interest in JMB/125. In return for the assignment, JMB/125
received an unsecured promissory note in the principal amount of $5 million
bearing simple interest at 4.5% per annum with all principal and accrued
interest due at maturity in October 1999, subject to mandatory prepayments
of principal and interest or acceleration of the maturity date under
certain circumstances. In addition, JMB/125 received a release from any
claims of certain affiliates of the venture partners and generally was to
be indemnified against any liability as a general partner of 125 Broad.
JMB/125 was also relieved of any obligation to contribute cash to 125 Broad
in the amount of its deficit capital account balance. The venture partners
subsequently filed a pre-arranged bankruptcy plan for reorganization of 125
Broad under Chapter 11 of the Bankruptcy Code in order to facilitate 125
Broad's transfer of the office building to the mortgage lender in
satisfaction of the mortgage debt and other claims. In January 1995, the
plan for reorganization was approved by the bankruptcy court, was
consummated, and the bankruptcy case was concluded. In October 1995, the
makers of the $5 million promissory note payable to JMB/125 filed for
protection from creditors under Chapter 11 of the Bankruptcy Code.
Pursuant to the bankruptcy reorganization of the makers of the note,
JMB/125, as an unsecured creditor, received limited partnership interests
and a convertible note receivable in a reorganized entity that has majority
or controlling interests in six office buildings in New York, New York and
Boston, Massachusetts. The assigned value, as of the bankruptcy
confirmation date, of the interests and note received by JMB/125 was
approximately $400,000. The convertible note was fully reserved due to the
uncertainty of the realizable value of the note. In June 1997, the
convertible note receivable for $297,000 was collected on by JMB/125
resulting in the recognition of gain, of which the Partnership's share is
$116,436. Reference is made to Item 7 and to the Notes for a further
discussion of this property.
<PAGE>
The Partnership has no employees other than personnel performing on-
site duties at some of the Partnership's properties, none of whom are
officers or directors of the Corporate General Partner of the Partnership.
The terms of transactions between the Partnership, the General
Partners and their affiliates are set forth in Item 11 below to which
reference is hereby made for a description of such terms and transactions.
ITEM 2. PROPERTIES
The Partnership owns or owned through joint venture partnerships the
interests in the properties referred to under Item 1 above to which
reference is hereby made for a description of said properties.
The following is a listing of principal businesses or occupations
carried on in and approximate occupancy levels by quarter during fiscal
years 1997 and 1996 for the Partnership's investment properties owned
during 1997:
<PAGE>
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
Principal At At At At At At At At
Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---------------- ---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. 260 Franklin Street
Building
Boston, Massachusetts
(A) . . . . . . . . . . . Financial/Office 96% 95% 96% 96% 96% 97% 98% 98%
2. NewPark Mall
Newark (Alameda County),
California. . . . . . . . Retail 79% 79% 77% 78% 75% 75% 76% 79%
3. Palm Desert Town Center
Palm Desert
(Palm Springs),
California. . . . . . . . Retail 91% 92% 88% 89% 88% 86% 87% 88%
<FN>
- --------------------
Reference is made to Item 6, Item 7, the Notes and to the Notes to the 260 Franklin Street Associates
financial statements for further information regarding property occupancy, competitive conditions and tenant
leases at the Partnership's investment properties.
(A) In January 1998, the property was sold. Reference is made to the Notes for further information
regarding such transaction.
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
fiscal years 1996 and 1997.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1997, there were 15,573 record Holders of the
140,338.46974 Interests outstanding in the Partnership. There is no public
market for Interests and it is not anticipated that a public market for
Interests will develop. Upon request, the Corporate General Partner may
provide information relating to a prospective transfer of Interests to an
investor desiring to transfer his Interests. The price to be paid for the
Interests, as well as any other economic aspects of the transaction, will
be subject to negotiation by the investor. There are certain conditions
and restrictions on the transfer of Interests, including, among other
things, the requirement that the substitution of a transferee of Interests
as a Limited Partner of the Partnership be subject to the written consent
of the Corporate General Partner, which may be granted or withheld in its
sole and absolute discretion. The rights of a transferee of Interests who
does not become a substituted Limited Partner will be limited to the rights
to receive his share of profits or losses and cash distributions from the
Partnership, and such transferee will not be entitled to vote such
Interests or have other rights of a Limited Partner. No transfer will be
effective until the first day of the next succeeding calendar quarter after
the requisite transfer form satisfactory to the Corporate General Partner
has been received by the Corporate General Partner. The transferee
consequently will not be entitled to receive any cash distributions or any
allocable share of profits or losses for tax purposes until such next
succeeding calendar quarter. Profits or losses from operations of the
Partnership for a calendar year in which a transfer occurs will be
allocated between the transferor and the transferee based upon the number
of quarterly periods in which each was recognized as the Holder of the
Interests, without regard to the results of the Partnership's operations
during particular quarterly periods and without regard to whether cash
distributions were made to the transferor or transferee. Profits or losses
arising from the sale or other disposition of Partnership properties will
be allocated to the recognized Holder of the Interests as of the last day
of the quarter in which the Partnership recognized such profits or losses.
Cash distributions to a Holder of Interests arising from the sale or other
disposition of Partnership properties will be distributed to the recognized
Holder of the Interests as of the last day of the quarterly period with
respect to which such distribution is made.
Reference is made to Item 6 below for a discussion of cash distribu-
tions made to the Holders of Interests. The mortgage loan secured by the
260 Franklin Street Office Building restricts the use by 260 Franklin
Associates of the cash flow from that property as more fully discussed in
the Notes.
Reference is made to the Notes for a discussion of the provisions of
the Partnership Agreement relating to cash distributions.
Reference is made to Item 7 for a discussion of unsolicited tender
offers received from unaffiliated third parties.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
DECEMBER 31, 1997, 1996, 1995, 1994 and 1993
(not covered by Independent Auditors' Report)
<CAPTION>
1997 1996 1995 1994 1993
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total income. . . . . . . $11,436,847 11,796,272 11,621,375 11,512,558 18,822,328
=========== ========== ========== ========== ==========
Earnings (loss) before
gains on sale or
disposition of invest-
ment properties. . . . . $(1,058,836) (5,739,697) (1,774,644) (8,798,498) (4,171,348)
Gains on sale or
disposition of
Partnership's
investment in
unconsolidated venture . 510,407 4,928,723 856,750 20,162,696 2,627,427
Loss on liquidation
of unconsolidated
venture. . . . . . . . . (269,147) -- -- -- --
Loss on sale of
investment property,
net of venture partner's
share. . . . . . . . . . -- -- -- -- (299,039)
----------- ---------- ---------- ---------- ----------
Earnings (loss)
before Partnership's
share of extraordinary
item from unconsolidated
venture. . . . . . . . . (817,576) (810,974) (917,894) 11,364,198 (1,842,960)
Partnership's share of
extraordinary item
from unconsolidated
venture. . . . . . . . . -- (175,007) -- -- --
----------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . $ (817,576) (985,981) (917,894) 11,364,198 (1,842,960)
=========== ========== ========== ========== ==========
<PAGE>
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
Net earnings (loss)
per Limited Partner
Interest (b):
Earnings (loss) before
gains on sale or
disposition of
investment
properties . . . . . . $ (7.24) (39.26) (12.14) (60.18) (28.53)
Gains on sale or
disposition of Part-
nership's investment
in unconsolidated
venture. . . . . . . . 3.60 34.77 6.04 142.23 18.53
Loss on liquidation
of unconsolidated
venture. . . . . . . . (1.90) -- -- -- --
Loss on sale of in-
vestment property,
net of venture
partner's share. . . . -- -- -- -- (2.10)
Partnership's share
of extraordinary
item from uncon-
solidated venture. . . -- (1.23) -- -- --
----------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . $ (5.54) (5.72) (6.10) 82.05 (12.10)
=========== ========== ========== ========== ==========
Total assets. . . . . . . $64,827,971 64,519,186 66,226,833 69,624,085 89,829,751
Long-term debt. . . . . . $40,622,529 41,079,673 41,485,363 41,845,394 42,164,903
Cash distributions
per Limited Partner
Interest (c). . . . . . $ 2.18 38.80 17.25 116.00 34.00
=========== ========== ========== ========== ==========
<FN>
- -------------
(a) The above selected financial data should be read in conjunction with the consolidated financial
statements and the related notes appearing elsewhere in this annual report.
(b) The net earnings (loss) per Interest is based upon the limited partnership interests outstanding at the
end of each period.
(c) Cash distributions from the Partnership are generally not equal to Partnership income (loss) for
financial reporting or Federal income tax purposes. Each Partner's taxable income (loss) from the Partnership in
each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to the
cash generated or distributed by the Partnership. Accordingly, cash distributions to the Holders of Interests
since the inception of the Partnership have not resulted in taxable income to such Holders of Interests and have
therefore represented a return of capital.
</TABLE>
<PAGE>
<TABLE>
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1997
<CAPTION>
Property
- --------
Palm Desert
Town Center a) The gross leasable area ("GLA") occupancy
rate and average base rent per square foot
as of December 31 for each of the last five
years were as follows:
GLA Avg. Base Rent Per
December 31, Occupancy Rate Square Foot (1)
------------ -------------- ------------------
<S> <C> <C> <C> <C>
1993 . . . . . . 97% $18.90
1994 . . . . . . 97% 19.66
1995 . . . . . . 93% 21.39
1996 . . . . . . 89% 20.96
1997 . . . . . . 88% 21.47
<FN>
(1) Average base rent per square foot is based on GLA occupied as of December 31
of each year.
</TABLE>
<TABLE>
<CAPTION>
Scheduled
Lease
Base Rent Expiration Lease
b) Significant Tenants Square Feet Per Annum Date Renewal Option
------------------- ----------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
None - No single tenant
occupies more than 10% of
the total gross leasable
area of the building.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
c) The following table sets forth certain information with respect to the expiration of
leases for the next ten years at the Palm Desert Town Center:
Annualized Percent of
Number of Approx. Total Base Rent Total 1997
Year Ending Expiring GLA of Expiring of Expiring Base Rent
December 31, Leases Leases (1) Leases Expiring
------------ --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998 14 25,021 $ 683,574 9.71%
1999 10 29,242 625,779 8.90%
2000 4 8,664 264,599 3.76%
2001 9 23,943 701,290 9.97%
2002 4 6,910 201,427 2.86%
2003 10 14,756 607,062 8.63%
2004 16 45,143 951,614 13.53%
2005 18 60,462 1,411,183 20.06%
2006 10 16,910 596,247 8.48%
2007 5 26,997 591,774 8.41%
<FN>
(1) Excludes leases that expire in 1998 for which renewal leases or leases with
replacement tenants have been executed as of March 1, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Property
- --------
260 Franklin a) The occupancy rate of net rentable square feet ("NRF") and average base rent per square
foot as of December 31 for each of the last five years were as follows:
Avg. Annual
NRF Base Rent Per
December 31, Occupancy Rate Square Foot (1)
------------ -------------- ---------------
<S> <C> <C> <C> <C>
1993 . . . . . . 99% $27.55
1994 . . . . . . 99% 27.85
1995 . . . . . . 99% 27.25
1996 . . . . . . 96% 26.98
1997 . . . . . . 98% 27.19
<FN>
(1) Average annual base rent per square foot is based on NRF occupied as of December 31
of each year.
</TABLE>
<TABLE>
<CAPTION>
Scheduled
Lease
Base Rent Expiration Lease
b) Significant Tenants Square Feet Per Annum Date Renewal Option(s)
------------------- ----------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Properties,
Inc. 173,781 $4,276,312 03/2005 N/A
<FN>
(c) As the 260 Franklin Street property was sold in January 1998, as more fully
described in the Notes, information with respect to the expiration of leases
for the next ten years has not been presented for this property in this
Annual Report.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of Interests as described in
Item 1, the Partnership had approximately $120,541,000 after deducting
selling expenses and other offering costs with which to make investments in
income-producing commercial and residential real property, to pay legal
fees and other costs (including acquisition fees) related to such
investments and for working capital reserves. A portion of the proceeds
was utilized to acquire the properties described in Item 1 above.
During the second quarter of 1996 some of the Holders of Interests in
the Partnership received from an unaffiliated third party an unsolicited
offer to purchase up to 4.86% of the Interests in the Partnership at
amounts ranging from $80 and $100 per Interest. The Partnership
recommended against acceptance of this offer on the basis that, among other
things, the offer price was inadequate. In June 1996, such offer expired.
The board of directors of JMB Realty Corporation ("JMB"), the corporate
general partner of the Partnership, has established a special committee
(the "Special Committee") consisting of certain directors of JMB to deal
with all matters relating to tender offers for Interests in the
Partnership, including any and all responses to such tender offers. The
Special Committee has retained independent counsel to advise it in
connection with any potential tender offers for Interests and has retained
Lehman Brothers Inc. as financial advisor to assist the Special Committee
in evaluating and responding to any additional potential tender offers for
Interests.
During 1997, some of the Holders of Interests in the Partnership
received from unaffiliated third parties unsolicited offers to purchase up
to 4.9% of the outstanding Interests in the Partnership at $105 per
Interest. Such offers expired in 1997. The Special Committee recommended
against acceptance of these offers on the basis that, among other things,
the offer price was inadequate. As of the date of this report, the
Partnership is aware that 2.67% of the Interests have been purchased by all
such unaffiliated third parties either pursuant to such tender offers or
through negotiated purchases. It is possible that other offers for
Interests may be made in the future. However, there is no assurance that
any such offer will be made, the terms of any such offer or whether any
such offer will be consummated, amended or withdrawn.
At December 31, 1997, the Partnership and its consolidated venture had
cash and cash equivalents of approximately $16,215,000 including
approximately $2,000,000 retained by the Palm Desert joint venture at
December 31, 1997. Such cash and cash equivalents are available for
capital improvements and working capital requirements, including the
Partnership's share of the costs for a possible expansion of the mall and
restructuring of the ground lease and loan at Palm Desert Town Center. The
Partnership and its consolidated venture have currently budgeted in 1998
approximately $177,000 (before the possible expansion and restructuring)
for tenant improvements and other capital expenditures. The Partnership's
share of such items, including its share of such items for its
unconsolidated venture, is currently budgeted to be approximately $275,000.
Actual amounts expended in 1998 may vary depending on a number of factors
including actual leasing activity, results of operations, liquidity
considerations and other market conditions over the course of the year and
whether the Palm Desert joint venture proceeds with the possible expansion
and restructuring. In addition, the Partnership has entered into an
agreement with the unaffiliated venture partner in the Palm Desert joint
venture pursuant to which the unaffiliated joint venture has the option to
purchase the Partnership's interest in the Palm Desert joint venture. In
the event of a sale of its interest pursuant to the exercise of such
option, the Partnership would not participate in, or be required to pay a
share of the costs of, an expansion of the mall and restructuring of the
ground lease and mortgage loan for Palm Desert.
<PAGE>
The source of capital for tenant improvements and other capital
expenditures and for both short-term and long-term future liquidity and
distributions is expected to be through net cash generated by the
investment properties, the Partnership's working capital reserve and from
the sale of such properties (or the Partnership's interest therein). In
such regard, reference is made to the Partnership's property-specific
discussions below and also to the Partnership's disclosure of certain
property lease expirations in Item 6. Any working capital reserves of the
Partnership not ultimately used for tenant improvements, other capital
expenditures or working capital requirements (including those relating to
Palm Desert) would be available for future distributions.
DUNWOODY CROSSING APARTMENTS
On May 7, 1996, the joint venture through which the Partnership owned
an interest in the Dunwoody Crossing Apartments sold the property to the
unaffiliated venture partner for $47,000,000. The Partnership made a
distribution of $30.00 per Interest from the net sale proceeds of this sale
in August 1996. Reference is made to the Notes for a further description
of such sale.
JMB/125
In October 1995, the makers of the $5 million promissory note payable
to JMB/125 filed for protection from creditors under Chapter 11 of the
Bankruptcy Code. Pursuant to the bankruptcy reorganization of the makers
of the note, JMB/125, as an unsecured creditor, received limited
partnership interests and a convertible note interest in a reorganized
entity that has majority or controlling interests in six office buildings
in New York, New York and Boston, Massachusetts. The assigned value, as of
the bankruptcy confirmation date, of the interests and note received by
JMB/125 was approximately $400,000. The convertible note was fully
reserved due to the uncertainty of the realizable value of the note. In
June 1997, the convertible note receivable for $297,000 was collected on by
JMB/125 resulting in the recognition of gain, of which the Partnership's
share is $116,436.
260 FRANKLIN (disposed 1/2/98)
The office market in the Financial District of Boston remains
competitive due to new office building developments and layoffs, cutbacks
and consolidations by financial service companies. The effective rental
rates achieved upon re-leasing have been substantially below the rates
which were received under the previous leases for the same space. The 260
Franklin Street Building operated at a deficit for 1997 and was expected to
do so for the next several years.
In December 1991, 260 Franklin, the affiliated joint venture, reached
an agreement with the lender to modify the long-term mortgage note secured
by the 260 Franklin Street Building. The loan modification required that
the affiliated joint venture establish an escrow account for excess cash
flow from the property's operations (computed without a deduction for
property management fees and leasing commissions) to be used to cover the
cost of capital and tenant improvements and lease inducements, which are
the primary components of the anticipated operating deficits noted above,
with the balance, if any, of such escrowed funds available at the scheduled
or accelerated maturity to be used for the payment of principal and
interest due to the lender. Beginning January 1, 1992, 260 Franklin began
escrowing the payment of property management fees and lease commissions
owed to an affiliate of the Corporate General Partner pursuant to the terms
of the debt modification, which is more fully described in the Notes.
The long-term mortgage loan in the original principal amount of
approximately $75,000,000 plus accrued and deferred interest matured
January 1, 1996. 260 Franklin, as of such date, began submitting the net
operating cash flow of the property to the lender while seeking an
extension or refinancing of the loan. Concurrent with such lender
negotiations, 260 Franklin also began investigating market conditions to
<PAGE>
determine whether conditions were favorable for selling the property.
However, it was determined that conditions were not favorable and the
property continued to be held as investment property. The joint venture
reached agreements with the lender for extensions of the mortgage loan
through January 1, 1997 and again through January 1, 1998. In addition to
substantially the same terms as were in effect prior to such extensions,
the agreement required that the property submit net operating cash flow of
the property to the lender. In addition, the lender indicated that it
would not extend the loan beyond January 1, 1998. 260 Franklin and the
Partnership believed that the value of the office building was less than
the mortgage loan, and the Partnership did not intend to expend any
additional funds of its own on the property. Accordingly, 260 Franklin
began negotiations with the lender and an unaffiliated third party
regarding the sale of the property to the unaffiliated third party. Due to
the lender negotiations described above, the property was classified as
held for sale or disposition as of July 1, 1997, and therefore, was not
subject to continued depreciation as of that date.
Effective January 1, 1998, 260 Franklin entered into a loan
modification agreement with the lender in which the lender waived accrued
unpaid interest owed for the period prior to January 1, 1998, which was
approximately $17,200,000. On January 2, 1998, 260 Franklin disposed of,
through a trust, the land, building and related improvements of the 260
Franklin Street Building. 260 Franklin transferred title to the land,
building and improvements, and all other assets and liabilities related to
the property in consideration of a discharge of the mortgage loan and
receipt of $200 in cash. 260 Franklin expects to recognize in 1998 a gain
on sale of approximately $23,200,000, in part as a result of previous
impairment losses recognized by 260 Franklin in 1996 aggregating
$11,145,446, and an extraordinary gain on forgiveness of indebtedness of
approximately $17,200,000 for financial reporting purposes, of which the
Partnership's share is approximately $6,960,000 and $5,160,000,
respectively. In addition, 260 Franklin expects to recognize a gain of
approximately $25,200,000 for Federal income tax reporting purposes, of
which the Partnership's share is approximately $7,500,000, with no
distributable proceeds in 1998. 260 Franklin and the Partnership have no
future liability for any representations, warranties or covenants to the
purchaser as a result of the sale.
JMB/OWINGS
In June 1993, JMB/Owings sold its interest in the Owings Mills
Shopping Center for $9,416,000 represented by a purchase price note which
requires principal and interest payments of approximately $109,000 per
month with the remaining principal balance of approximately $5,500,000 due
and payable on June 30, 1998. Payments are current on the purchase price
note as of the date of this report. Reference is made to the Notes.
NEWPARK
As a result of the acquisition by Federated Department Stores of the
company which owned the Emporium Capwell store at NewPark Mall, Federated,
which also owns the Macy's store at NewPark, approached the NewPark joint
venture regarding a sale of the Emporium building. Simultaneously with its
negotiations to acquire the Emporium Capwell building, the NewPark joint
venture negotiated to sell the building to a national retail store owner.
The transactions closed on April 22, 1997 and the joint venture received a
lease termination fee of approximately $2,187,000, of which the
Partnership's share was approximately $110,000.
PALM DESERT TOWN CENTER
The Partnership received its specified cash return relating to Palm
Desert Town Center, which was being funded in part by the unaffiliated
venture partner through December 31, 1994 pursuant to the terms of the
applicable joint venture agreement. Since the unaffiliated venture
partner's funding obligation expired at the end of 1994, the Partnership's
share of cash flow from the joint venture has been dependent upon the
operations of the property. Occupancy at the portion of the shopping
<PAGE>
center in which the Partnership owns an interest decreased to 88% at
December 31, 1997 from 89% at December 31, 1996. Sales at the center have
been negatively impacted during the last several quarters by new
competition in the center's trade area. The increased competition has
resulted in lower effective rents upon re-leasing of space. The center
will continue to be subject to increased competition from new developments
that are expected to be opening in the vicinity in the near future. In
addition, the property's operations have been affected by tenant
bankruptcies. The property has been producing cash flow.
The joint venture continues to consider a possible expansion of the
mall and restructuring of the ground lease and loan. In the event that the
joint venture decides to proceed, the Partnership expects that it would
utilize a portion of its available funds to pay for its share of costs.
However, the Partnership is also discussing with the unaffiliated venture
partner the possibility of a sale of the Partnership's interest in the
joint venture. In this regard, the Partnership and Carlyle-XVII entered
into an agreement with the unaffiliated venture partner, effective January
1, 1998, pursuant to which the Partnership and Carlyle-XVII granted the
unaffiliated venture partner an option to acquire their interests in the
joint venture. Pursuant to such option, the unaffiliated venture partner
has the right (but not the obligation) to purchase all (but not less than
all) of the Partnership's and Carlyle-XVII's interests in the joint venture
by giving notice of its exercise of the option during the term of the
option, which may extend through July 15, 1998. The aggregate purchase
price for the interest is $7,000,000. In consideration for the option the
unaffiliated venture partner is required to pay $58,333 for each month of
the option term. The Partnership and Carlyle-XVII will share the
consideration for the option and, if applicable, the purchase price in
proportion to their respective capital contributions to the joint venture
(i.e., approximately 85.8% for the Partnership and approximately $14.2% for
Carlyle-XVII). Concurrently with the execution of the option agreement,
the joint venture made a distribution to the Partnership and Carlyle-XVII
in the aggregate amount of approximately $740,000 (of which the
Partnership's share was approximately $635,000) which represents
undistributed net cash flow of the joint venture through the end of 1997.
All other funds and net cash flow of the joint venture during the term of
the option are to be held by the joint venture for its use, and if the sale
of the Partnership's and Carlyle-XVII's interests closes pursuant to the
option agreement, such funds and net cash flow will inure to the benefit of
the unaffiliated venture partner. The unaffiliated venture partner agreed
to pay deficits of the joint ventures incurred in the ordinary course of
its business that arise or accrue during the term of the option, to the
extent that the joint venture's funds and net cash flow are insufficient to
cover such deficits. The property is expected to operate near the break-
even level during the term of the option. In general, the Partnership,
Carlyle-XVII and the unaffiliated venture partner agreed not to sell or
refinance the Palm Desert Town Center or engage in other actions outside
the ordinary course of joint venture business, not to make any distribution
of the joint venture's funds to its partners except for the distribution to
the Partnership and Carlyle-XVII described above, and, unless consented to
by all of the partners in the joint venture, not to amend or modify
existing leases and other contracts, and not to enter into new leases or
agreements, affecting the property during the term of the option. The
unaffiliated venture partner may terminate the option by giving notice of
termination to the Partnership and Carlyle-XVII, and under certain
extraordinary circumstances involving a termination of the option, the
Partnership and Carlyle-XVII may be obligated to refund the option
consideration. In the event such a sale does occur, the Partnership and
Carlyle-XVII would not participate in, or be required to pay a share of the
costs of, an expansion of the mall and restructuring of the ground lease
and mortgage loan for the joint venture. The Partnership could thereafter
distribute a majority of the funds it currently holds as working capital
reserves for the possible payment of its share of such costs. There is no
assurance that the option will be exercised or that a sale of the
Partnership's and Carlyle-XVII's interests in the joint venture will occur.
During the term of the option, the unaffiliated venture partner is entitled
to pursue a possible expansion of
<PAGE>
the mall and restructuring of the ground lease and mortgage loan on its
own, provided that no contracts are made effective prior to the exercise of
the option and the close of escrow and no liability accrues to the
Partnership or Carlyle-XVII from the unaffiliated venture partner's
actions.
GENERAL
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
Due to the real estate market conditions experienced over the past
several years, the Partnership has held its remaining investment properties
longer than originally anticipated in an effort to maximize the return of
their investment to the Holders of Interests. However, after reviewing the
remaining properties and the marketplaces in which they operate, the
General Partners of the Partnership expect to be able to conduct an orderly
liquidation of its remaining investment portfolio as quickly as
practicable. As a result, the affairs of the Partnership are expected to
be wound up no later than December 31, 1999 (sooner if the properties are
sold in the near term), barring unforeseen economic developments.
The Partnership's goal of capital appreciation will not be achieved.
Although the Partnership expects to distribute sale proceeds from the
disposition of the Partnership's remaining investments in Palm Desert Town
Center and NewPark Mall, aggregate distributions of sale and refinancing
proceeds received by Holders of Interests over the entire term of the
Partnership are expected to be significantly less than one-half of their
original investment. However, in connection with the disposition of 260
Franklin the Holders of Interests will be allocated approximately
$5,000,000 (or approximately $36 per limited partner interest) of gain for
Federal income tax purposes even though there are no proceeds distributable
from such disposition.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents at December 31, 1997 as
compared to December 31, 1996 is primarily due to the retained cash
generated from operations at the Palm Desert Town Center.
The decrease in interest, rents and other receivables and notes
receivable as well as the increase in unearned rents at December 31, 1997
as compared to December 31, 1996 is primarily due to the timing of
collection of certain revenues at the Palm Desert Town Center.
The increase in accrued rents receivable at December 31, 1997 as
compared to December 31, 1996 is primarily due to the Partnership
recognizing rental income for certain major tenant leases at Palm Desert
Town Center over the life of the lease on a straight-line basis rather than
as due per the terms of their respective leases.
The increase in accounts payable at December 31, 1997 as compared to
December 31, 1996 is primarily due to the timing of payments for certain
expenses at the Palm Desert Town Center.
The increased deficit in investment in unconsolidated ventures, at
equity, at December 31, 1997 as compared to December 31, 1996 is primarily
due to the Partnership's share of the loss from operations of the 260
Franklin venture.
<PAGE>
The decrease in depreciation expense for the year ended December 31,
1997 as compared to the years ended December 31, 1996 and 1995 is due to no
further depreciation expense being incurred on the Palm Desert Town Center
as a result of this property being classified as "held for sale or
disposition" on July 1, 1997 in accordance with SFAS 121 and therefore not
subject to continued depreciation as of that date.
The decrease in property operating expenses for the year ended
December 31, 1997 as compared to the years ended December 31, 1996 and 1995
is primarily due to a decrease in the allowance for doubtful accounts in
1997 at the Palm Desert Town Center.
The increase in amortization of deferred expenses for the years ended
December 31, 1997 and 1996 as compared to the year ended December 31, 1995
is primarily due to additional deferred leasing commissions paid for new
tenants at Palm Desert Town Center and the write-off of leasing commissions
due to tenants vacating the mall.
The decrease in management fees to corporate general partner for the
year ended December 31, 1997 as compared to December 31, 1996 is due to
lower distributions to partners from operations during 1997. The decrease
in management fees to corporate general partner for the year ended December
31, 1996 as compared to the year ended December 31, 1995 is due to the fact
that the Partnership's distributions in 1996 were predominately from sales
proceeds whereas the distributions in 1995 were predominately from
operations, a portion of which was in the form of a management fee.
The increase in general and administrative expenses for the year ended
December 31, 1997 as compared to December 31, 1996 is primarily due to the
write off of amounts due from the 260 Franklin venture deemed uncollectible
as a result of the sale of the property in January 1998 and an increase in
the reimbursable costs to affiliates of the general partners. The decrease
in general and administrative expenses for the year ended December 31, 1996
as compared to the year ended December 31, 1995 is attributable primarily
to higher reimbursable costs in 1995 to affiliates of the general partners
and the recognition in 1995 of certain additional prior year reimbursable
costs to such affiliates.
The decrease in Partnership's share of loss from operations of
unconsolidated ventures for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 as well as the increase for the year ended
December 31, 1996 as compared to the year ended December 31, 1995 is
primarily due to the Partnership's share of the provisions for value
impairment of $3,343,634 and $430,000 recorded January 1, 1996 and June 30,
1996, respectively, regarding the 260 Franklin venture and the NewPark
joint venture, respectively.
The decrease in the venture partners' share of ventures' operations
for the year ended December 31, 1997 as compared to the year ended December
31, 1996 is due to an increase in net earnings at the Palm Desert Town
Center primarily as a result of the decreases in depreciation expense and
allowance for doubtful accounts, as discussed above. The decrease in
venture partners' share of venture operations for the year ended December
31, 1996 as compared to the year ended December 31, 1995 is primarily due
to the change in the allocation of the losses under the venture agreement
for Palm Desert. This is a result of the venture partner satisfying its
obligations to contribute to the venture for operating deficits and the
Partnership's and the affiliated partner's preferred returns in the fourth
quarter of 1995.
<PAGE>
The gain on sale or disposition of Partnership's investment in
unconsolidated venture for the year ended December 31, 1997 is due to
recognition of a portion of the previously deferred gain on the sale of
JMB/Owing's interest in Owings Mills and recognition of previously deferred
gain from the collection of principal on the note receivable relating to
the investment in 125 Broad. The gain on sale or disposition of
Partnership's investment in unconsolidated venture for the year ended
December 31, 1996 is primarily due to the recognition of gain on the sale
of the Partnership's interest in Dunwoody Crossing Apartments and
recognition of gain on the sale of JMB/Owing's interest in Owings Mills.
The gain on sale or disposition of Partnership's investment in
unconsolidated venture for the year ended December 31, 1995 represents the
recognition of gain on sale of JMB/Owing's interest in Owings Mills.
The loss on liquidation of joint venture for the year ended
December 31, 1997 represents loss recognized after the liquidation of the
Partnership's interest in Villages Northeast Associates.
The extraordinary item reported for the year ended December 31, 1996
represents the Partnership's share of pre-payment penalties and unamortized
deferred loan fees resulting from the extinguishment of debt related to the
1996 sale of Dunwoody Crossing Apartments.
INFLATION
Due to the decrease in the level of inflation in recent years,
inflation generally has not had a material effect on rental income or
property operating expenses.
Inflation is not expected to significantly impact future operations
due to the expected liquidation of the Partnership by 1999. However, to
the extent that inflation in future periods would have an adverse impact on
property operating expenses, the effect would generally be offset by
amounts recovered from tenants as many of the long-term leases at the
Partnership's commercial properties have escalation clauses covering
increases in the cost of operating and maintaining the properties as well
as real estate taxes. Therefore, the effect on operating earnings
generally will depend upon whether the properties are substantially
occupied. In addition, substantially all of the leases at the Partner-
ship's shopping center investments contain provisions which entitle the
property owner to participate in gross receipts of tenants above fixed
minimum amounts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
INDEX
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1997 and 1996
Consolidated Statements of Operations, Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Partners' Capital Accounts (Deficits),
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
SCHEDULE
--------
Consolidated Real Estate and Accumulated
Depreciation. . . . . . . . . . . . . . . . . III
Schedules not filed:
All schedules other than the one indicated in the index have been
omitted as the required information is inapplicable or the information is
presented in the consolidated financial statements or related notes.
260 FRANKLIN STREET ASSOCIATES
AN UNCONSOLIDATED VENTURE OF
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
INDEX
Independent Auditors' Report
Balance Sheets, December 31, 1997 and 1996
Statements of Operations, Years ended December 31,
1997, 1996 and 1995
Statements of Partners' Capital Accounts (Deficits),
Years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows, Years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
SCHEDULE
--------
Real Estate and Accumulated Depreciation. . . . III
Schedules not filed:
All schedules other than the one indicated in the index have been
omitted as the required information is inapplicable or the information is
presented in the combined financial statements or related notes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI:
We have audited the consolidated financial statements of Carlyle Real
Estate Limited Partnership - XVI (a limited partnership) and Consolidated
Venture as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the General Partners of the Partnership. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the General Partners of the
Partnership, 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Carlyle Real Estate Limited Partnership - XVI and Consolidated Venture at
December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in the Notes to the consolidated financial statements, in
1996, the Partnership and its consolidated venture changed their method of
accounting for long-lived assets and long-lived assets to be disposed of to
conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 25, 1998
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
------
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 16,214,633 14,791,381
Interest, rents and other receivables, net of allowances
for doubtful accounts of approximately $710,147 and
$939,124 at December 31, 1997 and 1996, respectively. . . . . . . 68,335 286,024
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . 111,897 132,414
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . 16,394,865 15,209,819
------------ ------------
Investment property - Schedule III:
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . -- 60,103,528
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . -- 16,031,335
------------ ------------
Total property held for investment,
net of accumulated depreciation . . . . . . . . . . . . . -- 44,072,193
Property held for sale or disposition . . . . . . . . . . . . . . . . 43,146,694 --
------------ ------------
Total investment property . . . . . . . . . . . . . . . . . 43,146,694 44,072,193
------------ ------------
Investment in unconsolidated ventures,
at equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,904,784 1,962,277
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 518,228 567,296
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 108,362 171,623
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 2,755,038 2,535,978
------------ ------------
$ 64,827,971 64,519,186
============ ============
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1997 1996
------------ -----------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 457,144 405,690
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 987,066 735,053
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . 218,929 168,611
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 410,797 414,854
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 2,073,936 1,724,208
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 66,157 66,518
Ground rent payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,377,521 1,267,991
Investment in unconsolidated ventures, at equity. . . . . . . . . . . 12,771,462 11,341,551
Long-term debt, less current portion. . . . . . . . . . . . . . . . . 40,622,529 41,079,673
------------ ------------
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . . . . . . . . 56,911,605 55,479,941
Venture partners' subordinated equity in ventures . . . . . . . . . . 3,751,845 3,740,111
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . (3,413,841) (3,373,900)
Cash distributions. . . . . . . . . . . . . . . . . . . . . . . (1,443,873) (1,432,178)
------------ ------------
(4,837,714) (4,786,078)
------------ ------------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . 120,541,353 120,541,353
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . (60,675,076) (59,897,441)
Cash distributions. . . . . . . . . . . . . . . . . . . . . . . (50,864,042) (50,558,700)
------------ ------------
9,002,235 10,085,212
------------ ------------
Total partners' capital accounts. . . . . . . . . . . . . . 4,164,521 5,299,134
------------ ------------
$ 64,827,971 64,519,186
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION> 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . $10,693,118 11,005,766 10,812,438
Interest income . . . . . . . . . . . . . . . . . . 743,729 790,506 808,937
----------- ----------- -----------
11,436,847 11,796,272 11,621,375
----------- ----------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . 5,070,238 4,919,196 5,100,070
Depreciation. . . . . . . . . . . . . . . . . . . . 1,004,060 2,007,379 2,005,130
Property operating expenses . . . . . . . . . . . . 4,625,426 5,138,083 5,123,395
Professional services . . . . . . . . . . . . . . . 205,766 203,145 302,029
Amortization of deferred expenses . . . . . . . . . 152,704 152,964 101,973
Management fees to corporate general
partner . . . . . . . . . . . . . . . . . . . . . 19,492 63,349 112,427
General and administrative. . . . . . . . . . . . . 430,542 311,946 380,640
----------- ----------- -----------
11,508,228 12,796,062 13,125,664
----------- ----------- -----------
(71,381) (999,790) (1,504,289)
Partnership's share of loss from operations
of unconsolidated ventures. . . . . . . . . . . . . (975,721) (5,190,635) (871,169)
Venture partners' share of ventures' operations . . . (11,734) 450,728 600,814
----------- ----------- -----------
Earnings (loss) before gains on sale
or disposition of investment properties . . . (1,058,836) (5,739,697) (1,774,644)
Gain on sale or disposition of Partnership's
investment in unconsolidated venture. . . . . . . . 510,407 4,928,723 856,750
Loss on liquidation of unconsolidated venture . . . . (269,147) -- --
----------- ----------- -----------
Earnings (loss) before Partnership's
share of extraordinary item from
unconsolidated venture. . . . . . . . . . . (817,576) (810,974) (917,894)
Partnership's share of extraordinary item
from unconsolidated venture . . . . . . . . . . . . -- (175,007) --
----------- ----------- -----------
Net earnings (loss). . . . . . . . . . . . . . $ (817,576) (985,981) (917,894)
=========== =========== ===========
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
1997 1996 1995
------------ ------------ ------------
Net earnings (loss) per limited
partnership interest:
Earnings (loss) before gains on
sale or disposition of invest-
ment properties . . . . . . . . . . . . . . $ (7.24) (39.26) (12.14)
Gain on sale or disposition of
Partnership's investment in
unconsolidated venture . . . . . . . . . . 3.60 34.77 6.04
Loss on liquidation of unconsolidated
venture. . . . . . . . . . . . . . . . . . (1.90) -- --
Partnership's share of extraordinary
item from unconsolidated venture . . . . . -- (1.23) --
----------- ----------- -----------
Net earnings (loss). . . . . . . . . . $ (5.54) (5.72) (6.10)
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
GENERAL PARTNERS LIMITED PARTNERS
------------------------------------------------ ------------------------------------------------------
CONTRIBU-
TIONS, NET
OF OFFERING
NET COSTS AND NET
CONTRI- INCOME CASH PURCHASE INCOME CASH
BUTIONS (LOSS) DISTRIBUTIONS TOTAL DISCOUNTS (LOSS) DISTRIBUTIONS TOTAL
-------- ---------- ------------- -------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
(deficit)
Decem-
ber 31,
1994 . . .$20,000 (3,129,431) (1,300,486) (4,409,917) 120,541,353 (58,238,035) (42,690,424) 19,612,894
Net earnings
(loss) . . -- (62,418) -- (62,418) -- (855,476) -- (855,476)
Cash distri-
butions
($17.25 per
limited
partnership
interest). -- -- (93,683) (93,683) -- -- (2,420,952) (2,420,952)
------- ---------- ---------- ---------- ----------- ----------- ----------- ----------
Balance
(deficit)
Decem-
ber 31,
1995 . . . 20,000 (3,191,849) (1,394,169) (4,566,018) 120,541,353 (59,093,511) (45,111,376) 16,336,466
Net earnings
(loss) . . -- (182,051) -- (182,051) -- (803,930) -- (803,930)
Cash distri-
butions
($38.80 per
limited
partnership
interest). -- -- (38,009) (38,009) -- -- (5,447,324) (5,447,324)
------- ---------- ---------- ---------- ----------- ----------- ----------- ----------
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS) - CONTINUED
GENERAL PARTNERS LIMITED PARTNERS
------------------------------------------------ ------------------------------------------------------
CONTRIBU-
TIONS, NET
OF OFFERING
NET COSTS AND NET
CONTRI- INCOME CASH PURCHASE INCOME CASH
BUTIONS (LOSS) DISTRIBUTIONS TOTAL DISCOUNTS (LOSS) DISTRIBUTIONS TOTAL
-------- ---------- ------------- -------- ----------- ---------- ------------- -----------
Balance
(deficit)
Decem-
ber 31,
1996 . . . 20,000 (3,373,900) (1,432,178) (4,786,078) 120,541,353 (59,897,441) (50,558,700) 10,085,212
Net earnings
(loss) . . -- (39,941) -- (39,941) -- (777,635) -- (777,635)
Cash distri-
butions
($2.18 per
limited
partnership
interest). -- -- (11,695) (11,695) -- -- (305,342) (305,342)
------- ---------- ---------- ---------- ----------- ----------- ----------- ----------
Balance
(deficit)
Decem-
ber 31,
1997 . . .$20,000 (3,413,841) (1,443,873) (4,837,714) 120,541,353 (60,675,076) (50,864,042) 9,002,235
======= ========== ========== ========== =========== =========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . $ (817,576) (985,981) (917,894)
Items not requiring (providing) cash or
cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . 1,004,060 2,007,379 2,005,130
Amortization of deferred expenses . . . . . . . . 152,704 152,964 101,973
Partnership's share of loss from operations
of unconsolidated ventures,
net of distributions. . . . . . . . . . . . . . 975,721 5,426,672 871,169
Venture partners' share of ventures'
operations and gain on sale . . . . . . . . . . 11,734 (450,728) (600,814)
Gain on sale or disposition of Partner-
ship's investment in unconsolidated
venture . . . . . . . . . . . . . . . . . . . . (510,407) (4,928,723) (856,750)
Loss on liquidation of unconsolidated
venture . . . . . . . . . . . . . . . . . . . . 269,147 -- --
Partnership's share of extraordinary item
from unconsolidated venture . . . . . . . . . . -- 175,007 --
Changes in:
Interest, rents and other receivables . . . . . 217,689 343,921 (35,775)
Prepaid expenses and other assets . . . . . . . 20,517 46,530 (22,035)
Notes receivable. . . . . . . . . . . . . . . . 63,261 33,795 42,432
Accrued rents receivable. . . . . . . . . . . . (219,060) (417,981) (338,546)
Accounts payable. . . . . . . . . . . . . . . . 252,013 208,310 48,570
Accrued interest. . . . . . . . . . . . . . . . (4,057) (96,978) 47,449
Unearned rents. . . . . . . . . . . . . . . . . 50,318 168,611 --
Tenant security deposits. . . . . . . . . . . . (361) 18,568 (30,456)
Ground rent payable . . . . . . . . . . . . . . 109,530 208,991 169,273
----------- ----------- ----------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . 1,575,233 1,910,357 483,726
----------- ----------- ----------
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1997 1996 1995
------------ ----------- -----------
Cash flows from investing activities:
Net sales and maturities (purchases)
of short-term investments . . . . . . . . . . . . -- -- 783,716
Additions to investment property. . . . . . . . . . (78,561) (3,205) (39,186)
Payment of deferred expenses. . . . . . . . . . . . (103,636) (160,351) (227,579)
Partnership's distributions from
unconsolidated ventures and proceeds
from sale of investment property. . . . . . . . . 752,943 5,160,000 1,320,630
Partnership's contributions to
unconsolidated ventures . . . . . . . . . . . . . -- (4,422) (135,000)
----------- ----------- ----------
Net cash provided by (used in)
investing activities. . . . . . . . . . . 570,746 4,992,022 1,702,581
----------- ----------- ----------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . (405,690) (360,031) (319,509)
Venture partners' distributions from venture. . . . -- (21,679)
Venture partners' contributions to venture. . . . . -- 137,096
Distributions to limited partners . . . . . . . . . (305,342) (5,447,324) (2,420,952)
Distributions to general partners . . . . . . . . . (11,695) (38,009) (93,683)
----------- ----------- ----------
Net cash provided by (used in)
financing activities. . . . . . . . . . . (722,727) (5,845,364) (2,718,727)
----------- ----------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . . 1,423,252 1,057,015 (532,420)
Cash and cash equivalents,
beginning of the year . . . . . . . . . . 14,791,381 13,734,366 14,266,786
----------- ----------- ----------
Cash and cash equivalents,
end of the year . . . . . . . . . . . . . $16,214,633 14,791,381 13,734,366
=========== =========== ==========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . $ 5,074,295 5,016,174 5,052,621
=========== =========== ==========
Non-cash investing and financing activities . . . . $ -- -- --
=========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 and 1995
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The Partnership holds (through joint ventures) real estate
investments. Business activities consist of rentals to a wide variety of
commercial and retail companies, and the ultimate sale or disposition of
such real estate. The Partnership currently expects to conduct an orderly
liquidation of its remaining investment portfolio and wind up its affairs
not later than December 31, 1999.
The accompanying consolidated financial statements include the
accounts of the Partnership and its majority-owned venture, JMB/Hahn PDTC
Associates, L.P. ("Palm Desert"). The effect of all transactions between
the Partnership and its consolidated venture has been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in JMB/Owings Mills Associates ("JMB/Owings"); 260 Franklin
Street Associates ("260 Franklin"); Villages Northeast Associates
("Villages Northeast"); JMB/NewPark Associates ("JMB/NewPark"); and its
indirect ownership of JMB/125 Broad Building Associates, L.P. ("JMB/125").
The Partnership, through JMB/Owings, sold its interest in Owings Mills Mall
in June 1993. In November 1994, the Partnership through its indirect
ownership of JMB/125 assigned its interest in the 125 Broad Street
Building. The Partnership through Villages Northeast Associates, sold its
interest in Dunwoody Crossing Apartments in May 1996.
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying financial statements have been prepared from such records
after making appropriate adjustments to reflect the Partnership's accounts
in accordance with generally accepted accounting principles ("GAAP") and to
consolidate the accounts of the venture as described above. Such GAAP and
consolidation adjustments are not recorded on the records of the
Partnership. The net effect of these items for the years ended
December 31, 1997 and 1996 is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets. . . . . . . . . . . . $64,827,971 78,664,247 64,519,186 78,664,247
Partners' capital accounts
(deficits):
General partners. . . . . . . . (4,837,714) (2,311,670) (4,786,078) 2,501,133
Limited partners. . . . . . . . 9,002,235 31,758,797 10,085,212 33,982,205
Net earnings (loss):
General partners. . . . . . . . (39,941) 201,157 (182,051) 276,297
Limited partners. . . . . . . . (777,635) (1,918,067) (803,930) 6,577,927
Net earnings (loss) per
limited partnership
interest. . . . . . . . . . . . . (5.54) (13.67) (5.72) 46.87
=========== ========== =========== ===========
</TABLE>
<PAGE>
The net earnings (loss) per limited partnership interest is based upon
the number of limited partnership interests outstanding at the end of the
period. Deficit capital accounts will result, through the duration of the
Partnership, in net gain for financial reporting and income tax purposes.
The preparation of financial statements in accordance with GAAP
requires the Partnership to make estimates and assumptions that affect the
reported or disclosed amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement.
Partnership distributions from unconsolidated ventures are considered cash
flow from operating activities only to the extent of the Partnership's
cumulative share of net earnings. In addition, the Partnership records
amounts held in U.S. Government obligations at cost, which approximates
market. For the purposes of these statements, the Partnership's policy is
to consider all such amounts held with original maturities of three months
or less ($14,103,210 at December 31, 1997 and $13,477,600 at December 31,
1996) as cash equivalents, which includes investments in an institutional
mutual fund which holds U.S. Government obligations, with any remaining
amounts (generally with original maturities of one year or less) reflected
as short-term investments being held to maturity.
Deferred expenses are comprised of loan fees which are amortized over
the term of the related loan and lease commissions which are amortized over
the terms of the related leases using the straight-line method.
Although certain leases of the Partnership provide for tenant
occupancy during periods for which no rent is due and/or increases in
minimum lease payments over the term of the lease, the Partnership accrues
prorated rental income for the full period of occupancy on a straight-line
basis.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership. However, in certain instances, the Partnership has been or
may be required under applicable law to remit directly to the tax
authorities amounts representing withholding from distributions paid to
partners.
The Partnership acquired, through joint ventures, interests in three
contiguous apartment complexes, three office buildings and three shopping
centers. One office building and one shopping center had been sold prior
to January 1, 1994. During 1994, the Partnership, through its indirect
ownership of JMB/125, assigned its interest in the 125 Broad Street
Building. During 1996, the Partnership, through the Villages Northeast
joint venture, sold its interest in the Dunwoody Crossing Apartments. All
of the properties owned at December 31, 1997 were in operation. The 260
Franklin building was sold in January 1998. The cost of the investment
properties represents the total cost to the Partnership or its ventures
plus miscellaneous acquisition costs.
Depreciation on the consolidated investment property has been provided
over the estimated useful lives of 5 to 40 years using the straight-line
method.
<PAGE>
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated
over their estimated useful lives.
Statement of Financial Accounting Standards No. 121 ("SFAS 121")
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" was issued in March 1995. The Partnership
adopted SFAS 121 as required in the first quarter of 1996. SFAS 121
requires that the Partnership record an impairment loss on its properties
to be held for investment whenever their carrying value cannot be fully
recovered through estimated undiscounted future cash flows from their
operations and sale. The amount of the impairment loss to be recognized
would be the difference between the property's carrying value and the
property's estimated fair value. The Partnership's policy is to consider a
property to be held for sale or disposition when the Partnership has
committed to a plan to sell or dispose of such property and active
marketing activity has commenced or is expected to commence in the near
term or the Partnership has concluded that it may dispose of the property
by no longer funding operating deficits or debt service requirements of the
property thus allowing the lender to realize upon its security. In
accordance with SFAS 121, any properties identified as "held for sale or
disposition" are no longer depreciated. Adjustments for impairment loss
for such properties (subsequent to the date of adoption of SFAS 121) are
made in each period as necessary to report these properties at the lower of
carrying value or fair value less costs to sell. In certain situations,
such estimated fair value could be less than the existing non-recourse debt
which is secured by the property. There can be no assurance that any
estimated fair value of these properties would ultimately be realized by
the Partnership in any future sale or disposition transaction.
Under the prior accounting policy, provisions for value impairment
were recorded with respect to investment properties whenever the estimated
future cash flows from a property's operations and projected sale were less
than the property's carrying value. The amount of any such impairment loss
recognized by the Partnership was limited to the excess, if any, of the
property's carrying value over the outstanding balance of the property's
non-recourse indebtedness. An impairment loss under SFAS 121 is determined
without regard to the nature or the balance of such non-recourse
indebtedness. Upon the disposition of a property with the related
extinguishment of the long-term debt for which an impairment loss has been
recognized under SFAS 121, the Partnership would recognize, at a minimum, a
net gain for financial reporting purposes (comprised of gain on
extinguishment of debt and gain or loss on the sale or disposition of
property) to the extent of any excess of the then outstanding balance of
the property's non-recourse indebtedness over the then carrying value of
the property, including the effect of any reduction for impairment loss
under SFAS 121.
In addition, upon the disposition of any impaired property, the
Partnership will generally recognize more net gain for financial reporting
purposes under SFAS 121 than it would have under the Partnership's prior
impairment policy, without regard to the amount, if any, of cash proceeds
received by the Partnership in connection with the disposition. Although
implementation of this accounting statement could significantly impact the
Partnership's reported earnings, there would be no impact on cash flows.
Further, any such impairment loss is not recognized for Federal income tax
purposes.
As of July 1, 1997, the Partnership and its consolidated venture had
committed to a plan to sell or dispose of their remaining investment
property. Accordingly, the property has been classified as held for sale
or disposition as of such date in the accompanying consolidated financial
statements. The results of operations, net of venture partners' share, for
this property were $21,165, ($812,922) and ($847,114) for the years ended
December 31, 1997, 1996 and 1995, respectively.
<PAGE>
In addition, for the years ended December 31, 1997, 1996 and 1995 the
accompanying consolidated financial statements include ($1,070,949),
($4,740,387) and ($832,314), respectively, of the Partnership's share of
total property operations of ($3,896,479), ($16,145,783) and ($3,804,822),
respectively, for unconsolidated properties which are held for sale or
disposition as of December 31, 1997 or have been sold or disposed of during
the past three years.
The investment properties are pledged as security for the long-term
debt, for which generally there is no recourse to the Partnership.
During the second quarter of 1997, Statements of Financial Accounting
Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of
Information about Capital Structure") were issued. These standards became
effective for reporting periods after December 15, 1997. As the
Partnership's capital structure only has general and limited partnership
interests, the Partnership will not experience any significant impact on
its consolidated financial statements.
VENTURE AGREEMENTS - GENERAL
The Partnership entered into five joint venture agreements
(JMB/Owings, JMB/125, 260 Franklin, Villages Northeast and JMB/NewPark)
directly or indirectly with Carlyle Real Estate Limited Partnership - XV
("Carlyle-XV") (and for JMB/125, Carlyle Advisors, Inc.), and two
(JMB/Warner Center Associates and Palm Desert) with Carlyle Real Estate
Limited Partnership-XVII ("Carlyle-XVII"). Carlyle-XV and Carlyle-XVII are
each sponsored by the Corporate General Partner. The terms of these
affiliated joint venture agreements provide, in general, that the benefits
and obligations of ownership, including tax effects, net cash receipts and
net sale and refinancing proceeds and capital contribution obligations, are
allocated or distributed, as the case may be, between the Partnership and
the affiliated partner in proportion to their respective capital
contributions to the affiliated venture. Pursuant to such agreements, the
Partnership made capital contributions aggregating $137,944,640 through
December 31, 1997.
Certain of these affiliated partnerships have entered into joint
venture agreements with unaffiliated joint venture partners. In general,
the unaffiliated joint venture partners, who are either the sellers (or
their affiliates) of the property investments acquired or parties which
have contributed an interest in the property developed, or were
subsequently admitted to the ventures, made no cash contributions to the
ventures, but their retention of an interest in the property, through the
joint venture, is taken into account in determining the purchase price of
the Partnership's interest, which was determined by arm's-length
negotiations. Under certain circumstances, either pursuant to the venture
agreements or due to the Partnership's obligations as general partner, the
Partnership may be required to make additional cash contributions to the
ventures.
The Partnership acquired, through the above ventures, three apartment
complexes, three office buildings and three shopping centers. In 1993, the
Partnership through JMB/Owings, sold its interest in Owings Mills Mall and
through JMB/Warner Center Associates sold the Blue Cross Building. In
1994, the Partnership through its indirect ownership of JMB/125 assigned
its interest in the 125 Broad Street Building. During 1996, the
Partnership, through the Villages Northeast joint venture, sold its
interest in the Dunwoody Crossing Apartments. In January 1998, the
Partnership disposed of its interest in 260 Franklin. Certain of the
ventures' properties have been financed under various long-term debt
arrangements as described in the Notes and in the Notes to Financial
Statements of 260 Franklin Street Associates filed with this report.
There are certain risks associated with Partnership's investments made
through joint ventures, including the possibility that the Partnership's
joint venture partners in an investment might become unable or unwilling to
fulfill their financial or other obligations, or that such joint venture
<PAGE>
partners may have economic or business interests or goals that are
inconsistent with those of the Partnership.
INVESTMENT PROPERTIES
JMB/125
In December 1985, the Partnership, through the JMB/125 joint venture
partnership, acquired an interest in an existing joint venture partnership
("125 Broad") which owned a 40-story office building, together with a
leasehold interest in the underlying land, located at 125 Broad Street in
New York, New York. In addition to JMB/125, the other partners (the "O&Y
partners") of 125 Broad included O&Y 25 Realty Company L.P., Olympia & York
Broad Street Holding Company L.P. (USA) and certain other affiliates of
Olympia & York Developments, Ltd. ("O&Y").
In November 1994, the Partnership through its indirect ownership of
JMB/125 assigned its interest in the 125 Broad Street Building to the
venture partners.
JMB/125 was a joint venture between Carlyle-XVI Associates, L.P. (in
which the Partnership held a 99% limited partnership interest), Carlyle-XV
Associates, L.P. and Carlyle Advisors, Inc. The Partnership held,
indirectly through Carlyle-XVI Associates, L.P., an approximate 40% limited
partnership interest in JMB/125. The general partner in each of JMB/125
and Carlyle-XVI Associates, L.P. is an affiliate of the Partnership. For
financial reporting purposes, profits and losses of JMB/125 are generally
allocated 40% to the Partnership. The terms of the JMB/125 venture
agreement generally provide that JMB/125's share of 125 Broad's annual cash
flow and sale or refinancing proceeds would be distributed or allocated to
the Partnership in proportion to its indirect approximate 40% share of
capital contributions to JMB/125.
Due to the O&Y partners' previous failure to advance necessary funds
to 125 Broad as required under the joint venture agreement, 125 Broad in
June 1992 defaulted on certain mortgage obligations on November 15, 1994,
effective as of October 31, 1994, JMB/125 and certain affiliates of O&Y
reached an agreement to settle their disputes regarding 125 Broad and its
property. Under the terms of the agreement, JMB/125 assigned its interest
in 125 Broad to an affiliate of O&Y and released the O&Y partners from any
claims related to 125 Broad. In return, JMB/125 received an unsecured
promissory note in the principal amount of $5 million bearing simple
interest at 4.5% per annum with all principal and accrued interest due at
maturity in October 1999, subject to mandatory prepayments of principal and
interest or acceleration of the maturity date under certain circumstances.
As of December 31, 1994, the note had been fully reserved for by JMB/125.
In addition, JMB/125 received a release from any claims of certain O&Y
affiliates and generally was to be indemnified against any liability as a
general partner of 125 Broad. JMB/125 was also relieved of any obligation
to contribute cash to 125 Broad in the amount of its deficit capital
account balance. Affiliates of O&Y subsequently filed a prearranged
bankruptcy plan for reorganization of 125 Broad under Chapter 11 of the
Bankruptcy Code in order to facilitate 125 Broad's transfer of the office
building to the mortgage lender in satisfaction of the mortgage debt and
other claims. In January 1995, the plan for reorganization was approved by
the bankruptcy court, was consummated, and the bankruptcy case was
concluded. As a result of the assignment of its interest, JMB/125 no
longer has an ownership interest in the office building.
In October 1995, the makers of the $5 million promissory note payable
to JMB/125 filed for protection from creditors under Chapter 11 of the
Bankruptcy Code. Pursuant to the bankruptcy reorganization of the makers
of the note, JMB/125, as an unsecured creditor, received limited
partnership interests and a convertible note receivable in a reorganized
entity that has majority or controlling interests in six office buildings
in New York, New York and Boston, Massachusetts. The assigned value, as of
the bankruptcy confirmation date, of the interests and note received by
<PAGE>
JMB/125 was approximately $400,000. The convertible note was fully
reserved due to the uncertainty of the realizable value of the note. In
June 1997, the convertible note receivable for $297,000 was collected on by
JMB/125 resulting in the recognition of gain, of which the Partnership's
share is $116,436.
JMB/OWINGS
In December 1985, the Partnership, through the JMB/Owings joint
venture partnership, acquired an interest in an existing joint venture
partnership ("Owings Mills") which owned an interest in an enclosed
regional shopping center. JMB/Owings's original cash investment was
$7,000,000, of which the Partnership's share was $3,500,000. On June 30,
1993, JMB/Owings sold its interest in Owings Mills Shopping Center as
described below.
JMB/Owings sold its partnership interest in Owings Mills to an
affiliate of the Partnership's unaffiliated joint venture partners. The
sale price of the interest was $9,416,000, all of which was received in the
form of a promissory note. In addition, the Partnership and Carlyle-XV
were relieved of their allocated portion of the debt secured by the
property. The promissory note (which is secured by a guaranty from an
affiliate of the purchaser and the unaffiliated joint venture partner)
bears interest at a rate of 7% per annum subject to increase to 8% per
annum for the remainder of the term of the note. The promissory note
requires principal and interest payments of approximately $109,000 per
month with the remaining principal balance of approximately $5,500,000 due
and payable on June 30, 1998. The monthly installment of principal and
interest would be adjusted for the increase in the interest rate if
applicable. Early prepayment of the promissory note may be required under
certain circumstances including the sale or further encumbrance of Owings
Mills Mall.
The net cash proceeds and gain from sale of the interest was allocated
50% to the Partnership and 50% to Carlyle-XV in accordance to the
JMB/Owings partnership agreement. For financial reporting purposes,
JMB/Owings recognized, on the date of sale, gain of $5,254,855, of which
the Partnership's share was $2,627,427, attributable to JMB/Owings being
relieved of its obligations under the Owings Mills partnership agreement
pursuant to the terms of the sale agreement. JMB/Owings adopted the cost
recovery method until such time as the purchaser's initial investment was
sufficient in order to recognize additional gain under Statement of
Financial Accounting Standards No. 66 ("SFAS 66"). At December 31, 1994,
the total deferred gain of JMB/Owings including principal and interest
payments of $1,858,572 received and distributed through December 31, 1994
was $10,305,310, of which the Partnership's share was $5,152,655. As
JMB/Owings collected a sufficient amount of the purchaser's initial
investment, at March 31, 1995, the joint venture adopted the installment
method for the recognition of the remaining deferred gain. JMB/Owings
recognized $787,942, $870,121 and $1,713,501 of deferred gain and $494,172,
$527,237 and $1,501,936 of interest income for the years ended December 31,
1997, 1996 and 1995, respectively, of which the Partnership's share of
deferred gain was $393,971, $435,060 and $856,750 and the Partnership's
share of interest income was $247,086, $263,619 and $750,968, respectively.
260 FRANKLIN (disposed 1/2/98)
In May 1986, the Partnership, through the 260 Franklin joint venture
partnership, acquired an interest in an office building in Boston,
Massachusetts known as the 260 Franklin Street Building.
The property was subject to a first mortgage loan in the original
principal amount of $75,000,000. 260 Franklin's original cash investment
(exclusive of acquisition costs) was approximately $35,000,000 of which the
Partnership's share was approximately $10,500,000.
<PAGE>
An affiliate of the General Partner managed the property until
December 1994 for a fee computed at 3% of the property's gross receipts.
Beginning January 1, 1992, 260 Franklin Street was escrowing the payment of
property management fees and leasing commissions to the affiliate pursuant
to the terms of the debt modification described below. In December 1994,
the affiliated property manager sold substantially all of its assets and
assigned its interest in its management contracts to an unaffiliated third
party. The property was then managed by the purchaser of the affiliate's
assets on the same terms provided in the property management agreement,
with the payment of the management fees guaranteed by JMB in 1995.
Beginning in January 1996, the unaffiliated property manager was paid
management fees by the property. Reference is made to the Notes to the
Financial Statements of 260 Franklin Street Associates.
The long-term mortgage note secured by the 260 Franklin Street
Building, as modified in December 1991, provided for monthly payments of
interest only based upon the then outstanding balance at a rate of 8% per
annum. Upon maturity, 260 Franklin was obligated to pay an amount
sufficient to provide the lender with an 11% per annum yield on the
mortgage note from January 1, 1991. In addition, upon maturity, 260
Franklin was obligated to pay to the lender a residual interest amount
equal to 60% of the highest amount, if any, of (i) net sales proceeds, (ii)
net refinancing proceeds, or (iii) net appraisal value, as defined. 260
Franklin has been required to (i) escrow excess cash flow from operations
(computed without a deduction for property management fees and leasing
commissions), beginning in 1991, to cover future cash flow deficits, (ii)
make an initial contribution to the escrow account of $250,000, of which
the Partnership's share was $75,000, and (iii) make annual escrow
contributions, through January 1995, of $150,000, of which the
Partnership's share was $45,000. The escrow account ($202,378 at
December 31, 1997 including accrued interest) was to be used to cover the
cost of capital and tenant improvements and lease inducements
(approximately $5,045,000 used as of December 31, 1997) as defined. The
balance of the escrowed funds remaining at December 31, 1997 was used for
the payment of interest due to the lender as described above.
The long-term mortgage loan in the original principal amount of
approximately $75,000,000 matured January 1, 1996. 260 Franklin, as of
such date, began submitting the net operating cash flow of the property to
the lender while seeking an extension or refinancing of the loan. The
joint venture reached an agreement with the lender for an extension of the
mortgage loan through January 1, 1997 and again through January 1, 1998.
In addition to substantially the same terms as were in effect prior to such
extensions, the agreement required that the property submit net operating
cash flow of the property to the lender. In addition, the lender had
indicated that it would not extend the loan beyond January 1, 1998. 260
Franklin and the Partnership believed that the value of the office building
was less than the mortgage loan, and the Partnership did not intend to
expend any additional funds of its own on the property. Accordingly, 260
Franklin entered negotiations with the lender and an unaffiliated third
party regarding the sale of the property to the unaffiliated third party.
Effective January 1, 1998, the joint venture entered into a loan
modification agreement with the lender in which the lender waived accrued
unpaid interest owed for the period prior to January 1, 1998, which was
approximately $17,200,000.
On January 2, 1998, 260 Franklin Street Associates disposed of,
through a trust, the land, building and related improvements of the 260
Franklin Street Building. 260 Franklin transferred title to the land,
building and improvements, and all other assets and liabilities related to
the property in consideration of a discharge of the mortgage loan and
receipt of $200 in cash. 260 Franklin expects to recognize in 1998 a gain
on sale of approximately $23,200,000, in part as a result of previous
impairment losses recognized by the joint venture in 1996 aggregating
$11,145,446, and an extraordinary gain on forgiveness of indebtedness of
approximately $17,200,000 for financial reporting purposes, of which the
Partnership's share is approximately $6,960,000 and $5,160,000,
respectively. In addition, 260 Franklin expects to recognize a gain of
<PAGE>
approximately $25,200,000 for Federal income tax reporting purposes, of
which the Partnership's share is approximately $7,500,000, with no
distributable proceeds in 1998. 260 Franklin and the Partnership have no
future liability for any representations, warranties or covenants to the
purchaser as a result of the sale.
The office market in the Financial District of Boston remains
competitive due to the new office building developments and lay-offs,
cutbacks and consolidations by financial service companies. The effective
rental rates achieved upon re-leasing have been substantially below the
rates which were received under the previous leases for the same space.
Therefore, 260 Franklin recorded a provision for value impairment of
$11,145,446 as of January 1, 1996, of which the Partnership's share is
$3,343,634, to reflect the then estimated fair value of the property based
upon the use of an appropriate capitalization rate applied to the
property's net operating income. Due to the lender negotiations described
above, the property had been classified as held for sale or disposition as
of July 1, 1997, and therefore, was not subject to continued depreciation
after such date.
VILLAGES NORTHEAST
The property was classified as held for sale or disposition as of
January 1, 1996, and therefore, had not been subject to continued
depreciation prior to its sale in May 1996.
In September 1986, the Partnership, through the Villages Northeast
joint venture partnership, acquired through a joint venture ("Post
Associates") with an affiliate of the developer, an interest in three
apartment complexes known as the Dunwoody Crossing (Phase I, II and III)
Apartments, respectively, located near Atlanta, Georgia.
Villages Northeast acquired its interest in the apartment complexes
from an affiliate of the developer subject to an existing first mortgage
loan secured by the Dunwoody Crossing (Phase II) Apartments.
As contemplated at the time of acquisition, in September 1987 an
additional mortgage loan was obtained in the amount of $21,000,000 and was
secured by the Dunwoody (Phase I and III) Apartments. After such
financing, Villages Northeast's cash investment was approximately
$15,398,000, of which the Partnership's share was approximately $4,619,000.
The Phase I and III note bore interest at a rate of 9.75% per annum and
required monthly debt service payments of $180,425 representing principal
and interest until October 1, 1994, when the entire outstanding principal
balance of $20,692,324 and any unpaid interest was due. Villages Northeast
negotiated an extension of the mortgage loan until December 15, 1994 and
then reached an agreement with the existing lender for a new loan, which
required monthly payments of principal and interest (8.65% per annum) of
$171,737 beginning February 15, 1995 and continuing through November 15,
1997, when the remaining balance was payable. The Dunwoody (Phase II)
Apartments secured a $9,800,000 first mortgage loan, which bore interest of
7.64% per annum, and required monthly payments of principal and interest of
$73,316 through November 1, 1997, when the remaining balance was payable.
Villages Northeast was entitled to a cumulative preferred return of
annual net cash receipts (as defined) from the properties. Villages
Northeast received cash distributions from property operations through
May 7, 1996. After Villages Northeast received its preferential return,
the unaffiliated venture partner was entitled to a non-cumulative return on
its interest in the venture; additional net cash receipts were shared in a
ratio relating to the ownership interests of Villages Northeast (90%) and
its unaffiliated venture partner (10%). Villages Northeast also had
preferred positions (related to Villages Northeast's investment in Post
Associates) with respect to distribution of net sale or refinancing
proceeds from Post Associates. Operating profits and losses, in general,
were allocable 90% to Villages Northeast and 10% to the unaffiliated
venture partner, except that certain expenses paid for out of Villages
Northeast's cash payments were allocable solely to Villages Northeast and
<PAGE>
certain costs of operations paid for out of capital contributions, if any,
of the unaffiliated venture partner were allocable solely to it.
On May 7, 1996, the Partnership sold (through the Villages Northeast
venture) the Dunwoody apartment complex to the unaffiliated venture
partner, pursuant to such venture partner's right of first refusal, for
$47,000,000 less brokerage commissions, transfer taxes and legal fees of
approximately $470,000. Approximately $30,900,000 of the sales proceeds
were utilized to retire the mortgage debt including a prepayment penalty of
approximately $435,000 (of which the Partnership's share of approximately
$130,500 was included as an extraordinary item in the Partnership's 1996
consolidated financial statements). Additionally, approximately $787,000
(of which the Partnership's share was approximately $236,000) was paid to
the State of Georgia on behalf of the Holders of Interests for withholding
tax related to the sale. As a result of the sale, the Partnership
recognized a gain of approximately $4,300,000 for financial reporting
purposes and a gain of approximately $8,600,000 for Federal income tax
purposes in 1996. The Partnership made a distribution of $30 per Interest
from the net sales proceeds of this sale in August 1996. In 1997, the
Partnership recognized a loss of approximately $269,000 for financial
reporting purposes resulting from the liquidation of Villages Northeast.
JMB/NEWPARK
In December 1986, the Partnership, through the JMB/NewPark joint
venture partnership, acquired an interest in an existing joint venture
partnership ("NewPark Associates") with the developer which owns an
interest in an existing enclosed regional shopping center in Newark,
California known as NewPark Mall. JMB/NewPark invested $32,500,000 for its
50% interest in NewPark Associates. In December 1995, the developer
transferred its interest in NewPark Associates to a new venturer which is
affiliated with the developer.
The NewPark Mall secured a mortgage note payable in the principal
amount of $50,620,219 that was originally due on November 1, 1995. Monthly
payments of interest only of $369,106 were due through November 30, 1993.
Commencing on December 1, 1993 through October 30, 1995, principal and
interest were due in monthly payments of $416,351 with a final balloon
payment due November 1, 1995. In October 1995, JMB/NewPark was granted a
loan extension until December 15, 1995. Interest on the note payable
accrued at 8.75% per annum. On December 21, 1995, NewPark Associates
obtained a new mortgage loan with an institutional lender. The new
mortgage loan in the principal amount of $60,000,000 is due on December 31,
2000. The loan provides for monthly interest-only payments of $357,500.
Interest on the non-recourse loan accrues at 7.15% per annum.
A portion of the proceeds from the note payable was used to pay the
outstanding balance, including accrued interest, under the previous
mortgage note payable. The Partnership's share of net refinancing proceeds
(after payment of the previous mortgage note payable and costs and fees
relating to the refinancing) was $535,000.
The NewPark Associates partnership agreement provides that JMB/NewPark
and the joint venture partner are each entitled to receive 50% of profits
and losses, net cash flow and net sale or refinancing proceeds of NewPark
Associates and are each obligated to advance 50% of any additional funds
required under the terms of the NewPark Associates partnership agreement.
In December 1995, the joint venture partner sold and assigned its interest
in NewPark Associates to a third party, who was admitted as the new venture
partner.
As a result of the acquisition by Federated Department Stores of the
company which owned the Emporium Capwell store at NewPark Mall, Federated,
which also owns the Macy's store at NewPark, approached the NewPark joint
venture regarding a sale of the Emporium building. Simultaneously with its
negotiations to acquire the Emporium Capwell building, the NewPark joint
venture negotiated to sell the building to a national retail store owner.
The transactions closed on April 22, 1997 and the joint venture received a
<PAGE>
lease termination fee of approximately $2,187,000, of which the
Partnership's share was approximately $110,000.
In response to uncertainty concerning the NewPark joint venture's
ability to recover the net carrying value of the NewPark Mall investment
property through future operations or sale and since the NewPark joint
venture expects to dispose of the property not later than 1999, the NewPark
joint venture, in accordance with SFAS 121, recorded a provision for value
impairment at June 30, 1996 in the amount of $8,600,000 of which the
Partnership's share is $430,000. Such provision was recorded to reduce the
venture's carrying value of the investment property to the then estimated
fair market value of the property based upon an analysis of discounted
estimated future cash flows over the projected holding period.
The portion of the shopping center owned by NewPark Associates was
managed by the former joint venture partner under a long-term agreement
pursuant to which it was obligated to manage the property and collect all
receipts from operations of the property. In December 1995, the former
joint venture partner assigned its interest in the management agreement to
the new venture partner. The manager is paid a management fee equal to 4%
of the fixed and percentage rent. An amendment to the management agreement
provides that the new manager will pay to an affiliate of the General
Partner of the Partnership an annual consulting fee in the amount of
$100,000 in consideration for assisting NewPark Associates and the new
venture partner in the evaluation of property budgets, and leasing and
long-term strategies for NewPark Mall. Such consulting fee is paid out of
the management fee noted above.
PALM DESERT
In December 1988, the Partnership, Carlyle-XVII, and an affiliate of
the seller acquired through Palm Desert an interest in an existing,
enclosed regional shopping center known as Palm Desert Town Center in Palm
Desert, California and a leasehold interest in the underlying land.
The Partnership and Carlyle-XVII acquired their interests in Palm
Desert, subject to a first mortgage loan with an outstanding principal
balance of approximately $43,500,000, for an initial aggregate contribution
of approximately $17,400,000, all of which was paid in cash at closing, of
which the Partnership's share was approximately $14,925,000. The
Partnership and Carlyle-XVII's initial aggregate contribution was used to
make the distribution to the joint venture partner as described below and
to pay a portion of the closing costs. Except for amounts to be
contributed to Palm Desert to pay certain closing costs, the joint venture
partner was not required to make any capital contributions to Palm Desert
at closing. However, in consideration of a distribution from Palm Desert
at closing, the joint venture partner was obligated to make contributions
to Palm Desert to pay the $13,752,746 purchase price obligation of Palm
Desert to the seller of the shopping center, of which the final $4,826,906
was paid in January 1993. In addition, the joint venture partner was
obligated to make contributions to Palm Desert through December 1994 to pay
any operating deficits and to pay a portion of the returns to the
Partnership and Carlyle-XVII as described below. Amounts required to pay
the cost of tenant improvements and allowances (the "Tenant Improvement
Costs") and other capital expenditures, as well as any operating deficits
of Palm Desert after December 1994, have been and are expected to be
contributed to Palm Desert 25% by the joint venture partner and 75% by the
Partnership and Carlyle-XVII in the aggregate.
The terms of the Palm Desert venture agreement provide that the
Partnership and Carlyle-XVII are entitled to receive out of net cash flow a
current preferred return and a cumulative preferred return, each based on a
negotiated rate of return on their respective initial capital contributions
(other than those used to pay closing costs). Such current preferred
return, which the Partnership was entitled to receive through December 31,
1994 (as defined) was received. The Partnership, Carlyle-XVII and the
joint venture partner are entitled to a cumulative preferred return, based
<PAGE>
on a negotiated rate of return on their respective contributions to pay the
Tenant Improvement Costs through December 1994 (the "Tenant Improvement
Cost Contributions"). All cumulative preferred returns are distributable
on an equal priority level; however, they are subordinate to the receipt by
the Partnership and Carlyle-XVII of their respective current year preferred
return. Any remaining annual cash flow will be distributable 75% to the
Partnership and Carlyle-XVII and 25% to the joint venture partner until the
Partnership and Carlyle-XVII have received an amount equal to their initial
capital contributions (other than those used to pay closing costs) plus a
negotiated annual internal rate of return thereon and an amount equal to
their Tenant Improvement Cost Contributions, and thereafter any remaining
annual cash flow shall be distributable 50% to the Partnership and Carlyle-
XVII and 50% to the joint venture partner.
The Palm Desert venture agreement also provides that upon sale or
refinancing of the property, net sale or refinancing proceeds will be
distributable first to the Partnership, Carlyle-XVII and the joint venture
partner to the extent of any deficiencies in the receipt of their
respective cumulative preferred returns; second, to the Partnership and
Carlyle-XVII in an amount equal to their initial capital contributions
(other than those used to pay closing costs) and their Tenant Improvement
Cost Contributions and, as an equal priority, to the joint venture partner
in an amount equal to its Tenant Improvement Cost Contributions; third, to
the joint venture partner in an amount equal to the amount contributed by
it to pay operating deficits through December 1994 and to provide a portion
of the Partnership's and Carlyle-XVII's current and cumulative preferred
return described above (not to exceed $1,700,000); fourth, 75% to the
Partnership and Carlyle-XVII and 25% to the joint venture partner until the
Partnership and Carlyle-XVII have received a negotiated annual internal
rate of return on their respective initial capital contributions (other
than those used to pay closing costs), and any remaining proceeds will be
distributable 50% to the Partnership and Carlyle-XVII and 50% to the joint
venture partner.
The portion of the shopping center owned by Palm Desert is currently
subject to a first mortgage loan from an institutional lender with an
outstanding principal balance of approximately $40,623,000 and $41,080,000
at December 31, 1997 and 1996, respectively. The loan provides for fixed
interest at the rate of 12% per annum and monthly payments of principal and
interest of $446,842 until January 1, 2019, when the loan will have been
fully amortized.
The land underlying the shopping center is owned by the lender under
the first mortgage loan. Palm Desert leases the land by assignment of an
existing ground lease which has a term through December 2038 and provides
for minimum annual rental payments of $900,000, as well as for additional
rental payments for each calendar year equal to 50% of the amount by which
certain of the ground lessee's gross receipts from the shopping center
exceed $6,738,256. Total ground rent expense for the years ended
December 31, 1997, 1996 and 1995 was $1,312,906, 1,293,112 and $1,261,322,
respectively. The ground lease provides for two 10-year extensions at the
option of the lessee. The ground lease does not provide for any option on
the part of Palm Desert to purchase the land.
Operating profits and losses, in general, are allocable in proportion
to the amount of net cash flow distributed to the partners of Palm Desert,
or, if there are no distributions of net cash flow, generally 75% to the
Partnership and Carlyle-XVII and 25% to the joint venture partner, except
that the deductions allocable with respect to certain expenses are
allocable to the partner whose contributions are used to pay such expenses.
For 1997, 1996 and 1995, losses were allocated 75% to the Partnership and
Carlyle-XVII and 25% to the joint venture partner as there were no
distributions made to the partner in 1996 and 1995.
<PAGE>
The Palm Desert agreement also provides that the annual cash flow, net
sale or refinancing proceeds and tax items distributed or allocated
collectively to the Partnership and Carlyle-XVII generally are
distributable or allocable between them based upon their respective capital
contributions. Such capital contributions are generally in the percentages
of approximately 85.8% for the Partnership and approximately 14.2% for
Carlyle-XVII.
The Partnership and Carlyle-XVII entered into an agreement with the
unaffiliated venture partner, effective January 1, 1998, pursuant to which
the Partnership and Carlyle-XVII granted the unaffiliated venture partner
an option to acquire their interests in the joint venture. Pursuant to
such option, the unaffiliated venture partner has the right (but not the
obligation) to purchase all (but not less than all) of the Partnership's
and Carlyle-XVII's interests in the joint venture by giving notice of its
exercise of the option during the term of the option, which may extend
through July 15, 1998. The aggregate purchase price for the interest is
$7,000,000. In consideration for the option the unaffiliated venture
partner is required to pay $58,333 for each month of the option term. The
Partnership and Carlyle-XVII will share the consideration for the option
and, if applicable, the purchase price in proportion to their respective
capital contributions to the joint venture (i.e., approximately 85.8% for
the Partnership and approximately $14.2% for Carlyle-XVII). Concurrently
with the execution of the option agreement, the joint venture made a
distribution to the Partnership and Carlyle-XVII in the aggregate amount of
approximately $740,000 (of which the Partnership's share was approximately
$635,000), which represents undistributed net cash flow of the joint
venture through the end of 1997. All other funds and net cash flow of the
joint venture during the term of the option are to be held by the joint
venture for its use, and if the sale of the Partnership's and Carlyle-
XVII's interests closes pursuant to the option agreement, such funds and
net cash flow will inure to the benefit of the unaffiliated venture
partner. The unaffiliated venture partner agreed to pay deficits of the
joint venture incurred in the ordinary course of its business that arise or
accrue during the term of the option, to the extent that the joint
venture's funds and net cash flow are insufficient to cover such deficits.
The property is expected to operate near the break-even level during the
term of the option. In general, the Partnership, Carlyle-XVII and the
unaffiliated venture partner agreed not to sell or refinance the Palm
Desert Town Center or engage in other actions outside the ordinary course
of joint venture business, not to make any distribution of the joint
venture's funds to its partners except for the distribution to the
Partnership and Carlyle-XVII described above, and, unless consented to by
all of the partners in the joint venture, not to amend or modify existing
leases and other contracts, and not to enter into new leases or agreements,
affecting the property during the term of the option. The unaffiliated
venture partner may terminate the option by giving notice of termination to
the Partnership and Carlyle-XVII, and under certain extraordinary
circumstances involving a termination of the option, the Partnership and
Carlyle-XVII may be obligated to refund the option consideration. In the
event such a sale does occur, the Partnership and Carlyle-XVII would not
participate in, or be required to pay a share of the costs of, an expansion
of the mall and restructuring of the ground lease and mortgage loan for the
joint venture. The Partnership could thereafter distribute a majority of
the funds it currently holds as working capital reserves for the possible
payment of its share of such costs. There is no assurance that the option
will be exercised or that a sale of the Partnership's and Carlyle-XVII's
interests in the joint venture will occur. During the term of the option,
the unaffiliated venture partner is entitled to pursue a possible expansion
of the mall and restructuring of the ground lease and mortgage loan on its
own, provided that no contracts are made effective prior to the exercise of
the option and the close of escrow and no liability accrues to the
Partnership or Carlyle-XVII from the unaffiliated venture partner's
actions.
<PAGE>
The shopping center is being managed pursuant to a long-term agreement
with an affiliate of the joint venture partner. The manager is paid a fee
equal to 3% of the base and percentage rents collected under tenant leases,
increasing to 4% of the base and percentage rents for those years that the
Partnership and Carlyle-XVII have received their current preferred return
and all of their cumulative preferred return for current and previous
periods. In addition, under the terms of the management agreement, the
manager or an affiliate will be entitled to receive compensation for
leasing services.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and
1996:
1997 1996
----------- -----------
12% per annum mortgage note; secured by
the Palm Desert Town Center; payable
in monthly installments of principal
and interest of $446,842 until paid
in full in January 2019 . . . . . . . . . $41,079,673 41,485,363
Less current portion of
long-term debt. . . . . . . . . . 457,144 405,690
----------- -----------
Total long-term debt. . . . . . . . $40,622,529 41,079,673
=========== ===========
Five year maturities of long-term debt are summarized as follows:
1998. . . . . . . . $457,144
1999. . . . . . . . 515,121
2000. . . . . . . . 580,451
2001. . . . . . . . 654,066
2002. . . . . . . . 737,018
========
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits and
losses of the Partnership from operations are allocated 96% to the Holders
of Interests and 4% to the General Partners. Profits from the sale or
other disposition of investment properties generally will be allocated
first to the General Partners in an amount equal to the greater of the
General Partners' share of cash distributions from the proceeds of any such
sale or other disposition (as described below) or 1% of the total profits
from any such sales or other dispositions, plus an amount which will reduce
deficits (if any) in the General Partners' capital accounts to a level
consistent with the gain anticipated to be realized from the sale of
investment properties. Losses from the sale or other disposition of
investment properties generally will be allocated 4% to the General
Partners. The remaining sale or other disposition profits and losses will
be allocated to the Holders of Interests.
The General Partners are not required to make any additional capital
contributions except under certain limited circumstances upon dissolution
and termination of the Partnership or the General Partners' interests in
the Partnership. "Net cash receipts" from operations of the Partnership
will be allocated 90% to the Holders of Interests and 10% to the General
Partners (of which 6.25% constitutes a management fee to the Corporate
General Partner for services in managing the Partnership).
<PAGE>
The Partnership Agreement provides that, subject to certain
conditions, the General Partners shall receive as a distribution of the
proceeds (net after expenses and liabilities and retained working capital)
from the sale or refinancing of a real property up to 3% of the selling
price for any property sold, and that the remaining net proceeds be
distributed 85% to the Holders of Interest and 15% to the General Partners.
However, prior to such distributions the Holders of Interests are entitled
to receive 99% and the General Partners 1% of net sale or refinancing
proceeds until the Holders of Interest (i) have received cumulative cash
distributions from the Partnership's operations which, when combined with
net sale or refinancing proceeds previously distributed, equal a 6% annual
non-compound return on the Holders' of Interests average capital investment
for each year (their initial capital investment as reduced by net sale or
refinancing proceeds previously distributed) commencing with the third
fiscal quarter of 1987 and (ii) have received cash distributions of net
sale or refinancing proceeds in an amount equal to the Holders' of
Interests aggregate initial capital investment in the Partnership. The
Holders of Interests are not expected to receive the return levels in (i)
and (ii) above.
LEASES - AS PROPERTY LESSOR
At December 31, 1997, the Partnership and its consolidated venture's
principal asset is a shopping center. The Partnership has determined that
all leases are properly classified as operating leases; therefore rental
income is reported when earned and the cost of the property, excluding the
cost of land, is depreciated over the estimated useful lives. Leases with
tenants at Palm Desert Town Center range in term from one to twenty-five
years and provide for fixed minimum rent and partial reimbursement of
operating costs. In addition, the leases generally provide for additional
rent based upon percentages of tenants' sales volumes over certain
specified amounts. A substantial portion of the ability of the tenants at
Palm Desert Town Center to honor their leases is dependent upon the retail
economic sector.
Minimum lease payments, including amounts representing executory costs
(e.g. taxes, maintenance, insurance) and any related profit in excess of
specific reimbursements, to be received in the future under the above
operating commercial lease agreements are as follows:
1998 . . . . . . . . . . . . . . . . . $ 6,849,584
1999 . . . . . . . . . . . . . . . . . 6,248,612
2000 . . . . . . . . . . . . . . . . . 5,866,075
2001 . . . . . . . . . . . . . . . . . 5,507,067
2002 . . . . . . . . . . . . . . . . . 5,170,491
Thereafter . . . . . . . . . . . . . . 15,431,408
-----------
$45,073,237
===========
LEASES - AS PROPERTY LESSEE
The following lease agreement has been determined to be an operating
lease:
The Partnership owns, through Palm Desert, a leasehold interest which
expires in December 2038 in the land underlying the Palm Desert Town
Center. The ground lease provides for annual rental payments of $900,000
plus 50% of certain gross receipts of the shopping center above $6,738,256.
In addition to cash payments due, periodic ground rent expense also
reflects an adjustment equal to 50% of the net change in accrued rents
receivable. Total ground rent expense for the years ended December 31,
1997, 1996 and 1995 was $1,312,906, $1,293,112 and $1,261,322,
respectively. Actual cash payments for 1997, 1996 and 1995 were
$1,203,376, $1,084,121 and $1,092,049, respectively.
<PAGE>
Future minimum rental commitments under the lease are as follows:
1998 . . . . . . . . . . . . $ 900,000
1999 . . . . . . . . . . . . 900,000
2000 . . . . . . . . . . . . 900,000
2001 . . . . . . . . . . . . 900,000
2002 . . . . . . . . . . . . 900,000
Thereafter . . . . . . . . . 32,400,000
-----------
$36,900,000
===========
TRANSACTIONS WITH AFFILIATES
The General Partners received distributions from the operations of the
Partnership in the amount of $11,695, $38,009 and $93,683 for 1997, 1996
and 1995, respectively.
Certain of the Partnership's properties have been managed by an
affiliate of the General Partners for fees computed as a percentage of
certain rents received by the properties. In December 1994, the affiliated
property manager sold substantially all of its assets and assigned its
interest in its management contracts to an unaffiliated third party. In
addition, certain of the management personnel of the property manager
became management personnel of the purchaser and its affiliates. The
successor to the affiliated property manager's assets acted as the property
manager of Dunwoody Crossing Apartments (Phases I, II and III) (prior to
its sale in May 1996) and 260 Franklin Office Building (prior to its sale
in January 1998) after the sale of the affiliated property manager's assets
on the same terms that existed prior to such sale. JMB guaranteed payment
of such property management fees.
The Partnership, pursuant to the Partnership Agreement, is permitted
to engage in various transactions involving the Corporate General Partner
and its affiliates including the reimbursement for salaries and salary-
related expenses of its employees, certain of its officers, and other
direct expenses relating to the administration of the Partnership and the
operation of the Partnership's investments. Fees, commissions and other
expenses required to be paid by the Partnership to the General Partners and
their affiliates for the years ending December 31, 1997, 1996 and 1995 are
as follows:
UNPAID AT
DECEMBER 31,
1997 1996 1995 1997
-------- -------- -------- ------------
Management fees to
Corporate General
Partners . . . . . . . . .$ 19,492 63,349 112,427 --
Insurance commissions . . . 29,843 28,153 28,811 --
Reimbursement (at cost)
for accounting services. . 5,767 4,553 93,892 1,340
Reimbursement (at cost)
for portfolio
management services. . . . 28,839 23,481 31,844 7,380
Reimbursement (at cost)
for legal services . . . . 8,276 4,357 7,213 2,178
Reimbursement (at cost)
for administrative
charges and other
out-of-pocket expenses . . -- -- 110,709 --
-------- ------- ------- ------
$ 92,217 123,893 384,896 10,898
======== ======= ======= ======
<PAGE>
UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
Summary combined financial information for JMB/125 (through the
effective date of assignment - October 31, 1994), JMB/Owings, 260 Franklin,
Villages Northeast (prior to its sale in May 1996) and JMB/NewPark are as
follows:
1997 1996
----------- ------------
Current assets. . . . . . . . . . $ 8,713,279 12,006,191
Current liabilities . . . . . . . (95,517,660) (93,167,248)
------------ ------------
Working capital . . . . . . . (86,804,381) (81,161,057)
------------ ------------
Deferred expenses and accrued
rents receivable . . . . . . . . 2,314,565 2,227,784
Ventures partners' (equity)
deficit. . . . . . . . . . . . . 9,247,047 2,602,219
Investment properties, net. . . . 124,664,551 127,144,504
Other liabilities . . . . . . . . (288,460) (192,852)
Long-term debt. . . . . . . . . . (60,000,000) (60,000,000)
------------ ------------
Partnership's capital
(deficit). . . . . . . . . . $(10,866,678) (9,379,402)
============ ============
Represented by:
Invested capital. . . . . . . . $ 58,008,483 58,008,483
Cumulative cash distributions . (27,932,511) (27,179,568)
Cumulative losses . . . . . . . (40,942,650) (40,208,317)
------------ ------------
$(10,866,678) (9,379,402)
============ ============
Total income. . . . . . . . . . . $ 26,087,701 26,526,465
Expenses. . . . . . . . . . . . . 28,106,925 47,299,819
------------ ------------
(2,019,224) (20,773,354)
Gain on sale or disposition
of investment in uncon-
solidated ventures. . . . . . . 787,943 15,258,640
------------ ------------
Net earnings (loss) . . . . . $ (1,231,281) (5,514,714)
============ ============
Partnership's share of
earnings (loss) . . . . . . . . $ (734,333) (432,499)
============ ============
Additionally, for the year ended December 31, 1995, total income was
$32,780,960, expenses were $37,312,297, the gain on sale on investment in
unconsolidated ventures was $1,713,501 and the net earnings (loss) was
$(2,817,836) for the unconsolidated ventures listed above.
<PAGE>
<TABLE>
SCHEDULE III
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION>
COST
CAPITALIZED
INITIAL COST TO SUBSEQUENT GROSS AMOUNT AT WHICH CARRIED
PARTNERSHIP (A) TO ACQUISITION AT CLOSE OF PERIOD (B)
------------------------- -------------- --------------------------------------
BUILDINGS LAND, BUILDINGS
AND BUILDINGS AND AND
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL (D)
----------- ----------- ------------ -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING
CENTER:
Palm Desert
Town Center
Palm Desert
(Palm Springs),
California . . $41,079,673 -- (C) 59,184,329 997,760 -- 60,182,089 60,182,089
=========== ========== ========== ======= ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III - CONTINUED
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION>
LIVES ON WHICH
DEPRECIATION
IN LATEST
INCOME 1997
ACCUMULATED DATE OF DATE STATEMENT IS REAL ESTATE
DEPRECIATION(E) CONSTRUCTION ACQUIRED COMPUTED TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTER:
Palm Desert Town
Center
Palm Desert
(Palm Springs),
California. . . . . . . $17,035,395 1983 12/23/88 5-30 YEARS 431,981
=========== =======
<FN>
Notes:
(A) The initial cost to the Partnership represents the original purchase price of the property, including
amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 1997 for Federal income tax purposes was
$60,003,000.
(C) Property operated under ground lease; see the Notes.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III - CONTINUED
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(D) Reconciliation of real estate owned:
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of period . . . . . . $60,103,528 60,100,323 60,061,137
Additions during period. . . . . . . . . . 78,561 3,205 39,186
----------- ----------- -----------
Balance at end of period . . . . . . . . . $60,182,089 60,103,528 60,100,323
=========== =========== ===========
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period . . . . . . $16,031,335 14,023,956 12,018,826
Depreciation expense . . . . . . . . . . . 1,004,060 2,007,379 2,005,130
----------- ----------- -----------
Balance at end of period . . . . . . . . . $17,035,395 16,031,335 14,023,956
=========== =========== ===========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XVI:
We have audited the financial statements of 260 Franklin Street
Associates, an unconsolidated joint venture of Carlyle Real Estate Limited
Partnership-XVI as listed in the accompanying index. In connection with
our audits of the financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These financial
statements and financial statement schedule are the responsibility of the
General Partners of the Partnership. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the General Partners of the
Partnership, 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 260 Franklin
Street Associates, an unconsolidated joint venture of Carlyle Real Estate
Limited Partnership-XVI at December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in the Notes to the financial statements, in 1996, 260
Franklin Street Associates changed its method of accounting for long-lived
assets and long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 25, 1998
<PAGE>
<TABLE>
260 FRANKLIN STREET ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
------
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 240,829 519,844
Rents and other receivables . . . . . . . . . . . . . . . . . . . . -- 158,980
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 27,547 27,547
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 202,378 2,428,694
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . 470,754 3,135,065
------------ ------------
Investment property - Schedule III:
Land and leasehold interests. . . . . . . . . . . . . . . . . . . . -- 5,501,887
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . -- 75,941,178
------------ ------------
-- 81,443,065
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . -- 31,766,188
------------ ------------
Total investment property,
net of accumulated depreciation . . . . . . . . . . . . . -- 49,676,877
Property held for sale or disposition . . . . . . . . . . . . . . . . 49,971,184 --
------------ ------------
Total investment property . . . . . . . . . . . . . . . . . 49,971,184 49,676,877
------------ ------------
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 504,469 588,022
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 1,203,376 901,463
------------ ------------
$ 52,149,783 54,301,427
============ ============
<PAGE>
260 FRANKLIN STREET ASSOCIATES
BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1997 1996
------------ ------------
Current liabilities:
Current portion of long-term debt, including deferred accrued
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,117,086 89,870,355
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 53,950 386,429
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 499,273 --
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . 1,510,131 1,829,300
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 94,180,440 92,086,084
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 79,486 57,721
------------ ------------
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . . . . . . . . 94,259,926 92,143,805
Partners' capital accounts (deficits):
Carlyle-XVI:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . 14,260,140 14,260,140
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . (24,538,388) (23,222,453)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . (2,379,238) (2,379,238)
------------ ------------
(12,657,486) (11,341,551)
------------ ------------
Venture Partner:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . 32,519,960 32,401,274
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . (56,351,063) (53,280,547)
Cumulative distributions. . . . . . . . . . . . . . . . . . . . . (5,621,554) (5,621,554)
------------ ------------
(29,452,657) (26,500,827)
------------ ------------
Total partners' capital accounts (deficits) . . . . . . . . (42,110,143) (37,842,378)
------------ ------------
$ 52,149,783 54,301,427
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
260 FRANKLIN STREET ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . $10,423,898 10,134,809 10,951,926
Interest income . . . . . . . . . . . . . . . . . . 89,032 235,499 337,967
------------ ----------- -----------
10,512,930 10,370,308 11,289,893
------------ ----------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . 8,238,011 8,238,011 8,238,011
Depreciation. . . . . . . . . . . . . . . . . . . . 1,187,772 2,547,698 2,840,885
Property operating expenses . . . . . . . . . . . . 5,336,967 5,137,205 5,120,754
Professional services . . . . . . . . . . . . . . . 41,378 34,556 21,706
Amortization of deferred expenses . . . . . . . . . 95,253 224,048 262,297
Provision for value impairment. . . . . . . . . . . -- 11,145,446 --
------------ ----------- -----------
14,899,381 27,326,964 16,483,653
------------ ----------- -----------
Net earnings (loss) . . . . . . . . . . . . $(4,386,451) (16,956,656) (5,193,760)
============ =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
260 FRANKLIN STREET ASSOCIATES
STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
VENTURE
CARLYLE-XVI PARTNER TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance (deficit) at December 31, 1994. . . . . . . . . . $(4,741,426) (10,995,536) (15,736,962)
Capital contributions . . . . . . . . . . . . . . . . . . 45,000 -- 45,000
Cash distributions. . . . . . . . . . . . . . . . . . . . -- -- --
Net operating earnings (loss) . . . . . . . . . . . . . . (1,558,128) (3,635,632) (5,193,760)
------------ ----------- -----------
Balance (deficit) at December 31, 1995. . . . . . . . . . (6,254,554) (14,631,168) (20,885,722)
Capital contributions . . . . . . . . . . . . . . . . . . -- -- --
Cash distributions. . . . . . . . . . . . . . . . . . . . -- -- --
Net operating earnings (loss) . . . . . . . . . . . . . . (5,086,997) (11,869,659) (16,956,656)
------------ ----------- -----------
Balance (deficit) at December 31, 1996. . . . . . . . . . (11,341,551) (26,500,827) (37,842,378)
Capital contributions . . . . . . . . . . . . . . . . . . -- 118,686 118,686
Cash distributions. . . . . . . . . . . . . . . . . . . . -- -- --
Net operating earnings (loss) . . . . . . . . . . . . . . (1,315,935) (3,070,516) (4,386,451)
------------ ----------- -----------
Balance (deficit) at December 31, 1997. . . . . . . . . . $(12,657,486) (29,452,657) (42,110,143)
============ =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
260 FRANKLIN STREET ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . $ (4,386,451) (16,956,656) (5,193,760)
Items not requiring (providing) cash or
cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . 1,187,772 2,547,698 2,840,885
Amortization of deferred expenses . . . . . . . . 95,253 224,048 262,297
Long-term debt-deferred accrued interest. . . . . 2,246,731 2,246,730 2,246,730
Accrued rents receivable. . . . . . . . . . . . . (301,913) (620,584) (259,071)
Provision for value impairment. . . . . . . . . . -- 11,145,446 --
Changes in:
Rents and other receivables . . . . . . . . . . . . 158,980 (41,385) (40,510)
Escrow deposits . . . . . . . . . . . . . . . . . . 2,226,316 2,563,216 217,372
Accounts payable. . . . . . . . . . . . . . . . . . (332,479) 42,250 185,514
Accrued interest. . . . . . . . . . . . . . . . . . 499,273 -- --
Unearned rents. . . . . . . . . . . . . . . . . . . -- (19,984) (25,824)
Tenant security deposits. . . . . . . . . . . . . . 21,765 (4,864) --
Amounts due to affiliates . . . . . . . . . . . . . (319,169) (350,000) 422,979
------------ ------------ ------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . 1,096,078 775,915 656,612
------------ ------------ ------------
Cash flows from investing activities:
Additions to investment properties. . . . . . . . . (1,482,079) (405,149) (68,670)
Payment of deferred expenses. . . . . . . . . . . . (11,700) (63,691) (570,627)
------------ ------------ ------------
Net cash provided by (used in)
investing activities. . . . . . . . . . . (1,493,779) (468,840) (639,297)
------------ ------------ ------------
<PAGE>
260 FRANKLIN STREET ASSOCIATES
STATEMENTS OF CASH FLOWS - CONTINUED
1997 1996 1995
------------- ----------- -----------
Cash flows from financing activities:
Cash contributions from Partnership . . . . . . . . -- -- 45,000
Cash contributions from venture partner . . . . . . 118,686 -- --
------------- ------------ ------------
Net cash provided by (used in)
financing activities. . . . . . . . . . . 118,686 -- 45,000
------------- ------------ ------------
Net increase (decrease) in cash . . . . . . (279,015) 307,075 62,315
Cash and cash equivalents,
beginning of year . . . . . . . . . . . . 519,844 212,769 150,454
------------- ------------ ------------
Cash and cash equivalents,
end of year . . . . . . . . . . . . . . . $ 240,829 519,844 212,769
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . $ 5,492,007 5,991,281 5,991,281
============= ============ ============
Non-cash investing and financing activities . . . . $ -- -- --
============= ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
260 FRANKLIN STREET ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The accompanying financial statements have been prepared for the
purpose of complying with Rule 3.09 of Regulation S-X of the Securities and
Exchange Commission.
260 Franklin holds an equity investment in an office building in
Boston, Massachusetts. Business activities consist of rentals to a wide
variety of commercial companies, and the ultimate sale or disposition of
such real estate. The Property was sold through a trust on February 2,
1998 as more fully described in the Notes to the Consolidated Financial
Statements, which description is hereby incorporated herein by reference.
The records of 260 Franklin are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying financial statements have been prepared from such records
after making appropriate adjustments to reflect the 260 Franklin accounts
in accordance with generally accepted accounting principles. Such
adjustments are not recorded on the records of 260 Franklin.
The preparation of financial statements in accordance with GAAP
requires 260 Franklin to make estimates and assumptions that affect the
reported or disclosed amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
As 260 Franklin's accounting policies are the same as those of the
Partnership, reference is made to the Notes to Consolidated Financial
Statements of the Partnership filed with this annual report. Such Notes
are incorporated herein by reference.
260 Franklin recorded a provision for value impairment of $11,145,446
as of January 1, 1996, of which the Partnership's share is approximately
$3,343,634, to reflect the then estimated fair value of the property based
upon the use of an appropriate capitalization rate on the property's net
operating income.
VENTURE AGREEMENT
A description of the venture agreement is contained in the Notes to
Consolidated Financial Statements of the Partnership. Such note is hereby
incorporated herein by reference.
<PAGE>
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and
1996:
1997 1996
------------ ------------
11.0% per annum mortgage note in
default; secured by the 260 Franklin
Street Building; monthly payments of
interest only (8% per annum) of
$499,273 from February 1, 1992 through
December 1, 1995, with the unpaid
balance of principal of $74,891,013
plus accrued unpaid interest due on
January 1, 1998, as extended.
Additional interest payable upon
maturity to provide an 11% per annum
return to lender and 60% of the greater
of net sales or refinancing proceeds
or the net appraised value, as defined.
Reference is made to the Notes
to Consolidated Financial State-
ments of the Partnership regarding
the satisfaction of the loan in con-
junction with the disposition of the
property on January 2, 1998. . . . $92,117,086 89,870,355
----------- ------------
Total debt. . . . . . . . 92,117,086 89,870,355
Less current portion
of long-term debt . . . 92,117,086 89,870,355
----------- ------------
Total long-term debt. . . $ -- --
=========== ============
Included in the above debt is $17,226,073 and $14,979,342 for 1997 and
1996, respectively, which represents mortgage interest accrued pursuant to
the terms of the 260 Franklin mortgage note.
LEASES - AS PROPERTY LESSOR
At December 31, 1997, 260 Franklin's primary leased asset was an
office building. 260 Franklin has determined that all leases relating to
the property are properly classified as operating leases; therefore, rental
income is reported when earned and the cost of the property, excluding cost
of land, is depreciated over the estimated useful lives. Leases range in
term from one to 25 years and provide for fixed minimum rent and partial to
full reimbursement of operating costs.
As the 260 Franklin Street property was sold in January 1998,
information with respect to future minimum lease payments has not been
presented.
<PAGE>
TRANSACTIONS WITH AFFILIATES
During 1994 and 1993, an affiliate of the Corporate General Partner
provided management and leasing services. In December 1994, the affiliate
sold substantially all of its assets and assigned its interest in its
management contracts, including the one for 260 Franklin Street building,
to an unaffiliated third party. (See the Notes to Consolidated Financial
Statements of the Partnership). In connection with such sale, JMB
guaranteed payment to the unaffiliated third party of the property
management and leasing fees for the 260 Franklin Street building.
Beginning in January 1996, the unaffiliated property manager was being paid
management and leasing fees by the property. As a result of JMB's payment
of management fees for 1995 to the unaffiliated third-party manager
pursuant to the guarantee, the amount of such management fees is reflected
as payable to an affiliate in the accompanying financial statements. In
1995, pursuant to the terms of the loan modification for 260 Franklin, cash
flow from the property in an amount equal to all management fees and
leasing fees was escrowed by 260 Franklin and is reported as escrow
deposits in the accompanying financial statements. As of December 31,
1997, $1,510,131 of management and leasing fees to JMB or its affiliate
were unpaid.
<PAGE>
<TABLE>
SCHEDULE III
260 FRANKLIN STREET ASSOCIATES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION>
COST
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
UNCONSOLIDATED VENTURES(A) ACQUISITION AT CLOSE OF PERIOD (B)
-------------------------- ----------- --------------------------------------
LAND BUILDINGS BUILDINGS PROVISION LAND AND BUILDINGS
LEASEHOLD AND AND FOR VALUE LEASEHOLD AND
ENCUMBRANCE INTERESTS IMPROVEMENTS IMPROVEMENTS IMPAIRMENT(C) INTEREST IMPROVEMENTS TOTAL (D)
----------- ---------- ------------ ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
BUILDING:
Boston,
Massachu-
setts. . . .$92,117,086 8,169,209 97,607,593 5,414,522 28,266,180 5,501,887 77,423,257 82,925,144
=========== ========= ========== ========= ========== ========= ========== ==========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III - CONTINUED
260 FRANKLIN STREET ASSOCIATES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF 1997
ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE
DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE BUILDING:
Boston, Massachusetts . . . $32,953,960 1985 05/21/86 5-30 years $2,276,444
=========== ==========
<FN>
- -----------------
Notes:
(A) The initial cost represents the original purchase price of the property, including amounts incurred
subsequent to acquisition which were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 1997 for Federal income tax purposes was
approximately $109,596,000.
(C) In 1996 and 1990, 260 Franklin recorded provisions for value impairment of $11,145,466 and $17,120,734,
respectively.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III - CONTINUED
260 FRANKLIN STREET ASSOCIATES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(D) Reconciliation of real estate owned as of December 31, 1997, 1996 and 1995:
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period. . . . . . . . . . . $ 81,443,065 91,966,298 91,897,628
Additions during period . . . . . . . . . . . . . . 1,482,079 405,149 68,670
Provision for value impairment. . . . . . . . . . . -- (10,928,382) --
------------ ------------ ------------
Balance at end of period. . . . . . . . . . . . . . $ 82,925,144 81,443,065 91,966,298
============ ============ ============
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period. . . . . . . . . . . $ 31,766,188 29,218,490 26,377,605
Depreciation expense. . . . . . . . . . . . . . . . 1,187,772 2,547,698 2,840,885
------------ ------------ ------------
Balance at end of period. . . . . . . . . . . . . . $ 32,953,960 31,766,188 29,218,490
============ ============ ============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with the accountants during
fiscal years 1996 and 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Corporate General Partner of the Partnership is JMB Realty
Corporation ("JMB"), a Delaware corporation. Substantially all of the
outstanding shares of JMB are owned, directly or indirectly, by certain of
its officers, directors, members of their families and their affiliates.
JMB has responsibility for all aspects of the Partnership's operations
subject to the requirement that purchases and sales of real property must
be approved by the Associate General Partner of the Partnership, ABPP
Associates, L.P., an Illinois limited partnership with JMB as its sole
general partner. The limited partners of the Associate General Partner are
generally officers, directors and affiliates of JMB or its affiliates.
The Partnership is subject to certain conflicts of interest arising
out of its relationships with the General Partners and their affiliates as
well as the fact that the General Partners and their affiliates are engaged
in a range of real estate activities. Certain services have been and may
in the future be provided to the Partnership or its investment properties
by affiliates of the General Partners, including property management
services and insurance brokerage services. In general, such services are
to be provided on terms no less favorable to the Partnership than could be
obtained from independent third parties and are otherwise subject to
conditions and restrictions contained in the Partnership Agreement. The
Partnership Agreement permits the General Partners and their affiliates to
provide services to, and otherwise deal and do business with, persons who
may be engaged in transactions with the Partnership, and permits the
Partnership to borrow from, purchase goods and services from, and otherwise
to do business with, persons doing business with the General Partners or
their affiliates. The General Partners and their affiliates may be in
competition with the Partnership under certain circumstances, including, in
certain geographical markets, for tenants for properties and/or for the
sale of properties. Because the timing and amount of cash distributions
and profits and losses of the Partnership may be affected by various
determinations by the General Partners under the Partnership Agreement,
including whether and when to sell or refinance a property, the
establishment and maintenance of reasonable reserves, the timing of
expenditures and the allocation of certain tax items under the Partnership
Agreement, the General Partners may have a conflict of interest with
respect to such determinations.
The names, positions held and length of service therein of each
director and the executive officers and certain other officers of the
Corporate General Partner are as follows:
<PAGE>
Served in
Name Office Office Since
---- ------ ------------
Judd D. Malkin Chairman 5/03/71
Director 5/03/71
Chief Financial Officer 2/22/96
Neil G. Bluhm President 5/03/71
Director 5/03/71
Burton E. Glazov Director 7/01/71
Stuart C. Nathan Executive Vice President 5/08/79
Director 3/14/73
A. Lee Sacks Director 5/09/88
John G. Schreiber Director 3/14/73
H. Rigel Barber Executive Vice President 1/02/87
Chief Executive Officer 8/01/93
Glenn E. Emig Executive Vice President 1/01/93
Chief Operating Officer 1/01/95
Gary Nickele Executive Vice President 1/01/92
General Counsel 2/27/84
Gailen J. Hull Senior Vice President 6/01/88
Howard Kogen Senior Vice President 1/02/86
Treasurer 1/01/91
There is no family relationship among any of the foregoing directors
or officers. The foregoing directors have been elected to serve a one-year
term until the annual meeting of the Corporate General Partner to be held
on June 3, 1998. All of the foregoing officers have been elected to serve
one-year terms until the first meeting of the Board of Directors held after
the annual meeting of the Corporate General Partner to be held on June 3,
1998. There are no arrangements or understandings between or among any of
said directors or officers and any other person pursuant to which any
director or officer was elected as such.
JMB is the corporate general partner of Carlyle Real Estate Limited
Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-XI
("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII
("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII
("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV
("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"),
Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage
Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-
IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income
Plus") and Carlyle Income Plus, L.P.-II ("Carlyle Income Plus-II") and the
managing general partner of JMB Income Properties, Ltd.-IV ("JMB
Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income
Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X
("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB
Income Properties, Ltd.-XII ("JMB Income-XII"), and JMB Income Properties,
Ltd.-XIII ("JMB Income-XIII"). JMB is also the sole general partner of the
associate general partner of most of the foregoing partnerships.
Most of the foregoing directors and officers are also officers and/or
directors of various affiliated companies of JMB including Arvida/JMB
Managers, Inc. (the general partner of Arvida/JMB Partners, L.P.
("Arvida")), and Income Growth Managers, Inc. (the corporate general
partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of
such directors and officers are also partners, directly or indirectly, of
certain partnerships which are associate general partners in the following
real estate limited partnerships: the Partnership, Carlyle-VII,
Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-
XVII, JMB Income-VII, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB
Income-XIII, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income
Plus, Carlyle Income Plus-II and IDS/BIG.
<PAGE>
The business experience during the past five years of each such
director and officer of the Corporate General Partner of the Partnership in
addition to that described above is as follows:
Judd D. Malkin (age 60) is an individual general partner of JMB
Income-IV and JMB Income-V. Mr. Malkin has been associated with JMB since
October, 1969. Mr. Malkin is also a director of Urban Shopping Centers,
Inc. ("USC, Inc."), an affiliate of JMB that is a real estate investment
trust in the business of owning, managing and developing shopping centers.
He is a Certified Public Accountant.
Neil G. Bluhm (age 60) is an individual general partner of JMB
Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB since
August, 1970. Mr. Bluhm is also a principal of Walton Street Real Estate
Fund I, L.P. and a director of USC, Inc. He is a member of the Bar of the
State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 59) has been associated with JMB since June,
1971 and served as an Executive Vice President of JMB until December 1990.
He is a member of the Bar of the State of Illinois and a Certified Public
Accountant.
Stuart C. Nathan (age 56) has been associated with JMB since July,
1972. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 64) has been associated with JMB since December,
1972. He is also President and a director of JMB Insurance Agency, Inc.
John G. Schreiber (age 51) has been associated with JMB since
December, 1970 and served as an Executive Vice President of JMB until
December 1990. Mr. Schreiber is President of Schreiber Investments, Inc.,
a company which is engaged in the real estate investing business. He is
also a senior advisor and partner of Blackstone Real Estate Advisors L.P.,
an affiliate of the Blackstone Group, L.P. He is also a director of USC,
Inc., a trustee of Amli Residential Property Trust and a director of a
number of investment companies advised or managed by T. Rowe Price
Associates with its affiliates. He holds a Masters degree in Business
Administration from Harvard University Graduate School of Business.
H. Rigel Barber (age 48) has been associated with JMB since March,
1982. He holds a J.D. degree from the Northwestern Law School and is a
member of the Bar of the State of Illinois.
Glenn E. Emig (age 50) has been associated with JMB since December,
1979. Prior to becoming Executive Vice President of JMB in 1993, Mr. Emig
was Executive Vice President and Treasurer of JMB Institutional Realty
Corporation. He holds a Masters degree in Business Administration from the
Harvard University Graduate School of Business and is a Certified Public
Accountant.
Gary Nickele (age 45) has been associated with JMB since February,
1984. He holds a J.D. degree from the University of Michigan Law School
and is a member of the Bar of the State of Illinois.
Gailen J. Hull (age 49) has been associated with JMB since March,
1982. He holds a Masters degree in Business Administration from Northern
Illinois University and is a Certified Public Accountant.
Howard Kogen (age 62) has been associated with JMB since March, 1973.
He is a Certified Public Accountant.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Officers and directors of the Corporate General Partner receive no
direct remuneration in such capacities from the Partnership. The
Partnership is required to pay a management fee to the Corporate General
Partner and the General Partners are entitled to receive a share of cash
distributions, when and as cash distributions are made to the Holders of
Interests, and a share of profits or losses. Reference is made to the
Notes for a description of such distributions and allocations. In 1997,
the General Partners received $11,695 of distributions and the Corporate
General Partner received management fees of $19,492. The General Partners
received a share of Partnership income for tax purposes aggregating
$201,157 in 1997.
The Partnership is permitted to engage in various transactions
involving the General Partners and their affiliates, certain of which may
involve conflicts of interest, as discussed in Item 10 above. The
relationship of the Partnership to the Corporate General Partner (and its
directors and officers) and its affiliates is set forth above in Item 10.
An affiliate of the Corporate General Partner provided property
management and leasing services for the 260 Franklin Street Building in
Boston, Massachusetts in 1994 and prior years. As required by the terms of
a modification for the mortgage loan secured by the 260 Franklin Street
Building, property management and leasing fees payable to the affiliate
since January 1992 were escrowed. Pursuant to the affiliate's selling its
interest in the management contracts at the 260 Franklin Street Building,
JMB made payment of the management fees to the unaffiliated third party in
1995. Beginning in January 1996, the unaffiliated property manager was
being paid management and leasing fees by the property. As of December 31,
1997, $1,510,132 of property management and leasing fees to JMB or its
affiliate were unpaid. Such amount does not bear interest.
As set forth in the Prospectus of the Partnership, the Corporate
General Partner must negotiate such agreements on terms no less favorable
to the Partnership than those customarily charged for similar services in
the relevant geographical area (but in no event at rates greater than 6% of
the gross income from the property), and such agreements must be terminated
by either party thereto, without penalty, upon 60 days notice.
In December 1995, the joint venture partner in NewPark Associates, a
joint venture that owns NewPark Mall, agreed to pay to an affiliate of the
Corporate General Partner an annual consulting fee of $100,000 in
consideration of such affiliate's assisting NewPark Associates and the
joint venture partner in the evaluation of property budgets and leasing and
long-term strategies for NewPark Mall. Such consulting fee does not
increase the management fee payable by NewPark Associates under the
management agreement with the joint venture partner.
JMB Insurance Agency, Inc., an affiliate of the Corporate General
Partner, earned and received insurance brokerage commissions in 1997
aggregating $29,843 in connection with the provision of insurance coverage
for certain of the real property investments of the Partnership. Such
commissions are at rates set by insurance companies for the classes of
coverage provided.
The General Partners of the Partnership or their affiliates may be
reimbursed for their direct expenses or out-of-pocket expenses, salaries
for administrative, legal and accounting services relating to the adminis-
tration of the Partnership and the acquisition and operation of the
Partnership's real property investments. Such costs for 1997 were $42,882
of which $10,898 was unpaid as of December 31, 1997. Reference is made to
the Notes.
<PAGE>
<TABLE>
<CAPTION>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding
Interests of the Partnership.
(b) The Corporate General Partner, its officers and directors and the Associate General Partner own the
following Interests of the Partnership:
NAME OF AMOUNT AND NATURE
BENEFICIAL OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- ----------------- --------
<S> <C> <C> <C>
Limited Partnership JMB Realty Corporation 5.25685 Interests Less than 1%
Interests (and Assignee (1)(2)
Interests therein)
Limited Partnership Corporate General Partner, 7.42372 Interests Less than 1%
Interests (and Assignee its officers and (1)(2)(3)
Interests therein) directors and the
Associate General
Partner as a group
- -----------------
<FN>
(1) Includes .25685 Interests owned directly by JMB.
(2) Includes 5 Interests owned by the Initial Limited Partner of the Partnership, for which JMB, as its
indirect majority shareholder, is deemed to have sole voting and investment power.
(3) Includes 2.16687 Interests owned by an estate for which an officer acts as co-executor and is deemed to
have shared investment and voting power for such Interests.
No officer or director of the Corporate General Partner of the Partnership possesses a right to acquire
beneficial ownership of Interests of the Partnership.
Reference is made to Item 10 for information concerning ownership of the Corporate General Partner.
(c) There exists no arrangement, known to the Partnership, the operation of which may at a subsequent date
result in a change in control of the Partnership.
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with
the Corporate General Partner, affiliates or their management other than
those described in Items 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Index to Financial Statements
filed with this annual report).
(2) Exhibits.
3. Amended and Restated Agreement of Limited
Partnership, which is incorporated by reference to Exhibit 3 to the
Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16516)
dated March 19, 1993.
4-A. Assignment Agreement set forth as Exhibit B to
the Prospectus, a copy of which is incorporated by reference to Exhibit 4-A
to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-
16516) dated March 19, 1993.
4-B. Documents relating to the loan modification of
the mortgage loan secured by the 260 Franklin Street Building is hereby
incorporated by reference to Exhibit 4-B to the Partnership's Form 10-K for
December 31, 1992 (File No. 0-16516) dated March 27, 1992.
4-C. Documents relating to the third mortgage
modification and extension agreement secured by the 260 Franklin Street
Building dated December 4, 1996 are hereby incorporated herein by reference
to the Partnership's Report for December 31, 1996 on Form 10-K (File No. 0-
16516) dated March 21, 1997.
4-D. First Amendment to Loan Documents relating to the
mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III) is
hereby incorporated by reference to the Partnership's Form 10-Q for
September 30, 1994 (File No. 0-16516) dated November 10, 1994.
4-E. Documents relating to the modification of the
mortgage loan secured by Dunwoody Crossing Apartments (Phases I and III)
are hereby incorporated by reference to the Partnership's Form 10-K for
December 31, 1994 (File No. 0-16516) dated March 27, 1995.
4-F. Forbearance agreement relating to the
modification of the mortgage loan secured by NewPark Mall dated October,
1995 is hereby incorporated by reference to the Partnership's Report on
Form 10-Q for September 30, 1995 (File No. 0-16516) dated November 9, 1995.
<PAGE>
4-G. Documents relating to the Promissory Note secured
by NewPark Mall dated December 19, 1995 are hereby incorporated by
reference to the Partnership's Report on Form 10-K for December 31, 1995
(File No. 0-16516) dated March 25, 1996.
10-A. Escrow Deposit Agreement is hereby incorporated
by reference to Exhibit 10.1 to the Partnership's Amendment No. 1 to Form
S-11 (File No. 33-3567) Registration Statement dated May 14, 1986.
10-B. Acquisition documents relating to the purchase of
an interest in the 260 Franklin Street Building, Boston, Massachusetts, are
hereby incorporated herein by reference to Exhibit 10.4 to the
Partnership's Amendment No. 2 to Form S-11 (File No. 33-3567) dated July
25, 1986.
10-C. Additional acquisition documents relating to the
purchase of an interest in the 260 Franklin Street Building, Boston,
Massachusetts, are hereby incorporated herein by reference to Exhibit
10.4.1 to the Partnership's Post-Effective Amendment No. 1 to Form S-11
(File No. 33-3567) dated September 30, 1986.
10-D. Acquisition documents relating to the purchase by
the Partnership of an interest in NewPark Mall in Newark (Alameda County),
California, are hereby incorporated herein by reference to Exhibit 10.6 to
the Partnership's Post-Effective Amendment No. 2 to Form S-11 (File No. 33-
3567) dated December 30, 1986.
10-E. Acquisition documents relating to the acquisition
by the Partnership of an interest in the Palm Desert Town Center in Palm
Desert, California, dated December 23, 1988 are hereby incorporated by
reference to Exhibit 1 to the Partnership's Report on Form 8-K (File No. 0-
16516) dated January 6, 1989.
10-F. Documents relating to the assignment of JMB/125's
interest in 125 Broad Street Company are hereby incorporated by reference
to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-
16516) dated March 27, 1995.
10-G. Modification to Reserve Escrow Agreement relating
to the 260 Franklin Street Building is hereby incorporated by reference to
the Partnership's Report on Form 10-Q for March 31, 1995 (File No. 0-16516)
dated May 11, 1995.
10-H. Modification to Reserve Escrow Agreement relating
to the 260 Franklin Street Building dated December 4, 1996 are hereby
incorporated herein by reference to the Partnership's Report for December
31, 1996 on Form 10-K (File No. 0-16516) dated March 21, 1997.
<PAGE>
10-I. Sale documents relating to the contract for sale
between VNE Partners, L.P. and Post Apartment Homes, L.P. dated May 7, 1996
regarding the sale of the Partnership's interest in the Dunwoody Crossing
Apartments are hereby incorporated by reference to the Partnership's Report
on Form 10-Q for June 30, 1996 (File No. 0-16516) dated August 9, 1996.
10-J. Modification to Reserve Escrow Agreement relating
to the 260 Franklin Street Building dated May 22, 1997 is incorporated
herein by reference to the Partnership's Report for June 30, 1997 on Form
10-Q (File No. 0-16516) dated August 8, 1997.
21. List of Subsidiaries
24. Powers of Attorney
27. Financial Data Schedule
Although certain additional long-term debt instruments of the
Registrant have been excluded from Item 4 above, pursuant to Rule
601(b)(4)(iii), the Registrant commits to provide copies of such to the
Securities and Exchange Commission upon request.
---------------------
(b) On January 27, 1998, the Partnership filed a report on
Form 8-K with respect to the sale of its interest in the 260 Franklin
Street Building on January 2, 1998. Such report on Form 8-K included a
description of the sale.
No annual report or proxy material for the fiscal year 1997 has been
sent to the Partners of the Partnership. An annual report will be sent to
the Partners subsequent to this filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Partnership has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
By: JMB Realty Corporation
Corporate General Partner
GAILEN J. HULL
By: Gailen J. Hull
Senior Vice President
Date: March 25, 1998
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.
By: JMB Realty Corporation
Corporate General Partner
JUDD D. MALKIN*
By: Judd D. Malkin, Chairman and
Chief Financial Officer
Date: March 25, 1998
NEIL G. BLUHM*
By: Neil G. Bluhm, President and Director
Date: March 25, 1998
H. RIGEL BARBER*
By: H. Rigel Barber, Chief Executive Officer
Date: March 25, 1998
GLENN E. EMIG*
By: Glenn E. Emig, Chief Operating Officer
Date: March 25, 1998
GAILEN J. HULL
By: Gailen J. Hull, Senior Vice President
Principal Accounting Officer
Date: March 25, 1998
A. LEE SACKS*
By: A. Lee Sacks, Director
Date: March 25, 1998
STUART C. NATHAN*
By: Stuart C. Nathan, Executive Vice President
and Director
Date: March 25, 1998
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL
By: Gailen J. Hull, Attorney-in-Fact
Date: March 25, 1998
<PAGE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XVI
EXHIBIT INDEX
-------------
DOCUMENT
EXHIBIT INCORPORATED SEQUENTIALLY
NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ------- ------- ------------ -------------
3. Amended and Restated Agree-
ment of Limited Partnership
of the Partnership Yes
4-A. Assignment Agreement Yes
4-B. Documents relating to the
loan modification of the
mortgage loan secured by the
260 Franklin Street Office
Building Yes
4-C. Documents relating to the
third mortgage modification and
extension agreement secured
by the 260 Franklin Street
Building Yes
4-D. First Amendment to Loan
Documents relating to the
mortgage loan secured by
Dunwoody Crossing Apartments
(Phases I and III) Yes
4-E. Documents relating to the
modification of the mortgage
loan secured by Dunwoody
Crossing Apartments (Phases I
and III) Yes
4-F. Forbearance agreement relating to
the modification of the mortgage
loan secured by New Park Mall Yes
4-G. Documents relating to the Promissory
Note secured by New Park Mall Yes
10-A. Escrow Deposit Agreement Yes
10-B. Acquisition documents relating
to the purchase of an interest
in the 260 Franklin Street
Building, Boston, Massachusetts Yes
10-C. Additional acquisition documents
relating to the purchase of an
interest in the 260 Franklin
Street Building, Boston,
Massachusetts Yes
10-D. Acquisition documents
relating to the purchase by
the Partnership of an interest
in NewPark Mall in Newark
(Alameda County), California Yes
<PAGE>
10-E. Acquisition documents
relating to the acquisition
by the Partnership of an
interest in the Palm Desert
Town Center in Palm Desert,
California, dated Decem-
ber 23, 1988 Yes
10-F. Documents relating to the
assignment of JMB/125's interest
in 125 Broad Street Company Yes
10-G. Modification to Reserve
Escrow Agreement relating to
the 260 Franklin Street
Building Yes
10-H. Modification to Reserve
Escrow Agreement dated
December 4, 1996, relating
to the 260 Franklin Street
Building Yes
10-I Sale documents relating to the
contract for sale between VNE
Partners, L.P. and Post
Apartment Homes, L.P. regarding
the sale of the Partnership's
interest in the Dunwoody
Crossing Apartments Yes
10-J Modification to Reserve Escrow
Agreement relating to the
260 Franklin Street Building
dated August 8, 1997 Yes
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
---------------------
EXHIBIT 21
LIST OF SUBSIDIARIES
The Partnership is a partner of the following joint ventures:
JMB/Owings Mills Associates, an Illinois general partnership, which
formerly held an interest in the Owings Mills Shopping Center, Carlyle-XVI
Associates, L.P., a Delaware limited partnership, which is a partner in
JMB/125 Broad Building Associates, an Illinois general partnership, 260
Franklin Street Associates, an Illinois general partnership which owned
title to the 260 Franklin Street office building, located in Boston
Massachusetts; JMB/NewPark Associates, an Illinois general partnership,
which is a partner in NewPark Associates, a California general partnership
which holds title to the NewPark Mall in Newark, California; JMB/Hahn PDTC
Associates, L.P., a California Limited Partnership, which holds title to
Palm Desert Town Center located in Palm Desert (Palm Springs), California.
The Partnership also owns a 50% interest in Carlyle/Palm Desert, Inc., a
corporation which is a partner in JMB/Hahn PDTC Associates, L.P., a 40%
interest in Carlyle Advisors, Inc., a corporation which is the General
Partner in JMB/125 Broad Building Associates and a 40% interest in Carlyle
Partners, Inc., a corporation which is a partner in Carlyle-XVI Associates,
L.P. Reference is made to the Notes for a description of the terms of such
venture partnerships.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB
Realty Corporation, the corporate general partner of CARLYLE REAL ESTATE
LIMITED PARTNERSHIP - XVI, do hereby nominate, constitute and appoint GARY
NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and
agents of the undersigned with full power of authority to sign in the name
and on behalf of the undersigned officers a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1997, and any and all
amendments thereto, hereby ratifying and confirming all that said attorneys
and agents and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney the 30th day of January, 1998.
H. RIGEL BARBER
- -----------------------
H. Rigel Barber Chief Executive Officer
GLENN E. EMIG
- -----------------------
Glenn E. Emig Chief Operating Officer
The undersigned hereby acknowledge and accept such power of authority
to sign, in the name and on behalf of the above named officers, a Report on
Form 10-K of said partnership for the fiscal year ended December 31, 1997,
and any and all amendments thereto, the 30th day of January, 1998.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB
Realty Corporation, the corporate general partner of CARLYLE REAL ESTATE
LIMITED PARTNERSHIP - XVI, do hereby nominate, constitute and appoint GARY
NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and
agents of the undersigned with full power of authority to sign in the name
and on behalf of the undersigned officers a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1997, and any and all
amendments thereto, hereby ratifying and confirming all that said attorneys
and agents and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney the 30th day of January, 1998.
NEIL G. BLUHM
- ----------------------- President and Director
Neil G. Bluhm
JUDD D. MALKIN
- ----------------------- Chairman and Chief Financial Officer
Judd D. Malkin
A. LEE SACKS
- ----------------------- Director of General Partner
A. Lee Sacks
STUART C. NATHAN
- ----------------------- Executive Vice President
Stuart C. Nathan Director of General Partner
The undersigned hereby acknowledge and accept such power of authority
to sign, in the name and on behalf of the above named officers, a Report on
Form 10-K of said partnership for the fiscal year ended December 31, 1997,
and any and all amendments thereto, the 30th day of January, 1998.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,214,633
<SECURITIES> 0
<RECEIVABLES> 180,232
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,394,865
<PP&E> 43,146,694
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,827,971
<CURRENT-LIABILITIES> 2,073,936
<BONDS> 40,622,529
<COMMON> 0
0
0
<OTHER-SE> 4,164,521
<TOTAL-LIABILITY-AND-EQUITY> 64,827,971
<SALES> 10,693,118
<TOTAL-REVENUES> 11,436,847
<CGS> 0
<TOTAL-COSTS> 5,782,190
<OTHER-EXPENSES> 655,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,070,238
<INCOME-PRETAX> (71,381)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,058,836)
<DISCONTINUED> 241,260
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (817,576)
<EPS-PRIMARY> (5.54)
<EPS-DILUTED> (5.54)
</TABLE>
