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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
SCHEDULE 14A INFORMATION
CONSENT SOLICITATION STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
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<S> <C>
/ / Preliminary Consent Solicitation Statement / / Confidential, For Use of Commission Only
(as permitted by Rule 14a-6(e)(2))
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/X/ Definitive Consent Solicitation Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
(Name of Registrant as Specified in Its Charter)
(Names of Person(s) Filing Consent Solicitation Statement, if Other
Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies:
20,999.8 Units
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): The filing fee of $3,221 has been calculated
in accordance with Rule 0-11 under the Exchange Act and is
equal to 1/50 of 1% of $16,107,000 (the aggregate amount of the
cash to be received by the Registrant).
(4) Proposed maximum aggregate value of transaction:
$16,107,000
(5) Total fee paid:
$3,221
/X/ Fee paid previously with preliminary materials:
$3,221
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, of the form or schedule and the date of
its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
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REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
2350 North Forest Road, Amherst, New York 14068
Joseph M. Jayson
DIRECTOR AND PRESIDENT
OF REALMARK PROPERTIES, INC.,
GENERAL PARTNER
November 4, 1997
Fellow Partner,
We are writing to request your consent to sell five residential
properties of Realmark Property Investors Limited Partnership V to US Apartments
LLC, an affiliate of the General Partners, and to amend the Partnership's
Limited Partnership Agreement (the "Partnership Agreement") to permit such sale.
Holders of a majority of the Partnership's outstanding Units must consent to the
proposal for the transaction to proceed.
The accompanying materials discuss the transaction in detail, but we
would like to summarize our reasons for recommending that you consent to the
proposal.
- - The General Partners believe that current market conditions are favorable
for the sale of multi-family properties.
- - The Partnership has held its properties for the originally anticipated
holding period or longer.
- - The sale is expected to result in the distribution to the Partners of the
net proceeds from the sale and other sources of approximately $171 per
Unit.
- - The sale of multiple properties in one transaction will result in lower
aggregate sale expenses to the Partnership.
- - The General Partners relied, in part, upon a written fairness opinion
rendered by a financial advisor to the Partnership in determining that the
purchase price offered represents the fair value of the five properties.
See "THE TRANSACTION-Fairness Opinion" in the enclosed Consent Solicitation
Statement. See also "THE TRANSACTION-Fairness of the Transaction."
- - The General Partners believe that a sale is the most attractive alternative
available to the Partnership.
- - The Partnership is permitted to terminate the sale in the event a more
favorable offer is made for the five residential properties during the
period of this consent solicitation.
- - The Limited Partners will receive more favorable capital gains tax
treatment on the distribution of sale proceeds than they would have prior
to recent changes in the tax laws.
Under the terms of the Partnership Agreement, certain "affiliated"
transactions between the General Partners and the Partnership are prohibited.
Because the proposed sale involves the transfer of certain of the Partnership's
assets to an affiliate of the General Partners, the General Partners are seeking
the approval of the Limited Partners to an amendment to the Partnership
Agreement to permit such a transaction, and are also requiring the approval of
the Limited Partners to the sale.
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The accompanying materials contain a complete discussion of the purchase
price under the heading "THE TRANSACTION-Fairness of the Transaction," together
with a discussion of all of the disadvantages and conflicts of interest arising
in connection with the sale under the heading "THE TRANSACTION-Conflicts of
Interest of the General Partners."
We considered several alternatives to this transaction including
marketing the properties for sale to third party buyers. After carefully
weighing the facts and circumstances associated with the transaction as well as
alternative courses of action, we concluded that the sale of the five
residential properties is an outstanding value for investors. Our conclusions
are set forth in the section of the Consent Solicitation Statement entitled "THE
TRANSACTION - Alternatives Considered to the Sale." In addition, the
Partnership has received a written opinion of Houlihan Financial Advisors,
financial advisor to the Partnership, that the sale is fair to the Partnership
and the Limited Partners, from a financial point of view. See Appendix III to
the Consent Solicitation Statement. It is anticipated that distributions to the
Partners from net sale proceeds and other sources will occur within 90 days
after the closing date of the sale.
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT AND THE
OPINION OF HOULIHAN VALUATION ADVISORS IN THEIR ENTIRETY. WE REQUEST THAT YOU
APPROVE THE PROPOSED TRANSACTION BY SIGNING AND RETURNING THE ENCLOSED CONSENT
CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. Your participation is extremely
important, and your early response could save your Partnership the substantial
costs associated with a follow-up mailing and other communications.
If you have questions regarding the proposed sale or need assistance in
completing and returning your consent card you may call the Partnership's
Information Agent, The Herman Group, Inc., at (800) 354-0414 (Toll-free).
Sincerely,
/s/ Joseph M. Jayson
Joseph M. Jayson
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REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
2350 North Forest Road
Amherst, New York 14068
NOTICE OF CONSENT SOLICITATION
TO THE LIMITED PARTNERS OF REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
NOTICE IS HEREBY GIVEN to limited partners ("Limited Partners") holding
units of limited partnership interest ("Units") in Realmark Property Investors
Limited Partnership V, a Delaware limited partnership (the "Partnership") that
Realmark Properties, Inc. and Joseph M. Jayson (the "General Partners") are
soliciting written consents to approve a single proposal (the "Proposal")
consisting of (i) the amendment (the "Amendment") of the Partnership's Amended
and Restated Limited Partnership Agreement to permit the sale of five of the
residential properties (the "Properties") of the Partnership (the "Sale" and,
together with the Amendment, the "Transaction") to US Apartments LLC, an
affiliate of the General Partners (the "Purchaser"), in the manner described in
the accompanying Consent Solicitation Statement, and to require the approval of
the Sale by the consent of a majority in interest of the Limited Partners, and
(ii) approval, in accordance with the Amendment, of the Sale to the Purchaser or
one of its affiliates, pursuant to an Asset Purchase Agreement in substantially
the form attached hereto to be entered into by the Partnership following
approval of the Proposal.
The Transaction must be approved by Limited Partners holding a majority
of the outstanding Units. Only Limited Partners of record at the close of
business October 1, 1997 are entitled to notice of the solicitation of consents
and to give their consent to the Transaction. In order to be valid, all
consents must be received before 5:00 P.M., New York City time, on November 26,
1997 unless such date or time is extended for an aggregate of up to an
additional forty (40) days in the sole discretion of the General Partners or
unless the necessary vote to approve the Transaction is received earlier, then
upon such date (the "Expiration Date"). The vote will be obtained through the
solicitation of written consents, and no meeting of Limited Partners will be
held. A consent may be revoked by written notice of revocation or by a later
dated consent containing different instructions at any time on or before the
Expiration Date.
YOUR APPROVAL IS IMPORTANT -- PLEASE READ THE CONSENT SOLICITATION
STATEMENT CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD
AND RETURN IT PRIOR TO THE EXPIRATION DATE TO THE PARTNERSHIP'S INFORMATION
AGENT IN THE ACCOMPANYING SELF-ADDRESSED, POSTAGE-PAID ENVELOPE OR BY FACSIMILE
OF THE FRONT AND BACK OF THE CONSENT CARD TO (214) 999-9323. Any consent card
which is signed and does not specifically disapprove the Transaction will be
treated as approving the Transaction. Your prompt response will be appreciated.
Dated: November 4, 1997 REALMARK PROPERTIES, INC.,
General Partner
By: /s/ Joseph M. Jayson
---------------------------------
Joseph M. Jayson,
President
/s/ Joseph M. Jayson
------------------------------------
JOSEPH M. JAYSON, General Partner
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REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
2350 North Forest Road
Amherst, New York 14068
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Consent Statement") is being
furnished to limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in Realmark Property Investors Limited
Partnership V, a Delaware limited partnership (the "Partnership"), in connection
with the solicitation of written consents ("Consents") by Realmark Properties,
Inc. (the "Corporate General Partner") and Joseph M. Jayson (the "Individual
General Partner," together with the Corporate General Partner, the "General
Partners"), to approve a single proposal (the "Proposal") consisting of (i) the
amendment (the "Amendment") of the Partnership's Amended and Restated Limited
Partnership Agreement dated as of February 28, 1986, as previously amended (the
"Partnership Agreement") to permit the sale of five of the residential
properties (the "Properties") of the Partnership (the "Sale" and, together with
the Amendment, the "Transaction") to US Apartments LLC, an affiliate of the
General Partners (the "Purchaser"), in the manner described under the section of
this Consent Statement entitled "THE TRANSACTION," and to require the approval
of the Sale by the Consent of a majority in interest of the Limited Partners,
and (ii) approval, in accordance with the Amendment, of the Sale to the
Purchaser or one of its affiliates, pursuant to an asset purchase agreement (the
"Asset Purchase Agreement") in substantially the form attached hereto as
APPENDIX I, to be entered into following approval of the Proposal. The proposed
Amendment is set forth in APPENDIX II attached hereto.
It is anticipated that distributions to the Partners of net sale
proceeds will occur within ninety (90) days after the closing date of the Sale.
There is no assurance that the Sale will be consummated. However, assuming the
Sale is consummated, it is estimated that the net cash proceeds available for
distribution to Limited Partners from Sale proceeds and other sources will be
approximately $171 per Unit. The General Partners anticipate that a portion of
this distribution may be paid from certain reserves which will no longer be
necessary for the Partnership to retain following the Sale; however, there can
be no assurance that the estimated amounts will be available for distribution.
See "THE TRANSACTION-Description of the Partnership."
Under the terms of the Partnership Agreement, certain "affiliated"
transactions, including certain transactions between the General Partners and
the Partnership are prohibited. Because the proposed Sale involves the transfer
of certain Properties of the Partnership to an affiliate of the General
Partners, the General Partners are seeking approval of both the Amendment and
the Sale in a single proposal to the Limited Partners. Approval of the
Amendment will have the effect of amending the Partnership Agreement to the
extent necessary to permit the General Partners to effect the Sale. In
addition, the Amendment requires the approval of the Sale by the consent of a
majority in interest of the Limited Partners. Consummation of the Sale is
conditioned upon approval of the Amendment by the Limited Partners.
This Consent Statement, the attached Notice of Consent Solicitation and
the accompanying consent card are first being mailed to Limited Partners on or
about November 4, 1997.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS NOVEMBER 4, 1997.
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TABLE OF CONTENTS
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Page
----
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ACTION BY CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MATTERS TO BE CONSIDERED . . . . . . . . . . . . . . . . . . . . . . . . 6
RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ACTION BY CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FAIRNESS OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . 7
THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DESCRIPTION OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . 8
BACKGROUND OF THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . 8
DESCRIPTION OF THE PROPERTIES TO BE SOLD . . . . . . . . . . . . . . . .11
INDEBTEDNESS ON THE PROPERTIES . . . . . . . . . . . . . . . . . . . . .12
PURCHASER'S VALUATION. . . . . . . . . . . . . . . . . . . . . . . . . .13
FAIRNESS OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
REASONS FOR THE SALE . . . . . . . . . . . . . . . . . . . . . . . . . .16
FAIRNESS OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . .17
CONFLICTS OF INTEREST OF THE GENERAL PARTNERS. . . . . . . . . . . . . .19
ALTERNATIVES CONSIDERED TO THE SALE. . . . . . . . . . . . . . . . . . .20
FAILURE TO APPROVE THE TRANSACTION . . . . . . . . . . . . . . . . . . .22
TERMS OF THE ASSET PURCHASE AGREEMENT. . . . . . . . . . . . . . . . . .22
BENEFITS OF THE TRANSACTION TO THE GENERAL PARTNERS AND THEIR
AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE. . . . . . . .28
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
CAPITAL GAINS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
PASSIVE LOSS LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . .30
CERTAIN STATE INCOME TAX CONSIDERATIONS. . . . . . . . . . . . . . . . .30
TAX CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
NO APPRAISAL RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . .31
DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
LIQUIDITY AND CAPITAL RESOURCES. . . . . . . . . . . . . . . . . . . . .34
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . .34
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
i
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DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . .39
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF. . . . . . . . . . . . . . .40
VOTING PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . .42
EXHIBIT AND APPENDICES
APPENDIX I -- Form of Asset Purchase Agreement. . . . . . . . . . . . . . I-1
APPENDIX II -- Relevant Partnership Agreement Provisions and
Proposed Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . .II-1
APPENDIX III -- Opinion of Houlihan Valuation Advisors . . . . . . . . III-1
EXHIBIT A -- Consent Card . . . . . . . . . . . . . . . . . . . . . . . . A-1
ii
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS CONSENT STATEMENT. REFERENCES ARE MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS CONSENT
STATEMENT. UNLESS OTHERWISE DEFINED HEREIN, TERMS USED IN THIS SUMMARY HAVE THE
RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS CONSENT STATEMENT.
LIMITED PARTNERS ARE URGED TO READ THIS CONSENT STATEMENT IN ITS ENTIRETY.
THE PARTNERSHIP
Realmark Property Investors Limited
Partnership V. . . . . . . . . . . . . .The Partnership owns interests in six
residential properties, one
office/warehouse building and one office
complex. The Partnership also owns
interests in two office/warehouse
complexes through two separate joint
ventures and holds an interest in vacant
land with certain venture partners. The
principal offices of the Partnership are
located at 2350 North Forest Road,
Amherst, New York 14068, and its
telephone number is (716) 636-9090.
The proposed transaction contemplates
the sale of five of the Partnership's
residential properties (the
"Properties"). The Partnership will
retain its interests in one residential
property, the commercial properties, the
joint ventures and the vacant land.
The Partnership recently refinanced the
indebtedness on its residential
properties with loans from Credit Suisse
First Boston Mortgage Capital. The term
of each loan is eight and one-half
years, amortized over thirty years. For
a full discussion of the refinancing,
see "THE TRANSACTION-Indebtedness on the
Properties."
THE PURCHASER
US Apartments LLC (or a designated
affiliate) . . . . . . . . . . . . . . .US Apartments LLC is being formed as a
Delaware limited liability company for
the purpose of participating in the
Transaction, to hold the Properties, and
to engage in any lawful act or activity
for which a limited liability company
may be formed in Delaware.
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US Apartments LLC is an affiliate of
Realmark Properties, Inc. and Joseph M.
Jayson, the General Partners of the
Partnership. The principal offices of
the Purchaser are located at 2350 North
Forest Road, Amherst, New York 14068.
THE TRANSACTION
General. . . . . . . . . . . . . . . . .The Transaction is a single proposal to
be approved by the Limited Partners and
consists of (i) the Amendment of the
Partnership Agreement to permit the Sale
of the Properties to an affiliate of the
Partnership's General Partners, and to
require the approval of the Sale by the
consent of a majority in interest of the
Limited Partners, and (ii) approval, in
accordance with the Amendment, of the
Sale of the Properties to the Purchaser
for an aggregate purchase price of
$16,107,000, subject to certain
adjustments at closing ("Purchase
Price"), payable by the assumption of
the then outstanding mortgage
indebtedness, with the balance to be
paid in cash as described under "THE
TRANSACTION-Terms of the Asset Purchase
Agreement."
Background of the
Transaction. . . . . . . . . . . . . . .In 1995, the General Partners began to
actively seek purchasers for the
Partnership's assets. In addition, they
began to explore the possibility of
finding a purchaser for the Units or a
purchaser who would buy their general
partnership interests and subsequently
liquidate the portfolio or make a tender
offer for the Units in order to provide
the Limited Partners with liquidity in
their investment. After actively
marketing the assets of the Partnership
and its affiliated partnerships as
described under the heading "THE
TRANSACTION-Background of the Sale," the
General Partners determined that the
offers and indications of interest for
the properties did not reflect a fair
price for those assets and decided to
acquire certain of the properties
through an affiliate on terms they
believed would be more favorable to the
Partners. See "The
TRANSACTION-Alternatives Considered to
the
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Sale." In making this decision, the
General Partners considered, among other
things (a) the amount to be distributed
to Limited Partners if the Sale were to
occur; (b) the business risks to which
the Partnership would be exposed if the
Sale were not to occur; and (c) the
belief of the General Partners as to the
expectations of the Limited Partners
regarding the term of their investment
in the Partnership. See "THE
TRANSACTION-Background of the Sale."
Fairness of the Transaction
and Certain Conflicts of Interest. . . .The General Partners have carefully
considered the Transaction and have
concluded that the Transaction is in the
best interests of the Partnership and
the Limited Partners. Such conclusion
is based, in part, on the fairness
opinion which was rendered by the
financial advisor to the Partnership and
on the other factors discussed under
"THE TRANSACTION-Fairness of the
Transaction." See APPENDIX III to this
Consent Statement. Accordingly, the
General Partners approved the
Transaction. There are certain factors,
including conflicts of interest,
described in this Consent Statement that
Limited Partners should consider when
determining the fairness of the
Transaction. See "THE
TRANSACTION-Conflicts of Interest of the
General Partners," and "BENEFITS OF THE
TRANSACTION TO THE GENERAL PARTNERS AND
THEIR AFFILIATES."
Security Ownership
and Voting Thereof . . . . . . . . . . .At the Record Date, the General Partners
and their affiliates owned a total of
261 Units (approximately 1.2% of the
outstanding Units). The General Partners
and their affiliates holding Units
intend to consent to the Transaction.
See "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF."
Opinion of Financial
Advisor. . . . . . . . . . . . . . . . .Houlihan Valuation Advisors ("HVA")
acted as a financial advisor to the
Partnership in connection with the Sale.
The General Partners have received a
fairness opinion from HVA that the Sale
is fair, from a financial point of view,
to the Partnership and
3
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the Limited Partners. See "THE
TRANSACTION-Fairness Opinion."
Consummation of the Sale . . . . . . . .It is anticipated that the Asset
Purchase Agreement will be executed
within five (5) days of the Expiration
Date following the approval of the
Proposal. The Sale will be consummated
as promptly as practicable after
obtaining the requisite approval of the
Limited Partners to the Transaction and
the satisfaction, or, where permissible,
waiver of all conditions to the Sale,
but in no event more than one hundred
and eighty (180) days from the date the
Asset Purchase Agreement is executed.
See "THE TRANSACTION-Terms of the Asset
Purchase Agreement."
No Appraisal Rights. . . . . . . . . . .If the Transaction is approved by
Limited Partners owning a majority in
interest of the outstanding Units,
dissenting Limited Partners will not
have appraisal rights in connection with
the Transaction. See "NO APPRAISAL
RIGHTS."
Certain Federal and State
Income Tax Consequences. . . . . . . . .The Partnership expects to recognize
taxable gains of approximately
$4,700,000 from the Sale. The Sale of
the Properties will result in the
allocation of taxable gains among the
Limited Partners. The sale proceeds
distributed to the Limited Partners are
expected to exceed the Limited Partners'
income tax liability attributed to the
Sale. See "CERTAIN FEDERAL AND STATE
INCOME TAX CONSEQUENCES OF THE SALE."
Distribution of Net Sale Proceeds. . . .It is anticipated that following the
consummation of the Sale, the net cash
proceeds from the Sale and cash from
other sources, aggregating approximately
$171 per Unit, is expected to be
distributed to the Limited Partners
within ninety (90) days after the
closing date of the Sale. See "MARKET
FOR THE PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER
MATTERS-Distributions."
4
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ACTION BY WRITTEN CONSENT
Termination of Consent
Solicitation . . . . . . . . . . . . . .Consents must be received by mail or
facsimile before November 26, 1997, at
5:00 P.M., New York City time, unless
such date or time is extended for an
aggregate of up to an additional forty
(40) days in the sole discretion of the
General Partners, or unless the
necessary vote to approve the
Transaction is received earlier, then
upon such date (the "Expiration Date").
Record Date; Units
Entitled to Consent. . . . . . . . . . .Limited Partners of record at the close
of business on October 1, 1997 are
entitled to approve the Transaction by
written Consent. At such date there
were outstanding 20,999.8 Units, each of
which will entitle the record owner
thereof to one vote.
Purpose of the Action. . . . . . . . . .Written Consents are being solicited to
approve the Proposal, which consists of
(i) an Amendment to the Partnership
Agreement to permit the Sale of the
Properties of the Partnership to an
affiliate of the General Partners, and
to require the approval of the Sale by
the consent of a majority in interest of
the Limited Partners, and (ii) approval,
in accordance with the Amendment, of the
Sale pursuant to the terms of the Asset
Purchase Agreement.
Information Agent. . . . . . . . . . . .The Partnership has retained The Herman
Group, Inc. ("Herman") to act as
Information Agent and assist in the
solicitation of Consents. Completed,
signed consent cards must be returned to
Herman by mail or facsimile before the
Expiration Date. If you have any
questions, please call Herman at (800)
354-0414.
Vote Required. . . . . . . . . . . . . .The Proposal must be approved by Limited
Partners holding a majority of all
outstanding Units.
5
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ACTION BY CONSENT
GENERAL
This Consent Statement is being furnished on behalf of the Partnership
to the Limited Partners of the Partnership in connection with the solicitation
of Consents by Realmark Properties, Inc. and Joseph M. Jayson, as the General
Partners.
This Consent Statement, the attached Notice of Consent Solicitation and
accompanying consent card are first being mailed to Limited Partners on or about
November 4, 1997.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve the Transaction, which consists
of (i) the Amendment of the Partnership Agreement to permit the Sale of five of
the residential properties of the Partnership to US Apartments LLC, an affiliate
of the General Partners, and to require the approval of the Sale by the majority
in interest of the Limited Partners, and (ii) approval, in accordance with the
Amendment, of the Sale to US Apartments LLC or one of its affiliates. It is
anticipated that following the consummation of such Sale, the net cash proceeds
from the Sale and cash from other sources, will aggregate approximately $171 per
Unit, and is expected to be distributed to the Limited Partners within ninety
(90) days after the closing date of the Sale. See "MARKET FOR THE PARTNERSHIP
INTERESTS AND RELATED SECURITY HOLDER MATTERS - Distributions."
THE GENERAL PARTNERS PROPOSE THAT THE LIMITED PARTNERS TAKE THE
FOLLOWING ACTIONS BY CONSENT:
APPROVE THE AMENDMENT OF THE PARTNERSHIP'S AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT TO PERMIT THE SALE OF FIVE OF THE PARTNERSHIP'S
RESIDENTIAL PROPERTIES KNOWN AS THE WAYNE ESTATES APARTMENTS, O'HARA APARTMENTS,
THE FOUNTAINS APARTMENTS, JACKSON PARK APARTMENTS AND THE WILLIAMSBURG NORTH
APARTMENTS TO US APARTMENTS LLC, AN AFFILIATE OF THE PARTNERSHIP'S GENERAL
PARTNERS, AND TO REQUIRE THE APPROVAL OF THE SALE BY THE MAJORITY IN INTEREST OF
THE LIMITED PARTNERS; AND, IN ACCORDANCE WITH THE AMENDMENT, APPROVE THE SALE OF
THE PROPERTIES TO US APARTMENTS LLC OR ONE OF ITS AFFILIATES PURSUANT TO AN
ASSET PURCHASE AGREEMENT TO BE ENTERED INTO BETWEEN THE PARTNERSHIP AND THE
PURCHASER SUBSTANTIALLY IN THE FORM ATTACHED HERETO.
RECORD DATE
The close of business on October 1, 1997 ("Record Date") has been fixed
by the General Partners for determining the Limited Partners entitled to receive
notice of the solicitation of Consents and to give their Consent to the
Transaction. On the Record Date, there were 20,999.8 issued and outstanding
Units entitled to vote held of record by 2,264 holders.
ACTION BY CONSENT
The Partnership Agreement prohibits certain "affiliated" transactions
between the General Partners and the Partnership. Because the Transaction would
result, among other things, in the Sale of five of the residential properties of
the Partnership to an affiliate of the General Partners, the approval of an
amendment to the Partnership Agreement by the consent of a majority in interest
of the Limited Partners is required to effect the Transaction. In addition, the
Amendment requires the approval of the Sale by the consent of a majority in
interest of the Limited Partners. Such approval will be obtained
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through the solicitation of written Consents from Limited Partners, and no
meeting of Limited Partners will be held to vote on the Transaction. Under the
Partnership Agreement, approval of an amendment to the Partnership Agreement may
be authorized by written consent of a majority in interest of the Limited
Partners. Consents must be received by November 26, 1997, at 5:00 P.M., New York
City time, unless such date or time is extended for an aggregate of up to an
additional forty (40) days in the sole discretion of the General Partners, or
unless the necessary vote to approve the Transaction if received earlier, then
upon such date (the "Expiration Date"). Any Consent given pursuant to this
solicitation may be revoked by the person giving it at any time before the
Expiration Date by sending a written notice of revocation or a later dated
Consent containing different instructions to the Information Agent before such
date. Any written notice of revocation or subsequent Consent should be sent to
The Herman Group, Inc. at the address that appears in the back cover of this
Consent Statement.
In addition to solicitation by use of the mails, officers, directors and
employees of the General Partners or their affiliates may solicit Consents in
person or by telephone, facsimile or other means of communication. Such
officers, directors and employees will not receive additional compensation for
such services but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements have been made with custodians,
nominees and fiduciaries for the forwarding of consent solicitation materials to
beneficial owners of Units held of record by such custodians, nominees and
fiduciaries and the Partnership will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith. In
addition, the Partnership has hired The Herman Group, Inc. to assist in the
solicitation of the Consents, and will pay an estimated fee of $20,000 plus the
usual and customary fees and expenses associated with such solicitation
assistance. All costs and expenses of the solicitation of Consents, including
the costs of preparing and mailing this Consent Statement, will be borne by the
Partnership except that the General Partners at their own expense may engage
certain broker-dealers to assist in the solicitation of Consents, and will pay
an estimated amount of $22,000 for such assistance. The aggregate expenses
anticipated to be incurred by the Partnership relating to this solicitation,
including legal fees and costs related to the fairness opinion, are expected to
be approximately $250,000.
FAIRNESS OF THE TRANSACTION
The General Partners believe that the Transaction is fair and reasonable
as to both price and structure and is in the best interests of the Limited
Partners and the Partnership and have, therefore, approved the Transaction. In
determining the fairness of the Sale, the General Partners considered each of
the factors discussed in the section of this Consent Statement entitled "THE
TRANSACTION-Fairness of the Transaction." In addition, the General Partners
relied upon the fairness opinion rendered by the financial advisor to the
Partnership that is set forth as APPENDIX III hereto. See "THE
TRANSACTION-Fairness Opinion." Furthermore, the Partnership is permitted to
terminate the Sale if a more favorable offer for all of the Properties is
received during the period of this consent solicitation. The General Partners
believe that the Limited Partners will, therefore, be provided with protection
regarding the adequacy of the price to be received for the Properties.
Because the Sale contemplates that the Properties will be sold to an
affiliate of the General Partners, the General Partners have an economic
interest that is in conflict with the economic interest of the Limited Partners
and thus, the interests of the General Partners may conflict with their
fiduciary obligations to the Limited Partners. The General Partners believe,
however, that they have fulfilled their fiduciary obligations to the Partnership
and that the Sale is fair to the Limited Partners. See "THE TRANSACTION -
Conflicts of Interest of the General Partners."
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THE TRANSACTION
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on February 28, 1986 for the primary purpose
of investing in a diversified portfolio of income-producing real estate
investments. The Partnership owns interests in six apartment complexes, one
office/warehouse building, and one office complex. The Partnership also owns
interests in two joint ventures. The Partnership owns a 50% joint venture
interest in an office/warehouse complex with the remaining 50% interest owned by
Curtlaw Corporation, an unaffiliated third party. In addition, the Partnership
holds a 50% joint venture interest in another office/warehouse complex with
Curtlaw Corporation owning the other 50% interest. The Partnership also owns an
approximately 33.33% interest in 100 acres of land to be developed in Amherst,
New York. The remaining 66.67% interest in the land is owned by two public
limited partnerships managed by the General Partners. The Partnership will
retain its interests in one residential property, the commercial properties, the
joint ventures and the vacant land. See "-Description of the Properties to be
Sold."
The Partnership was structured as a self-liquidating partnership with a
finite life, which would distribute its cash flow during its operating stage and
its proceeds of sale during its liquidating stage, whereupon the Partnership
would be liquidated and dissolved. It was anticipated that the Partnership's
properties would be held for approximately three to five years after their
acquisition although, depending on economic and market factors, they could be
held for shorter or longer periods in the complete discretion of the General
Partners. The interests in the Properties were purchased between 1987 and 1989
and have now been held for their anticipated holding period.
RELATIONSHIP BETWEEN JOSEPH M. JAYSON, REALMARK PROPERTIES, INC. AND THE
PURCHASER
Joseph M. Jayson, the Individual General Partner, is the sole
shareholder of J.M. Jayson & Company, Inc. ("J.M. Jayson"). Realmark
Properties, Inc., the Corporate General Partner, is a wholly owned subsidiary of
J.M. Jayson. Mr. Jayson is also the President and one of two directors of the
Corporate General Partner. In addition, Mr. Jayson will control the Purchaser.
Accordingly, the Sale is subject to various conflicts of interest. See
"-Conflicts of Interest" and "BENEFITS OF THE TRANSACTION TO AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNERS AND THEIR AFFILIATES."
BACKGROUND OF THE SALE
In April 1994, the General Partners determined, in their business
judgment, that it was an appropriate time to begin exploring a means of
converting the Partnership's interests in the Properties to cash. In February
1995, the General Partners began to actively seek purchasers for the
Partnership's properties as well as the properties of other real estate limited
partnerships affiliated with the General Partners (the "Affiliated
Partnerships").
The General Partners' decision to seek one or more buyers for the
properties was, in part, based upon their belief that consummation of a sale was
consistent with the Limited Partners' desires for liquidity, the fact that a
longer holding period could subject Limited Partners to certain business risks
associated with changing markets and the aging nature of the Partnership's
apartment inventory which requires increasingly larger commitments of funds to
meet capital repair needs.
Although the terms of the Partnership Agreement do not provide for the
termination of the Partnership until December 31, 2026, it was not the General
Partners' intention that the Partnership would hold its real estate properties
for the entire term of the Partnership. Under the Partnership Agreement, the
General Partners have the right and responsibility to determine when the
properties should be sold. As discussed in the Partnership's offering
prospectus, the decision to sell the Partnership's real estate properties would
depend on a variety of factors. Accordingly, it was not possible at the outset
of the Partnership to determine precisely when the Partnership's real
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estate properties would be sold. However, the General Partners believe that,
based on informal discussions with (and generally initiated by) certain Limited
Partners and brokers representing certain Limited Partners, many Limited
Partners expected that the Partnership's real estate properties would be sold
after a reasonable holding period but before the end of the Partnership's term.
The decision to sell the properties was also based upon the General
Partners' belief that the real estate market was improving, particularly the
multi-family residential market, which improved more quickly in certain areas
than the markets for other types of properties. As such, the General Partners
believed it would be easier to obtain buyers for the residential properties and
that the offers might be at more favorable capitalization rates. Over the past
few years, the ability to sell properties generally has been enhanced by further
improvements in the national real estate market. Pension funds, real estate
investment trusts ("REITs") and other institutional buyers have increased their
purchasing activity in recent years compared to the early 1990's when these same
institutional buyers were largely out of the market. Lower interest rates have
also improved the market for selling properties as entrepreneurial buyers who
require debt financing to purchase properties are able to borrow funds at more
advantageous rates.
More specifically, with respect to the Partnership's properties,
improvements in the real estate capital markets and in the operating performance
of certain properties have enhanced the prospects for selling these properties
or the prices at which they can expect to be sold. During the late 1980's and
early 1990's, the Partnership's properties experienced adverse operating results
and decreases in value due to a nationwide slump in real estate values as well
as difficult local market conditions and financing difficulties. Improvements
in the real estate capital markets and in the local real estate markets have
caused certain rents to increase. See "THE TRANSACTION-Description of the
Properties to be Sold" for more details concerning the Properties. Accordingly,
in 1995, the General Partners determined that the Partnership should investigate
opportunities for selling its properties. The General Partners also began to be
contacted by certain Limited Partners and their advisors concerning the
investors' desire for liquidity. Also, at that time, the General Partners
became aware that certain investment groups were approaching real estate limited
partnerships with tender offers for limited partnership units or offers to
purchase a partnership's assets or the partnership interests of the general
partners.
Periodically, commencing in 1995 and continuing until recently, the
General Partners placed advertisements regarding all of the Partnership's
properties in the Wall Street Journal and used other means to solicit fair
offers. In addition, the General Partners received unsolicited indications of
interest from brokers with respect to all of the Partnership's properties. The
only offer for a particular property which exceeded the price the Purchaser was
willing to pay for that property at the time of such offer was an offer for one
of the Partnership's residential properties, Camelot East Apartments which,
although it was subsequently withdrawn by the offeror, is still being negotiated
(the "Camelot East Offer"). Accordingly, the General Partners have refrained
from making an offer for Camelot East at this time.
Commencing in February 1995, the General Partners participated in
several informal discussions concerning possible tender offers for Units and/or
the sale of interests of the General Partners or assets of the Partnership and
the Affiliated Partnerships. The General Partners were approached by investors
seeking their cooperation in recommending a tender offer to the Limited
Partners. Based on discussions with these parties and general market
information as to other tender offers for real estate limited partnership
interests, it was concluded that tender offers are generally made at prices that
reflect a significant discount from the net asset value of the underlying
Partnership assets. For example, one party expressed an interest in making a
tender offer for Units of the Partnership and the Affiliated Partnerships at 60%
of the net asset value of the residential properties and even less for the
commercial properties. The General Partners believed they could not recommend
that the Limited Partners accept a tender offer on terms that reflected such a
significant discount.
In addition, the General Partners determined that if they sold their
general partnership interests to a potential buyer and such buyer proceeded to
make the contemplated tender offer for the Units,
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it was likely that such tender offer for Units would be made at severely
discounted rates from the net asset value of the underlying assets of the
Partnership. The General Partners believed such offers would not be in the best
interests of the Limited Partners. After several discussions with a prospective
buyer during 1995, the General Partners concluded that although it might be in
their own best interests to do so, they would refrain from then selling their
interests because the prospective buyer anticipated following up such purchase
with a tender offer for the Limited Partners' Units, and was considering
offering a price that represented 25% of the net asset value of the properties.
In February 1995, the General Partners met with representatives of an
investment group that had indicated an interest in purchasing all of the
Partnership's properties and the properties of the Affiliated Partnerships. The
informal discussions lasted several months and resulted in expressions of
interest at prices which did not, in the opinion of the General Partners,
reasonably reflect the value of those assets.
In April of 1995, the General Partners were approached by prospective
buyers concerning the possible sale of their general partnership interests or
the stock of the Corporate General Partner. Although such sales would be
advantageous to the General Partners, they refrained from selling their
interests because such sales were unlikely to provide the Limited Partners with
the liquidity in their investment that they desired. The General Partners
requested assurances from one of such prospective purchasers that it would seek
to sell the Partnership's properties promptly at prices which fairly reflected
their market value. Such prospective buyer, however, indicated that its
intention was to indefinitely operate the properties as Partnership assets.
Although alternative courses of action were considered, the General
Partners determined that a sale of the Properties in one or more transactions
would be the preferable way to convert to cash the value of the Properties,
thereby achieving the best return currently possible. Over several months, the
General Partners held discussions with two prospective buyers regarding the
purchase of all of the Partnership's assets and properties owned by the
Affiliated Partnerships. One offeror made an offer for twenty-five residential
properties including the Partnership's residential properties. The terms of
such offer required the Partnership to provide financing by taking back notes in
lieu of cash, which notes were contingent upon future performance. In the
opinion of the General Partners, this contingency made it unlikely that the
Partnership would receive the full price offered by such offeror for its
properties.
The General Partners conducted discussions with the second prospective
buyer in August 1995. However, in the opinion of the General Partners, the
aggregate price suggested by that potential buyer did not reflect the value of
the assets that were the subject of that offer. Also, the portion of that price
allocated to the Properties was, in the General Partners' opinion, less
favorable to the Partners than the Purchaser's present offer considering the
Properties' net operating income. Informal discussions continued with this
prospective buyer for several months but because the buyer did not change its
position on price, the General Partners did not believe it was appropriate to
request a formal offer.
In the fall of 1995, the General Partners approached selected REITs to
explore the possibility of entering into a transaction. Certain of the REITs
believed that the residential properties owned by the Partnership were too old
to be of interest. Others did not have or were unwilling to pay cash for such
assets, and such offers would have constituted "roll-ups" which, because of then
recently adopted regulations, would have made such transactions both difficult
and expensive to consummate. One REIT reviewed all of the Partnership's
properties and the properties of the Affiliated Partnerships with more interest
but its suggested price was, in the General Partners' opinion, not a fair price
for those assets.
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Although buyers responded with reasonable offers for certain properties
owned by the Affiliated Partnerships (which offers the General Partners accepted
on behalf of such partnerships), no offers which the General Partners believed
reflected the fair value of the assets were made for the Partnership's
properties other than the Camelot East Offer. Accordingly, the Individual
General Partner determined to make an offer through an affiliate for all of the
Partnership's residential properties (other than Camelot East). Although the
Purchaser or an affiliate may at a later date consider purchasing one or more of
the properties for which they are not presently making an offer, it was
determined not to make an offer for the commercial properties or vacant land at
this time because the General Partners believe that the Partnership has not yet
fully explored the possibility of selling the commercial properties and vacant
land to unaffiliated third parties.
DESCRIPTION OF THE PROPERTIES TO BE SOLD
WAYNE ESTATES APARTMENTS
This Property, in which the Partnership holds a 100% interest, consists
of one apartment complex with seventeen buildings with a total of 158 apartment
units on ten acres of land. It was built in 1981 and is located in Huber
Heights, Ohio.
This Property was acquired in July 1988 and has had an occupancy rate of
95%, 93%, 96% and 96% in the six months ended June 30, 1997, and in the years
ended 1996, 1995 and 1994, respectively. This Property generated 12% of the
Partnership's total revenues in the fiscal years ended 1996, 1995 and 1994.
The loan on the Wayne Estates Property was refinanced in May 1997 and
had a balance of $3,095,000 at June 30, 1997. It bears interest at 8.4% and
provides for monthly payments of $23,557. The note matures in November 2005.
See "-Indebtedness on the Properties."
O'HARA APARTMENTS
The Partnership owns a 100% interest in this Property, which is an
apartment complex consisting of 12 buildings on nine acres of land. There are
100 apartment units at this location. It was built in 1980 and is located in
Greenville, South Carolina.
This Property was acquired in June 1988 and has had an occupancy rate of
95%, 92%, 95% and 95% in the six months ended June 30, 1997, and in the years
ended 1996, 1995 and 1994, respectively. The O'Hara Apartments generated 7% of
the Partnership's total revenues in the fiscal years ended 1996, 1995 and 1994.
The loan on the O'Hara Property was refinanced in May 1997 and had a
balance of $1,600,000 at June 30, 1997. It bears interest at 8.40% and provides
for monthly payments of $12,105. The note matures in November 2005. See
"-Indebtedness on the Properties."
THE FOUNTAINS APARTMENTS
The Partnership owns a 100% interest in this Property, which consists of
one apartment complex with ten buildings with a total of 215 apartment units on
20 acres of land. It was built in 1976 and is located in Westchester, Ohio.
This Property was acquired in February 1988 and has had an occupancy rate of
84%, 89%, 97% and 96% in the six months ended June 30, 1997, and in the years
ended 1996, 1995 and 1994, respectively. The Fountains Apartments generated 17%
of the Partnership's total revenues in the fiscal years ended 1996, 1995 and
1994. The mortgage on this Property was recently refinanced. The mortgage on
this Property had an outstanding balance of
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$3,900,000 at June 30, 1997 and calls for monthly payments of $29,777, including
interest at 8.5%. The note matures in November 2005. See "-Indebtedness on the
Properties."
JACKSON PARK APARTMENTS
The Jackson Park Apartments in Seymour, Indiana, which is 100% owned by
the Partnership, consists of one apartment complex with 102 apartment units on
eight acres of land. It was built in 1972 and was acquired by the Partnership
in April 1989. This Property had an occupancy rate of 96%, 97%, 99% and 98% in
the six months ended June 30, 1997, and in the years ended 1996, 1995 and 1994,
respectively. The Jackson Park Apartments generated 8% of the Partnership's
total revenues in the fiscal years ended 1996, 1995 and 1994.
The mortgage on this Property was recently refinanced. The outstanding
mortgage balance on this Property at June 30, 1997 was $1,600,000, with monthly
payments of $12,178, including interest at 8.39%. The note matures in November
2005. See "-Indebtedness on the Properties."
WILLIAMSBURG NORTH APARTMENTS
This Property consists of one apartment complex in Columbus, Indiana
with sixteen buildings on ten acres of land. It was built in 1972 and is 100%
owned by the Partnership. There are 192 apartment units at this location. This
Property was acquired by the Partnership in December 1987 and has had an
occupancy rate of 92%, 88%, 92% and 92% in the six months ended June 30, 1997,
and in the years ended 1996, 1995 and 1994, respectively. The Williamsburg
North Apartments generated 14% of the Partnership's total revenues in the fiscal
years ended 1996, 1995 and 1994.
The loan on this Property was refinanced in August, 1997. The
outstanding mortgage balance on this Property at August 31, 1997 was $2,500,000.
The loan bears interest at 7.72% and provides for monthly payments of $17,858.
The note matures in March 2006. See "-Indebtedness on the Properties."
INDEBTEDNESS ON THE PROPERTIES
The Partnership recently refinanced the indebtedness on all of its
residential properties with loans from Credit Suisse First Boston Mortgage
Capital ("First Boston"). The term of each loan is eight and one-half years,
amortized over thirty years. All of the refinanced loans are non-recourse,
except for customary institutional loss exclusions and exceptions, such as
fraud, malfeasance or environmental remediation. Proof of any of these losses
would make the Partnership and the General Partners jointly liable under the
guaranty described below.
The engineering reports obtained by First Boston as part of the
underwriting process specify the current repairs and deferred maintenance
amounts necessary to bring each property up to a specified minimum standard and
require that the Partnership create reserves equal to 125% of such amount. The
Partnership has set aside the aggregate amount of $926,194 with respect to the
Properties. These funds are held in escrow and are presently being utilized to
repair or maintain the Properties according to the work specified in the loan
documents.
The loans may not be prepaid for a period of three years or twenty-four
months from any securitization, whichever is first. After this lock-out period,
a Yield Maintenance penalty equal to 1% of the outstanding balances or the
amount necessary to make up for the lender's loss of interest during the
remaining term of the loans, whichever is greater, will be imposed. There is no
pre-payment penalty during the last 90 days of the loans. The loans have not
yet been securitized but First Boston is expected to seek to do so.
Other than a transfer to another entity affiliated with the General
Partners, transfers of the Properties are only permitted with the consent of
First Boston and the payment of 1% of the principal amount of the loans to be
assigned in connection with such transfer. As a condition to making the loans,
First Boston required that the
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Partnership indemnify First Boston from and against any liabilities and guaranty
payment of amounts for which the borrowers under the loans may have personal
liability (such as in the case of environmental liability). The General
Partners on behalf of the Partnership are negotiating the Partnership's release
from this obligation, but there can be no assurance such a release will be
granted by First Boston.
The loans from First Boston allow for such loans to be increased or
"resized" on or before November 30, 1997, provided that the Properties meet the
same underwriting criteria set forth in the original commitment letter,
including the limit on the loan to value ratio of 75%, and interest will be
calculated at the time of such increase based on the same formula as was used at
the time of the original refinancing. The fee equal to 1% of any increased
borrowings will be payable to First Boston at the time of any resizing of the
loans.
The General Partners did not believe that it was compatible with the
Partnership's objectives to obtain a higher level of financing at the time it
refinanced the loans with First Boston because they believed that not all of the
cash flow should be used to service the debt and that a greater portion of the
cash flow should be available for improvements and other expenses and for
possible distributions to Partners. However, in order to avoid losing the
Partnership's possible opportunity to resize and increase these loans on
favorable terms, the General Partners are presently considering such resizing in
diverse circumstances including, on the one hand, if it appears the Transaction
may not be approved and that it would be desirable to use the increased
borrowings to improve the Properties for sale to a future buyer or, on the other
hand, if it appears the Transaction will be consummated and the Purchaser will
assume the increased indebtedness as part of its Purchase Price. In the latter
situation, the net proceeds of any increased indebtedness will be paid to the
Limited Partners if the Transaction is consummated. In addition, if the
Transaction is approved prior to the deadline for resizing, the General Partners
intend to increase the loans from First Boston on these Properties and
distribute the net proceeds of these loans to the Partners as partial payment
for the Properties. In connection with the Sale, the General Partners have
agreed not to increase the outstanding indebtedness on the Properties to more
than $14,100,000. The Purchaser will then be assuming the risk of the increased
indebtedness on the Properties.
In addition, the Purchaser will need to obtain additional financing in
order to raise cash to consummate the Transaction and it may obtain such
financing, whether in the form of mezzanine financing or otherwise from First
Boston or from other financial sources.
PURCHASER'S VALUATION
The Purchaser is offering an aggregate purchase price of $16,107,000 for
the Properties. Its valuation was based on a number of factors including the
preceding twelve months ("Trailing Twelve Months") of net operating income of
the Properties, the previous indications of interest that involved certain of
the Properties from potential third party buyers, the age, deteriorating
condition and location of the Properties and the competition they receive from
newer properties.
The Purchase Price is less than the aggregate appraised values contained
in the appraisals recently obtained by First Boston in connection with the
refinancing of the Properties by First Boston.
The appraised values were based on the projected occupancy after certain
capital improvements are made and rents are stabilized over a reasonable period
of time and not on the average occupancy for the Trailing Twelve Months, which
is the customary basis on which purchasers of properties calculate purchase
price. Accordingly, the General Partners believe that the Purchase Price is
more representative of the actual market value of the Properties than the
aggregate appraised value of $20,300,000. In addition, sales proceeds are
ordinarily reduced by sales commissions (which are customarily 3% to 6% of the
sales price) and by the costs of marketing the property over the twelve month
period assumed in the appraisals (which are
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approximately 2% of the sales price). Unlike the typical sale to a third party,
the Purchaser's offer does not involve a brokerage commission, nor will it
require a twelve month marketing period from the appraisal dates and associated
costs.
IN ADDITION, APPRAISALS ARE MERELY OPINIONS AND MAY NOT REPRESENT THE TRUE FAIR
MARKET VALUE OF A PROPERTY.
In addition to the $16,107,000 Purchase Price being offered by the
Purchaser, another key factor in the decision to sell the Properties to the
Purchaser, was the Purchaser's agreement to purchase these Properties without
any subsequent price adjustment due to the condition of the Properties because
of deferred maintenance or otherwise. In addition, because the Purchaser is not
requesting all of the usual representations and warranties required by most
buyers, it is more likely that the Partnership will receive and retain the full
amount of the Purchase Price without adjustments. Furthermore, the Purchase
Price will not be subject to an escrow arrangement which could have delayed the
receipt by the Partnership of some portion of the sales proceeds. The
Partnership also had a greater degree of confidence in the Purchaser's ability
to consummate the sale because, as an affiliate of the General Partners, the
Purchaser is familiar with the Properties, is not requiring a period in which to
perform due diligence and is not demanding the right to withdraw its offer based
on the outcome of any due diligence investigation. Therefore, the Purchaser's
offer not only provides more certainty of closing, but also a shorter period in
which to consummate the Transaction. Another advantage to the Transaction is
that because the offer is for multiple properties, the transaction costs are
lower than they would be expected to be if these properties were sold in
separate sales, thereby enhancing the amount which can be distributed to the
Limited Partners. However, for a discussion of certain disadvantages of the
Transaction, see the Sections entitled "Fairness of the Transaction" and "Terms
of the Asset Purchase Agreement," below.
FAIRNESS OPINION
The General Partners, on behalf of the Partnership, requested HVA to
render an opinion to the Partnership as to whether the consideration to be
received by the Partnership from the Sale is fair to the Partnership and the
Limited Partners, from a financial point of view. The General Partners retained
HVA based upon its reputation as an investment banking and financial advisory
firm with experience in the valuation of businesses, their properties and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes especially with respect to real estate.
On October 21, 1997, HVA delivered its written opinion to the General
Partners (the "Fairness Opinion") that, as of the date of such opinion, based on
HVA's review and subject to the limitations described below, the Sale is fair to
the Partnership and the Limited Partners, from a financial point of view. The
Fairness Opinion does not constitute a recommendation to any Limited Partner as
to whether such Limited Partner should approve the Sale. HVA was not requested
to, and did not, solicit the interest of any other party in acquiring the
Properties.
THE FULL TEXT OF THE FAIRNESS OPINION (WHICH CONTAINS A DESCRIPTION OF
THE ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
IMPOSED ON THE REVIEW AND ANALYSIS) IS SET FORTH IN APPENDIX III AND SHOULD BE
READ IN ITS ENTIRETY. THE PARTNERSHIP IMPOSED NO CONDITIONS OR LIMITATIONS ON
THE SCOPE OF HVA'S INVESTIGATION OR THE METHODS OR PROCEDURES TO BE FOLLOWED IN
RENDERING THE FAIRNESS OPINION.
In rendering the Fairness Opinion, HVA, among other things: (i) reviewed
the Form of Asset Purchase Agreement; (ii) reviewed and analyzed certain
financial and operating data of the Partnership and the Properties,
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as provided by the General Partners; (iii) reviewed and analyzed certain other
internal information concerning the business and operations of the Partnership
and the Properties furnished to it by the General Partners; (iv) reviewed and
analyzed certain publicly available information concerning the Partnership and
the Properties; (v) reviewed and analyzed certain selected market purchase price
data that HVA considered relevant to its inquiry; (vi) held meetings and
discussions with certain officers and employees of the General Partners
concerning the operations, financial condition and future prospects of the
Properties; and (vii) conducted such other financial studies, analyses and
investigations and considered such other information as it deemed appropriate.
In preparing its opinion, HVA relied, without independent verification,
on the accuracy and completeness of all information that was publicly available,
supplied or otherwise communicated to HVA by the General Partners. HVA assumed
that the financial projections (and the assumptions and bases thereof) examined
by it were reasonably prepared and reflected the best currently available
estimates and good faith judgments of the General Partners as to the future
performance of the Properties. HVA did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the
Partnership (including the Properties), but HVA was furnished with copies of the
independent appraisals obtained in connection with the recent refinancings of
the Properties. The Fairness Opinion is based upon financial, economic, market
and other conditions and circumstances existing and disclosed to it as of the
date of its opinion.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
amenable to summary description. Accordingly, HVA believes that its analysis
must be considered as a whole and that considering any portion of the analysis
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete picture of the process underlying the
Fairness Opinion.
ANALYSES AND CONCLUSIONS
As part of its due diligence, HVA held discussions with representatives
of the General Partners and several persons with property management
responsibilities. HVA obtained data and information regarding the history,
operations, physical and financial condition, the future prospects for the
Properties.
In valuing the Properties on both individual and collective bases HVA
employed a variety of generally accepted procedures and methodologies. HVA's
income approach analyzed the historic and anticipated gross income, expenses and
net operating income ("NOI"). More specifically, HVA considered, among other
factors:
(a) Current rent rolls;
(b) Vacancy by type of unit;
(c) Expenses and real estate taxes;
(d) Capital improvements;
(e) Deferred maintenance;
(f) Tenant composition; and
(g) Historic appraisals.
HVA's analysis indicated that the Properties are located in Midwest
towns having populations between about 17,000 and 40,000. The sole exception is
one Property located in Greenville, South Carolina (pop. 330,000). The locations
are considered to be average.
The buildings have considerable deferred maintenance. Due to their age,
the Properties suffer from some degree of non-curable depreciation. Most of the
original construction was conducted between 1972-1981. The construction was
average. Buildings over 20 years old tend to have some functional and economic
obsolescence.
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Apartment sizes are typical for the markets served. Amenities are generally
minimal and inadequate to meet primary competition.
In HVA's opinion, the proposed Purchase Price is well within a
reasonable range of the most probable selling price, as indicated by primary
units of comparison. Gross income multipliers of 3.6 to 4.4 times effective
gross income ("EGI") are normal for ordinary apartment properties 20-30 years
old. HVA's analysis of the operating statements for each of the Properties for
both current and historic periods led HVA to conclude that an annual EGI of $4
million is reasonable. At a stabilized EGI of $4 million and an EGI multiplier
of 4 times, the Properties would have a value of $16.0 million.
HVA estimated the NOI to be approximately $1.7 million. This is
consistent with the income trends for the Properties. Capitalization rates for
these types of properties generally range from 10.2% to 10.8%. Application of
these return rates to the NOI yields value indications of from $15.74 million to
$16.66 million.
HVA's market analysis included the review of twelve sales of similar
properties in similar locations to the subject Properties. These sales ranged
from $18,466 to $27,625 per unit. The average price per unit was $23,833. Due to
the higher effective ages of the subject Properties, a downward adjustment of
from 10% to 14% was indicated. This would suggest a probable sales price range
of from $20,496 to $21,450 per unit for the subject properties. The Purchaser's
sales price per unit of $21,000 fits within this price range. The average unit
size for the twelve comparable developments was 870 square feet. The average
unit size of the five subject properties is 860 square feet.
Additionally, HVA considered the efforts the Partnership has expended
towards selling the Properties. Since 1995, the Partnership has been unable to
locate a buyer whose offer was sufficient. The Partnership's disposition
activities appear to be regular and sincere. Based upon the information
provided to HVA, no other comparable offers were received by the Partnership.
The present offer includes benefits to the Limited Partners and the
Partnership other than just the direct financial payment. The Purchaser's offer
is cash for equity (including the assumption of the mortgages on the
Properties). There will be no broker commissions or charges. The Purchaser will
accept the Properties on an "As Is" basis.
It is anticipated that each Limited Partner will receive a distribution
of approximately $171 per Unit within ninety (90) days after the Closing Date of
the Sale, from the Sale proceeds and other sources. The incidental costs related
to the solicitation, including professional fees, costs related to the fairness
opinion and solicitation costs, etc. are estimated to be approximately $250,000.
Considering the Purchase Price for the Properties, the terms of the
Sale, other benefits and costs, and other considerations, HVA believes that the
Sale as proposed is fair, from a financial point of view, to the Limited
Partners and the Partnership.
HVA and related parties have received a standard indemnification from
the Partnership. HVA has had no prior business relationship with the Partnership
or the General Partners. Pursuant to an engagement agreement dated September
15, 1997, the Partnership has agreed to pay between $20,000-$30,000 plus
reasonable, accountable out-of-pocket expenses for HVA's services in connection
with rendering the Fairness Opinion.
REASONS FOR THE SALE
The General Partners' decision to proceed with the Sale at this time
was, in part, based upon their belief that providing cash to the Limited
Partners is consistent with the Limited Partners' desire to liquidate as much of
their investment as is reasonable at this time. In making this decision, the
General Partners considered: (a) the amount likely to be distributed to the
Limited Partners if the Sale were to occur; (b) the business risks to which the
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Partnership would be exposed if the Sale were not to occur; and (c) the General
Partners' belief as to the expectations of the Limited Partners regarding the
term of their investment in the Partnership.
The General Partners believe that the most effective method to increase
the value of the residential properties in future periods would be to implement
certain improvements and wait until the lack of new construction moves the
market for older apartment properties closer to the current replacement cost of
those assets. However, based on conversations with certain Limited Partners or
their representatives, the General Partners believe that the Limited Partners
prefer liquidity to the risks of continuing to hold the Properties and to
reinvest sufficient cash to maximize the market value of the Properties,
particularly considering that there is no assurance that the Limited Partners
would receive a reasonable additional return by retaining the Properties for the
extended period.
In light of the uncertainties associated with the continued ownership of
the Properties, the General Partners concluded that now is the time to convert
the investment in such Properties to cash, thereby enabling the Partnership to
distribute a substantial amount of cash while retaining certain other assets
until desirable offers can be obtained.
In addition, at this time the Limited Partners will receive more
favorable capital gains tax treatment on the distribution of the sale proceeds
than they would have received prior to the recent tax law changes. However,
there can be no assurance that such tax treatment will be afforded to each
Partner or that this tax treatment will continue without change.
FAIRNESS OF THE TRANSACTION
The General Partners believe that the Transaction is fair and reasonable
as to both price and structure and that the Transaction is in the best interests
of the Partnership and the Limited Partners. The General Partners were subject
to conflicts of interest in reaching this conclusion. See "- Conflicts of
Interest of the General Partners."
IN REACHING THEIR DETERMINATION THAT THE TRANSACTION IS FAIR, THE
GENERAL PARTNERS CONSIDERED THE FOLLOWING FACTORS WITH RESPECT TO THE
TRANSACTION:
(i) The Fairness Opinion of HVA that the Sale is fair to the
Partnership and the Limited Partners from a financial point of view;
(ii) The terms of the Purchaser's offer are favorable because the Form
of Asset Purchase Agreement, described under "Terms of the Asset Purchase
Agreement," contains several provisions which are not customarily found in
combination with each other in typical third party agreements, that are
advantageous to the Partnership: (a) there will be no adjustments to the
Purchase Price regardless of any current physical condition of the Properties
(other than casualty or condemnation) or a decline in the occupancy; (b) the
Partnership will not be required to make certain customary representations and
warranties in the Asset Purchase Agreement concerning the physical or
operational conditions of the Properties; (c) the Partnership does not provide
the Purchaser with indemnities except for a brokerage indemnity; (d) the
Purchase Price is payable at closing with no escrow or holdback requirements;
and (e) there is no physical due diligence condition which the Purchaser can use
to terminate the Asset Purchase Agreement;
(iii) No brokerage commissions are required to be paid by the
Partnership in connection with the Sale;
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(iv) Selling five of the Properties at one time will result in lower
aggregate sale costs;
(v) The Sale will accelerate distributions to the Limited Partners,
thereby liquefying their investment. At present, there is no established public
trading market for the Units and liquidity is limited to sporadic sales that
occur within an informal secondary market, or potential tender offers for Units,
which are generally at a substantial discount and often for only a limited
number of Units;
(vi) The Properties have now been held for their originally
anticipated holding period of three to five years from their acquisition;
(vii) The General Partners' belief that current market conditions are
favorable for a sale of the Properties. The concern in continuing to hold the
Properties in an improving market is that the market conditions which led to
this improvement may encourage an increasing supply of new properties which
could eventually lead to oversupply of properties and weakening of prices;
(viii) The age and physical condition of the Properties, and the
anticipated need for substantial expenditures on capital improvements and
maintenance work if the Partnership continued to hold the Properties;
(ix) The failure of the Partnership to pay distributions to the
Limited Partners during the last two fiscal years;
(x) Retaining the Properties will continue to subject the Partnership
to the risks inherent in the ownership of property such as fluctuations in
occupancy rates, operating expenses and rental rates, which in turn may be
affected by general and local economic conditions, the supply and demand for
properties of the type owned by the Partnership and federal and local laws and
regulations affecting the ownership and operation of real estate;
(xi) The Purchaser's offer was made following an aggressive marketing
effort and the General Partners believe that the offer of the Partnership's
Properties for sale was widely publicized and conducted over a reasonable period
of time;
(xii) Consummation of the Sale is subject to approval of the Amendment
and the Sale by a majority in interest of the Limited Partners; and
(xiii) The Partnership is permitted to terminate the Sale if a more
favorable offer for all of the Properties is received during the period of this
consent solicitation.
THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTIES PURSUANT TO THE
SALE ARE AS FOLLOWS:
(i) The Partnership will not benefit from possible improvements in
economic and market conditions which could produce increased cash flow and
enhance the sales price of the Properties;
(ii) The sale of the five Properties at one time may not result in as
high an aggregate sales price as if they were sold individually;
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(iii) If the Sale is approved, although the Limited Partners are
expected to receive a distribution of approximately $171 per Unit from the Sale
proceeds and other sources, there is no assurance they will receive such amount
of distributions and the Sale will preclude them from participating in any
future appreciation of the Properties to be sold;
(iv) Limited Partners will not be afforded appraisal rights or
dissenter's rights in connection with the Sale;
(v) Limited Partners who purchased their Units during the initial
public offering of the Units are not expected to receive aggregate
distributions, including distributions from the Sale, equal to the amount that
they originally invested in the Partnership;
(vi) Because the Properties are being sold to an affiliate of the
General Partners, the Purchase Price was not determined in an arm's length
negotiation;
(vii) The Purchase Price is less than the appraised value of the
Properties; and
(viii) The Form of Asset Purchase Agreement contains several provisions
that may be less advantageous to the Partnership than those found in typical
third party agreements, in that it: (a) permits the Purchaser to terminate the
Sale if it is unable to obtain adequate financing to consummate the Sale within
one hundred and twenty (120) days of the execution of the Asset Purchase
Agreement, after using its good faith, reasonable efforts to obtain a commitment
for such financing; (b) requires the Partnership to consummate the Sale even if
the Purchaser and General Partners do not obtain a release from First Boston of
the Partnership's obligations under a guaranty of payment with respect to
certain recourse liabilities of the Partnership under the mortgages on the
Properties; and (c) requires the Purchaser to deposit $50,000 upon execution,
which is less than is typically required of a third party buyer who does not
have fiduciary and other responsibilities to the Partnership, and in the case of
the Purchaser's default under the Asset Purchase Agreement, the Partnership's
damages are limited to such amount.
CONFLICTS OF INTEREST OF THE GENERAL PARTNERS
The Sale contemplates that the Properties will be sold to an affiliate
of the General Partners. Because of this, the General Partners have an economic
interest that is in conflict with the economic interest of the Limited Partners
and thus, the interests of the General Partners may conflict with their
fiduciary obligations to the Limited Partners. The General Partners believe,
however, that they have fulfilled their fiduciary obligations to the Partnership
and that the Sale is fair to the Limited Partners. The General Partners believe
that the efforts made to market the Properties, and the fact that the
Transaction requires the approval of the Limited Partners, provide sufficient
procedural safeguards to minimize the effects of the potential conflicts of
interest inherent in any such transaction. In addition, the General Partners
believe that the Limited Partners are further protected by the General Partners'
willingness to sell the Properties to a third party who makes a more favorable
offer than the Purchaser during the period of this consent solicitation. Such
an offer would be evaluated in its entirety and not merely on the basis of the
price. Other factors to be considered in connection with making this
determination include the certainty of closing, the ability of the prospective
buyer to finance the acquisition and the other terms of the offer.
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Nevertheless, Limited Partners should consider the following factors
when examining the Sale:
(i) The Individual General Partner and both members of the Board of
Directors of the Corporate General Partner are affiliated with
the Purchaser, and consequently face direct conflicts of interest
in negotiating the Sale with the Purchaser.
(ii) No independent committee or representative has been appointed or
retained to negotiate the terms of the Sale on behalf of the
Limited Partners.
(iii) The fairness of the Sale has been passed on by a financial
advisor retained by the General Partners on behalf of the
Partnership. However, no separate financial advisor has been
retained on behalf of the Limited Partners.
(iv) The Partnership is being represented by legal counsel who has
also represented the General Partners, and the Limited Partners
will not be represented by separate legal counsel.
(v) The General Partners of the Partnership are controlled by Joseph
M. Jayson, who is also the person controlling the Purchaser, and
the Purchaser will benefit from any future appreciation or cash
flow, if any, of the Partnership's assets if the Sale is
approved. The General Partners and their affiliates will benefit
from the Sale as discussed under the section of this Consent
Statement entitled "BENEFITS OF THE TRANSACTION TO THE GENERAL
PARTNERS AND THEIR AFFILIATES."
ALTERNATIVES CONSIDERED TO THE SALE
CONTINUED OWNERSHIP OF THE PROPERTIES
The decision to sell the residential Properties at this time took into
account the General Partners' opinions concerning the prospects for capital
appreciation of the Properties beyond current market prices. The General
Partners considered, but rejected as not in the best interests of the Limited
Partners, retaining one or more of the specified sale Properties for a longer
period with the expectation of achieving greater capital appreciation. The
General Partners believe that a substantial increase in the value of the
residential Properties is not likely to be achieved without making substantial
capital investments in the Properties due to the fact that the Properties are
aging and their condition is deteriorating. As a result, in the opinion of the
General Partners, the Partnership will need significant funds for capital
improvements/maintenance costs in order to bring the Properties to a condition
where the Partnership could realize a greater gain on the capital appreciation
of the Properties. In fact, this is the course of action which the Purchaser
intends to pursue to enhance the value of the Properties. The Partnership could
have borrowed additional funds in order to improve the condition of the
Properties but the General Partners did not believe that increasing the level of
debt on the Properties would have been in the best interests of the Partnership
at the time of the refinancing, if other alternatives such as the sale of the
properties were feasible. Increasing indebtedness on the Properties would
increase the risk of loss, decrease the cash flow and result in delaying
Partnership distributions indefinitely. Such a plan of action also would have
subjected the Limited Partners to the continued risks of ownership of the
Properties and would not have provided them with the desired liquidity. However,
the Partnership has an opportunity to resize and increase its loans if it does
so prior to December 1, 1997 and the General Partners are seriously considering
doing so in order not to lose this opportunity for the Partnership. They may
decide that it is appropriate for the Partnership to borrow these additional
funds in a number of divergent situations, including if it appears the
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Transaction may not be approved and that it may be desirable to use all or a
substantial portion of the proceeds to improve the Properties for sale to a
future buyer.
TENDER OFFER
From time to time, the General Partners have been approached by
investors seeking their cooperation in recommending a tender offer to the
Limited Partners. Based on discussions with these parties and general market
information as to other tender offers for real estate limited partnership
interests, it was concluded that tender offers are generally made at prices that
reflect a significant discount from the net asset value of the underlying
partnership assets. The General Partners believed they could not recommend that
the Limited Partners accept a tender offer on terms that reflected such a
significant discount.
An affiliate of the General Partners looked into the possibility of
making a tender offer itself. It was ultimately determined that the purchase of
less than a controlling interest would be difficult to finance at a fair
approximation of the net asset value of the underlying assets. Therefore, it
was determined that it was not in the best interests of the Partnership to
support a tender offer that would not be reasonably indicative of such value.
Accordingly, a tender offer for the Units was rejected as an alternative to the
sale of the Properties. However, if the Transaction is not approved, the
General Partners may reconsider such a tender offer in order to provide some
liquidity to the Limited Partners, although the General Partners are under no
obligation to do so. Any such offer would be expected to be at a significant
discount to the net asset value of the Partnership's assets. It is also likely
that a tender offer price would at best be equal to what the Purchaser is
presently offering to pay per Unit for only a portion of the Partnership's
assets.
THIRD PARTY SALES OF PROPERTIES
The General Partners also considered letters of intent with respect to
the sale of individual properties. In the opinion of the General Partners,
except with respect to the Camelot East Offer, prospective purchasers of the
properties made insufficient offers, citing the age and the resulting condition
of the properties. The commissions demanded by brokers resulted in most cases
in an unacceptable reduction in price. The General Partners rejected these
offers as not in the best interests of the Limited Partners. Based on the
experience of the General Partners and their affiliates in the real estate
marketplace during the past decade, the General Partners determined that the
value of the properties could be maximized if they also were offered as a group,
because generally there is a better market for larger real estate sales than for
smaller ones because of changes in the nature of real estate financing. For
this reason, the residential properties of the Partnership's portfolio were
offered for sale either individually or as a group. In fact, potential buyers
indicated an interest in purchasing all of the Partnership's residential
properties as well as properties owned by the Affiliated Partnerships. The only
offer from an unaffiliated third party that was greater than the Purchaser was
willing to pay at the time of such offer on an "All Cash-As Is" basis was the
Camelot East Offer. Although the contract on the Camelot East Apartments was
terminated by the prospective buyer, negotiations are continuing and,
accordingly, the Purchaser did not make an offer on this property.
CONSOLIDATION
The General Partners also considered, but rejected as not in the best
interests of the Limited Partners, a consolidation of the Partnership with
certain other Affiliated Partnerships. Such a consolidation would have likely
involved the merger of the Partnership into, or the sale of the Partnership's
interests in the properties to, a newly formed entity, pursuant to which the
Limited Partners would receive securities in the surviving entity. Although the
General Partners did not perform any specific financial analysis in the context
of evaluating the merits of this alternative, this alternative was rejected
because the General Partners believed that such a transaction would not be
viewed favorably by the Limited
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Partners due to the General Partners' belief that the majority of the Limited
Partners expected a cash distribution, and that the majority would not be
receptive to a distribution of new securities instead of cash. Such a
transaction would not necessarily provide the Limited Partners with improved
liquidity and might continue to subject the Limited Partners to the market and
other risks associated with the ownership of securities which might not have an
active trading market. In addition, there has been significant negative
publicity regarding such "roll-up" transactions, and recently enacted
legislation on both the federal and state levels as well as increased regulation
of such transactions have made this alternative expensive and time consuming
with no assurance of success.
CONDOMINIUM CONVERSION
Condominium conversion was considered as a way to return value to the
Limited Partners. However, it is extremely difficult to secure the non-recourse
financing necessary to effectuate condominium conversions. The General Partners
believe they would not be able to secure the non-recourse financing and interim
construction loan financing necessary to effectuate condominium conversions.
CONCLUSION
After considering all of the foregoing alternatives, the General
Partners concluded that it was in the best interests of the Partnership and the
Limited Partners to proceed with a sale of the Properties at this time to the
Purchaser for the Purchase Price.
FAILURE TO APPROVE THE TRANSACTION
The General Partners believe that consummation of the Sale is the
preferable course of action at this time. If the Limited Partners fail to
approve the Transaction, the Partnership will continue to operate the Properties
and attempt to sell the Properties in single or multiple sales, which may
include sales to the Purchaser (subject to any necessary amendment to the
Partnership Agreement to permit such sales, which sales could require the
consent of the Limited Partners). As of September 25, 1997, the Partnership
entered into a contingent brokerage agreement with Duberstein Investments
("Duberstein"), a real estate brokerage firm with experience on a national
level, granting Duberstein an exclusive right to sell the Partnership's
properties, either individually or as a group, for a one year period. The
agreement with Duberstein is to take effect only if the Asset Purchase Agreement
is not executed within five (5) days of the Expiration Date of the solicitation
period due to the failure of the Limited Partners to approve the Transaction.
The agreement with Duberstein provides for the payment of a brokerage commission
equal to 3% of the sales price of all properties sold to buyers, other than a
sale to the General Partners or their affiliates. Duberstein is among a group
of brokers that periodically has marketed the Partnership's residential and
commercial properties. Although granting Duberstein an exclusive right to sell
the Properties may create more of an incentive to locate a qualified buyer,
there is no assurance that the General Partners could arrange for an alternative
sale of the Properties at an appropriate price or on terms acceptable to the
Partnership.
If the General Partners' efforts in finding an alternative purchaser for
all of the Properties prove to be unsuccessful, and depending on then existing
market conditions, including the availability and cost of capital, it is
possible that the General Partners will determine that it would be in the best
interests of the Partnership to borrow money or use all or a portion of
available net cash proceeds from any consummated sale to fund all or a portion
of the costs of implementing major improvements to the remaining properties.
Such a course of action could increase the risk of loss of the Properties due to
any failure to make increased debt service payments, could adversely affect
potential distributions to Limited Partners and could prolong the time period
for receiving such distributions.
TERMS OF THE ASSET PURCHASE AGREEMENT
The following is a summary of the material terms of the Asset Purchase
Agreement to be entered into by and between the Partnership and the Purchaser if
the Transaction is approved by the Limited Partners. THIS
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SUMMARY DOES NOT PURPORT TO BE COMPLETE AND REFERENCE IS MADE TO THE FORM OF
ASSET PURCHASE AGREEMENT ATTACHED HERETO AS APPENDIX I. Capitalized terms used
but not defined herein have the meaning ascribed to them in the Asset Purchase
Agreement.
STRUCTURE OF THE TRANSACTION
In connection with the refinancing of the mortgages on the Properties,
the Partnership was required by the lender, First Boston, to transfer title in
each Property to certain limited liability companies (the "LLCs"), each of which
holds title to one of the Properties. For this purpose, the Partnership formed
New York LLCs each having two members. The managing member is a New York
corporation which is controlled by the Partnership and the other member is the
Partnership. The Partnership derives substantially all of the economic benefits
of each LLC. In order to effectuate the Sale, the Form of Asset Purchase
Agreement provides, in the alternative, for (i) the sale and assignment by the
Partnership to the Purchaser of all of its and the managing member's membership
interests in the LLCs that presently hold title to the Properties, or (ii) the
sale of the Properties by the Partnership and the LLCs to the Purchaser and the
transfer of title and delivery of the deeds at Closing. Under the former
structure, the LLCs and not the Purchaser will hold title to the Properties. If
the Proposal is approved, it is anticipated that the Asset Purchase Agreement
will be executed by the Partnership and the Purchaser within five (5) days of
the Expiration Date following approval of the Proposal.
PURCHASE PRICE
The Purchase Price for all of the Properties is $16,107,000 payable by
Purchaser at the Closing, subject to certain adjustments at Closing. The
Purchaser will pay a deposit of $50,000 upon signing the Asset Purchase
Agreement, such amount to be held in escrow. The Purchaser will assume the
mortgages on the Properties which are presently approximately $12,695,000 but
may be increased pursuant to a resizing of the loans. The General Partners have
agreed not to increase the outstanding indebtedness on the Properties to more
than $14,100,000 pursuant to any resizing consummated in anticipation of, or in
connection with, the Sale; the net proceeds of which will be paid to the
Partners in cash as a portion of their distribution in connection with the Sale.
The balance of the Purchase Price after the assumption of the mortgages will be
paid in cash and is expected to be paid out of proceeds from mezzanine financing
and/or the Purchaser's own resources. Assuming the requisite approval of the
Limited Partners is obtained promptly and the satisfaction, or, where
permissible, waiver of all conditions of the Sale, the closing date would be
expected to be scheduled during December 1997 and is required to occur within
one hundred and eighty (180) days from the date the Asset Purchase Agreement is
executed (the "Closing Date").
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CONDITION OF THE PROPERTIES; PURCHASER'S REVIEW OF THE PROPERTIES
The Purchaser is purchasing the Properties on an "As Is," "Where Is" and
"With All Faults Basis" with limited representations by the Partnership as to
the condition of the Properties or their fitness for any purpose. Unlike
typical third party agreements, because of the General Partners' familiarity
with the Properties, there are limited due diligence conditions which the
Purchaser can use to terminate the Asset Purchase Agreement.
CONDITIONS PRECEDENT TO EXECUTING/DELIVERING THE ASSET PURCHASE
AGREEMENT AND CLOSING
The obligations of the Partnership to enter and deliver the Asset
Purchase Agreement are subject to (i) the approval of the Transaction by a
majority of the Limited Partners; (ii) the receipt of the Fairness Opinion; and
(iii) the absence of the receipt of a more favorable offer for all of the
Properties.
The obligations of the Purchaser to close under the Asset Purchase
Agreement are subject to (i) the absence of a casualty or condemnation for which
the Purchaser has elected to terminate the Asset Purchase Agreement in
accordance with its terms; (ii) if title to the Properties is to be transferred,
the willingness of the title company to issue title insurance policies insuring
the Purchaser's ownership of the Properties in accordance with the applicable
provisions of the Asset Purchase Agreement; and (iii) the Purchaser obtaining
the amount of financing necessary to consummate the Transaction (for which the
Purchaser does not yet have a commitment). The Purchaser will have a maximum of
one hundred and twenty (120) days from the date the Asset Purchase Agreement is
executed to obtain a commitment for such financing. For a discussion of the
financing of the Transaction, see "THE TRANSACTION - Indebtedness on the
Properties."
ACCORDINGLY, EVEN IF THE TRANSACTION IS APPROVED BY A MAJORITY OF THE LIMITED
PARTNERS, THERE IS NO ASSURANCE THAT THE SALE WILL BE CONSUMMATED.
CASUALTY TO OR CONDEMNATION OF THE PROPERTIES
If, prior to the Closing, any one Property is damaged due to a fire or
other insured casualty and the cost of repairing such damage is $100,000 or
more, then the Purchaser may elect to terminate the Asset Purchase Agreement
with respect to such Property and the Purchase Price shall be reduced by a
reasonable amount based upon the opinion of an unaffiliated, qualified third
party.
If, prior to the Closing, any one Property is damaged due to fire or
other insured casualty and either: (i) the cost of repairing such damage is less
than $100,000, or (ii) the cost of repairing such damage is $100,000 or more and
the Purchaser has not elected to terminate the Asset Purchase Agreement with
respect to such damaged Property, there shall be no reduction in the Purchase
Price and the Closing shall occur as scheduled, the Partnership shall assign to
the Purchaser the proceeds of all casualty insurance with respect to such damage
and the Purchase Price shall be reduced by the amount of the deductible under
Partnership's casualty insurance.
If, prior to Closing, at least 10% of any one Property is condemned or
taken by eminent domain and such taking would materially interfere with the then
current use of such Property, then the Purchaser may elect to terminate the
Asset Purchase Agreement with respect to such Property and the Purchase Price
shall be reduced by
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a reasonable amount based upon the opinion of an unaffiliated, qualified third
party. If, prior to Closing, a portion of any one Property is condemned or
taken by eminent domain and either the Purchaser does not elect to terminate the
Asset Purchase Agreement with respect to the affected Property or the taking is
not of a character that would permit the Purchaser to make such election, the
Closing shall occur as scheduled without reduction in the Purchase Price and the
Partnership shall assign to the Purchaser all awards, if any, resulting from
such condemnation.
LACK OF REPRESENTATIONS AND WARRANTIES AND PHYSICAL DUE DILIGENCE
CONDITIONS
Unlike typical third party agreements, the Asset Purchase Agreement does
not require the Partnership to make certain customary representations and
warranties concerning the condition or operations of the Properties, or other
similar matters, such as environmental studies and engineering, nor does it
provide the Purchaser with a typical period in which to perform physical due
diligence investigations at the Properties or with a basis on which to refuse to
close the transaction based directly on the outcome of any due diligence
investigation.
PARTNERSHIP'S WARRANTIES
The Asset Purchase Agreement provides that to the extent the Partnership
has employees, the Partnership shall be responsible for (and the Purchaser shall
not assume the obligation of) all employee wages, benefits (including payments
for accrued bonuses, vacation or sick pay, unemployment compensation, employment
taxes, medical claims or similar payments), contributions under any benefit
program or agreement, severance pay obligations and other related employee costs
arising as a result of any events, acts (or failures to act) prior to the
Closing Date with respect to the Properties at which such persons are employed.
The Asset Purchase Agreement provides that to the extent the Partnership
has employees, the Partnership will retain all liability and responsibility for
fulfilling all federal and/or state COBRA and continuation of group health
insurance coverage requirements with respect to the Partnership's current or
former employees (and their dependents). The Purchaser does not assume any
obligation to provide medical insurance coverage to persons that it employs
because it acquires the Properties.
DEFAULT AND DAMAGES
The Asset Purchase Agreement provides that the Purchaser's recourse for
any uncured breach (a "Default") by the Partnership of any matter related to the
Asset Purchase Agreement following its execution but prior to the Closing shall
be to terminate the Asset Purchase Agreement, unless all such Defaults by the
Partnership in the aggregate materially and adversely affect the value of any
one Property by less than $50,000 or the value of all the Properties by less
than $250,000 in which event the Purchaser shall have no right to terminate the
Asset Purchase Agreement and shall be entitled to an adjustment of the Purchase
Price in the amount of such Default.
PRORATION
All items of income and expense such as collected rents and taxes will
be apportioned and adjusted between the Partnership and the Purchaser to the
date of the Closing based on a 365-day year as of 12:00 midnight, New York City
time, of the day preceding the Closing Date.
COMPARISON TO THIRD PARTY AGREEMENTS
The General Partners believe that the Asset Purchase Agreement relating
to the Sale contains several provisions which are not customarily found in
combination with each other in typical third party agreements. Provisions that
are advantageous to the Partnership include the following:
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<PAGE>
(i) An "As Is" provision, stating that regardless of any current
physical condition (other than casualty or condemnation) the Purchase Price will
remain the same at Closing;
(ii) The Partnership is not required to make certain customary
representations and warranties concerning the physical or operational conditions
of the Properties and, therefore, the Purchaser cannot refuse to close or make
claims against the Partnership on the basis of such customary representations
and warranties;
(iii) The lack of escrow or holdback of a portion of the Purchase Price
to cover possible claims;
(iv) The absence of a due diligence period and the inability for the
Purchaser to refuse to close the Sale directly due to any physical due diligence
investigation;
(v) The Partnership is not required to provide the Purchaser with
indemnities except for a brokerage indemnity; and
(vi) The absence of any reduction in the Purchase Price due to a
decline in the occupancy of the Properties at the time of Closing.
Provisions which may be less advantageous to the Partnership than those
found in typical third party agreements include the following:
(i) The Purchaser can terminate the Sale if it is unable to obtain
adequate financing to consummate the Sale;
(ii) The Partnership is required to consummate the Sale even if the
Purchaser and General Partners do not obtain a release from First Boston of the
Partnership's obligations under a guaranty of payment with respect to certain
recourse liabilities of the Partnership under the mortgages on the Properties;
and
(iii) The Agreement requires a deposit by the Purchaser of $50,000, and
in the event of the Purchaser's default under the Agreement, the Partnership's
damages are limited to such amount.
BENEFITS OF THE TRANSACTION TO
THE GENERAL PARTNERS AND THEIR AFFILIATES
Joseph M. Jayson, the Individual General Partner, is the sole
shareholder of J.M. Jayson. Realmark Properties, Inc., the Corporate General
Partner, is a wholly owned subsidiary of J.M. Jayson. Mr. Jayson is also the
President and one of two directors of the Corporate General Partner. In
addition, Mr. Jayson will control the Purchaser. As a result, the Sale is
subject to various conflicts of interest.
The Individual General Partner anticipates benefiting from the Sale to
the Purchaser because he owns all of the equity interests in the Purchaser and
will benefit on any returns the Purchaser receives from its investment in the
Properties. The Purchaser is buying the Properties with a view to generating a
positive return on its investment, whether from operating the properties,
selling the properties or ultimately selling interests in the Purchaser. The
Purchaser believes that this is possible because it is willing to invest funds
in capital improvements and other items necessary to enhance the value of the
Properties and to hold the Properties for an extended period of time. In
addition, the Purchaser may be able to borrow on more favorable terms than the
Partnership if it purchases additional properties and is therefore able to
cross-collateralize any loans with all of such properties, something the
Partnership is not in a position to do.
In connection with the Sale, the General Partners expect to receive
approximately $20,000 as repayment of outstanding advances made to the
Partnership by an affiliate. In addition, although the General Partners are not
entitled to receive any distributions with respect to their general partnership
interests, affiliates of the General
26
<PAGE>
Partners will receive distributions of approximately $44,631 of the net sales
proceeds with respect to the Units which they own.
The General Partners would have been entitled to receive a property
disposition fee upon sale of the Partnership's properties if certain conditions
were met. This fee is not to exceed the lesser of 50% of amounts customarily
charged in arm's-length transactions by others rendering similar services for
comparable properties or 2.75% of the price. The property disposition fee is
subordinate to payments to the Limited Partners of a cumulative annual return
(not compounded) equal to 7% of their adjusted capital contributions and to
repayment to the Limited Partners of an amount equal to their original capital
contributions. Because the conditions described above have not been met, no
disposition fee has been paid or accrued in connection with the Sale of the
Properties that is the subject of this consent solicitation.
The General Partners would also have been entitled to 13% of any
remaining sale or refinancing proceeds after payments to the Limited Partners if
their original capital contributions plus a cumulative annual return (not
compounded) of 12% of adjusted capital contributions; however, no such payment
will be made to the General Partners because such subordination provisions have
not been met.
Conversely the General Partners and their affiliates could be negatively
impacted by the Sale due to a reduction in the fees they presently receive.
Under the Partnership Agreement, the General Partners and their affiliates
receive compensation for services rendered and reimbursement for expenses
incurred on behalf of the Partnership. Pursuant to the Partnership Agreement,
the Corporate General Partner is entitled to a continuing partnership management
fee equal to 7% of "Net Cash Flow," as defined in the Partnership Agreement.
The partnership management fee payable to the Corporate General Partner reduces
the amount of Net Cash Flow available for distribution to the Partners in any
given year. The Corporate General Partner is paid the 7% partnership management
fee annually, as cash flow allows. For the year ended December 31, 1996, the
Corporate General Partner received $56,100 with respect to this fee. In
addition, an affiliate of the General Partners, Realmark Corporation, is
entitled to a property management fee equal to 3-6% of the Partnership's gross
revenues from the properties. For the year ended December 31, 1996, Realmark
Corporation received a total of $365,877 with respect to this fee. The General
Partners are also entitled to 3% of the Partnership's Net Cash Flow available
after payment to the Corporate General Partner of the partnership management
fee.
Because all of the foregoing fees are based on revenues or cash flow,
the General Partners and their affiliates would be expected to receive lower
fees following the sale of the Properties; however, the Purchaser will receive
any capital appreciation from these Properties following their purchase. See
"PRO FORMA FINANCIAL INFORMATION."
INDEMNIFICATION
The Partnership Agreement provides that, except in the case of
negligence or misconduct, the General Partners and their affiliates, will not be
liable, responsible or accountable in damages or otherwise to the Partnership or
any of the Limited Partners for any action or inaction, the effect of which may
cause or result in loss or damage to the Partnership, if such course or inaction
was undertaken in good faith and in a manner they reasonably believed to be
within the scope of the authority granted to them and in or not opposed to the
best interests of the Partnership. The General Partners and their affiliates
will be entitled to be indemnified by the Partnership against and to be released
by the Limited Partners from any liability or loss, as a result of any claim or
legal proceeding relating to any action or inaction concerning the activities of
the Partnership, except in the case where the General Partner or their
affiliates are guilty of negligence or misconduct, provided such action or
inaction was undertaken in good faith to promote the best interests of the
Partnership. However, neither the General Partners nor their affiliates will be
indemnified from any liability, loss, or damage incurred by them in connection
with any claim involving allegations that the Securities Act of 1933, as amended
(the "Securities Act"), or any state securities law was violated by any of such
parties unless such parties seeking indemnification are successful in defending
such action on the merits, such claims have been dismissed with prejudice on the
merits or a court of competent jurisdiction approves the settlement
27
<PAGE>
of a claim.
If a claim is made against the General Partners or their affiliates in
connection with such parties' actions on behalf of the Partnership with respect
to the Transaction, the General Partners expect that they, as well as their
affiliates, will seek to be indemnified by the Partnership with respect to such
claim. As a result of these indemnification rights, a Limited Partner's remedy
with respect to claims against the General Partners or their affiliates relating
to their respective involvement in the Transaction could be more limited than
the remedy which might have been available absent the existence of these rights
in the Partnership Agreement. A successful claim for indemnification would
reduce the amount of Partnership cash available for distributions to the Limited
Partners by the amount paid.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
GENERAL
The Transaction, if approved, will have certain tax implications to the
Limited Partners that must be considered. The following summarizes the material
estimated federal income tax consequences to Limited Partners arising from the
Transaction and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, court decisions and published
positions of the Internal Revenue Service (the "Service"), each as in effect on
the date of this Consent Statement. There can be no assurance that the Service
will agree with the conclusions stated herein or that future legislation or
administrative changes or court decisions will not significantly modify the
federal or state income tax law regarding the matters described herein,
potentially with retroactive effect. This summary is not intended to, and
should not, be considered an opinion respecting the federal or state income tax
consequences of the Transaction.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each Partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the Partnership's
items of income, gain, loss, deduction and credit (hereinafter referred to as
"income or loss") in accordance with the Partnership Agreement. If the
allocation of income or loss in the Partnership Agreement does not have
"substantial economic effect" as defined in Code Section 704(b), the law
requires the Partnership's income or loss to be allocated in accordance with the
Limited Partners' or Partners' economic interests in the Partnership. The
distribution of cash attributable to Partnership income is generally not a
separate taxable event.
For tax purposes, the Partnership will realize and recognize gain or
loss separately for each Property (and in some cases, for each building which is
part of a Property). The amount of gain for tax purposes recognized with respect
to an asset, if any, will be an amount equal to the excess of the amount
realized (I.E., cash or consideration received reduced by the expenses of the
Sale) over the Partnership's adjusted tax basis for such asset. Conversely, the
amount of loss recognized with respect to an asset, if any, will be an amount
equal to the excess of the Partnership's adjusted tax basis over the amount
realized by the Partnership for such asset. The "adjusted tax basis" of a
Property is its cost (including nondeductible capital expenditures made by the
Partnership at the time of purchase) or other basis with certain additions or
subtractions for expenditures, transactions or recoveries of capital during the
period of time from acquisition of the Property until the sale or other
disposition. To determine the gain or loss on the sale or other disposition of
a Property the unadjusted basis must be (i) increased to include the cost of
capital expenditures such as improvements, betterments, commissions and other
nondeductible charges; and (ii) decreased by depreciation and amortization.
Each Limited Partner must report his or her allocable share of these
gains and losses in the year in which the Properties are sold. Each Limited
Partner's allocable share of any Section 1245 gain, Section 1231 gain or loss
and Partnership net taxable income or loss from operations will be reflected on
his or her applicable Schedule K-1 (as determined in accordance with the
allocation provisions contained in the Partnership Agreement discussed below).
28
<PAGE>
Under Section 702(a)(3) of the Code, a partnership is required to
separately state, and the Partners are required to account separately for, their
distributive share of all gains and losses. Accordingly, each Limited Partner's
allocable share of any Section 1231 gain or loss and depreciation recapture
realized by the Partnership as a result of the Transaction would be reportable
by such Limited Partner on his or her individual tax return. Section 1231 gains
are those gains arising from the sale or exchange of "Section 1231 Property"
which means (i) depreciable assets used in a trade or business or (ii) real
property used in a trade or business and held for more than one year.
Conversely, Section 1231 losses are those losses arising from the sale or
exchange of Section 1231 Property. If Section 1231 losses exceed Section 1231
gains, such losses would be treated as ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable year exceed
certain Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses shall be
treated as long-term capital gains. However, Section 1231 gains will be treated
as ordinary income to the extent of prior Section 1231 losses from any source
that were treated as ordinary in any of the previous five years.
Under Sections 1245 and 1250 of the Code, a portion of the amount
allowed as depreciation expense with respect to Section 1231 Property may be
"recaptured" as ordinary income upon sale or other disposition rather than as
long-term capital gains ("Section 1245 gains" and "Section 1250 gains",
respectively). The Partnership does not anticipate that it would have Section
1250 gains as a result of the Transaction, and believes that Section 1245 gains,
if any, will be de minimis. Therefore, it is anticipated that the sale of each
of the Properties will result in capital gain without the re-capture of any gain
to be reported at ordinary income tax rates. (It is not anticipated that any
Property will be sold at a tax loss.)
In accordance with the Partnership Agreement, distributions from the
Sale will be made:
(i) first, to the Limited Partners in an amount equal to seven
percent (7%) of their adjusted capital contributions for all fiscal years
commencing with the first fiscal quarter following termination of the offering
of Units, but not compounded, less the total amount of net cash flow previously
distributed to the Limited Partners less any amounts distributed pursuant to
this clause (i);
(ii) second, to the Limited Partners in an amount equal to their
capital contributions, less any Sale or refinancing proceeds distributed
pursuant to the preceding clause (i), which are not required, on the basis of
calculations at the date of any subsequent sale or refinancing, to make up any
deficit in the distributions provided by the preceding clause (i);
(iii) third, to the Limited Partners in an amount equal to an
additional five percent (5%) of the average of their adjusted capital
contributions for all fiscal years commencing with the first fiscal quarter
following termination of the offering of Units, but not compounded, less the sum
of (a) the total amount of net cash flow previously distributed to the Limited
Partners in excess of the amounts described in (i) above, and (b) the sum of all
previous distributions of sale or refinancing proceeds made to the Limited
Partners pursuant to this clause (iii);
(iv) fourth, to all the Partners, an amount equal to their respective
positive capital account balances; and
(v) fifth, the balance, eighty-seven percent (87%) to the Limited
Partners and thirteen percent (13%) to the General Partners except that the
Corporate General Partner will receive an additional one percent (1%) of any
balance for the first one percent (1%) of acquisition fees which the Corporate
General Partner would have been entitled to receive in excess of 14.75% of the
gross proceeds of the offering as provided in the Partnership Agreement.
29
<PAGE>
The Partnership expects to recognize taxable gains of approximately $4.7
million from the Sale, which would be equal to approximately $217 per Unit.
Actual gain will be allocated among the Partners as follows: (i) first, in the
amount of the distribution, and then (ii) generally, any excess above the
distribution amount will be allocated between the Limited Partners and the
General Partners, with 87% allocated to the Limited Partners and 13% allocated
to the General Partners. The expected distribution to the Partners in
connection with the Sale from net Sale proceeds and other sources is anticipated
to be approximately $171 per Unit.
After allocating income or loss to the Partners, with the concomitant
tax basis adjustments, the distribution of proceeds from the Transaction will
reduce each Limited Partner's federal income tax basis in his or her Unit. To
the extent that the amount of the distribution is in excess of that basis, such
excess will be taxed as a long-term or short-term capital gain depending on a
Limited Partner's holding period.
CAPITAL GAINS
Net long-term capital gains allocated to individuals, trusts and estates
from the Sale will be taxed at a maximum rate of 20%, while ordinary income will
be taxed at a maximum rate of up to 39.6%. The amount of net capital loss that
can be utilized to offset income will be limited to the sum of net capital gains
from other sources recognized by the Limited Partner during the tax year, plus
$3,000 ($1,500 in the case of a married individual filing a separate return).
The excess amount of such net long-term capital loss may be carried forward and
utilized in subsequent years subject to the same limitations.
PASSIVE LOSS LIMITATIONS
Limited Partners who are individuals, trusts, estates, or personal
service corporations are subject to the passive activity loss limitations rules.
A Limited Partner's allocable share of Partnership income or loss is treated as
derived from a passive activity, except to the extent of the Partnership's
portfolio income. Portfolio income includes such items as interest and
dividends. A Limited Partner's allocable share of any Partnership gain realized
on the Sale will be characterized as passive activity income. Such passive
activity income may be offset by passive activity losses from other passive
activity investments unless the Partnership is treated as a publicly traded
partnership. The Partnership is not expected to be treated as a publicly traded
partnership and the Partnership may adopt certain precautions to assure that it
avoids such treatment. See "MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP
INTERESTS AND RELATED SECURITY HOLDER MATTERS."
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Limited Partners in all the state tax jurisdictions in which
they are subject to tax or in which each of the Properties is located.
Accordingly, the following is a general summary of certain common (but not
necessarily uniform) principles of state income taxation. State income tax
consequences to each Limited Partner will depend upon the provisions of the
state tax laws to which the Limited Partner is subject. The Partnership will
generally be treated as engaged in business in each of the states in which the
Properties are located, and the Limited Partners would generally be treated as
doing business in such states and therefore subject to tax in such state. Most
states modify or adjust the taxpayer's federal taxable income to arrive at the
amount of income potentially subject to state tax. Resident individuals
generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules.
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<PAGE>
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Limited Partners of the Properties and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Limited Partners and to certain other
categories of Limited Partners, such as non-United States persons, corporations,
insurance companies, subchapter S corporations, partnerships or financial
institutions. It also does not address the state, local or foreign tax
consequences of the transactions. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE
TRANSACTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the outstanding Units on the
Record Date consent to the Transaction, such approval will bind all Limited
Partners. The Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act, under which the Partnership is governed, do not give rights of
appraisal or similar rights to Limited Partners who dissent from the consent of
the majority in approving or disapproving the Transaction. Accordingly,
dissenting Limited Partners do not have the right to have their Units appraised
or to have the value of their Units paid to them if they disapprove of the
action of a majority in interest of the Limited Partners.
MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS
At the Record Date, there were 2,264 Limited Partners. There is no
active public trading market for the Units. Secondary sales activity for the
Units, including privately negotiated sales, has been limited and sporadic.
According to information obtained from the Corporate General Partner, from
January 1, 1996 through June 30, 1997 an aggregate of 514 Units (representing
approximately 2.4% of the total outstanding Units) were transferred in sales
transactions at prices ranging from $210.00 per Unit to $340.00 per Unit. The
expected distribution of approximately $171 per Unit fits well within this range
considering the Purchaser is only purchasing a portion of the Partnership's
assets.
The General Partners believe that, although secondary market sales
information is probably not a reliable measure of value because of the limited
and inefficient market for the Units, this information may be relevant to a
Limited Partner's decision as to whether to consent to the Transaction. Due to
the fact that the Units are not listed on any exchange or quoted on NASDAQ,
privately negotiated sales and sales through intermediaries (E.G., through the
trading system operated by companies such as the Chicago Partnership Board,
Inc., which publishes sale offers by holders of Units and others) are the only
means available to a Limited Partner to liquidate an investment in the Units.
In 1987 Congress adopted certain rules concerning "publicly traded
partnerships." The effect of being classified as a publicly traded partnership
would be that income produced by the Partnership would be classified as
portfolio income rather than passive income. On November 29, 1995, the Internal
Revenue Service adopted final regulations ("Final Regulations") describing when
interests in partnerships will be considered to be publicly traded. The Final
Regulations do not take effect with respect to existing partnerships until the
year 2006. Due to the nature of the Partnership's income and to the low volume
of transfers of Units, it is not anticipated that the Partnership will be
treated as a publicly traded Partnership under currently applicable rules and
interpretations or under the Final Regulations. However, in the event the
transfer of Units presented for transfer within a tax year of the Partnership
could cause the Partnership to be treated as a "publicly traded partnership" for
federal tax purposes, the General Partners will only accept such transfers after
receiving satisfactory evidence that such transfers will not cause the
Partnership to be treated as a "publicly traded partnership" under the Code.
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<PAGE>
DISTRIBUTIONS
The Partnership did not make or declare any cash distributions to
Limited Partners in 1995, 1996 or 1997. In 1994, the Partnership made a cash
distribution to Limited Partners of $5.00 per Unit; in 1993 for the amount of
$18.75 per Unit; in 1992 for the amount of $15.00 per Unit; in 1991 for the
amount of $2.50 per Unit; and in 1990 for the amount of $23.75 per Unit.
Distributions to the Limited Partners prior to 1990 were as follows (per Unit):
in 1989 distributions were made in the amount of $52.50; in 1988 for the amount
of $49.23 and in 1987 for the amount of $24.96. All of the foregoing aggregate
distributions of $191.69 were paid from net cash flow from operating activities
as defined in the Partnership Agreement. There are no material legal
restrictions on the Partnership's present or future ability to make
distributions in accordance with the provisions of the Partnership Agreement.
The potential for future distributions was considered by the Purchaser when
establishing the purchase price for the Properties. Reference is made to
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" for a discussion of the Partnership's plans regarding future
distributions.
It is anticipated that the distribution of net proceeds from the Sale
and other sources will occur within ninety (90) days after the Closing Date of
the Sale. However, the General Partners may establish different dates for such
distributions if there is a material delay in the Closing of the Sale. Assuming
the Sale is consummated, it is estimated that the net cash proceeds available
for distribution from Sale proceeds and other sources would equal approximately
$171 per Unit. The General Partners anticipate that a portion of the
distribution to the Partners may be paid from certain reserves which will no
longer be necessary for the Partnership to retain following the Sale; however,
there can be no assurance that the estimated amounts will be available for
distribution. The amount distributed per Unit does not reflect any
contingencies that might arise subsequent to the date of this Consent Statement
and is based on various assumptions with respect to transaction-related costs
and other matters. As such, the actual amounts distributed to Limited Partners
may vary from this amount. See "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE SALE."
Limited Partners who purchased their Units during the initial public
offering of the Units are not expected to receive aggregate distributions,
including distributions from the Sale, equal to the amount that they originally
invested in the Partnership.
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SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for each of the years
in the five-year period ended December 31, 1996 has been derived from the
Partnership's audited financial statements. The following selected historical
financial data for the six-month periods ended June 30, 1997 and 1996 are
unaudited and, in the opinion of the General Partners, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. Financial data for the six-month period ended June
30, 1997 are not necessarily indicative of the results of operations to be
expected for the entire year. The selected financial data set forth below
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "PRO FORMA FINANCIAL
INFORMATION" and the audited and unaudited financial statements and related
notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------- -------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996 1997
Total assets $31,709,073 $29,925,512 $29,432,301 $27,477,303 $26,050,643 $27,051,450 $27,490,338
Total revenues $ 6,026,205 $ 6,309,766 $ 6,799,739 $ 7,213,894 $ 7,012,767 $ 3,522,690 $ 3,577,134
Long-term debt $21,440,659 $21,165,091 $21,918,069 $21,606,473 $21,337,592 $21,481,146 $23,607,733
Net income (loss) $(1,340,545) $(1,086,663) $(1,283,889) $(1,962,880) $(1,262,141) $ (576,113) $ (862,838)
Net income (loss)
per Limited
Partnership Unit $ (61.91) $ (50.19) $ (59.30) $ (90.65) $ (58.29) $ (26.61) $ (39.85)
Cash distributions
declared per
Limited
Partnership Unit: $ 15.00 $ 18.75 $ 5.00 $ --- $ --- $ --- $ ---
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership had success during the year ended December 31, 1996 in
controlling expenses, the result of which can be seen in the almost 36% decrease
in the loss for the year. Occupancy levels decreased through much of 1996
causing a decrease in revenues, but management feels confident that with the
improvements being made to the properties, as well as those planned, this
situation will turn around in the coming year. Cash flow from operations
improved significantly over that of the two previous years; this additional cash
flow is being used to fund capital improvements at the properties.
Management has recently refinanced the mortgages on some properties of
the Partnership. The refinancing is expected to improve cash flow in the
Partnership by reducing the interest payments on the Partnership's indebtedness.
In addition, management believes the refinancing addressed a going concern issue
reflected in the Independent Auditors' Report for the fiscal year ended
December 31, 1996.
Management also has plans to improve the financial operations of the
Partnership through tighter cash management by way of the closer monitoring of
expenses such as payroll, advertising and maintenance, which have typically been
the expenses that have increased from year to year. Additionally, tighter
credit policies have been put into place as a means of avoiding the collection
problems which the properties incurred during the past several years. However,
management continues to anticipate significant expenditures for capital
improvements of approximately $1.3 million during the next 18 months, in
addition to improvements being made using the escrow funds set aside under the
mortgages. The General Partners believe that there will be sufficient funds to
make these improvements from cash from operations and reserves.
Additional funds may also be available if management determines to
increase the existing financing by resizing the existing loans. Should this
occur, the net proceeds of such financings would be distributed to the Partners
if a Sale of the Properties to the Purchaser is consummated. If such Sale is
not consummated, all or a significant portion of the financing proceeds would be
expected to be used or retained for capital improvements.
Accounts receivable-affiliates totaled $17,233 and $147,846 at
December 31, 1996 and 1995, respectively. The outstanding balance is in the
process of being reimbursed.
The Partnership made no distributions in the first six months of 1997,
nor in the years ended December 31, 1996, 1995 and 1994. Management hopes to
make a distribution in the coming year, but at this date, all available cash is
being utilized to fund necessary improvements to the properties. Although the
Partnership experienced a loss for the first six months of 1997, management
believes that with the recently obtained financing (and resulting decrease in
debt service payments), anticipated rent increases and efforts to control and
manage expenses, profitability should increase.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996
Partnership operations for the six month period ended June 30, 1997
resulted in a net loss of $862,838 or $39.85 per Unit versus a six month 1996
net loss of $576,113 or $26.61 per Unit.
34
<PAGE>
Tax loss for the six month period ended June 30, 1997 amounted to
$592,443 or $27.36 per Unit compared to a tax loss of $716,245 or $33.08 per
Unit for the corresponding period in 1996.
Total revenue for the six month period ended June 30, 1997 amounted to
$3,577,134 as compared to $3,522,690 for the six month period ended June 30,
1996. For the first six months of 1997 there was an increase in total
partnership revenue of slightly more than $54,000 as compared to the same period
in 1996. Of this total, there was only a slight increase in interest and other
income of almost $7,000 which primarily resulted from an increase in termination
fees and month-to-month surcharges at the residential properties. The majority
of the increase was the result of an increase in net rental revenues due to
increased occupancies, primarily at the commercial properties in the
Partnership. Management continues to aggressively market the residential
properties through attractive concessions and "regular" or steady advertising in
an effort to increase occupancies.
For the six month period ended June 30, 1997, expenses totaled
$4,195,351, increasing just over $222,000 from the corresponding period ended
June 30, 1996. For the quarter ended June 30, 1997, Partnership expenses
amounted to $2,165,643, increasing by $172,500 from the 1996 quarter amount.
For the first six months of 1996, an increase in property operations
expenditures amounting to almost $54,000 resulted due to increased repairs and
maintenance work being done at several of the residential complexes in the
Partnership. Management is stressing the importance of the physical appearance
of the properties as a means of improving occupancy, and thus more improvements
(E.G., new carpets and appliances, fresh coats of paint, etc.) are being brought
about/completed. The increase in these expenses is expected to continue through
the end of 1997 as improvements are continuing and completed at the Properties.
There was a decrease of over $134,000 in administrative expenses in total when
comparing the six month periods ended June 30, 1997 and 1996 which can be
attributed to a decrease in Partnership management expenses. A large increase
in amortization expense was also noted. This increase was the result of new
financing obtained during the second quarter of 1997 on several of the
residential complexes in the Partnership; the new financing led to the write-off
of the majority of the previously capitalized acquisition costs. The write-off
of such costs amounted to approximately $205,000 and is included in operations.
For the six month period ended June 30, 1997, the Inducon-East Joint
Venture generated a net loss of $236,925 versus a net loss of $140,554 for the
six months ended June 30, 1996. This jump was primarily due to increases in
administrative expenses.
The Inducon-East Phase III Joint Venture generated a net loss of $20,571
for the six month period ended June 30, 1997 with $19,542 being allocated to the
Partnership. Net income for the joint venture for the six month period ended
June 30, 1996 amounted to $8,339.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, the Partnership incurred a net
loss of $1,262,141 or $58.29 per Unit. This is a large improvement from the
year ended December 31, 1995 when the loss incurred totaled $1,962,880 or $90.65
per Unit.
Partnership revenues for the year ended December 31, 1996 totaled
$7,012,767, consisting of rental income of $6,661,327 and other income, which
includes interest, laundry income, and other miscellaneous sources of income of
$351,440. The decrease in rental revenue from that of the previous year is the
result of decreasing occupancies at several of the residential complexes in the
Partnership, such as Williamsburg North and The Fountains; occupancy also
dropped at The Paddock, which was 100% occupied as of December 31, 1995.
Commercial Park West, Camelot East and Jackson Park were three of the stronger
performers at the end of 1996. In order to limit vacancies and improve cash
collections, management continues to offer incentive programs, such as free
months rent or discounted rents for signed leases. Even when such a program is
successful, however, it does
35
<PAGE>
result in a decrease in revenues until full rent is paid. Rental revenues in
the year ended December 31, 1995 amounted to $6,826,595.
Partnership expenses for the year ended December 31, 1996 totaled
$7,919,987, a considerable decrease over the expenses of the year ended
December 31, 1995 which were $8,782,511. The decrease can be attributed to
lower property operations costs and administrative costs paid to affiliates
incurred during 1996. Throughout the year, decreases were seen in payroll and
associated costs, repairs and maintenance expenses and contracted services.
Additionally, a decrease in accounting and portfolio management expenses was
responsible for the decline in administrative costs paid to affiliates.
Management has focused on closely monitoring expenses and identifying ways of
controlling and cutting them through utility savings devices, increasing
in-house maintenance work, etc. Other expenses remained fairly constant as
compared to the previous year.
The Partnership expects to incur slightly higher property operations
expenses in the coming year due to the costs associated with preparing the
residential units for new tenants (I.E., cleaning, painting, appliance and
carpeting costs). Although this work is necessary in order to increase rental
revenue(s) generated, management continues to keep in mind that expenditures
must be closely monitored so as not to hurt the cash flow from operations of the
Partnership. One means of controlling such expenses has been management's
success at obtaining large price discounts on paint, carpeting and appliances
through negotiations with large national companies such as Whirlpool.
Inducon-East Joint Venture generated a net loss of $328,299 for the year
ended December 31, 1996 as compared to the loss which resulted in the year ended
December 31, 1995 of $439,442. In accordance with the joint venture agreement,
95% of the income or losses are passed through to the Partnership and the
remaining 5% is allocated to the other joint venture partner.
Inducon-East Phase III Joint Venture generated a net loss of $45,302 for
the year ended December 31, 1996 as compared to the income which resulted in the
year ended December 31, 1995 of $24,428. In accordance with the joint venture
agreement, 95% of the income or losses are passed through to the Partnership and
the remaining 5% is allocated to the other joint venture partner.
For the year ended December 31, 1996, the tax basis loss was $721,465 or
$33.32 per Unit compared to a tax loss of $1,412,223 or $65.22 per Unit for the
year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operations of the Partnership produced a net loss of $1,962,880 or
$90.65 per Unit for the year ended December 31, 1995, compared to a net loss of
$1,283,889 or $59.30 per Unit for the year ended December 31, 1994.
The total revenue for the year ended December 31, 1995, amounted to
$7,213,894, a 6.1% increase over 1994. Rental revenue increased by $348,222 or
5.4% over 1994, while interest income and other income increased by $65,933 or
20.5%. The increase in rental revenue is the direct result of the following:
(a) rental increases across the properties within the Partnership and (b) an
increase in occupancy at the Fountains, Jackson Park properties as well as two
of the Partnership's commercial properties, Commercial Park West and The
Paddock. There was also a decrease in the delinquencies at the properties as a
direct result of new management credit and collections policies. The increase
in other income, meanwhile, can be directly related to an increase in
termination fees and security deposits forfeited. In an effort to increase
income and improve such cash flow, the Partnership has purchased and installed
laundry machines at O'Hara and Williamsburg North. This will allow the
Partnership to collect 100% of the revenue from the laundry facility versus a
percentage of the income as in prior years.
36
<PAGE>
For the year ended December 31, 1995, total expenses were $8,782,511
which represents an increase of $1,037,255 or 13.4% over 1994, which was
$7,745,256. This increase can be broken down as follows: $686,106 or 24.1%
increase in property operations, $26,441 or 1.2% increase in interest expense,
$62,448 or 4% decrease in depreciation and amortization, $391,156 or 33.6%
increase in administrative expenses. The increase in property operations is
directly credited to increases in payroll, maintenance, repairs, tenant
retention, and real estate taxes. Administrative expenses increased due to
portfolio management and accounting expenses, investor service fees and legal
fees.
Overall expenses were expected to remain consistent with 1995 expenses
or increase only slightly, as there is a direct relationship to the occupancy
levels.
The Inducon-East Joint Venture generated a loss for the year ended
December 31, 1995 of $439,442 compared to a net loss of $413,223 for December
31, 1994. This represents a $26,219 or 6% decrease over 1994. There was an
increase in rental income of $113,464 which represents a 9% increase over 1994.
This increase is a result of increased occupancy and an increase in common area
maintenance charges. Property operation expenses increased 45% or $143,597 over
1994. The increase is due to higher repair costs and increases in real estate
taxes. There were some expenses that decreased: interest expenses decreased
$15,599 or 2.3% over 1994, and administrative expenses decreased $2,565 or 1.8%
over 1994.
The Inducon-East Phase III Joint Venture generated a net income of
$24,428 for the year ended December 31, 1995 versus December 31, 1994 net income
of $57,042. There was a major increase in rental income over 1994; rental
income increased $46,288 or 30.8% over 1994. This is a result of new tenants in
the first building and the completion of the second building, which was occupied
starting in October 1995. Property operating costs increased as a direct result
of the second building being completed and the increase in occupancy.
The Partnership tax loss for the year ended December 31, 1995 totaled
$1,412,223 or $65.22 per Unit. The Partnership's tax loss for the year ended
December 31, 1994 was $1,073,110 or $49.56 per Unit.
BUSINESS
The Partnership was formed on February 28, 1986, under the Delaware
Revised Uniform Limited Partnership Act for the primary purpose of investing in
a diversified portfolio of income-producing real estate investments. On July
14, 1986, the Partnership commenced an offering of Limited Partnership Units
pursuant to a Registration Statement under the Securities Act of 1933, as
amended. The gross proceeds from the offering totaled $21,002,800 for 21,002.8
Units at $1,000 per Unit, before deducting sales commissions and expenses of the
offering. The offering terminated on October 31, 1987, and no additional Units
were sold. There were 20,999.8 Units outstanding as of the Record Date, held by
2,264 Limited Partners.
An affiliate of the Corporate General Partner, Realmark Corporation
performs day-to-day management and real estate advisory services for the
Partnership in consideration of a property management fee of 5% of gross
property revenues in the case of residential properties and 6% of gross property
revenues in the case of commercial properties. Realmark Corporation's duties
include disposition and asset management services, including recordkeeping,
contracting with tenants and service providers, and preparation of financial
statements and other reports for management use. The Corporate General Partner
is responsible for the overall supervision and administration of the
Partnership's operations, including setting policies and making all disposition
decisions, and
37
<PAGE>
the General Partners and their affiliates continue to provide administrative,
advisory, and oversight services to the Partnership. Compensation to the
Corporate General Partner from the Partnership consists of expense
reimbursements as permitted under the Partnership Agreement and a partnership
management fee in the amount of 7% of the Partnership's net cash flow as defined
in the Partnership Agreement.
The Partnership's primary business is to own and operate
income-producing real property for the benefit of its Limited Partners. As of
December 31, 1996, the Partnership, either directly or through the LLCs, owned
six (6) apartment complexes with a total of 971 units; and directly owned an
office/warehouse building in Nashville, Tennessee; and an office complex in
Research Triangle Park, North Carolina. The Partnership also owns interests in
two joint ventures. The Partnership owns a 50% joint venture interest in an
office/warehouse complex in Amherst, New York with the other 50% interest owned
by Curtlaw Corporation, an unaffiliated third party. In addition, the
Partnership holds a 50% joint venture interest in another office/warehouse
complex in Amherst, New York with Curtlaw Corporation owning the other 50%
interest. The Partnership also owns an approximately 33.33% interest in 100
acres of land to be developed in Amherst, New York. The remaining 66.67%
interest in the land is owned by two public limited partnerships managed by the
General Partners.
The business of the Partnership is not seasonal. As of December 31,
1996, the Partnership did not directly employ any persons in a full-time
position.
The Partnership is engaged solely in the business of real estate
investment; therefore, presentation of information about industry segments is
not applicable. In 1996, 1995 and 1994, the Partnership's interests in the
Fountains and Camelot East Apartments each produced 15% or more of the
Partnership's revenues related to real estate activity, providing 17% and 18% of
such revenues in 1996, 1995 and 1994, respectively. The Camelot East Apartments
are not included in the Properties to be sold pursuant to the Transaction
described herein. The only other property to produce 15% or more of the
Partnership's remaining revenue, related to real estate activity in 1996 was the
Commercial Park West office complex, which produced 19% of the Partnership's
revenues.
38
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Partnership, as an entity, does not have any directors or officers.
The Individual General Partner of the Partnership is Joseph M. Jayson. The
directors and executive officers of Realmark Properties, Inc., the Partnership's
Corporate General Partner, as of the date hereof, are listed below. Each
director is subject to election on an annual basis.
Title of All Positions Year First Elected
Held With Realmark Director/Officer
------------------ ----------------
Joseph M. Jayson President and Director 1979
Judith P. Jayson Vice President and Director 1979
Michael J. Colmerauer Secretary/Officer 1991
Joseph M. Jayson, President and Director of Realmark Properties, Inc.
and Judith P. Jayson, Vice President and Director of Realmark Properties, Inc.,
are married to each other.
The Directors and Executive Officers of the Corporate General Partner
and their principal occupations and affiliations during the last five years or
more are as follows:
Joseph M. Jayson, age 58, is Chairman and Director and sole stockholder
of J.M. Jayson & Company, Inc. and certain of its affiliated companies:
Westmoreland Capital Corporation, Oilmark Corporation and U.S. Energy
Development Corporation. In addition, Mr. Jayson is President and Director of
Realmark Corporation and Realmark Properties, Inc., wholly owned subsidiaries of
J.M. Jayson & Company, Inc. and co-General Partner of Realmark Property
Investors Limited Partnership, Realmark Property Investors Limited
Partnership-II, Realmark Property Investors Limited Partnership-III, Realmark
Property Investors Limited Partnership-IV, Realmark Property Investors Limited
Partnership-V, Realmark Property Investors Limited Partnership-VI A and Realmark
Property Investors Limited Partnership-VI B. Mr. Jayson is a member of the
Investment Advisory Board of the Corporate General Partner. Mr. Jayson has been
engaged in the real estate business for the last 34 years and is a Certified
Property Manager as designated by the Institute of Real Estate Management
("I.R.E.M."). Mr. Jayson received a B.S. Degree in Education in 1961 from
Indiana University, a Masters Degree from the University of Buffalo in 1963, and
has served on the Educational Faculty of the Institute of Real Estate
Management. Mr. Jayson has, for the last 34 years been engaged in various
aspects of real estate brokerage investment. He brokered residential properties
from 1962 to 1964, commercial and investment properties from 1964 to 1967, and
in 1967, left commercial real estate to form his own investment firm. Since
that time, Mr. Jayson and J.M. Jayson & Company, Inc. have formed, or have
participated in forming over 30 real estate related limited partnerships. For
the past sixteen years, Mr. Jayson and J.M. Jayson & Company, Inc. and an
affiliate have also engaged in developmental drilling for gas and oil.
Judith P. Jayson, age 56, is currently Vice-President and Director of
Realmark Properties, Inc. She is also a Director of the property management
affiliate, Realmark Corporation. Mrs. Jayson has been involved in property
management for the last 35 years and has extensive experience in the hiring and
training of property management personnel and in directing, developing and
implementing property management systems and programs. Mrs. Jayson, prior to
joining the Corporate General Partner in 1973, taught business in the Buffalo,
New York high school system. Mrs. Jayson graduated from St. Mary of the Woods
College in Terre Haute, Indiana, with a degree in Business Administration. Mrs.
Jayson is the wife of Joseph M. Jayson, the Individual General Partner.
Michael J. Colmerauer, 39, is Secretary and in-house legal counsel for
J.M. Jayson & Company, Inc., Realmark Corporation, Realmark Properties, Inc. and
other companies affiliated with the General Partners. He received a Bachelor's
Degree from Canisius College in 1980 and a Juris Doctor Degree from the
University of Tulsa in 1983. Mr. Colmerauer is a member of the American and Erie
County Bar Association and has been employed by the Jayson group of companies
for the last 13 years.
39
<PAGE>
COMPENSATION
No direct remuneration was paid or payable by the Partnership to
directors and officers for its fiscal years ended December 31, 1996, 1995 or
1994; nor was any direct remuneration paid or payable by the Partnership to
directors or officers of the Corporate General Partner for the fiscal years
ended December 31, 1996, 1995 or 1994.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 20,999.8 Units issued and outstanding and
entitled to vote held of record by 2,264 Limited Partners. At the Record Date,
the General Partners and their affiliates owned an aggregate of 261 Units
(approximately 1.2% of the outstanding Units). The General Partners and their
affiliates holding Units intend to consent to the Transaction.
VOTING PROCEDURES
Each Limited Partner shall be entitled to one (1) vote for each Unit
owned of record by such Limited Partner on the Record Date. Approval of the
Proposal requires the affirmative consent of Limited Partners holding a majority
in interest of the Units. A duly executed consent card on which a consent or an
indication of withholding consent is not indicated will be deemed a consent to
the Proposal. A consent may be revoked by written notice of revocation or by a
later dated consent containing different instructions at any time on or before
the Expiration Date.
This Consent Statement is accompanied by a separate consent card.
Consent cards should be completed, signed and returned by the Expiration Date to
The Herman Group, Inc. at the address specified below in this Consent Statement
or by facsimile of the front and back of the card to the number specified below.
A self-addressed, prepaid envelope for return of the consent card is included
with this Consent Statement:
BY MAIL: BY FACSIMILE:
THE HERMAN GROUP, INC. (214) 999-9323
2121 SAN JACINTO STREET, 26TH FLOOR
DALLAS, TEXAS 75201-6705
FOR INFORMATION CALL:
(800) 354-0414
(TOLL-FREE)
LITIGATION
The Partnership is not currently involved in any pending legal
proceedings which management believes are, individually or in the aggregate,
material to the Partnership's financial condition or results of operations.
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can
40
<PAGE>
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available at the Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed on the World Wide Web
through the Commission's Internet address at "http://www.sec.gov."
The Commission permits the Partnership to "incorporate by reference"
information into this Consent Statement, which means that the Partnership can
disclose important information to Limited Partners by referring them to another
document filed separately with the Commission. The information incorporated by
reference is deemed to be a part of this Consent Statement, except for any
information superseded by information in this Consent Statement.
The following documents, which have been filed with the Commission,
contain important information about the Partnership and its financial condition
and are hereby incorporated herein by reference:
(i) The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission File No. 0-16561).
(ii) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1996, including the Partnership's Quarterly
Reports on Form 10-Q for the fiscal quarters ended June 30, and March 31, 1997.
The Partnership also hereby incorporates by reference all additional
reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act that it may
file with the Commission between the date of this Consent Statement and the date
of action by Consent.
A Limited Partner of the Partnership may obtain any of the documents
incorporated by reference through the Partnership or the Commission. Documents
incorporated by reference are available from the Partnership without charge,
excluding all exhibits unless such exhibits have been specifically incorporated
by reference in this Consent Statement. Limited Partners may obtain documents
incorporated by reference in this Consent Statement or a copy of the Partnership
Agreement upon written or oral request of such person, and by first class mail
or other equally prompt means within one business day of receipt of such
request, from Realmark Properties, Inc. 2350 North Forest Road, Amherst, New
York 14068, telephone number (716) 636-9090.
If you would like to request documents from the Partnership, please do
so by November 17, 1997 to receive them before the action by Consent.
Amherst, New York
November 4, 1997 REALMARK PROPERTIES, INC.
GENERAL PARTNER
By: /s/ Joseph M. Jayson
-------------------------------------
Joseph M. Jayson,
President
/s/ Joseph M. Jayson
----------------------------------------
JOSEPH M. JAYSON, GENERAL PARTNER
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
Financial Statements Page No.
- -------------------- --------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets at
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-2
Statements of Operations
for each of the three years in the
period ended December 31 . . . . . . . . . . . . . . . . . . F-3
Statements of Partners' Capital (Deficit)
for each of the three years
in the period ended December 31. . . . . . . . . . . . . . . F-4
Statements of Cash Flows
for each of the three years
in the period ended December 31. . . . . . . . . . . . . . . F-5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . F-6
Balance Sheets at June 30, 1997
and December 31, 1996 (unaudited) . . . . . . . . . . . . .F-22
Statements of Operations for the
three months ended June 30, 1997 and
June 30, 1996 (unaudited). . . . . . . . . . . . . . . . . .F-23
Statements of Operations for the
six months ended June 30, 1997 and
June 30, 1996 (unaudited). . . . . . . . . . . . . . . . . .F-24
Statements of Cash Flows for the
six months ended June 30, 1997 and
June 30, 1996 (unaudited). . . . . . . . . . . . . . . . . .F-25
Statement of Partners' Capital (Deficit) for the
six months ended June 30, 1997 (unaudited) . . . . . . . . .F-26
Notes to Financial Statements (unaudited). . . . . . . . . . . . . .F-27
Unaudited Pro Forma Financial Information. . . . . . . . . . . . . .F-44
Notes to Unaudited Pro Forma Financial Information . . . . . . . . .F-48
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Realmark Property Investors Limited Partnership - V
We have audited the accompanying balance sheets of Realmark Property Investors
Limited Partnership - V as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital (deficit), and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the General Partners. Our responsibility is
to express an opinion on the financial statements and the financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Realmark Property Investors Limited
Partnership - V at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 13 to the
financial statements, the Partnership has two mortgages due in 1997 which raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 13. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Buffalo, New York
April 4, 1997
F-1
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ------------- -------------
<S> <C> <C>
Property, at cost:
Land $ 2,221,900 $ 2,221,900
Buildings 29,491,904 29,191,450
Furniture, fixtures and equipment 2,430,000 2,430,000
----------- -----------
34,143,804 33,843,350
Less accumulated depreciation 12,087,478 10,689,782
----------- -----------
Property, net 22,056,326 23,153,568
Investments in real estate joint ventures 1,939,576 2,294,497
Investment in land 373,282 373,282
Cash 800,741 453,883
Accounts receivable, net of allowance for
doubtful accounts of $541,099 and $377,812 in
1996 and 1995, respectively 19,588 51,596
Accounts receivable - affiliates 17,233 147,846
Mortgage escrow 483,107 574,577
Mortgage costs, net of accumulated amortization
of $364,296 and $259,823 in 1996 and 1995,
respectively 230,581 295,280
Other assets 130,209 132,774
----------- -----------
Total Assets $26,050,643 $27,477,303
=========== ===========
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Mortgages and note payable $21,337,592 $21,606,473
Accounts payable and accrued expenses 874,387 769,432
Interest payable 177,135 179,518
Security deposits and prepaid rents 366,976 365,186
----------- -----------
Total Liabilities 22,756,090 22,920,609
----------- -----------
Partners' capital (deficit):
General partners (459,529) (421,665)
Limited partners 3,754,082 4,978,359
----------- -----------
Total Partners' Capital 3,294,553 4,556,694
----------- -----------
Total Liabilities and Partners' Capital $26,050,643 $27,477,303
=========== ===========
</TABLE>
See notes to financial statements
F-2
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income:
Rental $ 6,661,327 $ 6,826,595 $ 6,478,373
Interest and other 351,440 387,299 321,366
----------- ----------- -----------
Total income 7,012,767 7,213,894 6,799,739
----------- ----------- -----------
Expenses:
Property operations 2,994,570 3,528,715 2,842,609
Interest 2,160,419 2,153,643 2,127,202
Depreciation and amortization 1,533,249 1,545,222 1,611,670
Administrative:
Paid to affiliates 761,365 1,078,950 822,938
Other 470,384 475,981 340,837
----------- ----------- -----------
Total expenses 7,919,987 8,782,511 7,745,256
----------- ----------- -----------
Loss before allocated loss from joint
venture (907,220) (1,568,617) (945,517)
Allocated loss from joint ventures (354,921) (394,263) (338,372)
----------- ----------- -----------
Net loss ($1,262,141) ($1,962,880) ($1,283,889)
=========== =========== ===========
Loss per limited partnership unit ($58.29) ($90.65) ($59.30)
=========== =========== ===========
Distributions per limited partnership
unit $ - $ - $ 5.00
=========== =========== ===========
Weighted average number of limited
partnership units outstanding 21,002.8 21,002.8 21,002.8
=========== =========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Limited Partners
Partners ----------------
Amount Units Amount
------ ----- ------
<S> <C> <C> <C>
Balance, January 1, 1994 ($321,014) 21,002.8 $ 8,232,745
Distributions to Partners (3,248) - (105,020)
Net loss (38,517) - (1,245,372)
--------- -------- -----------
Balance, December 31, 1994 (362,779) 21,002.8 6,882,353
Net loss (58,886) - (1,903,994)
--------- -------- -----------
Balance, December 31, 1995 (421,665) 21,002.8 4,978,359
Net loss (37,864) - (1,224,277)
--------- -------- -----------
Balance, December 31, 1996 ($459,529) 21,002.8 $ 3,754,082
========= ======== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss ($1,262,141) ($1,962,880) ($1,283,889)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 1,533,249 1,545,222 1,611,670
Net loss from joint ventures 354,921 394,263 338,372
Changes in operating assets and
liabilities:
Accounts receivable 32,008 63,131 (20,844)
Mortgage escrow 91,470 42,261 (438,107)
Other assets (28,516) 1,458 (271,790)
Accounts payable and accrued
expenses 104,956 338,081 10,401
Interest payable (2,383) (2,079) 8,388
Security deposits and prepaid
rents 1,790 (16,524) 127,179
----------- ----------- -----------
Net cash provided by operating
activities: 825,354 402,933 81,380
----------- ----------- -----------
Cash flows from investing activities:
Accounts receivable - affiliates 130,613 1,087 50,493
Property acquisitions (300,454) (83,610) (306,971)
Proceeds from note receivable - 250,000 -
Contributions to joint venture (net
of distributions) - - (472,082)
Net cash (used in) provided by
----------- ----------- -----------
investing activities (169,841) 167,477 (728,560)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners - - (108,268)
Principal payments on mortgages (268,881) (311,596) (7,497,022)
Mortgage costs related to
refinancing (39,774) (31,144) (54,739)
Mortgage proceeds - - 8,250,000
----------- ----------- -----------
Net cash (used in) provided by
financing activities (308,655) (342,740) 589,971
----------- ----------- -----------
Net increase (decrease) in cash 346,858 227,670 (57,209)
Cash - beginning of year 453,883 226,213 283,422
----------- ----------- -----------
Cash - end of year $ 800,741 $ 453,883 $ 226,213
=========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. FORMATION AND OPERATION OF PARTNERSHIP:
Realmark Property Investors Limited Partnership-V (the "Partnership"), a
Delaware Limited Partnership, was formed on February 28, 1986, to invest in a
diversified portfolio of income-producing real estate investments.
In July 1986, the Partnership commenced the public offering of units of
limited partnership interest. Other than matters relating to organization, it
had no business activities and, accordingly, had not incurred any expenses or
earned any income until the first interim closing (minimum closing) of the
offering, which occurred on December 5, 1986. All items of income and expense
arose subsequent to this date. As of December 31, 1987, 20,999.8 units of
limited partnership interest were sold and outstanding, excluding 3 units held
by an affiliate of the General Partners. The offering terminated on October 31,
1987 with gross offering proceeds of $20,999,800. The General Partners are
Realmark Properties, Inc., the Corporate General Partner, and Joseph M. Jayson,
the Individual General Partner. Joseph M. Jayson is the sole shareholder of
J.M. Jayson & Company, Inc. Realmark Properties, Inc. is a wholly-owned
subsidiary of J.M. Jayson & Company, Inc.
Under the partnership agreement, the general partners and their affiliates
can receive compensation for services rendered and reimbursement for expenses
incurred on behalf of the Partnership (See Note 4).
The partnership agreement also provides that distribution of funds,
revenues, costs and expenses arising from partnership activities, exclusive of
any sale or refinancing activities, are to be allocated 97% to the limited
partners and 3% to the general partners.
Net income or loss and proceeds arising from a sale or refinancing shall be
distributed first to the limited partners in amounts equivalent to a 7% return
on the average of their adjusted capital contributions, then an amount equal to
their capital contributions, then an amount equal to an additional 5% of the
average of their adjusted capital contributions after the corporate general
partner receives a 2.75% property disposition fee, then to all partners in an
amount equal to their respective positive capital balances and, finally, in the
ratio of 87% to the limited partners and 13% to the general partners.
F-6
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) PROPERTY AND DEPRECIATION
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets and totaled $1,397,696, $1,419,825 and
$1,498,519 for the years ended December 31, 1996, 1995 and 1994, respectively.
The estimated useful lives of the Partnership's assets range from 5 to 25 years.
Expenditures for maintenance and repairs are expensed as incurred; major
renewals and betterments are capitalized. The Accelerated Cost Recovery System
and Modified Accelerated Cost Recovery System are used to calculate depreciation
expense for tax purposes.
(c) RENTAL INCOME
Leases for residential properties have terms of one year or less.
Commercial leases have terms of from one to six years. Rental income is
recognized on the straight line method over the term of the lease.
(d) INVESTMENTS IN REAL ESTATE JOINT VENTURES
The investments in real estate joint ventures are accounted for on the
equity method.
(e) CASH
For purposes of reporting cash flows, cash includes the following items:
cash on hand; cash in checking; and money market savings.
(f) MORTGAGE COSTS
Mortgage costs incurred in obtaining property mortgage financing have been
deferred and are being amortized over the terms of the respective mortgages.
F-7
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
3. ACQUISITION AND DISPOSITIONS OF RENTAL PROPERTY:
In April 1987, the Partnership acquired a 50% interest in Inducon - East
Joint Venture, a 150,000 square foot office/warehouse located in Amherst, New
York. The Partnership contributed $2,414,592 of capital to the joint venture.
In May 1987, the Partnership acquired a 65,334 square foot office building
(the Paddock Building) located in Nashville, Tennessee, for a purchase price of
$3,163,324, which included $148,683 in acquisition fees.
In December 1987, the Partnership acquired a 192 unit apartment complex
(Williamsburg North) located in Columbus, Indiana for a purchase price of
$3,525,692, which included $285,369 in acquisition fees.
In February 1988, the Partnership acquired a 215 unit apartment complex
(The Fountains) located in Westchester, Ohio for a purchase price of $5,293,068,
which included $330,155 in acquisition fees.
In May 1988, the Partnership acquired a 100 unit apartment complex (Pelham
East) located in Greenville, South Carolina, for a purchase price of $2,011,927,
which included $90,216 in acquisition fees. In March 1990, the Partnership sold
the 100 unit apartment complex for a sale price of $2,435,000 which generated a
net gain for financial statement purposes of $572,562.
In May 1988, the Partnership acquired a 205 unit apartment complex (Camelot
East) located in Louisville, Kentucky for a purchase price of $6,328,363, which
included $362,540 in acquisition fees.
In June 1988, the Partnership acquired a 100 unit apartment complex
(O'Hara) located in Greenville, South Carolina, for a purchase price of
$2,529,390, which included $498,728 in acquisition fees.
In July 1988, the Partnership acquired a 158 unit apartment complex (Wayne
Estates) located in Huber Heights, Ohio, for a purchase price of $4,250,013,
which included $793,507 in acquisition fees.
In April 1989, the Partnership acquired a 102 unit apartment complex
(Jackson Park) located in Seymour, Indiana for a purchase price of $1,911,585,
which included $111,585 in acquisition fees.
F-8
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
3. ACQUISITION AND DISPOSITIONS OF RENTAL PROPERTY (CON'T.):
In June 1991, the Partnership acquired a 115,021 square foot office complex
(Commercial Park West) located in Durham, North Carolina, for a purchase price
of $5,773,633, which included $273,663 in acquisition fees.
In September 1992, Inducon East - Phase III Joint Venture (the "Phase III
Venture") was formed pursuant to an agreement dated September 8, 1992 between
the Partnership and Inducon Corporation. The primary purpose of the Phase III
Venture is to acquire land and construct office/warehouse buildings as
income-producing property. The development, located in Amherst, New York,
consists of 4.2 acres of land and two buildings measuring approximately 25,200
and 21,300 square feet, respectively. As of December 31, 1995, both buildings
had been fully constructed and placed in service.
4. RELATED PARTY TRANSACTIONS:
The corporate general partner and its affiliates earned the following fees
and commissions as provided for in the partnership agreement for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Refinancing services equal to 1% of
loan balance at time service is
rendered $ - $ 18,311 $ 82,500
Partnership management fee - equal
to 7% of the net cash flow of
the partnership as defined in the
partnership agreement 56,100 31,969 33,150
Reimbursement for allocated administrative
expenses of the corporate general partner
including payroll, legal, rent, depreciation,
printing, audit, travel and communications
related to partnership accounting, partner
communications and property marketing 318,796 533,902 411,600
Computer service charges based on number of
apartment units 20,592 20,592 19,986
Property management fees computed at 3 - 6%
of gross monthly rental receipts on properties
managed 365,877 492,487 358,202
---------- ---------- ---------
761,365 1,078,950 822,938
---------- ---------- ---------
$ 761,365 $1,097,261 $ 905,438
========== ========== =========
</TABLE>
F-9
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
4. RELATED PARTY TRANSACTIONS (CON'T.):
Partnership accounting and portfolio management fees, investor services
fees and brokerage fees are allocated based on total assets, the number of
partners, and number of units, respectively. In addition to the above, other
property specific expenses, such as payroll, benefits, etc. are charged to
property operations on the Statement of Operations.
The General Partners are also allowed to collect a property disposition fee
upon sale of acquired properties. This fee is not to exceed the lesser of 50%
of amounts customarily charged in arm's-length transactions by others rendering
similar services for comparable properties or 2.75% of the sales price. The
property disposition fee is subordinate to payments to the Limited Partners of a
cumulative annual return (not compounded) equal to 7% of their average adjusted
capital balances and to repayment to the Limited Partners of an amount equal to
their original capital contributions. Since these conditions described above
have not been met, no disposition fees were paid or accrued on the sale of
Pelham East.
Accounts receivable - affiliates totaled $17,233 and $147,846 as of
December 31, 1996 and 1995, respectively.
5. INVESTMENT IN LAND:
The Partnership owns approximately 96 acres of vacant land in Amherst, New
York. The investment balance of $373,282 as of December 31, 1996 and 1995
approximates its fair market value.
6. MORTGAGES AND NOTE PAYABLE:
The Partnership has the following mortgages and notes payable:
THE PADDOCK BUILDING
An 8.75% mortgage with a balance of $1,690,505 and $1,764,345 at December
31, 1996 and 1995, respectively, which provides for annual principal and
interest payments of $219,612 payable in equal monthly installments with a final
payment of $1,589,511 due in June 1998. Also, a 10% demand note payable with a
balance of $180,000 and $166,787 as of December 31, 1996 and 1995, respectively,
providing for monthly interest payments of $1,500.
F-10
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
6. MORTGAGES AND NOTES PAYABLE (CON'T.):
THE WILLIAMSBURG NORTH APARTMENTS
A 10.445% mortgage with a balance of $1,846,372 and $1,870,673 at December
31, 1996 and 1995, respectively, which provides for annual principal and
interest payments of $218,556 payable in equal monthly installments with a final
payment of $1,833,241 due on July 1, 1997.
THE FOUNTAINS APARTMENTS
A 9.815% mortgage with a balance of $3,454,767 and $3,506,826 at December
31, 1996 and 1995, respectively, which provides for annual principal and
interest payments of $393,948 payable in equal monthly installments with a final
payment of $3,450,193 due on February 1, 1997. No extension has been made, and
the mortgage is payable on demand.
CAMELOT EAST APARTMENTS, O'HARA APARTMENTS, WAYNE ESTATES APARTMENTS
A 10% mortgage with a balance of $8,070,319 and $8,158,075 at December 31,
1996 and 1995, respectively, allocated $4,107,792 to Camelot East, $1,315,463 to
O'Hara and $2,647,064 to Wayne Estates at December 31, 1996. The loan provides
for annual principal and interest payments of $899,616 payable in equal monthly
installments with the remaining balance of $7,894,059 due October 1998.
JACKSON PARK
A 12.375% mortgage note with a balance of $1,237,578 and $1,253,047 at
December 31, 1996 and 1995, respectively, which provides for annual principal
and interest payments of $169,680 payable in equal monthly installments with a
final payment of $1,159,223 due on October 1, 2000.
COMMERCIAL PARK WEST
A mortgage with a balance of $4,858,051 and $4,886,720 at December 31, 1996
and 1995, respectively. The mortgage provided for annual principal and interest
payments through June 1996 at a rate of 9.25%. On July 1, 1996, interest
changed to 10%, with annual principal and interest payments of $516,012 payable
in equal monthly installments. The remaining balance of $4,691,234 is due June
2001.
The mortgage notes are secured by the individual apartment complexes to which
they relate.
The Partnership's mortgages and note payable are of a non-recourse nature.
F-11
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
6. MORTGAGES AND NOTES PAYABLE (CON'T.):
The aggregate maturities of mortgages and note payable for each of the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 5,737,559
1998 9,608,213
1999 60,978
2000 1,220,551
2001 4,710,291
-----------
TOTAL $21,337,592
===========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value of certain financial instruments. The fair values of cash,
accounts receivable, accounts receivable - affiliates, accounts payable, accrued
expenses and deposit liabilities approximate the carrying value due to the
short-term nature of these instruments.
Management has estimated that the fair values of the mortgages payable on
Williamsburg North Apartments and The Fountains Apartments approximate their
carrying values as they are due and payable in 1997.
Management has estimated fair values of the mortgages payable on the
following properties based on currently available rates:
<TABLE>
<CAPTION>
Approximate Carrying
Property Fair Value Value
- -------- ---------- -----
<S> <C> <C>
Camelot East Apartments, O'Hara Apartments,
Wayne Estates Apartments $8,345,000 $8,070,319
Jackson Park 1,395,000 1,237,578
Commercial Park West 5,153,000 4,858,051
</TABLE>
The fair value of the mortgage and note payable on The Paddock cannot be
determined because it is uncertain if comparable estimates could be obtained in
the current market due to significant impending vacancies anticipated at the
property.
F-12
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
8. INCOME TAXES:
No provision has been made for income taxes since the income or loss of the
partnership is to be included in the tax returns of the individual partners.
The tax returns of the Partnership are subject to examination by the
Federal and state taxing authorities. Under federal and state income tax laws,
regulations and rulings, certain types of transactions may be accorded varying
interpretations and, accordingly, reported Partnership amounts could be changed
as a result of any such examination.
Partners' capital as of December 31, 1996, 1995 and 1994, as reported in
the balance sheet, and as reported for tax return purposes, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Partners' Capital - Balance Sheet $3,294,553 $4,556,694 $ 6,519,574
Add to (deduct from):
Accumulated difference in depreciation 1,635,883 1,383,929 1,039,080
Difference in investment in Joint Venture 429,468 316,176 208,758
Syndication fees 2,352,797 2,352,797 2,352,797
Accumulated difference in amortization
of organization costs 21,738 21,738 21,738
Other nondeductible expenses 434,017 258,583 160,193
---------- ---------- -----------
Partners' Capital - tax return purposes $8,168,456 $8,889,917 $10,302,140
========== ========== ===========
</TABLE>
The reconciliation of net loss for the years ended December 31, 1996, 1995
and 1994 as reported in the statement of operations, and as reported for tax
return purposes, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Net loss -
Statement of operations $(1,262,141) $(1,962,880) $(1,283,889)
Add to (deduct from):
Difference in depreciation 251,954 344,849 315,683
Difference in investment in
joint venture 113,292 107,418 105,527
Other nondeductible expenses 175,430 98,390 (210,431)
----------- ----------- -----------
Net loss - tax return purposes $ (721,465) $(1,412,223) $(1,073,110)
=========== =========== ===========
</TABLE>
F-13
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
9. INVESTMENTS IN JOINT VENTURES
Inducon-East Joint Venture (the "Venture") was formed pursuant to an
agreement dated April 22, 1987 between the Partnership and Curtlaw Corporation,
a New York corporation (the "Corporation"). The primary purpose of the Venture
was to acquire land and construct office/warehouse buildings as income-producing
property. The development consists of two parcels of land being approximately
8.4 acres for Phase I and 6.3 acres for Phase II. Phase I consists of two (2)
buildings of approximately 38,000 and 52,000 square feet, while Phase II
consists of four (4) buildings totaling approximately 75,000 square feet, with
each building being approximately 19,000 square feet. At December 31, 1995,
both buildings in Phase I and all four buildings in Phase II had been placed in
service.
The Partnership has contributed capital of $2,744,901 to the Venture. The
remaining funds needed to complete Phase I came from $3,950,000 taxable
industrial revenue bonds which the Venture received in 1989. The Venture
completed the financing of the Phase II project with an additional $3,200,000
taxable industrial revenue bond.
The total cost of Phase I and Phase II were approximately $4,425,000 and
$4,600,000, respectively.
The Joint Venture Agreement provides for the following:
Ownership of the Joint Venture is divided equally between the Partnership
and the Corporation. The Joint Venture agreement provides that income and
losses will be allocated 95% to the Partnership and 5% to the Corporation. Net
cash flow from the Joint Venture is to be distributed to the partnership and
Corporation in accordance with the terms of the Joint Venture Agreement.
F-14
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
9 INVESTMENT IN JOINT VENTURES (CON'T.):
A summary of the assets, liabilities and partners' capital of the Inducon -
East Joint Venture as of December 31, 1996 and 1995 and the results of its
operations for the years ended December 31, 1996, 1995 and 1994 is as
follows:
INDUCON - EAST JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ------------ ------------
<S> <C> <C>
Land, at cost $ 500,100 $ 500,100
Land improvements 435,769 435,769
Buildings 8,427,982 8,427,089
---------- ----------
9,363,851 9,362,958
Less accumulated depreciation 2,517,641 2,110,752
---------- ----------
Property net 6,846,210 7,252,206
Cash - 123,643
Mortgage costs net of accumulated
amortization of $338,263 and
$294,752 107,036 140,365
Other assets 201,297 117,502
---------- ----------
Total Assets $7,154,543 $7,633,716
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash overdraft $ 7,915 $ -
Bonds payable 6,591,423 6,705,044
Accounts payable and accrued
expenses 283,157 297,691
Amounts due affiliates 96,312 126,946
---------- ----------
Total liabilities 6,978,807 7,129,681
---------- ----------
Partners' Capital (Deficit):
The Partnership 310,561 622,445
The Corporation (134,825) (118,410)
---------- ----------
Total Partner's Capital 175,736 504,035
---------- ----------
Total Liabilities and Partner's
Capital $7,154,543 $7,633,716
========== ==========
</TABLE>
F-15
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
9 INVESTMENT IN JOINT VENTURES (CON'T.):
INDUCON - EAST JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Rental $1,417,963 $1,319,591 $1,206,127
Interest and other 6,159 6,511 8,650
---------- ---------- ----------
Total Income 1,424,122 1,326,102 1,214,777
---------- ---------- ----------
Expenses:
Property operations 359,998 460,494 316,897
Interest 659,497 672,149 687,748
Depreciation and amortization 489,395 488,073 481,092
Administrative:
Affiliates 63,104 98,639 60,570
Other 180,427 46,189 81,693
---------- ---------- ----------
Total Expenses 1,752,421 1,765,544 1,628,000
---------- ---------- ----------
Loss from operations $ (328,299) $ (439,442) $ (413,223)
========== ========== ==========
Allocation of net loss:
The Partnership $ (311,884) $ (417,470) $ (392,562)
The Corporation (16,415) (21,972) (20,661)
---------- ---------- ----------
Total $ (328,299) $ (439,442) $ (413,223)
========== ========== ==========
</TABLE>
F-16
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
9. INVESTMENT IN JOINT VENTURES (CON'T.):
A reconciliation of the investments in Inducon - East Joint Venture:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Investment in joint venture at
beginning of year $ 622,445 $1,039,915 $1,102,168
Capital contributions - - 330,309
Allocation of net loss (311,884) (417,470) (392,562)
--------- ---------- ----------
Investment in joint venture at end of year $ 310,561 $ 622,445 $1,039,915
========= ========== ==========
</TABLE>
Inducon East Phase III Joint Venture (the "Phase III Venture") was formed
pursuant to an agreement dated September 8, 1992 between the Partnership and the
Corporation. The Primary purpose of the Phase III Venture is to acquire land
and construct office/warehouse buildings as income-producing property. The
development consists of 4.2 acres of land and two buildings with approximately
25,200 and 21,300 square feet, respectively. The first building measuring
25,200 square feet was placed in service during 1994. Construction on the
second building was completed during 1995.
The Partnership has contributed $1,582,316 to the Phase III Venture. The
remaining funds needed to complete construction came from a $750,000
construction loan. The balance of this loan at December 31, 1996 and 1995 was
$622,077 and $619,779, respectively.
The Total cost of the Phase III venture was approximately $2,450,000.
The Joint Venture Agreement provides for the following:
Ownership of the Joint Venture is divided equally between the Partnership
and the Corporation. The Joint Venture agreement provides that income and
losses be allocated 95% to the Partnership and 5% to the Corporation. Net cash
flow from the Joint Venture is to be distributed to the partnership and
Corporation in accordance with the terms of the Joint Venture Agreement.
F-17
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
9 INVESTMENT IN JOINT VENTURES (CON'T.):
A summary of the assets, liabilities and partners' capital of the Phase III
Venture as of December 31, 1996 and 1995 and the results of its operations
for the years ended December 31, 1996, 1995 and 1994 is
as follows:
INDUCON - EAST PHASE III JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ------------ ------------
<S> <C> <C>
Property, at cost:
Land $ 141,400 $ 141,400
Building 2,465,057 2,300,806
---------- ----------
2,606,457 2,442,206
Less accumulated depreciation 164,743 100,426
---------- ----------
Property net 2,441,714 2,341,780
Accounts receivable 1,149 3,665
Accounts receivable - affiliates 116,475 117,805
Prepaid expenses 2,204 5,346
Deferred financing costs, net of
accumulated amortization of
$17,314 and $7,870 35,589 39,352
Leasing commissions, net of
accumulated amortization of
$38,547 and $23,289 42,942 46,207
---------- ----------
Total Assets $2,640,073 $2,554,155
========== ==========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Cash overdraft $ 272,928 $ 130,584
Construction loan payable 622,077 619,779
Accounts payable and accrued
expenses 113,597 127,019
---------- ----------
Total liabilities 1,008,602 877,382
---------- ----------
Partners' Capital:
The Partnership 1,629,015 1,672,051
The Corporation 2,456 4,722
---------- ----------
Total Partner's Capital 1,631,471 1,676,773
---------- ----------
Total Liabilities and
Partner's Capital $2,640,073 $2,554,155
========== ==========
</TABLE>
F-18
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
9 INVESTMENT IN JOINT VENTURES (CON'T.):
INDUCON - EAST PHASE III JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Rental $268,202 $196,478 $150,190
Interest and other income 28,731 22,430 17,544
-------- -------- --------
Total Income 296,933 218,908 167,734
-------- -------- --------
Expenses:
Property operations 213,758 110,090 48,653
Depreciation and amortization 89,019 68,244 47,119
Administrative:
Affiliates 24,119 6,299 7,510
Other 15,339 9,847 7,410
-------- -------- --------
Total Expenses 342,235 194,480 110,692
-------- -------- --------
Net (loss) income $(45,302) $ 24,428 $ 57,042
======== ======== ========
Allocation of net (loss) income:
The Partnership $(43,037) $ 23,207 $ 54,190
Other Joint Venturer (2,265) 1,221 2,852
-------- -------- --------
Total $(45,302) $ 24,428 $ 57,042
======== ======== ========
</TABLE>
F-19
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
9. INVESTMENT IN JOINT VENTURES (CON'T.):
A reconciliation of the Partnership's investment in the Phase III Venture
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Investment in joint venture at
beginning of year $1,672,052 $1,648,845 $1,452,883
Capital contributions - - 141,772
Allocation of net income (43,037) 23,207 54,190
---------- ---------- ----------
Investment in joint venture at end of year $1,629,015 $1,672,052 $1,648,845
========== ========== ==========
</TABLE>
10. LEASES:
In connection with the commercial properties owned, the Partnership has
entered into lease agreements with terms of one to five years. Minimum future
rentals to be received for each of the next five years, under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1997 $1,307,716
1998 899,688
1999 673,582
2000 517,994
2001 242,814
</TABLE>
11. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid for interest $2,162,802 $2,155,722 $2,118,814
========== ========== ==========
</TABLE>
12. RECLASSIFICATIONS:
Certain reclassifications have been made to 1995 and 1994 balances to
conform to the classifications used for 1996 balances.
F-20
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
13. GOING CONCERN:
The mortgages on Williamsburg North Apartments and the Fountains Apartments
totaling $1,846,372 and $3,454,767, respectively are due and payable in 1997.
This raises substantial doubt about the Partnership's ability to continue as a
going concern. Management is currently in negotiations to refinance both
mortgages.
F-21
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
ASSETS
- ------
Property, at cost:
Land $ 2,221,900 $ 2,221,900
Buildings and improvements 29,551,369 29,491,904
Furniture, fixtures and equipment 2,430,000 2,430,000
----------- -----------
34,203,269 34,143,804
Less accumulated depreciation 12,755,048 12,087,478
----------- -----------
Property, net 21,448,221 22,056,326
Investments in real estate joint ventures 1,694,955 1,939,576
Investment in land 373,282 373,282
Cash 1,556,620 800,741
Accounts receivable, net of allowance for
doubtful accounts of $645,046 and $541,099,
respectively 44,206 19,588
Accounts receivable - affiliate 0.00 17,233
Mortgage escrow 1,384,253 483,107
Mortgage costs, net of accumulated amortization
of $58,795 and $303,347 833,605 230,581
Prepaid commissions, net of accumulated
amortization of $47,996 and $42,327 68,615 64,721
Other assets 86,581 65,488
----------- -----------
Total Assets $27,490,338 $26,050,643
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages and notes payable $23,607,733 $21,337,592
Accounts payable and accrued expenses 885,815 874,387
Accounts payable - affiliates 20,084 0.00
Accrued interest 165,888 177,135
Security deposits and prepaid rents 379,103 366,976
----------- -----------
Total Liabilities 25,058,623 22,756,090
----------- -----------
Partners' (Deficit) Capital:
General partners (485,414) (459,529)
Limited partners 2,917,129 3,754,082
----------- -----------
Total Partners' Capital 2,431,715 3,294,553
----------- -----------
Total Liabilities and Partners' Capital $27,490,338 $26,050,643
=========== ===========
See notes to financial statements
F-22
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, June 30,
1997 1996
---- ----
Income:
Rental $1,686,270 $1,584,388
Interest and other income 146,562 109,252
---------- ----------
Total income 1,832,832 1,693,640
---------- ----------
Expenses:
Property operations 691,547 621,673
Interest 602,117 558,512
Depreciation and amortization 575,683 317,573
Administrative:
Paid to affiliates 152,591 325,177
Other 143,705 170,186
---------- ----------
Total expenses 2,165,643 1,993,121
---------- ----------
Loss before allocated loss from joint
venture (332,811) (299,481)
Allocated loss from joint ventures 1,387 (425,056)
---------- ----------
Net loss $ (331,424) $ (724,537)
========== ==========
Loss per limited partnership unit $ (15.31) $ (33.46)
========== ==========
Distributions per limited partnership
unit $ - $ -
========== ==========
Weighted average number of
limited partnership units
outstanding 21,002.8 21,002.8
========== ==========
See notes to financial statements
F-23
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
---- ----
Income:
Rental $3,326,848 $3,279,370
Interest and other income 250,286 243,320
---------- ----------
Total income 3,577,134 3,522,690
---------- ----------
Expenses:
Property operations 1,511,110 1,457,298
Interest 1,132,675 1,095,044
Depreciation and amortization 937,141 672,162
Administrative:
Paid to affiliates 303,956 434,470
Other 310,469 314,225
---------- ----------
Total expenses 4,195,351 3,973,199
---------- ----------
Loss before allocated loss from joint venture (618,217) (450,509)
Allocated loss from joint ventures (244,621) (125,604)
---------- ----------
Net loss $ (862,838) $ (576,113)
========== ==========
Loss per limited partnership unit $ (39.85) $ (26.61)
========== ==========
Distributions per limited partnership unit - -
========== ==========
Weighted average number of
limited partnership units
outstanding 21,002.8 21,002.8
=========== ===========
See notes to financial statements
F-24
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
---- ----
Cash flow from operating activities:
Net loss $ (862,838) $ (576,113)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 937,141 672,162
Net loss from joint ventures 244,621 125,604
Changes in operating assets and liabilities:
Accounts receivable (24,618) 47,362
Mortgage escrow (901,146) (186,348)
Leasing commissions (9,563) 0.00
Other assets (21,093) (105,093)
Accounts payable and accrued expenses 11,428 256,828
Accrued interest (11,247) 1,050
Security deposits and prepaid rent 12,127 17,709
---------- ----------
Net cash (used in) provided by operating activities (625,188) 253,161
---------- ----------
Cash flow from investing activities:
Accounts receivable - affiliates 17,233 (26,697)
Capital expenditures (59,465) (6,692)
---------- ----------
Net cash (used in) investing activities (42,232) (33,389)
---------- ----------
Cash flows from financing activities:
Accounts payable - affiliates 20,084 0.00
Principal payments on mortgages and notes (95,058) (125,327)
Mortgage costs related to refinancing (866,926) (9,260)
Mortgage proceeds 2,365,199 0.00
---------- ----------
Net cash provided by (used in) financing activities 1,423,299 (134,587)
---------- ----------
Increase (decrease) in cash 755,879 85,185
Cash - beginning of period 800,741 453,883
---------- ----------
Cash - end of period $1,556,620 $ 539,068
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $1,143,922 $1,093,994
========== ==========
See notes to financial statements
F-25
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
STATEMENTS OF PARTNERS' (DEFICIT) CAPITAL
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
General Limited Partners
Partners
Amount Units Amount
Balance, January 1, 1996 $(421,665) 21,002.8 $4,978,359
Net loss (17,283) 0.00 (558,830)
--------- -------- ----------
Balance, June 30, 1996 $(438,948) 21,002.8 $4,419,529
========= ======== ==========
Balance, January 1, 1997 $(459,529) 21,002.8 $3,754,082
Net loss (25,885) 0.00 (836,953)
--------- -------- ----------
Balance, June 30, 1997 $(485,414) 21,002.8 $2,917,129
========= ======== ==========
See notes to financial statements
F-26
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1. GENERAL PARTNERS' DISCLOSURE
In the opinion of the General Partners of Realmark Property Investors
Limited Partnership V, all adjustments necessary for a fair presentation of
the Partnership's financial position, results of operations and changes in
cash flows for the six month periods ended June 30, 1997 and 1996
consisting of only normal, recurring adjustments, have been made in the
financial statements. Such financial statements are unaudited and subject
to any year-end adjustments which may be necessary.
The results of the first six months of 1997 may not be indicative of the
entire year. These financial statements should be read in conjunction with
the December 31, 1996 audited financial statements.
2. FORMATION AND OPERATION OF PARTNERSHIP
Realmark Property Investors Limited Partnership V (the "Partnership"), a
Delaware Limited Partnership, was formed on February 28, 1986, to invest in
a diversified portfolio of income-producing real estate investments.
In July 1986, the Partnership commenced the public offering of units of
limited partnership interest. Other than matters relating to organization,
it had no business activities and, accordingly, had not incurred any
expenses or earned any income until the first interim closing (minimum
closing) of the offering, which occurred on December 5, 1986. As of
December 31, 1987, 20,999.8 units of limited partnership interest were sold
and outstanding, excluding 3 units held by an affiliate of the General
Partners. The offering terminated on October 31, 1987 with gross offering
proceeds of $20,999,800. The General Partners are Realmark Properties,
Inc., a wholly-owned subsidiary of J.M. Jayson & Company, Inc. and Joseph
M. Jayson, the Individual General Partner. Joseph M. Jayson is the sole
shareholder of J.M. Jayson & Company, Inc.
Under the partnership agreement, the general partners and their affiliates
can receive compensation for services rendered and reimbursement for
expenses incurred on behalf of the Partnership.
F-27
<PAGE>
FORMATION AND OPERATION OF PARTNERSHIP (CONTINUED)
Net income or loss and proceeds arising from a sale or refinancing shall be
distributed first to the limited partners in amounts equivalent to a 7%
return on the average of their adjusted capital contributions, then an
amount equal to their capital contributions, then an amount equal to an
additional 5% of the average of their adjusted capital contributions after
the general partners receive a disposition fee, then to all partners in an
amount equal to their respective positive capital balances and, finally, in
the ratio of 87% to the limited partners and 13% to the general partners.
The partnership agreement also provides that distribution of funds,
revenues, costs and expenses arising from partnership activities, exclusive
of any sale or refinancing activities, are to be allocated 97% to the
limited partners and 3% to the general partners.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
For purposes of reporting cash flows, cash includes the following items:
cash on hand; cash in checking; and money market savings.
PROPERTY AND DEPRECIATION
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets. Expenditures for maintenance and
repairs are expensed as incurred, and major renewals and betterment's are
capitalized. The Accelerated Cost Recovery System and Modified Accelerated
Cost Recovery System are used to determine depreciation expense for tax
purposes.
INVESTMENTS IN REAL ESTATE JOINT VENTURES
The investments in real estate joint ventures are accounted for on the
equity method.
RENTAL INCOME
Leases for residential properties have terms of one year or less.
Commercial leases generally have terms of from one to five years. Rental
income is recognized on the straight line method over the term of the
lease.
F-28
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Amortization of other assets includes amortizing mortgage costs that are
incurred in obtaining property mortgage financing and are being amortized
over the terms of the respective mortgages.
4. ACQUISITION AND DISPOSITION OF RENTAL PROPERTY
In May 1987 the Partnership acquired a 65,334 square foot office building
(The Paddock Building) located in Nashville, Tennessee for a purchase price
of $3,163,323, which included $148,683 in acquisition fees.
In December 1987 the Partnership acquired a 192 unit apartment complex
(Williamsburg) located in Columbus, Indiana for a purchase price of
$3,525,692, which included $285,369 in acquisition fees.
In February 1988 the Partnership acquired a 215 unit apartment complex (The
Fountains) located in Westchester, Ohio for a purchase price of $5,293,068,
which included $330,155 in acquisition fees.
In May 1988 the Partnership acquired a 100 unit apartment complex (Pelham
East) located in Greenville, South Carolina for a purchase price of
$2,011,927, which included $90,216 in acquisition fees. In March 1990 the
Partnership sold the apartment complex for a sale price of $2,435,000.
In May 1988 the Partnership acquired a 205 unit apartment complex (Camelot
East) located in Louisville, Kentucky for a purchase price of $6,328,363,
which included $362,540 in acquisition fees.
In June 1988 the Partnership acquired a 100 unit apartment complex (O'Hara)
located in Greenville, South Carolina for a purchase price of $2,529,390,
which included $498,728 in acquisition fees.
In July 1988 the Partnership acquired a 158 unit apartment complex (Wayne
Estates) located in Huber Heights, Ohio for a purchase price of $4,250,013,
which included $793,507 in acquisition fees.
F-29
<PAGE>
ACQUISITION AND DISPOSITION OF RENTAL PROPERTY (CONTINUED)
In April 1989 the Partnership acquired a 102 unit apartment complex
(Jackson Park) located in Seymour, Indiana for a purchase price of
$1,911,585, which included $111,585 in acquisition fees.
In June 1991 the Partnership acquired a 115,021 square foot office complex
(Commercial Park West) located in Research Triangle Park, North Carolina
for a purchase price of $5,773,633, which included $273,663 in acquisition
fees.
In September 1992 Inducon East Phase III Joint Venture (the "Phase III
Venture") was formed pursuant to an agreement dated September 8, 1992
between the Partnership and Inducon Corporation. The primary purpose of
the Phase III Venture is to acquire land and construct office/warehouse
buildings as income-producing property. The development, located in
Amherst, New York, consists of 4.2 acres of land and two buildings
measuring approximately 25,200 and 21,300 square feet, respectively. As of
June 30, 1997, both buildings have been fully constructed and placed in
service.
5. INVESTMENTS IN JOINT VENTURES
Inducon East Joint Venture (the "Venture") was formed pursuant to an
agreement dated April 22, 1987 between the Partnership and Curtlaw
Corporation, a New York Corporation (the "Corporation"). The primary
purpose of the Venture is to acquire land and construct office/warehouse
buildings as income-producing property. The development consists of two
parcels of land measuring approximately 8.4 acres for Phase I and 6.3 acres
for Phase II. Phase I consists of two (2) buildings of approximately
38,000 and 52,000 square feet, while Phase II consists of four (4)
buildings totaling approximately 75,000 square feet, with each building
approximately 19,000 square feet. At June 30, 1997, both buildings had
been placed in service in Phase I and all four buildings in Phase II were
also in service.
F-30
<PAGE>
INVESTMENTS IN JOINT VENTURES (CONTINUED)
The Partnership contributed capital of $2,414,592 to the Venture. The
remaining funds needed to complete Phase I came from a $3,950,000 taxable
industrial revenue bond which the Venture received in 1989. The Venture
completed the financing of Phase II with an additional $3,200,000 taxable
industrial revenue bond.
The total cost of Phase I and Phase II was approximately $4,425,000 and
$4,600,000, respectively.
The Joint Venture agreement provides for the following:
Ownership of the Joint Venture is divided equally between the Partnership
and Curtlaw. The Joint Venture agreement provides that the Partnership
will be allocated 95% of any losses incurred.
Net cash flow from the Joint Venture is to be distributed in the following
order:
To the Partnership until it has received a return of 7% per annum on
its underwritten equity (the Partnership's "underwritten equity" is
defined to be the initial contributable capital divided by sixty-five
(65) percent). To the extent a 7% return is not received from year to
year, it will accumulate and be paid from the next available cash
flow.
To Curtlaw in an amount equal to that paid to the other Partnership.
No amount will accumulate in favor of the other venturer.
Any remaining amount will be divided equally.
To the extent there are net proceeds from any sale or refinancing of the
subject property, said net proceeds will be payable in the following order
of priority:
To the Partnership to the extent the 7% per annum return on its
underwritten equity is unpaid.
Next, to the Partnership until it has received an overall 9%
cumulative return on its underwritten equity.
Next, to the Partnership until it has received an amount equal to its
total underwritten equity, reduced by any prior distribution of sale,
finance or refinancing proceeds.
F-31
<PAGE>
INVESTMENTS IN JOINT VENTURES (CONTINUED)
Next, to the Partnership until it has received a cumulative 20% per
year return on its total underwritten equity.
Thereafter, any remaining net proceeds will be divided 50% to the
Partnership and 50% to Curtlaw.
A summary of the assets, liabilities, and capital of the Inducon East Joint
Venture as of June 30, 1997 and December 31, 1996 and the results of its
operations for the six months ended June 30, 1997 and 1996 follows:
F-32
<PAGE>
INDUCON-EAST JOINT VENTURE
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, December 31,
1997 1996
ASSETS
Property, at cost:
Land $ 500,100 $ 500,100
Land improvements 435,769 435,769
Buildings 8,427,982 8,427,982
---------- ----------
9,363,851 9,363,851
Less accumulated depreciation 2,721,443 2,517,641
---------- ----------
Property, net 6,642,408 6,846,210
Mortgage costs, net of amortization 85,286 107,036
Other assets 141,065 201,297
---------- ----------
Total Assets $6,868,759 $7,154,543
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash overdraft $ 71,475 $ 7,915
Bonds payable 6,416,291 6,591,423
Accounts payable and accrued expenses 342,529 283,157
Accounts payable - affiliates 99,653 96,312
---------- ----------
Total Liabilities 6,929,948 6,978,807
---------- ----------
Partners' Capital (Deficit):
The Partnership 85,482 310,561
Other joint venturer (146,671) (134,825)
---------- ----------
Total Partners' Capital (61,189) 175,736
---------- ----------
Total Liabilities and Partners' Capital $6,868,759 $7,154,543
========== ==========
F-33
<PAGE>
INDUCON-EAST JOINT VENTURE
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
---- ----
Income:
Rental $ 539,422 $ 565,645
Interest and other income 118,345 115,040
--------- ---------
Total income 657,767 680,685
--------- ---------
Expenses:
Property operations 245,733 245,410
Interest 329,911 332,850
Depreciation and amortization 235,752 198,359
Administrative 83,296 44,620
--------- ---------
Total expenses 894,692 821,239
--------- ---------
Net loss $(236,925) $(140,554)
--------- ---------
--------- ---------
Allocation of net loss:
The Partnership $(225,079) $(133,526)
Other Joint Venturer (11,846) (7,028)
--------- ---------
$(236,925) $(140,554)
========= =========
A reconciliation of the Partnership's investment in the Joint Venture is as
follows:
June 30, 1997
-------------
Investment in joint venture - beginning of period $ 310,561
Capital contributions 0.00
Allocated loss (225,079)
---------
Investment in joint venture - end of period $ 85,482
=========
F-34
<PAGE>
INVESTMENTS IN JOINT VENTURES (CONTINUED)
Inducon East Phase III Joint Venture (the "Phase III Venture") was formed
pursuant to an agreement dated September 8, 1992 between the Partnership
and Inducon Corporation. The primary purpose of the Phase III Venture is
to acquire land and construct office/warehouse buildings as income
producing property. The proposed development consists of 4.2 acres of land
and two buildings with approximately 25,200 and 21,300 square feet,
respectively. As of June 30, 1997, both buildings have been fully
constructed and placed in service.
The Partnership has contributed $1,582,316 to the Phase III Venture. The
remaining funds needed to complete construction came from a $750,000
construction loan. The balance of this loan at June 30, 1997 is $563,465.
The total cost of the Phase III Venture was approximately $2,450,000.
The Joint Venture agreement provides for the following:
Ownership of the Joint Venture is divided equally between the Partnership
and the Corporation. The Joint Venture agreement provides that income and
losses be allocated 95% to the Partnership and 5% to the Corporation. Net
cash flow from the Joint Venture is to be distributed to the Partnership
and the Corporation in accordance with the terms of the Joint Venture
agreement.
A summary of the assets, liabilities and partners' capital of the Phase III
Venture as of June 30, 1997 and December 31, 1996 and the results of
operations for the six months ended June 30, 1997 and 1996 is as follows:
F-35
<PAGE>
INDUCON-EAST PHASE III JOINT VENTURE
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, December 31,
1997 1996
ASSETS
Property, at cost:
Land $ 141,400 $ 141,400
Buildings 2,466,023 2,465,057
---------- ----------
2,607,423 2,606,457
Less accumulated depreciation 197,781 164,743
---------- ----------
Property, net 2,409,642 2,441,714
Accounts receivable 16,833 1,149
Accounts receivable - affiliates 116,306 116,475
Prepaid expenses 10,000 2,204
Deferred financing cost, net of accumulated
amortization of $17,314 and $17,314 35,590 35,589
Leasing commissions, net of accumulated
amortization of $43,149 and $38,547 57,570 42,942
---------- ----------
Total Assets $2,645,941 $2,640,073
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Cash overdraft $ 365,218 $ 272,928
Construction loan payable 563,465 622,077
Accounts payable and accrued expenses 106,358 113,597
---------- ----------
Total Liabilities 1,035,041 1,008,602
---------- ----------
Partners' Capital:
The Partnership 1,609,473 1,629,015
Other joint venture 1,427 2,456
---------- ----------
Total Partners' Capital 1,610,900 1,631,471
---------- ----------
Total Liabilities and Partners' Capital $2,645,941 $2,640,073
========== ==========
F-36
<PAGE>
INDUCON-EAST PHASE III JOINT VENTURE
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
---- ----
Income:
Rental $185,904 $131,761
Interest and other income - -
-------- --------
Total income 185,904 131,761
-------- --------
Expenses:
Property operations 110,780 56,988
Interest 30,340 25,380
Depreciation and amortization 39,010 28,914
Administrative 26,345 12,140
-------- --------
Total expenses 206,475 123,422
-------- --------
Net (loss) income $(20,571) $ 8,339
======== ========
Allocation of net (loss) income:
The Partnership $(19,542) $ 7,922
Other Joint Venturer (1,029) 417
-------- --------
$(20,571) $ 8,339
======== ========
A reconciliation of the Partnership's investment in the Phase III Venture is as
follows:
June 30, 1997
-------------
Investment in joint venture - beginning of period $1,629,015
Capital contributions 0.00
Allocated loss (19,542)
----------
Investment in joint venture - end of period $1,609,473
==========
F-37
<PAGE>
6. MORTGAGES AND NOTES PAYABLE
The Partnership has the following mortgages and notes payable:
THE PADDOCK BUILDING
An 8.75% mortgage with a balance of $1,654,001 and $1,731,131 at June 30,
1997 and 1996, respectively, which provides for annual principal and
interest payments of $219,612 payable in equal monthly installments with a
final payment of $1,589,511 due in June 1998. Also, a 10% note payable
with a balance of $180,000 as of June 30, 1997 providing for monthly
interest payments of $1,500 and an 8% note payable at June 30, 1996 with a
balance of $153,565 providing for monthly payments of $2,216, including
interest at 8%; this note was refinanced.
THE WILLIAMSBURG NORTH APARTMENTS
A 10.445% mortgage with a balance of $1,833,241 and $1,858,839 at June 30,
1997 and 1996, respectively, which provides for annual principal and
interest payments of $218,556 payable in equal monthly installments with a
final payment of $1,833,241 due on July 1, 1997. Management expects to
have this mortgage refinanced in July 1997.
THE FOUNTAINS APARTMENTS
A mortgage with a balance of $3,900,000 at June 30, 1997, providing for
monthly principal and interest payments of $29,777, bearing interest at
8.50%. The note matures November 2005.
A 9.815% mortgage with a balance of $0 and $3,481,432 at June 30, 1997 and
1996, respectively, which provides for annual principal and interest
payments of $393,953 payable in equal monthly installments with a final
payment of $3,450,193 due on February 1, 1997. The mortgage was fully paid
off in May of 1997 when the mortgage was refinanced.
CAMELOT EAST APARTMENTS, O'HARA APARTMENTS, WAYNE ESTATES APARTMENTS
A 10% mortgage with a balance of $0 and $8,115,289 at June 30, 1997 and
1996, respectively, allocated $4,131,574 to Camelot East, $1,321,666 to
O'Hara and $2,662,049 to Wayne Estates. The loan provides for annual
principal and interest payments of $899,616 payable in equal monthly
installments with the remaining balance of $7,894,059 due October 1998.
This mortgage was refinanced in May of 1997 with each individual property
being financed separately.
F-38
<PAGE>
MORTGAGES AND NOTES PAYABLE (CONTINUED)
CAMELOT EAST APARTMENTS
A mortgage with a balance of $4,900,000 at June 30, 1997, providing for
monthly interest payments only, bearing interest at 9.1875%. The note
matures June 1999.
O'HARA APARTMENTS
A mortgage with a balance of $1,600,000 at June 30, 1997, providing for
monthly principal and interest payments of $12,105, bearing interest at
8.40%. The note matures November 2005.
WAYNE ESTATES APARTMENTS
A mortgage with a balance of $3,095,000 at June 30, 1997, providing for
monthly principal and interest payments of $23,415, bearing interest at
8.40%. The note matures November 2005.
JACKSON PARK
A mortgage with a balance of $1,600,000 at June 30, 1997, providing for
monthly principal and interest payments of $12,178, bearing interest at
8.39%. The note matures November 2005.
A 12.375% mortgage note with a balance of $0 and $1,245,551 at June 30,
1997 and 1996, respectively, which provides for annual principal and
interest payments of $169,680 payable in equal monthly installments with a
final payment of $1,159,223 due on October 1, 2000. The mortgage was fully
paid off in May of 1997 when the mortgage was refinanced.
COMMERCIAL PARK WEST
A 9.25% mortgage with a balance of $4,845,491 and $4,872,762 at June 30,
1997 and 1996, respectively, which provided for interest only payments
through June 1995. On July 1, 1995, interest changed to 10% with annual
principal and interest payments of $516,012 payable in equal monthly
installments. The remaining balance of $4,691,234 is due June 2001.
F-39
<PAGE>
MORTGAGES AND NOTES PAYABLE (CONTINUED)
The mortgages described above are secured by the individual apartment
complexes to which they relate.
The Partnership's mortgages and note payable are of a non-recourse nature.
The aggregate maturities of mortgages and note payable for each of the next
five years and thereafter are as follows:
Year Amount
---- ------
1997 $ 1,963,279
1998 1,712,069
1999 5,052,050
2000 90,693
2001 5,023,478
Thereafter 9,766,164
-----------
TOTAL $23,607,733
===========
7. RELATED PARTY TRANSACTIONS
Management fees for the management of certain of the Partnership's
properties are paid to an affiliate of the General Partners. The
management agreement provides for 5% of gross monthly receipts of the
complexes to be paid as fees for administering the operations of the
properties. These fees totaled $151,123 and $165,857 for the six months
ended June 30, 1997 and 1996, respectively.
Accounts receivable - affiliates amounted to $0 and $174,543 at June 30,
1997 and 1996 respectively.
Accounts payable - affiliates amounted to $20,084 and $0 at June 30, 1997
and 1996 respectively. The amount due is payable on demand.
F-40
<PAGE>
RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership entered into a management agreement with unrelated third
parties for the management of The Paddock and Commercial Park West. The
agreements provide for the payment of a management fee equal to 3% and 2%
of monthly gross rental income, respectively.
According to the terms of the Partnership Agreement, the Corporate General
Partner is also entitled to receive a partnership management fee equal to
7% of net cash flow (as defined in the Partnership Agreement). This fee
totaled approximately $0 for the six months ended June 30, 1997.
Computer service charges for the partnerships are paid or accrued to an
affiliate of the General Partner. The fee is based upon the number of
apartment units and totaled $10,000 for the six months ended June 30, 1997
and 1996, respectively.
8. INCOME TAXES
No provision has been made for income taxes since the income or loss of the
partnership is to be included in the tax returns of the Individual
Partners.
The tax returns of the Partnership are subject to examination by the
Federal and state taxing authorities. Under federal and state income tax
laws, regulations and rulings, certain types of transactions may be
accorded varying interpretations and, accordingly, reported partnership
amounts could be changed as a result of any such examination.
F-41
<PAGE>
9. INCOME TAXES (CONTINUED)
The reconciliation of net loss for the six months ended June 30, 1997 and
1996 as reported in the statements of operations, and as would be reported
for tax purposes, is as follows:
June 30, June 30,
1997 1996
---- ----
Net loss - statement of operations $ (862,838) $ (991,575)
Add to (deduct from):
Difference in depreciation 125,980 172,424
Difference in investment in
Joint Ventures 56,700 53,710
Allowance for doubtful accounts 87,715 49,196
---------- ----------
Net loss - tax return purposes $ (592,443) $ (716,245)
========== ==========
The reconciliation of Partners' Capital as of June 30, 1997 and December
31, 1996 as reported in the balance sheet, and as reported for tax
purposes, is as follows:
June 30, December 31,
1997 1996
---- ----
Partners' Capital - balance sheet $2,431,715 $3,294,553
Add to (deduct from):
Accumulated difference in
depreciation 1,761,863 1,635,883
Accumulated difference in investments
in Joint Ventures 486,168 429,468
Syndication fees 2,352,797 2,352,797
Accumulated difference in amortization
of organization costs 21,738 21,738
Allowance for doubtful accounts 521,732 434,017
---------- ----------
Partners' Capital -
tax return purposes $ 7,576,013 $8,168,456
=========== ==========
F-42
<PAGE>
10. UNAUDITED SUBSEQUENT EVENTS
In August of 1997, the mortgage on the Williamsburg North Apartments was
successfully refinanced. The new mortgage has an original principal
balance of $2,500,000 and matures on March 1, 2006. Interest is paid at
the rate of 7.72% resulting in monthly principal and interest payments of
$17,859. The mortgage is secured by the apartment complex to which it
relates.
F-43
<PAGE>
REAL PROPERTY INVESTORS LIMITED PARTNERSHIP V
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma Balance Sheet of the Partnership as of
June 30, 1997 assumes that the consummation of the Transaction and related
distributions to partners had occurred as of such date. The following unaudited
pro forma Statements of Operations for the year ended December 31, 1996 and the
six months ended June 30, 1997 assume that such events had occurred as of
January 1, 1996.
The unaudited pro forma financial statements are intended to present the
contributions to the Partnership's results of operations and financial position
of the five residential properties (the "Properties")to be sold pursuant to the
Transaction for purposes of evaluating the impact of the Transaction. The
Properties and the Transaction are more fully described in the section of the
Consent Statement entitled "THE TRANSACTION."
The first column of figures on the pro forma financial statements
represents the entire Partnership's assets and liabilities (Balance Sheet) as of
June 30, 1997 and income and expenses (Statement of Operations) for the year
ended December 31, 1996 and for the six month period ended June 30, 1997.
The pro forma adjustments column represents the deletion of assets and
liabilities (Balance Sheet) and the income and expenses (Statement of
Operations) attributable to the Properties.
The last column represents the pro forma Balance Sheet and Statements of
Operations as they would have existed had the Transaction been consummated as of
the dates indicated. This column represents the Balance Sheet and Statement of
Operations of the five remaining properties following the consummation of the
sale of the Properties.
The unaudited pro forma information does not purport to be indicative of
the financial position or results of operations that actually would have been
obtained if the Transaction actually had occurred as of the dates indicated.
F-44
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
The Partnership- The Partnership-
Historical Pro forma Pro forma
June 30, 1997 Adjustments June 30, 1997
--------------- ----------- --------------
<S> <C> <C> <C>
ASSETS
Property, at cost:
Land $ 2,221,900 (863,650) $ 1,358,250
Buildings and improvements 29,551,369 (14,942,693) 14,608,676
Furniture, fixtures and equipment 2,430,000 (1,917,500) 512,500
----------- ------------ -----------
34,203,269 (17,723,843) 16,479,426
Less accumulated depreciation 12,755,048 (7,214,651) 5,540,397
----------- ------------ -----------
Property, net 21,448,221 (10,509,192) 10,939,029
Investments in real estate joint
ventures 1,694,955 -- 1,694,955
Investment in land 373,282 -- 373,282
Cash 1,556,620 (1,038,655) 517,965
Accounts receivable, net of allowance
for doubtful accounts of $645,046 44,206 -- 44,206
Accounts receivable - affiliate -- -- --
Mortgage escrow 1,384,253 (899,753) 484,500
Mortgage costs, net of accumulated
amortization of $58,795 833,605 (529,216) 304,389
Prepaid commissions, net of
accumulated amortization of $47,996 68,615 -- 68,615
Other assets 86,581 (15,508) 71,073
----------- ------------ -----------
Total Assets $27,490,338 $(12,992,324) $14,498,014
=========== ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages and notes payable $23,607,733 (12,034,679) $11,573,054
Accounts payable and accrued
expenses 885,815 (271,935) 613,880
Accounts payable - affiliates 20,084 -- 20,084
Accrued interest 165,888 (87,634) 78,264
Security deposits and prepaid
rents 379,103 (238,655) 140,448
----------- ------------ -----------
Total Liabilities 25,058,623 (12,632,903) 12,425,720
----------- ------------ -----------
Partners' (Deficit) Capital:
General partners (485,414) (110,569) 374,845
Limited partners 2,917,129 (469,990) 2,447,139
----------- ------------ -----------
Total Partners' Capital 2,431,715 (359,421) 2,072,294
----------- ------------ -----------
Total Liabilities and Partners'
Capital $27,490,338 (12,992,324) $14,498,014
=========== ============ ===========
</TABLE>
(See accompanying notes)
F-45
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
The Partnership-
Historical Pro forma The Partnership-
Year Ended 1996 Adjustments Pro forma 1996
--------------- ----------- ----------------
<S> <C> <C> <C>
Income:
Rental $ 6,661,327 (3,750,931) $2,910,396
Interest and other 351,440 (248,086) 103,354
----------- ----------- ----------
Total income 7,012,767 (3,999,017) 3,013,750
----------- ----------- ----------
Expenses:
Property operations 2,994,570 (2,064,876) 929,694
Interest 2,160,419 (1,077,659) 1,082,760
Depreciation and amortization 1,533,249 (658,722) 874,527
Administrative:
Paid to affiliates 761,365 (418,384) 342,982
Other 470,384 (315,178) 155,206
----------- ----------- ----------
Total expenses 7,919,987 (4,534,819) 3,385,169
----------- ----------- ----------
Loss before allocated loss from
joint venture (907,220) (535,802) (371,419)
Allocated loss from joint ventures (354,921) -- (354,921)
----------- ----------- ----------
Net loss $(1,262,141) (535,802) $ (726,340)
=========== =========== ==========
Loss per limited partnership unit $ (58.29) (24.75) $ (33.55)
=========== =========== ==========
Distributions per limited
partnership unit $ -- $ -- $ --
=========== =========== ==========
Weighted average number of limited
partnership units outstanding 21,002.8 21,002.8 21,002.8
=========== =========== ==========
</TABLE>
(See accompanying notes)
F-46
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
The Partnership- The Partnership-
Historical Pro forma Six Months
Six Months Ended Pro forma Ended
June 30, 1997 Adjustments June 30, 1997
---------------- ----------- -------------------
<S> <C> <C> <C>
Income:
Rental $3,326,848 (1,883,409) $ 1,443,439
Interest and other 250,286 (145,085) 105,201
---------- ----------- ----------
Total income 3,577,134 (2,028,494) 1,548,640
---------- ----------- ----------
Expenses:
Property operations 1,511,110 (243,568) 1,267,542
Interest 1,132,675 (584,981) 547,694
Depreciation and amortization 937,141 (487,866) 449,275
Administrative:
Paid to affiliates 303,956 (165,166) 138,790
Other 310,469 (219,743) 90,727
---------- ----------- ----------
Total expenses 4,195,351 (1,701,324) 2,494,027
---------- ----------- ----------
(Loss) income before allocated
loss from joint venture (618,217) (327,170) (945,387)
Allocated loss from joint ventures (244,621) -- (244,621)
---------- ----------- ----------
Net (loss) income before gain from
sale(s) $ (862,838) $ (327,170) $(1,190,008)
========== =========== ==========
(Loss) income per limited partnership
unit $ (39.85) $ (15.11) $ (54.96)
========== =========== ==========
Distributions per limited partnership
unit $ -- $ (36.95) $ 36.95
========== =========== ==========
Weighted average number of limited
partnership units outstanding 21,002.8 21,002.8 21,002.8
========== =========== ==========
</TABLE>
(See accompanying notes)
F-47
<PAGE>
NOTES TO UNAUDITED FINANCIAL INFORMATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
1. ASSETS
a) PROPERTY AND DEPRECIATION
The Pro Forma Adjustments column for Land, Buildings and Improvements,
and Furniture, fixtures and equipment reflect these assets for Wayne
Estates Apartments, O'Hara Apartments, The Fountains Apartments, Jackson
Park Apartments, and Williamsburg North Apartments. The Pro Forma
June 30, 1997 column reflects the assets of the properties remaining in
the Partnership. The accumulated depreciation in the Pro Forma
Adjustments column reflects the amount attributable to the five
residential properties being sold. The Pro Forma June 30, 1997 column
reflects the accumulated depreciation for the properties remaining in
the Partnership after the Sale.
The adjustments made are detailed in supporting Schedule 1 at page F-50.
b) CASH
Cash amounts in the Pro Forma Adjustments column represent (i) the
amount of cash (approximately $800,000) that is presently held in
working capital reserves by the Partnership in anticipation of making
certain repairs and improvements to the five properties being sold but
will no longer be necessary for the Partnership to retain following the
sale, and will, therefore be distributed to the Partners and (ii)
rental security deposits in the amount of $238,655 for the five
properties being sold to be transferred to the buyer at closing.
For pro forma purposes, the cash proceeds from the sale of the five
properties are deemed to be immediately distributed to the Partners.
c) MORTGAGE ESCROWS
Mortgage escrow amounts in the Pro Forma Adjustments column represent
the amounts attributable to Wayne Estates Apartments, O'Hara Apartments,
The Fountains Apartments, Jackson Park Apartments, and Williamsburg
North Apartments. The Pro Forma June 30, 1997 column reflects the
mortgage escrows for the properties remaining in the Partnership after
the Sale.
d) MORTGAGE COSTS
Mortgage costs, net of accumulated amortization of $16,290 is the amount
attributable to Wayne Estates Apartments, O'Hara Apartments, The
Fountains Apartments, Jackson Park Apartments, and Williamsburg North
Apartments in the Pro Forma Adjustments column. The Pro Forma June
30,1997 column reflects the mortgage costs, net of accumulated
amortization of $42,505 for the properties remaining in the Partnership
after the Sale.
e) OTHER ASSETS
The amount in the Pro Forma Adjustments column at June 30, 1997 for
Other assets primarily represents the adjustment for any prepaid
expenses attributable to the five residential properties being sold.
(See accompanying notes)
F-48
<PAGE>
2. LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
a) MORTGAGES AND NOTES PAYABLE
The Pro Forma Adjustments column reflects the mortgages attached to the
five properties involved in the Sale: Wayne Estates Apartments, O'Hara
Apartments, Jackson Park Apartments, The Fountains Apartments, and
Williamsburg North Apartments as of June 30, 1997. The mortgages will
be assumed as part of the Sale. The Pro Forma June 30, 1997 column
reflects the mortgages and notes payable for the properties that are
remaining in the Partnership after the Sale.
b) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses in the Pro Forma Adjustments
column represents the estimated accrued real estate tax closing
adjustment for the five properties to be sold.
c) ACCRUED INTEREST
Accrued interest in the Pro Forma Adjustments column represents the
estimated closing adjustment for the five properties to be sold.
d) SECURITY DEPOSITS AND PREPAID RENTS
The Pro Forma Adjustments column reflects the security deposits and
prepaid rents for Wayne Estates Apartments, O'Hara Apartments, Jackson
Park Apartments, The Fountains Apartments, and Williamsburg North
Apartments as of June 30, 1997. The Pro Forma June 30, 1997 column
reflects the security deposits and prepaid rents for the properties that
are remaining in the Partnership after the Sale.
e) PARTNERS' (DEFICIT) CAPITAL
Partners' (Deficit) Capital in the Pro Forma Adjustments column
represents the following: The gain attributable to the sale of the
five properties of $4,214,845; less the distributions from the net
sales proceeds and other sources of $4,045,050 and the write off of
mortgage acquisitions costs of $529,216. These items are not reflected
in the operations reported on the Unaudited Pro Forma Statement of
Operations for the six months ended June 30, 1997.
(See accompanying notes)
F-49
<PAGE>
SCHEDULE 1
UNAUDITED PRO FORMA ADJUSTMENTS FOR PROPERTY AND EQUIPMENT
JUNE 30, 1997
<TABLE>
<CAPTION>
WAYNE THE JACKSON WILLIAMSBURG
ESTATES O'HARA FOUNTAINS PARK NORTH
APARTMENTS APARTMENTS APARTMENTS APARTMENTS APARTMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Property, at cost;
Land $ 175,000 $ 100,000 $ 247,400 $ 180,000 $ 161,250 $ 863,650
Buildings and improvements 3,550,369 2,264,933 4,592,153 1,615,727 2,919,511 14,942,693
Furniture, fixtures and equipment 395,000 250,000 537,500 255,000 480,000 1,917,500
4,120,369 2,614,93 5,377,053 2,050,727 3,560,761 17,723,843
Less accumulated depreciation 1,584,034 1,013,859 2,286,073 742,256 1,588,429 7,214,651
Property, net $2,536,335 $1,601,074 $3,090,980 $1,308,471 $1,972,332 $10,509,192
</TABLE>
F-50
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
1. INCOME
a) RENTAL INCOME
Rental income reflected in the Pro Forma Adjustments column is the
rental income generated from the five residential properties being sold.
The Pro Forma column at December 31, 1996 reflects the rental income for
the year then ended for the properties that will be remaining in the
Partnership after the Sale.
b) INTEREST AND OTHER INCOME
Interest and other income in the Pro Forma Adjustments column is the
amount of such income generated by Wayne Estates Apartments, O'Hara
Apartments, Jackson Park Apartments, The Fountains Apartments, and
Williamsburg North Apartments. The Pro Forma column at December 31,
1996 reflects the interest and other income for the year then ended
generated by the properties that will be remaining in the Partnership
after the Sale.
2. EXPENSES
a) PROPERTY OPERATIONS
The Pro Forma Adjustments column reflects Property Operations for the
five residential properties being sold. The Pro Forma December 31, 1996
column reflects the Property Operations expenses for the properties that
will remain in the Partnership after the Sale.
b) INTEREST EXPENSE
Interest expense in the Pro Forma Adjustments column is the expense
incurred by Wayne Estates, O'Hara, Jackson Park, Fountains, and
Williamsburg North for the year ended December 31, 1996. The Pro Forma
December 31, 1996 column reflects the interest expense for the same time
period for the properties that will remain in the Partnership after the
Sale.
c) DEPRECIATION AND AMORTIZATION
The Pro Forma Adjustments column reflects depreciation and amortization
expense for the year ended December 31, 1996 for the five residential
properties being sold. The Pro Forma December 31, 1996 column reflects
the depreciation and amortization expense for the period then ended for
the properties that will remain in the Partnership after the Sale.
d) ADMINISTRATIVE EXPENSES
Administrative expenses in the Pro Forma Adjustments column are the
expenses incurred for the year ended December 31, 1996 by the five
residential properties being sold. The Pro Forma December 31, 1996
column reflects the administrative expenses incurred by the properties
that will remain in the Partnership after the Sale.
F-51
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
1. INCOME
a) RENTAL INCOME
Rental income reflected in the Pro Forma Adjustments column is the
rental income generated from the five residential properties being sold.
The Pro Forma column at June 30, 1997 reflects the rental income for the
six months then ended for the properties that will be remaining in the
Partnership after the Sale.
b) INTEREST AND OTHER INCOME
Interest and other income in the Pro Forma Adjustments column is the
amount of such income generated by Wayne Estates Apartments, O'Hara
Apartments, Jackson Park Apartments, The Fountains Apartments, and
Williamsburg North Apartments. The Pro Forma column at June 30, 1997
reflects the interest and other income earned for the first six months
of 1997 by the properties that will be remaining in the Partnership
after the Sale.
2. EXPENSES
a) PROPERTY OPERATIONS
The Pro Forma Adjustments column reflects Property Operations for the
five residential properties being sold. The Pro Forma June 30, 1997
column reflects the Property Operations expenses for the properties that
will remain in the Partnership after the Sale.
b) INTEREST EXPENSE
Interest expense in the Pro Forma Adjustments column is the expense
incurred by Wayne Estates, O'Hara, Jackson Park, Fountains, and
Williamsburg North for the first six months of 1997. The Pro Forma June
30, 1997 column reflects the interest expense for the same time period
for the properties that will remain in the Partnership after the Sale.
c) DEPRECIATION AND AMORTIZATION
The Pro Forma Adjustments column reflects depreciation and amortization
expense for the six months ended June 30, 1997 for the five residential
properties being sold. The Pro Forma June 30, 1997 column reflects
depreciation and amortization expense for the properties that will
remain in the Partnership after the Sale.
d) ADMINISTRATIVE EXPENSES
Administrative expenses shown in the Pro Forma Adjustments column are
the expenses incurred for the first six months of 1997 by the five
residential properties being sold. The Pro Forma June 30, 1997 column
reflects the administrative expenses incurred by the properties that
will remain in the Partnership after the Sale.
F-52
<PAGE>
APPENDIX I
FORM OF
ASSET PURCHASE AGREEMENT
FIVE (5) RESIDENTIAL PROPERTIES
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
This purchase agreement, dated as of _________, ("Agreement" or
"Contract"), made and entered into by and between Realmark Property Investors
Limited Partnership V, a Delaware limited partnership, 2350 North Forest Road,
Getzville, New York 14068 ("Seller") and US Apartments LLC, a Delaware limited
liability company, c/o 2350 North Forest Road, Getzville, NY 14068 ("Buyer").
RECITALS
A. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, certain parcels of real property and all of the improvements and
buildings situated thereon, and the hereditaments and appurtenances thereto,
consisting of five (5) apartment complexes (the "Real Property"), and all
personal property (as hereinafter defined), any repair and remediation reserve
accounts held by any lenders with respect to the Property, equipment, fixtures
and intellectual property, including the names of the apartment complexes owned
by Seller, utilized in the operation or management of the apartment complexes,
and located at said apartment complexes as described on EXHIBIT B (collectively
the "Personal Property"). The Real Property together with the Personal Property
applicable to the apartment complexes will be herein referred to as the
"Property."
B. Attached hereto and made a part hereof are the legal descriptions of
the Real Property, marked with the name of each apartment complex and attached
as EXHIBIT A. A list of the Personal Property is attached to this Agreement as
EXHIBIT B. Any subsequent amendment to either EXHIBIT A or EXHIBIT B, or to any
other Exhibit to this Agreement, is to be considered an integral part of this
Agreement.
FOR AND IN CONSIDERATION of the mutual promises, covenants and
agreements, hereinafter set forth, the parties agree as follows:
SECTION 1. PURCHASE PRICE.
(a) The purchase price to be paid Seller by Buyer for the
Property will be $16,107,000.00 ("Purchase Price") to be paid in the following
manner:
Earnest Money ("Earnest Money") at
signing of Agreement by check to be held
in escrow by the
Escrow Agent $50,000.00
By assuming the Mortgages (the
"Mortgages") described in EXHIBIT C in
the full amount of their principal
balances on the date of closing
Cash at closing (the Purchase Price less
any Earnest Money already paid, and less
the balance of the existing Mortgages
affecting the Property at closing and
subject to prorations and allocations
per Section 5 Balance
Total $16,107,000.00
<PAGE>
and payable by Buyer either at (i) closing of title and delivery of the Deed in
immediately available good, federal funds, or (ii) delivery of an assignment of
the Seller's membership interests in any subsidiary holding title to the
Property.
(b) The Earnest Money check in the amount stated in Section 1(a)
above will be held by Andrews, Sanchez, Amigone, Mattrey & Marshall, LLP, as
Escrow Agent (the "Escrow Agent"), and delivered within two (2) days from the
date of Seller's execution (as communicated to Buyer by written facsimile and
orally by telephone on such date of execution) of this Agreement. Absent any
contrary provision of this Agreement, the Earnest Money will remain with the
Escrow Agent until the Closing of the Property or cancellation of escrow in
accordance with the provisions of Section 20 hereof. If the Earnest Money is
not delivered by the date as hereinabove set forth, Seller may terminate this
Agreement. Upon any permitted termination of this Agreement by Buyer, including
but not limited to the failure of the conditions precedent to be met pursuant to
Section 7, the Earnest Money shall be returned to Buyer in accordance with the
applicable terms and provisions of this Agreement.
SECTION 2. PLACE AND TIME OF CLOSING.
(a) Subject to the conditions precedent set forth herein having
been met or waived, the Closing will take place on or before 180 days after the
date of this Agreement (the "Closing Date"), unless extended as otherwise set
forth in this Agreement, time being of the essence as to Buyer's obligation to
perform on such date. As used herein the terms "Closing" will mean the meeting
of the parties at which delivery of the Deed and/or assignment of Seller's
subsidiary membership interests in the entities holding title and payment of the
Purchase Price as called for in Section 1 occurs for the Property.
(b) This Agreement, as an offer to purchase when signed by
Buyer, shall automatically terminate if not accepted in final form by Seller by
5 P.M., Eastern Standard Time, two business days from the date on which Buyer
executed this Agreement as indicated below.
SECTION 3. BUYER'S CONTINGENCIES.
This Agreement is contingent upon the Buyer obtaining a firm commitment
for adequate financing to consummate the purchase described in this Agreement,
on or before 120 days after execution of this Agreement. If Buyer is unable to
obtain such financing on terms and conditions satisfactory to Buyer within said
120 days, Buyer or Seller may thereafter terminate this Agreement upon written
notice to the other, in which case the Earnest Money shall be returned to Buyer
and neither party shall have any further liability hereunder. Buyer agrees to
use good faith, reasonable efforts to obtain a commitment(s) for such financing.
SECTION 4. DEED AND TITLE.
(a) Seller shall deliver to Buyer at Closing special or limited
warranty deeds (or equivalent bargain and sale deeds, where appropriate)
(collectively "Deed") and/or assignment (collectively "Assignment") of the
Seller's membership interests in subsidiaries holding title to the Property in a
form customary in the applicable jurisdictions, reasonably acceptable to Seller
and Buyer, conveying fee simple title to the Property, subject only to the
existing matters of record encumbering the Property(s), (the "Permitted
Exceptions") and such additional easements, restrictions or record and title
exceptions set forth in the commitment for title insurance specifically approved
by Buyer, and taxes not delinquent. In addition, Seller shall convey title to
the Personal Property to Buyer, subject to all liens and encumbrances, by the
execution and delivery at Closing of a Bill of Sale, and/or by virtue of the
Assignment in form and substance customary in the applicable jurisdiction and
reasonably satisfactory to Buyer and Seller, without warranty and/or
representation.
(b) Seller agrees to provide a copy of its existing title
insurance policies on each Property to Buyer. Buyer shall then obtain for each
Property an ALTA Form B Title Insurance Commitment or its equivalent
(collectively the "Title Commitment"), within fifteen (15) days of the date of
execution of this Contract by both
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parties, issued by a reputable title insurance company selected by Buyer,
committing to insure fee simple title to the Property in the amount of the
Purchase Price for such Property in Buyer's name, with all standard exceptions
removed (except for the rights of tenants under unrecorded leases and/or except
for standard exceptions normally not removed pursuant to local custom with
respect to the Property), and containing no other exceptions not specifically
approved by Buyer, except the Permitted Exceptions. Buyer will provide a copy
of the Title Commitment to Seller within five (5) days after the same is
completed, but no later than twenty (20) days after signing this Agreement.
Buyer shall have ten (10) days after receipt to examine the Title Commitment and
inform Seller in writing (the "Title Objection Notice") of Buyer's objection to
any exception contained in or title defect revealed by the Title Commitment.
Buyer's failure to deliver the Title Objection Notice shall constitute Buyer's
irrevocable acceptance of the Title Commitment and to all exceptions therein not
objected to in the Title Objection Notice.
(c) If Buyer delivers the Title Objection Notice and,
thereafter, Seller is unable or unwilling to cure such objections (of which
Seller shall notify Buyer), then Buyer may elect to terminate this Agreement
within 10 days of Seller's notice upon written notice to Seller as to any one or
more Property(s) so affected. Notwithstanding the foregoing, however, in order
to terminate the Contract, in whole or in part, an objectionable exception or
defect must be one which renders title uninsurable because of such specified
objection or defect, or the specified objection or defect shall materially
adversely affect the present use of the Property as an apartment complex. In
the event one or more Property(s) are rejected as to title and the Contract as
to such Property is terminated as set forth herein, the Purchase Price shall be
reduced by agreement of the parties based on a reasonable determination of value
from an appropriate State Certified or MAI Appraiser mutually acceptable to
Seller and Buyer.
(d) Seller shall pay for preparation of the Deed for the
Property or the Assignment, and for State and local transfer taxes, if any.
(e) Buyer will pay for title insurance commitments, title
insurance premiums, and for any survey of the Property and the recording of the
Deed for the Property, and any fees or expenses payable to the holder of the
Mortgages in connection with this transaction.
(f) Seller and Buyer will each pay their own attorney's fees.
Seller and Buyer will share escrow costs equally, if any.
SECTION 5. PRORATIONS AND ALLOCATIONS.
(a) Collected rents, taxes (based on local custom), Mortgage
interest and applicable escrows, laundry income, service contracts, equipment
leases or other personal property financing, utility deposits, and other
applicable income and expenses whether or not a lien, assessed or to be assessed
for the tax year in which the transaction is consummated, will be prorated as to
the Property(s) to the date of the Closing based on a 365-day year, as of 12:00
midnight, New York City time, of the day preceding the Closing Date.
(b) Security deposits actually held by Seller or paid by any
lessees at the Property will be transferred to Buyer in full at Closing,
including any interest earned thereon and payable to the lessees at the Property
under applicable law.
(c) In the event Seller has expended funds prior to Closing
for any repair or remediation of the Property for which it is entitled to
reimbursement from any repair and remediation reserve held by any lender
holding any of the Mortgages described in EXHIBIT C, Buyer agrees to assign
any such reimbursement or directly reimburse Seller for any such expended
funds immediately upon reimbursement from the lender out of such reserve
account.
SECTION 6. CONDEMNATION OR CASUALTY. Seller agrees to give Buyer prompt
written notice (the "Damage Notice") of any fire or other casualty occurring to
all or any portion of the improvements at the Property and/or Personal Property
between the date hereof and the Closing Date. If prior to the Closing, there
shall occur:
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(i) damage to the improvements at any one of the Properties
caused by fire or other casualty which would cost $100,000.00 or more to repair
based on the estimate of a reputable third party contractor chosen by Seller; or
(ii) the taking or condemnation of at least 10% of the Real
Property for any one Property and if such taking would materially interfere with
the current use thereof; then, if any such events set forth in (i) or (ii) above
occurs, Buyer, at its option, may terminate this Agreement as to said Property
by written notice given to Seller within seven (7) days after Buyer has received
the Damage Notice or at the Closing, whichever is earlier. If Buyer does not
elect to terminate the Agreement as aforesaid, the Closing shall take place as
provided herein without an abatement of the Purchase Price as to any such
Property (except that Buyer shall be allowed a credit for any deductible under
Seller's insurance) and there shall be assigned to the Buyer at Closing, all
interest of the Seller in and to any insurance proceeds or condemnation awards
which may be payable to Seller on account of such occurrence. Notwithstanding
the foregoing, should Buyer elect to terminate, Seller may notify Buyer within
15 days of Buyer's termination notice shall be null and void and the parties
shall proceed at Closing. Otherwise, upon such termination, the Purchase Price
shall be reduced by a reasonable amount based upon the opinion of an appropriate
State Certified or MAI Appraiser acceptable to Seller and Buyer.
If, prior to the Closing, there shall occur:
(iii) damage to any of the Property(s) caused by fire or other
casualty which would cost less than $100,000.00 based on the estimate of a
reputable third party contractor chosen by Seller; or
(iv) the taking or condemnation of less than 10% of the Real
Property for any one Property which would not materially interfere with the
current use, thereof; then, if any of such events set forth in (iii) or (iv)
above occurs, Buyer shall have no right to terminate this Agreement as to such
Property, there shall be no reduction of the Purchase Price, but there shall be
assigned to Buyer at closing all interest of Seller in and to any insurance
proceeds or condemnation awards which may be payable to Seller on account of any
such occurrence, and in addition, Buyer shall be allowed a credit for any
deductible under Seller's insurance policy.
Seller shall be responsible for maintaining fire and extended
coverage insurance prior to Closing as is currently in place.
SECTION 7. CONDITIONS. The following shall be conditions precedent to
Buyer's obligations hereunder, unless specifically waived in whole or in part in
writing by Buyer:
(a) TITLE INSURANCE POLICY. Title to each Property at Closing
shall be in accordance with the provisions of Section 4 above.
(b) PERSONAL PROPERTY. Seller conveying title to the Personal
Property to Buyer at Closing in accordance with Section 4 hereof.
(c) COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. Seller will
be in substantial compliance with all other representations and warranties made
in Section 8 or elsewhere in this Agreement, at Closing.
(d) CONDITIONS OF THE PROPERTY. The Buyer acknowledges that it
is purchasing the Property in "as is, where is" condition with all existing
faults and that Buyer is familiar with the condition of the Property.
Should any condition fail as to any Property(s) and should Buyer elect
not to proceed with respect to same, there shall be a credit against the
Purchase Price in a reasonable amount determined by an appropriate State
Certified or MAI Appraiser acceptable to Seller and Buyer and Buyer shall
proceed with the Closing as to the remaining Property(s).
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With respect to all of the foregoing, to the extent that they are
representations and warranties of Seller, they are made to the best of Seller's
knowledge and belief without independent investigation.
SECTION 8. SELLER'S WARRANTIES. The following representations and
warranties of Seller shall not survive the Closing.
(a) To Seller's best knowledge and belief without independent
investigation, Seller has not received written notification that it has not
disclosed to Buyer that the Property is not in compliance with all federal,
state, county and municipal laws, ordinances and regulations, including but not
limited to all federal, state, county and municipal environmental laws and
regulations, applicable to or affecting the Property.
(b) Seller will not interfere with Buyer's opportunity to hire
Seller's on-site employees at the Property, but Buyer will have no obligation to
hire such employees. Buyer will make no efforts to hire such employees until
after all contingencies have been removed and no earlier than 10 days before
closing.
(c) Seller shall be responsible for (and Buyer shall not assume
the obligation of) all employee wages, benefits (including payments for accrued
bonuses, vacation or sick pay, unemployment compensation, employment taxes,
medical claims or similar payments), contributions under any benefit program or
agreement, severance pay obligations and other related employee costs arising as
a result of any events, acts (or failures to act) prior to the Closing Date with
respect to the Property at which such persons are employed, whether or not
disclosed on the schedules to this Agreement.
(d) Seller retains all liability and responsibility for
fulfilling all federal and/or state COBRA and continuation of group health
insurance coverage requirements (pursuant to Section 4980B of the Code,
sections 601-608 of ERISA, and any applicable state laws) with respect to
Seller's current or former employees (and their dependents). Buyer does not
hereby and will not at the Closing assume any obligation to provide medical
insurance coverage to persons that it employs because it acquires the Property.
(e) The physical condition of the Personal Property and Real
Property shall be maintained in substantially the same condition as they were in
as of the date hereof through the Closing Date.
(f) Seller has the authority to enter into this Agreement and
sign all documents required to be signed to implement Seller's obligations under
this Agreement.
SECTION 9. NON-PERFORMANCE.
(a) If Seller defaults and fails to deliver the Deed or meet any
of the conditions hereof willfully, Buyer, at Buyer's sole option, may (i)
terminate this Agreement whereupon the Earnest Money shall be returned to Buyer
on demand or (ii) if the aggregate of all defaults by the Seller materially and
adversely affects the value of any one Property in an amount less than
$50,000.00, or the value of all of the Properties in an amount of less than
$250,000.00, Buyer shall have no right to terminate the Agreement as to one or
all of the Property(s), but shall be entitled to an adjustment of the Purchase
Price in the amount of said default/damages to be determined by a State
Certified or MAI Appraiser acceptable to Buyer and Seller. The foregoing shall
be the sole and exclusive remedies of Buyer.
(b) If Buyer defaults at any time, the Earnest Money shall be
delivered to Seller and Seller may exercise such remedies at law to which Seller
may be entitled provided that in no event shall Seller be entitled to money
damages in excess of the sum of the Earnest Money. Buyer, except as otherwise
set forth herein, will then be released from all liability to Seller related to
this Agreement, such Earnest Money being Seller's sole remedy.
SECTION 10. BROKERS, AGENTS AND CONSULTANTS. Seller represents and
warrants to Buyer that no broker, consultant or agent is due a commission or fee
from the proceeds of the Closing claiming by,
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through or under Seller except as stated herein, and hereby agrees to indemnify
and hold harmless Buyer from the claims of any agent, consultant or broker for
the payment of any commission or commissions hereunder.
Buyer represents and warrants to Seller that no broker, consultant or
agent is due a commission or fee from the proceeds of the closing claiming by,
through or under Buyer, and hereby agrees to indemnify and hold harmless Seller
and the Property from the claims of any agent, consultant or broker for the
payment of any commission, or commissions hereunder.
Notwithstanding Seller's representations referenced above, Seller has
advised Buyer and Buyer acknowledges that Seller has entered into a contingent
exclusive brokerage agreement with Duberstein Investment Company of Dayton,
Ohio, which said brokerage agreement shall only be effective if this Agreement
is not executed by Seller due to the inability of Seller to obtain approval of
its limited partners to this Agreement.
SECTION 11. LEASES.
(a) Seller agrees that prior to the Closing it will not enter
into any long term commercial leases or service agreements not in the ordinary
course of business without the prior written consent of Buyer which will not be
unreasonably withheld or delayed.
(b) Seller shall assign without representation or warranty
whatsoever the existing tenant leases to Buyer at Closing along with all service
contracts and other agreements affecting the Property, provided that Buyer shall
execute an assumption agreement or other agreements with respect to all tenant
leases and service contracts or other agreements from and after the date of
closing.
SECTION 12. INSURANCE. Seller will cancel its insurance coverage on
the Property effective at Closing of the Property, and Buyer will place new
insurance coverage on the Property effective on the same date.
SECTION 13. ASSIGNMENT. Buyer shall not have the right to assign this
Agreement, in whole or in part, to any party without the express written consent
of Seller. Upon any such assignment approved by Seller, the assignee shall
assume the obligations of Buyer. Seller's consent pursuant to this section
shall be in its sole discretion and shall include approval of all proposed
assignment documents. Notwithstanding the foregoing, the Buyer shall have the
right to assign to an entity of which the Buyer has majority control provided
the Buyer herein remains liable for performance of this Contract.
SECTION 14. ENTIRE AGREEMENT. All prior understandings and agreements
of the parties are merged herein, and this Agreement reflects the entire
understanding of the parties. This Agreement may not be changed or terminated
orally.
SECTION 15. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
be binding upon and inure to the benefit of the parties hereto, their respective
legal representatives, successors and assigns.
SECTION 16. LIABILITY.
(a) SELLERS LIABILITY. Seller shall be liable for any claims,
demand, loss, liability, damage, or expense (including reasonable attorneys'
fees) in connection with third-party claims for injury or damage to personal
property in connection with the ownership or operation of the Property prior to
Closing. This obligation of Seller shall be repeated at and shall survive the
Closing.
(b) BUYERS LIABILITY. Buyer shall be liable for any claim,
demand, loss, liability, damage, or expense (including reasonable attorneys'
fees), due to Buyer's ownership or operation of the Property from and after
Closing. This obligation of Buyer shall be repeated at and shall survive the
Closing.
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SECTION 17. NOTICES. All notices required or permitted hereby shall be
in writing and delivered either in person or sent electronically, and by
national overnight express carrier. Notices shall be deemed to have been given
when sent as follows:
To Buyer: US Apartments LLC
2350 North Forest Road
Getzville, NY 14068
To Seller: Realmark Property Investors
Limited Partnership V
2350 North Forest Road
Getzville, NY 14068
SECTION 18. CONSTRUCTION. Time shall be construed to be of the
essence, subject to the terms and conditions specifically set forth in this
Agreement.
SECTION 19. GOVERNING LAW. This Agreement will be governed by and
construed according to New York law, except for matters of title or real estate
law which shall be governed by the laws of the states in which the Property is
located.
SECTION 20. ESCROW. The Escrow Agent hereby acknowledges receipt of
the Earnest Money and agrees to hold the same in escrow until the closing or
sooner termination of this Agreement and shall pay over and apply the proceeds
thereof in accordance with the terms of this Agreement. If, for any reason, the
Closing does not occur and either party makes a written demand upon the Escrow
Agent for payment of the Earnest Money, the Escrow Agent shall give written
notice to the other party of such demand. If the Escrow Agent does not receive
a written objection from the other party to the proposed payment within five (5)
business days after the giving of such notice, the Escrow Agent is hereby
authorized to make such payment. If the Escrow Agent does receive such written
objection within such five (5) day period, or if for any reason the Escrow Agent
in good faith shall elect not to make such payment, the Escrow Agent shall
continue to hold the Earnest Money until otherwise directed by written
instructions from the parties to this Agreement or until a final judgment
(beyond any applicable appeal period) by a court of competent jurisdiction is
rendered disposing of such Earnest Money.
The Escrow Agent shall be liable as a depository only and its duties
hereunder are limited to the safekeeping of the Earnest Money and the delivery
of same in accordance with the terms of this Agreement. The Escrow Agent will
not be liable for any act or omission done in good faith, or for any claim,
demand, loss or damage made or suffered by any party to this Agreement,
excepting such as may arise through or be caused by the Escrow Agent's
negligence or willful misconduct.
SECTION 21. RELEASE OF SELLER UNDER THE MORTGAGES. Buyer shall use
best efforts to obtain the approval of the lender(s) ("Lender") under the
Mortgages for the release (the "Release") of Seller from all recourse
obligations and indemnities under the Mortgages and the loan documents entered
into in connection with the Mortgages (collectively, the "Recourse
Obligations"). In the event Buyer is unable, despite its best efforts, to
obtain the Release, Seller agrees, upon the assumption of the Mortgages by
Buyer, to remain liable for the Recourse Obligations.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties, or
by the duly authorized officer of the parties, on the day and year shown below.
BUYER:
Executed ______, 1997
US APARTMENTS LLC
By: _______________________________, Member
SELLER:
Executed ______, 1997
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
By: _______________________________
Joseph M. Jayson, G.P.
RECEIPT OF ESCROW AGENT
The undersigned hereby acknowledges receipt of the Earnest Money provided for
herein, and that the same is being held by Escrow Agent pursuant to the terms of
the above Agreement.
as Escrow Agent
BY: _______________________________
Member
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EXHIBIT A TO ASSET PURCHASE AGREEMENT
O'HARA APARTMENTS
ALL that certain piece, parcel or tract of land, with improvements thereon,
situate, lying and being in the State of South Carolina, County of Greenville,
being bounded on the west by Mitchell Road, the northeast by Shady Lane, and the
south by Edgewood Drive, and containing 9.42 acres (410,335.20 square feet)
according to a plat of survey prepared by Freedland-Clinkscales & Associates,
Engineers - Land Surveyors, dated August 16, 1994, entitled "Survey for Realmark
Financing L.P." recorded in the RMC Office for Greenville County in Plan Book
28R at Page 16A&B, and having, according to said plat, the following metes and
bounds, to-wit:
BEGINNING at an iron pin on the easterly edge of the right-of-way of Mitchell
Road at the intersection thereof with the northerly edge of the right-of-way of
Edgewood Drive and running thence along the easterly edge of the right-of-way of
Mitchell Road, the following courses and distances: N. 00-31-38 E. 81.61 feet
to an iron pin; thence N. 02-26-06 E. 184.38 feet to an iron pin; thence N.
01-13-12 W. 126.38 feet to an iron pin; thence N. 04-12-00 W. 351.05 feet to an
iron pin; thence N. 05-45-07 W. 191.80 feet to an iron pin at the intersection
of the easterly edge of the right-of-way of Mitchell Road with the southerly
edge of the right-of-way of Shady Lane; thence running through the intersection
of the edge of said rights of way N. 59-23-40 E. 21.50 feet to an iron pin on
the southerly edge of the right-of-way of Shady Lane; thence running along the
southwesterly edge of the right-of-way of Shady Lane the following courses and
distances: S. 55-45-20 E. 29.10 feet to an iron pin; thence S. 48-18-58 E. 97.64
feet to an iron pin; thence S. 42-25-09 E. 163.75 feet to an iron pin; thence S.
41-33-10 E. 452.00 feet to an iron pin; then S. 41-32-10 E. 263.06 feet to an
iron pin; thence S. 34-36-53 E. 9416 feet to an iron pin at a joint corner with
property now or formerly of Tanner; thence turning and running along a joint
line with property now or formerly of Tanner S. 57-54-05 W. 184.60 feet to an
iron pin; thence continuing along a joint line with property now or formerly of
Tanner S. 34-06-55 E. 50.10 feet to an iron pin on the northerly edge of the
right-of-way of Edgewood Drive; thence turning and running along the curvature
of the northerly edge of the right-of-way of Edgewood Drive; the chord of which
runs s. 65-57-05 W. 90.70 feet to an iron pin; thence continuing along the
curvature of the northerly edge of the right-of-way of Edgewood drive, the chord
of which runs S. 81-40-05 W. 92.40 feet to an iron pin; thence continuing along
the northerly edge of the right-of-way of Edgewood Drive the following courses
and distances: N. 86-02-55 W. 110.00 feet to an iron pin; thence N. 84-53-55 W.
144.60 feet to a p.k. nail in asphalt; thence N. 85-13-55 W. 133.30 feet to an
iron pin; thence running through the intersection of the northerly edge of the
right-of-way of Edgewood Drive and the easterly edge of the right-of-way of
Mitchell Road N. 41-07-03 W. 38.77 feet to an iron pin on the easterly edge of
the right-of-way of Mitchell Road, being the POINT OF BEGINNING.
JACKSON PARK APARTMENTS
A part of the Southwest quarter of the Southwest quarter of Section Sixteen
(16), Township Six (6) North, Range Six (6) East, and a part of the Northwest
quarter of the Northwest quarter of Section Twenty-one (21), Township Six (6)
North, Range Six (6) East, in the City of Seymour, described as follows:
Commencing at the Northeast corner of the Northwest quarter of the Northwest
quarter of Section 21, thence along the section line West (an assumed bearing)
429.36 feet to the point of beginning of this description, the point being the
Northwest corner of Lot 32 in Jackson Park Subdivision, Section "D"; thence
North 00 degrees 05 minutes 00 seconds East 438.03 feet to the Southeast corner
of Jackson Park Subdivision, Section "H"; thence along the South line of the
Subdivision, North 89 degrees 55 minutes 00 seconds West 353.88 feet; thence
South 80 degrees 05 minutes 30 seconds West 189.84 feet; thence North 27 degrees
56 minutes 30 seconds West 129.90 feet to the Southerly right-of-way of
Hillcrest Drive; thence along the right-of-way South 60 degrees 29 minutes 30
seconds West 142.80 feet; thence following the arc of a 30 foot radius curve to
the left, a true arc distance of 42.28 feet to a point on the Eastern
right-of-way of Jackson Park Drive, the curve has a chord which is 38.87 feet in
length and bears South 16 degrees 57 minutes 00 seconds West; thence along the
right-of-way and following the arc of a 538.22 foot radius curve to the right, a
true arc distance of 217.12 feet, the arc has a chord which is 215.52 feet and
bears South 12 degrees 05
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minutes 00 seconds East; thence continuing along the right-of-way South 00
degrees 25 minutes 30 seconds East 206.04 feet; thence following the arc of a 30
foot radius curve to the left a true arc distance of 45.03 feet, to a point on
the Northern right-of-way of Sycamore Road, the arc has a chord which is 40.92
feet in length and bears South 43 degrees 25 minutes 30 seconds East; thence
along the right-of-way of Sycamore Road, South 86 degrees 25 minutes 30 seconds
East 433.05 feet to a point of curvature; thence continuing along the
right-of-way and following the arc of a 579.56 foot radius curve to the right, a
true arc distance of 180 feet to the Southwest corner of Lot 32 in Jackson Park
Subdivision, Section "D", the arc has a chord which is 179.29 feet in length and
bears South 77 degrees 29 minutes 00 seconds East; thence along the Western line
of Lot 32, North 28 degrees 37 minutes 00 seconds East 113.47 feet to the point
of beginning.
EXCEPT: A part of the Southwest quarter of the Southwest quarter of Section
Sixteen (16), Township Six (6) North, Range Six (6) East, more particularly
described as follows: Commencing at the Southeast corner of the quarter quarter
section; thence along the South line of Section 16 and subsequently following
the North line of Jackson Park Subdivision, Section D, Westerly 429.36 feet to
the Northwest corner of Lot 32 in the subdivision; thence North 00 degrees 05
minutes East (an assumed bearing) 134.67 feet to the true point of beginning;
thence North 89 degrees 55 minutes West 140 feet; thence North 08 degrees 37
minutes West 165 feet; thence North 00 degrees 05 minutes East 140 feet; thence
South 89 degrees 55 minutes East 165 feet; thence South 00 degrees 05 minutes
West 303.36 feet to the true point of beginning.
INFORMATION NOTE: The acreage in the legal description is shown for convenience
only and should not be construed as insuring the quantity of land set forth in
the description.
WAYNE ESTATES APARTMENTS
PARCEL 1:
Situate in the City of Huber Heights, County of Montgomery, State of Ohio and
being Lot Numbered ONE (1) Wayne Estates Subdivision, Section One, as recorded
in Plat Book 97, Page 3 of the Plat Records of Montgomery County, Ohio,
EXCEPTING therefrom 4.892 acres platted into Wayne Estates Condominium, Section
One, as recorded in Plat Book 120, page 13 of the Plat Records of Montgomery
County, Ohio.
PARCEL 2:
Situate in the City of Huber Heights, County of Montgomery, State of Ohio and
being Lot Numbered TWO (2) Wayne Estates, Section Two, as recorded in Plat Book
104, Page 5 of the Plat Records of Montgomery County, Ohio.
PARCEL 3:
Situate in the City of Huber Heights, County of Montgomery, State of Ohio and
being Units Numbered SIX THOUSAND SEVEN HUNDRED SIXTY ONE (6761), SIX THOUSAND
SEVEN HUNDRED SIXTY THREE (6763), SIX THOUSAND SEVEN HUNDRED SIXTY FIVE (6765),
SIX THOUSAND SEVEN HUNDRED SIXTY SEVEN (6767), SIX THOUSAND SEVEN HUNDRED SIXTY
NINE (6769), SIX THOUSAND SEVEN HUNDRED SEVENTY ONE (6771), SIX THOUSAND SEVEN
HUNDRED SEVENTY THREE (6773), SIX THOUSAND SEVEN HUNDRED SEVENTY FIVE (6775),
SIX THOUSAND SEVEN HUNDRED SEVENTY SEVEN (6777), SIX THOUSAND SEVEN HUNDRED
SEVENTY NINE (6779), SIX THOUSAND SEVEN HUNDRED EIGHTY ONE (6781), SIX THOUSAND
SEVEN HUNDRED EIGHTY THREE (6783), SIX THOUSAND SEVEN HUNDRED EIGHTY FIVE
(6785), SIX THOUSAND SEVEN HUNDRED EIGHTY SEVEN (6787), SIX THOUSAND SEVEN
HUNDRED EIGHTY NINE (6789), SIX THOUSAND SEVEN HUNDRED NINETY ONE (6791), SIX
THOUSAND SEVEN HUNDRED NINETY THREE (6793), SIX THOUSAND SEVEN HUNDRED NINETY
FIVE (6795), SIX THOUSAND SEVEN HUNDRED NINETY SEVEN (6797), SIX THOUSAND SEVEN
HUNDRED NINETY NINE (6799), SIX THOUSAND EIGHT
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HUNDRED ONE (6801), SIX THOUSAND EIGHT HUNDRED THREE (6803), SIX THOUSAND EIGHT
HUNDRED FIVE (6805), SIX THOUSAND EIGHT HUNDRED SEVEN (6807), SIX THOUSAND EIGHT
HUNDRED NINE (6809), SIX THOUSAND EIGHT HUNDRED ELEVEN (6811), SIX THOUSAND
EIGHT HUNDRED THIRTEEN (6813), SIX THOUSAND EIGHT HUNDRED TWENTY ONE (6821), SIX
THOUSAND EIGHT HUNDRED TWENTY THREE (6823), SIX THOUSAND EIGHT HUNDRED TWENTY
FIVE (6825), SIX THOUSAND EIGHT HUNDRED TWENTY SEVEN (6827), SIX THOUSAND EIGHT
HUNDRED TWENTY NINE (6829), SIX THOUSAND EIGHT HUNDRED THIRTY ONE (6831), SIX
THOUSAND EIGHT HUNDRED FORTY ONE (6841), SIX THOUSAND EIGHT HUNDRED FORTH THREE
(6843), SIX THOUSAND EIGHT HUNDRED FORTY FIVE (6845), SIX THOUSAND EIGHT HUNDRED
FORTY SEVEN (6847), SIX THOUSAND EIGHT HUNDRED FORTY NINE (6849), SIX THOUSAND
EIGHT HUNDRED FIFTY ONE (6851), SIX THOUSAND NINE HUNDRED FIFTY ONE (6951), SIX
THOUSAND NINE HUNDRED FIFTY THREE (6953), SIX THOUSAND NINE HUNDRED FIFTY FIVE
(6955), SIX THOUSAND NINE HUNDRED FIFTY SEVEN (6957), SIX THOUSAND NINE HUNDRED
FIFTY NINE (6959), SIX THOUSAND NINE HUNDRED SIXTY ONE (6961), SIX THOUSAND NINE
HUNDRED SEVENTY ONE (6971), SIX THOUSAND NINE HUNDRED SEVENTY THREE (6973), SIX
THOUSAND NINE HUNDRED SEVENTY FIVE (6975), SIX THOUSAND NINE HUNDRED SEVENTY
SEVEN (6977), SIX THOUSAND NINE HUNDRED SEVENTY NINE (6979), SIX THOUSAND NINE
HUNDRED EIGHT ONE (6981), SIX THOUSAND NINE HUNDRED EIGHTY THREE (6983). Wayne
Estates Condominium, Section One, as recorded in Plat Book 120, page 13 of the
Plat Records of Montgomery County, Ohio, the Declaration which appears recorded
in Deed Microfiche 83-627-D10 together with interest in common area. Wayne
Condominium Section One is taken out of Lot Numbered ONE of Wayne Estates,
Section One as shown above as Parcel 1.
THE FOUNTAINS APARTMENTS
Situated in Section 23, Town 3, Range 2, in Union Township, Butler County, Ohio,
and being more particularly described as follows;
Being Lots 2, 3, 4, 5, 7 and 8 of The Fountains Apartments as
the same are designated, numbered and known on the plat of said
subdivision, recorded in Plat book 27, page 32, Plat Records,
Butler County Ohio.
Subject to easements and restrictions of record.
WILLIAMSBURG NORTH APARTMENTS
Williamsburg North Apartments, the plat of which is recorded in Plat book "F",
page 92, in the Office of the Recorder of Bartholomew County Indiana.
I-11
<PAGE>
EXHIBIT B TO ASSET PURCHASE AGREEMENT
With respect to each apartment complex described in Exhibit A, all furniture,
fixtures, refrigerators, stoves, dishwashers, disposals, air conditioning,
carpeting, office supplies and equipment, landscaping and maintenance supplies
and equipment and all other tangible personal property located at and used in
connection with the operation of each apartment complex.
I-12
<PAGE>
EXHIBIT C TO ASSET PURCHASE AGREEMENT
Property Mortgage Balance Lender
The Fountains Apartments $3,893,161.00 Credit Suisse
First Boston
Mortgage Capital
O'Hara Apartments 1,597,094.00 Credit Suisse
First Boston
Mortgage Capital
Williamsburg North Apartments 2,496,978.00 Credit Suisse
First Boston
Mortgage Capital
Wayne Estates Apartments 3,089,385.00 Credit Suisse
First Boston
Mortgage Capital
Jackson Park Apartments 1,596,746.00 Credit Suisse
First Boston
Mortgage Capital
I-13
<PAGE>
APPENDIX II
RELEVANT PARTNERSHIP AGREEMENT PROVISIONS AND PROPOSED AMENDMENTS
PROPOSED AMENDMENT
Set forth below is the proposed amendment to the Partnership Agreement
which is to be considered in connection with the Transaction (additions and
modifications are indicated by underlining of the appropriate text):
7.3 AUTHORITY OF PARTNERS TO DEAL WITH PARTNERSHIP.
B. Other than as specifically authorized in Sections 7.3A AND 7.3E, the
General Partners are prohibited from entering into any agreements, contracts or
arrangements on behalf of the Partnership with the General Partners or any
Affiliate of the General Partners. . . .
E. NOTWITHSTANDING ANY PROHIBITION CONTAINED HEREIN, THE GENERAL
PARTNERS ARE SPECIFICALLY AUTHORIZED TO ENTER INTO ANY AGREEMENTS, CONTRACTS OR
ARRANGEMENTS AND TAKE ANY ACTIONS ON BEHALF OF THE PARTNERSHIP THEY DEEM
NECESSARY OR APPROPRIATE TO EVIDENCE AND EFFECTUATE THE SALE OF FIVE OF THE
PARTNERSHIP'S RESIDENTIAL PROPERTIES TO AN AFFILIATE OF THE GENERAL PARTNERS, AS
MORE FULLY DESCRIBED IN SECTION 7.4C, SUBJECT TO OBTAINING THE CONSENT OF A
MAJORITY IN INTEREST OF THE LIMITED PARTNERS.
7.4 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNERS.
C. The General Partners on behalf of the Partnership shall not
purchase, lease or acquire any Property from the General Partners or any of
their Affiliates or from any Person in which the General Partners or any of
their Affiliates have a material interest. Notwithstanding the foregoing, the
General Partners may purchase Property in their own names as nominee or in the
name of one or more independent parties as nominees or straw parties, and assume
loans in connection therewith and temporarily hold title thereto, with or
without the imposition of any legal liability on the Partnership in connection
therewith, for the purpose of facilitating the acquisition of such Property or
the borrowing of money or obtaining of financing for the Partnership, or
completion of construction of such Property, or any other purpose related to the
business of the Partnership; provided there is no difference in interest rates
of the loans secured by the Property at the time acquired by the General
Partners and the time acquired by the Partnership, nor any other benefit arising
out of such transaction to the General Partners apart from compensation
otherwise provided in this Agreement. Such Property must be purchased by the
Partnership for a price no greater than the price in such Property [paid] by the
General Partners and no other payments directly or indirectly arising out of
such transaction may be received by the General Partners or Affiliates apart
from compensation otherwise permitted by this Agreement. NOTWITHSTANDING ANY
PROVISION TO THE CONTRARY CONTAINED IN THE PARTNERSHIP AGREEMENT, THE
PARTNERSHIP IS ALSO EXPRESSLY AUTHORIZED TO SELL TO AN AFFILIATE OF THE GENERAL
PARTNERS THE FIVE RESIDENTIAL PROPERTIES DESCRIBED IN THE CONSENT SOLICITATION
MATERIALS DATED NOVEMBER 4, 1997 ("SOLICITATION MATERIALS"), PURSUANT TO THE
TERMS OF AN ASSET PURCHASE AGREEMENT SUBSTANTIALLY IN THE FORM ATTACHED TO THE
SOLICITATION MATERIALS AS APPENDIX I, AND THE GENERAL PARTNERS ARE AUTHORIZED TO
SOLICIT THE CONSENT OF THE LIMITED PARTNERS TO SUCH SALE. Except as otherwise
provided in this Agreement, the Partnership shall not sell or lease a Property
to the General Partners or any of their Affiliates.
<PAGE>
APPENDIX III
OPINION OF HOULIHAN VALUATION ADVISORS
October 21, 1997
Mr. Joseph M. Jayson
General Partner
Realmark Property Investors
Limited Partnership - V
2350 North Forest Rd., Suite 12A
Getzville, NY 14068
Re: FAIRNESS OPINION
Dear Mr. Jayson:
In accordance with your request we have prepared the following fairness
opinion. We understand that the proposed transaction involves the purchase of
five apartment complexes (the "Properties") from Realmark Property Investors
Limited Partnership V (the "Partnership") by US Apartments LLC, an affiliate of
the Partnership's general partners (the "Transaction").
THE TRANSACTION
US Apartments LLC has offered to pay a gross purchase price of Sixteen
Million One Hundred Seven Thousand Dollars ($16,107,000) for the Properties.
The purchase price includes the purchaser's assumption of the mortgages on the
Properties (which are currently estimated at $12,695,000). The balance of the
purchase price will be paid in cash at closing subject to normal and customary
account adjustments. In connection with the sale of the Properties, the
Partnership's limited partners (the "Limited Partners") are expected to receive
a cash distribution of $171.00 per Unit from the sale proceeds or other sources.
The buyer will also receive the items of personal property located at
each Property and the balance (if any) in an escrow account maintained for
property improvements (as required by Credit Suisse First Boston, the mortgage
holder).
You have requested our opinion (the "Opinion") as to the fairness to the
Partnership and the Limited Partners, from a financial point of view, of the
Transaction. This Opinion does not address the Partnership's underlying
business decision to effect the Transaction.
In connection with this Opinion we have made such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1) Reviewed the Partnership's recent public filings, including Forms 10-K
and 10-Q for the previous two years
<PAGE>
Mr. Joseph M. Jayson
October 21, 1997
Page-2-
2) Reviewed historic audited financial statements for the past two years
3) Reviewed the final prospectus dated July 14, 1986
4) Reviewed the form of the asset purchase agreement
5) Reviewed the consent solicitation materials
6) Reviewed real estate financing appraisals
7) Had due diligence discussions with Partnership management concerning all
matters deemed pertinent to our analysis
8) Analyzed secondary market transactions involving Partnership Units
(recent 18 months)
9) Performed a discreet financial analysis of each Property (past three
years and trailing 12 months)
10) Reviewed a document file concerning efforts to market and sell the
Properties, including interest in and offers to buy (1995 - present)
11) Reviewed certain publicly available data, including information on real
estate investment trusts and real estate limited partnerships
12) Conducted discussions with a mortgage banker actively engaged in
financing similar properties
13) Conducted capitalization rate research, and
14) Conducted such other studies, analyses and inquiries as we deemed
appropriate.
We have relied upon and assumed, without independent verification, that
all the financial information provided to us has been reasonably prepared and
reflects the best currently available information. We have also assumed that
there have been no recent material changes in the operation or prospects of the
subject Properties. We have not negotiated the Transaction or advised you with
respect to alternatives.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Properties and do not assume any
responsibility for such information. Our Opinion is necessarily based on the
business, economic, market and other conditions as they exist, and as can be
evaluated by us at the date of this letter.
Based on the foregoing, and in reliance thereon, it is our opinion that
the Transaction as presented is fair to the Partnership and Limited Partners,
from a financial point of view.
This Opinion is furnished solely for the benefit of the Limited Partners
and the Partnership, and may not be relied upon by any other person without our
express, prior written consent. We understand that this Opinion may be referred
to or included as an exhibit to consent solicitation materials and/or the asset
purchase agreement, and we consent to such inclusion.
III-2
<PAGE>
Mr. Joseph M. Jayson
October 21, 1997
Page-3-
This Opinion is delivered to you subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and subject
to the understanding that the obligations of Houlihan Valuation Advisors ("HVA")
in the Transaction are solely corporate obligations and no officer, director,
employee, agent, shareholder or controlling person of HVA shall be subjected to
any personal liability whatsoever to any person, nor will any such claim be
asserted by or on behalf of you or your affiliates.
Respectfully Submitted,
/s/ Houlihan Valuation Advisors
Houlihan Valuation Advisors
III-3
<PAGE>
ANY QUESTIONS REGARDING THE PROPOSAL OR ANY OF THE STATEMENTS CONTAINED
HEREIN SHOULD BE DIRECTED TO THE PARTNERSHIP'S INFORMATION AGENT AT THE BELOW
INDICATED ADDRESS, TELEPHONE OR FACSIMILE NUMBERS:
THE HERMAN GROUP, INC.
2121 SAN JACINTO STREET
26TH FLOOR
DALLAS, TEXAS 75201-6705
BY FACSIMILE:
(214) 999-9323
FOR INFORMATION CALL:
(800) 354-0414
(TOLL-FREE)
<PAGE>
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP V
2350 NORTH FOREST ROAD
AMHERST, NEW YORK 14068
WRITTEN CONSENT
SOLICITED BY THE PARTNERSHIP
To approve a proposal consisting of (i) the amendment (the "Amendment") of
the Amended and Restated Limited Partnership Agreement, dated as of February 28,
1986, as previously amended, of Realmark Property Investors Limited Partnership
V, a Delaware limited partnership (the "Partnership"), to permit the sale of
five of the residential properties of the Partnership (the "Sale," and together
with the Amendment, the "Transaction") to US Apartments LLC, an affiliate of the
Partnership's General Partners (the "Purchaser"), and to require the approval of
the Sale by the consent of a majority in interest of the Limited Partners, and
(ii) approval, in accordance with the Amendment, of the Sale to the Purchaser or
one of its affiliates pursuant to an asset purchase agreement to be entered into
between the Partnership and the Purchaser in substantially the form attached to
the accompanying Consent Solicitation Statement. This consent is solicited by
Realmark Properties, Inc. and Joseph M. Jayson, the General Partners of the
Partnership on behalf of the Partnership. The Amendment and Sale are being
consented to as one proposal to approve the Transaction. All written consents
must be received on behalf of the Partnership before 5:00 P.M., New York City
time, on November 26, 1997 to be valid, unless such date or time is extended for
an aggregate of up to an additional forty (40) days in the sole discretion of
the General Partners, or unless the necessary vote to approve the Transaction is
received earlier, then upon such date (the "Expiration Date").
You may vote on the Proposal described above by marking one of the following
boxes:
/ / FOR / / AGAINST / / ABSTAIN
ALL SIGNED WRITTEN CONSENTS WILL BE COUNTED FOR THE TRANSACTION
UNLESS OTHERWISE MARKED.
(CONTINUED ON THE REVERSE SIDE)
<PAGE>
By signing and returning this Consent, the undersigned acknowledges receipt of
the Consent Solicitation Statement delivered herewith.
Dated: __________________________, 1997
_______________________________________
Signature
_______________________________________
Signature (if held Jointly)
_______________________________________
Title
Please sign exactly as name appears
hereon. When Units are held by joint
tenants, both should sign. When signing
as an attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: The Herman Group, Inc., 2121 San Jacinto
Street, 26(th) Floor, Dallas, Texas 75201. Facsimile copies of the consent
properly completed and duly executed, will be accepted at (214) 999-9323 or
(214) 999-9348. If you have any questions, please call The Herman Group, Inc. at
(800) 354-0414.
