SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file: number 0-16874
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(Name of Small Business Issuer in Its Charter)
Wisconsin 39-1553195
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1155 Quail Court, Pewaukee, Wisconsin 53072-3703
(Address of Principal Executive Offices) (Zip Code)
(414) 695-1400
(Issuer's Telephone Number, Including Area Code)
Securities registered under to Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interests
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained,to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [x]
Issuer's total gross rental revenues for its most recent fiscal year
ended December 31, 1998, were $790,050.
State the aggregate market value of the securities voting and non-voting
common equity held by non-affiliates of the Registrant as of February 28,
1999: indeterminate value as there is no market.*
*For purposes of this disclosure only.
The number of Limited Partnership interests outstanding as of February
28, 1999: 20,653.69
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to Partners for the year ended December 31,
1998 are incorporated by reference into Parts I and II.
Definitive Prospectus dated August 18, 1986, as amended to date, is
incorporated by reference into Part IV.
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2. Description of Properties . . . . . . . . . . . . . . . . . . . . .3
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .3
4. Submission of Matters to a Vote of Security Holders . . . . . . . .3
PART II
5. Market for Partnership's Securities and Related
Security Holder Matters . . . . . . . . . . . . . . . . . . . . . .4
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .5
7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .5
8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . ..5
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act. . . . . . . . . . . . . . .6
10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .9
11. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Certain Relationships and Related Transactions. . . . . . . . . . 11
13. Exhibits, List, and Reports on Form 8-K . . . . . . . . . . . . . 11
PART I
ITEM 1. DESCRIPTION OF BUSINESS
"Business" on pages 1 and 2 of the Partnership's annual report to Partners
for the year ended December 31, 1998 is incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTIES
"Properties" on pages 2 through 4 of the Partnership's annual report to
Partners for the year ended December 31, 1998 is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS
"Legal Proceedings" on page 4 of the Partnership's annual report to Partners
for the year ended December 31, 1998, is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
fourth quarter ending December 31, 1998.
By virtue of its organization as a limited partnership, the Limited
Partnership Interests do not possess traditional voting rights. However,
as provided in Article 15 of the Limited Partnership Agreement, Limited
Partners have voting rights for, among other things, the removal of the
General Partners, the approval of the sale of substantially all of the assets
under certain circumstances, and the initiation of the dissolution of the
Partnership.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS
a) Market Information
The Partnership has two classes of equity securities, General partnership
Interests and Limited Partnership Interests ("Interests"). On February 2,
1987, the Partnership satisfied the initial escrow requirements and investors
were admitted to the Partnership as limited partners except for New York
investors who were admitted to the Partnership April 30, 1987, due to special
escrow requirements for those investors. The offering of such Interests by
the Partnership terminated on August 31, 1988, at which time 20,653.69
Interests had been sold to the public at a price of $250 per Interest. Of the
Interests sold, 16,699.69 Interests were sold during 1987 and 3,954 were sold
from January 1, 1988, to August 31, 1988. No additional Interests have been
sold. Management is not aware of any public trading market, however,there has
been an emergence of activity through partnership matching services.
b) Security Holders
NUMBER OF RECORD HOLDERS NUMBER OF INTERESTS
TITLE OF CLASS (AS OF FEBRUARY 28, 1999) (AS OF FEBRUARY 28, 1999)
Limited Partnership
Interests 655 20,653.69
c) Dividends or Similar Distributions
The amount of cash distributions to Limited Partners will depend upon
attaining and thereafter maintaining operating income and expenses of the
Partnership at levels permitting distributions. Distributions of cash, if any,
will be made from: (i) Cash Available for Distribution; (ii)cash from property
sales, and (iii) cash from Partnership reserve accounts.
"Cash Available for Distribution" is defined in the Partnership Agreement to
include Net Cash Flow less amounts set aside for Reserves plus the amount of
any General Partner Loan for such period. "Net Cash Flow" is defined as the
Partnership's cash funds provided from operations and Reserves, including
lease payments on net leases from builders and sellers, without deductions
for depreciation, but after deducting funds used to pay all Operating
Expenses, deferred fees, other expenses, debt payments, capital improvements
and replacements. The Partnership will make distributions of Cash Available
for Distribution within 30 days after the end of each calendar quarter
commencing at the end of the first full calendar quarter following that in
which the Escrow Break occurs. Cash Available for Distribution will be
distributed 100% to the Limited Partners until the earlier of (i) the first
anniversary of the date of the Prospectus or (ii) termination of this
offering. Thereafter, Cash Available for Distribution will be distributed 95%
to the Limited Partners and 5% to the General Partners, provided that the
payment to the General Partners will be reduced and paid to Limited Partners
unless and until the cumulative cash distributions to the Limited Partners
equal at least 8.5% of their Capital Investment on an annualized basis (the
"Subordination Rate"). The General Partners anticipate that the Partnership
will continue to make cash distributions to its Limited Partners in 1998,
though the amount of Cash Available for future Distributions will depend in
part on the performance of the Partnership's investments, and there can be no
assurance as to the amount, if any, that may be distributed. The partnership
continued cash distributions in 1998 with an aggregate of $201,374 to its
Limited Partners. Distributions for 1998 were at a rate that equaled 3.9% on
their capital investment.
After repayment of any General Partner Loan, Sale Proceeds will be
distributed as follows: (i) to the Limited Partners, an amount equal to 100%
of their Capital Investment; (ii) then 100% to the Limited Partners until they
have received an amount equal to 10% per annum simple interest cumulative on
Capital Investment, less prior distributions of Cash Available for
Distribution; (iii) then an amount to the General Partners equal to 12% of
the Sale Proceeds remaining after return to all Partners of an amount equal to
100% of their Capital Investment, but not more than an amount equal to 15% of
Sales Proceeds remaining after return to the Partners of their Capital
Investment and an amount to the Limited Partners (including prior distributions
of Net Interest on Partnership Subscriptions and Cash Available for
Distribution) equal to 6% simple interest per annum, cumulative, commencing
at the end of the calendar quarter in which each Limited Partner's Original
Capital Contribution is made; and (iv) all remaining proceeds to the Limited
Partners. The Partnership will continue in existence until December 31, 2006,
unless terminated earlier by disposition of all of its assets or certain other
events. The Partnership will commence liquidating its properties as soon as
feasiblely possible, depending upon, among other factors, whether the Partner-
ship's investment objectives are met including, potential capital
appreciation, cash flow, and federal income tax consequences to its Limited
Partners.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 4 and 5 of the Partnership's annual report to Partners
for the year ended December 31, 1998 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The financial statements included on pages 6 through 17 of the Partnership's
annual report to Partners for the year ended December 31, 1998 are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with Wolf and Company on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. During 1998, the Partnership changed its independent certified
public accounting firm from Ernst & Young, LLP to Wolf and Company. See the
Partnership's Form 8-K, dated August 26, 1998, which Form 8-K is incorporated
herein by reference.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a-b) Directors and Executive Officers
The Partnership has no directors or officers. The General Partners of the
Partnership are Mr. John Vishnevsky; National Development and Investment, Inc.
("NDII"), a Wisconsin corporation of which Mr. Vishnevsky is the sole stock-
holder; and EC Corp., a Wisconsin corporation of which Mr. Stephen P. Kotecki
is the sole stockholder. Both John Vishnevsky and NDII have been general
partners of the Partnership since its inception. EC Corp. became a general
partner on June 20, 1991. The address of each of the General Partners is 1155
Quail Court, Pewaukee, Wisconsin, 53072-3703. The telephone number of John
Vishnevsky and NDII is (414) 691-3122. The phone number for EC Corp. is (414)
695-1400.
The General Partners manage and control the affairs of the Partnership and
have responsibility and ultimate authority in all matters affecting its
business. The names of the directors and executive officers of NDII and EC
Corp. are as follows:
Term Held
Name Office Office (since)
NDII:
John Vishnevsky President, Director 09/30/74
Stephen P. Kotecki Vice President, Secretary, 04/12/91
Treasurer and Director
EC Corp.:
Stephen P. Kotecki President, Treasurer, Director 10/30/92
Thomas Rielly Vice President, Secretary, Director 12/17/92
Officers of the corporations are elected annually by their respective Boards
of Directors. There is no arrangement or understanding between or among any
of said directors or officers and any other person pursuant to which such
individual was selected as a director or officer.
(c) Identification of Certain Significant Persons
The General Partners, in conjunction with their affiliates, believe that they
have sufficient personnel to fully discharge their responsibilities to the
Partnership. The Partnership employs various individuals to oversee the
Partnership affairs and report to the General Partners, but the Partnership
relies directly on the General Partners for the management and control of the
Partnership's affairs.See Subsection (d), for a description of the business
experience of officers, directors, and personnel of the General Partners and
affiliates.
There are three other organizations which are or were affiliated with the
individual or corporate General Partners whose services are utilized by the
Partnership: National Realty Management, Inc. ("NRMI"), which provides
property and partnership management, real estate acquisition, and real estate
brokerage through delegation of duties agreements with NDII; National Selected
Securities Corp. (formerly NDII Securities Corp.), which acted as the
managing dealer for the offering of Interests in the Partnership; and The John
Vishnevsky Company ("JVCO"), which has provided consulting services in the
areas of real estate investments, joint ventures, financing, systems,
accounting, and internal controls.
RELATIONSHIP OF GENERAL PARTNERS
AND THEIR AFFILIATES
The following diagram shows the relationship of the Partnership to various
prior or current affiliates:
<TABLE>
<S> <C> <C> <C> <C><C> <C> <C> <C><C><C><C><C> <C> <C>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(1)
EC CORP Corporater JOHN VISHNEVSKY 100% NATIONAL DEVELOPMENT AND
Corporate General Individual General Partner INVESTMENT, INC.
Corporate General Partner
100% 100% (2) 100%
JOHN VISHNEVSKY NATIONAL SELECTED NRMI
COMPANY SECURITIES CORP.
Financial and Real Partnership and Property
Estate Consulting and Security Sales Management Acquisition &
Services Brokerage
</TABLE>
(1) The outstanding stock of EC Corp. is held by Mr. Stephen P. Kotecki(100%).
(2) Until February 6, 1998, the outstanding stock of NRMI was held by Mr.
Edward Carow (51%), Ms. Anastasia Vishnevsky, Mr. John Vishnevsky's
daughter, (25%), and Mr.Jeffrey Wussow (24%). Since February 6, 1998, the
outstanding stock is owned 100% by John Vishnevsky.
(d) Business Experience
The experience of the officers and directors of the corporate General
Partners and of Mr. Vishnevsky includes the following:
John Vishnevsky (age 75), President and Director of NDII, and as of February
6, 1998, 100% owner of NRMI, is a graduate of Marquette University. For over 40
years he has been
involved in real estate related activities such as land development,
residential, apartment, and commercial construction, property management, and
the structuring of limited partnerships. Mr. Vishnevsky has directed
companies that have developed or constructed projects with a current market
value of over $100 million. He, or corporate entities he controls, or both,
act as general partner for all NDII limited partnerships. These partnerships
have sold in excess of $160 million of limited partnership interests. Mr.
Vishnevsky is licensed as a real estate broker and a securities principal.
He has lectured frequently and taught courses in real estate at the University
of Wisconsin-Milwaukee. He has appeared as a guest on television and radio
programs related to real estate investments. Mr. Vishnevsky is author of the
following books: The Art of Financial Independence, The Phantom Yield of Real
Estate Investment, The Great Real Estate Disaster... The Greatest Real Estate
Opportunity, Getting to Know You, Releasing Your Creativity, Principles, and
Don't Feed the Crocodiles.
Stephen P. Kotecki (age 48), Vice President and Director of NDII and
President, Treasurer, and Director of EC Corp., is a General Securities
Registered Representative, multi-line licensed insurance agent and
entrepreneur. He is the sole stockholder of EC Corp. Mr. Kotecki holds a
Bachelor of Science Degree with a major in Political Science from the
University of Wisconsin-Whitewater, and a Master of Science Degree in Urban
Affairs from the University of Wisconsin-Milwaukee. Mr. Kotecki directed
research for the American Federation of State, County and Municipal
Employees' District Council in Milwaukee County for over four years. Mr.
Kotecki further has experience as a Regional Criminal Justice Planner and as
a Housing Evaluation Specialist. As a college instructor, Mr. Kotecki lectured
courses in Business and Industrial Relations, Marketing and Investments for
over three years.
Thomas P. Rielly (age 51), Vice President, Secretary, and Director of EC
Corp., is a licensed general securities principal and a financial and
operations principal. Mr. Rielly has been an active participant in the
financial services industry for 24 years. His diverse financial services
experience includes professional assignments in the areas of venture capital,
business planning and venture formation, investment banking, asset management
and securities placement. Mr. Rielly has been associated with National
Development and Investment, Inc., related companies, and Mr. Vishnevsky for
over 12 years.
Other personnel of Affiliates of the General Partners who were significantly
involved in the Partnership's affairs include the following:
Julie Benoit (age 41), is the Director of Finance for NRMI. Beginning August
25, 1998, she is responsible for the development of property management policy
and
administration of management activities. She also supervises NRMI accounting
services. In her 14 years of service at NRMI, Ms. Benoit has functioned as
Accounting Manager for NRMI and other affiliated corporations. She has also
served as administrator of NSSC, an affiliated securities corporation, and
has participated in the syndication of real estate and property liquidations.
Prior to joining NRMI, Ms. Benoit worked for six years as an accounting
supervisor for the various mortgage subsidiaries of Mortgage Guarantee
Insurance Company of Milwaukee. She was also an internal auditor for Time
Insurance Company. She has completed four years at the University of Wisconsin
- - - Milwaukee, majoring in accounting.
David A. Hoeller (age 42), National Director of Operations of NRMI until
August 13, 1998, at which time he left the company. Previously, Mr. Hoeller
was Chief Financial Officerof a diversified financial services corporation
which specialized in commercial and consumer installment lending and servicing,
and mortgage banking. Mr. Hoeller was also manager of its independent
automobile installment servicing division which serviced in excess of 15,000
loans with debtors located across the country. Mr. Hoeller has a total of over
18 years of financial and operational experience in the financial services
industry. Mr. Hoeller was also with Security Bank SSB, a $3 billion financial
institution. His business and management experience and responsibilities have
included the areas of operations, financial management, financial reporting,
treasury, taxes, and cost analysis. His banking experience has included lead
development of prospectus materials, including establishment of a bank holding
company structure and conversion of a mutual bank to stock ownership. He has
also been involved in real estate sales, partnership syndication, ownership,
and management through various banking subsidiaries. He was also associated
with the accounting firm of Ernst & Young. He is active in local civic
organizations, including as Trustee of the Boys and Girls Club. Mr.Hoeller is
a certified public accountant and holds undergraduate degrees in accounting
and finance and an MBA degree from the University of Wisconsin-Milwaukee.
Edward Carow (age 39), President of NRMI until February 6, 1998, at which time
he left the company. Mr. Carow, has over 20 years experience and an extensive
background in property management, acquisitions, partnership management, loan
workouts, refinancing, and property sales. Mr. Carow is a licensed real estate
broker and also holds the CPM (Certified Property Manager) designation. Mr.
Carow attended the University of Wisconsin for business, the Waukesha County
Technical College for real estate, and he continues to attend trade
conferences and lectures. He has taught courses in property management and
real estate investments for Milwaukee Area Technical College. He is a member
of the Executive Council of the Institute of Real Estate Management and was
the 1992 president. Some of his other commitments include the International
Affairs Committee of the Institute of Real Estate Management, the Publishing
Committee of the Institute of Real Estate Management, and the Advisory Board
at the Waukesha County Technical College.
Anastasia Vishnevsky (age 33), served as Secretary and Media Director of NRMI
until February 6, 1998, at which time she left the company. Ms. Vishnevsky,
supervised marketing, public relations, and advertising for NRMI-managed
properties. Ms. Vishnevsky also produced corporate training and operations
manuals, newsletters, and training seminars. She attended Elmhurst College
for English, and Marquette University for Broadcast Communications.
Joan Jenstead (age 64), Director of Property Operations, has been involved in
the management of over ten thousand apartment units in addition to commercial
and condominium management nationwide. She is a Certified Property Manager
and a licensed Wisconsin real estate broker. Ms. Jenstead attended the
University of North Dakota, majoring in Business. In 1984, she was responsible
for the recognition of NRMI as an Accredited Management Organization (AMO) by
the National Institute of Real Estate Management, (IREM). In 1988, she served
as President of the local chapter of the Institute of Real Estate Management.
She has served as a member of the national faculty of IREM, a faculty member
of the Milwaukee Area Technical College, and a past President of the Board of
Directors for the state of Wisconsin Technical College Trustee Association. In
1990, Ms. Jenstead was recognized for her accomplishments in higher education
in "Profiles in Success" published by the National Center for Higher Education.
She served as a director on the National Board of the Association of Community
College Trustees since 1992.
John Vishnevsky is or was the Individual General Partner of National Real
Estate Limited Partnership-II (NRELP-II), National Real Estate Limited
Partnership-III (NRELP-III), National Real Estate Limited Partnership-IV
(NRELP-IV), National Real Estate Limited Partnership-V (NRELP-V), National
Real Estate Limited Partnership-VI (NRELP-VI), National Real Estate Limited
Partnership Income Properties (NRELP-IP) and the Partnership among others.
NDII is or was a corporate general partner of NRELP-IV, NRELP-V, NRELP-VI,
NRELP-IP, and the Partnership, among others. EC Corp. is or was a corporate
general partner of NRELP-VI, NRELP-IP and the Partnership, among others. The
Boards of Directors of the Partnership's Corporate General Partners, NDII and
EC Corp., may be deemed to be interlocking.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best of management's knowledge, there are no violations of this
requirement.
ITEM 10. EXECUTIVE COMPENSATION
As stated above, the Partnership has no officers or directors. The officers
and directors of the Corporate General Partners receive no current or
proposed direct remuneration in such capacities, pursuant to any standard
arrangement or otherwise, from either the Corporate General Partners or from
the Partnership, with the exception of those directors which are not employees
of NDII, EC Corp. and affiliates, to whom an annual director's fee of $50
per director is paid by NDII.
Pursuant to the terms of the Limited Partnership Agreement, net profits and
losses from operations and Cash Available for Distribution are allocated 95%
to the Limited Partners and 5% to the General Partners. For such 5% interest,
the General Partners contributed $1,000 to the Partnership. For the fiscal
period ended December 31, 1998, this interest resulted in net taxable income
to the Individual General Partner of approximately $5,976. There were no
cash distributions to the Individual General Partner during 1998, as outlined
in the Prospectus.
The Partnership will commence liquidating its properties as soon as
feasibly possible. This will be dependent upon, among other factors, the then
current real estate and money markets, economic climate, and income tax
consequences to the Limited Partners. The General Partners will be distributed
an amount equal to 12% of the remaining sale proceeds after return to the
Limited Partners of an amount equal to 100% of their Capital Investment, but
not more than an amount equal to 15% of sale proceeds remaining after return
to the partners of their Capital Investment and an amount to the Limited
Partners equal to 6% simple interest per annum. This distribution to the
General Partner is subordinated to cumulative noncompounded distribution of
Sale proceeds and Cash Available for Distribution to the Limited Partners
equal to 10% per annum on their Capital Investment. An affiliate may also
receive real estate commissions of up to 3% of the aggregate selling price of
the properties. Upon liquidation of the Partnership, all liquidation proceeds
will be distributed to the Partners in proportion to their Net Capital
Accounts.
The Partnership is engaged in various transactions with affiliates of the
General Partners, as described in the Prospectus.
Property management fees are payable currently to the General partners or
affiliates of the General partners. Fees for property management and rental
services are being charged to expense over the period property management
services are being performed.
The General Partners are general partners for other limited partnerships
which have invested in real estate. The Partnership reimburses affiliates of
the General Partner for the actual cost of goods and materials used by or for
the Partnership in the course of performing the general functions of the
Partnership. These general functions include certain management, accounting
and other expenses. National Realty Management, Inc. provides property
management, accounting, and administrative services that are charged to the
Partnership. National Development and Investment, Inc. provides partnership
administrative services that are charged to the Partnership.
The contracts between the Partnership and affiliates, including the
February 28, 1992, purchase of the Amberwood Apartments (as described in the
Business section of the Partnership's annual report to investors), provide
that the compensation, price, or fee must be comparable and competitive with
the compensation, price, or fee which would be charged by an unaffiliated
person whose services could reasonably be made available to the Partnership.
The General Partners believe compensation to affiliates for services to the
Partnership was on terms no less favorable to the Partnership than would have
been available through arm's-length negotiations for similar services from
unrelated parties.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person or group is known by the Partnership to own beneficially more
than 5% of the
outstanding Limited Partnership Interests of the Partnership.
Name of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
General Partnership John Vishnevsky 1 Interest 100%
Interests 1155 Quail Court Individual Ownership
Pewaukee, WI 53072
(b) By virtue of its organization as a limited partnership, the Partnership
has no officers or directors. The General Partners are responsible for
management of the Partnership, subject to certain limited democracy rights of
the Limited Partners described in the Limited Partnership Agreement. Persons
or entities performing functions similar to those of officers and directors of
the Partnership who beneficially own in aggregate the following Interests
of the Partnership as of February 28, 1999.
Name of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
Limited Partnership John Vishnevsky 8.69 Interests 0.04%
Interests Sole Investment Power
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Neither the General Partners nor their affiliates were indebted to the
Partnership during the year ended December 31, 1998. On February 28, 1992,
the Partnership purchased twelve units of Amberwood Apartments from National
Real Estate Limited Partnership-VI ("NRELP-VI"). The General Partners of the
Partnership were the same General Partners of NRELP-VI and therefore the
Partnerships were "affiliates" (as described in the Prospectus). A detailed
description of the purchase may be found in the Business section of the annual
report to Partners for the year ended December 31, 1998 incorporated herein by
reference.
There were no other transactions with management other than the Partnership's
transactions with the General Partners and affiliates as described in this
report at Items 9, 10, 11 and 12.
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K
(A) Exhibits
See attached exhibit list which is incorporated by reference.
(B) Reports on Form 8-K for the Quarter ended December 31, 1998
There were no reports on Form 8-K filed during the fourth quarter ending
December 31, 1998.
On all, you need to identify the exhibit number of the prior filing where
the exhibit is located.
(C) Exhibits
3(a) Limited Partnership Agreement. Incorporated by reference from
Prospectus previously filed with Registration Statement 33-6337 on
Form S-11 effective August 18, 1986.
3(b) Certificate of Limited Partnership. Incorporated by reference from
Exhibit 3B of the Registration Statement 33-6337 on Form S-11
effective August 18, 1986.
4 Subscription Agreement Evidencing Ownership of a Partnership Interest.
Incorporated by reference from Prospectus previously filed with
Registration Statement 33-6337 on Form S-11 effective August 18, 1986.
10(a) Consulting Fee Agreement between the Partnership and NDII dated
August 18, 1986.
Incorporated by reference from the 1986 10-K filed March 30, 1987.
10(b) Acquisition Agreement between the Partnership and NDII dated August
18, 1986.
Incorporated by reference from the 1986 10-K filed March 30, 1987.
10(c) Organization Expense Agreement between the Partnership and NDII
dated August 18, 1986.
Incorporated by reference from the 1986 10-K filed March 30, 1987.
10(d) Contracts for Acquisition of Assets
(1) With respect to Cave Creek Mini-Warehouse, Phoenix, Arizona (Phase I):
Incorporated by reference from Exhibit 2-1 to current report on
Form 8-K dated March 1, 1987.
(2) With respect to Cave Creek Mini-Warehouses, Phoenix, Arizona
(Phase II):
Incorporated by reference from Exhibit 2-1 to current report on
Form 8-K dated April 30, 1987.
(3) With respect to Amberwood Apartments, Holland, Michigan (36 units):
Incorporated
by reference from Exhibit 2-1 to current reports on Form 8-K
dated June 17, 1988, and August 8, 1988.
(4) With respect to Amberwood Apartments, Holland, Michigan (8 units):
Incorporated by reference from Exhibit 2-1 to current reports on
Form 8-K dated September 16,1988.
(5) With respect to Amberwood Apartments, Holland, Michigan (12 units):
Incorporated
by reference from Exhibit 2-1 to current report on Form 8-K
dated February 28, 1992.
10(e) Escrow Agreement dated August 18, 1986. Incorporated by reference
from Exhibit 10 to Registration Statement 33-6337 effective August
18, 1986.
10(f) Management Consulting Delegation of Duties Agreement between the
General Partners and NRMI dated May 28, 1991. Incorporated by
reference from the 1991 10-K filed March 27, 1992.
10(g) Co-General Partner Agreement dated June 20, 1991, incorporated by
reference from Exhibit 5-1 to periodic reports on Form 8-K dated
July 26, 1991.
*10 (h) Property Management Agreement between the Partnership and NRMI dated
November 1, 1995. Incorporated by reference herein.
*10 (i) Sublease Agreement between the Partnership and NRMI dated February
1, 1998. Incorporated by reference herein.
*13 National Real Estate Limited Partnership Income Properties-II 1998 annual
report to Partners is included as an exhibit hereto for those portions
of such annual report specifically incorporated by reference elsewhere
herein.
16 Incorporated by reference to Form 8-K, dated August 26, 1998, disclosing
the change in Public Accountants. Does not need to be filed with the
10-KSB.
23 Consent of Independent Auditors
* 27 Financial Data Schedule
(D) Financial Statement Schedule
None
* Filed with this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(Registrant)
Dated: March 26, 1999 By: /S/ John Vishnevsky
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Dated: March 26, 1999 By: /S/ John Vishnevsky
John Vishnevsky
Chief Financial and Accounting Officer
National Development and Investment, Inc.
Corporate General Partner
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities* and on
the dates indicated:
/S/ John Vishnevsky President and Director March 26, 1999
John Vishnevsky National Development and (dated)
Investment, Inc.
/S/ Stephen P. Kotecki Vice President, Secretary, March 26, 1999
Stephen P. Kotecki Treasurer and Director (dated)
National Development and
Investment, Inc.
/S/ Stephen P. Kotecki President, Treasurer and March 26, 1999
Stephen P. Kotecki Director (dated)
EC Corp.
/S/ Thomas Rielly Vice President, Secretary March 26, 1999
Thomas Rielly and Director (dated)
EC Corp.
* The indicated positions are held in the Corporate General Partners of the
Registrant.
J:\WPDOCS\REPORTS\10K-NIP2.jwg
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(Registrant)
Dated: 3/26/99 By:
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Dated: 3/26/99 By:
John Vishnevsky
Chief Financial and Accounting Officer
National Development and Investment, Inc.
Corporate General Partner
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities* and on
the dates indicated:
President and Director 3/26/99
John Vishnevsky National Development and (dated)
Investment, Inc.
Vice President, Secretary, 3/26/99
Stephen P. Kotecki Treasurer and Director (dated)
National Development and
Investment, Inc.
President, Treasurer and 3/26/99
Stephen P. Kotecki Director (dated)
EC Corp.
Vice President, Secretary 3/26/99
Thomas Rielly and Director (dated)
EC Corp.
* The indicated positions are held in the Corporate General Partners of the
Registrant.
EXHIBIT 10 (H)
PROPERTY MANAGEMENT AGREEMENT
AGREEMENT MADE, this 1st day of November, 1995 (the "Effective Date") by
and between National Real Estate Limited Partnership Income Properties-II, a
Wisconsin limited partnership ("Owner") and National Realty Management, Inc.,
a Wisconsin corporation ("NRMI").
I. APPOINTMENT AND ACCEPTANCE. Owner hereby appoints NRMI, and NRMI
hereby accepts appointment, on the terms and conditions hereinafter stated, as
the exclusive managing agent of the developments known as: Cave Creek Lock-It
Lockers Mini-Warehouse and Amberwood Apartments; consisting of 37,793 net
rentable sq. ft. and 56 dwelling units.
II. TERM OF AGREEMENT. In the absence of termination under Article VI
below, this Agreement shall remain in effect for a five-year period from the
Effective Date and thereafter for additional one-year periods.
III. RESPONSIBILITIES OF NRMI. NRMI shall have the following authority
and shall provide the following services, and the Owner agrees to pay and
assume all expenses in connection therewith:
A. MANAGEMENT STANDARDS. NRMI agrees to furnish the services of its
organization and to use its skill and judgment in managing the Project(s).
B. EMPLOYEES. NRMI shall hire, discharge, and supervise all employees
required for the operation and maintenance of the Project(s), and for
performance of all other duties required of it hereunder.
C. ADVERTISING. NRMI shall advertise the Project(s) in a manner which
it deems to be appropriate and to display signs thereon. NRMI shall not use
Owner's name in any advertising or promotional material without Owner's prior
approval. Advertising and promotional material shall be prepared in full
compliance with federal, state and municipal fair housing laws, ordinances,
regulations and orders.
D. LEASING. NRMI shall seek prospective tenants and maintain a current
list thereof,and shall in the name of and as Owner's agent, sign, renew,
extend, modify, terminate and/or cancel leases for the Project(s) or any part
thereof without prior approval of Owner. Any residential lease executed for
the Owner by NRMI shall not exceed a period of one (l) year, subject to any
renewal rights, and shall be on forms provided by NRMI subject to any
modification deemed appropriate.
E. SECURITY DEPOSITS. NRMI shall supervise the collection of tenant
security deposits, hold in an account in Owner's name, and refund the same, or
such portion thereof as may be appropriate, at the expiration of leases.
F. COLLECTION OF RENTS AND OTHER INCOME. NRMI shall exercise
reasonable efforts to collect when due all rents, fees, and receipts
(collectively, the "Rents") due from tenants and from
users, licensees, concessionaires, franchisees and/or lessees of commercial
facilities in the Project(s). The Owner hereby authorizes and directs NRMI to
request, demand, and receive all Rents which may at any time be or become due
to the Owner. All such Rents shall be deposited in an account in the name of
the Owner at a bank selected by NRMI with NRMI officers or designees being
authorized signatories for withdrawals and shall be hereafter called the
"Operating Account." NRMI may institute suit on behalf and in the name of or
as Agent for Owner for collection of Rents and/or eviction of tenants or other
parties in default and when expedient, may on behalf and in the name of or as
Agent for Owner settle, compromise, and release such actions or suits, or
reinstate such tenancies.
G. MAINTENANCE. NRMI shall make or cause to be made and supervise
repairs and alterations on Owner's behalf, in accordance with appropriate
standards of appearance, including, but not limited to,interior and exterior
cleaning, painting, decorating, plumbing, carpentry, and such other normal
maintenance and repair work as may be necessary, or appropriate, subject to
any written limitations from Owner. NRMI agrees to secure the prior approval
from the OWNER on all expenditures in excess of $2,500 for any one item,
except monthly or recurring operating charges and/or emergency repairs, if in
the opinion of NRMI such repairs are necessary to protect the Project(s) from
damage or to maintain services to the tenants as called for in their leases.
NRMI will promptly attempt to notify Owner of any such emergency expenditures.
H. COMPETITIVE BIDS. Upon Owner's written directive, any maintenance
item exceeding $2,500, (other than recurring operating charges and/or
emergency repairs), shall be awarded on the basis of competitive bidding,
solicited in the following manner:
1. A minimum of three (3) written quotations will be obtained.
2. Each quotation will be solicited in a form so that uniformity
will exist in the quotations.
3. NRMI will provide Owner with all quotations accompanied by NRMI'S
recommendations. If NRMI advises acceptance of other than the
lowest bidder, NRMI shall furnish reasons in support of its
recommendations.
4. Owner shall be free to accept or reject any and all quotations.
I. SERVICE CONTRACTS. NRMI shall negotiate contracts for electricity,
gas, fuel water, telephone, window cleaning, rubbish hauling, laundry
facilities, cable television, maintenance and other services or such of them
as NRMI shall deem advisable. All such contracts shall be in the name of the
Owner and prior to awarding any such contract with a term in excess of one
year, NRMI will obtain authorization from Owner.
J. REAL ESTATE TAXES. Upon Owner's directive, NRMI will obtain and
verify bills for real estate and personal property taxes, improvement
assessments and other like charges which are or may become liens against the
Project(s) and recommend payment or appeal. Tax expenses shall be paid from
the Operating Account to the extent of funds available.
K. PROPERTY INSURANCE.
1. NRMI will obtain recommendations for insurance coverage against
damage or injury to the Project(s) or persons which might arise out of the
occupancy, management, operation, or maintenance of the Project(s).
Recommendations will be solicited from qualified commercial agencies and may
include fire, extended coverage, boiler and machinery, flood, hazard, wind,
hail, tornado, hurricane, and rent loss insurance with a minimum limit of
$1,000,000 in liability coverage. Unless Owner shall otherwise direct in
writing, NRMI will place such insurance as it determines appropriate for the
first year of this Agreementand pay the premiums out of the Operating Account
when due.
2. Any new or existing liability coverage shall include NRMI as an
"additional insured." The cost to include NRMI as an additional insured shall
be considered an expense of the Owner.
3. Owner will furnish to NRMI certificates evidencing the existence
of public liability and hazard insurance with a minimum limit of $1,000,000.
The certificate shall have attached thereto an endorsement that NRMI will be
given at least ten (10) days prior written notice of cancellation of or any
material change in policy. Unless Owner shall provide such certificate, NRMI
may, but shall not be obligated to, place said insurance for periods after the
first year of this Agreement, and pay the premiums out of the Operating
Account. The hazard insurance shall contain a waiver of Owner's rights of
subrogation against NRMI. Any insurance purchased by NRMI shall contain this
same waiver of subrogation.
4. In the event of a major insurance claim, if requested, NRMI will
make recommendations to Owner as to how to process the claim. If Owner wishes
to have NRMI represent the Owner in the settlement of any major insurance
claim, (i.e., over $5,000) a separate contract may be negotiated to itemize
authority, limits, duties, and additional compensation for such services by
NRMI.
L. FIDELITY INSURANCE. NRMI shall obtain a fidelity bond with a minimum
limit of $25,000 for all employees who are responsible for the handling of
money. The certificate shall have attached thereto an endorsement that Owner
will be given at least ten (10) days prior written notice of cancellation of
or any material change in policy.
M. COLLECTION AND DISBURSEMENT OF REVENUE.
1. From the funds collected and deposited by NRMI in the Operatin
Account, NRMI shall make the following disbursements at the time NRMI deems
appropriate:
(a) Upon written notice from Owner to do so, payments required to
be made monthly by the Owner to any mortgagees or land contract
vendors, including, (without limitation), the amounts due for
principal, interest, mortgage insurance premiums, ground rents,
taxes and assessments, maintenance reserves, and fire and other
hazards insurance premiums.
(b) All sums otherwise due and payable by the Owner as expenses of
the Project(s) authorized to be incurred by NRMI under the
terms of this agreement, including compensation payable to NRMI.
2. NRMI shall not be obligated to make any advance to or for the
account of the Owner or the Project(s) or to pay any sum except out of funds
held or provided as aforesaid, nor shall NRMI be obligated to incur any
liability or obligation in its own name for the account of the Owner or
the Project(s). NRMI shall only contract for services or supplies as Owner's
agent with the contracting party agreeing to look only to the Owner for
payment. In the event that the balance in the Operating Account is at anytime
insufficient to pay obligations then due, Owner agrees immediately to remit
sufficient funds to cover the deficiency. If, however, NRMI should elect to
advance any funds on behalf of the Owner or Project(s), such advances shall
accrue interest at the rate provided in Paragraph V.
3. All obligations or expenses incurred by NRMI hereunder shall be
for the account, on behalf, and at the expense of the Owner. Such obligations
and expenses shall include, but not be limited to, attorneys' fees, cleaning,
and maintenance personnel, handymen, outside contractors, on-site manager,
on-site rental agents and other on-site personnel, advertising expenses,
telephone, mail, copying and on-site office supplies, and other expenses
incurred in the operation or management of the Project(s).
IV. RECORDS AND REPORTS TO OWNER. NRMI shall maintain adequate and
separate books and records for the Project(s), the entries for which shall be
supported by sufficient documentation to ascertain that said entries are
proper and accurate. Such books and records shall be maintained by NRMI at
NRMI's principal place of business.
1. Monthly Reports. NRMI shall furnish to Owner no later than 20
days after the end of each month the following reports:
a. Rent Roll
b. Ledger/Trial Balance
c. Balance Sheet
d. Statement of Operations
2. Records. To support the financial reports, NRMI shall maintain
at NRMI's place of business copies of the following:
a. All bank statements, bank deposit slips and canceled checks.
b. Bank reconciliations.
c. Cash receipts records.
d. Summaries of adjusting journal entries.
e. Supporting documentation for payroll, payroll taxes, and employee
benefits.
3. Financial Statements. All financial statements and reports will
be prepared on a cash basis except for monthly accruals for real estate taxes,
property insurance, replacement reserves, and similar items.
The information set forth in the reports furnished by NRMI to the
Owner are unaudited and cannot necessarily be used for State and Federal
Income Tax reporting purposes, and Owner should consult with its own
accountant or tax advisor with respect to proper tax reporting.
4. Examination By Owner. All records, books and accounts shall be
subject to examination at reasonable hours by any authorized representative of
the Owner. Owner also reserves the right to perform any and all additional
audit tests relating to NRMI's activities, either at the Project(s), or at the
office of NRMI, provided such audit tests are related to those activities
performed by NRMI for Owner. Any and all such audits will be at the sole
expense of Owner.
5. Owner Advance Funds. Owner shall advance operating funds in the
amount of $2,500 to NRMI to open the Operating Account upon commencement of
this Property Management Agreement.
V. COMPENSATION FOR MANAGERIAL SERVICES. For the services rendered
hereunder, NRMI shall be entitled to a monthly management fee, (the "Fee"),
equal to six percent (6%) of gross receipts from Lock-It Lockers Mini-Warehouse
and five percent (5%) of gross receipts from Amberwood Apartments. Gross
receipts from the Project(s) shall include revenue from all sources,
but excluding revenue from the sale of capital items or refinancing. Such
compensation is due on the 5th of each month. NRMI shall also be reimbursed
for all sums permitted or required to be advanced by it to or for the benefit
of the Project(s). Interest will be charged on all property management fees
not paid on the due date. Interest shall accrue at the rate of 1% over prime.
Prime shall mean the minimum rate of interest in effect at Firstar Bank (f/k/a
First Wisconsin National Bank of Milwaukee) for its most responsible
commercial borrowers for 90-day loans and shall be determined and
adjusted at the last day of each month.
VI. TERMINATION.
A. TERMINATION BY 60 DAYS NOTICE. Either the Owner or NRMI may elect to
terminate this Agreement at the close of business on the last calendar day of
any month by giving written notice of termination to the other party not less
than sixty (60) days prior thereto provided, however, if this Agreement is
terminated by Owner during the first five (5) years after the Effective Date
of the Agreement for any reason whatsoever, except (1) a breach of NRMI's
obligations hereunder that has not been cured within 30 days after written
notice from Owner or (2) a sale of the Project(s) or the termination,
liquidation, or dissolution of the Owner as specified at Paragraph VI.
(B) below. NRMI shall be entitled to the compensation for managerial services
as defined above in Paragraph V, for each month remaining in the five year
period (the "Monthly Termination Fee"), in addition to any other compensation
due to NRMI hereunder. The Monthly Termination Fee shall be an amount equal to
the gross receipts of the Project(s) for the last full twelve calendar months
prior to the termination of NRMI as managing agent divided by twelve. The
total of the Monthly Termination Fee shall be paid in one lump sum no later
than 30 days following NRMI's termination. If this agreement is terminated by
Owner for any breach of NRMI's obligations hereunder which is not cured within
30 days following written notice thereof from Owner, NRMI shall receive no
compensation other than as provided in Paragraph V.
B. SALE OF PROPERTY OR DISSOLUTION OF OWNER. The Owner shall notify
NRMI at least sixty (60) days before an anticipated transfer of title of the
Project(s) or any portion thereof or before the effective date of the
termination, liquidation or dissolution of the Owner. This agreement shall
terminate on the effective date of such transfer of title or liquidation,
termination or dissolution of the Owner. At the request of Owner prior to such
sale, termination, liquidation or dissolution, NRMI shall prepare and make
available to Owner such data concerning the Project(s) including tenant lists,
rent schedules, security deposits and cost data as are reasonably requested
under the circumstances.
C. RETURN OF RECORDS. On termination of this Agreement, a copy of all
records in the possession of NRMI pertaining to the operation of the
Project(s) together with all supplies or other items of property owned by the
Owner, and in NRMI'S possession, shall be forthwith delivered to the Owner at
Owner's expense, provided Owner shall have paid all fees due NRMI; and
thereafter neither party shall have any further rights or obligations under
this Agreement, except for claims relating to personal injury of tenants or
invitees or activities or transactions by NRMI on behalf of Owner taking
place prior to such termination (for which Owner shall remain responsible in
accordance with the terms of this Agreement).
VII. COOPERATION WITH OWNER'S ACCOUNTANT. NRMI shall cooperate with the
Owner's accountant and shall, from time to time, upon request, provide such
accountant with such information as is
or may be reasonably required to prepare certified annual financial reports
for and at the expense of the Owner.
VIII. OFFICE AT THE PROJECT(S). NRMI, at its option, may maintain a
management office within the Project(s) and the Owner shall not be entitled
to a rental charge for the same.
IX. NOTICES. All notices and periodic statements required under this
Agreement shall be in writing and shall be given to the Owner or NRMI at the
address set forth below or at such other address as they individually may
specify thereafter in writing:
OWNER: NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME
Properties-II
9800 West Bluemound Road
Wauwatosa, Wisconsin 53226
NRMI: NATIONAL REALTY MANAGEMENT, INC.
9800 West Bluemound Road
Wauwatosa, Wisconsin 53226
X. COVENANTS OF OWNER. In connection with NRMI's duties hereunder and
all of its activities in and around the Project(s), Owner promises and agrees
to:
A. Indemnify, defend and save NRMI harmless from all loss, liability,
costs, expenses, claims, demands, and/or causes of action (whether valid or
invalid) arising directly or indirectly in connection with the Project(s),
including but not limited to those based upon claim for damage to property,
injuries to or the death of any tenant, employee or other person whomsoever;
B. Pay all expenses incurred by NRMI, including, without limitation,
attorney's fees for counsel employed to represent NRMI or Owner, or both, in
connection with any claims by or against tenants or involving any
constitutional provision, statute, ordinance, law or regulation of any
governmental body pertaining to fair employment, Federal Fair Credit
Reporting Act, environmental protection, or fair housing, including, without
limitation, those prohibiting or making illegal discrimination on the basis
of race, creed, color, religion, or national origin in the sale, rental or
other disposition of housing or any services rendered in connection therewith
(unless NRMI is finally adjudicated to have deliberately violated the law or
to have acted in a personal as opposed to representative capacity at the time
of such violation).
XI. MISCELLANEOUS.
A. Owner acknowledges that NRMI does not assume and is given no
responsibility for compliance of any building on the Project(s) or any
equipment therein with the requirements of any statute, ordinance, law or
regulation of any governmental body or of any public authority or official
thereof having jurisdiction, except to notify Owner promptly or forward to
Owner promptly any written complaints, warnings, notices or summonses
received by it relating to such matters. The Owner represents that to the
best of its knowledge the Project(s) and such equipment comply with all such
requirements and authorizes NRMI to disclose the ownership of the Project(s)
to any such officials and agrees to indemnify and hold harmless NRMI its
representatives, servants and employees, of and from all loss, cost, expense
and liability whatsoever which may be imposed on them or any of
them by reason of any present or future violation of such laws, ordinances,
statutes or regulations.
B. COOPERATION. Should any claims, suits or other legal proceedings be
made or instituted by any person against Owner or title holder of the Property
which arise out of any of the matters relating to this Agreement, NRMI shall
give to Owner all pertinent information and reasonable assistance in the
defense or other disposition thereof.
XII. SEVERABILITY. The rights and obligations specified herein are
intended to be construed as separate and independent from any other prior,
contemporaneous or subsequent agreements among the Parties hereto.
If any of the provisions of this Agreement are judicially held to be invalid,
the remainder of this Agreement shall not be affected.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
OWNER: NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
9800 West Bluemound Road
Wauwatosa, Wisconsin 53226
By: National Development and Investment, Inc
Corporate General Partner
By: /S/ John Vishnevsky
John Vishnevsky, President
Attest: /S/ Stephen P. Kotecki
Stephen P. Kotecki, Secretary
By: EC Corp.,
Corporate General Partner
By: /S/ Stephen Kotecki
Stephen Kotecki, President
Attest: /S/ Thomas Rielly
Thomas Rielly, Secretary
By: /S/ John Vishnevsky
John Vishnevsky,
Individual General Partner
MANAGER: NATIONAL REALTY MANAGEMENT, INC.
9800 West Bluemound Road
Wauwatosa, Wisconsin 53226
By: /S/ Edward G. Carow
Edward G. Carow, President
Attest: /S/ Anastasia Vishnevsky
Anastasia Vishnevsky, Secretary
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, National Real Estate Limited
Partnership Income Properties-II and National Development and Investment, Inc.
has(ve) made,constituted, and appointed, and, by these presents do(es) hereby
make, constitute, and appoint National Realty Management, Inc., 9800 West
Bluemound Road, Milwaukee, Wisconsin 53226, a true and lawful attorney for
it (them) in its (their) name, place, and stead to execute and to file any
Tax Returns due on and after November 1, 1995, under the provisions of the
Social Security Act, now in force or future amendments thereto.
Dated at Wauwatosa, Wisconsin this 1st day of November, 1995.
NATIONAL REAL ESTATE LIMITED
PARTNERSHIP INCOME PROPERTIES-II
By: X /S/ John Vishnevsky
John Vishnevsky, President
Executed in presence of: of National Development and
Investment, Inc.
Corporate General Partner
X /S/
(Witness)
X /S/
(Witness) Attest: X /S/ Stephen p. Kotecki
Stephen Kotecki, Secretary
By: X /S/John Vishnevsky
John Vishnevsky, Individual General
Partner
By: X /S/Stephen P. Kotecki
Stephen P. Kotecki, President of EC
Corp.,
Corporate General Partner
Attest: X /S/ Thomas Rielly
Thomas Rielly, Secretary
NATIONAL REAL ESTATE LIMITED
PARTNERSHIP INCOME PROPERTIES-II
NATIONAL DEVELOPMENT AND
INVESTMENT, INC. , a Wisconsin corporation
By: X /S/ John Vishnevsky
John Vishnevsky, President
of National Development and Invesment,
Inc. Corporate General Partner
By: X /s/ John Vishnevsky
John Vishnevsky, President
Attest: X /S/ Stephen P. Kotecki
Stephen P. Kotecki, Secretary
John Vishnevsky
EC CORP., a Wisconsin corporation
By: X /s/Stephen Kotecki, President
Stephen Kotecki, President
Attest: X /S/ Thomas Rielly
Thomas Rielly, Secretary
Corporate General Partner
STATE OF WISCONSIN )
) ss.
MILWAUKEE COUNTY )
Personally came before me this 1st day of November, 1995, that
above-named John Vishnevsky and Stephen P. Kotecki, to me known (or
satisfactorily proven) to be the persons who executed the foregoing
instrument as President and Secretary of National Development and Investment,
Inc., a Wisconsin corporation and corporate general partner of National Real
Estate Limited Partnership Income Properties-II, a Wisconsin limited
partnership, and acknowledged to me that they executed the same as President
and Secretary of National Development and Investment, Inc. for the purposes
therein contained, being duly authorized to do so.
X
Notary Public in and for the State of Wisconsin
Printed Name: Joyce A. Blazer
My Commission
( ) is permanent; or
(x) expires: 7-5-96
(Notarial Seal)
STATE OF WISCONSIN )
) ss.
MILWAUKEE COUNTY )
Personally came before me this 1st day of November, 1995, that the
above-named John Vishnevsky to me known (or satisfactorily proven) to be the
person who executed the foregoing instrument as individual general partner of
National Real Estate Limited Partnership Income Properties-II, a Wisconsin
limited partnership and acknowledged to me that he executed the same as such
individual general partner of said partnership for the purposes therein
contained, being duly authorized to do so.
X
Notary Public in and for the State of Wisconsin
Printed Name: Joyce A. Blazer
My Commission
( ) is permanent; or
(x) expires: 7-5-96
(Notarial Seal)
STATE OF WISCONSIN )
) ss.
MILWAUKEE COUNTY )
Personally came before me this 1st day of November, 1995, that
above-named Stephen Kotecki and Thomas Rielly, to me known (or satisfactorily
proven) to be the persons who executed the foregoing instrument as President
and Secretary of EC Corp., a Wisconsin corporation and corporate general
partner of National Real Estate Limited Partnership Income Properties-II, a
Wisconsin limited partnership, and acknowledged to me that they executed the
same as President and Secretary of EC Corp. for the purposes therein
contained, being duly authorized to do so.
X
Notary Public in and for the State of Wisconsin
Printed Name: Joyce A. Blazer
My Commission
( ) is permanent; or
(x) expires: 7-5-96
(Notarial Seal)
J:\WPDOCS\REPORTS\10K-NIP2.jwg
EXHIBIT 10 (I)
SUBLEASE
1. PARTIES. This Sublease, effective as of February 1st, 1998, is made by
and between National Realty Management, Inc. (herein called "Sublessor") and
National Real Estate Limited Partnership Income Properties-II a Wisconsin
limited partnership (herein called "Sublessee" or "Partnership").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all the
conditions set forth herein, that certain real property situated in
the County of Waukesha, State of Wisconsin commonly knows as 1155 Quail Court,
Pewaukee, WI 53072 and consisting of an undivided 7.981% interest therein.
Said real property, including the land and all improvement thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for four (4) years and seven
(7) months commencing as of February 1, 1998 and ending on August 31, 2002
unless sooner terminated pursuant to any provision hereof.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises, equal
monthly payments of $580.19, in advance, on the 1st day of each month of the
term hereof. Rent for any month during the term of this Sublease shall be the
unconditional obligation of the Partnership. Rent shall be payable in lawful
money of the United States to Sublessor at the address stated herein or to
such other persons or at such other places as Sublessor may designate in
writing.
5. USE.
5.1. USE. The Premises shall be used and occupied only for office space.
5.2. COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use which Sublessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Sublease is executed.
(b) Sublessee shall, at Sublessee's expense, comply promptly with all
applicable statutes, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the term or any part of the term
hereof regulating this use by Sublessee of the Premises.
5.3. CONDITION OF PREMISES. Except as provided in paragraph 5.2(a)
Sublessee hereby accepts
the Premises in their condition existing as of the date of the execution
hereof, subject to all applicable zoning, municipal, county and state laws,
ordinances, and regulations governing and regulating the use of the Premises,
and accepts this sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto.
6. MASTER LEASE.
6.1. Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease," a copy of which is attached
hereto marked Exhibit 1, dated August 8, 1997 wherein National Realty Office
Building LLC is the lessor, hereinafter referred to as the Master Lease.
6.2. This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
6.3. The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
6.4. During the term of this Sublease and for all periods subsequent for
obligations whichhave arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Lessor, each and every obligation of
Sublessor under the Master Lease except that Sublessee's monetary obligations
are limited to 7.981% of the total monetary obligations set forth in the
Master Lease.
6.5. The obligations that Sublessee has assumed under paragraph 6.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations".
The obligations that Sublessee has not assumed under paragraph 6.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
6.6. Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
6.7. Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7. CONSENT OF MASTER LESSOR.
7.1. In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this
Sublease shall not be effective unless, within ten (10) days of the date
hereof, Master Lessor signs this Sublease thereby giving its consent to this
Subletting.
7.2. In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any
one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or modifications
thereto without notifying Sublessor or any one else liable under the Master
Lease and without obtaining their consent and such action shall not relieve
such persons from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
7.4. The signature of the Master Lessor at the end of this document shall
constitute its consent to the terms of this Sublease.
Executed at National Realty Management,
on April 30,1998 Inc., Sublessor
address 1155 Quail Court
Pewaukee, WI 53072 By: X /S/ John Vishnevsky
John Vishnevsky, President
Executed at National Real Estate Limited
on April 30, 1998 Partnership Income
address 1155 Quail Court Properties II, a Wisconsin
Pewaukee, WI 53072 limited partnership,
Sublessee
By: National Development and
Investment, Inc.,
its general partner
By: X/S/ John Vishnevsky
John Vishnevsky, President
Executed at By: X /S/ William J. Finn
on William J. Finn, Owner of
address 5451 N. Kent 1155 Quail Court, Master Lessor.
Whitefish Bay, WI 53217
J:\WPDOCS\REPORTS\10K-NIP2.jwg
EXHIBIT 13
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
BUSINESS
The Registrant, National Real Estate Limited Partnership Income Properties-II
(the "Partnership"),is a limited partnership organized under the Wisconsin
Uniform Limited Partnership Act pursuant to a Certificate and an Agreement of
Limited Partnership, each dated May 28, 1986. As of December 31, 1998, the
Partnership consisted of an Individual General Partner, two Corporate General
Partners and 655 Limited Partners owning 20,653.69 limited partnership
interests (the "Interests") acquired at a public offering price of $250 per
Interest ($5,163,423 net). On February 2, 1987, the Partnership satisfied its
escrow requirements and admitted Limited Partners to the Partnership except
for New York investors who were admitted as of April 30, 1987, due to special
escrow requirements for those investors. The Interests were sold commencing
August 18, 1986, and ending August 31, 1988, pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933 (Registration
#33-6337) as amended. The Individual General Partner is John Vishnevsky and
the Corporate General partners are National Development and Investment, Inc.
("NDII"), a Wisconsin corporation and EC Corp., a Wisconsin corporation.
All management decisions are the responsibility of the General Partners.
The Partnership was organized to engage in the business of investing in,
operating, owning, leasing, and improving interests in real estate, including
developed as well as
undeveloped properties, particularly apartment complexes. The Partnership's
principal investment objectives are to invest in real estate properties which
will:
1) preserve and protect the Limited Partners' capital investment;
2) provide quarterly distributions of Cash Available for Distribution;
3) provide capital appreciation through increases in the value of the
Partnership's real estate assets; and
4) acquire, own, and operate its investment properties with no use of
borrowed funds.
The Partnership will continue in existence until December 31, 2006, unless
terminated earlier by disposition of all of its assets or certain other
events. The Partnership will commence liquidating its properties as soon as
feasibly possible, depending upon, among other factors, whether the
Partnership's investment objectives are met including, potential capital
appreciation, cash flow, and federal income tax consequences to its Limited
Partners.
On March 1, 1987, the Partnership acquired its first investment property, a
parcel of land containing three of the five buildings of Cave Creek Mini-
Warehouse, a self storage mini-warehouse rental complex
located in Phoenix, Arizona. The Partnership acquired an additional parcel of
Cave Creek on April 30, 1987, that consisted of part of a two-story building.
On June 17, 1988, the Partnership purchased a portion of Amberwood Apartments
containing 36 apartment units located near Holland, Michigan. The Partnership
acquired an additional portion of Amberwood Apartments on September 16, 1988,
that consisted of eight apartment units by exercising its option to purchase
those units. On February 28, 1992 the Partnership acquired the remaining
twelve units of Amberwood Apartments. The properties are more fully described
in this report at Properties.
The real estate investment business is highly competitive. The Partnership's
properties are in competition for tenants with numerous other alternative
sources for storage or housing, including properties owned by the General
Partners and their affiliates. The Partnership does not have any plans to
acquire additional properties.
The Partnership is not dependent upon a single tenant for its operating
success. The Partnership does not foresee any events or market trends which
would have a materially adverse affect upon the Partnership's revenues,
except for increased competition for tenants, which is discussed
more fully at Results of Operations.
During 1998, the Partnership employed one full-time and six part-time on-site
personnel in the following capacities: two managers, 2.5 rental agents, and
2.5 cleaning and maintenance people. In addition, due to the centralized
nature of the Partnership's accounting and management systems, another 16
employees provided various accounting and management services to this and
other partnerships. All on-site and partnership employees are supervised by
NRMI under its Management Consulting Delegation of Duties and Property
Management Agreements with the Partnership.
The Partnership is engaged solely in the business of investing in and
managing real estate. Its business is believed by management to fall entirely
within a single industry segment. The business of the Partnership is not
seasonal, although the Partnership's properties may experience cyclical
fluctuations in occupancy levels in the rental markets where they are located.
The General Partners are general partners for other limited partnerships that
have invested in real estate which may be competitive with the Partnership.
There may be conflicts of interest between the Partnership and the General
Partners at such time as the Partnership attempts to sell its properties or
may compete for tenants with the Partnership's investments. If properties are
being sold, the General Partners will attempt to give equal exposure to
competing properties and will sell solely on the basis of purchaser
preference. The General Partners will establish asking prices based upon
market conditions. The General Partners will follow a policy of renting first
on the basis of the tenants' preference and then on the basis of
greatest vacancy. In the hiring of resident building managers, the General
Partners will follow a policy of filling the oldest vacancy first.
The Partnership, by virtue of the ownership in real estate, is subject to
federal and state laws and regulations covering various environmental issues.
The General Partners are not aware of any potential liability related to
environmental issues or conditions that would be material to the Partnership.
The Partnership is working to resolve the Year 2000 problem. Currently,
management has developed an action plan whereby all critical functions are
evaluated for compliance. This includes contacting service providers and
performing testing to obtain assurance that critical functions will be
compliant.
Management does not expect the cost of the Year 2000 compliance procedures to
be material to the Partnership. In addition, management believes that it is
unlikely that a Year 2000 problem would have a material effect on the
operations of the Partnership.
Management is working on a contingency plan should an unforeseen Year 2000
problem occur. This would include a back-up procedure to ensure that all
critical functions continue even during a Year 2000 crisis. Management
believes it to be unlikely that a contingency plan will need to be utilized.
PROPERTIES
The properties in which the Partnership has invested are owned in fee simple.
Upon the 1992 purchase of twelve units of Amberwood Apartments the property is
owned in fee simple, subject to the mortgage. The principal factors which the
General Partners believe affect rental rates and occupancy levels include
location, ease of access, amenities, and the quality of property management.
The Partnership's investment properties are described below:
CAVE CREEK
Cave Creek Lock-It Lockers Mini-Warehouse (the "Complex") is located on
approximately 1.7 acres
at 1201 East Cinnabar Avenue, Phoenix, Arizona. The 747 unit Complex consists
of three individual one-story and two individual two-story buildings of which
construction was completed in July 1985. When the Partnership purchased Phase
II on March 1, 1987, it acquired single-story and two-story buildings located
on approximately one acre of land. The Partnership acquired Phase III on April
30, 1987, and it consisted
of part of a two-story building. A fee simple title has been acquired for both
Phase II and III. In addition to
the five warehouse buildings, there is an on-site office/apartment located at
the north end of one of the
buildings. Security in the Complex is provided by a resident manager and a
fenced perimeter with double-gate
access to the property. The Partnership has an interest in the remaining
portion of the Complex for access
and use of the business office facilities. National Real Estate Limited
Partnership Income Properties, another
partnership of which the General Partners are general partners, owns the
other portion.
Cave Creek Lock-It Lockers has an aggregate of approximately 46,028 net
rentable square feet. Units may be subdivided as the market demands;
therefore, the total unit count fluctuates.
The Partnership acquired approximately 27,255 net rentable square feet in the
three buildings it purchased in Phase II and approximately 11,424 net
rentable square feet in Phase III. Phase II and III
represent approximately 82% of the total net rentable square feet of the
Complex.
AMBERWOOD APARTMENTS
On June 17, 1988, the Partnership purchased Amberwood Apartments, together
with John Vishnevsky, individually, and National Real Estate Limited
Partnership-VI ("NRELP-VI"), a Wisconsin limited partnership affiliated with
the General Partners, from a corporation not related to the Partnership. The
Partnership's portion as tenants-in-common originally encompassed 36 apartment
units that were converted into condominium units.
On September 16, 1988, the Partnership purchased from John Vishnevsky,
individually, his portion of Amberwood Apartments, encompassing eight
apartment units which during the period of ownership by Mr. Vishnevsky had
been converted to two condominium units of four individual apartments each.
The Partnership purchased from NRELP-VI its portion of Amberwood Apartments,
encompassing
twelve apartment units on February 28, 1992. During NRELP-VI's ownership of
the units, they were converted into condominium units.
Amberwood is located on 5.753 acres at 39-152nd Avenue, Holland, Michigan.
Construction was completed in early 1988. The complex consists of seven two-
story buildings containing 56 apartment units with attached garages. Each
unit features a private garage, utility room with washer/dryer hookups,
woodburning fireplace, central heating and air conditioning, range,
refrigerator, garbage disposal, dishwasher,
microwave oven, walk-in closets, and a wood deck. Gas and electric utilities
are paid by the tenants.
The apartment mix and asking rents of Amberwood as of December 1998 are as
follows:
SQUARE ASKING
DESCRIPTION OF UNIT NUMBER OF UNITS FEET RENT PER MONTH
2 Bdrm/1 Bath 14 915 $630
2 Bdrm/1 Bath 14 923 $640
2 Bdrm/2 Bath 14 1,080 $695
3 Bdrm/2 Bath 14 1,231 $750
Amberwood is in Park Township on the north side of the City of Holland,
Michigan. The shores of Lake Michigan and Lake Macatawa are only minutes away.
The Project is fiveminutes from the north side retail area and ten minutes
from the Holland business district.
The Phoenix and Holland real estate markets are competitive. For a further
discussion of occupancy rates, see Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in this report.
Additional real estate projects may be built in these areas,
which may compete directly with the Partnership's properties.
The General Partners feel that the Partnership is adequately covered by
insurance on the properties.
LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings
other than ordinary routine litigation incidental to its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Information contained in this Annual Report on Form 10-KSB contains -
looking statements'
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
- - -looking statements, including certain risks and uncertainties, that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Such factors, which could adversely affect the
Partnership's ability to obtain these results, include, among other things,
(i) the volume of transactions and prices for real estate in the real
estate markets generally, (ii) a general or regional economic downturn which
could create a recession in the real estate markets, (iii) the Partnership's
debt level and its ability to make interest and principal payments, (iv) an
increase in expenses related to new initiatives, investments in people and
technology, and service improvements, (v) the success of the new initiatives
and investments and (vi) other factors described elsewhere in this Annual
Report.
LIQUIDITY AND CAPITAL RESOURCES
On February 2, 1987, the Partnership attained subscriptions from investors in
excess of the minimum offering amounts. All proceeds received in trust and
deposited with First Wisconsin Trust Company in Milwaukee, Wisconsin, became
available for Partnership purposes (except for subscriptions from New York
investors, which became available on April 30, 1987). The Partnership sold
Interests in the aggregate amount of $5,163,423. Such proceeds were used to
pay offering costs to purchase the properties described in this
report at Properties, to pay costs related to purchasing such properties, and
to meet capital requirements for operations.
During 1998, the Partnership made cash distributions to its limited partners
totaling $201,374.
Distributions from 1998 were at a rate that equaled 3.9% on investors' capital
investment. The Partnership's ability to maintain and/or increase distributions
during 1999 is dependent upon the results of operations;
therefore, no assurance as to the distribution amount, if any, can be made.
The Partnership is planning to expend from operating cash flow about $17,000
in roofing and asphalt work at Cave Creek Lock-It Lockers.
RESULTS OF OPERATIONS
During 1998, the Partnership operated two investment properties: Cave Creek
Lock-It-Lockers and Amberwood Apartments.
At Cave Creek Lock-It Lockers asking rents remained the same as 1997 and as
of December 31, 1998 ranged from $13 to $145, based on unit size.
Average annual occupancy was 93% and 95% in 1998 and 1997
respectively. Marketing efforts are directed primarily through the use of
Yellow Pages advertising, which is the main source of traffic. Management
uses resident referral coupons for all current tenants, offering a
discount if they send us new clients. The managers are marketing the lockers
to neighboring businesses and
apartment communities, using neighborhood business coupon flyers. The General
Partners believe marketing
efforts and excellent customer service will continue to help occupancy
remain strong.
At Amberwood, average occupancy during the fourth quarter of 1998 was 98% as
compared to 95%
for the same period in 1997. Year to date occupancy for 1998 was 97% as
compared to 91% for the same
period in 1997.
Amberwood advertises in the Holland Sentinel, Select Living (apartment
guide), and the Yellow Pages,
both Ameritech and TDI. Periodic mailings are made to area real estate agents
and brokers, and the leasing
consultants keep in close contact with the Human Resource Departments of area
businesses and industry.
Lease expiration dates have been staggered to avoid leases expiring during
slower periods. There is a strong
emphasis on customer service because in a small community such as Holland word
travels fast when you have
a nice, well maintained community and satisfied residents. Current residents
and real estate brokers can
receive a $50 rent credit or referral fee for new rentals. All new residents
receive a welcome gift basket and
a personalized card from the staff at Amberwood upon move in. The area economy
is stabilizing with some
companies adding staff while some are laying off or implementing hiring
freezes. Extra effort has been given
to having the property in A+ condition because of all the new competition.
Partnership net income increased $102,791, or 387%, from $26,532 in 1997 to
$129,323 in 1998. The
increase in net income was due to an increase in operating revenues of
$50,000, a decrease in operating
expenses of $49,159, and an increase in interest income of $3,632.
Operating revenues increased $50,000, or 6.8%, from $740,050 in 1997 to
$790,050 in 1998. The
increase in operating revenues was primarily due to reduced vacancies at the
Amberwood apartments, where
average vacancies dropped from 9% in 1997 to 3% in 1998. Operating revenues
also improved due to a
positive settlement in favor of the partnership related to the Cave Creek
Lock-It Lockers.
Operating expenses decreased $49,159 or 6.7%, from $737,284 in 1997 to
$688,125 in 1998. The decrease was due to a reduction in general operating,
administrative, maintenance, and advertising expenses. The reduction of these
expenses was mainly due to market demand and the condition of units that
became available. In 1998, the units that turned over required fewer repairs
and upgrades than the prior year. In addition, fewer advertising dollars were
necessary to maintain the higher occupancy numbers.
Reference is made to Notes 2 and 6 of the Partnership's financial statements
for a discussion of various fees charged to the Partnership.
INFLATION
The General Partners believe the Partnership's ability to increase rental
rates would offset any adverse effects inflation might have on the
Partnership's cost of operations. Inflation may also tend to cause capital
appreciation of the Partnership's properties over a period of time as rental
rates and replacement costs of properties continue to increase. However, the
effects of inflation on real estate may be influenced by general
or local economic conditions. Future results are subject to uncertainty and
the ability of the Partnership to achieve certain results is largely beyond
the control of the General Partners and their affiliates.
Report of Independent Auditors
The Partners
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
We have audited the accompanying balance sheet of National Real Estate Limited
Partnership Income Properties-II (the Partnership) as of December 31, 1998,
and the related statements of operations, partners' capital and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits. The financial statements of
the Partnership as of December 31, 1997, were audited by other auditors whose
report dated January 20, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership at December
31, 1998, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
WOLF AND COMPANY-MILWAUKEE, S.C.
CERTIFIED PUBLIC ACCOUNTANTS
Milwaukee, Wisconsin
February 4, 1999
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash and cash equilents $ 560,835
Escrow deposits and other assets 20,793
Investments properties, st cost:
Land 516,590
Building and Improvements 4,154,507
-----------
4,671,097
Accumilated Depreciation (1,536,009)
------------
3,135,088
Debt issue costs,net of accumilated amortization of $5,725 26,855
----------
$3,743,571
===========
LIABILITES and PARTNERS' capital
LIABILITIES:
Tenant security deposit $ 26,960
Accrued real estate tax 28,298
Accrued expenses and other liabilities 281
Deferred rent 19,666
Mortgage note payable 539,334
-----------
614,539
Partner's capital:
General Partners 43,802
Limited Partners (authorized-40,000 interest; outstanding
---20,653.69 interests) 3,085,230
-----------
3,129,032
---------
$3,743,571
============
The accompanying notes are an intergral part of these financial statements.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
STATEMENTS OF OPERATIONS
Year ended December 31
1998 1997
----------------------
Operating revenues:
Rentals $ 736,219 $ 706,739
Other 53,831 33.311
---------- ---------
790,050 740,050
Operating expenses:
Operating 201,813 212,635
Administrative 120,410 144,535
Building maintenance 57,722 89.686
Depreciation 133,747 134,821
Amortization 3,284 2,778
Interst 45,818 44,558
Property taxes 111,879 82,598
Advertising 13,452 25,673
-------- --------
688,125 737,284
-------- ---------
Income from operations 101,925 2,766
Other income:
Interest income 27,398 23,766
--------- ---------
Net income $129,323 $26,532
========= =========
Net income attributable to General Partners(5%) $6,466 $ 1,327
Net income attributable to Limited 122,857 25,205
Partners(95%) --------- --------
$129,323 $26,532
======== ========
Net income per Limited Partnership Interest $ 5.95 $ 1.22
========== =========
The accompanying notes are an intergral part of these financial statements.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
STATEMENTS OF PARTNERS' CAPITAL
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
________________________________
Balances at January 1, 1997 $ 36,009 $3,324,425 $3,360,434
Distributions to Limited Partners - ( 185,883) (185,883)
Net income for the year 1,327 25,205 26,532
------------------------------------
Balances at December 31, 1997 37,336 3,163,747 3,201,083
Distributions to Limited Partners - (201,374) (201,374)
Net income for the year 6,466 122,857 129,323
-----------------------------------
Balances at December 31, 1998 $43,802 $ 3,085,230 $ 3,129,032
====================================
The accompanying notes are an intergral part of these financial statements.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
STATEMENTS OF CASH FLOWS
Year ended December 31
1998 1997
_______________________
Operating activities
Net income for the year $ 129,323 $ 26,532
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 133,747 134,821
Amortization of debt issue costs 3,284 2,778
Changes in operating assets and liabilities:
Other assets (20,651) 5,458
Tenant security deposits 2,040 2,540
Accrued real estate taxes 25,965 (1,652)
Accrued expenses and other liabilities (255) (607)
Deferred rent 7,327 1,377
--------- ----------
Net cash provided by operating activities 280,780 168,493
Investing activity
Additions to investment properties (2661) -
Financing activities
Payment of debt issue costs - (32,580)
Proceeds from mortgage note - 550,000
Payments on mortgae note (6,883) (451,804)
Distributions to Limited Partners (201,374) (185,883)
----------- ----------
Net cash used in financing activities (208,257) (120,267)
=========== ==========
Increase in cash and cash equivalents 69,862 48,226
Cash and cash equivalents at beginning
of year 490,973 442,747
--------- ---------
Cash and cash equivalents at end of year $ 560,835 $ 490,973
========== ==========
The accompanying notes are an intergral part of these financial statements.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND BASIS OF ACCOUNTING
ORGANIZATION
National Real Estate Limited Partnership Income Properties-II (the
Partnership) was organized as a limited partnership under the laws of the
State of Wisconsin pursuant to a Certificate and an
Agreement of Limited Partnership (the Agreement) dated May 28, 1986, for the
purpose of investing primarily in commercial and residential real property
and began operations in February, 1987. The Partnership is to be dissolved
on or before December 31, 2006.
The partnership consists of three General Partners, National Development and
Investment, Inc., John Vishnevsky, and EC Corp., and 655 Limited Partners at
December 31, 1998. Mr. Vishnevsky is the president and sole stockholder of
National Development and Investment, Inc.
BASIS OF ACCOUNTING
The Partnership records are maintained on the basis of accounting utilized for
federal income tax reporting purposes. The accompanying financial statements
have been prepared from such records adjusted to the generally accepted
accounting principles (GAAP) basis of accounting, including adjustments for
differences in depreciation methods. Certain accrual and tax basis amounts
are summarized as follows:
1998 1997
_____________________________________
GAAP Tax GAAP Tax
Basic Basic Basic Basic
_____________________________________
(In Thousands)
Total assets $ 3,744 $ 3,691 $ 3,787 $ 4,390
Partners' capital:
General Partners 44 41 37 35
Limited Partners 3,085 3,682 3,164 3,769
Net income:
General Partners 6 6 1 1
Limited Partners 123 114 25 16
__________________________________________________________________________
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership considers all short-term investments which have original
maturities of three months or less when purchased to be cash equivalents.
INVESTMENT PROPERTIES
Investment properties are stated at cost. Depreciation is computed by the
straight-line method using estimated useful lives of 30 years for the buildings
and improvements and 5 years for related equipment.
The Partnership evaluates the investment property periodically for indication
of impairment,including recurring operating losses and other significant
adverse changes in the business climate that affect the recovery of the
recorded asset value. If investment property is considered impaired, a loss
is provided to reduce the net carrying value of the asset to its estimated
fair value. Management is not aware of any indicator that would result in
any significant impairment loss.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the agreement and are included as a component of interest expense on
the financial statements.
FEES TO AFFILIATES
Property management fees are payable currently to the General Partners or
affiliates of the General Partners. Fees for property management and rental
services are being charged toe expense over the period property management
services are being performed.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOCATIONS AND DISTRIBUTIONS
Pursuant to the Agreement , net income and loss from operations (exclusive of
those from the sale or disposition of Partnership properties) are to be
allocated 95% to the Limited Partners and 5% to the General Partners. Any
gains from the sale or disposition of Partnership properties are to be
allocated first to the Limited Partners to eliminate any deficit in their net
capital accounts; then to the General Partners to eliminate any deficit in
their net capital accounts; then to the Limited Partners in an amount equal
to their initial capital investment plus any amount remaining to be paid
under their cumulative preference; then to the General Partners in an amount
equal to the proceeds of such sale distributed to them; and all remaining
amounts are to be allocated to the Limited Partners provided that at least 1%
of the gain from sale or disposition is to be allocated to the General
Partners. Losses from the sale or other disposition of Partnership properties
are to be allocated 88% to the Limited Partners and 12% to the General
Partners.
Cash available for distribution, as defined in the Agreement, is distributed
95% to the Limited Partners and 5% to the General Partners, except that the
General Partners'right to participate in such distributions is subordinated
to cumulative payments to the Limited Partners of at least 8.5% of their
capital investment on an annualized basis.
After the repayment of any General Partner's loans and subject to the right to
reinvest such proceeds until three years after termination of the
Partnership's initial offering of interests, proceeds of sale or disposition
of Partnership properties are to be distributed as follows: (i) 100% to all
partners until they have received an amount equal to their capital investment
(first to the Limited Partners and then to the General Partners); (ii) then
100% to the Limited Partners until they have received an amount equal to their
cumulative preference of 10% simple interest per annum; (iii) then an amount
to the General Partners equal to 12% of such proceeds remaining after return
to all Partners of an amount equal to 100% of their capital investment, but
not more than an amount equal to 15% of such proceeds remaining after return
to all partners of their capital investment and an amount to the Limited
Partners (including prior distributions of cash available for distribution)
equal to 6% simple interest per annum, cumulative; and (iv) all remaining
amounts to the Limited Partners.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per Limited Partnership interest is based on net income as
allocated to the Limited Partners divided by the weighted average number of
interests outstanding during the year.
3. INVESTMENT PROPERTIES
Investment properties consist of the following at December 31, 1998:
Costs Capitalized
Initial Cost to Partnership Subsequent to Acquistion
______________________________________________________
Buildings and Buildings and
Description Land Improvements Land Improvements
___________________________________________________________________________
(In THousands)
Cave Creek Mini-Warehouses
Phoenix, Arizona $ 405 $1,308 $ - $ 14
Amberwood Apartments
Holland, Michigan 87 2,192 25 640
---------------------------------------------------
$ 492 $ 3,500 $ 25 $ 654
===================================================
Gross Amount at Which Carried
_____________________________
Building and Accumulated
Description Land Improvements Land Depreciation
______________________________________________________________________________
(In Thousands)
Cave Creek Mini-Warehouses
Phoenix, Arizona $ 405 $1,322 $1,727 $ 519
Amberwood Apartments
Holland, Michigan $ 112 $2,832 $2,944 $ 1,017
----------------------------------------------------
$ 517 $ 4,154 $ 4,671 $ 1,536
===================================================
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
3. INVESTMENT PROPERTIES (CONTINUED)
Date of Construction Date Acquired
Cave Creek Mini-Warehouses
Phoenix, Arizona 1985 In phases in 1987
Amberwood Apartments
Holland, Michigan 1988 In phases in 1988
and 1992
The aggregate cost of the investment properties is the same for financial
reporting and federal income tax purposes. The accumulated depreciation
reported for federal income tax purposes was $1,588,527 at December 31, 1998.
A reconciliation of the cost and accumulated depreciation of the investment
properties follows:
Year ended December 31
______________________
1998 1997
______________________
(In Thousands)
Cost:
Balance at beginning of year $ 4,669 $ 4,669
Additions to investments properties 2 -
-------------------
Balance at end of year $ 4,671 $ 4,669
===================
Accumulated depreciation:
Balance at beginning of year $ 1,402 $ 1,267
Provision for the year 134 135
-------------------
Balance at end of year $ 1,536 $ 1,402
===================
4. MORTGAGE NOTE PAYABLE
During 1997, the mortgage note payable was refinanced. The new loan bears
interest at a variable rate of interest (based on five year treasury
securities) plus 2.25% adjusting to 2.35% on May 1, 2002 (8.4% at December
31, 1998). Monthly payments of principal and interest are paid based on a
twenty five year amortization schedule, which also adjusts on May 1, 2002.
All unpaid principal and interest is due on April 1, 2007. The mortgage loan
payable is collateralized by the Amberwood Apartments with a carrying value
of $1,815,050 at December 31, 1998. Interest paid was $45,818 and $44,587 in
1998 and 1997, respectively.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
4. MORTGAGE NOTE PAYABLE (CONTINUED)
Annual maturities of notes payable are as follows:
1999 $7,009
2000 7,497
2001 8,294
2002 9,029
2003 9,828
Thereafter 498,121
5. INCOME TAXES
The Partnership pays no income taxes. Partnership losses or income and taxes
attributable thereto
will be the responsibility of the various Partners.
Differences between the net income reported herein and the net income reported
for federal income
tax purposes arise primarily from timing differences related to depreciation.
The following is a
reconciliation of the net income herein and the net income reported for
federal income tax purposes
for the year ended December 31:
1998 1997
_____________________________
Net income as reported in the financial
statements $ 129,323 $ 26,532
Add(deduct):
Depreciation (9,799) (9,194)
Other - -
-----------------------------
Net income reported for federal income
tax purposes $ 119,524 $ 17,338
=============================
6. TRANSACTIONS WITH AFFILIATED PARTIES
The General Partners are general partners for other limited partnerships which
have invested in real estate. The Partnership reimburses affiliates of the
General Partner for the actual cost of goods and materials used by or for
the Partnership in the course of performing the general functions of the
Partnership. These general functions include certain management, accounting
and other expenses. The Partnership has executed contracts providing for the
following fees payable to such entities:
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
6. TRANSACTIONS WITH AFFILIATED PARTIES (CONTINUED)
NATIONAL REALTY MANAGEMENT, INC.
National Realty Management, Inc. (NRMI) was paid property management fees
($41,055--1998 and $40,345--1997). Monthly fees represent 6% of gross
receipts from the Cave Creek Mini-Warehouses and 5% of gross receipts from
the Amberwood Apartments.
The Partnership also paid $43,570 and $61,964 in 1998 and 1997, respectively,
for the reimbursement of accounting and administrative expenses incurred by
NRMI on behalf of the Partnership.
NATIONAL DEVELOPMENT AND INVESTMENT, INC.
The Partnership paid National Development and Investment, Inc. (NDII) for the
reimbursement of expenses totaling $61,154 and $61,499 in 1998 and 1997,
respectively, for administrative expenses incurred on behalf of the
Partnership.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP-VI
In 1992, the Partnership purchased 12 units of Amberwood Apartments from
National Real Estate Limited Partnership-VI (NRELP-VI), an affiliated
partnership. The Partnership is contingently liable to pay NRELP-VI proceeds
from a future sale of Amberwood Apartments as set forth in a Future Interest
Proceeds Agreement. Upon the future sale of Amberwood Apartments NRELP-VI is
entitled to receive 50% of the net sales price above $57,500 per unit (reduced
by normal selling costs) until the affiliated Partnership earns a cumulative
return of 20% on its investment. After that, NRELP-VI will receive 60% of the
net sales price above $57,500 per unit.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
CASH, CASH EQUIVALENTS AND DEBT
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value due to its short term nature. The
fair value of the variable rate mortgage note payable approximates its
carrying value.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of National Real Estate Limited Partnership Income Properties-II of
our report dated February 4, 1999, included in the 1998 Annual Report to
Partners of National Real Estate Limited Partnership - Income Properties II.
/S/ WOLF & COMPANY
Milwaukee, Wisconsin
March 26, 1999
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
John Vishnevsky Chief Operating and Executive Officer
John Vishnevsky Chief Financial and Accounting Officer
General Partners:
John Vishnevsky
National Development and Investment, Inc.
John Vishnevsky President and Director
Stephen P. Kotecki Vice President, Secretary, Treasurer
and Director
EC Corp.
Stephen P. Kotecki President, Treasurer and Director
Thomas Rielly Vice President, Secretary and Director
Of the above officers and directors of the Corporate General Partners, Mr.
Thomas Rielly is the only person not an employee of National Development and
Investment, Inc., its affiliates, or EC Corp.
The Partnership Form 10-KSB for 1998, which is filed with the Securities and
Exchange Commission, will be furnished at no charge to partners upon written
request directed to: National Development and Investment, Inc., Attn:
Partnership Management, 1155 Quail Court, Pewaukee, Wisconsin 53072-3703.
J:\WPDOCS\REPORTS\10K-NIP2.jwg
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 581628
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 581628
<PP&E> 4671097
<DEPRECIATION> 1536009
<TOTAL-ASSETS> 3743571
<CURRENT-LIABILITIES> 75205
<BONDS> 539334
0
0
<COMMON> 0
<OTHER-SE> 3129032<F1>
<TOTAL-LIABILITY-AND-EQUITY> 3743571
<SALES> 0
<TOTAL-REVENUES> 790050
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 642307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45818
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129323
<EPS-PRIMARY> 5.95<F2>
<EPS-DILUTED> 0
<FN>
<F1>REFERS TO GENERAL PARTNERS + LIMITED PARTNERS CAPITAL
<F2>95% LIMITED PARTNERS INTEREST OUTSTANDING = 20,653.69
</FN>
</TABLE>
