SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
(NAME OF SUBJECT COMPANY)
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
(NAME OF PERSON FILING STATEMENT)
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTERESTS
(TITLE OF CLASS OF SECURITIES)
NONE
(CUSIP NUMBER OF CLASS OF SECURITIES)
Kenneth L. Zakin
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285
(212) 526-3237
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S)
FILING STATEMENT)
Copy to:
Patrick J. Foye, Esq.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 Third Avenue
New York, New York 10022
(212) 735-3000
ITEM 1. SECURITY AND SUBJECT COMPANY
The subject company is Capital Growth Mortgage
Investors, L.P., a Delaware limited partnership (the
"Partnership"). The address of the principal executive offices
of each of the Partnership and CG Realty Funding, Inc., a
Delaware corporation and general partner of the Partnership (the
"General Partner"), is 3 World Financial Center, 29th Floor, New
York, New York 10285. The title of the class of equity
securities to which this statement relates is the outstanding
depositary units of limited partnership interests ("Units") of
the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to the unsolicited tender offer
being made by Moraga Fund 1, L.P., a California limited
partnership ("Moraga"), Cal Kan, Inc., a Kansas corporation ("Cal
Kan"), Moraga Gold LLC, a California limited liability company
("Gold"), Previously Owned Mortgage Partnerships Income Fund 3,
L.P., a California limited partnership ("Pompi 3), Accelerated
High Yield Institutional Fund I, L.P., a Florida limited
partnership ("Inst'l Fund"), Accelerated High Yield Institutional
Investors, L.P., a Florida limited partnership ("Inst'l Inv"),
Accelerated High Yield Income Fund I, L.P., a Florida limited
partnership ("Income 1"), Accelerated High Yield Income Fund II,
L.P., a Florida limited partnership ("Income 2"), Beagle Fund 7,
a Colorado limited partnership ("Beagle") and Summit Venture, an
Arizona general partnership ("Summit" and together with Moraga,
Cal Kan, Gold, Pompi 3, Inst'l Fund, Inst'l Inv, Income 1, Income
2, Beagle and Summit, the "Bidders"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated August 27, 1996, as amended by
Amendment No. 1 to the Schedule 14D-1 dated September 4, 1996 (as
amended the "Schedule 14D-1"), to purchase from holders of Units
("Unitholders") up to 2,818,000, or 40%, of the outstanding Units
of the Partnership at a purchase price of $2.10 per Unit, upon
the terms and subject to the conditions set forth in the Offer to
Purchase dated August 27, 1996 (the "Offer to Purchase") and the
Letter of Transmittal (the "Letter of Transmittal" and together
with the Offer to Purchase, the "Cal Kan Offer"). The
Partnership did not solicit the Cal Kan Offer and did not know of
the Cal Kan Offer or its terms until commencement of the Cal Kan
Offer. The Schedule 14D-1 states that the principal place of
business of all Bidders, other than Summit, is located at 1640
School Street, Suite 100, Moraga, California 94556 and the
principal place of business of Summit is 1717 E. Morton, Suite
220, Phoenix, Arizona 85020.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership,
which is the person filing this statement, are set forth in Item
1 above.
(b)(1) The Partnership does not have any directors or
executive officers. Pursuant to the Amended and Restated
Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement"), the sole general partner responsible
for the management of the Partnership's business is the General
Partner. The directors and executive officers of the General
Partner are set forth on Schedule I attached hereto. Except as
described below, there are no material contracts, agreements,
arrangements and understandings or any actual or potential
conflicts of interest between the General Partner or its
affiliates and the Partnership, its executive officers, directors
or affiliates.
The Partnership has and will continue to have certain
relationships with the General Partner and its affiliates, as
discussed below. However, there have been no direct financial
transactions between the Partnership and the directors or
executive officers of the General Partner.
The General Partner is entitled to an annual Investment
Management Fee (as defined in the Partnership Agreement) of
$75,000 for managing the Partnership's portfolio of mortgages and
treasury securities. In addition, the General Partner receives
1% of any Repayment Proceeds (as defined in the Partnership
Agreement) until the Unitholders have received their capital
contributions and a 14% cumulative non-compounded annual return.
Thereafter, the General Partner will be entitled to any amount
owed to it as a Disposition Fee (as defined in the Partnership
Agreement) and 1% of any remaining proceeds thereafter.
Under the terms of the Partnership Agreement, the
Partnership reimburses the General Partner, at cost, for the
performance of certain administrative services provided by third
parties. First Data Investor Services Group (formerly The
Shareholder Services Group), an unaffiliated company, provides
partnership accounting and investor relations services for the
Partnership. Prior to May 1993, these services were provided by
an affiliate of the General Partner. The Partnership's transfer
agent and certain tax reporting services are provided by Service
Data Corporation, an unaffiliated company. For the years ended
December 31, 1995, 1994, and 1993, the cost of such services were
$13,067, $6,297 and $8,563, respectively. At December 31, 1995
and 1994, $1,894 and $1,932 were due to the General Partner for
the performance of these services.
The General Partner, as general partner of the
Partnership, is entitled to indemnification under certain
circumstances from the Partnership pursuant to the Partnership
Agreement and applicable law.
Cash and cash equivalents reflected on the
Partnership's balance sheets at December 31, 1995 and 1994 were
on deposit with an affiliate of the General Partner.
(b)(2) To the best knowledge of the Partnership, there
are no material contracts, agreements, arrangements and
understandings or any actual or potential conflicts of interest
between the Partnership or its affiliates and the Bidders, their
executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) The Partnership's management met following the
announcement of the Cal Kan Offer to review and consider the Cal
Kan Offer and to explore various possible alternative courses of
action which might be available to the Partnership in response to
the Cal Kan Offer. AT SUCH MEETING, THE PARTNERSHIP, IN LIGHT OF
ALL RELEVANT CIRCUMSTANCES, DETERMINED THAT THE CAL KAN OFFER IS
GROSSLY INADEQUATE, NOT IN THE BEST INTERESTS OF EITHER THE
PARTNERSHIP OR UNITHOLDERS AND THE PARTNERSHIP STRONGLY
RECOMMENDS THAT UNITHOLDERS REJECT IT.
(b) The Partnership reached the conclusion set forth
in Item 4(a) after considering a variety of factors, including,
but not limited to, the following:
(i) The Grand Hyatt San Francisco (the "Hotel"), which
secures the Partnership's second mortgage loan (the "Union
Square Loan") to Union Square Hotel Partners, L.P. ("Union
Square"), continues to report improved operating results.
The Hotel's average occupancy and room rates are currently
at record levels;
(ii) Union Square, the owner of the Hotel, has engaged
a nationally recognized real estate firm, Eastdil Realty
Company, to facilitate a sale of the Hotel. Union Square
has announced that it has entered into exclusive
negotiations with one prospective purchaser and, although it
did not disclose a specific price, it did disclose that, if
a sale were consummated, based on such exclusive
negotiations, the sale proceeds would be in excess of the
amount necessary to repay the first mortgage encumbering the
Hotel. Although there can be no assurance that any sale
actually will be consummated or that any particular price
can be obtained, the Partnership expects, based upon such
information and subject to sale of the Hotel and negotiation
with Union Square, to receive at least partial repayment of
the Union Square Loan;
(iii) Union Square, the owner of the Hotel, has
informed the Partnership that in the event the Hotel is sold
on the terms currently being negotiated, Union Square will
pay the Partnership at least $20,300,000 in respect of the
Union Square Loan or an amount equal to at least $2.90 per
Unit, which the Partnership estimates will result in an
aggregate liquidation value in excess of $5 per Unit;
(iv) If the Hotel is sold, the Partnership would
distribute the net proceeds received in respect of the Union
Square Loan to Unitholders within 30 days of receipt of such
proceeds. To date Unitholders have received from the
Partnership total cash distributions equal to $7.05 per
original $10.00 Unit; and
(v) In March 1990, a principal and an affiliate of the
Bidders were found guilty of violating the rules of the
National Association of Securities Dealers, Inc. ("NASD")
regarding excessive compensation of broker-dealers. The
determination was made in connection with the purchase and
sale of certain partnership interests. The affiliate was
censured and fined by the NASD for charging commissions to
customers which were not fair.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
The Partnership has retained MacKenzie Partners, Inc.,
which is unaffiliated with MacKenzie Patterson, Inc., the
depositary for the Cal Kan Offer, to assist with communications
with Unitholders with respect to, and to provide other services
to the Partnership in connection with, the Cal Kan Offer. The
Partnership will pay MacKenzie Partners, Inc. reasonable and
customary fees for its services, reimburse it for reasonable
expenses, and provide customary indemnities. Neither the
Partnership nor any person acting on their behalf has employed,
retained, or compensated or intends to employ, retain, or
compensate any other person or class of persons to make
solicitations or recommendations to Unitholders on its behalf
concerning the Cal Kan Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO
SECURITIES
(a) Neither the Partnership nor the General Partner
has effected any transactions in the Units during the past 60
days. The Partnership is not aware of any other transactions in
the Units during the past 60 days by any of the General Partner's
executive officers, directors, affiliates, or subsidiaries.
(b) Neither the Partnership nor, to the knowledge of
the Partnership, any of the General Partner's executive officers,
directors, affiliates, or subsidiaries intends to tender Units in
the Cal Kan Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT
COMPANY
(a) There are no negotiations being undertaken or
underway which would result in any of the transactions listed in
Item 7(a).
(b) There is no transaction, board resolution,
agreement in principle or signed contract in response to the
tender offer which relates to or would result in one or more of
the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
CAL KAN OFFER PRICE DOES NOT REFLECT ANY VALUE FOR UNION SQUARE
LOAN. The offer price of $2.10 per Unit is below the
Partnership's estimate of net asset value per Unit of $2.20 as of
June 30, 1996 which, due to the Hotel's past performance, does
not reflect any value for the Union Square Loan. If, however, as
discussed above, the Hotel's performance continues to increase
and the ability of Union Square to repay the second mortgage
continues to improve or the Hotel is to be sold on the terms
currently being negotiated, the Partnership would increase the
carrying value of the Union Square Loan to reflect the
corresponding increase in the likelihood of the repayment of the
Union Square Loan. Union Square, the owner of the Hotel, has
informed the Partnership that in the event the Hotel is sold on
the terms currently being negotiated, Union Square will pay the
Partnership at least $20,300,000 in respect of the Union Square
Loan or an amount equal to at least $2.90 per Unit, which the
Partnership estimates will result in an aggregate liquidation
value in excess of $5 per Unit -- such amount being at least
$2.80 more than the Partnership's estimate of net asset value per
Unit of $2.20 as of June 30, 1996.
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
CALCULATION OF NET ASSET VALUE
AS OF JUNE 30, 1996
Balance Net Asset
Sheet Value
06/30/96 06/30/96
------------ ------------
MORTGAGE LOANS:
Union Square 0 0
Laurel Centre 13,501,271 13,501,271
------------- -------------
- -
Mortgage loans value 13,501,271 13,501,271
OTHER ASSETS:
Cash and cash equivalents 844,383 844,383
Investment in US T Strips 1,121.797 1,121,797
Deferred charges 51,924 0
Total Assets 15,519,375 15,467,451
LESS: LIABILITIES
Accounts payable (28,111) (28,111)
Due to affiliates (7,450) (7,450)
------------- -------------
-
NET ASSET VALUE 15,483,814 15,431,890
Net Asset Value 15,431,890
Limited Partner Units Outstanding 7,047,000
-------------
Net Asset Value per Limited
Partner Unit
2.20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Form of letter from the Partnership to
limited partners, dated September 10,
1996.
(c) Not Applicable.
SIGNATURE
After reasonable inquiry and to the best of my
knowledge and belief, I certify that the information set forth in
this statement is true, complete and correct.
Dated: September 10, 1996 CAPITAL GROWTH MORTGAGE
INVESTORS, L.P.
By: CG REALTY FUNDING, INC.,
its General Partner
By: /s/ Kenneth L. Zakin
Kenneth L. Zakin
President
Schedule I
The directors and executive officers of the General Partner are
as follows:
Name Office
Kenneth L. Zakin Director and President
Moshe Braver Director
Daniel M. Palmier Vice President and Chief
Financial Officer
KENNETH L. ZAKIN, 48, is a Senior Vice President of Lehman
Brothers and has held such title since November 1988. He is
currently a senior manager in Lehman Brothers' Diversified Asset
Group and was formerly group head of the Commercial Property
Division of Shearson Lehman Brothers' Direct Investment
Management Group responsible for the management of limited
partnerships owning interests in commercial real estate
throughout the United States. Mr. Zakin was a director of
Lexington Corporate Properties, Inc. from October 1993 to May
1996. He is a member of the Bar of the State of New York and
previously practiced as an attorney in New York City from 1973 to
1984 specializing in the financing, acquisition, disposition, and
restructuring of real estate transactions. Mr. Zakin is a member
of the Real Estate Lender's Association and is currently an
associate member of the Urban Land Institute and a member of its
New York District Council Advisory Services Committee. He
received a Juris Doctor degree from St. John's University School
of Law in 1973 and a B.A. degree from Syracuse University in
1969.
MOSHE BRAVER, 42, is currently a Managing Director of Lehman
Brothers and has held such position since October 1985. During
this time, he has held positions with the Business Analysis
Group, International and Capital Markets Administration and
currently, with the Diversified Asset Group. Mr. Braver joined
Shearson Lehman Brothers in August 1983 as Senior Vice President.
Prior to joining Shearson, Mr. Braver was employed by the
accounting firm of Coopers & Lybrand from January 1975 and is a
Certified Public Accountant.
DANIEL M. PALMIER, 35, is a Vice President of Lehman Brothers
Inc. in its Diversified Asset Group, and has been employed by
Lehman Brothers since June 1990. He is responsible for the asset
management and restructuring of a diverse portfolio of assets
including commercial real estate and mortgages. From March of
1988, Mr. Palmier worked for LJ Hooker Corporation, Inc. and held
positions of Senior Associate of Mergers and Acquisitions/Corporate
Finance and Vice President in the Real Estate division. From
September 1986, Mr. Palmier was a Real Estate Acquisition Officer
at John Anthony Associates, Inc. in New York. From June 1983,
Mr. Palmier worked in the public accounting field, most notably
for the firm Price Waterhouse. Mr. Palmier, a New York Certified
Public Accountant, earned a Masters of Science in Real Estate
Degree from New York University in 1995 and graduated from the
University of Notre Dame in 1983 with a B.B.A. in Accounting.
EXHIBIT INDEX
Exhibit Description Page
(a)(1) Form of letter from the Partnerships to 12
limited partners, dated September 10,
1996.
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
September 9, 1996
Dear Unitholder:
Once again we are writing because shortly you will be receiving, if
you have not already, materials describing an unsolicited partial
tender offer (the "Cal Kan Offer") being made for your depositary
units of limited partnership interest ("Units") of Capital Growth
Mortgage Investors, L.P. (the "Partnership") at $2.10 per Unit by Cal
Kan, Inc. and numerous other parties (the "Bidders"). You should
also have already received materials describing an additional
unsolicited partial tender offer for your Units which was commenced
by Hawthorne Investors, L.L.C. that was also at $2.10 per Unit.
WHY, ALL OF A SUDDEN, DO SO MANY SOPHISTICATED INVESTORS WANT TO
PURCHASE YOUR UNITS FOR $2.10? THE ANSWER IS RELATIVELY SIMPLE:
THEY WANT TO PROFIT SIGNIFICANTLY FROM THEIR OWNERSHIP OF YOUR UNITS.
AS DISCUSSED BELOW, THE PARTNERSHIP'S ESTIMATE OF THE LIQUIDATION
VALUE OF YOUR UNITS IS IN EXCESS OF $5 PER UNIT.
The reasons that would allow them to profit from their ownership of
your Units are straightforward: The two remaining mortgages which
the Partnership owns both mature within the next four months; the
properties which secure such mortgages currently are for sale; one of
the properties is performing at record levels and the Partnership's
financial statements currently do not reflect any net asset value for
the mortgage secured by such property.
Attached is the Partnership's response to the Cal Kan Offer which has
been filed with the Securities and Exchange Commission and is being
mailed to all Unitholders. While we suggest you read the attached
Schedule 14D-9 (the "Response") in its entirety, you should be aware
that Item 4 of the Response sets forth the recommendation of the
Partnership with respect to the Cal Kan Offer and the background and
reasons for the position taken by the Partnership.
THE PARTNERSHIP, IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, DETERMINED
THAT THE CAL KAN OFFER IS GROSSLY INADEQUATE, NOT IN THE BEST
INTERESTS OF EITHER THE PARTNERSHIP OR UNITHOLDERS AND THE
PARTNERSHIP STRONGLY RECOMMENDS THAT UNITHOLDERS REJECT IT. The
Partnership reached this conclusion after considering a variety of
factors, including, but not limited to, the following:
* IMPROVEMENT OF OPERATIONS AT GRAND HYATT. The Grand Hyatt San
Francisco (the "Hotel"), which secures the Partnership's second
mortgage loan (the "Union Square Loan") to Union Square Hotel
Partners, L.P. ("Union Square"), continues to report improved
operating results. The Hotel's average occupancy and room rates
are currently at record levels.
* EXCLUSIVE NEGOTIATIONS FOR GRAND HYATT. Union Square, the owner
of the Hotel, has engaged a nationally recognized real estate
firm, Eastdil Realty Company, to facilitate a sale of the Hotel.
Union Square has announced that it has entered into exclusive
negotiations with one prospective purchaser and, although it did
not disclose a specific price, it did disclose that, if a sale
were consummated, based on such exclusive negotiations, the sale
proceeds would be in excess of the amount necessary to repay the
first mortgage encumbering the Hotel. Although there can be no
assurance that any sale actually will be consummated or that any
particular price can be obtained, the Partnership expects, based
upon such information and subject to sale of the Hotel and
negotiation with Union Square, to receive at least partial
repayment of the Union Square Loan.
* UNION SQUARE COMMITMENT. Union Square, the owner of the Hotel,
has informed the Partnership that in the event the Hotel is sold
on the terms currently being negotiated, Union Square will pay
the Partnership at least $20,300,000 in respect of the Union
Square Loan or an amount equal to at least $2.90 per Unit, which
the Partnership estimates will result in an aggregate
liquidation value in excess of $5 per Unit.
* DISTRIBUTION BY THE PARTNERSHIP. If the Hotel is sold, the
Partnership would distribute the net proceeds received in
respect of the Union Square Loan to Unitholders within 30 days
of receipt of such proceeds. To date Unitholders have received
from the Partnership total cash distributions equal to $7.05 per
original $10.00 Unit.
* CAL KAN AFFILIATES FOUND GUILTY OF VIOLATING NASD RULES. In
March 1990, a principal and an affiliate of the Bidders were
found guilty of violating the rules of the National Association
of Securities Dealers, Inc. ("NASD") regarding excessive
compensation of broker-dealers. The determination was made in
connection with the purchase and sale of certain partnership
interests. The affiliate was censured and fined by the NASD for
charging commissions to customers which were not fair.
THE PARTNERSHIP STRONGLY RECOMMENDS THAT YOU REJECT THE $2.10 OFFERS.
We will, of course, continue to keep you informed of significant
events concerning the Partnership. In the event you have any
questions concerning this letter, please contact the information
center which has been set up by the Partnership to assist in our
response to investors' inquiries, toll free at (800) 322-2885.
Very truly yours,
Kenneth L. Zakin
President
CG Realty Funding, Inc.
General Partner
