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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 24, 1997
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CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 33-7707 13-3434580
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation Number) Identification Number)
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3 World Financial Center, 29th Floor, New York, New York 10285-2900
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 526-3062
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INFORMATION TO BE INCLUDED IN REPORT
Item 2. Acquisition or Disposition of Assets.
As described in the Partnership's Form 8-K report dated November 8,
1996 (the "November 8-K"), the Partnership held a 24% interest in a zero-coupon
mortgage loan (the "Laurel Centre Loan") made to the owner (the "Laurel
Borrower") of the Laurel Centre Mall located in Laurel, Maryland (the "Mall")
and secured by a first mortgage encumbering the Mall. The remaining 76%
interest in the Laurel Centre Loan was held by a real estate mortgage
investment conduit serviced by a third party. The Laurel Centre Loan accrued
interest at the rate of 10.2% per annum and was due and payable on October 15,
1996. The fully accreted amount of the Laurel Centre Loan as of October 15,
1996 was $57,894,077. As of October 15, 1996, the Laurel Centre Loan was
carried on the Partnership's books, for financial reporting and net asset value
purposes, at $13,894,578, which amount represented the Partnership's full 24%
interest in the Laurel Centre Loan.
On or about October 16, 1996, the Partnership commenced an uncontested
foreclosure against the Mall, as described in the November 8-K (the
"Foreclosure"). During the Foreclosure, a third party unaffiliated with the
Partnership or its general partner (the "General Partner") offered to purchase
the Partnership's interest in the Laurel Centre Loan at a price equal to the
amount the Partnership would have realized if the Laurel Centre Loan were paid
in full, including interest at the nondefault rate of 10.2% to the date of
closing of the purchase, less a negotiated discount of $100,000. The
Partnership closed this transaction, and sold its entire interest in the Laurel
Centre Loan to the unaffiliated third party, on January 24, 1997. Total
proceeds were $14,184,321.02, the equivalent of $2.01 per Unit.
Item 5. Other Events.
As described in the November 8-K, the Partnership holds a zero-coupon
mortgage loan (the "Hotel Loan") made to the owner of the Grand Hyatt San
Francisco hotel (the "Hotel Borrower"), whose general partner is an affiliate
of the General Partner. The Hotel Loan is secured by a second mortgage
encumbering the Grand Hyatt San Francisco Hotel (the "Hotel"). The Hotel Loan
accrued interest at 11% per annum and matured (subject to extension as provided
in the original documents, and as described below) on January 2, 1997. At that
date, the accreted balance of the Hotel Loan, in the total amount of
$42,207,709, was due and payable to the Partnership.
In late 1996, as described in the November 8-K, the Hotel Borrower
proposed to sell the Hotel to an unaffiliated third party (the "Purchaser") at
a price of $126,900,000 (subject to adjustments) (the "Sale"). The Sale is
subject to certain conditions described in a purchase and sale agreement that
has now been entered into between Hotel Borrower and Purchaser. The closing of
the Sale is expected to occur no later than March 31, 1997. Based upon the
negotiated selling price, Hotel Borrower would have sufficient proceeds to pay
the first mortgage ("First Mortgage Loan") balance of approximately $89.7
million as of December 31, 1996. The remaining proceeds would, however, be
insufficient to pay the entire balance of the Hotel Loan.
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In connection with any material transactions entered into between the
Partnership and any affiliate, the Partnership's Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement") requires that the General
Partner retain an independent adviser to render an opinion to the effect that
such transaction is fair, from a financial point of view, and at least as
favorable to the Partnership as such transaction would be if entered into with
an unaffiliated entity in similar circumstances. Accordingly, as discussed in
the November 8-K, the Partnership engaged a nationally-recognized independent
investment bank (the "Partnership's Independent Advisor"), to negotiate with
an independent advisor to Hotel Borrower (the "Hotel Borrower's Independent
Advisor") regarding the proposed Sale and to render the required opinion on
the transaction.
On behalf of the Partnership, the Partnership's Independent Advisor
negotiated, with Hotel Borrower's Independent Advisor, an Allocation and
Release Agreement dated as of November 1, 1996 (the "Allocation Agreement"),
which was entered into between Hotel Borrower and the Partnership
simultaneously with the contract for the Sale. Pursuant to the terms of the
Allocation Agreement, the Partnership agreed (a) subject to certain
limitations, to temporarily forbear during the pendency of the Sale from
pursuing a foreclosure action on the Hotel Loan, and (b) to accept
approximately $30,000,000 in full satisfaction of all of Hotel Borrower's
obligations to the Partnership (including unsecured debt obligations and the
obligation to reimburse the Partnership for certain costs).
The Partnership's acceptance of such terms was conditioned on, among
other things, the Sale being consummated by March 31, 1997, and the net
proceeds from the sale being used first to repay in full all indebtedness
outstanding under the First Mortgage Loan. Assuming the sale of the Hotel
closes, the Partnership will, as a result, receive distributable proceeds of
approximately $4 per unit. However, because the sale of the Hotel is subject to
the satisfaction of certain conditions, including, among other things, Hotel
Borrower's obtaining the approval of a majority in interest of its outstanding
unitholders, there can be no assurance that the Sale will ultimately be
consummated. A special meeting of the unitholders of Hotel Borrower to vote on
the Sale is currently scheduled for February 7, but is anticipated to be
adjourned to February 14, 1997. Based on the contemplated sale transaction, the
Partnership's auditors recommended that for financial reporting and net asset
value purposes, the Partnership adjust the Hotel Loan from its previous value
of $0 to an adjusted value of $29,500,000 as of, and for the period ended
September 30, 1996.
By complaint dated January 24, 1997, certain holders of Units of the
Partnership commenced an action in Delaware Chancery Court against the General
Partner, the Hotel Borrower, its general partner, and others, naming the
Partnership as a nominal defendant. The litigation seeks to set aside the
Allocation Agreement on various grounds, including the affiliation between the
General Partner and the general partner of the Hotel Borrower; alleged
violations of the Partnership Agreement; and other theories to assert that the
Partnership should receive the entire remaining proceeds from the sale of the
Hotel after payment of the first mortgage, with no proceeds being paid to
Hotel Borrower. The litigation, which does not seek to enjoin the sale itself,
was filed as a purported class action on behalf of all Unit holders and as a
purported derivative action in the name of the Partnership. The plaintiffs also
seek damages. Counsel has been engaged and is defending the action.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPITAL GROWTH MORTGAGE INVESTORS, L.P., a
Delaware limited partnership (Registrant)
By: CG REALTY FUNDING, INC., a
Delaware corporation
By: /s/ Daniel M. Palmer
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Daniel M. Palmier,
Vice President and Chief
Financial Officer
Dated: February 5, 1997
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