UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 0-18148
DEAN WITTER REALTY YIELD PLUS, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 13-3426531
(State of organization) (IRS Employer Identification No.)
2 World Trade Center, New York, NY 10048
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (212)
392-1054
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I.
ITEM 1. BUSINESS
The Registrant, Dean Witter Realty Yield Plus, L.P. (the
"Partnership"), is a limited partnership organized in
January 1987 under the Uniform Limited Partnership Act of
the State of Delaware for the purpose of investing in income-
producing properties.
The Managing General Partner of the Partnership is Dean
Witter Realty Yield Plus Inc. (the "Managing General
Partner"), a Delaware corporation which is wholly-owned by
Dean Witter Realty Inc. ("Realty"). The Associate General
Partner is Dean Witter Realty Yield Plus Associates, L.P.
(the "Associate General Partner"), a Delaware limited
partnership, the general partner of which is the Managing
General Partner. The Managing General Partner manages and
controls all aspects of the business of the Partnership.
The terms of transactions between the Partnership and its
affiliates are set forth in the consolidated financial
statements in Item 8 and in Item 13 below.
The Partnership issued 8,909,969 units of limited
partnership interest (the "Units") for $178,199,380. The
offering has been terminated and no additional Units will be
sold.
The proceeds from the offering were used to make investments
in six participating mortgage loans and land leases secured
by interests in two retail properties, two office buildings,
one residential property, and an office and parking garage
complex. Additionally, proceeds were used to make an
investment in a short-term loan secured by eleven
partnership interests. The Partnership subsequently
acquired ownership interest in the real estate securing all
of the foregoing loans through foreclosure or through
transfers of ownership in lieu of foreclosure. The
Partnership sold three shopping centers in 1995 and one
office building in 1997, and lost five shopping centers
through foreclosure by first mortgage lenders in 1994 and
one in 1997. In December 1997, the partnership which owns
the Michelson office property agreed to sell the property;
closing is expected to occur in April 1998. The
Partnership's remaining properties are described in Item 2
below.
The Partnership currently plans to market for sale its
remaining real estate interests in 1998, with the objective
of completing sales of such interests by the end of 1998.
There is no assurance that the Partnership will be able to
achieve this objective.
The Partnership considers its business to include one
industry segment, investment in real property. Financial
information regarding the Partnership is in the
Partnership's financial statements in Item 8 below.
The Partnership's real property investments are subject to
competition from similar types of properties in the
vicinities in which they are located. Further information
regarding competition and market conditions where the
Partnership's properties are located is set forth in Item 7
below.
The Partnership has no employees.
All of the Partnership's business is conducted in the United
States.
ITEM 2. PROPERTIES
The Partnership's principal offices are located at Two World
Trade Center, New York, New York 10048. The Partnership has
no other offices.
As of December 31, 1997, the Partnership owned directly or
through a partnership interest the following interests in
real estate. Generally, the leases pertaining to the
properties provide for pass-throughs to the tenants of their
pro-rata share of certain operating expenses. In the
opinion of the Managing General Partner, all of the
properties are adequately covered by insurance.
<TABLE>
<CAPTION>
Date of Initial Net Rentable
Property, Completion/ Investment2 Area
Ownership of
Location and Type Acquisition1 ($000) (000
sq. ft.) Land & Improvements
<S> <C> <C> <C> <C>
401 East Ontario Street 1990/1992 $37,000 395
apts 100% through interests
Chicago, IL in general
partnerships
luxury residential and
corporations.
building
Michelson 1986-89/1990 $36,000 390 50.81%
general
Irvine, CA partnership
interest.3
3 office buildings
Deptford Crossing 1991/1992 $18,291 200
100% through interests
Deptford, NJ in general
partnerships
shopping center and
corporations.
One Congress Street4 1990,91/1997 $19,500
office-246 58% general partner-
Boston, MA retail-37 ship
interest.5
office building and
garage
Pine Ridge, Flint, MI N/A/1994 $138 2.8 acres 100%
through interests
unimproved land in general
partnerships
and
corporations.
Military Crossing N/A/1994 $300 .6 acres 100%
through interests
Norfolk, VA in general
partnerships
unimproved land and
corporations.
_________________________
</TABLE>
1.Acquisition date is date of foreclosure or in-substance
foreclosure.
2.The lower of estimated fair value of property or net
carrying value of loan at acquisition date.
3.Dean Witter Realty Yield Plus II, L.P. ("Yield Plus II"),
an affiliate of the Partnership, owns the remaining
49.19% general partnership interest. The total cost of
the property was approximately $71 million.
4.Property is subject to a mortgage loan. In 1997, the
Partnership acquired an equity interest in the property.
See Note 6 to the consolidated financial statements.
5.Yield Plus II owns the remaining 42% general partnership
interest. The total net carrying value of the general
partnership interest at the acquisition date was
approximately $33.4 million.
Each property was built with on-site parking facilities.
An affiliate of Realty was the property manager for Greenway
Pointe (sold in 1997), Michelson, Deptford Crossing and
Genessee Crossing (foreclosed upon in 1997) in 1997.
Further information relating to the Partnership's properties
is included in Item 7 and Notes 4, 5, 6 and 7 to the
consolidated financial statements in Item 8 below.
ITEM 3. LEGAL PROCEEDINGS
On December 27, 1995, a purported class action lawsuit (the
"Grigsby Action") naming various public real estate
partnerships sponsored by Realty (including the Partnership
and its Managing General Partner and Associate General
Partner), Realty, Dean Witter Reynolds Inc. ("DWR") and
others as defendants was filed in Superior Court in
California. The complaint alleged fraud, negligent
misrepresentation, intentional and negligent breach of
fiduciary duty, unjust enrichment and related claims and
sought compensatory and punitive damages in unspecified
amounts and injunctive and other equitable relief. The
defendants removed the case to the United States District
Court for the Southern District of California. Pursuant to
an order of the U.S. District Court for the Southern
District of California entered May 24, 1996, the Grigsby
Action was transferred to the U.S. District Court for the
Southern District of New York. The case was dismissed by
stipulation of the parties dated March 6, 1997 and refiled
and consolidated with the Consolidated Action (as defined
below).
On February 14, 1996, a purported class action lawsuit (the
"Schectman Action") naming various public real estate
partnerships sponsored by Realty (including the Partnership
and its Managing General Partner), Realty, Dean Witter,
Discover & Co. ("DWD") and DWR as defendants was filed in
the Chancery Court of Delaware for New Castle County (the
"Delaware Chancery Court"). On February 23, 1996, a
purported class action lawsuit (the "Dosky Action") naming
various public real estate partnerships sponsored by Realty
(including the Partnership and its Managing General
Partner), Realty, DWD, DWR and others as defendants was
filed in the Delaware Chancery Court. On February 29, 1996,
a purported class action lawsuit (the "Segal Action") naming
various public real estate partnerships sponsored by Realty
(including the Partnership and its Managing General
Partner), Realty, DWR, DWD and others as defendants was
filed in the Delaware Chancery Court. On March 13, 1996, a
purported class action lawsuit (the "Young Action") naming
the partnership, other unidentified limited partnerships,
DWD, DWR and others as defendants was filed in the Circuit
Court for Baltimore City in Baltimore, Maryland. The
defendants removed the Young Action to the United States
District Court for the District of Maryland.
Thereafter, the Schectman Action, the Dosky Action and the
Segal Action were consolidated in a single action (the
"Consolidated Action") in the Delaware Chancery Court. The
Young Action was dismissed without prejudice. The
plaintiffs in the Young Action joined the Consolidated
Action.
On October 7, 1996, the plaintiffs in the Consolidated
Action filed a First Consolidated and Amended Class Action
Complaint naming various public real estate partnerships
sponsored by Realty (including the Partnership and its
Managing General Partner), Realty, DWD, DWR and others as
defendants. This complaint alleges breach of fiduciary duty
and seeks an accounting of profits, compensatory damages in
an unspecified amount, possible liquidation of the
Partnership under a receiver's supervision and other
equitable relief. The defendants filed a motion to dismiss
this complaint on December 10, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year to a vote of Unit holders.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
An established public trading market for the Units does not
exist, and it is not anticipated that such a market will
develop in the future. Accordingly, information as to the
market value of a Unit at any given date is not available.
However, the Partnership does allow its limited partners
(the "Limited Partners") to transfer their Units, if a
suitable buyer can be located.
As of March 17, 1998, there were 15,505 holders of limited
partnership interests.
The Partnership is a limited partnership and, accordingly,
does not pay dividends. It does, however, make quarterly
distributions of cash to its partners. Pursuant to the
Partnership Agreement, distributable cash, as defined, is
paid 90% to the Limited Partners and 10% to the general
partners (the "General Partners"). Pursuant to the
Partnership Agreement, $1,239,345 of the General Partner's
share of such net cash flow distributable to them through
December 31, 1990, was deferred subject to receipt by the
Limited Partners of an 8% annual return on their invested
capital through that date.
During the year ended December 31, 1997, the Partnership
paid cash distributions aggregating $1.71 per Unit
(including a December 1997 distribution of approximately
$1.19 (a total of $10,602,566) of proceeds from the sale of
the Greenway Pointe property). Total distributions were
$15,750,550, with $15,235,751 distributed to the Limited
Partners and $514,799 to the General Partners. The
distribution of proceeds from the Greenway Pointe property
sale was paid 100% to the Limited Partners; the General
Partners deferred receipt of any proceeds. During the year
ended December 31, 1996, the Partnership paid cash
distributions aggregating $1.26 per Unit (including
approximately $.72 (a total of $6,414,961) of proceeds from
the sale of certain retail properties sold in December 1995
(the "1995 Shopping Centers")). The total distributions
amounted to $11,760,832, with $11,226,245 distributed to the
Limited Partners and $534,587 distributed to the General
Partners. The distribution of proceeds from the sale of the
1995 Shopping Centers was paid 100% to Limited Partners; the
General Partners deferred receipt of any proceeds.
On January 28, 1998, the Partnership paid a cash
distribution of $.124 per Unit. The total distribution was
$1,227,596, with $1,104,836 distributed to Limited Partners
and $122,760 distributed to the General Partners.
The Partnership anticipates making regular distributions to
its partners in the future. Future cash distribution levels
will fluctuate based on cash flow generated by the
Partnership's remaining property interests and proceeds
received from property sales.
Sale or financing proceeds will be distributed, to the
extent available: first, 97% to the Limited Partners and 3%
to the General Partners until the Limited Partners receive a
return of their invested capital plus an amount sufficient
to provide a 10% cumulative annual return thereon; second,
100% to the General Partners until they have received the
amount of any net cash flow previously deferred and not
distributed; and third, 85% to the Limited Partners and 15%
to the General Partners.
Taxable income generally will be allocated to the partners
in proportion to the distribution of distributable cash or
sale or financing proceeds, as the case may be (or 90% to
the Limited Partners and 10% to the General Partners if
there is no distributable cash or sale or financing
proceeds). At a minimum, the General Partners must be
allocated at least 1% of the taxable income from a sale or
financing. Tax losses, if any, will be allocated 90% to the
Limited Partners and 10% to the General Partners.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial
data for the Partnership:
<TABLE>
<CAPTION>
DEAN WITTER REALTY YIELD PLUS, L.P.
For the years ended December 31, 1997, 1996, 1995, 1994 and
1993
19971 19962 19953
1994 1993
<S> <C> <C> <C> <C> <C>
Total revenues $ 24,706,819 $ 20,071,013 $
34,399,506 $ 29,051,935 $ 21,141,666
Income (loss)
before extra-
ordinary item $ 6,322,426 $ (1,785,073) $
1,343,582 $ 4,024,6464 $ (7,155,221)4
Extraordinary item $ 548,3955 $ - $ -
$ 626,3756 $ -
Net income (loss) $ 6,870,821 $ (1,785,073) $
1,343,582 $ 4,651,0214 $ (7,155,221)4
Per Unit of
limited
partnership
interest:
Income (loss)
before extra-
ordinary item $ .69 $ (.18) $
.17 $ .41 $ (.72)
Extraordinary
item $ .06 $ - $ - $
.06 $ -
Net income
(loss) $ .75 $ (.18) $
.17 $ .47 $ (.72)
Cash distribution
paid per Unit
of limited
partnership
interest7 $ 1.718 $ 1.269 $
.60 $ .60 $ .60
Total assets at
December 31 $107,962,275 $126,752,827
$141,753,976 $195,810,917 $175,847,369
Long-term debt due
after one year $ 10,566,268 $ - $
19,823,736 $ 66,887,850 $ 45,554,079
__________________
</TABLE>
1.Revenues, income before extraordinary item and net income
include reserves of $1.6 million of accrued but unpaid
interest on the participating mortgage loan, and $5.2
million gain on sale of the Greenway Pointe property.
2.Revenues and loss include reserves of $0.7 million of
accrued but unpaid interest on the participating mortgage
loan, and net loss also includes a $1.0 million
impairment loss on principal of the participating
mortgage loan.
3.Revenues and income include a $3.3 million gain on sale
of the 1995 Shopping Centers and income is net of a $6.9
million loss on impairment of real estate.
4.Income (loss) includes a $12.9 million impairment loss in
1993 on the principal of the One Congress Street mortgage
loan, and a $1.7 million impairment loss in 1994 relating
to principal on the same loan.
5.Represents gain on extinguishment of debt through
foreclosure.
6.Represents gain on refinancing of debt.
7.Distributions paid to Limited Partners represents returns
of capital, calculated as the excess of cash distributed
per Unit over accumulated earnings per Unit not
previously distributed.
8.Includes approximately $1.19 per Unit of proceeds from
sale of the Greenway Pointe property.
9.Includes approximately $0.72 per Unit of proceeds from
the sale of the 1995 Shopping Centers.
The above financial data should be read in conjunction with
the consolidated financial statements and the related notes
in Item 8.
DEAN WITTER REALTY YIELD PLUS, L.P.
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership raised $178,199,380 through a public
offering which terminated in 1987. The Partnership has no
plans to raise additional capital.
The Partnership originally invested in seven loans and land
leases. Due to the past weakness in real estate markets,
most of the properties did not generate sufficient cash flow
to fully service their debt. As a result, the Partnership
acquired all of the properties in which it originally
invested. No additional investments are planned.
As described in Note 6 to the consolidated financial
statements, on October 27, 1997, the Partnership and Dean
Witter Realty Yield Plus II, L.P. ("Yield Plus II"), an
affiliate, jointly acquired the controlling ownership
interest on the owner/borrower on the One Congress Street
property, and began accounting for their interests in the
property on the equity method. The Partnership and Yield
Plus II continue to receive 100% of the cash flow and
economic benefits from the property.
The Genessee Crossing retail center was foreclosed upon in
1997. Partnership cash flow from this property were
approximately $74,000 and $231,000 in 1997 and 1996,
respectively. (See Note 4 to the consolidated financial
statements).
In November 1997, the Partnership sold the Greenway Pointe
property. Partnership cash flow from this property was
approximately $780,000 and $868,000 in 1997 and 1996,
respectively. On December 5, 1997, the Partnership
distributed the net proceeds from the sale of approximately
$10,600,000 ($1.19 per Unit). The distribution was paid
100% to Limited Partners.
In December 1997, the partnership which owns the Michelson
property (in which the Partnership is a 50.81% general
partner) has entered into an agreement to sell the property
for approximately $64 million, of which the Partnership's
share is approximately $32.5 million. Closing is expected
to occur in April 1998. Partnership cash flow from this
property was approximately $1,947,000 and $2,373,000 in 1997
and 1996, respectively.
The Managing General Partner has engaged a real estate
broker to market for sale the 401 East Ontario Street
property, and believes that, barring a change in
circumstances, it will market for sale the Deptford Crossing
and One Congress Street properties in 1998. However, there
can be no assurance that these properties will be sold.
In December 1997, the Partnership obtained a $11.5 million
revolving credit facility, and borrowed approximately $10.6
million thereunder to repay the mortgage loan on the
Deptford Crossing property. Borrowings under the revolving
credit facility mature on December 31, 1999 and are secured
by a mortgage on the 401 East Ontario Street property. See
Note 7 to the consolidated financial statements.
Employment growth, especially in the communications,
technology and financial services industries, has increased
demand for space in many office markets. Such increasing
demand and a controlled amount of speculative construction
has resulted in falling vacancies and rising rents.
Improved property performance along with an influx of
capital from REITs, pension funds and foreign investors is
increasing property values. Some office markets, especially
suburban markets, are faring better than others and, in
certain areas, improved market conditions can support new
construction. In 1997, the office vacancy rate in the
downtown financial markets and government center of Boston
(the location of One Congress Street) decreased to 5% and
rental rates in this market increased. In Orange County, CA
(the location of the Michelson property), the strong demand
for quality office space combined with a lack of new
construction increased rental rates significantly in 1997.
In the retail sector, an oversupply of space and
consolidation among retailers continued to lessen the demand
for retail space, and many outdated properties are being
redeveloped in order to compete with newer retail
properties. The abundance of available retail space and sub-
lease space offered by retailers (usually at lower rents)
has exerted downward pressure on rents in many markets.
However, in 1997, the vacancy rate in the retail market in
Deptford, NJ, the location of the Deptford Crossing shopping
center was 5%. Although investment interest for retail
properties has waned somewhat, REITs continue to purchase
retail properties nationwide. The vacancy rate for
apartment buildings in the downtown Chicago area, the
location of the 401 East Ontario Street property, remained
at 4% in 1997, and apartment values in this market increased
significantly in 1997.
Currently, the Partnership's liquidity is primarily affected
by sales of the Partnership's properties; as properties are
sold, the Partnership has fewer income-producing
investments, Partnership cash from operations decreases and
Partnership distributions will decline. As a result of the
decrease in operating cash flow caused by the sale of the
Greenway Pointe property, the Partnership reduced its fourth
quarter cash distribution (paid January 1998) from $0.13 per
Unit to $0.124 per Unit. Future cash distribution levels
will fluctuate based on operating cash flow generated by the
Partnership's remaining properties and proceeds received
from future property sales.
The Partnership's liquidity also depends upon the cash flow
from operations of its remaining owned real estate,
distributions from its investment in unconsoldiated
partnership and expenditures for building improvements,
tenant improvements and leasing commissions in connection
with the leasing of space. During 1997, all of the
Partnership's properties, except for the One Congress Street
property, generated positive cash flow from operations, and
it is anticipated that the Partnership's remaining
properties will continue to generate positive cash flow from
operations in 1998. As described in Note 6 to the
consolidated financial statements, GCGA did not pay
approximately $1,560,000 of its 1997 minimum debt service to
the Partnership while in bankruptcy.
During 1997, the Partnership incurred approximately $905,000
(net of contributions by the minority interest) primarily
for tenant-related capital expenditures at the Greenway
Pointe (approximately $385,000) and Michelson (approximately
$340,000) properties; no other individual property accounted
for a significant portion of the remaining expenditures.
The Partnership also incurred approximately $2.75 million
for repairs of the fire and life safety systems at 401 East
Ontario Street in 1997. The repair project was
substantially completed in the third quarter of 1997 and all
costs were paid by December 31, 1997. In connection with its
lawsuits to recover these costs and its costs to repair the
concrete exterior walls (completed 1996), the Partnership
incurred approximately $425,000 of legal costs in 1997. In
March 1998, the Partnership received $1.2 million pursuant
to a settlement with the architect and engineer of the
property. The Partnership is continuing its litigation
against other contractors who worked on construction of the
property. See Note 4 to the consolidated financial
statements.
Subsequent to October 27, 1997, GCGA renewed the lease of
the Government Services Administration ("GSA"), the sole
tenant of the office space at the One Congress Street
property. The lease, which is effective August 1, 1997 and
covers approximately 70% of the office space at the
property, expires on July 31, 2006, subject to GSA's right
to terminate its lease, in whole or in part, after July 31,
2002. The rental rates during the first four years of the
new lease are less than the rental rates in the last two
years of the expired lease. The new lease requires the
Partnership and Yield Plus II to fund tenant improvements
aggregating between $862,500 and $1,687,500; any amount
funded over $862,500 will be repaid monthly by GSA over five
years plus interest at 8%. In addition, the Partnership and
Yield Plus II will be required to fund leasing commissions
relating to the new lease of up to $1,125,000. The
Partnership's 58% share of the maximum amount of the above-
mentioned tenant-related expenditures is approximately
$1,631,000 (of which $478,500 would be repaid by GSA, as
discussed above); the Partnership did not pay any of these
expenditures in 1997.
As of December 31, 1997, the Partnership has commitments to
contribute approximately $200,000 for lease-related capital
expenditures at Michelson property.
During 1997, cash flow from operations of real estate owned
(net of minority interest share and excluding proceeds from
the sale of real estate) and interest received from the
participating mortgage loan exceeded distributions to
investors (excluding the distribution of proceeds from the
propety sale) and capital expenditures. The Partnership
funded the 401 East Ontario Street repair and litigation
costs from cash flow from operations and cash reserves.
In 1998, the Partnership expects that cash flow from
operations of its real estate, distributions from the
unconsolidated partnership and the above-described $1.2
million litigation settlement will exceed distributions to
investors (other than distributions of cash reserves and net
proceeds from property sales); the Partnership expects to
fund capital expenditures and contributions to the
unconsolidated partnership from operating cash flows and
cash reserves. In 1998, the Partnership expects to
distribute a portion of its cash reserves to investors.
Other assets decreased during 1997 primarily due to the
application of $368,000 cash held in escrow against
principal of the Deptford mortgage loan and by $163,000 as a
result of the disposition of the Genessee Crossing and
Greenway Pointe properties.
On January 28, 1998, the Partnership paid the fourth quarter
1997 cash distribution to Limited Partners. The cash
distribution aggregated $1,277,596 with $1,104,836
distributed to Limited Partners and $122,760 distributed to
the General Partners.
Except as discussed above and in the consolidated financial
statements, the Managing General Partner is not aware of any
trends or events, commitments or uncertainties that may have
a material impact on liquidity.
Operations
Fluctuations in the Partnership's operating results for the
year ended December 31, 1997 compared to 1996 and 1996
compared to 1995 are primarily attributable to the
following:
Rental revenue at the 401 East Ontario Street property
increased in 1997 compared to 1996 by approximately $932,000
because of the discontinuance of rental concessions and free
rent granted to tenants while repairs were being performed
at the property, and because rental rates for certain
apartment types at the property were raised during the year.
The increased rental revenue at 401 East Ontario Street was
partially offset by the loss of approximately $599,000 of
rental income from the Genessee Crossing Shopping Center
after it was foreclosed upon in August 1997.
Rental income decreased in 1996 compared to 1995 primarily
due to the absence in 1996 of rents of approximately $8.7
million from the Hampton Village Centre, Farmington
Crossroads and Midway Crossing Shopping Centers
(collectively, the "1995 Shopping Centers"), which were sold
in 1995. Rent also decreased at 401 East Ontario Street by
approximately $1.2 million due to lower occupancy and rent
concessions granted to tenants while repairs at the property
were being performed.
The gains on sale of real estate resulted from the November
1997 sale of the Greenway Pointe property and the December
1995 sale of the 1995 Shopping Centers.
Interest on the One Congress Street participating mortgage
loan decreased in 1997 compared to 1996 because $1,560,000
of reserves of accrued but uncollected interest was
recognized from January 1, 1997 to October 27, 1997 (when
the Partnership obtained control of the property) compared
to $660,000 in 1996. Effective October 27, 1997, the
Partnership stopped accruing interest on the participating
mortgage loan and began recognizing its share of income from
the property using the equity method of accounting.
The decrease in interest income from the participating
mortgage loan in 1996 compared to 1995 resulted from
reserves of accrued but uncollected interest of $660,000 in
1996.
Interest income on short-term investments decreased in 1997
compared to 1996 because the Partnership funded a
significant portion of capital expenditures and the repairs
at the 401 East Ontario Street property from cash reserves
and, accordingly, had less cash available for investment in
1997.
No individual factor accounted for a significant portion of
the increase in other income in 1997 compared to 1996.
Other income decreased in 1996 compared to 1995 primarily
because of the absence in 1996 of a lease termination fee
received at the Michelson property in 1995.
Property operating expenses decreased in 1997 compared to
1996 primarily because expenditures for the above-described
repairs at 401 East Ontario Street were approximately
$2,750,000 in 1997, compared to $4,850,000 in 1996. This
decrease was partially offset by an increase in real estate
taxes at the Michelson property in 1997 caused by the
absence of real estate tax refunds (the Partnership received
$508,000 of such refunds in 1996).
Property operating expenses at 401 East Ontario Street
increased in 1996 compared to 1995 by approximately $3.2
million primarily as a result of higher expenditures for
repairs. This increase was offset by the absence of
operating expenses of approximately $3 million relating to
the 1995 Shopping Centers.
No individual factor accounted for a significant change in
depreciation and amortization expenses in 1997 compared to
1996. Depreciation decreased in 1996 compared to 1995
primarily due to the absence in 1996 of depreciation of
approximately $801,000 from the 1995 Shopping Centers. This
decrease was partially offset by increased depreciation at
the Michelson property resulting from increased capital
expenditures.
Interest expense decreased by $314,000 in 1997 compared to
1996 because of the foreclosure on the Genessee Crossing
shopping center in August 1997. This decrease was partially
offset by an increase in the interest rate on the Deptford
Crossing mortgage loan between the September 15, 1997
maturity date of the note and the December 30, 1997
repayment of the note.
Interest expense decreased in 1996 compared to 1995 due to
the absence in 1996 of interest of approximately $2.9
million due to the repayments in the fourth quarter of 1995
of debt relating to the 1995 Shopping Centers, loans payable
to affiliates and banks and the partial paydown of the
Deptford Crossing mortgage loan.
General and administrative expenses decreased in 1997
compared to 1996 and increased in 1996 compared to 1995
primarily due to additional costs incurred during the first
quarter of 1996 related to the sale of the 1995 Shopping
Centers. General and administrative expenses decreased by
approximately $260,000 in the fourth quarter of 1997
because, as part of the October 27, 1997 settlement with
GCGA, GCGA reimbursed the Partnership for approximately
$115,000 of legal fees the Partnership had previously paid
relating to the settlement and paid all of the Partnership's
remaining unpaid legal bills concerning the settlement.
Losses on impairments of real estate and investments in
participating mortgage loans consisted of the provisions for
losses on the Deptford Crossing property in 1995 and the One
Congress Street participating mortgage loan in 1996. See
Notes 4 and 6 to the consolidated financial statements.
A summary of the office, retail, residential and research
and development building markets where the Partnership's
properties are located, and the performance of each property
is as follows:
The luxury residential sub-market in Chicago, IL, location
of the 401 East Ontario property, continues to be strong.
In 1997, the vacancy rate in this market remained at 4% and
rental rates increased. During 1997, average occupancy at
the property was 85%, and, at December 31, 1997, occupancy
was 93% compared to 83% at the prior year-end. Occupancy at
the property increased as a result of the completion of
repairs of the fire and life safety systems and increased
marketing efforts.
During 1997, the market vacancy rate for class A office
space in Irvine, California, the location of 2600 Michelson
Drive, decreased from 16% to below 14%. Rental rates
increased in this market in 1997 because of continued strong
demand and a lack of significant new construction. uring
1997, average occupancy at the property was 93%, and, at
December 31, 1997, occupancy was 94% compared to 93% at the
prior year-end. The lease of AVCO Financial (for
approximately 22% of the property's space) expires in 2002;
however, the tenant has a one-time option to terminate its
lease in 1999. The property is leased to 42 other tenants,
none of which individually occupy more than 10% of the
property's space. Leases covering approximately 27% and 14%
of the space expire in 1998 and 1999, respectively. The
Partnership has agreed to sell this property; see Note 5 to
the consolidated financial statements.
During 1997, the downtown Boston office market, the location
of One Congress Street, continued to strengthen and rental
rates increased. There is no significant new construction in
this market. Effective August 1, 1997, GSA renewed its
lease (for approximately 70% of the office space) through at
least July 31, 2002. The remaining 30% of the office space
has been vacant since GSA terminated a portion of its
expired lease in August 1996. The lease for 100% of the
parking lot space at the property with Kinney Systems, Inc.
expires in 2003. In both 1997 and 1996, the retail space,
which is not a significant portion of the overall space,
remained substantially vacant.
The retail market in Deptford, New Jersey, the location of
Deptford Crossing, currently has a vacancy rate of 5%.
There are two retail developments which opened in the second
quarter of 1997 and two developments planned for
construction in the near future in this market. This space
will be occupied primarily by large "big box" tenants. The
Partnership anticipates that the new centers will benefit
the tenants at Deptford Crossing because the new retailers
will increase consumer traffic in the market. During 1997,
average occupancy at the property was 78%, and, at December
31, 1997, occupancy was 77%, compared to 83% at the prior
year-end. Tenants occupying 10% or more of the property's
space include T.J. Maxx (16%), Marshalls (14%), Office Max
(13%) and Petsmart (10%); their leases expire in 2001, 2002,
2002 and 2003, respectively. The property is leased to
eleven other tenants, none of which individually occupy more
than 10% of the space. No significant amount of leases
expire before 2001.
Inflation
Inflation has been consistently low during the periods
presented in the financial statements and, as a result, has
not had a significant effect on the operations of the
Partnership or its properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DEAN WITTER REALTY YIELD PLUS, L.P.
INDEX
(a) Financial statements
Page
Independent Auditors' Report 20
Consolidated Balance Sheets at December 31, 1997 and 1996
21
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 22
Consolidated Statements of Partners' Capital for the years
ended December 31, 1997, 1996 and 1995 23
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 24-25
Notes to Consolidated Financial Statements 26-40
(b) Financial statement schedule
Real Estate and Accumulated Depreciation III 49-51
All schedules other than those indicated above have been
omitted because either the required information is not
applicable or the information is shown in the financial
statements or notes thereto.
Independent Auditors' Report
The Partners
Dean Witter Realty Yield Plus, L.P.
We have audited the accompanying consolidated balance sheets
of Dean Witter Realty Yield Plus, L.P. and consolidated
partnerships (the "Partnership") as of December 31, 1997 and
1996, and the related consolidated statements of operations,
partners' capital and cash flows for each of the three years
in the period ended December 31, 1997. Our audits also
included financial statement schedule III. These financial
statements and the financial statement schedule are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Dean Witter Realty Yield Plus, L.P. as of
December 31, 1997 and 1996, and the results of its
operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion,
financial statement schedule III, when considered in
relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects,
the information set forth therein.
Deloitte & Touche LLP
/s/Deloitte & Touche LLP
New York, New York
March 24, 1998
<TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
Consolidated Balance Sheets
December 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C>
<C>
ASSETS
Real estate:
Land $
6,267,858 $ 13,444,875
Buildings and improvements 44,072,371
102,237,481
50,340,229
115,682,356
Accumulated depreciation 5,847,422
18,386,846
44,492,807
97,295,510
Real estate held for sale 36,896,371
- -
Investment in unconsolidated partnership 19,721,195
- -
Investment in participating mortgage loan, net of
allowance of $15,549,278 in 1996 -
18,995,382
Cash and cash equivalents 4,584,786
6,799,320
Deferred expenses, net 882,731
1,419,805
Other assets 1,384,385
2,242,810
$107,962,275
$126,752,827
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $ 10,566,268 $
19,726,496
Accounts payable and other liabilities 3,343,047
3,472,149
Minority interest 18,544,593
19,166,086
32,453,908
42,364,731
Partners' capital (deficiency):
General partners (7,472,965)
(7,121,032)
Limited partners ($20 per Unit, 8,909,969 issued
and outstanding) 82,981,332
91,509,128
Total partners' capital 75,508,367
84,388,096
$107,962,275
$126,752,827
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years and December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C>
<C>
Revenues:
Rental $17,559,416
$17,014,283 $27,033,215
Gain on sale of real estate 5,242,166 -
3,334,036
Interest on participating mortgage loan 697,153
2,098,555 2,745,433
Equity in earnings of unconsolidated partnership
264,862 - -
Interest on short-term investments 178,585
476,051 496,283
Other 764,637
482,124 790,539
24,706,819
20,071,013 34,399,506
Expenses:
Property operating 11,241,228
13,009,606 12,942,778
Depreciation 3,673,145
3,918,119 4,342,062
Amortization 385,386
411,090 547,318
Interest 1,476,954
1,594,580 5,794,644
General and administrative 673,852
996,930 786,283
Losses on impairment of real estate and
participating mortgage loan - 979,000
6,931,459
17,450,565
20,909,325 31,344,544
Income (loss) before minority interests
and extraordinary item 7,256,254
(838,312) 3,054,962
Minority interests 933,828
946,761 1,711,380
Income (loss) before extraordinary item 6,322,426
(1,785,073) 1,343,582
Extraordinary item:
Gain on extinguishment of debt through
foreclosure 548,395 -
- -
Net income (loss) $ 6,870,821
$(1,785,073) $ 1,343,582
Net income (loss) allocated to:
Limited partners $ 6,707,955
$(1,606,566) $ 1,542,627
General partners 162,866
(178,507) (199,045)
$ 6,870,821
$(1,785,073) $ 1,343,582
Per Unit of limited partnership interest:
Income (loss) before extraordinary item $ .69 $
(.18) $ .17
Extraordinary item .06 -
- -
Net income (loss) $ .75 $
(.18) $ .17
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
Consolidated Statement of Partners' Capital
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficiency)
at January 1, 1995 $108,145,292
$(5,614,897) $102,530,395
Net income (loss) 1,542,627
(199,045) 1,343,582
Cash distributions (5,345,980)
(593,996) (5,939,976)
Partners' capital (deficiency)
at December 31, 1995 104,341,939
(6,407,938) 97,934,001
Net loss (1,606,566)
(178,507) (1,785,073)
Cash distributions (11,226,245)
(534,587) (11,760,832)
Partners' capital (deficiency)
at December 31, 1996 91,509,128
(7,121,032) 84,388,096
Net income 6,707,955
162,866 6,870,821
Cash distributions (15,235,751)
(514,799) (15,750,550)
Partners' capital (deficiency)
at December 31, 1997 $ 82,981,332
$(7,472,965) $ 75,508,367
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C>
<C>
Cash flows from operating activities:
Net income (loss) $6,870,821 $
(1,785,073) $ 1,343,582
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of real estate (5,242,166) -
(3,334,036)
Depreciation and amortization 4,058,531
4,329,209 4,889,380
Minority interests in earnings of consolidated
partnerships 933,828
946,761 1,711,380
Gain on extinguishment of debt (548,395) -
- -
Equity in earnings of unconsolidated partnership
(264,862) - -
Losses on impairment of real estate and
participating mortgage loan - 979,000
6,931,459
Increase in deferred expenses (379,406)
(204,560) (593,204)
Decrease (increase) in other assets 695,735
454,446 (802,195)
Decrease in accounts payable and other liabilities
(90,608) (777,135)
(366,257)
Net cash provided by operating activities
6,033,478 3,942,648
9,780,109
Cash flows from investing activities:
Proceeds from sales of real estate, net of closing
costs 10,600,353 -
57,343,595
Additions to real estate (856,266)
(2,696,891) (821,485)
Investment in unconsolidated partnership (116,000)
- - -
Investments in participating mortgage loan -
- - (390,034)
Release of cash in escrow - -
5,000,000
Net cash provided by (used in) investing
activities 9,628,087
(2,696,891) 61,132,076
Cash flows from financing activities:
Cash distributions (15,750,550)
(11,760,832) (5,939,976)
Repayments of mortgage notes payable (11,136,496)
(277,240) (37,711,141)
Borrowings under mortgage note payable 10,566,268
- - -
Minority interest in distributions from
consolidated partnerships (1,884,766)
(2,297,113) (2,507,440)
Contributions by minority interest to
consolidated partnerships 329,445
949,483 489,992
Repayments of bank loans - -
(9,350,557)
Repayments of loans from affiliates - -
(1,726,524)
Net cash used in financing activities (17,876,099)
(13,385,702) (56,745,646)
(Decrease) increase in cash and cash equivalents
(2,214,534) (12,139,945)
14,166,539
Cash and cash equivalents at beginning of year
6,799,320 18,939,265
4,772,726
Cash and cash equivalents at end of year $ 4,584,786 $
6,799,320 $ 18,939,265
(continued)
</TABLE>
<TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(continued)
<CAPTION>
1997 1996 1995
<S> <C> <C>
<C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,476,954 $
1,594,580 $ 5,794,644
Supplemental disclosure of non-cash investing
activities:
Reclassification of real estate held for sale:
Land $ 4,080,416 $
- - $ -
Building and improvements 45,012,801 -
- -
Accumulated depreciation (12,196,846) -
- -
Real estate held for sale $ 36,896,371 $ -
$ -
Acquisition of investment in unconsolidated
partnership resulting from restructuring
of participating mortgage loan:
Investment in participating mortgage loan, net $
18,995,382 $ - $ -
Deferred costs, net 344,951 -
- -
Investment in unconsolidated partnership $ 19,340,333 $
- - $ -
Supplemental disclosures of non-cash
financing activities:
Extinguishment of debt and loss of real
estate through foreclosure:
Balance due on mortgage note payable $ 8,590,000 $
- - $ -
Write-off of real estate:
Land (1,709,535) -
- -
Building (6,830,465) -
- -
Accumulated depreciation 565,640 -
- -
(7,974,360 ) -
- -
Decrease in other assets (67,245) -
- -
Gain on extinguishment of debt due to foreclosure $
548,395 $ - $ -
See accompanying notes to consolidated financial statements.
</TABLE>
DEAN WITTER REALTY YIELD PLUS, L.P.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. The Partnership
Dean Witter Realty Yield Plus, L.P. (the "Partnership") is a
limited partnership organized under the laws of the State of
Delaware in 1987 to invest in participating mortgage loans
collateralized by income-producing properties. The Managing
General Partner of the Partnership is Dean Witter Realty
Yield Plus Inc., which is wholly-owned by Dean Witter Realty
Inc. ("Realty").
The Partnership issued 8,909,969 units of limited
partnership interests (the "Units") for $178,199,380. No
additional Units will be sold.
2. Summary of Significant Accounting Policies
The financial statements include the accounts of the
Partnership, DW Columbia Gateway Associates, DW Michelson
Associates, DW Lakeshore Associates, Deptford Crossing
Associates, DW Community Centers Limited Partnership, DW
Maplewood Inc. and Hampton Crossing Associates (inactive in
1997) on a consolidated basis.
Effective October 27, 1997, the Partnership acquired a 58%
general partnership interest in GCGA Limited Partnership
("GCGA"), the owner/borrower of the One Congress Street
property, and began accounting for this investment using the
equity method. See Note 6.
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
purposes. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Real estate and the investment in unconsolidated
partnership, all of which were acquired in settlement of
loans, were recorded at the lower of the carrying value of
the original loan or the estimated fair value of the real
estate investment acquired at the date of foreclosure or in-
substance foreclosure. Costs of improvements to real estate
are capitalized and repairs are expensed. Depreciation is
recorded on the straight-line method.
Cash and cash equivalents consist of cash and highly liquid
investments with maturities, when purchased, of three months
or less.
At least annually, and more often if circumstances dictate,
the Partnership evaluates the recoverability of the net
carrying value of its real estate and any related assets,
including the real estate and related assets owned by the
unconsolidated partnership. As part of this evaluation, the
Partnership assesses, among other things, whether there has
been a significant decrease in the market value of any of
its properties. If events or circumstances indicate that
the net carrying value of a property may not be recoverable,
the expected future net cash flows from the property are
estimated for a period of approximately five years (or a
shorter period if the Partnership expects that the property
may be disposed of sooner), along with estimated sales
proceeds at the end of the period. If the total of these
future undiscounted cash flows were less than the carrying
amount of the property, the property would be written down
to its fair value as determined (in some cases with the
assistance of outside real estate consultants) based on
discounted cash flows, and a loss on impairment recognized
by a charge to earnings.
The Partnership also periodically evaluated the
collectibility of both interest and principal of its
investment in the participating mortgage loan to determine
whether it was impaired. The mortgage loan was considered
to be impaired when, based on then-current information and
events, it was probable that the Partnership would be unable
to collect all amounts due according to the existing
contractual terms of the loan. When the mortgage loan was
considered to be impaired, the Partnership established a
valuation allowance which was equal to the difference
between a) the carrying value of the loan, and b) the
present value of the expected cash flows from the loan at
its effective interest rate, or, for practical purposes, at
the estimated fair value of the real estate collateralizing
the loan.
Because the determination of fair value is based upon
projections of future economic events such as property
occupancy rates, rental rates, operating cost inflation and
market capitalization rates which are inherently subjective,
the amounts ultimately realized at disposition may differ
materially from the net carrying value as of December 31,
1997. The cash flows used to evaluate the recoverability of
the assets and to determine fair value are based on good
faith estimates and assumptions developed by the Managing
General Partner. Unanticipated events and circumstances may
occur and some assumptions may not materialize; therefore
actual results may vary from the estimates and the variances
may be material. The Partnership may provide additional
write-downs, which could be material, in subsequent years if
real estate markets or local economic conditions change.
Deferred expenses consist of leasing commissions and, prior
to October 27, 1997, origination fees in connection with the
participating mortgage loan. Leasing commissions are
amortized over the applicable lease terms. Origination fees
were amortized over the loan term, which approximated the
effective yield method.
Rental income is accrued on a straight-line basis over the
terms of the leases. Accruals in excess of amounts payable
by tenants pursuant to their leases (resulting from rent
concessions or rents which periodically increase over the
term of a lease) are recorded as receivables and included in
other assets.
Net income (loss) per Unit amounts are calculated by
dividing net income (loss) allocated to Limited Partners, in
accordance with the Partnership Agreement, by the weighted
average number of Units outstanding.
No provision for income taxes has been made in the financial
statements, since the liability for such taxes is that of
the partners rather than the Partnership.
The accounting policies used for tax reporting purposes
differ from those used for financial reporting purposes.
For tax purposes, the Partnership's subsidiaries are not
consolidated, and properties acquired by the subsidiaries
are not treated as real estate owned by the Partnership.
The Partnership recognizes its share of the subsidiaries'
taxable income (which is net of interest expense on the
participating mortgage loans which are still outstanding).
For tax purposes, the Partnership also continues to
recognize taxable interest income on its loans. The
policies used by the subsidiaries to account for property
operations for tax reporting purposes differ from those used
by the Partnership for financial reporting purposes as
follows: (a) depreciation is calculated using accelerated
methods, (b) rental income is recognized based on the
payment terms in the applicable leases, and (c) write-downs
for impairments of real estate and the participating
mortgage loan are not deductible. In addition, the
Partnership's offering costs are treated differently for tax
and financial reporting purposes. The tax basis of the
Partnership's assets and liabilities is approximately $57
million higher than the amounts reported for financial
statement purposes at December 31, 1997.
The Financial Accounting Standards Board ("FASB") has
recently issued several new accounting pronouncements.
Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of
comprehensive income and its components. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosure about products and services, geographic areas,
and major customers. These two standards are effective for
the Partnership's 1998 financial statements, but the
Partnership does not believe that they will have any effect
on the Partnership's computation or presentation of net
income or other disclosures.
The implementation in 1997 of FASB Statement No. 128,
"Earnings per Share" and Statement No. 129, "Disclosure of
Information about Capital Structure" effective for the
Partnership's 1997 year-end financial statements did not
have any impact on the Partnership's financial statements.
3. Partnership Agreement
The Partnership Agreement provides that net cash flow, as
defined, will be paid 90% to the Limited Partners and 10% to
the General Partners. Pursuant to the Agreement, $1,239,345
of the General Partners' share of such net cash flow
distributable to them through December 31, 1990 was
deferred, subject to receipt by the Limited Partners of an
8% annual return on their invested capital.
Sale or financing proceeds will be distributed, to the
extent available: first, 97% to the Limited Partners and 3%
to the General Partners until the Limited Partners receive a
return of their invested capital plus an amount sufficient
to provide a 10% cumulative annual return thereon; second,
100% to the General Partners until they have received the
amount of any net cash flow previously deferred and not
distributed; and third, 85% to the Limited Partners and 15%
to the General Partners.
Taxable income generally will be allocated to the partners
in proportion to the distribution of distributable cash or
sale or financing proceeds, as the case may be (or 90% to
the Limited Partners and 10% to the General Partners if
there is no distributable cash or sale or financing
proceeds). At a minimum the General Partners must be
allocated at least 1% of the taxable income from a sale or
financing. Tax losses, if any, are allocated 90% to the
Limited Partners and 10% to the General Partners.
Distributions paid to Limited Partners for the years ended
December 31, 1997, 1996 and 1995 represent returns of
capital, calculated as the excess of cash distributed per
Unit over accumulated earnings per Unit not previously
distributed.
4. Investments in Real Estate
The locations, years of acquisition through foreclosure or
in-substance foreclosure and net carrying values of the
Partnership's properties are as follows:
<TABLE>
<CAPTION>
Year of December 31,
Property Acquisition 1997
1996
<S> <C> <C> <C>
401 East Ontario Street, Chicago, IL 1992
$ 33,651,449 $34,425,513
Deptford Crossing, Deptford, NJ 1992
10,406,611 10,652,052
Military Crossing (land), Norfolk, VA 1994
300,000 300,000
Michelson, Irvine, CA 1990 -
38,361,437
Genessee Crossing, Flint, MI 1994 -
8,081,760
Greenway Pointe, Columbia, MD 1990 -
5,340,001
Pine Ridge (land), Flint, MI 1994 134,747
134,747
$44,492,807
$97,295,510
</TABLE>
The net carrying value of the Michelson property was
reclassified to real estate held for sale at December 31,
1997. See Note 5.
401 East Ontario Street, Chicago, Illinois
In January 1994, the Partnership acquired the property, a
high rise luxury apartment building, by deed in lieu of
foreclosure.
In February 1995, the Partnership discovered cracks and
spalling on certain portions of the concrete exterior.
Reports by three independent engineering firms in 1995
confirmed that cracking and spalling of this nature were
highly unusual for a building of this age, and attributed
the problems to both defective design and construction of
the building. Permanent repair work began in September 1995
and was completed in October 1996. Total costs of this
repair work approximated $5.7 million of which $4.0 million
and $1.7 million were expended in 1996 and 1995,
respectively. In 1996, the building's primary insurance
carrier, which denied that these repairs were covered by the
Partnership's policy, paid $125,000 to the Partnership in
settlement of this matter.
In 1996, it was discovered that certain of the building's
interior walls did not meet the City of Chicago's fire code
requirements. The Partnership retained the services of
nationally recognized consultants to investigate, test, and
conduct a thorough review of all the building fire and life
safety systems. Their reports concluded that the existing
fire and life safety systems would function if called upon
to do so and the building was safe for continued occupancy,
although the reports also recommended fixing some problems
they identified with those systems. The Partnership
notified the City of Chicago of the matter, and the City
agreed with the Partnership's proposed corrections. The
Partnership notified the building's tenants of these
deficiencies. The Partnership commenced repair work during
the third quarter of 1996, and substantially completed such
repairs by September 30, 1997. The cost of these measures
was approximately $3.6 million, of which approximately $2.75
million and $0.85 million were incurred in 1997 and 1996,
respectively. In addition, a rent concession was offered to
the residents in order to maintain occupancy. Such
concessions were discontinued during the third quarter of
1997. The building's insurance carriers were notified of
the repairs to the fire and life safety systems, and the
Partnership added this matter to the litigation it had
initiated against those it deemed responsible for the
defects in the design and construction of the building.
The Partnership incurred legal fees of approximately
$425,000, $425,000 and $215,000 in 1997, 1996 and 1995,
respectively, in connection with the litigation. In March
1998, the Partnership received $1.2 million pursuant to a
settlement with the architect and engineer of the property.
The Partnership is continuing its litigation against the
general contractor and others.
The property is subject to a first mortgage loan. See Note
7.
Deptford Crossing, Deptford, New Jersey
In 1993, the Partnership acquired the property, a community
shopping center, as a result of a transfer of ownership
interests in lieu of foreclosure.
Because of continuing weakness in the Deptford, New Jersey
retail market, and the Partnership's belief that such
weakness would persist for several years, in the third
quarter of 1995, the Partnership concluded that the property
was impaired, and recorded a loss on impairment of the
property of approximately $6,931,000.
The property was subject to a first mortgage loan which was
repaid in December 1997. See note 7.
An affiliate of Realty manages the property.
Greenway Pointe, Columbia, Maryland
In 1990, the Partnership acquired Greenway Pointe, which
consisted of three office/research and development buildings
and land from the borrower, for an amount equal to the then-
outstanding loan balance. An affiliate of Realty managed
the property.
On November 14, 1997, the Partnership sold the property to
an unaffiliated party for a negotiated sale price of
$11,050,000. The proceeds from the sale, net of closing
costs, were approximately $10.6 million, and were
distributed 100% to the Limited Partners in December 1997.
The Partnership recognized a gain on this sale of
approximately $5.2 million, which was allocated 100% to
Limited Partners in accordance with the Partnership
Agreement. Net income and cash flow from operations,
excluding the effect of the sale, for the year ended
December 31, 1997 were approximately $250,000 and $780,000,
respectively.
Genessee Crossing and Miscellaneous Land Parcels
The Genessee Crossing shopping center and miscellaneous land
parcels in Flint, MI and Norfolk, VA were acquired in 1994
in settlement of loans made by the Partnership to their
owners.
The Partnership's mortgage note payable secured by the
Genessee Crossing shopping center matured in May 1997. The
Partnership was unable to refinance the loan without making
an additional equity investment in the property, and
determined that in light of its estimate of the property's
market value such an additional investment would not be in
the Partnership's best interest. As a result, the property
was foreclosed upon in 1997, and in March 1998, the lender
took final possession of the property. Since the amount of
the mortgage note payable ($8,590,000) exceeded the net book
value of the property (approximately $8,040,000), the
Partnership recognized an extraordinary gain on the
extinguishment of debt (approximately $550,000) in 1997.
An affiliate of the Partnership managed this property.
Real Estate Sold in 1995
In 1995, the Partnership sold the Hampton Village Centre,
Midway Crossing and Farmington Crossroads shopping centers
(the "1995 Shopping Centers"), for a negotiated sales price
of approximately $58,250,000. The Partnership recognized a
gain of approximately $3,334,000 from this sale.
At closing, a portion of the sales proceeds were used to
prepay the existing mortgages encumbering Hampton Village
Centre and Farmington Crossroads, secured borrowings under
two bank lines of credit and a loan from an affiliate.
After reserves relating to the cost of repairs of the
exterior walls of the 401 East Ontario Street property, the
Partnership distributed approximately $6.4 million to the
Limited Partners in January 1996.
The aggregate net income and cash flow from operations from
the shopping centers sold for the year ended December 31,
1995 were approximately $1,870,000 and $2,550,000,
respectively. Interest expense relating to the loans
secured by the shopping centers was approximately
$3,600,000.
5. Real Estate Held for Sale
Michelson, Irvine, California
The property, which consists of three office buildings, is
owned by a subsidiary partnership of DW Michelson Associates
("DW Michelson"), a general partnership which is owned
50.81% by the Partnership and 49.19% by Dean Witter Realty
Yield Plus II, L.P. ("Yield Plus II"), an affiliated
partnership.
An affiliate of the developer of the property is obligated
to DW Michelson on two promissory notes which originated in
1991 totaling approximately $1.1 million. The notes are due
December 31, 1999, bear interest at 8.5% per annum and
require monthly payments of approximatley $15,000. Because
of the uncertainty of their realization, the principal
amounts of these notes were not recognized in the financial
statements. Payments of the promissory notes are included in
other income when received.
In December 1997, DW Michelson entered into an agreement
with an affiliate of the property's developer to sell the
property and the two promissory notes, for approximately $64
million, the Partnership's share of which is approximately
$32.5 million. Subsequently, the developer assigned its
right to purchase the property to an unaffiliated party.
Closing is expected to occur in April 1998.
Net income and cash flow from operations from this property
for the year ended December 31, 1997 were approximately
$965,000 and $1,947,000, respectively.
An affiliate of Realty manages the property.
6. Investment in Unconsolidated Partnership and
Participating Mortgage
Loan
One Congress Street, Boston, Massachusetts
The Partnership and Yield Plus II (collectively the
"Lender") made a $59.2 million participating second mortgage
loan on the One Congress Street building (the "Loan") to
GCGA. The Loan is due in 2001. Base interest was
originally payable at 8% and the first $250,000 of net
revenues in any calendar year from the property was payable
as additional interest. The Lender also owned a 58%
interest in adjusted net revenue and capital proceeds
generated by the property. The property is subject to a
first mortgage loan.
In 1991, one of the general partners of the general partner
of GCGA filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. In 1996, as part of a reorganization,
control over this general partner's interest in the property
was transferred to a trustee in bankruptcy.
In October 1996, GCGA defaulted on the Loan by failing to
timely pay its debt service. Thereafter, the Lender
accelerated the Loan and attempted to take possession of the
property. On October 15, 1996, GCGA filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code.
During the bankruptcy period, GCGA remained current on its
debt service payments to its first mortgage lender and the
property's real estate taxes were paid.
On October 27, 1997, the Lender entered into a settlement
agreement with GCGA (the "Agreement"). As part of the
Agreement, a new corporation, which is jointly owned by the
Partnership (58%) and Yield Plus II (42%) became the sole
general partner of GCGA (the "New General Partner"), with an
aggregate 19.81% ownership interest in the property. The
Partnership and Yield Plus II have agreed to make all
decisions concerning the property jointly. The Lender has
retained an affiliate of GCGA `s original general partner as
property manager.
The Agreement also provides the following:
(a) as a result of their interests in the New General
Partner, the Partnership and Yield Plus II are required
to make additional loans, if needed, to fund future
tenant improvements and leasing commissions at the
property (the "New Loans") in proportion to their
ownership of the New General Partner. Any New Loans
will bear interest at 12%, payable monthly from
available cash flow generated by the property after
payment of debt service on the first mortgage loan and
certain operating escrows;
(b) the interest rate on the principal of the Loan and past
due interest thereon (aggregating approximately $12.3
million) has been increased to 10%, payable monthly
from available cash flow generated by the property
after payment of debt service on the New Loans;
(c) any future unpaid debt service will accrue interest at
10%; and
(d) the Partnership's and Yield Plus II's interest in
adjusted net revenue and capital proceeds generated by
the property was increased to 80%.
The Agreement has effectively changed the Lender from a
participating lender to GCGA into the general partner in a
partnership which owns the One Congress Street property.
The Partnership, through the New General Partner, owns an
11.5% partnership interest in GCGA and, accordingly, at
October 27, 1997, the Partnership recorded its investment at
an amount equal to the net carrying value of its investment
in the participating mortgage loan and related assets (which
carrying value was less than the estimated fair value of the
property at that date). The Partnership began, effective
October 27, 1997, to account for its investment on the
equity method (and stopped recognizing interest income from
its participating mortgage loan). Because the Partnership
and Yield Plus II control GCGA and are entitled to receive
substantially all the cash flow and other economic benefits
from the property, the Partnership recognizes its share of
the operations of GCGA.
The Partnership believed that during the period of the
bankruptcy it would be unable to collect its interest on the
Loan in full and that the bankruptcy could adversely impact
future leasing at the property. Accordingly, in 1996, the
Partnership determined that the Loan was impaired and
recorded an additional valuation allowance of $979,000 to
reduce the carrying value of the Loan to its estimated fair
value. The Partnership had previously recognized impairment
allowances of $1.7 million in 1994 and $12.9 million in
1993.
In 1997 (prior to the Agreement) and 1996, the Partnership
reserved accrued but unpaid interest on the Loan of
$1,560,000 and $660,000, respectively. At October 27, 1997,
the Partnership's total reserves against accrued but unpaid
interest approximated $2,220,000.
Summarized financial information of GCGA is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
Land and building, net $ 59,921,306 $
61,695,354
Other 8,333,385
6,836,432
Total assets $ 68,254,691 $
68,531,786
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
First mortgage loan $ 37,750,000 $
37,750,000
Second mortgage loan and accrued interest
72,148,266 65,292,000
Other liabilities 3,236,017
3,208,965
Partners' capital deficiency (44,879,592)
(37,719,179)
Total liabilities and partners' deficiency $
68,254,691 $ 68,531,786
</TABLE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
Years ended December
31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Rental $ 11,498,722 $
13,380,683 $ 13,302,513
Other 238,937
63,455 102,906
11,737,659
13,444,138 13,405,419
Expenses:
Interest on second mortgage loan 8,036,377
9,357,983 4,734,619
Other interest 3,768,876
3,816,304 3,824,393
Property operating 5,075,676
4,874,545 4,994,295
Depreciation and amortization 1,940,143
2,226,861 2,232,693
18,821,072
20,275,693 15,786,000
Net loss $ (7,083,413) $
(6,831,555) $ (2,380,581)
</TABLE>
GCGA's second mortgage loan consists of the Loan. The
accounting policies of GCGA are consistent with those of the
Partnership.
7. Mortgage Notes Payable
The Partnership's properties are subject to first mortgage
notes as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
$11,500,000 Revolving Credit Facility due
$10,566,268 $ -
December 31, 1999; secured by the 401 East Ontario
property: Interest-only payable monthly at
Partnership's election of Prime Rate or LIBOR plus
1.15% per annum.
Mortgage note due September 30, 1997; secured by -
11,136,496
the Deptford Crossing Shopping Center: Interest
at the Partnership's election of LIBOR plus .375%,
the bank's quoted variable rate plus 1.375% or the
bank's fixed rate: interest and $15,000 of
principal payable monthly through maturity.
Mortgage note due May 15, 1997; secured by the
Genessee Crossing Shopping Center: interest-only
payable monthly at 9.375% (see Note 4). -
8,590,000
$10,566,268
$19,726,496
</TABLE>
The fair value of the mortgage notes payable are
approximately equal to their carrying values. The fair
value is estimated by discounting future principal and
interest payments using current lending rates and market
conditions for instruments with similar maturities and
credit quality.
The mortgage note securing the Deptford Crossing property,
originally maturing in March 1996, was modified in November
1995. As part of the modification, the maturity of the note
was extended until March 1997, with an option, which was
exercised, to extend the maturity to September 1997, and the
semiannual principal payments of $53,910 were revised to
monthly principal payments of $15,000, plus additional
quarterly principal payments equal to excess cash (as
defined in the refinancing agreement). As part of the
original loan agreement, the Partnership had provided a $5
million letter of credit, secured by Partnership cash
reserves, to the lender to secure repayment. As part of the
restructuring, $4.5 million of the cash reserves were used
to repay principal and $500,000 was used to establish an
escrow account. Approximately $132,000 of the escrow
account was released to the Partnership to fund capital
expenditures at the property in 1996.
When the Deptford mortgage note matured in September 1997,
the lender agreed to temporarily forebear all rights and
remedies provided in the loan agreement if the Partnership
would avoid further default provisions in the loan
agreement, pay monthly debt service equal to net cash flow
from operations of the related property and reimburse the
lender for all of its expenses caused by the forbearance.
In December 1997, the Partnership borrowed $10,566,268 under
the revolving credit facility to repay the Deptford mortgage
note. At December 31, 1997, the interest rate on this
borrowing (at LIBOR plus 1.15%) was 7.06%.
8. Leases
Minimum future rentals under noncancellable operating leases
at the Deptford Crossing shopping center as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
1998 $1,413,758
1999 1,423,239
2000 1,394,940
2001 1,340,837
2002 334,318
Thereafter 290,404
Total $6,197,496
</TABLE>
The Partnership has determined that all leases relating to
the shopping center are operating leases. These leases
range in term from one to ten years, and generally provide
for fixed minimum rent with expense reimbursement clauses.
9. Related Party Transactions
An affiliate of Realty provided property management services
for four properties in 1997, 1996 and 1995, including the
Genessee Crossing and Greenway Pointe properties while they
were owned by the Partnership. The Partnership paid the
affiliate property management fees (included in property
operating expenses) of approximately $220,000, $235,000 and
$247,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
Realty performs administrative functions, and processes
certain investor and tax information on behalf of the
Partnership. For the years ended December 31, 1997, 1996
and 1995, Realty was reimbursed approximately $391,000,
$387,000 and $445,000, respectively, for these services
(included in general and administrative expenses).
As of December 31, 1997, Realty and its affiliate were owed
$49,000 for these services, which is included in accounts
payable and other liabilities.
In 1991, the Partnership borrowed funds from an affiliate of
Realty to fund investments in participating mortgage loans
and capital expenditures. Interest expense, which was
calculated using the prime rate, was $154,491 in 1995. The
loan was repaid in December 1995 from the proceeds from the
sale of the 1995 Shopping Centers.
10. Litigation
Various public partnerships sponsored by Realty (including
the Partnership and its Managing General Partner) are
defendants in purported class action lawsuits pending in
state and federal courts. The complaints allege a number of
claims, including breach of fiduciary duty, fraud and
misrepresentation and related claims, and seek compensatory
and other damages and equitable relief. The defendants
intend to vigorously defend against these actions. It is
impossible to predict the effect, if any, the outcome of
these actions might have on the Partnership's financial
statements.
11.Distribution after Year-end
On January 28, 1998, the Partnership paid a cash
distribution of $.124 per Unit. The total distribution was
$1,227,596, with $1,104,836 distributed to the Limited
Partners and $122,760 distributed to the General Partners.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and has no
directors or officers.
The directors and executive officers of the Managing General
Partner are as follows:
Position with the
Name Managing General Partner
William B. Smith Chairman of the Board of
Directors
E. Davisson Hardman, Jr. President and Director
Lawrence Volpe Controller and Director
Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the
next annual meeting of the Shareholders of the Managing
General Partner or until their successors are elected and
qualify. Each of the officers has been elected to serve
until his successor is elected and qualifies.
William B. Smith, age 54, has been a Managing Director of
Morgan Stanley and co-head of Morgan Stanley Realty
Incorporated since 1997, and a Managing Director of Dean
Witter Realty Inc., which he joined in 1982. He is an
Executive Vice President of Dean Witter Reynolds Inc.
E. Davisson Hardman, Jr., age 48, has been a Managing
Director of Morgan Stanley Asia, Ltd. since 1997, and is a
Managing Director of Dean Witter Realty Inc., which he
joined in 1982.
Lawrence Volpe, age 50, is a Director and the Controller of
Dean Witter Realty Inc. He is a Senior Vice President and
Controller of Dean Witter Reynolds Inc., which he joined in
1983.
Ronald T. Carman, age 46, is a Director and the Secretary of
Dean Witter Realty Inc. He is an Assistant Secretary of MWD
and a Senior Vice President and Associate General Counsel of
Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing
persons.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash
distributions, when and as cash distributions are made to
the Limited Partners, and a share of taxable income or tax
loss. Descriptions of such distributions and allocations
are in Item 5 above. The General Partners received cash
distributions totalling $514,799, $534,587 and $593,996
during the years ended December 31, 1997, 1996 and 1995,
respectively. In 1996, the General Partners deferred
distribution of their share of the sales proceeds from the
December 1995 sale of three shopping centers, and, in 1997,
the General Partners deferred distribution of their share of
the proceeds from the sale of the Greenway Pointe property.
The General Partners and their affiliates were paid certain
fees and reimbursed for certain expenses. Information
concerning such fees and reimbursements is contained in Note
9 to the consolidated financial statements in Item 8 above.
The directors and executive officers of the Partnership's
Managing General Partner received no renumeration from the
Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) No person is known to the Partnership to be the
beneficial owner of more than five percent of the Units.
(b) The executive officers and directors of the Managing
General Partner own the following Units as of March 17,
1998:
(3)
Amount
and Nature of
(1) (2) of Beneficial
Title of Class Ownership Name of
Beneficial Owner Ownership
Limited Partnership All directors and executive
*
Interests officers of the Managing
General Partner, as a group
____________________
* Own, by virtue of ownership of limited partnership
interests in the Associate General
Partner, less than 1% of the Units of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their being partners of a limited partnership
which is the limited partner of the Associate General
Partner, certain current and former officers and directors
of the Managing General Partner also own indirect general
partnership interests in the Partnership. The Partnership
Agreement of the Partnership provides that cash
distributions and allocations of income and loss to the
General Partners shall be distributed or allocated 50% to
the Managing General Partner and 50% to the Associate
General Partner. The General Partners' share of cash
distributions and income or loss is described in Item 5
above.
All of the outstanding shares of common stock of the
Managing General Partner are owned by Dean Witter Realty
Inc., a Delaware corporation which is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. The general
partner of the Associate General Partner is Dean Witter
Realty Yield Plus Inc., which is a wholly-owned subsidiary
of Dean Witter Realty Inc. The limited partner of the
Associate General Partner is LSYP 87, L.P., a Delaware
limited partnership. Certain current and former officers
and directors of the Managing General Partner are partners
of LSYP 87, L.P. Additional information with respect to the
directors and executive officers and compensation of the
Managing General Partner and affiliates is contained in
Items 10 and 11 above.
The 401 East Ontario Street property was developed by a
joint venture between a third party developer and an entity
comprised of former and current Realty executives, several
of whom are former or current executive officers of the
Managing General Partner. In January 1994, the Partnership
obtained ownership of the property by deed-in-lieu of
foreclosure.
The Hampton Village Centre property was developed by Hampton
Crossing Associates, a joint venture between the Partnership
and an entity comprised of former and current Realty
executives, several of whom are former or current executive
officers of the Managing General Partner. In the first
quarter of 1994, the Partnership indirectly obtained
ownership of all the partnership interests in Hampton
Crossing Associates and, in 1995, the underlying property
was sold to an unrelated third party.
The One Congress Street property was developed by a
partnership between a Maryland-based developer and an entity
comprised of former Realty executives, some of whom were
formerly executive officers of the Managing General Partner.
This entity withdrew as a partner of the borrower in
September 1993, so the borrower partnership was controlled
solely by the Maryland-based developer until control of the
borrower was transferred to the Partnership and Yield Plus
II in 1997.
The General Partners and their affiliates were paid certain
fees and reimbursed for certain expenses. Information
concerning such fees and reimbursements is contained in Note
9 to the Consolidated Financial Statements in Item 8 above.
The Partnership believes that the payment of fees and the
reimbursement of expenses to the General Partners and their
affiliates are on terms as favorable as would be obtained
from unrelated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ONE FORM
8-K
(a) The following documents are filed as part of this
Annual Report:
1. Financial Statements (see Index to Financial
Statements filed as part of Item 8 of this Annual
Report).
2. Financial Statement Schedules (see Index to
Financial Statements filed as part of Item 8 of
this Annual Report).
3. Exhibits
(3)(a) Amended and Restated Agreement of
Limited Partnership dated as of April 29, 1987 set
forth in Exhibit A to the Prospectus included in
Registration Statement Number 33-11648 is
incorporated herein by reference.
(3)(b) Certificate of Limited Partnership dated as of April 29, 1987
incorporated by reference in Registration Statement Number 33-11648 is
incorporated herein by reference.
(4)(a) Amended and Restated Agreement of Limited Partnership dated as
of April 29, 1987 set forth in Exhibit A to the Prospectus included in
Registration Statement Number 33-11648 is incorporated herein by
reference.
(4)(b)Certificate of Limited Partnership dated as of April 29, 1987
incorporated by reference in Registration Statement Number 33-11648 is
incorporated herein by reference.
(10)(a) Partnership Agreement for DW Michelson Associates dated March
14, 1988. Incorporated by reference to Exhibit 10(a) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(10)(b) First Mortgage Promissory Note, dated April 26, 1989, between
the Government Center Garage Realty Trust (Maker) and Dean Witter
Realty Yield Plus, L.P. (Holder) was filed as Exhibit to Amendment No.
2 to Current Report on Form 8-K on April 26, 1989 and is incorporated
herein by reference.
(10)(c) Construction Loan Agreement, dated April 26, 1989, between
Government Center Garage Realty Trust, as Borrower and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty Yield Plus II, L.P., as
Lender was filed as Exhibit to Amendment No. 2 to Current Report on
Form 8-K on April 26, 1989 and is incorporated herein by reference.
(10)(d)Intercreditor Agreement among Dean Witter Realty Yield Plus,
L.P., Dean Witter Realty Yield Plus II, L.P., and Realty Management
Services Inc. dated as of April 26, 1989 was filed as Exhibit to
Amendment No. 2 to Current Report on Form 8-K on April 26, 1989 and is
incorporated herein by reference.
(10)(e)First Amendment to Construction Loan Agreement dated October
12, 1989 between Government Center Garage Realty Trust, as Borrower
and Dean Witter Realty Yield Plus, L.P. and Dean Witter Realty Yield
Plus II, L.P., as Lender. Incorporated by reference to Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
(10)(f)Amended and Restated Construction Loan/Office Loan Promissory
Note dated October 12, 1989 between Government Center Garage Realty
Trust (Maker) and Dean Witter Realty Yield Plus, L.P. (Holder).
Incorporated by reference to Exhibit 10(f) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
(10)(g)Second Amendment to Construction Loan Agreement dated June 22,
1990 between Government Center Garage Realty Trust, as Borrower and
Dean Witter Realty Yield Plus, L.P. and Dean Witter Realty Yield Plus
II, L.P., as Lender. Incorporated by reference to Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
(10)(h)First Amendment to Amended and Restated Construction
Loan/Office Loan Promissory Note dated June 22, 1990 between
Government Center Garage Realty Trust (Maker) and Dean Witter Realty
Yield Plus, L.P. (Holder). Incorporated by reference to Exhibit 10(h)
to Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.
(10)(i)Supplemental Loan Agreement dated September 20, 1993 between
Government Center Garage Realty Trust, as Borrower and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty Yield Plus II, L.P., as
Lender. Incorporated by reference to Exhibit 10(i) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(10)(j)Second Amendment to Notes dated September 20, 1993 between
Government Center Garage Realty Trust (Maker) and Dean Witter Realty
Yield Plus, L.P. and Dean Witter Realty Yield Plus II, L.P.,
(Holders). Incorporated by reference to Exhibit 10(j) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(10)(k)Supplement and Amendment to Construction Loan Agreement dated
October 27, 1997 between Government Center Garage Realty Trust
(Borrower) and Dean Witter Realty Yield Plus, L.P. and Dean Witter
Realty Yield Plus II, L.P. (Lenders) was filed as an Exhibit to Form
8-K on October 27, 1997 and is incorporated herein by reference.
(10)(l)Third Amendment to Notes dated October 27, 1997 between
Government Center Garage Realty Trust (Maker) and Dean Witter Realty
Yield Plus, L.P. and Dean Witter Realty Yield Plus II, L.P. (Holder)
was filed as an Exhibit to Form 8-K on October 27, 1997 and is
incorporated herein by reference.
(21) Subsidiaries:
Deptford Crossing Associates, a New Jersey
limited partnership.
Hampton Crossing Associates, a Michigan
limited partnership.
DW Lakeshore Associates, an Illinois limited
partnership.
DW Columbia Gateway Associates, a Maryland
limited partnership.
DW Michelson Associates, a California limited
partnership.
DW Community Centers Limited Partnership, a
Delaware
limited partnership.
DW Maplewood Inc.
(27) Financial Data Schedule
(d) Financial Statement Schedules
1. Financial Statements of GCGA Limited
Partnership, owner of an office building/parking
garage located in Boston, Massachusettes.
<TABLE>
SCHEDULE III
DEAN WITTER REALTY YIELD PLUS, L.P.
Real Estate and Accmulated Depreciation
December 31, 1997
<CAPTION>
Initial Cost to
Partnership (A)
Building and
Description Encumbrances Land
Improvements Total
<S> <C> <C> <C> <C>
Residential Building, Chicago, IL $10,566,268 $
4,063,111 $32,936,889 $37,000,000
Shopping Center, Deptford, NJ - 6,250,094
12,041,180 18,291,274
Land, Pine Ridge, Flint, MI - 134,747
- - 134,747
Land, Military Crossing,
Norfolk, VA - 300,000 -
300,000
$10,566,268 $10,747,952
$44,978,069 $55,726,021
</TABLE>
<TABLE>
<CAPTION>
Cost Loss on
Capitalized Impairment
Subsequent to of Land
and
Description Acquisition Real Estate Land
<S> <C> <C> <C>
Residential Building, Chicago, IL $ 860,794 $ -
$4,063,111
Shopping Center, Deptford, NJ 684,873 (6,931,459)
1,770,000
Land, Pine Ridge, Flint, MI - -
134,747
Land, Military Crossing, Norfolk, VA - -
300,000
$1,545,667 $(6,931,459)
$6,267,858
</TABLE>
<TABLE>
SCHEDULE III (continued)
Gross Amount
at which Carried at End of Period (B)
<CAPTION>
Buildings and
Depreciation Date of
Description Improvements Total (c)
Construction
<S> <C> <C> <C> <C>
Residential Building, Chicago, IL $33,797,683
$37,860,794 $4,209,346 1990
Shopping Center, Deptford, NJ 10,274,688
12,044,688 1,638,076 1991
Land, Pine Ridge, Flint, MI - 134,747 -
N/A
Land, Military Crossing,
Norfolk, VA - 300,000 -
N/A
$44,072,371 $50,340,229
$5,847,422
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation
in Latest
Income
Description Date Acquired Statements is
Computed
<S> <C> <C>
Residential Building, Chicago, IL December 1992
40 years
Shopping Center, Deptford, NJ December 1992
40 years
Pine Ridge, Flint, MI June 1994 -
Military Crossing, Norfolk, VA April 1994
- -
</TABLE>
Notes:
(A)The basis in the properties at acquisition for financial
reporting purposes is the lower of net carrying value of the
original loan or estimated fair market value of the property.
Losses on foreclosure of real estate and real estate
impairment losses do not reduce the basis for federal income
tax purposes.
<TABLE>
SCHEDULE III (continued)
<CAPTION>
(B)Reconciliation of real estate owned:
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $115,682,356
$112,985,465 $174,652,851
Additions during period:
Additions 856,266
2,696,891 821,485
Foreclosure of real estate (8,540,000) -
-
Sale of real estate (8,565,176) -
(55,557,412)
Reclassificaiton to real estate held
for sale (49,093,217) -
-
Losses on impairment of real estate - -
(6,931,459)
Balance at end of period $ 50,340,229
$115,682,356 $112,985,465
1997 1996 1995
(C)Reconciliation of accumulated depreciation:
Balance at beginning of year $ 18,386,846 $
14,468,727 $ 12,098,192
Depreciation expense 3,673,145
3,918,119 4,342,062
Foreclosure of real estate (565,640) -
-
Sale of real estate (3,450,083) -
(1,971,527)
Reclassification of real estate held
for sale (12,196,846) -
-
Balance at end of period $ 5,847,422 $
18,386,846 $ 14,468,727
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEAN WITTER REALTY YIELD PLUS, L.P.
By: Dean Witter Realty Yield Plus Inc.
Managing General Partner
By: /s/E. Davisson Hardman, Jr. Date: March
27, 1998
E. Davisson Hardman, Jr.
President
By: /s/Lawrence Volpe Date: March
27, 1998
Lawrence Volpe
Controller
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
DEAN WITTER REALTY YIELD PLUS INC.
Managing General Partner
/s/William B. Smith Date: March
27, 1998
William B. Smith
Chairman of the Board of Directors
/s/E. Davisson Hardman, Jr. Date: March
27, 1998
E. Davisson Hardman, Jr.
Director
/s/Lawrence Volpe Date: March
27, 1998
Lawrence Volpe
Director
/s/Ronald T. Carman Date: March
27, 1998
Ronald T. Carman
Director
DEAN WITTER REALTY YIELD PLUS, L.P.
Year Ended December 31, 1997
Exhibit Index
Exhibit
No.
Description
(3)(a) Amended and Restated Agreement of Limited
Partnership dated as of April 29, 1987 set forth
in Exhibit A to the Prospectus included in
Registration Statement Number 33-11648 is
incorporated herein by reference.
(3)(b) Certificate of Limited Partnership dated as of
April 29, 1987 incorporated by reference in
Registration Statement Number 33-11648 is
incorporated herein by reference.
(4)(a) Amended and Restated Agreement of Limited
Partnership dated as of April 29, 1987 set forth
in Exhibit A to the Prospectus included in
Registration Statement Number 33-11648 is
incorporated herein by reference.
(4)(b) Certificate of Limited Partnership dated as of
April 29, 1987 incorporated by reference in
Registration Statement Number 33-11648 is
incorporated herein by reference.
(10)(a) Partnership Agreement for DW Michelson Associates
dated March 14, 1988. Incorporated by reference
to Exhibit 10(a) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
(10)(b) First Mortgage Promissory Note, dated April 26,
1989, between the Government Center Garage Realty
Trust (Maker) and Dean Witter Realty Yield Plus,
L.P. (Holder) was filed as Exhibit to Amendment
No. 2 to Current Report on Form 8-K on April 26,
1989 and is incorporated herein by reference.
E-1
(10)(c) Construction Loan Agreement, dated April 26, 1989,
between Government Center Garage Realty Trust, as
Borrower and Dean Witter Realty Yield Plus, L.P.
and Dean Witter Realty Yield Plus II, L.P., as
Lender was filed as Exhibit to Amendment No. 2 to
Current Report on Form 8-K on April 26, 1989 and
is incorporated herein by reference.
(10)(d) Intercreditor Agreement among Dean Witter Realty
Yield Plus, L.P., Dean Witter Realty Yield Plus
II, L.P., and Realty Management Services Inc.
dated as of April 26, 1989 was filed as Exhibit to
Amendment No. 2 to Current Report on Form 8-K on
April 26, 1989 and is incorporated herein by
reference.
(10)(e) First Amendment to Construction Loan Agreement
dated October 12, 1989 between Government Center
Garage Realty Trust, as Borrower and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty
Yield Plus II, L.P., as Lender. Incorporated by
reference to Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the year ended December
31, 1995.
(10)(f) Amended and Restated Construction Loan/Office Loan
Promissory Note dated October 12, 1989 between
Government Center Garage Realty Trust (Maker) and
Dean Witter Realty Yield Plus, L.P. (Holder).
Incorporated by reference to Exhibit 10(f) to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995.
(10)(g) Second Amendment to Construction Loan Agreement
dated June 22, 1990 between Government Center
Garage Realty Trust, as Borrower and Dean Witter
Realty Yield Plus, L.P. and Dean Witter Realty
Yield Plus II, L.P., as Lender. Incorporated by
reference to Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the year ended December
31, 1995.
(10)(h) First Amendment to Amended and Restated
Construction Loan/Office Loan Promissory Note
dated June 22, 1990 between Government Center
Garage Realty Trust (Maker) and Dean Witter Realty
Yield Plus, L.P. (Holder). Incorporated by
reference to Exhibit 10(h) to Registrant's Annual
Report on Form 10-K for the year ended December
31, 1995.
E-2
(10)(i) Supplemental Loan Agreement dated September 20,
1993 between Government Center Garage Realty
Trust, as Borrower and Dean Witter Realty Yield
Plus, L.P. and Dean Witter Realty Yield Plus II,
L.P., as Lender. Incorporated by reference to
Exhibit 10(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
(10)(j) Second Amendment to Notes dated September 20, 1993
between Government Center Garage Realty Trust
(Maker) and Dean Witter Realty Yield Plus, L.P.
and Dean Witter Realty Yield Plus II, L.P.,
(Holders). Incorporated by reference to Exhibit
10(j) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
(10)(k) Supplement and Amendment to Construction Loan
Agreement dated October 27, 1997 between
Government Center Garage Realty Trust (Borrower)
and Dean Witter Realty Yield Plus, L.P. and Dean
Witter Realty Yield Plus II, L.P. (Lenders) was
filed as an Exhibit to Form 8-K on October 27,
1997 and is incorporated herein by reference.
(10)(l) Third Amendment to Notes dated October 27, 1997
between Government Center Garage Realty Trust
(Maker) and Dean Witter Realty Yield Plus, L.P.
and Dean Witter Realty Yield Plus II, L.P.
(Holder) was filed as an Exhibit to Form 8-K on
October 27, 1997 and is incorporated herein by
reference.
(27) Financial Data Schedule
(99) Financial Statements of GCGA Limited Partnership,
owner of an office building/parking garage located
in Boston, Massachusettes.
E-3
[ARTICLE] 5
[LEGEND]
Registrant is a limited partnership which invests in real estate,
participating mortgage loans, and real estate joint ventures. In
accordance with industry practice, its balance sheet is unclassified. For
full information, refer to the accompanying audited financial statements.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 4,584,786
[SECURITIES] 0
[RECEIVABLES] 657,178
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 107,962,275<F1>
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 75,508,367<F2>
[TOTAL-LIABILITY-AND-EQUITY] 107,962,275<F3>
[SALES] 0
[TOTAL-REVENUES] 24,706,819<F4>
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 16,907,439
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 1,476,954
[INCOME-PRETAX] 6,322,426
[INCOME-TAX] 0
[INCOME-CONTINUING] 6,322,426
[DISCONTINUED] 0
[EXTRAORDINARY] 548,395
[CHANGES] 0
[NET-INCOME] 6,870,821
[EPS-PRIMARY] .75<F5>
[EPS-DILUTED] 0
<FN>
<F1>In addition to cash and receivables, total assets include net investments
in real estate of $44,492,807, real estate held for sale of $36,896,371, net
investment in unconsolidated partnership of $19,721,195, net deferred
expenses of $882,731 and other assets of $727,207.
<F2>Represents partners' capital.
<F3>Liabilities include mortgage notes payable of $10,566,268, minority
interest of $18,544,593, and accounts payable and other liabilities of
$3,343,047.
<F4>Total revenue includes rent of $17,559,416, gain on sale of real estate
of $5,242,166, interest on participating mortgage loan of $697,153, interest
on short-term investments of $178,585, equity in earnings of unconsolidated
partnership of $264,862 and other revenue of $764,637.
<F5>Represents net income per Unit of limited partnership interest.
</FN>
</TABLE>
5
GCGA LIMITED PARTNERSHIP
Financial Statements
For the year ended December 31, 1997
Independent Auditors' Report
Independent Auditors' Report
To the Partners of
GCGA Limited Partnership
We have audited the accompanying balance sheet of GCGA
Limited Partnership (the "Partnership") as of December 31,
1997 and the related statements of operations, changes in
partners' capital deficiency, 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 audit.
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 provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of GCGA
Limited Partnership as of December 31, 1997 and the results
of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
/s/ Deloitte & Touche,
LLP
New York, New York
March 24, 1998
<TABLE>
GCGA LIMITED PARTNERSHIP
Balance Sheet
December 31, 1997
<CAPTION>
Assets
<S> <C>
Real estate, at cost:
Land $
4,892,336
Building and improvements
70,951,977
75,844,313
Accumulated depreciation
(15,923,007)
59,921,306
Cash
2,117,296
Escrow deposits
772,378
Accounts receivable
4,975,179
Deferred costs, net of accumulated amortization of $465,584
258,342
Other assets
210,190
$
68,254,691
Liabilities and Partners' Capital Deficiency
Liabilities:
First mortgage loan $
37,750,000
Second mortgage loan and accrued interest
72,148,266
Note payable
2,514,255
Accounts payable and other liabilities
521,762
112,934,283
Partners' capital deficiency
(44,679,592)
$
68,254,691
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
Statement of Operations
Year ended December 31, 1997
<CAPTION>
<S>
<C>
Revenue:
Rental
$11,498,722
Interest and other
238,937
11,737,659
Expenses:
Interest
11,805,253
Property operating
3,638,939
Depreciation
1,774,048
Amortization
166,095
General and administrative
1,436,737
18,821,072
Net loss
$(7,083,413)
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
Statement of Changes in Partners' Capital Deficiency
Year ended December 31, 1997
<CAPTION>
<S>
<C>
Partners' capital deficiency at December 31, 1996
$(37,719,179)
Contributions
200,000
Distributions
(77,000)
Net loss
(7,083,413)
Partners' capital deficiency at December 31, 1997
$(44,679,592)
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
Statement of Cash Flows
Year ended December 31, 1997
<CAPTION>
<S>
<C>
Cash flows from operating activities:
Net loss
$(7,083,413)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Interest accrual on second mortgage loan in excess of cash
payments 6,856,266
Depreciation and amortization
1,940,143
Increase in operating assets:
Escrow deposits
(188,802)
Other assets
(98,627)
Accounts receivable
(36,403)
Deferred costs
(29,417)
Decrease in accounts payable and other liabilities
(92,377)
Net cash provided by operating activities
1,267,370
Cash flows from financing activities:
Partner contributions
200,000
Repayment of note payable
(80,571)
Partner distributions
(77,000)
Net cash provided by financing activities
42,429
Increase in cash
1,309,799
Cash at beginning of year
807,497
Cash at end of year $
2,117,296
Supplemental disclosure of cash paid during the year for interest
$ 4,948,987
See accompanying notes to financial statements.
</TABLE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997
1. Organization
GCGA Limited Partnership (the "Partnership") is a limited
partnership organized under the laws of the Commonwealth of
Massachusetts. The Partnership is the sole beneficiary of
the Government Center Garage Realty Trust (the "Trust")
which owns One Congress Street (the "Property"), an 11-story
structure containing approximately 246,000 square feet of
office space, 37,000 square feet of retail space and a
2,200-space parking garage, located in Boston,
Massachusetts.
Prior to October 27, 1997, the partners of the Partnership
were Government Center Garage Associates Limited Partnership
("GCA"), which owned a 1% general partnership interest and a
98% limited partnership interest, and an individual
affiliated with the developer of the Property who owned a 1%
limited partnership interest.
In October 1996, the Partnership defaulted on its second
mortgage loan by failing to timely pay its debt service.
Thereafter, the second mortgage lender (Dean Witter Realty
Yield Plus, L.P. ("Yield Plus") and Dean Witter Yield Realty
Plus II, L.P. ("Yield Plus II"), collectively, the "Lender")
accelerated the loan and attempted to take possession of the
property. On October 15, 1996, the Partnership and the
Trust filed a voluntary petition for relief under Chapter 11
of Title 11 of the United States Code in the United States
Bankruptcy Court for the District of Maryland (the
"Bankruptcy Court"). While in bankruptcy, the Partnership
operated as a debtor-in-possession, whereby the Partnership
could not engage in transactions outside of the ordinary
course of business without approval of the Bankruptcy Court,
after notice and hearing.
On October 27, 1997, the Partnership entered into a
settlement agreement with the Lender (the "Agreement"). As
part of the Agreement, two new corporations, each of which
are jointly owned by Yield Plus (58%) and Yield Plus II
(42%), became the sole general partners (the "New General
Partners") of the Partnership (with an aggregate 19%
ownership interest) and GCA (with an aggregate 1% ownership
interest). Yield Plus and Yield Plus II have agreed to make
all decisions concerning the Partnership and its property
jointly, and retain an affiliate of the Partnership's
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
1. Organization (continued)
original general partner as property manager. As part of
the Agreement, the second mortgage loan was also
restructured (see Note 4).
Pursuant to the Agreement, GCA's limited partnership
interest in the Partnership was reduced to 81%.
2. Summary of Significant Accounting Policies
The Partnership's records are maintained on the accrual
basis of accounting for financial reporting and tax
purposes. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Real estate and related improvements are recorded at cost
less accumulated depreciation. Cost includes land and
improvements, direct construction costs, indirect project
costs, and carrying costs, including real estate taxes,
interest and loan costs incurred during the construction
period. Depreciation is recorded on the straight-line
method. Repairs are expensed.
Cash and cash equivalents consist of cash and highly liquid
investments with maturities, when purchased, of three months
or less.
At least annually, and more often if circumstances dictate,
the Partnership evaluates the recoverability of the net
carrying value of the Property and any related assets. As
part of this evaluation, the Partnership assesses, among
other things, whether there has been a significant decrease
in the market value of the Property. If events or
circumstances indicate that the net carrying value of the
Property may not be recoverable, the expected future net
cash flows from the Property are estimated for a period of
approximately five years (or a shorter period if the
Partnership expects that the Property may be disposed of
sooner), along with estimated sales proceeds at the end of
the period.
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
If the total of these future undiscounted cash flows were
less than the carrying amount of the Property, the Property
would be written down to its fair value as determined (in
some cases with the assistance of outside real estate
consultants) based on discounted cash flows, and a loss on
impairment recognized by a charge to earnings.
Because the determination of fair value is based upon
projections of future economic events such as property
occupancy rates, rental rates, operating cost inflation and
market capitalization rates which are inherently subjective,
the amounts ultimately realized at disposition may differ
materially from the net carrying value as of December 31,
1997. The cash flows used to evaluate the recoverability of
the assets and to determine fair value are based on good
faith estimates and assumptions developed by the New General
Partners. Unanticipated events and circumstances may occur
and some assumptions may not materialize; therefore actual
results may vary from the estimates and the variances may be
material. The Partnership may provide write-downs, which
could be material, in subsequent years if real estate
markets or local economic conditions change.
Deferred expenses primarily consist of origination fees in
connection with the mortgage loans which are amortized over
the applicable loan terms. In 1997, a fully amortized
leasing commission (with an original cost of $2,300,726) was
written off.
Rental income is accrued on a straight-line basis over the
terms of the leases. Accruals in excess of amounts payable
by tenants pursuant to their leases (resulting from rent
concessions or rents which periodically increase over the
term of a lease) are recorded as receivables and included in
other assets.
No provision for income taxes has been made in the financial
statements, since the liability for such taxes is that of
the partners rather than the Partnership.
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
The accounting policies used for tax reporting purposes
differ from those used for financial reporting as follows:
(a) depreciation is calculated using accelerated methods and
(b) rental income is recognized based on the payment terms
in the applicable leases. The tax basis of the
Partnership's assets and liabilities is approximately $11.9
million lower than the amounts reported for financial
statement purposes at December 31, 1997.
The Financial Accounting Standards Board ("FASB") has
recently issued several new accounting pronouncements.
Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of
comprehensive income and its components. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosure about products and services, geographic areas,
and major customers. These two standards are effective for
the Partnership's 1998 financial statements, but the
Partnership does not believe that they will have any effect
on the Partnership's computation or presentation of net
income or other disclosures.
The implementation in 1997 of FASB Statement No. 128,
"Earnings per Share" and Statement No. 129, "Disclosure of
Information about Capital Structure" effective for the
Partnership's 1997 year-end financial statements did not
have any impact on the Partnership's financial statements.
3. Partnership Agreement
The Partnership Agreement and subsequent amendments
(the "Agreement") provide that net cash flow, as defined,
generally will be paid to the partners pro rata, in
accordance with their partnership interests.
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
3. Partnership Agreement (continued)
Net capital proceeds arising from a transaction involving
the disposition of all or substantially all the beneficial
interest in the Trust or property or involving the
liquidation of the Partnership shall be distributed in
accordance with the partners capital accounts, as adjusted,
pursuant to the Agreement.
4. Mortgage Loans Payable
The Trust has a $37,750,000 first mortgage loan payable to a
major insurance company. The loan requires monthly payments
of interest only, payable at 9.39% and matures November 1,
2001. The Partnership incurred and paid interest expense on
this loan of $3,544,725 in 1997.
The Trust also has a participating second mortgage loan
payable to the Lender which is due in 2001. Prior to
October 27, 1997, principal of the loan was $59,200,000,
base interest was payable monthly at 8% and the first
$250,000 of net revenues in any calendar year from the
property was payable as additional interest. The Lender
also owned a 58% interest in adjusted net revenues and
capital proceeds generated by the property.
The Agreement restructured the second mortgage loan as
follows:
(a) Any New Loans (the "New Loans") made by the New General
Partners will bear interest at 12%, payable monthly
from available cash flow generated by the property
after payment of debt service on the first mortgage
loan and certain operating escrows;
(b) the interest rate on the principal and past due
interest on the second mortgage loan (aggregating
approximately $12.3 million) has been increased to 10%,
payable monthly from available cash flow generated by
the property after payment of debt service on any New
Loans;
(c) any future past due debt service will accrue
interest at 10%; and
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
4. Mortgage Loans Payable (continued)
(d) Yield Plus' and Yield Plus II's interest in adjusted
net revenue and capital proceeds generated by the
property was increased to 80%.
The Partnership incurred interest expense on the second
mortgage loan of $8,036,377 in 1997.
The fair values of the first and second mortgage loans
payable are approximately equal to their carrying values.
The fair values are estimated by discounting future
principal and interest payments using current lending rates
and market conditions for instruments with similar
maturities and credit quality.
5. Note Payable
At the inception of the parking garage lease with Kinney
System of Sudbury St., Inc., a wholly-owned subsidiary of
Kinney System, Inc., the lessee granted a $3,000,000 loan to
the Partnership, which is payable in monthly payments of
$26,350, which includes interest at 10 percent per annum.
The lease provides for supplemental rental payments to the
Partnership of $26,350 per month to cover loan principal and
interest payments. These amounts are included in rental
income. The lease also provides that the unpaid principal
of the loan may be forgiven if certain conditions described
in the note agreement are met. Interest expense incurred on
this loan in 1997 was approximately $204,000.
6. Leases
Minimum future rental income under noncancelable operating
leases as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31 Future minimum rentals
<S> <C> <C>
1998 8,953,590
1999 9,450,442
2000 9,514,015
2001 9,891,276
2002 9,956,770
Thereafter 13,223,129
$60,989,222
</TABLE>
GCGA LIMITED PARTNERSHIP
Notes to Financial Statements
6. Leases (continued)
The Partnership has determined that all leases relating to
its properties are operating leases. Lease terms range from
nine to twenty years.
7. Related-Party Transactions
The Property is managed by an affiliate of its developer.
During 1997, the affiliate earned $123,597 in management
fees. This expense is included in property operating
expenses.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Partners
GCGA Limited Partnership (Debtor-in-Possession):
We have audited the accompanying balance sheets of GCGA
Limited Partnership (debtor-in-possession) as of
December 31, 1996 and 1995, and the related statements of
operations, changes in partners' deficit, and cash flows for
each of the years in the three-year period ended
December 31, 1996. 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.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of GCGA Limited Partnership (debtor-in-possession)
as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Partnership will continue as a going
concern. As discussed in note 1, the Partnership filed a
voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States
Bankruptcy Court (the Bankruptcy Court) on October 15, 1996.
As discussed in note 4 to the financial statements, the
Partnership's first and second mortgage loans are in
default. As discussed in note 5 to the financial
statements, substantially all of the leases on office and
retail space will expire in 1997. These matters raise
substantial doubt about the PartnershipOs ability to
continue as a going concern. The Partnership is currently
operating its business as a debtor-in-possession under the
jurisdiction of the Bankruptcy Court, and continuation of
the Partnership as a going concern is contingent upon its
ability to formulate a plan of reorganization that will be
confirmed by the Bankruptcy Court, including restructuring
its existing long-term debt arrangements. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
KPMG Peat Marwick, LLP
/s/KPMG Peat Marwick, LLP
Wasington, D.C.
April 18, 1997 except for noteE7
which is dated October 27, 1997
<TABLE>
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Balance Sheets
December 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Real estate, at cost (notes 4 and 5):
Land $
4,892,336 $ 4,892,336
Building and improvements 70,946,012
70,934,457
Furniture and equipment 5,965
5,965
75,844,313
75,832,758
Accumulated depreciation 14,148,959
12,369,304
61,695,354
63,463,454
Cash
807,497 435,732
Escrow deposits (note 1) 583,576
75,673
Accounts receivable - tenants (note 2) 4,938,776
5,432,364
Deferred costs, net of accumulated amortization of
$2,600,215 in 1996 and $2,153,009 in 1995 395,020
838,803
Due from general partner 97,379
119,976
Other assets 14,184
17,625
$ 68,531,786 $
70,383,627
Liabilities and Partners' Deficit
Liabilities:
First mortgage loan (note 4) $ 37,750,000 $
37,750,000
Second mortgage loan (note 4) 59,200,000
59,200,000
Note payable - Kinney System of Sudbury St., Inc. (note 5)
2,594,826 2,631,260
Related party loan (note 6) -
219,094
Deferred rental revenue 102,981
257,454
Accounts payable and accrued expenses 6,603,158
813,443
Total liabilities 106,250,965
100,871,251
Partners' deficit (note 3) (37,719,179)
(30,487,624)
Contingencies (notes 4 and 5)
$ 68,531,786 $
70,383,627
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C>
<C>
Revenue:
Rental (including escalation income of
$1,844,629 in 1996, $1,846,475 in 1995,
and $2,065,462 in 1994 $13,064,483
$12,986,313 $12,425,230
Supplemental rent (note 5) 316,200
316,200 316,200
Interest and other 63,455
102,906 27,595
Total revenue 13,444,138
13,405,419 12,769,025
Expenses:
Interest (notes 4 and 5) 13,174,287
8,559,012 8,430,761
Depreciation 1,779,655
1,779,558 1,779,558
Amortization 447,206
453,135 476,211
Real estate taxes 2,846,875
2,821,441 2,782,248
Utilities 734,805
737,485 656,224
General and administrative 941,627
1,081,944 1,309,469
Management fee (note 6) 351,238
353,425 282,607
Total expenses 20,275,693
15,786,000 15,717,078
Net loss $(6,831,555)
$(2,380,581) $(2,948,053)
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Statements of Changes in Partners' Deficit
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C>
<C>
Partners' deficit at December 31, 1994 $(2,270,416)
$(25,836,627) $(28,107,043)
Net loss (23,806)
(2,356,775) (2,380,581)
Partners' deficit at December 31, 1995 (2,294,222)
(28,193,402) (30,487,624)
Partner distributions (4,000)
(396,000) (400,000)
Net loss (68,316)
(6,763,239) (6,831,555)
Partners' deficit at December 31, 1996 $(2,366,538)
$(35,352,641) $(37,719,179)
See accompanying notes to financial statements.
</TABLE>
<TABLE>
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
1996
1995 1994
<S> <C> <C>
<C>
Cash flows from operating activities:
Net loss $(6,831,555)
$(2,380,581) $(2,948,053)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,226,861
2,232,693 2,255,769
Decrease (increase) in:
Escrow deposits (507,903)
21,375 196,630
Accounts receivable-tenants 493,588
377,720 (357,888)
Deferred costs (3,423)
(22,342) (434,528)
Due from general partner 22,597
(20,793) (8,293)
Other assets 3,441
(4,415) (1,148)
Increase (decrease) in:
Accounts payable and accrued expenses 5,789,715
(187,478) (89,150)
Deferred rental revenue (154,473)
(154,473) (652,010)
Net cash provided by (used in) operating
activities 1,038,848
(138,294) (2,038,671)
Cash flows from investing activities - investment in
real estate (11,555) -
(151,103)
Cash flows from financing activities:
Proceeds of second mortgage loan - 393,258
1,319,809
Proceeds of related party loan - 139,094
80,000
Repayment of related party loan (219,094) -
- -
Partner distributions (400,000) -
- -
Repayment of notes payable to Kinney Systems (36,434)
(50,310) (45,542)
Net cash provided by (used in) financing
activities (655,528)
482,042 1,354,267
Increase (decrease) in cash 371,765
343,748 (835,507)
Cash at beginning of year 435,732
91,984 927,491
Cash at end of year $ 807,497 $
435,732 $ 91,984
Supplemental disclosure of cash paid during the year
for interest $ 7,398,731 $
8,548,352 $ 8,416,486
See accompanying notes to financial statements.
</TABLE>
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
December 31, 1996, 1995, and 1994
1. Organization
GCGA Limited Partnership (the Partnership) is a limited
partnership organized under the laws of the Commonwealth of
Massachusetts. Since September 20, 1993, the partners of
the Partnership are Government Center Garage Associates
Limited Partnership (GCA), which owns a 1Epercent general
partnership interest and a 98 percent limited partnership
interest, and Richard Rubin, who owns a 1Epercent limited
partnership interest.
The Partnership is the sole beneficiary of Government Center
Garage Realty Trust (the Trust) which owns One Congress
Street (the Property), an 11-story structure containing
approximately 260,000 square feet of office and retail space
in addition to a 2,200-space parking garage, located in
Boston, Massachusetts.
On October 15, 1996, the Partnership and the Trust filed a
voluntary petition for relief under Chapter 11 ("Chapter
11") of Title 11 of the United States Code in the United
States Bankruptcy Court for the District of Maryland (the
Bankruptcy Court). The Partnership is presently operating
its business as debtor-in-possession under the jurisdiction
of the Bankruptcy Court and intends to propose a plan of
reorganization pursuant to Chapter 11. As
debtor-in-possession, the Partnership may not engage in
transactions outside of the ordinary course of business
without approval of the Bankruptcy Court, after notice and
hearing. Since the Chapter 11 filing on October 15, 1996,
the Partnership continued discussions with the holder of its
second mortgage loan relating to restructuring alternatives.
As described in note 4, the general partner in GCA filed a
voluntary petition under Chapter 11 of the Bankruptcy Code.
This constitutes a technical event of default under the
first and second mortgage loans. The lenders' remedies
include accelerating the maturity date and demanding
immediate payment of the loans.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
1. Organization (continued)
At December 31, 1996, 62 percent of the office building and
retail rental space and 100 percent of the garage space is
under lease. The current occupancy level has caused a
significant decrease in the Partnership's cash flow from
operations. As a result of the decrease in cash flow, the
Partnership was delinquent in making the October 1, 1996
payment on its second mortgage loan. Due to this
delinquency, the second mortgagor filed for receivership of
the assets of the Partnership on October 15, 1996. These
events led to the Partnership's decision to file for
protection under Chapter 11 to enable the Partnership to
restructure its financial arrangements under the
jurisdiction of the Bankruptcy Court.
The liabilities subject to compromise at October 15, 1996
are comprised primarily of the second mortgage loan and
related accrued interest. These liabilities and other
operating liabilities are subject to adjustment in the
reorganization process. Under Chapter 11, actions to
enforce certain claims against the Partnership are stayed if
the claims arose, or are based on events that occurred, on
or before the petition date of October 15, 1996. The
ultimate terms of settlement of these liabilities and claims
will be determined in accordance with a plan of
reorganization which requires the approval of impaired
prepetition creditors and confirmation by the Bankruptcy
Court. Other liabilities may arise or be subject to
resolution of claims for contingencies and other disputed
amounts. The ultimate resolution of such liabilities will
be part of reorganization.
In conjunction with the Partnership's bankruptcy filing,
certain utility companies required cash deposits for
continued service to the building. Escrow deposits as of
December 31, 1996 include $70,310 in funds held by these
utility companies.
The accompanying financial statements have been presented on
the basis that the Partnership is a going concern, which
contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As a
result of the Chapter 11 filing and circumstances relating
to this event, realization of assets and
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
1. Organization (continued)
satisfaction of liabilities is subject to uncertainty. A
plan of reorganization could materially change the amounts
reported in the accompanying financial statements, which may
be necessary as a consequence of a plan of reorganization.
The ability of the Partnership to continue as a going
concern is dependent on, among other things, confirmation of
an acceptable plan of reorganization.
See the subsequent event in note 7.
2. Summary of Significant Accounting Policies
Basis of Accounting
The Partnership uses the accrual basis of accounting for
financial reporting purposes in conformity with generally
accepted accounting principles. The preparation of
financial statements in conformity with generally accepted
accounting principles requires the use of management
estimates that affect certain reported amounts and
disclosures. Actual results could differ from those
estimates.
Real Estate
Real estate and related improvements are recorded at cost
less accumulated depreciation and amortization. Cost
includes land and improvements, direct construction costs,
indirect project costs, and carrying costs, including real
estate taxes, interest and loan costs incurred during the
construction period.
Depreciation is recorded on the straight-line basis over the
estimated useful lives of the assets: building and building
improvements, 40 years; furniture and equipment, 15 years.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
Rental Revenue
Rental revenue is recognized on a straight-line basis over
the life of the respective leases. The cumulative excess of
rental revenue recognized on a straight-line basis over
contract rents is included in accounts receivable. As of
December 31, 1996 and 1995, such amounts included in
accounts receivable were $4,434,976 and $4,722,299,
respectively. The cumulative excess of contract rents over
rental revenue recognized on a straight-line basis is
recorded as deferred rental revenue.
Deferred Costs
Loan costs related to the mortgage payable have been
capitalized and are being amortized over the term of the
mortgage.
Lease commission expenses incurred have been capitalized and
are amortized on a straight-line basis over the lives of the
respective leases.
Leasehold improvements have been capitalized and are
amortized on a straight-line basis over the lives of their
respective leases.
Income Taxes
No provision for income taxes has been made in the financial
statements because the partners report any income or loss
for tax purposes on their tax returns.
3. Partnership Agreement
The Partnership Agreement and subsequent amendments
(the Agreement) provide that net cash flow, as defined in
the Agreement, generally will be paid to the partners
prorata, in accordance with each of their partnership
interests.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
3. Partnership Agreement (continued)
Net capital proceeds, as defined in the agreement, generally
will be distributed to the partners prorata in accordance
with each of their partnership interests. However, net
capital proceeds arising from a transaction involving the
disposition of all or substantially all the beneficial
interest in the Trust or property or involving the
liquidation of the Partnership shall be distributed in
accordance with the partners capital accounts, as adjusted,
pursuant to the Agreement.
4. Mortgage Loans Payable
In October 1989, the Trust obtained a 9.39 percent fixed
rate first mortgage loan for $37,750,000 from a major
insurance company. The loan requires monthly payments of
interest only and matures November 1, 2001. Interest
expense incurred on this loan was $3,544,725 in 1996, 1995
and 1994.
In April 1989, the Trust also obtained a $57.7 million
second mortgage construction and permanent loan commitment
from Dean Witter Realty Yield Plus, L. P. and Dean Witter
Realty Yield Plus II, L.P. (the Lenders). Subsequently, the
commitment was increased to $59.2 million to fund certain
costs incurred to accelerate the completion of the
construction.
In August 1990, the second mortgage construction and
permanent loan commitment was converted to a permanent
second mortgage loan. Base interest is payable monthly at
8 percent. The second mortgage loan matures November 1,
2001. The Partnership is delinquent on its October 1, 1996
and subsequent months interest payments. As a result, the
Partnership incurred a one-time default interest charge of
7 percent. In addition, interest is accruing at the default
rate of 13 percent beginning September 1, 1996. At
December 31, 1996 accrued interest on the second mortgage
loan amounted to $6,092,000. Interest expense incurred on
this loan for 1996, 1995 and 1994 was $9,357,983, $4,734,619
and $4,614,996, respectively.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
4. Mortgage Loans Payable (continued)
The second mortgage loan was modified on September 20, 1993.
Under the loan modification, the Lenders and the Trust
agreed to increase the amount of "Additional Interest"
payable to the Lenders under the second mortgage loan by
(i) providing for the payment of the first $250,000 of
adjusted gross receipts in any calendar year as additional
interest, and (ii) increasing the additional interest from
adjusted gross receipts and net capital proceeds of the
Property, after payment of the first $250,000, from
37 percent to 58 percent. No additional interest was due to
the Lenders at December 31, 1996, 1995 and 1994.
In conjunction with the loan modification and changes in
partnership interests on September 20, 1993, an existing
operating deficit guaranty of the former general partners
was released by the Lenders.
In August 1991, the general partner of GCA filed a voluntary
petition under Chapter 11 of the Bankruptcy Code. In
September 1993, this general partner's interest was
converted to a limited partnership interest. In June 1996,
this limited partnership interest was placed in a trust for
the benefit of the partner's creditors. The above matter
constitutes a technical event of default under the first and
second mortgage loans. Therefore, the loans may be called
at any time. See notes 1 and 7.
As a result of the partnership's reorganization proceedings,
the repayment terms of the mortgage loans payable will be
determined pursuant to a plan of reorganization confirmed by
the Bankruptcy Court. See note 7.
5. Leases
The Partnership's rental real estate consists of an 11-story
structure containing a 2,200 space parking garage and
approximately 260,000 square feet of office and retail space
available for lease. As of December 31, 1996, approximately
62 percent of the office and retail rental space and
100 percent of the garage space is under lease. The
following table
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
5. Leases (continued)
summarizes future minimum rents under noncancelable
operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year ended December 31 Future minimum rentals
<S> <C> <C>
1997 $ 7,991,683
1998 4,130,449
1999 4,335,515
2000 4,402,455
2001 4,457,757
Thereafter 8,948,779
$34,266,638
</TABLE>
The building has one tenant that comprises approximately 61
percent of the total leaseable office and retail space and
60 percent of total building cash rents paid during 1996.
This tenant's lease is scheduled to expire in 1997.
The parking garage is master-leased to Kenney System of
Sudbury St., Inc., a wholly owned subsidiary of Kinney
System, Inc., under a lease agreement which expires in
December 2003. The lease is a triple-net lease with two
five-year options at fair market value.
At the inception of the lease, the lessee granted a
$3,000,000 loan to the Partnership, which is payable in
monthly payments of $26,350, which include interest at
10 percent per annum. As of December 31, 1996 and 1995, the
balance outstanding was $2,594,826 and $2,631,260,
respectively. The lease provides for supplemental rental
payments to the Partnership of $26,350 per month to cover
loan principal and interest payments. These amounts are
recorded as supplemental rent. The lease also provides that
the unpaid principal of the loan may be forgiven if certain
conditions, as more fully described in the note agreement,
are met. Interest expense incurred on this loan for 1996,
1995, and 1994 was $271,579, $266,785, and $271,040,
respectively.
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
6. Related-Party Transactions
The Property is managed by an affiliate of the Partnership.
During 1996, 1995 and 1994, the affiliate earned $351,238,
$353,425, and $282,607, respectively, in management fees.
In November 1994, the Partnership obtained an $80,000 short-
term loan from an affiliate. This non-interest bearing loan
was repaid in January 1995. In March 1995, the Partnership
obtained a $205,000 loan from another affiliate. This loan
accrued interest at a fixed rate of 9 percent. Principal and
accrued interest on this loan were repaid in July 1996.
7. Subsequent Event
On October 27, 1997, Bankruptcy Court authorized the
dismissal of the Partnership's and the Trust's (the Debtors)
bankruptcy cases upon implementation of a Settlement
Agreement among the Debtors, the Lenders and the limited
partners of GCA. Under the terms of the Settlement
Agreement the above parties agreed to restructure the
Partnership as follows:
GCA shall withdraw as the sole general partner of the
Partnership and Richard Rubin shall withdraw as the
sole general partner of GCA.
The Lenders shall become the new general partner of the
Partnership and GCA.
The Lenders shall receive 19 percent partnership
interest in the Partnership and a one percent
partnership interest in GCA (which shall receive the
remaining 81 percent interest in the Partnership).
GCGA LIMITED PARTNERSHIP
(Debtor-in-Possession)
Notes to Financial Statements
7. Subsequent Event
Also under the terms of the Settlement Agreement, the above
parties agreed to modify the second mortgage loan as
follows:
The Lenders shall provide the Trust with an additional
$3,000,000 for costs in connection with leasing space
in the Property. Any advances would be added to the
second mortgage balance, bear interest at the fixed
rate of 12 percent per annum and be repaid out of the
first funds available from the Property's cash flows as
defined in the Settlement Agreement.
The interest rate on the existing second mortgage
balance will be changed to a fixed rate of 10 percent
per annum, but cash payments would be limited to the
available cash flow as defined in the Settlement
Agreement. Accrued but unpaid interest will be added
to principal on a monthly basis.
The Lender's interest in the cash flow of the Property
will be increased to 80 percent and the Partnership's
interest in the cash flow of the Property will be
reduced to 20 percent.
The Settlement Agreement also provides for the payment, in
full, of certain pre-petition and post-petition claims
against various debtors.
