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, 1998
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: 0-16855
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3394723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich CT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 862-7444
Securities registered pursuant to Section 12(b) of the Act:
None None
--------------------- -------------------------------------------
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest, $250 Per Unit
----------------------------------------------------
(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 the 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 ]
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit A to the Prospectus of the registrant dated September 15, 1987, filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, is
incorporated by reference in Part IV of this Form 10-K.
<PAGE>
PART I
Item 1. Business
--------
High Equity Partners L.P. - Series 88 (the "Partnership") is a
Delaware limited partnership formed as of February 24, 1987. The Partnership is
engaged in the business of operating and holding for investment previously
acquired income-producing properties, consisting of office buildings, shopping
centers and other commercial and industrial properties such as industrial parks
and warehouses. Resources High Equity, Inc., the Partnership's managing general
partner (the "Managing General Partner"), is a Delaware corporation and a
wholly-owned subsidiary of Presidio Capital Corp., a British Virgin Islands
corporation ("Presidio"). Until November 3, 1994, the Managing General Partner
was a wholly-owned subsidiary of Integrated Resources, Inc. ("Integrated").
Effective July 31, 1998, Presidio is indirectly controlled by NorthStar Capital
Investment Corp., a Maryland corporation. On November 3, 1994, Integrated
consummated its plan of reorganization under Chapter 11 of the United States
Bankruptcy Code at which time, pursuant to such plan of reorganization, the
newly-formed Presidio purchased substantially all of Integrated's assets.
Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the
associate general partner (the "Associate General Partner") on February 28, 1995
replacing Third Group Partners which withdrew as of that date. (The Managing
General Partner and the Associate General Partner are referred to collectively
hereinafter as the "General Partners.") Affiliates of the General Partners are
also engaged in businesses related to the acquisition and operation of real
estate.
The Partnership offered 400,000 units (subject to increase to
800,000) of limited partnership interest (the "Units") through Integrated
Resources Marketing, Inc., a wholly-owned subsidiary of Integrated, pursuant to
the Prospectus of the Partnership dated September 15, 1987, as supplemented by
Supplements dated August 19, 1988, April 28, 1989, July 20, 1989 and September
8, 1989 (collectively, the "Prospectus"), filed pursuant to Rules 424(b) and
424(c) under the Securities Act of 1933, as amended. The Prospectus was filed as
part of the Partnership's Registration Statement on Form S-11, Commission File
No. 33-12574 (the "Registration Statement"), pursuant to which the Units were
registered. As of the termination of the offering on September 14, 1989, the
Partnership had accepted subscriptions for 371,766 Units for an aggregate of
$92,941,500 in gross proceeds, resulting in net proceeds from the offering of
$90,153,255 (gross proceeds of $92,941,500 less organization and offering costs
of $2,788,245). All underwriting and sales commissions were paid by Integrated
or its affiliates and not by the Partnership.
In August 1990, the Managing General Partner declared a
special distribution of $16.96 per Unit, representing a return of uninvested
gross proceeds. This return of capital lowered the aggregate gross proceeds to
$86,636,349, resulting in net proceeds from the offering of $83,848,104 (gross
proceeds of $86,636,349 less organization and offering costs of $2,788,245). The
3% organization and offering costs associated with the return of the original
capital were non-refundable.
2
<PAGE>
As of March 15, 1999, the Partnership had invested
substantially all of its total adjusted net proceeds available for investment
after establishing a working capital reserve in the properties described below.
The Partnership's property investments which contributed more
than 15% of the Partnership's total gross revenues were as follows: in 1998,
Tri-Columbus, Sunrise, Livonia, and 568 Broadway represented 26%, 23%, 19% and
18% of gross revenues, respectively; in 1997, Tri-Columbus, Sunrise, Livonia,
Melrose II, and 568 Broadway represented 23%, 18%, 18%, 17% and 15% of gross
revenues, respectively; in 1996, TMR Warehouses, Sunrise, Livonia and 568
Broadway represented approximately 29%, 24%, 19%, and 16% of gross revenues,
respectively.
The Partnership owned the following properties as of March 15,
1999:
(1) TMR Warehouses. On September 15, 1988, Tri-Columbus
Associates ("Tri-Columbus"), a joint venture comprised of the Partnership, High
Equity Partners L.P. - Series 86 ("HEP-86"), and IR Columbus Corp., a
wholly-owned subsidiary of Integrated ("Columbus Corp."), purchased the fee
simple interest in three warehouses (the "TMR Warehouses") located in Columbus,
Ohio. The Partnership originally purchased a 58.68% interest in Tri-Columbus on
September 15, 1988. On June 29, 1990, the Partnership closed in escrow on the
purchase of an additional 20.66% interest in Tri-Columbus. The Partnership
purchased the additional joint venture interest from Columbus Corp. at
approximately 86% of Columbus Corp.'s original cost, pursuant to a right of
first refusal contained in the joint venture agreement. Due to Integrated's
bankruptcy, the transaction was submitted to the bankruptcy court for review,
the approval of the bankruptcy court was obtained on September 6, 1990 and the
funds were released from escrow. Purchase of this additional 20.66% interest
increased the Partnership's interest in Tri-Columbus from 58.68% to 79.34%. The
remaining 20.66% is held by HEP-86.
The TMR Warehouses are distribution and light manufacturing
facilities located in Orange, Grove City and Hilliard, all suburbs of Columbus,
Ohio and comprise 1,010,500 square feet of space in the aggregate, with
individual square footage of 583,000 square feet, 190,000 square feet and
237,500 square feet, respectively. As of January 1, 1999 and 1998, the Orange
and Grove City buildings were each 100% leased to a single tenant. In 1998
Simmons Company renewed for one year in the Grove City facility and a five year
renewal with expansion option during the initial two years of the renewal term
should be finalized during the second quarter of 1999.
As of January 1, 1999, the Hilliard property was 100% vacant
compared to 74% leased on January 1, 1998. Needed parking lot repairs were
completed in 1998 and the property is being actively marketed. The property's
location away from Interstate access is a deterrent to releasing.
The TMR Warehouses compete with numerous other warehouses in
the market area.
3
<PAGE>
(2) Melrose Crossing Shopping Center - Phase II. On February
3, 1989, the Partnership purchased the fee simple interest in Phase II of the
Melrose Crossing Shopping Center ("Melrose-Phase II"). Melrose-Phase II, located
in Melrose Park, Illinois, previously consisted of a 24,232 square foot retail
store that had been leased to Highland Appliance, located on a parcel totaling
7.02 acres. Highland Appliance vacated in January 1992. The Property was 100%
leased at January 1, 1998 and 100% vacant at January 1, 1999.
Melrose-Phase II lies to the north of Melrose Crossing on
which an 88,000 square foot Venture department store is located as well as
138,355 square feet of retail space which is owned by HEP-86. Melrose-Phase II
is situated in Melrose Park, Illinois, an older working-class neighborhood near
O'Hare Airport at the intersection of Mannheim Road and North Avenue, less than
10 miles from Chicago's Loop.
(3) Sunrise Marketplace. On February 15, 1989, the Partnership
purchased the fee simple interest in Sunrise Marketplace ("Sunrise"), a 176,765
square foot neighborhood shopping center in Las Vegas , Nevada. The center is
situated on 15.15 acres of land at the northeast corner of Nellis Boulevard and
Stewart Avenue. Sunrise was 92% leased as of January 1, 1999 compared to 93% at
January 1, 1998. There are no leases which represent at least 10% of the square
footage of the center scheduled to expire during 1999. House of Fabrics is
anticipated to renew in 12,000 square feet. Budgeted 1999 capital expenditures
include repainting the center and parking lot repairs.
The renovation of Sunrise in late 1994 positioned the center
to compete with other properties in its primary trade market and new development
has been limited to free standing buildings at strategic locations. Rental rates
have remained stable.
(4) Super Valu Stores. On February 16, 1989, the Partnership
acquired joint venture interests in four supermarkets (the "Properties") owned
by Super Valu Stores ("Super Valu"). A fee simple interest in the Properties was
acquired pursuant to a contract of sale among the seller, the Partnership and
American Real Estate Holdings Limited Partnership ("AREH"). AREH is 99% owned by
American Real Estate Partners L.P., a public partnership originally sponsored by
Integrated. At the closing, AREH and the Partnership assigned their contract
rights with respect to each of the Properties to three joint venture entities
(the "Joint Ventures"), each of which has AREH and the Partnership as a 50%
owner.
The four supermarkets, comprising an aggregate of
approximately 257,700 square feet, are located as follows: 73,000 square feet in
Gwinnett County near Atlanta, Georgia, 60,000 square feet in Indianapolis,
Indiana, 64,700 square feet in Toledo, Ohio and 60,000 square feet in Edina,
Minnesota. The first three locations are leased to Super Valu franchisees and
the fourth to Byerly's Inc., an independent retailer.
The Properties, which were substantially completed in October
1984 (Georgia), December 1988 (Minnesota), February 1983 (Indiana) and May 1988
(Ohio), have been 100% leased since completion. In 1998, the Indiana lease was
renewed for five years through August 31, 2003 and Minnesota exercised a five
year option through June 30, 2003. There are no leases which represent at least
10% of the square footage of the property scheduled to expire during 1999.
4
<PAGE>
(5) Livonia Plaza. On June 28, 1989, the Partnership purchased
a fee simple interest in Livonia Plaza, a shopping center that was completed in
December 1989, located in Livonia, Michigan.
Livonia Plaza is a 133,198 square foot neighborhood shopping
center situated on a 13.9 acre site near the intersection of Five Mile Road and
Bainbridge Avenue in Livonia, a western suburb of Detroit. In October 1996, the
Partnership signed an agreement to expand the Kroger store to 55,700 square feet
and purchased 1.77 acre of land adjacent to the center to facilitate the Kroger
expansion. The expansion was completed in 1997 and Kroger incurred the costs of
the building and parking lot construction. The Kroger lease was extended until
2017. Immediate competition for the center is a 78,000 square foot shopping
center located across the street and another nearby 75,000 square foot shopping
center.
Livonia Plaza was 95% leased as of January 1, 1999 and 100%
leased on January 1, 1998. There are no leases which represent at least 10% of
the square footage of the center scheduled to expire in 1999. Phase III of the
parking lot repair work was completed in 1998 and there are no major capital
expenditures budgeted for 1999 outside of costs anticipated in leasing the
vacant space.
(6) 568 Broadway. On February 1, 1990, the Partnership was
admitted as a third partner in a joint venture (the "Broadway Joint Venture")
with Integrated Resources High Equity Partners, Series 85, a California limited
partnership ("HEP-85"), and HEP-86 pursuant to an amended and restated joint
venture agreement. The Partnership has a 22.15% interest in the Broadway Joint
Venture. The Broadway Joint Venture holds a fee simple interest in a commercial
office building located at 568-578 Broadway, New York, New York ("568
Broadway").
568 Broadway is located in the SoHo district of Manhattan on
the northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story
plus basement and sub-basement building constructed in 1898. It is situated on a
site of approximately 23,600 square feet, has a rentable square footage of
approximately 299,000 square feet and a floor size of approximately 26,000
square feet. Formerly catering primarily to industrial light manufacturing, the
building has been converted to an office building and is currently leased to art
galleries, photography studios, retail and office tenants. The last
manufacturing tenant vacated in January 1993. The building was 100% leased as of
January 1, 1999 and January 1, 1998. There are no leases which represent at
least 10% of the square footage of the property scheduled to expire during 1999.
568 Broadway competes with other buildings in the SoHo area.
Write-downs for Impairment
- --------------------------
See Note 4 to the financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of write-downs for impairment.
5
<PAGE>
Competition
- -----------
The real estate business is highly competitive and, as
discussed more particularly above, the properties acquired by the Partnership
may have active competition from similar properties in the vicinity. In
addition, various limited partnerships have been formed by the General Partners
and/or their affiliates that engage in businesses that may compete with the
Partnership. The Partnership will also experience competition for potential
buyers at such time as it seeks to sell any of its properties.
Employees
- ---------
Services are performed for the Partnership at the properties
by on-site personnel. Salaries for such on-site personnel are paid or by
unaffiliated management companies that service the Partnership's properties.
Services are also performed by the Managing General Partner and by Resources
Supervisory Management Corp. ("Resources Supervisory"), each of which is an
affiliate of the Partnership. Resources Supervisory currently provides
supervisory management and leasing services for 568 Broadway, Sunrise, Livonia
Plaza and Melrose II and subcontracts certain management and leasing functions
to unaffiliated third parties. TMR Warehouses and the properties leased by Super
Valu are currently directly managed by Resources Supervisory.
The Partnership does not have any employees. NorthStar
Presidio Management Company LLC performs accounting, secretarial, transfer and
administrative services for the Partnership. See Item 10, "Directors and
Executive Officers of the Registrant", Item11, "Executive Compensation", and
Item 13, "Certain Relationships and Related Transactions".
Item 2. Properties
----------
A description of the Partnership's properties is contained in
Item 1 above (see Schedule III to the financial statements for additional
information with respect to the properties).
Item 3. Legal Proceeding
----------------
The Broadway Joint Venture is currently involved in litigation
with a number o present or former tenants who are in default on their lease
obligations. Several of these tenants have asserted claims or counterclaims
seeking monetary damages. The plaintiffs' allegations include, but are not
limited to, claims for breach of contract, failure to provide certain services,
overcharging of expenses and loss of profits and income. These suits seek total
damages of in excess of $20 million plus additional damages of an indeterminable
amount. The Broadway Joint Venture's action for rent against Solo Press was
tried in 1992 and resulted in a judgment in favor of the Broadway Joint Venture
for rent owed. The Partnership believes this will result in dismissal of the
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<PAGE>
action brought by Solo Press against the Broadway Joint Venture. Since the facts
of the other actions which involve material claims or counterclaims are
substantially similar, the Partnership believes that the Broadway Joint Venture
will prevail in those actions as well.
A former retail tenant of 568 Broadway (Galix Shops Inc.) and
a related corporation which is a retail tenant of a building adjacent to 568
Broadway filed a lawsuit in the Supreme Court of The State of New York, County
of New York, against the Broadway Joint Venture which owns 568 Broadway. The
action was filed on April 13, 1994. The plaintiffs alleged that by erecting a
sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and
visibility to their customers. The sidewalk shed was erected, as required by
local law, in connection with the inspection and restoration of the 568 Broadway
building facade, which is also required by local law. Plaintiffs further alleged
that the erection of the sidewalk shed for a continuous period of over two years
is unreasonable and unjustified and that such conduct by defendants has deprived
plaintiffs of the use and enjoyment of their property. The suit seeks a judgment
requiring removal of the sidewalk shed, compensatory damages of $20 million and
punitive damages of $10 million. The Partnership believes that this suit is
meritless and intends to vigorously defend it.
In May 1993, limited partners in High Equity Partners L.P. -
Series 86 ("HEP-86"), an affiliated partnership, commenced an action (the
"Action") in the Superior Court for the State of California for the County of
Los Angeles (the "Court") on behalf of a purported class consisting of all the
purchasers of limited partnership interests in HEP-86. On April 7, 1994 the
plaintiffs were granted leave to file an amended complaint on behalf of a class
consisting of all the purchasers of limited partnership interests in HEP-86, the
Partnership, and Integrated Resources High Equity Partners, Series 85 another
affiliated partnership (collectively, the "HEP Partnerships").
In November 1995, the original plaintiffs and intervening
plaintiffs filed a consolidated class and derivative action complaint (the
"Consolidated Complaint") alleging various state law class and derivative
claims, including claims for breach of fiduciary duty; breach of contract;
unfair and fraudulent business practices under California Bus. & Prof. Code
Section 17200; negligence; dissolution, accounting, receivership and removal of
general partner; fraud; and negligent misrepresentation. The Consolidated
Complaint alleges, among other things, that the general partners of the HEP
Partnerships collectively, "HEP General Partners" caused a waste of the HEP
Partnerships' assets by collecting management fees in lieu of pursuing a
strategy to maximize the value of the investments owned by the investors in the
HEP Partnerships, that the HEP General Partners breached their duty of loyalty
and due care to the investors by expropriating management fees from the HEP
Partnerships without trying to run the HEP Partnerships for the purposes for
which they were intended; that the HEP General Partners were acting improperly
to entrench themselves in their position of control over the HEP Partnerships
and that their actions prevented non-affiliated entities from making and
completing tender offers to purchase units of limited partnership interest in
the HEP Partnerships (collectively, the "HEP Units"); that, by refusing to seek
the sale of the HEP Partnerships' properties, the HEP General Partners
diminished the value of the investors' equity in the HEP Partnerships; that the
HEP General Partners took heavily overvalued asset management fees; and that HEP
Units were sold and marketed through the use of false and misleading statements.
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<PAGE>
In early 1996, the parties submitted a proposed settlement to
the Court (the "Proposed Settlement"), which contemplated a reorganization of
the three HEP Partnerships into a single real estate investment trust, pursuant
to which approximately 85% of the shares of the real estate investment trust
would have been allocated to investors in the three HEP Partnerships (assuming
each of the HEP Partnerships participated in the reorganization), and
approximately 15% of the shares would have been allocated to the HEP General
Partners. As a consequence, the Proposed Settlement would, among other things,
have approximately tripled the HEP General Partners' equity interests in the HEP
Partnerships. In late 1996, the California Department of Corporations informed
the Court of the conclusion that the Proposed Settlement was unfair, and, in
early 1997, the Court declined to grant final approval of the Proposed
Settlement because the Court was not persuaded that the Proposed Settlement was
fair, adequate or reasonable as to the proposed class.
In July 1997, the plaintiffs filed an amended complaint, which
generally asserts the same claims as the earlier Consolidated Complaint but
contains more detailed factual assertions and eliminates some claims they had
previously asserted. The HEP General Partners challenged the amended complaint
on legal grounds and filed demurrers and a motion to strike. In October 1997,
the Court granted substantial portions of the HEP General Partners' motions.
Thereafter, the HEP General Partners served answers denying the allegations and
asserting numerous defenses.
In February 1998, the Court certified three separate plaintiff
classes consisting of the current owners of record of HEP Units (but excluding
all defendants or entities related to such defendants), and appointed class
counsel and liaison counsel.
In mid-1998, the parties actively engaged in negotiations
concerning a possible settlement of the Action. In September 1998, the parties
reached an agreement in principle, and, during the following months, negotiated
a more formal settlement stipulation (the "Settlement Stipulation"), which they
executed in December 1998. The Settlement Stipulation was submitted to the Court
for preliminary approval in early January 1999. In February 1999, the Court gave
preliminary approval to the Settlement Stipulation and directed that notice of
the proposed settlement be sent to the previously certified class. The proposed
settlement contemplates (I) amendments to the Partnership Agreement that would
modify the existing fee structure; (II) a tender offer whereby the General
Partners would purchase up to 6.7% of the units from limited partners; and (III)
that the General Partners will use their best offers to effect a reorganization
of the HEP Partnerships into REITs or other publicly traded entities. A hearing
to consider whether the Court should give final approval to the Settlement
Stipulation is scheduled for April 14, 1999. The settlement is subject to a
number of conditions. There can be no assurance that such conditions will be
fulfilled.
The General Partners believe that each of the claims asserted
in the Action are meritless and, if for any reason a final settlement pursuant
to the Settlement Stipulation is not consummated, intend to continue to
vigorously defend the Action.
The Limited Partnership Agreement provides for indemnification of
the General Partners and their affiliates in certain circumstances. The
Partnership has agreed to reimburse the General Partners for their actual costs
incurred in defending this litigation and the costs of preparing settlement
materials. Through December 31, 1998, the Partnership paid the General Partners
a total of $1,034,510 for these costs.
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
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PART II
Item 5. Market for the Registrant's Securities and
Related Security Holder Matters
------------------------------------------
Units of the Partnership are not publicly traded. There are
certain restrictions set forth in the Partnership's amended limited partnership
agreement (the "Limited Partnership Agreement") which may limit the ability of a
limited partner to transfer Units. Such restrictions could impair the ability of
a limited partner to liquidate its investment in the event of an emergency or
for any other reason.
In 1987, the Internal Revenue Service adopted certain rules
concerning publicly traded partnerships. The effect of being classified as a
publicly traded partnership would be that income produced by the Partnership
would be classified as portfolio income rather than passive income. In order to
avoid this effect, the Limited Partnership Agreement contains limitations on the
ability of a limited partner to transfer Units in circumstances in which such
transfers could result in the Partnership being classified as a publicly traded
partnership. However, due to the low volume of transfers of Units, it is not
anticipated that this will occur.
As of March 15, 1999, there were 6,647 holders of Units of the
Partnership, owning an aggregate of 371,766 Units (including 10 Units held by
the initial limited partner).
Distributions per Unit of the Partnership for 1997 and 1998
were as follows:
Distributions for the Amount of Distribution
Quarter Ended Per Unit
- --------------------- ----------------------
March 31, 1997 $2.04
June 30, 1997 $2.55
September 30, 1997 $2.55
December 31, 1997 $2.55
March 31, 1998 $2.55
June 30, 1998 $2.55
September 30, 1998 $2.55
December 31, 1998 $2.55
The source of distributions and capital improvements in 1997
and 1998 was cash flow from operations. All distributions are in excess of
accumulated undistributed net income and, therefore, represent a return of
capital to investors on a generally accepted accounting principles basis. There
are no material restrictions set forth in the Limited Partnership Agreement upon
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the Partnership's present or future ability to make distributions. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of factors which may affect the Partnership's
ability to pay distributions.
From July 1996 through March 12, 1998, Millennium Funding IV
Corp., a wholly owned indirect subsidiary of Presidio, purchased 47,270 units of
the Partnership from various limited partners.
In connection with a tender offer for units of the Partnership
made March 12, 1998 (the "Offer") by Olympia Investors, L.P., a Delaware limited
partnership controlled by Carl Ichan ("Olympia"), Olympia and Presidio entered
into an agreement dated March 6, 1998 (the "Agreement"). Subsequent to the
expiration of the offer, Olympia announced that it had accepted for payment
14,955 units properly tendered pursuant to the Offer. Pursuant to the Agreement,
Presidio purchased 50% of the units owned by Olympia as a result of the Offer,
or 7,478 units, for $132.26 per unit. Presidio may be deemed to beneficially own
the remaining units owned by Olympia as a consequence of the Agreement.
Subsequent to the expiration of the tender offer described
above, Millennium Funding IV Corp. purchased 9,534 limited partnership units
from August 1998 through February 1999. The total of these purchases and the
units purchased from Olympia (as described above) represents approximately 17.3%
of the outstanding limited partnership units of the Partnership.
Item 6. Selected Financial Data.
------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ........ $ 7,882,248 $ 9,189,172 (3) $ 7,759,188 $ 7,422,184 $ 7,124,114
Net Income (Loss) 2,995,631 3,708,687 (3) 2,152,172 (7,260,499) (1) 2,439,021
Net Income (Loss)
Per Unit .... 7.65 9.48 5.50 (18.55) 6.23
Distributions
Per Unit(2).. 10.20 9.69 7.00 7.00 7.00
Total Assets .... 55,087,481 56,296,853 56,381,690 56,305,498 66,210,947
</TABLE>
(1) Net loss for the year ended December 31, 1995 includes a write-down for
impairment on 568 Broadway, Sunrise and Melrose-Phase II in the aggregate
amount of $10,042,900 or $25.66 per Unit.
(2) All distributions are in excess of accumulated undistributed net income and
therefore represent a return of capital to investors on a generally
accepted accounting principles basis.
(3) Revenues and Net Income for the year ended December 31, 1997 include
approximately $1,500,000, or $3.83 per Unit, received pursuant to the
bankruptcy settlement of a tenant.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership owns all of, or an interest in, certain
shopping centers, office buildings, warehouses and supermarkets. All properties
were initially acquired for cash. The Partnership's public offering of Units
commenced on September 15, 1987. As of the termination of the offering in
September 1989, the Partnership had accepted subscriptions for 371,766 Units
(including Units held by the initial limited partner) for aggregate net proceeds
of $90,153,255 (gross proceeds of $92,941,500 less organization and offering
costs of $2,788,245). In August 1990, the Managing General partner declared a
special distribution of $16.96 per Unit, representing a return of uninvested
gross proceeds. This return of capital lowered the net proceeds from the
offering to $83,848,104.
The Partnership uses working capital reserves remaining from
the net proceeds of its public offering and any undistributed cash from
operations as its primary source of liquidity. For the year ended December 31,
1998, all capital expenditures and all distributions were funded from cash flow
from operations. As of December 31, 1998, total remaining working capital
reserves amounted to approximately $1,530,000. The Partnership intends to
distribute less than all of its future cash flow from operations in order to
maintain adequate working capital reserves for capital improvements and
capitalized lease procurement costs. If real estate market conditions
deteriorate in areas where the Partnership's properties are located, there is
substantial risk that future cash flow distributions may be reduced. Working
capital reserves are temporarily invested in short-term instruments and are
expected, together with operating cash flow, to be sufficient to fund
anticipated capital improvements to the Partnership's properties.
During the year ended December 31, 1998, cash and cash
equivalents decreased $19,554 as a result of capital expenditures and
distributions to partners in excess of cash flows from operations. The
Partnership's primary source of funds is cash flow from the operation of its
properties, principally rents received from tenants, which amounted to
$4,436,169 for the year ended December 31, 1998. The Partnership used $464,127
for capital expenditures related to capital and tenant improvements to the
properties and $3,991,596 for distributions to partners for the year ended
December 31, 1998.
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The following table sets forth for each of the last three
fiscal years, the Partnership's expenditures at each of its properties for
capital improvements and capitalized tenant procurement costs:
<TABLE>
<CAPTION>
Capital Improvements and Capitalized Tenant Procurement Costs
-------------------------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
568 Broadway ................ $166,742 $ 48,217 $132,801
Sunrise ..................... 140,388 7,068 308,903
Livonia Plaza ............... 149,894 111,358 7,818
Melrose-Phase II ............ 90,633 93,728 2,100
TMR Warehouse ............... 23,207 13,902 15,174
Super Valu .................. 0 0 0
-------- -------- --------
TOTALS ...................... $570,864 $274,273 $466,796
======== ======== ========
</TABLE>
The Partnership has budgeted expenditures for capital
improvements and capitalized tenant procurement costs in 1999 which are expected
to be funded from cash flow from operations. However, such expenditures will
depend upon the level of leasing activity and other factors which cannot be
predicted with certainty.
The Partnership expects to continue to utilize a portion of
its cash flow from operations and its reserves to pay for various capital and
tenant improvements to the properties and leasing commissions (the amount of
which cannot be predicted with certainty). Capital and tenant improvements and
leasing commissions may in the future exceed the Partnership's current working
capital reserves. In that event, the Partnership would utilize the remaining
working capital reserves, eliminate or reduce distributions, or sell one or more
properties. Except as discussed above, management is not aware of any other
trends, events, commitments or uncertainties that will have a significant impact
on liquidity.
Real Estate Market
- ------------------
The real estate market has begun to recover (for selected
markets and property types) from the effects of the substantial decline in the
market value of existing properties. However, market values have been slow to
recover, and high vacancy rates continue to exist in some areas. Technological
changes are also occurring which may reduce the office space needs of many
users. As a result, the Partnership's potential for realizing the full value of
its investment in its properties is at continued risk.
Impairment of Assets
- --------------------
The Partnership evaluates the recoverability of the net
carrying value of its real estate and related assets at least annually, and more
often if circumstances dictate. The Partnership estimates the future cash flows
expected to result from the use of each property and its eventual disposition,
13
<PAGE>
generally over a five-year holding period. In performing this review, management
takes into account, among other things, the existing occupancy, the expected
leasing prospects of the property and the economic situation in the region where
the property is located. If the sum of the expected future cash flows,
undiscounted, is less than the carrying amount of the property, the Partnership
recognizes an impairment loss, and reduces the carrying amount of the asset to
its estimated fair value. Fair value is the amount at which the asset could be
bought or sold in a current transaction between willing parties, that is, other
than in a forced or liquidation sale. Management estimates fair value using
discounted cash flows or market comparables, as most appropriate for each
property. Independent certified appraisers are utilized to assist management,
when warranted.
Impairment write-downs recorded by the Partnership do not
affect the tax basis of the assets and are not included in the determination of
taxable income or loss.
Because the cash flows used to evaluate the recoverability of
the assets and their fair values are 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
values at the balance sheet dates. The cash flows and market comparables used in
this process are based on good faith estimates and assumptions developed by
management. 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.
All of the Partnership's properties have experienced varying
degrees of operating difficulties and the Partnership recorded significant
impairment write-downs in prior years. Improvements in the real estate market
and in the properties operations resulted in no write-downs for impairment being
needed in 1996, 1997 or 1998.
The following table represents the write-downs for impairment
recorded on the Partnership's properties.
Property
--------
568 Broadway $ 6,157,700
Sunrise 8,500,000
Livonia Plaza 2,100,000
Melrose-Phase II 2,881,000
-----------
$19,638,700
===========
14
<PAGE>
Results of Operations
- ---------------------
1998 vs. 1997
- -------------
The Partnership experienced an decrease in net income for the
year ended December 31, 1998 compared to 1997 primarily due to a decrease in
rental revenues during 1998, partially offset by a decrease in costs and
expenses.
Rental revenue decreased during the year ended December 31,
1998 as compared to the prior year, primarily due the departure of a significant
tenant at Tri-Columbus in July 1998 and to the approximately $1.5 million
received in April, 1997 pursuant to the bankruptcy settlement of Handy Andy, the
former sole tenant at Melrose II.
Costs and expenses decreased for the year ended December 31,
1998 compared to 1997 due to lower operating expenses, administrative expenses
and property management fees, partially offset by higher depreciation and
amortization. Operating expenses decreased during the year ended December 31,
1998 due primarily to lower repair and maintenance costs at Sunrise due to the
receipt of insurance proceeds in 1998 (offsetting previously incurred costs) and
a decrease in insurance expenses at all of the properties due to the payment of
lower premiums while coverage remained the same. Administrative expenses for the
year ended December 31, 1998 decreased compared to 1997 due to lower legal and
accounting fees related to the ongoing litigation and possible reorganization of
the Partnership. Property management fees decreased during the year ended
December 31, 1998 due to the decrease in revenues, as previously discussed.
Depreciation and amortization expense increased in the current year due to
higher depreciation recorded in 1998 on certain capitalized tenant improvements
Interest income and other income (transfer fees received from
limited partner ownership transfers) remained relatively consistent during the
year ended December 31, 1998 as compared to 1997.
1997 vs. 1996
- -------------
The Partnership experienced an increase in net income for the
year ended December 31, 1997 compared to 1996 primarily due to an increase in
rental revenues and interest income during 1997.
Rental revenue increased during the year ended December 31,
1997 as compared to the prior year, primarily due to the approximately $1.5
million received in April, 1997 pursuant to the bankruptcy settlement of Handy
Andy, the sole tenant at Melrose II. During 1997, increases in revenue at 568
Broadway and Livonia due to higher rental rates were offset by lower revenues at
Tri-Columbus and Sunrise resulting from tenant departures and lower cost
reimbursements from tenants, respectively.
Costs and expenses decreased slightly for the year ended December 31, 1997
compared to 1996. Administrative expenses for the year ended December 31, 1997
15
<PAGE>
decreased, as legal and accounting fees related to ongoing litigation and the
HEP reorganization were higher in 1996. Operating expenses increased during the
year ended December 31, 1997 due primarily to increases in real estate taxes and
repair and maintenance expenses. Overall real estate tax expense was higher at
568 Broadway in 1997 due to the significant refunds received in 1996 which
offset the annual tax payments. Higher repair and maintenance costs at Sunrise
were due to insurance proceeds that were received in 1996, offsetting previously
incurred costs. Property management fees increased during the year ended
December 31, 1997 due to the increase in revenues, as previously discussed.
Interest income increased due to higher rates and higher
invested balances during the year ended December 31, 1997 as compared to 1996.
Other income decreased during 1997 compared to 1996 due to fewer ownership
transfers.
Inflation is not expected to have a material impact on the
Partnership's operations or financial position.
Legal Proceedings
- -----------------
The Partnership is a party to certain litigation. See Item 3
and Note 7 to the Partnership's financial statements for a description thereof.
Year 2000 Compliance
- --------------------
The Year 2000 compliance issue concerns the inability of
computerized information systems and equipment to accurately calculate, store or
use a date after December 31, 1999, as a result of the year being stored as a
two digit number. This could result in a system failure or miscalculations
causing disruptions of operations. The Partnership and its Manager (NorthStar
Presidio Management Co., LLC) recognize the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related computer
system and software issues.
The manager is in the process of assessing its internal
computer information systems and is now taking the further steps necessary to
remediate these systems so that they will be Year 2000 compliant. In connection
therewith, the manager is currently in the process of installing a new fully
compliant accounting and reporting system. The Manager is also currently
reviewing its other internal systems and programs, along with those of its
unaffiliated third party service providers, in order to insure compliance.
Further, the Manager and these service providers are currently
evaluating and assessing those computer systems not related to information
technology. These systems, that generally operate in a building include, without
limitation, telecommunication systems, security systems (such as card-access
door lock systems), energy management systems and elevator systems. As a result
16
<PAGE>
of the technology used in this type of equipment, it is possible that this
equipment may not be repairable, and accordingly may require complete
replacement. Because this assessment is ongoing, the total cost of bringing all
systems and equipment into Year 2000 compliance has not been fully quantified.
Based upon available information, the Manager does not believe that these costs
will have a material adverse effect on the Partnership's business, financial
condition or results. However, it is possible that there could be adverse
consequences to the Partnership as a result of Year 2000 issues that are outside
the Partnership's control. The Manager is in the preliminary stages of
evaluating these issues and will be developing contingency plans.
Forward-looking Statements
- --------------------------
Certain statements made in this report may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking
statements include statements regarding the intent, belief or current
expectations of the Partnership and its management and involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Partnership to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing, adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
FINANCIAL STATEMENTS
--------------------
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
I N D E X
---------
Independent Auditors' Report......................................... 19
Financial statements, years ended December 31, 1998, 1997 and 1996
Balance Sheets...................................... 20
Statements of Operations............................ 21
Statements of Partners' Equity...................... 22
Statements of Cash Flows............................ 23
Notes to Financial Statements....................... 24
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of High Equity Partners L.P. - Series 88
We have audited the accompanying balance sheets of High Equity Partners L.P. -
Series 88 (a Delaware limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)2.
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 financial statements present fairly, in all material
respects, the financial position of High Equity Partners L.P. - Series 88 at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
March 17, 1999
New York, NY
19
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
BALANCE SHEETS
--------------
December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Real estate ................................................... $47,293,445 $48,282,393
Cash and cash equivalents ..................................... 6,520,698 6,540,252
Other assets .................................................. 1,131,282 1,280,167
Receivables ................................................... 142,056 194,041
----------- -----------
TOTAL ASSETS .................................................. $55,087,481 $56,296,853
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Distributions payable ......................................... $ 997,899 $ 997,899
Accounts payable and accrued expenses ......................... 789,910 761,559
Due to affiliates ............................................. 343,022 584,780
----------- -----------
Total liabilities ............................................. 2,130,831 2,344,238
----------- -----------
Commitments and contingencies
PARTNERS' EQUITY:
Limited partners' equity (371,766 units issued and outstanding) 50,308,799 51,254,962
General partners' equity ...................................... 2,647,851 2,697,653
----------- -----------
Total partners' equity ........................................ 52,956,650 53,952,615
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY ........................ $55,087,481 $56,296,853
=========== ===========
</TABLE>
See notes to financial statements
20
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
STATEMENTS OF OPERATIONS
------------------------
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Rental Revenue ................................... $7,882,248 $9,189,172 $7,759,188
---------- ---------- ----------
Costs and Expenses:
Operating expenses ............. 1,420,916 1,901,434 1,799,966
Depreciation and amortization .. 1,685,884 1,570,724 1,551,738
Partnership asset management fee 880,404 880,404 880,404
Administrative expenses ........ 958,011 1,157,958 1,354,895
Property management fee ........ 270,074 305,203 246,908
---------- ---------- ----------
5,215,289 5,815,723 5,833,911
---------- ---------- ----------
Income before interest and other income .......... 2,666,959 3,373,449 1,925,277
Interest income ................ 296,082 298,543 175,866
Other income ................... 32,590 36,695 51,029
---------- ---------- ----------
Net income ....................................... $2,995,631 $3,708,687 $2,152,172
========== ========== ==========
Net income attributable to:
Limited partners ............... $2,845,849 $3,523,253 $2,044,563
General partners ............... 149,782 185,434 107,609
---------- ---------- ----------
Net income ....................................... $2,995,631 $3,708,687 $2,152,172
========== ========== ==========
Net income per unit of limited
Partnership interest (371,766 units outstanding) $ 7.65 $ 9.48 $ 5.50
========== ========== ==========
</TABLE>
See notes to financial statements
21
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
STATEMENTS OF PARTNERS' EQUITY
------------------------------
General Limited
Partners' Partners'
Equity Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1996 .............. $ 2,731,179 $ 51,891,920 $ 54,623,099
Net income ............................ 107,609 2,044,563 2,152,172
Distributions as a return of capital
($7.00 per limited partnership unit) (136,966) (2,602,362) (2,739,328)
------------ ------------ ------------
Balance, December 31, 1996 ............ 2,701,822 51,334,121 54,035,943
Net income ............................ 185,434 3,523,253 3,708,687
Distributions as a return of capital
($9.69 per limited partnership unit) .. (189,603) (3,602,412) (3,792,015)
------------ ------------ ------------
Balance, December 31, 1997 ............ 2,697,653 51,254,962 53,952,615
Net income ............................ 149,782 2,845,849 2,995,631
Distributions as a return of capital
($10.20 per limited partnership unit) . (199,584) (3,792,012) (3,991,596)
------------ ------------ ------------
Balance, December 31, 1998 ............ $ 2,647,851 $ 50,308,799 $ 52,956,650
============ ============ ============
</TABLE>
See notes to financial statements
22
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
For the Years Ended December 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................ $ 2,995,631 $ 3,708,687 $ 2,152,172
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ....... 1,685,884 1,570,724 1,551,738
Straight line adjustment for stepped
Lease rentals .................... 41,131 104,413 73,951
Changes in assets and liabilities:
Accounts payable and accrued expenses 28,351 253,303 (187,720)
Receivables ......................... 51,985 (104,967) 195,656
Due to affiliates ................... (241,758) (567,878) 851,068
Other assets ........................ (125,055) (184,006) (151,620)
----------- ----------- -----------
Net cash provided by operating activities ............. 4,436,169 4,780,276 4,485,245
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate ........................... (464,127) (114,807) (290,734)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to partners .............................. (3,991,596) (3,478,948) (2,739,328)
----------- ----------- -----------
(Decrease) Increase in Cash and Cash Equivalents ...... (19,554) 1,186,521 1,455,183
Cash and Cash Equivalents, Beginning of Year .......... 6,540,252 5,353,731 3,898,548
----------- ----------- -----------
Cash and Cash Equivalents, End of Year ................ $ 6,520,698 $ 6,540,252 $ 5,353,731
=========== =========== ===========
</TABLE>
See notes to financial statements
23
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. ORGANIZATION
------------
High Equity Partners L.P. - Series 88 (the "Partnership"), a
limited partnership, was formed on February 24, 1987 under the
Uniform Limited Partnership Laws of the State of Delaware, for
the purpose of investing in, holding and operating
income-producing real estate. The Partnership will terminate
on December 31, 2017 or sooner, in accordance with the terms
of the partnership agreement. The Partnership invested in four
shopping centers and two office/industrial properties, none of
which were encumbered by debt.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Financial statements
--------------------
The financial statements are prepared on the accrual basis of
accounting. 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.
Reclassifications
-----------------
Certain reclassifications have been made to the financial
statements for the prior years in order to conform to the
current year's presentation.
Cash and cash equivalents
-------------------------
For purposes of the balance sheets and statements of cash
flows, the Partnership considers all short-term investments,
which have maturities of three months or less from the date of
issuance, to be cash equivalents.
Leases
------
The Partnership accounts for its leases under the operating
method. Under this method, revenue is recognized as rentals
become due, except for stepped leases where the revenue from
the lease is averaged over the life of the lease.
24
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Depreciation
------------
Depreciation is computed using the straight-line method over
the useful life of the property, which is estimated to be 40
years. The cost of properties represents the initial cost of
the properties to the Partnership plus acquisition and closing
costs less write-downs, if any. Tenant improvements are
amortized over the applicable lease term.
Investments in joint ventures
-----------------------------
For properties purchased in joint venture ownership with other
partnerships, the financial statements present the assets,
liabilities, income and expenses of the joint venture on a pro
rata basis in accordance with the Partnership's percentage of
ownership.
Impairment of Assets
--------------------
The Partnership evaluates the recoverability of the net
carrying value of its real estate and related assets at least
annually, and more often if circumstances dictate.
The Partnership estimates the future cash flows expected to
result from the use of each property and its eventual
disposition, generally over a five-year holding period. In
performing this review, management takes into account, among
other things, the existing occupancy, the expected leasing
prospects of the property and the economic situation in the
region where the property is located.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
If the sum of the expected future cash flows, undiscounted, is
less than the carrying amount of the property, the Partnership
recognizes an impairment loss, and reduces the carrying amount
of the asset to its estimated fair value. Fair value is the
amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a
forced or liquidation sale. Management estimates fair value
using discounted cash flows or market comparables, as most
appropriate for each property. Independent certified
appraisers are utilized to assist management, when warranted.
Impairment write-downs recorded by the Partnership do not
affect the tax basis of the assets and are not included in the
determination of taxable income or loss.
Because the cash flows used to evaluate the recoverability of
the assets and their fair values are 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 values at the balance
25
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
sheet dates. The cash flows and market comparables used in
this process are based on good faith estimates and assumptions
developed by management. 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
Income taxes
------------
No provision has been made for federal, state and local income
taxes since they are the personal responsibility of the
partners.
Net income (loss) and distributions per unit of limited
partnership interest
--------------------------------------------------------------
Net income (loss) and distributions per unit of limited
partnership interest is calculated based upon the number of
units outstanding (371,766), for each of the years ended
December 31, 1998, 1997 and 1996.
Comprehensive Income
--------------------
Because the Partnership has no items of other comprehensive
income, the Partnership's net income and comprehensive net
income are the same for all periods presented.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June of 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging
activities, and will be effective for the Partnership in
January of 2000. Because the Partnership does not currently
utilize derivatives of engage in hedging activities,
management does not believe that implementation of this
standard will have a material effect on the Partnership's
financial statements.
26
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
-----------------------------------------------------------
Resources High Equity, Inc., the Managing General Partner, is
a wholly-owned subsidiary of Presidio Capital Corp.
("Presidio"). Presidio AGP Corp., which is also a wholly-owned
subsidiary of Presidio, is the Associate General Partner
(together with the Managing General Partner, the "General
Partners"). Affiliates of the General Partners are also
engaged in businesses related to the acquisition and operation
of real estate. Presidio is also the parent of other
corporations that are or may in the future be engaged in
business that may be in competition with the Partnership.
Accordingly, conflicts of interest may arise between the
Partnership and such other businesses. Subject to the rights
of the Limited Partners under the Limited Partnership
Agreement, Presidio controls the Partnership through its
indirect ownership of all the shares of the General Partners.
Effective July 31, 1998, Presidio is indirectly controlled by
NorthStar Capital Investment Corp., a Maryland corporation.
Effective as of August 28, 1997, Presidio has a management
agreement with NorthStar Presidio Management Company LLC
("NorthStar Presidio), an affiliate of NorthStar Capital
Investment Corp., pursuant to which, NorthStar Presidio will
provide the day-to-day management of Presidio and its direct
and indirect subsidiaries and affiliates. For the year ended
December 31, 1998 reimbursable expenses incurred by NorthStar
Presidio amounted to approximately $102,019.
The Partnership has a property management services agreement
with Resources Supervisory Management Corp. ("Resources
Supervisory"), an affiliate of the Managing General Partner,
to perform certain functions relating to the management of the
properties of the Partnership. A portion of the property
management fees are paid to unaffiliated management companies
which perform certain management functions for certain
properties. For the years ended December 31, 1998, 1997 and
1996, Resources Supervisory was entitled to receive $270,074,
$305,203, and $246,908, in total, of which $129,580, $108,247,
and $120,387, was paid to unaffiliated management companies,
respectively.
For the administration of the Partnership, the Managing
General Partner is entitled to receive a Partnership
Administration Fee of a maximum of $200,000 per year.
For managing the affairs of the Partnership, the Managing
General Partner is entitled to receive a Partnership asset
management fee equal to 1.05% of the amount of original gross
proceeds paid or allocable to the acquisition of property by
the Partnership. For each of the years ended December 31,
1998, 1997 and 1996 the Managing General Partner earned
$880,404.
27
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(CONTINUED)
-----------------------------------------------------------
The General Partners are allocated 5% of the net income of the
Partnership, which amounted to $149,782, $185,434, and
$107,609 in 1998, 1997 and 1996, respectively. The General
Partners are also entitled to receive 5% of distributions,
which amounted to $199,584, $189,603, and $136,966 in the
years ended December 31, 1998, 1997 and 1996, respectively.
During the liquidation stage of the Partnership, the Managing
General Partner or an affiliate may be entitled to receive
certain fees which are subordinated to the limited partners
receiving their original invested capital and certain
specified minimum returns on their investments. All fees
received by the general partners are subject to certain
limitations as set forth in the Partnership Agreement.
From July 1996 through March 12, 1998, Millennium Funding IV
Corp., a wholly owned indirect subsidiary of Presidio,
purchased 47,270 units of the Partnership from various limited
partners.
In connection with a tender offer for units of the Partnership
made March 12, 1998 (the "Offer") by Olympia Investors, L.P.,
a Delaware limited partnership controlled by Carl Ichan
("Olympia"), Olympia and Presidio entered into an agreement
dated March 6, 1998 (the "Agreement"). Subsequent to the
expiration of the offer, Olympia announced that it had
accepted for payment 14,955 units properly tendered pursuant
to the Offer. Pursuant to the Agreement, Presidio purchased
50% of the units owned by Olympia as a result of the Offer, or
7,478 units, for $132.26 per unit. Presidio may be deemed to
beneficially own the remaining units owned by Olympia as a
consequence of the Agreement
Subsequent to the expiration of the tender offer described
above, Millennium Funding IV Corp. purchased 9,534 limited
partnership units from August 1998 through February 1999. The
total of these purchases and the units purchased from Olympia
(as described above) represents approximately 17.3% of the
outstanding limited partnership units of the Partnership.
28
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
4. REAL ESTATE
-----------
The Partnership recorded substantial write-downs for
impairment prior to 1996. No write-downs were required for
1998, 1997 or 1996. The table below summarizes write-downs
recorded on the properties:
<TABLE>
<CAPTION>
Property
--------
<S> <C> <C>
568 Broadway $ 6,157,700
Sunrise 8,500,000
Livonia Plaza 2,100,000
Melrose-Phase II 2,881,000
-----------
$19,638,700
===========
</TABLE>
The following table is a summary of the Partnership's real
estate as of:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land $ 8,040,238 $ 8,040,238
Buildings and Improvements 53,803,025 53,338,898
------------ ------------
61,843,263 61,379,136
Less: Accumulated depreciation (14,549,818) (13,096,743)
------------ ------------
$ 47,923,445 $ 48,282,393
============ ============
</TABLE>
During 1998, revenues at the Tri Columbus, Sunrise, Livonia,
and 568 Broadway properties represented 26%, 23%, 19% and 18% of gross revenues,
respectively. No single tenant accounted for more than 10% of the Partnership's
rental revenues.
The following is summary of the Partnership's share of
anticipated future receipts under noncancellable leases:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total: $ 5,057,000 $ 4,899,000 $ 4,603,000 $ 4,359,000 $ 2,568,000 $6,305,000 $27,791,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
29
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
5. DISTRIBUTIONS PAYABLE
---------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Limited partners ($2.55 per unit) $948,003 $948,003
General partners 49,896 49,896
-------- --------
$997,899 $997,899
======== ========
</TABLE>
Such distributions were paid in subsequent quarters.
6. DUE TO AFFILIATES
-----------------
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Partnership asset management fee $220,101 $220,101
Reorganization and litigation cost reimbursement (Note 7) --- 215,000
Property management fee 72,921 99,679
Partnership administration fee 50,000 50,000
-------- --------
$343,022 $584,780
======== ========
Such amounts were paid in subsequent quarters.
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
a) 568 Broadway Joint Venture is currently involved in litigation
with a number of present or former tenants who are in default
on their lease obligations. Several of these tenants have
asserted claims or counter claims seeking monetary damages.
The plaintiffs' allegations include but are not limited to
claims for breach of contract, failure to provide certain
services, overcharging of expenses and loss of profits and
income. These suits seek total damages of in excess of $20
million plus additional damages of an indeterminate amount.
The Broadway Joint Venture's action for rent against Solo
Press was tried in 1992 and resulted in a judgement in favor
of the Broadway Joint Venture for rent owed. The Partnership
believes this will result in dismissal of the action brought
by Solo Press
30
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
against the Broadway Joint Venture. Since the facts of the
other actions which involve material claims or counterclaims
are substantially similar, the Partnership believes that the
Broadway Joint Venture will prevail in those actions as well.
b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and
a related corporation which is a retail tenant of a building
adjacent to 568 Broadway filed a lawsuit in the Supreme Court
of The State of New York, County of New York, against the
Broadway Joint Venture which owns 568 Broadway. The action was
filed on April 13, 1994. The Plaintiffs allege that by
erecting a sidewalk shed in 1991, 568 Broadway deprived
plaintiffs of light, air and visibility to their customers.
The sidewalk shed was erected, as required by local law, in
connection with the inspection and restoration of the 568
Broadway building facade, which is also required by local law.
Plaintiffs further allege that the erection of the sidewalk
shed for a continuous period of over two years is unreasonable
and unjustified and that such conduct by defendants has
deprived plaintiffs of the use and enjoyment of their
property. The suit seeks a judgement requiring removal of the
sidewalk shed, compensatory damages of $20 million and
punitive damages of $10 million. The Partnership believes that
this suit is merit less and intends to vigorously defend it.
c) On or about May 11, 1993 High Equity Partners L.P. - Series 86
("HEP-86"), an affiliated partnership, was advised of the
existence of an action (the "California Action') in which a
complaint (the "HEP Complaint") was filed in the Superior
Court for the State of California for the County of Los
Angeles (the "Court") on behalf of a purported class
consisting of all of the purchasers of limited partnership
interests in HEP-86. On April 7, 1994 the plaintiffs were
granted leave to file an amended complaint (the "Amended
Complaint") on behalf of a class consisting of all of the
purchasers of limited partnership interest in the Partnership,
HEP-86, and Integrated Resources High Equity Partners, Series
85 ("HEP-85"), an affiliated partnership.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
In May 1993, limited partners in High Equity Partners L.P. -
Series 86 ("HEP-86"), an affiliated partnership, commenced an
action (the "Action") in the Superior Court for the State of
California for the County of Los Angeles (the "Court") on
behalf of a purported class consisting of all the purchasers
of limited partnership interests in HEP-86. On April 7, 1994
the plaintiffs were granted leave to file an amended complaint
on behalf of a class consisting of all the purchasers of
limited partnership interests in HEP-86, the Partnership, and
Integrated Resources High Equity Partners, Series 85 another
affiliated partnership (collectively, the "HEP Partnerships").
In November 1995, the original plaintiffs and intervening
plaintiffs filed a consolidated class and derivative action
complaint (the "Consolidated Complaint") alleging various
state law class and derivative claims, including claims for
breach of fiduciary duty; breach of contract; unfair and
fraudulent business practices under California Bus. & Prof.
Code Section 17200; negligence; dissolution, accounting,
receivership and removal of general partner; fraud; and
negligent misrepresentation. The Consolidated Complaint
alleges, among other things, that the general partners of the
HEP Partnerships collectively, "HEP General Partners" caused a
waste of the HEP Partnerships' assets by collecting management
fees in lieu of pursuing a strategy to maximize the value of
the investments owned by the investors in the HEP
Partnerships, that the HEP General Partners breached their
duty of loyalty and due care to the investors by expropriating
management fees from the HEP Partnerships without trying to
run the HEP Partnerships for the purposes for which they were
intended; that the HEP General Partners were acting improperly
to entrench themselves in their position of control over the
HEP Partnerships and that their actions prevented
non-affiliated entities from making and completing tender
offers to purchase units of limited partnership interest in
the HEP Partnerships (collectively, the "HEP Units"); that, by
refusing to seek the sale of the HEP Partnerships' properties,
the HEP General Partners diminished the value of the
investors' equity in the HEP Partnerships; that the HEP
General Partners took heavily overvalued asset management
fees; and that HEP Units were sold and marketed through the
use of false and misleading statements.
31
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
In early 1996, the parties submitted a proposed settlement to
the Court (the "Proposed Settlement"), which contemplated a
reorganization of the three HEP Partnerships into a single
real estate investment trust, pursuant to which approximately
85% of the shares of the real estate investment trust would
have been allocated to investors in the three HEP Partnerships
(assuming each of the HEP Partnerships participated in the
reorganization), and approximately 15% of the shares would
have been allocated to the HEP General Partners. As a
consequence, the Proposed Settlement would, among other
things, have approximately tripled the HEP General Partners'
equity interests in the HEP Partnerships. In late 1996, the
California Department of Corporations informed the Court of
the conclusion that the Proposed Settlement was unfair, and,
in early 1997, the Court declined to grant final approval of
the Proposed Settlement because the Court was not persuaded
that the Proposed Settlement was fair, adequate or reasonable
as to the proposed class.
In July 1997, the plaintiffs filed an amended complaint, which
generally asserts the same claims as the earlier Consolidated
Complaint but contains more detailed factual assertions and
eliminates some claims they had previously asserted. The HEP
General Partners challenged the amended complaint on legal
grounds and filed demurrers and a motion to strike. In October
1997, the Court granted substantial portions of the HEP
General Partners' motions. Thereafter, the HEP General
Partners served answers denying the allegations and asserting
numerous defenses.
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
In February 1998, the Court certified three separate plaintiff
classes consisting of the current owners of record of HEP
Units (but excluding all defendants or entities related to
such defendants), and appointed class counsel and liaison
counsel.
In mid-1998, the parties actively engaged in negotiations
concerning a possible settlement of the Action. In September
1998, the parties reached an agreement in principle, and,
during the following months, negotiated a more formal
settlement stipulation (the "Settlement Stipulation"), which
they executed in December 1998. The Settlement Stipulation was
submitted to the Court for preliminary approval in early
January 1999. In February 1999, the Court gave preliminary
approval to the Settlement Stipulation and directed that
notice of the proposed settlement be sent to the previously
certified class. The proposed settlement contemplates (I)
amendments to the Partnership Agreement that would modify the
existing fee structure: (II) a tender offer whereby the
General Partners would purchase up to 6.7% of the units from
limited partners; and (III) that the General Partners will use
their best efforts to effect a reorganization of the HEP
Partnerships into REITs or other publicly traded entities. A
hearing to consider whether the Court should give final
approval to the Settlement Stipulation is scheduled for April
14, 1999. The settlement is subject to a number of conditions.
There can be no assurance that such conditions will be
fulfilled.
The General Partners believe that each of the claims asserted
in the Action are meritless and, if for any reason a final
settlement pursuant to the Settlement Stipulation is not
consummated, intend to continue to vigorously defend the
Action.
The Limited Partnership Agreement provides for indemnification
of the General Partners and their affiliates in certain
circumstances. The Partnership has agreed to reimburse the
General Partners for their actual costs incurred in defending
this litigation and the costs of preparing settlement
materials. Through December 31, 1998, the Partnership paid the
General Partners a total of $1,034,510 for these costs.
32
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
8. RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX REPORTING
---------------------------------------------------------
The Partnership files its tax returns on an accrual basis and
has computed depreciation for tax purposes using the
accelerated cost recovery and modified accelerated cost
recovery systems, which are not in accordance with generally
accepted accounting principles. The following is a
reconciliation of the net income per the financial statements
to net taxable income.
<TABLE>
.<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements ... $ 2,995,631 $ 3,708,687 $ 2,152,172
Tax depreciation in excess of financial
statement depreciation ............. (560,212) (606,297) (610,441)
----------- ----------- -----------
Net taxable income .................... $ 2,435,419 $ 3,102,390 $ 1,541,731
=========== =========== ===========
</TABLE>
33
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
8. RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX REPORTING (CONTINUED)
---------------------------------------
The differences between the Partnership's assets and
liabilities for tax purposes and financial reporting purposes are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net assets per financial statements $52,956,650
Write-down for impairment 19,638,700
Tax depreciation in excess of financial statement depreciation (4,502,460)
Fair market value step-up in connection with purchase of
joint venture interest not recognized for tax purposes 304,942
Organization costs not charged to partners' equity for tax purposes 2,788,171
Building and accumulated depreciation, tax basis, not charged to loss on
abandonment for tax purposes 2,294,009
-----------
Net assets per tax reporting $73,480,012
===========
</TABLE>
34
<PAGE>
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 has no officers or directors. The Managing
General Partner manages and controls substantially all of the Partnership's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. The Managing General Partner is also the investment
general partner of HEP-86 and is the managing general partner of HEP-85, both
limited partnerships with investment objectives similar to those of the
Partnership. The Associate General Partner is also a general partner in other
partnerships affiliated with Presidio and whose investment such, objectives are
similar to those of the Partnership. The Associate General Partner, in its
capacity as does not devote any material amount of its business time and
attention to the Partnership's affairs.
Based on a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership pursuant to Rule 16a-3(e) during its most recent
fiscal year and Form 5 and amendments thereto furnished to the Partnership with
respect to its most recent fiscal year, and written representations pursuant to
Item 405(b)(2)(i) of Regulation S-K, none of the General Partners, directors or
officers of the Managing General Partner or beneficial owners of more than 10%
of the Units failed to file on a timely basis reports required by Section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") during the most
recent fiscal or prior fiscal years. No written representations were received
from the partners of the Associate General Partner.
35
<PAGE>
As of March 1, 1999 the names and ages of, as well as the
positions held by, the officers and directors of the Managing and Associate
General Partners were as follows:
<TABLE>
<CAPTION>
Has served as a
Director and/or
Officer of the
Managing
General Partner
Name Age Position Held since
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
W. Edward Scheetz 34 Director November 1997
David Hamamoto 39 Director November 1997
Dallas E. Lucas 36 Director August 1998
David King 36 Executive Vice President and Assistant Treasurer, Director November 1997
Lawrence R. Schachter 42 Senior Vice President and Chief Financial Officer January 1998
J. Peter Paganelli 40 Senior Vice President, Secretary and Treasurer March 1998
Allan B. Rothschild 37 President, Director December 1997
Marc Gordon 34 Vice President November 1997
Charles Humber 25 Vice President November 1997
Adam Anhang 25 Vice President November 1997
Gregory Peck 24 Assistant Secretary November 1997
</TABLE>
- -----------
There are no family relationships between or among any of the
directors and/or executive officers of the General Partner.
W. Edward Scheetz co-founded NorthStar Capital Partners LLC
with David Hamamoto in July 1997, From 1993 through 1997, Mr. Scheetz was a
partner at Apollo Real Estate Advisors L.P. From 1989 to 1993, Mr. Scheetz was a
principal with Trammell Crow Ventures.
David Hamamoto co-founded NorthStar Capital Partners LLC with
W. Edward Scheetz in July 1997. From 1988 to 1997, Mr Hamamoto was a partner and
a co-head of the real estate principal investment area at Goldman, Sachs & Co.
Dallas E. Lucas joined Northstar Capital Partners LLC in
August 1998. From 1994 until then he was the Chief Financial Officer of Crescent
Real Estate Equities Company. Prior to that he was a financial consulting and
audit manager in the real estate services group of Arthur Anderson LLP.
36
<PAGE>
David King joined NorthStar Capital Partners LLC in November
1997. From 1990 to 1997, Mr. King was associated with Olympia & York Companies
(USA) where he held the position of Senior Vice President of Finance. Prior to
that Mr. King was employed with Bankers Trust in its real estate finance group.
Lawrence R. Schachter joined NorthStar Presidio in January
1998 From 1996 to 1998, Mr. Schachter was Controller at CB Commercial/Hampshire
LLC. From 1995 to 1996, Mr. Schachter was Controller at Goodrich Associates.
From 1992 to 1995, Mr. Schachter was Controller at Greenthal/Harlan Realty
Services Co.
J. Peter Paganelli joined NorthStar Presido in March 1998.
From 1997 to 1998, Mr. Paganelli was Director of Asset Management at Argent
Ventures LLC, a private real estate aompany. From 1994 to 1997, Mr. Paganelli
was a Vice President at Starwood Capital Group, LLC in its Asset Management
Group. From 1986 to 1994, Mr. Paganelli was an Associate Director at Cushman &
Wakefield, Inc. in its Financial Services and Asset Services Groups.
Allan B. Rothschild joined NorthStar Presidio in December 1997
From 1995 to 1997, Mr. Rothschild was Senior Vice President and General Counsel
of Newkirk Limited Partnership. From 1987 to 1995, Mr. Rothschild was associated
with the law firm of Proskauer, Rose LLP in its real estate group.
Marc Gordon joined NorthStar Capital Partners LLC in October
1997 From 1993 to 1997, Mr. Gordon was Vice President in the real estate
investment banking group at Merrill Lynch. Prior to That, Mr. Gordon was
associated with the law firm of Irell & Manella in its real estate and banking
group.
Charles Humber joined NorthStar Capital Partners LLC in
September 1997. From 1996 to 1997, Mr Humber was employed with Merrill Lynch in
its real estate investment banking group. Prior to that, Mr. Humber was a
student at Brown University.
Adam Anhang joined NorthStar Capital Partners LLC in August
1997. From 1996 to 1997, Mr. Anhang was employed by The Athena Group as part of
its Russia and former Soviet Union development team. Prior to that, Mr. Anhang
was a student at the Wharton School of the University of Pennsylvania.
Gregory Peck joined NorthStar Capital Partners LLC in July
1997. From 1996 to 1997, Mr. Peck was employed by Morgan Stanley as part of
Morgan Stanley Realty Real Estate Funds (MSREF) and Morgan Stanley's Real Estate
Investment Banking Group. From 1994 to 1996, Mr. Peck worked for Lazard Freres &
Co. LLC in the Real Estate Investment Banking Group.
Many of the above officers and directors of the Managing
General Partner and Associate General Partner are also officers and/or directors
of the general partners of other public partnerships affiliated with Presidio or
of various subsidiaries of Presidio.
37
<PAGE>
All of the directors will hold office, subject to the bylaws
of the Administrative General Partner or the Investment General Partner (as the
case may be), until the next annual meeting of the stockholders of the
Administrative General Partner or the Investment General Partner (as the case
may be) and until their successors are elected and qualified.
There are no family relationships between any executive
officer and any other executive officer or any director of the Administrative
General Partner or the Investment General Partner.
Affiliates of the General Partners are also engaged in
businesses related to the acquisition and operation of real estate.
Many of the officers, directors and partners of the Investment
General Partner, the Administrative General Partner and the Associate General
Partner listed above are also officers and/or directors of the general partners
of other public partnerships controlled by Presidio and various subsidiaries of
Presidio.
Item 11. Executive Compensation
----------------------
The Partnership is not required to and did not pay
remuneration to the officers and directors of the Managing General Partner or
the partners of the Associate General Partner. Certain officers and directors of
the Managing General Partner receive compensation from the Managing General
Partner and/or its affiliates (but not from the Partnership) for services
performed for various affiliated entities, which may include services performed
for the Partnership; however, the Managing General Partner believes that any
compensation attributable to services performed for the Partnership is
immaterial. See also "Item 13. Certain Relationships and Related Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
As of March 1, 1999, an affiliate of the General Partners
owned approximately 17.3% of the Units. No directors, officers or partners of
the Managing General Partner presently own any Units. To the knowledge of the
Registrant, the following sets forth certain information regarding ownership of
the Class A shares of Presidio as of March 15, 1999 (except as otherwise noted)
by: (i) each person or entity who owns of record or beneficially five percent or
more of the Class A shares, (ii) each director and executive officer of
Presidio, and (iii) all directors and executive officers of Presidio as a group.
To the knowledge of Presidio, each of such share-holders has sole voting and
investment power as to the shares shown unless otherwise noted.
All outstanding shares of Presidio are owned by Presidio
Capital Investment Company, LLC ("PCIC"), a Delaware limited liability company.
The interests in PCIC (and beneficial ownership in Presidio) are held as
follows:
38
<PAGE>
Percentage Ownership in PCIC
and Percentage Beneficial
Name of Beneficial Owner Ownership in Presidio
------------------------ ----------------------------
Five Percent Holders:
NorthStar Presidio Captital Holding Corp.(1) 71.93%
AG Presidio Investors, LLC (2) 14.12%
DK Presidio Investors, LLC (3) 8.45%
Stonehill Partners, L.P. (4) 5.50%
The holdings of the directors and executive officers of Presidio are as
follows:
Directors and Officers:
-----------------------
Adam Anhang (5) 0%
Marc Gordon (5) 0%
David Hamamoto (5) 71.93%
Charles Humber (5) 0%
David King (5) 0%
Gregory Peck (5) 0%
Dallas Lucas(5) 0%
Allan Rothschild (5) 0%
J. Peter Paganelli (5) 0%
Lawrence Schachter (5) 0%
W. Edward Scheetz (5) 71.93%
Directors and Officers as a group: 71.93%
----------------------------------
(1) NorthStar Presidio Capital Holding Corp. ("NS" Presidio") is a
Delaware corporation whose address is c/o NorthStar Capital
Investment Corp., 527 Madison Avenue, 16th Floor, New York,
New York, 10022. NS Presidio has three shareholders: (1)
NorthStar Partnership L.P., a Delaware limited partnership
whose address is c/o NorthStar Capital Investment Corp., 527
Madison Avenue, 16th Floor, New York, New York, 10022, holds
99% of the common stock (non-voting); (II) David T. Hamamoto
holds 0.5% of the common stock (voting); and (III) W. Edward
Scheetz holds 0.5% of the common stock (voting).
39
<PAGE>
(2) Each of Angelo, Gordon & Co., L.P., as sole manager of AG
Presidio Investors, LLC and John M. Angelo and Michael L.
Gordon, as general partners of the general partner of Angelo,
Gordon & Co., L.P., may be deemed to beneficially own for
purposes of Rule 13d-3 of the Exchange Act the securities
beneficially owned by AG Presidio Investors, LLC. Each of John
M. Angelo and Michael L. Gordon disclaims such beneficial
ownership. The business address for such persons is c/o
Angelo, Gordon & Co., L.P., 245 Park Avenue, 26th Floor, New
York, New York 10167.
(3) M.H. Davidson & Company, as sole manager of DK Presidio
Investors, LLC, may be deemed to beneficially own for purposes
of Rule 13d-3 of the Exchange Act the securities beneficially
owned by DK Presidio Investors, LLC. The business address for
such persons is c/o M.H. Davidson & Company, 885 Third Avenue,
New York, New York 10022.
(4) Includes shares of PCIC beneficially owned by Stonehill
Offshore Partners Limited and Stonehill Partners, L.P. John A.
Motulsky is a managing general partner of Stonehill Partners,
L.P., a managing member of the investment advisor to Stonehill
Offshore Partners Limited and a general partner of Stonehill
Institutional Partners L.P. John A. Motulsky disclaims
beneficial ownership of the shares held by these entities. The
business address for such persons is c/o Stonehill Investment
Corporation, 110 East 59th Street, New York, New York 10022.
(5) The Business address for such person is 527 Madison Avenue,
16th Floor, New York, 10022.
40
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The General Partners and certain affiliated entities have,
during the year ended December 31, 1998, earned or received compensation or
payments for services or reimbursements from the Partnership or subsidiaries of
Presidio as follows:
<TABLE>
<CAPTION>
Compensation from
Name of Recipient Capacity in Which Served the Partnership
----------------- ------------------------ ---------------
<S> <C> <C>
Resources High Equity Inc. Managing General Partner $1,275,996(1)
Presidio AGP Corp. Associate General Partner 3,992(2)
Resources Supervisory Management Corp. Affiliated Property Managers 140,494(3)
</TABLE>
- -----------
(1) Of this amount $195,592 represents the Managing General
Partner's share of distributions of cash from operations,
$200,000 represents the Partnership Administration Fee based
on the total number of Units outstanding and $880,404
represents the Partnership Asset Management Fee for managing
the affairs of the Partnership. Furthermore, under the
Partnership's Limited Partnership Agreement 4.9% of the net
income and net loss of the Partnership is allocated to the
Managing General Partner. Pursuant thereto, for the year ended
December 31, 1998, $118,823 of the Partnership's taxable
income was allocated to the Managing General Partner.
(2) This amount represents the Associate General Partner's share
of the distributions of cash from operations. For the year
ended December 31, 1998, $2,425 of the Partnership's taxable
income was allocated to the Associate General Partner pursuant
to the Partnership's Limited Partnership Agreement. The
Associate General Partner is entitled to receive 0.1% of the
Partnership's net income or net loss.
3) This amount was earned pursuant to a management agreement with
Resources Supervisory, a wholly-owned subsidiary of Presidio,
for performance of certain functions relating to the
management of the Partnership's properties and the placement
of certain tenants at those properties. The total fee payable
to Resources Supervisory was $270,074 of which $129,580 was
paid to unaffiliated management companies. All property
management fees payable at December 31, 1998 have subsequently
been paid.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
----------------------------------------
(a)(1) Financial Statements: See Index to Financial Statements in
Item 8.
(a)(2) Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation
(a)(3) Exhibits:
3, 4. (a) Amended and Restated Partnership Agreement ("Partnership
Agreement") of the Partnership, incorporated by reference to
Exhibit A to the Prospectus of the Partnership dated September
15, 1987 included in the Partnership's Registration Statement
on Form S-11 (Reg. No. 3312574).
(b) First Amendment dated as of March 1, 1988 to the
Partnership's Partnership Agreement, incorporated by reference
to Exhibit 3, 4 of the Partnership's Annual Report on Form
10-K for the year ended December 31, 1987.
10. (a) Management Agreement between the Partnership and Resources
Property Management Corp., incorporated by reference to
Exhibit 10B to the Partnership's Registration Statement on
Form S-11 (Reg. No. 33-12574).
(b) Acquisition and Disposition Services Agreement among the
Partnership, Realty Resources Inc. and Resources High Equity,
Inc., incorporated by reference to Exhibit 10(b) of the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1987.
(c) Agreement among Resources High Equity, Inc., Integrated
Resources, Inc. and Third Group Partners, incorporated by
reference to Exhibit 10(c) of the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1987.
(d) Amended and Restated Joint Venture Agreement dated
February 1, 1990 among the Partnership, Integrated, High
Equity Partners, Series 85, a California Limited Partnership,
and High Equity Partners L.P., Series 86, with respect to 568
Broadway, incorporated by reference to Exhibit 10(a) to the
Partnership's Current Report on Form 8-K dated February 1,
1990.
(e) First Amendment to Amended and Restated Joint Venture
Agreement of 568 Broadway Joint Venture, dated as of February
1, 1990, among the Partnership, HEP 85 and HEP 86 incorporated
by reference to Exhibit 10(h) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.
42
<PAGE>
(f) Form of Termination of Supervisory Management Agreement
(separate agreement entered into with respect to each
individual property) and Form of Supervisory Management,
Agreement between the Partnership and Resources Supervisory
(separate agreement entered into with respect to each
individual property), incorporated by reference to Exhibit
10(h) of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1991.
(g) Lease Agreement between the Partnership and Handy Andy
Home Improvement Centers, Inc. dated as of December 22, 1992,
incorporated by reference to Exhibit 10(g) of the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1992.
(b) Reports on Form 8-K:
The Partnership filed the following report on Form 8-K during
the last quarter of the fiscal year:
None.
43
<PAGE>
Financial Statement Schedule Filed Pursuant to
----------------------------------------------
Item 14(a)(2)
-------------
HIGH EQUITY PARTNERS L.P. - SERIES 88
-------------------------------------
ADDITIONAL INFORMATION
----------------------
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
INDEX
-----
Page
Number
------
Additional financial information furnished
pursuant to the requirements of Form 10-K:
Schedules - December 31, 1998, 1997 and 1996
and years then ended, as required:
Schedule III - Real estate and accumulated depreciation S-1
- Notes to Schedule III - Real estate and S-2
accumulated depreciation
All other schedules have been omitted because they are
inapplicable, not required, or the information is included in the financial
statements or notes thereto.
44
<PAGE>
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.
HIGH EQUITY PARTNERS, L.P.-SERIES-88
By: RESOURCES HIGH EQUITY, INC.
Managing General Partner
Dated: March 29, 1999 By: /s/ Allan Rothschild
---------------------
Allan Rothschild
President and Director
(Principal Executive 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 their capacities on the dates indicated.
Dated: March 29, 1999 By: /s/ Allan Rothschild
---------------------
Allan Rothschild
President and Director
(Principal Executive Officer)
Dated: March 29, 1999 By: /s/ Lawrence Schachter
-----------------------
Lawrence Schachter
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 29, 1999 By: /s/ Dallas Lucas
-----------------
Dallas Lucas
Director
Dated: March 29, 1999 By: /s/ David King
---------------
David King
Director and Executive Vice President
45
<PAGE>
<TABLE>
<CAPTION>
HIGH EQUITY PARTNERS L.P. - SERIES 88
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Initial Cost
----------------------------
Buildings
And
Description Encumbrances Land Improvement
----------- ------------ ---- -----------
<S> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ --- $ 1,375,000 $ 4,000,640
Sunrise Marketplace Las Vegas NV --- 3,024,968 13,469,031
SuperValu Stores Various -- --- 1,787,620 6,881,999
Livonia Plaza Livonia MI --- 1,518,638 9,328,777
------ ----------- -----------
--- 7,706,226 33,680,447
OFFICE:
568 Broadway Office Building New York NY --- 1,429,284 6,091,266
INDUSTRIAL:
TMR Warehouses Various OH --- 1,355,621 19,694,413
------ ----------- -----------
$ --- $10,491,131 $59,466,126
====== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Reductions
Recorded
Costs Capitalized Subsequent to
Subsequent to Acquistion Acquisition
--------------------------------- ---------------
Carrying
Improvements Costs Write-downs
------------ ----- -----------
<S> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ 97,509 $ --- $ (2,881,000)
Sunrise Marketplace Las Vegas NV 1,731,369 1,342,536 (8,500,000)
SuperValu Stores Various -- --- 708,358 ---
Livonia Plaza Livonia MI 1,192,293 880,080 (2,100,000)
---------- ----------- -------------
3,041,171 2,930,974 (13,481,000)
OFFICE:
568 Broadway Office Building New York NY 2,908,692 813,953 (6,157,700)
INDUSTRIAL:
TMR Warehouses Various OH 112,635 1,717,279 ---
---------- ---------- -------------
$6,062,498 $5,462,206 $ (19,638,700)
========== ========== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Amount at which Carried
at Close of Period
-------------------------- ---------------------
Buildings
And
Land Improvements Total
---------- ----------- -----------
<S> <C> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ 638,742 $ 1,953,407 $ 2,592,149
Sunrise Marketplace Las Vegas NV 1,811,849 9,276,055 11,087,904
SuperValu Stores Various -- 1,935,936 7,442,041 9,377,977
Livonia Plaza Livonia MI 1,536,441 9,283,347 10,819,788
---------- ----------- -----------
5,922,968 27,954,850 33,877,818
OFFICE:
568 Broadway Office Building New York NY 651,057 4,434,438 5,085,495
INDUSTRIAL:
TMR Warehouses Various OH 1,466,213 21,413,737 22,879,950
---------- ----------- -----------
$8,040,238 $53,803,025 $61,843,263
========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Depreciation Date Acquired
------------ -------------
<S> <C> <C> <C>
RETAIL:
Melrose II Shopping Center Melrose Park IL $ 430,269 1989
Sunrise Marketplace Las Vegas NV 3,080,999 1989
SuperValu Stores Various -- 1,837,326 1989
Livonia Plaza Livonia MI 2,284,241 1989
-----------
7,632,835
OFFICE:
568 Broadway Office Building New York NY 1,644,770 1986
INDUSTRIAL:
TMR Warehouses Various OH 5,272,213 1988
-----------
$14,549,818
===========
</TABLE>
Note:The aggregate cost for Federal income tax purposes is $81,481,963 at
December 31, 1998.
S-1
<PAGE>
HIGH EQUITY PARTNERS L.P. - SERIES 88
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(A) RECONCILIATION OF REAL ESTATE OWNED:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR ... $61,379,136 $61,264,329 $60,973,595
ADDITIONS DURING THE YEAR
Improvements to Real Estate 464,127 114,807 290,734
----------- ----------- -----------
BALANCE AT END OF YEAR (1) ..... $61,843,263 $61,379,136 $61,264,329
=========== =========== ===========
</TABLE>
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND CLOSING
COSTS.
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR ... $13,096,743 $11,697,525 $10,307,676
ADDITIONS DURING THE YEAR
Depreciation expense(1) ..... 1,453,075 1,399,218 1,389,849
----------- ----------- -----------
BALANCE AT END OF YEAR ......... $14,549,818 $13,096,743 $11,697,525
=========== =========== ===========
</TABLE>
(1) DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD OVER
THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS AND ON
TENANT IMPROVEMENTS OVER THE ESTIMATED TERM OF THE RLEATED LEASE.
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the December 31, 1998 Form 10-K of High Equity Partners
L.P.-Series 88 and is qualified in its entirety by reference to such financial
statemens.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,520,698
<SECURITIES> 0
<RECEIVABLES> 142,056
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,087,481
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 52,956,650
<TOTAL-LIABILITY-AND-EQUITY> 55,087,481
<SALES> 0
<TOTAL-REVENUES> 7,882,248
<CGS> 0
<TOTAL-COSTS> 1,420,916
<OTHER-EXPENSES> 3,794,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,995,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,995,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,995,631
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
