Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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
0-17633
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its Certificate
of Limited Partnership)
Maryland 75-2228850
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Light Street
Tenth Floor
Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 625-5500
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 and 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 over the past 90 days.
Yes X No _____
INDEX
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- September 30, 1995 and December 31, 1994
Statements of Operations -- For the three months ended September
30, 1995 and September 30, 1994 and for the nine months ended
September 30, 1995 and September 30, 1994
Statements of Cash Flows -- For the nine months ended September
30, 1995 and September 30, 1994
Notes to Financial Statements -- September 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the
three months ended September 30, 1995.
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
Sept. 30, 1995 Dec. 31, 1994
ASSETS
Real Estate Investments:
Income Producing Properties -- Note B $28,837,275 $29,427,139
Cash and Cash Equivalents (including temporary
investments at Sept. 30, 1995 and
Dec. 31, 1994 of $1,055,938 and $431,820,
respectively) -- Note D 1,433,922 623,032
Restricted Cash Escrow -- Note F 355,406 357,545
Accounts Receivable 78,049 127,187
Other Assets 278,860 275,472
Total Assets $30,983,512 $30,810,375
LIABILITIES
Mortgages Payable -- Note F $20,611,101 $20,655,687
Accounts Payable and Other Liabilities 1,430,432 948,523
Deferred Recoveries - Note K 257,302 0
Due to General Partners and Affiliates -- Note E 1,810,595 1,582,106
Cash Flow Protector Loan -- Note H 4,849,734 4,849,734
$28,959,164 $28,036,050
PARTNERS' EQUITY
General Partners (224,170) (216,670)
Assignor and Assignee Limited Partners
1,094,283 Units Issued and Outstanding 2,248,518 2,990,995
2,024,348 2,774,325
Total Liabilities and Partners' Equity $30,983,512 $30,810,375
See accompanying notes to the financial statements.
<TABLE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
<S> <C> <C> <C> <C>
REVENUE:
Rental $1,149,755 $1,144,572 $3,431,056 $ 3,117,682
Interest 16,844 9,035 39,103 20,794
Total Revenue 1,166,599 1,153,607 3,470,159 3,138,476
EXPENSES:
Property Operating 477,870 367,293 1,375,847 1,246,967
Equity in Joint Venture Loss -- Note C 0 101,739 0 243,058
St. Andrews Repair and Legal Costs,
Net of Recoveries - Note K 57,196 62,562 221,645 109,718
General and Administrative 38,491 26,502 110,844 90,586
Interest 535,812 583,570 1,606,102 1,749,275
Depreciation and Amortization 304,697 280,325 905,698 835,297
Total Expenses 1,414,066 1,421,991 4,220,136 4,274,901
NET LOSS $ (247,467) $ (268,384) $ (749,977) $(1,136,425)
Net Loss Allocated to:
General Partners $ (2,475) $ (2,684) $ (7,500) $ (11,364)
Assignor and Assignee Limited Partners (244,992) (265,700) (742,477) (1,125,061)
$ (247,467) $ (268,384) $ (749,977) $(1,136,425)
Net Loss per Unit -- Note A $ (.22) $ (.24) $ (.68) $ (1.03)
Cash Distributions per Unit -- Note A $ 0 $ 0 $ 0 $ 0
Weighted Average Number of Units 1,094,283 1,094,283 1,094,283 1,094,283
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
USF&G LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
<S> <C> <C>
Operating Activities
Net Loss $ (749,977) $(1,136,425)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 905,698 835,297
Equity in joint venture loss 0 243,058
Change in net assets and liabilities related to
operating activities:
Decrease in restricted cash escrow 2,139 0
Increase in due to general partners and
affiliates 228,489 217,922
Increase in accounts payable and other
liabilities 481,909 623,872
Increase in deferred recoveries 257,302 0
Decrease in accounts receivable 49,138 44,739
Increase in other assets (75,377) (345,207)
Net Cash Provided by Operating Activities 1,099,321 483,256
Investing Activities
Investment in income producing properties (243,845) (319,183)
Reimbursement of capital improvements by
a tenant 0 85,104
Net Cash Used in Investing Activities (243,845) (234,079)
Financing Activities
Mortgage principal payments (44,586) (40,297)
Net Cash Used in Financing Activities (44,586) (40,297)
Increase in Cash and Cash Equivalents 810,890 208,880
Cash and Cash Equivalents, Beginning of Period 623,032 911,915
Cash and Cash Equivalents, End of Period $1,433,922 $ 1,120,795
See accompanying notes to the financial statements.
</TABLE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1995
(Unaudited)
NOTE A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies
USF&G/Legg Mason Realty Partners Limited Partnership (the "Partnership") was
organized under the laws of the state of Maryland on April 12, 1988. The
Partnership was formed to acquire, hold, lease and ultimately dispose of income
producing commercial and multi-family residential properties located primarily
in the Eastern half of the United States.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 1994.
Allocation of Net (Loss) Income from Operations
Net (loss) income from operations is allocated first among the partners in
proportion to cash distributions and second, if there have been no cash
distributions, 99% to the assignee limited partners ("Unitholders") and 1% to
General Partners. Net (loss) income and cash distributions per Unit were
computed based upon net (loss) income allocated to and cash distributions paid
to Unitholders divided by the weighted average number of Units outstanding
during the periods indicated. The allocated 1% net (loss) income from
operations to the General Partners is prorated for net (loss) on the basis of
80% to USF&G Realty Partners, Inc. (the "USF&G General Partner") and 20% to
Legg Mason Realty Partners, Inc. (collectively, the "General Partners") while
net income is allocable on the basis of 50% to the USF&G General Partner and
50% to Legg Mason Realty Partners, Inc.
NOTE B - Income Producing Properties
The following table sets forth summarized financial information for Northeast
Business Campus, St. Andrews Apartments at Westwood and Shadeland Retail
Center, the three properties owned directly by the Partnership, as of the dates
indicated:
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE B - Income Producing Properties (Continued)
September 30, 1995 December 31, 1994
Buildings and improvements $29,061,970 $29,039,871
Land 5,444,913 5,444,913
34,506,883 34,484,784
Less: Accumulated depreciation (5,669,608) (5,057,645)
$28,837,275 $29,427,139
NOTE C - Investment in Joint Venture
The Partnership owns a fifty percent general partnership interest in Greenbrier
Towers General Partnership (the "Joint Venture"). On April 26, 1995, the Joint
Ventures' sole property, Greenbrier Towers, was purchased by the lender at
foreclosure. At the time of foreclosure, the amount of the debt, which
included principal and accrued and unpaid interest, was greater than the
appraised value of Greenbrier Towers. The following tables disclose summarized
information as to the Partnership's share of the assets and liabilities as of
the dates indicated. The equity in the revenue and expenses of the Joint
Venture for the three and nine months ended September 30, 1995 include
operations through April 26, 1995 only, the date of foreclosure.
September 30, 1995 December 31, 1994
Balance Sheets
Assets
Buildings and improvements $ 0 $ 7,401,028
Land 0 811,654
0 8,212,682
Less: Accumulated depreciation 0 (1,514,755)
0 6,697,927
Other 30,305 136,059
Total Assets $ 30,305 $ 6,833,986
Liabilities
Mortgage payable - in default $ 0 $ 6,622,585
Note payable due to General Partner -
in default 0 183,598
Other 30,305 147,565
Total Liabilities $ 30,305 $ 6,953,748
Investment in Joint Venture 0 0
Unrecognized losses 0 (119,762)
Total Equity 0 (119,762)
Total Liabilities and Equity $ 30,305 $ 6,833,986
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
<TABLE>
NOTE C - Investment in Joint Venture (Continued)
For the Three Months Ended For the Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
<S> <C> <C> <C> <C>
Statements of Operations
Gross revenue $ 0 $ 275,622 $ 363,012 $ 820,103
Less expenses:
Property operating 0 116,285 150,398 306,267
Writedown for asset impairment 0 0 460,568 0
Depreciation/amortization 0 95,259 90,224 259,683
Interest 0 165,817 233,884 497,211
Total expenses $ 0 $ 377,361 $ 935,074 $1,063,161
Gain on debt forgiveness $ 0 $ 0 $ 691,824 $ 0
Equity in joint venture income (loss) $ 0 $(101,739) $ 119,762 $ (243,058)
Recognition of cumulative unrecognized
joint venture loss 0 0 (119,762) 0
Recognized equity in joint venture loss $ 0 $(101,739) $ 0 $ (243,058)
</TABLE>
No cash distributions had been received from the Joint Venture through
September 30, 1995. The other assets on the balance sheet represent cash held
by the Joint Venture for property expenses and contingent liabilities. This
cash may be paid to the lender in return for a mutually acceptable agreement
regarding these expenses and liabilities. The General Partners intend to
dissolve the Joint Venture Partnership once a final agreement regarding
property expenses and contingent liabilities is reached.
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE C - Investment in Joint Venture (Continued)
Recognized equity in joint venture loss represents the Partnership's share of
the net operating income less interest and depreciation of Greenbrier Towers.
The recognition of the Partnership equity in joint venture loss had been
limited to the balance of its investment in the Joint Venture. The
Partnership's share in joint venture income for the nine months ended September
30, 1995 of $119,762 has been offset by the recognition of the cumulative
unrecognized losses. These losses were not previously recognized by the
Partnership since the investment in joint venture balance was reduced to zero
as of December 31, 1994. The liability of the Joint Venture and the
Partnership under the mortgage is non-recourse except under certain limited
circumstances. The Partnership does not believe these limited circumstances
have occurred and is not aware of any claims to the contrary. As a result, the
Partnership does not believe it has any obligation or liability under the
mortgage. Additionally, the note payable due to the General Partner from the
Joint Venture is non-recourse to the Partnership and the Partnership believes
that the remaining Joint Venture assets are sufficient to meet its recourse
obligations.
NOTE D - Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in money market funds
with maturities of three months or less.
NOTE E - Related Party Transactions
The following is a summary of compensation and reimbursements of expenses
incurred to the General Partners and their affiliates for the periods
indicated:
<TABLE>
For the Three Months Ended For the Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
<S> <C> <C> <C> <C>
Charged to expenses:
Asset Management Fees $ 0 $ 0 $ 0 $ 181
Interest Expense 77,802 73,345 231,027 217,652
Operating Expenses 19,158 21,885 67,661 65,348
</TABLE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE E - Related Party Transactions (Continued)
Operating expenses include reimbursement for the actual cost of administrative
services and insurance coverage provided to the Partnership. The Partnership's
property and liability insurance coverage is provided under a blanket policy
obtained by USF&G Realty, Inc. in their capacity as asset manager. This
blanket policy covers a majority of the properties managed by USF&G Realty,
Inc. The Partnership's insurance costs are significantly lower under the
blanket policy as compared to obtaining a separate Partnership policy. During
the second quarter, the asset manager's independent insurance agent solicited
competitive bids from other insurance carriers to replace the current policy
which expired on November 1, 1995. Subsequent to the request for bids, the
current carrier provided a non-renewal notification. The breadth of coverage
and the premium cost of the blanket proposal submitted by United States
Fidelity and Guaranty Company, an affiliate of the USF&G General Partner was
significantly better than the other competitive bids. The independent
insurance agent also solicited bids for the Partnership properties separately.
These bids reflected higher costs and more restrictive coverage than the
blanket policy. Based on a review of all of the competitive bids, the
independent insurance agent recommended and the Partnership selected coverage
under a blanket policy provided by United States Fidelity and Guaranty Company.
The Partnership's portion of the new insurance premium is approximately $37,000
as compared to $30,520 for the prior policy year. The increased insurance
costs which were effective November 1, 1995 will be recognized commencing in
the fourth quarter. For the nine months ended September 30, 1995, insurance
costs were approximately $26,118.
Due to General Partners and affiliates consists of the following as of the
dates indicated:
September 30, 1995 December 31, 1994
Asset Management Fees $ 423,990 $ 423,990
Accrued Interest on the Cash Flow
Protector Loan 1,159,911 942,259
General Partner Loans 200,000 200,000
Accrued Interest on General Partner Loans 15,170 1,795
Operating Expenses 11,524 14,062
$1,810,595 $1,582,106
In connection with the loan modification at NEBC executed in the fourth quarter
of 1994 discussed in Note F, the General Partners, USF&G Realty Partners, Inc.
and Legg Mason Realty Partners, Inc., provided equally a total of $200,000 to
the Partnership toward establishing the required reserves and escrows at NEBC.
The amounts provided by the General Partners are in the form of loans from each
General Partner which accrue interest at the prime rate and mature on August
15, 1999. The Partnership 's obligation to make interest and principal
payments under the loans is limited to the extent of available NEBC reserves
and escrows and sale or refinancing proceeds (as defined in the Partnership
Agreement) attributable to the NEBC property.
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE E - Related Party Transactions (Continued)
See Note K - St. Andrews Repair and Legal Costs for a discussion of an
additional loan from USF&G Realty Partners, Inc. Additionally, during the
third quarter, the Partnership received $100,000 as a settlement with a
responsible party in the St. Andrews construction litigation. This settlement
payment was made by United States Fidelity & Guaranty Company, an affiliate of
USF&G Realty Partners, as the insurer of the responsible party. The settlement
with United States Fidelity and Guaranty Company was negotiated at arms length
between counsel for the Partnership and the claims representative.
NOTE F - Mortgages Payable
Mortgages payable consists of the following as of the dates indicated:
September 30, 1995 December 31, 1994
Mortgage loan, secured by Northeast
Business Campus, due August 15, 1999,
interest at 8.00% $ 7,975,000 $ 7,975,000
Mortgage loan, secured by St. Andrews
at Westwood, due September 1, 1997,
interest at 9.65% 8,500,000 8,500,000
Mortgage loan, secured by a portion
of Shadeland Retail Center, due
January 1, 1997, interest at 9.375% 4,136,101 4,180,687
$20,611,101 $20,655,687
The mortgage loans are non-recourse obligations except under certain defined
circumstances. Interest expense of $1,375,075 and $1,531,623 was incurred on
these mortgages for the nine months ended September 30, 1995, and 1994,
respectively. Interest payments of $1,348,808 and $1,049,736 were made for
the nine months ended September 30, 1995, and 1994, respectively.
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE F - Mortgages Payable (Continued)
In connection with the 1994 NEBC loan modification, the Partnership was
required to establish with the lender a reserve for future tenant improvements
and lease commissions and escrows for taxes and insurance. At September 30,
1995, the lender held $355,406 in reserves and escrows. Future cash flow
generated by the NEBC property will be held in a reserve account which may be
used only for the benefit of NEBC or to meet obligations to the lender. See
Note E - Related Party Transactions and Not e J - Commitments and
Contingencies.
NOTE G - Distributions to Partners
The Partnership Agreement provides for quarterly cash distributions to the
partners no later than 45 days after the close of each quarter. The quarterly
cash distributions are allocated 99% to Unitholders and 1% to the General
Partners.
As of September 30, 1995, cumulative cash distributions of $10,545,983 and
$106,517 had been made to the Unitholders and General Partners, respectively.
These cash distributions represent a cumulative return of 2% per quarter on
invested capital through the period ended July 13, 1993.
Note H - Cash Flow Protector Loan
Pursuant to the Cash Flow Protector Loan, the USF&G General Partner agreed to
lend to the Partnership an amount up to $5,471,415, representing 20% of the
gross proceeds of the offering, to the extent that the Partnership's
distributable cash flow was insufficient to pay a 2% cumulative quarterly
return (8% annual return) to Unitholders. In connection with cumulative cash
distributions, as of September 30, 1995, the USF&G General Partner had funded
$4,849,734 pursuant to the Cash Flow Protector Loan. The last distribution to
Unitholders was made November 12, 1993.
The USF&G General Partner's commitment to lend amounts pursuant to the Cash
Flow Protector Loan expired on July 13, 1993. The Cash Flow Protector Loan
currently accrues interest at an annual simple rate of 6%, a reduction in the
rate from 8% by the USF&G General Partner effective January 1, 1993. The Cash
Flow Protector Loan is due and payable on December 31, 2003 or earlier, from
sale or refinancing proceeds.
NOTE I - Right of Presentment
On June 30, 1995, the General Partners purchased all of the 56,200 Units
presented under the 1995 Right of Presentment Program. The Units were
purchased at a price per unit of $4.18 from all Unitholders that presented.
The USF&G General Partner purchased 13,886 of the Units which included 1,887
priority Units from the 1993 Right of Presentment Program. The remaining
42,314 Units were purchased by the other General Partner.
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
NOTE J - Commitments and Contingencies
In order to obtain the NEBC loan modification during 1994 discussed in Note F,
the Partnership agreed to permit the NEBC mortgage lender to participate in the
NEBC sales proceeds above the outstanding debt and closing costs. Upon sale of
NEBC, the lender will be entitled to receive 60% of the first $1,500,000, 40%
of the next $500,000 and 10% thereafter of the remaining proceeds.
NOTE K - St. Andrews Repair and Legal Costs
During the second quarter of 1995, the Partnership entered into a $2.9 million
contract to complete the necessary repairs at St. Andrews. Repairs began
during the third quarter and may take up to a year to complete. The
Partnership has incurred significant costs, including construction and
engineering expenses, in connection with assessing the construction problems
and pursuing legal remedies during 1995. The Partnership has recovered $627,500
to date in settlements from responsible parties, including a $465,000
settlement payment from a responsible party during the second quarter and
$100,000 during the third quarter from an affiliate of the USF&G General
Partner as discussed in Note E. The remaining $62,500 settlement payment was
received during the fourth quarter of 1994 and used to offset certain
construction costs incurred during 1994. Approximately $308,000 of the
settlements received during 1995 were used to offset certain engineering and
construction costs incurred during 1 995. The remaining settlement proceeds of
$257,302 received during 1995 have been deferred and are included in
liabilities as deferred recoveries to offset future construction costs. The
Partnership incurred approximately $110,000 of St. Andrews re pair and legal
costs through the third quarter of 1994 which were not offset by any
recoveries.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter which will permit the Partnership to
borrow up to $3.5 million to complete the necessary repairs. Under its terms,
the loan will mature September 1, 1997 and pay interest monthly on advanced
funds at 9.0%. The terms also provide for early repayment from additional
recoveries from the Partnership's lawsuit, net operating income after reserves
or sale or refinancing proceeds. As of September 30, 1995, no draws on this
loan have been made.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
On June 28, 1988, the Partnership's Registration Statement registering
1,400,000 Units at an offering price of $25 per Unit was declared effective by
the Securities and Exchange Commission. As of December 31, 1989, at the
termination of the offering , 1,094,283 Units had been sold for aggregate gross
proceeds of $27,357,075.
After deducting rebates to Unitholders of $835,001 and offering and
organizational costs and selling commissions totaling $2,174,276, approximately
$24,348,000 was available for investment in income producing properties.
Substantially all of the proceeds available for investment were invested in
four income producing properties meeting the investment criteria of the
Partnership. Northeast Business Campus ("NEBC"), St. Andrews Apartments at
Westwood ("St. Andrews"), and Shadeland Retail Center ( "Shadeland") are owned
directly by the Partnership (collectively, the "Properties") and the
Partnership owns a fifty percent general partnership interest in the Greenbrier
Towers General Partnership (the "Joint Venture"). The Joint Venture's sole
property, Greenbrier Towers, was purchased by the lender at foreclosure on
April 26, 1995. The General Partners intend to dissolve the Joint Venture
Partnership once a final agreement regarding property expenses and contingent
liabilities is reached.
Liquidity and Capital Resources
The cash and cash equivalents position of the Partnership at September 30, 1995
increased $810,890 from December 31, 1994. The increase was primarily due to
the increase in accounts payable and other liabilities and the deferred
recoveries from the St. Andrews settlements discussed below, offset in part by
investments in income producing properties. The increase in accounts payable
and other liabilities is primarily due to an increase at NEBC for accrued
tenant improvements and lease commissions and an increase at St. Andrews for
accrued construction repairs, litigation costs and real estate taxes. During
the third quarter, the Partnership leased an additional 14,589 square feet at
NEBC to Electronic Data Systems in Building 5 bringing occupancy up to 88% as
of September 30, 1995. The addition of this tenant required an investment in
tenant improvements of $146,340. The Partnership's cash and cash equivalents
position will continue to fluctuate during each quarter as follows: (1)
decreasing with the funding of lease-up costs at Shadeland and capital
improvements at Shadeland and St. Andrews; (2) increasing as net rental income
and interest income are received; and (3) decreasing as expenses (including
debt service requirements) are paid.
The Partnership's ability to compete in each market is adversely affected by
the declining level of cash provided by operations since the level of tenant
improvement is limited to the cash available for investment in income producing
properties. In connection with the acquisition of the Properties, the
Partnership established cumulative working capital reserves of approximately 3%
of gross offering proceeds. For the foreseeable future, the Partnership
expects to apply cash flow from operations to increase Partnership working
capital reserves and to provide for the St. Andrews construction repairs and
certain other property maintenance and improvements, and consequently, there is
no expectation that Distributable Cash Flow will be available to make
distributions to Unitholders. This policy reflects the commitment by the
General Partners to maintain adequate working capital reserves. The General
Partners believe that such a policy is prudent in view of the current real
estate and economic environment and is consistent with the Partnership's
objective to maintain and increase the value of the Properties.
Repair of the construction problems at St. Andrews began during the third
quarter under the $2.9 million repair contract entered into during the second
quarter. The repairs may take up to a year to complete and the actual costs
could vary substantially from the $2.9 million base contract price if
additional problems are discovered as repairs are made. During the fourth
quarter, modifications to the original construction contract were made to
install new windows and replace the roof on all the buildings. These changes
resulted in a $215,000 increase in the $2.9 million base contract. The
contract price was based on the repairs recommended by the detailed engineering
studies completed during the first quarter. The Partnership executed an
agreement for a construction loan with the USF&G General Partner during the
third quarter which will permit the Partnership to borrow up to $3.5 million to
complete the necessary repairs. Under its terms, the loan will mature on
September 1, 1997 a nd interest is payable monthly on advanced funds at 9.0%.
The terms also provide for early repayment from additional recoveries from the
Partnership's lawsuit, net operating income after reserves, or sale or
refinancing proceeds. As of September 30 , 1995, no draws on this loan have
been made.
The Partnership filed suit in 1994 in state court in Orlando, Florida against
various parties involved in the St. Andrews project seeking recovery for the
costs of the anticipated repairs as well as other consequential damages.
While the Partnership intends to assert its claims vigorously, there can be no
assurance that it will recover its damages in full. To date, the Partnership
has negotiated settlements of $627,500, $565,000 of which was received during
1995. During the second quarter, the Partnership received $465,000 from the
architect and $100,000 during the third quarter from United States Fidelity
and Guaranty Company, the insurer of the painting and reconstruction
contractor. The settlement with United States Fidelity and Guaranty Company,
an affiliate of the USF&G General Partner, was negotiated at arms length
between counsel for the Partnership and the claims representative. The
Partnership continues to assert claims in the litigation against various
responsible parties.
The Partnership anticipates that the repairs at St. Andrews may result in lower
occupancy and/or rental rates during the period that repairs are being made
and is offering concessions to maintain occupancy at a market level. A
reduction in occupancy or rental rates would result in lower cash flow from
operations at St. Andrews. A new apartment community, The Mission Club, is
under development within one mile of the St. Andrews complex. This 352-unit
luxury complex is scheduled to open in early 1996 and is expected to have
higher rents than the St. Andrews property.
Occupancy at Shadeland remains stable as of September 30, 1995 at 96% since
most tenants are renewing their leases upon expiration. During October 1995,
Ace Hardware vacated its 8,000 square foot space at the end of its lease due to
increased competition in the immediate area. This vacancy reduced occupancy
to 89%. There are currently two parties showing interest in this newly vacant
space. In addition, a small strip center has opened across the street anchored
by a Walgreen, an Osco competitor. That center is fully occupied and has not
impacted Shadeland leasing activity.
The Greenbrier Towers General Partnership (the "Joint Venture"), which includes
the Partnership and Greenbrier Towers Fidelity Associates Limited Partnership
("Fidelity"), an affiliate of the USF&G General Partner, approached the lender
during the fourth quarter of 1994 to seek to obtain a modification in the
terms of the mortgage. The Partnership and Fidelity determined that no
additional investment in the property was economically justified without an
acceptable loan modification. The Joint Venture did not pay the scheduled
interest payment on the Greenbrier Towers mortgage due on December 15, 1994 due
to continued operating cash flow deficits with respect to the Greenbrier Towers
property. Consequently, the mortgage was in default on December 19, 1994. An
acceptable modification to the mortgage was not obtained and as a result the
Joint Venture property was foreclosed upon. The mortgage lender purchased the
property at the foreclosure sale on April 26, 1995.
Results of Operations
Net Income (Loss) Net Income (Loss)
for the Nine Months for the Nine Months
Ended Sept. 30, 1995 Ended Sept. 30, 1994
NEBC $ (134,326) $ (400,950)
St. Andrews (270,940) (236,922)
St. Andrews Repair and Legal Costs
Net (221,645) (109,718)
Shadeland 194,634 142,786
(432,277) (604,804)
Equity in Joint Venture Loss -
Greenbrier 0 (243,058)
Partnership Expense (317,700) (288,563)
$ (749,977) $(1,136,425)
Nine Months Ended September 30, 1995 ("Current Period")
as compared to September 30, 1994 ("Comparable Period")
The Partnership incurred a net loss of $(749,977) for the nine months ended
September 30, 1995 ("current period"). Rental revenue for the current period
was $3,431,056 as compared to $3,117,682 for the nine month period ended
September 30, 1994 ("the comparable period"). The increase in rental revenue
of $313,374 was primarily due to higher occupancy at NEBC and higher rental
rates and expense reimbursements at Shadeland. Property operating expenses
increased $128,880 to $1,375,847 for the current period from $1,246,967 for
the comparable period. The increase is the result of increased operating
expenses at NEBC.
Rental revenue at NEBC increased $277,863 to $1,200,921 for the current period
as compared to $923,058 for the comparable period due to increased occupancy.
The occupancy at NEBC increased to 88% as of September 30, 1995 as compared to
78% as of September 30, 1994. The occupancy for office and service center
space at September 30, 1995 was 88% and 87% respectively, as compared to 77%
and 82% respectively, at September 30, 1994. The increased office occupancy
was due primarily to the 14,589 square foot Electronic Data Systems lease in
Building 5 executed during the third quarter of 1995. The net increase in
service center space was due to the signing of three new tenant leases offset
by vacancies upon lease expiration in the fourth quarter of 1994. The average
rental rate at September 30, 1995 increased to $8.76 per square foot for office
space and decreased to $6.84 per square foot for service center space as
compared to $8.22 and $7.38, respectively, at September 30, 1994. The increase
in the office space average rental rate is due to the higher ADP rental
rates. At the renewal of the ADP lease in the fourth quarter of 1994, the
lease was converted from a triple net lease to a gross lease with a higher base
rent component. The decline in service center average rental rates is due to
new tenant leases at lower rental rates.
Operating expenses at NEBC increased $122,962 to $546,718 for the current
period as compared to $423,756 for the comparable period. The increase was
primarily due to increased cleaning, maintenance, utilities and real estate
taxes offset in part by lower grounds and landscaping costs. Cleaning,
maintenance and utilities are up due to the higher occupancy at Building 5
during 1995. The real estate taxes are higher in the current period since the
comparable period included a refund received as a result of the successful tax
appeal. Grounds and landscaping costs are lower due to a cost reduction on the
new groundkeeping contract and lower snow removal costs.
Rental revenue at St. Andrews decreased $14,953 to $1,305,482 for the current
period as compared to $1,320,435 for the comparable period. The decline in
rental revenue was due to the decline in occupancy offset in part by higher
rental rates and higher residential termination fees and late charges. The
average occupancy at St. Andrews decreased to 91% for the current period as
compared to 93% for the comparable period. The average monthly non-corporate
rental rate during the current period in creased to $599 per unit as compared
to $593 during the comparable period due to increased market rental rates. The
number of corporate units decreased from five at September 30, 1994 to three at
September 30, 1995. Operating expenses at St. Andrews, excluding the repair
and legal costs discussed below, increased $10,643 to $632,022 for the current
period as compared to $621,379 for the comparable period. This increase is
primarily due to higher payroll and security costs offset in part by lower
real estate tax expenses. Payroll costs are higher due to the addition of a
part time groundskeeper. Security costs were higher in 1995 due to the
replacement of locks on apartments. Real estate tax expenses are lower due to
a successful appeal of the Property's assessed value.
The St. Andrews repair and legal costs related to the construction problems
have been reclassified to that category from property operating expenses. The
Partnership has incurred significant engineering and legal costs at St. Andrews
related to assessing the construction problems and pursuing legal remedies
against responsible parties during 1995. To date, the Partnership has
negotiated settlements of $627,500, $565,000 of which was received during 1995
including $465,000 during the second quarter and $100,000 in the third
quarter. The remaining $62,500 settlement payment was received during the
fourth quarter of 1994 and used to offset certain construction costs incurred
during 1994. Approximately $308,000 of the settlements received during 1995
were used to offset certain engineering and construction costs incurred during
1995. The remaining settlement proceeds of $257,302 received during 1995 have
been deferred and are included in liabilities as deferred recoveries to offset
future construction costs. The Partnership incurred approximately $110,000 of
St. Andrews repair and legal costs through the third quarter of 1994 which were
not offset by any recoveries.
Rental revenue at Shadeland increased $50,464 to $924,653 for the current
period as compared to $874,189 for the comparable period. The increase is
primarily due to higher rental rates and expense reimbursements. The average
rental rate was $10.43 per square foot at September 30, 1995 and $10.08 at
September 30, 1994. Occupancy at Shadeland was stable at 96% as of September
30, 1995 and 1994. Expense reimbursements were lower in the comparable period
due to a refund to tenants of the 1993 over collection of expense
reimbursements in 1994. Operating expenses at Shadeland decreased $4,725 to
$197,107 for the current period as compared to $201,832 for the comparable
period. The decrease is due to higher snow removal costs during 1994
associated with the severe winter weather offset in part by lower bad debt
recoveries in the current period.
Recognized equity in joint venture loss represents the Partnership's share of
the net operating income less interest and depreciation of Greenbrier Towers.
The recognition of the Partnership equity in joint venture loss is limited to
the balance of its investment in the Joint Venture. The Partnership's share in
joint venture income for the nine months ended September 30, 1995 of $119,762
has been offset by the recognition of cumulative unrecognized losses which were
not previously recognized i n the prior year since the investment in joint
venture balance was reduced to zero as of December 31, 1994.
Partnership expense is comprised of general and administrative expenses and the
interest expense related to the Cash Flow Protector and General Partner loans
offset by interest earned on temporary investments. The increase of $29,137
to $317,700 for the current period as compared to $288,563 is primarily due to
the interest expense related to the General Partner loans incurred in
connection with the fourth quarter 1994 NEBC loan modification and general and
administrative costs offset in part b y increased interest income.
Total general and administrative expenses increased by $20,258 to $110,844 for
the current period as compared to $90,586 for the comparable period. General
and administrative expenses include various costs required for the
administration of the Partnership. The increase is primarily due to higher
professional fees and administrative costs.
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews and Shadeland and interest on the Cash Flow
Protector Loan from the USF&G General Partner and the General Partner loans.
Interest expense decreased $143,173 to $1,606,102 for the current period as
compared to $1,749,275 for the comparable period. The decrease is primarily
due to the successful loan modification during the fourth quarter of 1994 which
reduced the interest rate on the NEBC loan.
Depreciation and amortization expense increased by $70,401 to $905,698 for the
current period as compared to $835,297 for the comparable period. The increase
was primarily due to the amortization of leasing commission and tenant
improvement addition s at NEBC and the write off of unamortized NEBC tenant
improvements in vacant areas of the project with no remaining economic benefit.
Results of Operations
Net Income (Loss) Net Income (Loss)
for the Three for the Three
Months Ended Months Ended
September 30, 1995 September 30, 1994
NEBC $ (24,988) $ (19,894)
St. Andrews (106,710) (64,040)
St. Andrews Repair and Legal Costs,
Net (57,196) (62,562)
Shadeland 46,127 71,080
(142,767) (75,416)
Equity in Joint Venture Loss -
Greenbrier 0 (101,739)
Partnership Expense (104,700) (91,229)
$(247,467) $(268,384)
Three Months Ended September 30, 1995 ("Current Period")
as compared to September 30, 1994 ("Comparable Period")
The Partnership incurred a net loss of $(247,467) for the three months ended
September 30, 1995 ("current period"). Rental revenue for the current period
was $1,149,755 as compared to $1,144,572 for the three month period ended
September 30, 1994 (" the comparable period"). Property operating expenses
increased $110,577 to $477,870 for the current period from $367,293 for the
comparable period due primarily to increased occupancy at NEBC.
Rental revenue at NEBC increased $32,373 to $422,826 for the current period as
compared to $390,453 for the comparable period due to increased occupancy. The
occupancy at NEBC increased to 88% as of September 30, 1995 as compared to 78%
as of September 30, 1994. The occupancy for office and service center space
at September 30, 1995 was 88% and 87% respectively, as compared to 77% and 82%
respectively, at September 30, 1994. The increased office occupancy was due
primarily to the 14,589 square foot Electronic Data Systems lease in Building
5 executed during the third quarter of 1995. The net increase in service
center space was due to vacancies upon lease expiration in the fourth quarter
of 1994 offset by the signing of three new tenant leases. The average rental
rate at September 30, 1995 increased to $8.76 per square foot for office space
and decreased to $6.84 per square foot for service center space as compared to
$8.22 and $7.38, respectively, at September 30, 1994. The increase in the
office space average rental rate is due to the higher ADP rental rate. At the
renewal of the ADP lease in the fourth quarter of 1994, the lease was converted
from a triple net lease to a gross lease with a higher base rent component.
The decline in service center average rental rates is due to new tenant leases
at lower rental rates.
Operating expenses at NEBC increased $72,881 to $181,941 for the current period
as compared to $109,060 for the comparable period. The increase was primarily
due to increased utilities, real estate taxes and legal costs offset in part by
lower ground s and landscaping costs. Utilities are up due to the higher usage
and occupancy at Building 5 during 1995. The real estate taxes are higher in
the current period since the comparable period included a refund received as a
result of the successful tax appeal. Legal costs are higher due to the
reversal and capitalization during the comparable period of debt restructure
costs incurred earlier in the year. Grounds and landscaping costs are lower
due to a cost reduction in the new groundskeeping contract.
Rental revenue at St. Andrews decreased $14,758 to $436,700 for the current
period as compared to $451,458 for the comparable period. The decline in
rental revenue was due to the decline in rental rates. The average occupancy
at St. Andrews was 92% for the current and comparable periods. The average
monthly non-corporate rental rate during the current period decreased to $596
per unit as compared to $601 during the comparable period due to increased
rental concessions offered during the current period. The number of
corporate units decreased from five at September 30, 1994 to three at
September 30, 1995. Operating expenses at St. Andrews increased $24,756 to
$227,832 for the current period as compared to $203,076 for the comparable
period. The increase in operating expenses is primarily due to an increase in
payroll and security costs. Payroll costs are higher due to the addition of a
part time groundskeeper and security costs were higher due to the replacement
of apartment locks.
The St. Andrews repair and legal costs related to the construction problems
have been reclassified to that category from property operating expenses. The
Partnership has incurred significant engineering and legal costs at St. Andrews
related to assessing the construction problems and pursuing legal remedies
against responsible parties during 1995. To date, the Partnership has
negotiated settlements of $627,500, $565,000 of which was received during 1995
including $465,000 during the second quarter and $100,000 during the third
quarter. The remaining $62,500 settlement payment was received during the
fourth quarter of 1994 and used to offset certain construction costs incurred
during 1994. Approximately $308,000 of the settlements received during 1995
were used to offset certain engineering and construction costs incurred during
1995 including approximately $142,000 during the third quarter. Settlement
proceeds of approximately $257,000 have been deferred and are included in
liabilities as deferred recoveries to offset future construction costs. In
the third quarter of 1994, the Partnership incurred approximately $63,000 of
St. Andrews repair and legal costs which were not offset by any recoveries.
Rental revenue at Shadeland decreased $12,432 to $290,229 for the current
period as compared to $302,661 for the comparable period. The decrease is
primarily due to lower expense reimbursements. The average rental rate was
$10.43 per square foot at September 30, 1995 and $10.08 at September 30, 1994.
Occupancy at Shadeland was stable at 96% as of September 30, 1995 and
September 30, 1994. Expense reimbursements were lower in the current period
due to the earlier collection of reimbursable taxes in 1994. Operating
expenses at Shadeland increased $12,940 to $68,097 for the current period as
compared to $55,157 for the comparable period. The increase is primarily due
to an increase in bad debt and a general increase in property operating costs
during the current period.
Recognized equity in joint venture loss represents the Partnership's share of
the net operating income less interest and depreciation of Greenbrier Towers.
Due to the April 26, 1995 foreclosure, there were no items of income or loss
generated by the Joint Venture in the third quarter of 1995.
Partnership expense is comprised of general and administrative expenses and the
interest expense related to the Cash Flow Protector and General Partner loans
offset in part by interest earned on temporary investments. The increase of
$13,471 to $104,700 for the current period as compared to $91,229 is due to
the interest expense related to the General Partner loans incurred in
connection with the fourth quarter 1994 NEBC loan modification and increased
general and administrative expenses.
Total general and administrative expenses increased by $11,989 to $38,491 for
the current period as compared to $26,502 for the comparable period. General
and administrative expenses include various costs required for the
administration of the Partnership. The increase is primarily due to higher
professional fees.
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews and Shadeland and interest on the Cash Flow
Protector Loan from the USF&G General Partner and the General Partner loans.
Interest expense decreased $47,758 to $535,812 for the current period as
compared to $583,570 for the comparable period. The decrease is due to the
successful loan modification during the fourth quarter of 1994 which reduced
the interest rate on the NEBC loan.
Depreciation and amortization expense increased by $24,372 to $304,697 for the
current period as compared to $280,325 for the comparable period primarily due
to the amortization of leasing commissions and tenant improvement additions at
NEBC.
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) 10.48 Promissory Note for $3.5 million dated August 23, 1995 between
the Partnership and USF&G Realty Partners, Inc. relating to
the St. Andrews construction repair project.
(b) 10.49 Construction Loan Agreement (executed in connection with
Exhibit 10.48 above) dated August 23, 1995 between the
Partnership and USF&G Realty Partners, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, and in the capacity and on the date
indicated.
USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: USF&G Realty Partners, Inc.,
A General Partner
Date: November 14, 1995 JOSEPH A. WESOLOWSKI
Joseph A. Wesolowski
Vice President and Chief Accounting Officer
- 1 -
EXHIBIT 10.48
PROMISSORY NOTE
$3,500,000.00 August 23, 1995
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP, a
Maryland limited partnership (together with its successors and
assigns, the "Borrower"), for value received, hereby promises to
pay to the order of USF&G Realty Partners, a Maryland corporation,
its successors, assigns and endorsees (collectively, the "Lender"),
on or before September 1, 1997, as
herein provided and subject to the provisions of Section 3, the
principal sum of Three Million Five Hundred Thousand and 00/100
Dollars ($3,500,000.00), or so much thereof which the Lender has
advanced to the Borrower and which remains unpaid (the
"Outstanding Principal Balance"), and to pay interest on the
Outstanding Principal Balance from the date hereof until the
Outstanding Principal Balance is paid in full at the annual rate
of nine percent (9.0%) (the "Agreed Rate"). Interest shall be
calculated on the basis of twelve (12) 30-day months with any
partial month computed on the basis of a 360-day year.
The Borrower acknowledges that (i) the Outstanding
Principal Balance will be advanced on the terms and conditions
set forth in the Construction Loan Agreement dated as of this
date by and between the Borrower, as borrower, and the Lender, as
lender (the "Loan Agreement"); (ii) this Note is issued, and the
Outstanding Principal Balance will be advanced as provided by,
Section 5.2B(iv) of the Limited Partnership Agreement and Amended
Certificate of Limited Partnership of the Borrower dated as of
June 16, 1988, as amended by the Amendment to the Borrower's
Limited Partnership Agreement and Amended Certificate of Limited
Partnership dated as of October 4, 1994 (together, as further
amended from time to time, the "Partnership Agreement"); and
(iii) all amounts recovered by or on behalf of the Borrower from
third parties in connection with the causes of the Repairs (as
defined in the Loan Agreement), including but not limited to (A)
amounts recovered in the proceeding captioned USF&G/Legg Mason
Realty Partners Limited Partnership v. Cambridge Development/St.
Andrews Partners, Ltd., et al., Case No. 94-5189 (Cir. Ct. for
Orange County, Fla. filed June 23, 1994), (B) any settlement
thereof, or (C) any insurance proceeds received in connection
with the Repairs (collectively, the "Recovered Funds"), shall be
applied to the payment of any outstanding costs of the Repairs or
to payments of interest at the Agreed Rate and curtailments of
the Outstanding Principal Balance, as further provided by Section
3(b).
Principal and interest shall be payable at address of the
Lender set forth in Section 7, or at such other address as the
Lender may designate by Notice (defined in Section 7) to the
Borrower, in lawful money of the United States of America, in the
following manner:
(a) Subject to the other provisions of this Section 3,
beginning on September 1, 1995 and continuing on the first day of
each calendar month until the Outstanding Principal Balance is
paid in full, the Borrower shall pay to the Lender monthly
installments of interest at the Agreed Rate, in arrears, with a
prorated payment of interest for any initial or final partial
calendar month. The Lender shall apply all amounts received
first to accrued and unpaid interest on the Outstanding Principal
Balance, then second to the Outstanding Principal Balance;
(b) The Borrower shall, in the amounts of all (i)
Borrower's cash, after payment of Operating Cash Expenses (as
defined in the Partnership Agreement) and funding of the Reserves
(as defined in the Partnership Agreement) (such amount is called
"Net Operating Income"), (ii) Recovered Funds, and (iii) Sale or
Refinancing Proceeds (as defined in the Partnership Agreement)
received by the Borrower, first pay any outstanding costs of the
Repairs promptly upon receipt of such amounts, then second pay
interest at the Agreed Rate and curtailments of the Outstanding
Principal Balance when due as provided by Section 3(a);
(c) To the extent that (i) Net Operating Income; (ii)
Recovered Funds; and (iii) Sale or Refinancing Proceeds available
to the Borrower are insufficient to pay the full amount of any
installment of interest at the Agreed Rate due and payable for
the corresponding calendar month as provided by Section 3(a), the
amount of such deficiency shall be accrued but shall not be added
to the Outstanding Principal Balance;
(d) The Borrower shall be entitled to a grace period
of fifteen (15) days in which to cure any failure to make a
payment of interest or principal when required by this Note. If
such payment is not received or any other default hereunder not
cured before the expiration of such 15-day grace period, the
Lender may, at its option, declare the Outstanding Principal
Balance, together with all accrued and unpaid interest thereon,
to be immediately due and payable and to accelerate the Maturity
Date of this Note;
(e) The Outstanding Principal Balance and all accrued
and unpaid interest thereon, if not sooner paid, shall be due and
payable on the date which is the earliest to occur of (i) the
date of closing of a sale, transfer or refinancing of all or any
part of the Real Property (as defined in the Loan Agreement),
(ii) acceleration, as provided by Section 3(d), (iii) prepayment
in full by the Borrower, as provided by Section 3(f), or (iv)
September 1, 1997 (such earliest date is called the "Maturity
Date");
(f) The Borrower may prepay the Outstanding Principal
Balance in full or in part at any time before the Maturity Date
without penalty; and
(g) The obligation of the Borrower to make interest
and principal payments as provided by this Note (i) shall be
limited to the extent of available (A) Net Operating Income, (B)
Recovered Funds, and (C) Sale or Refinancing Proceeds; (ii) shall
be subordinate to the obligation of the Borrower to make payments
of debt service and escrowed funds to unrelated creditors of the
Borrower; but (iii) shall have priority over the distribution of
Distributable Cash Flow (as defined in the Partnership Agreement)
and Sale or Refinancing Proceeds to partners of the Borrower.
(h) The Borrower covenants and warrants to the Lender
that the Borrower shall (i) not make or permit such distributions
of Distributable Cash Flow or Sale or Refinancing Proceeds to be
made to partners of the Borrower until the Outstanding Principal
Balance and all accrued and unpaid interest thereon have been
paid in full; and (ii) hold in reserve all Net Operating Income
and Recovered Funds exclusively to pay first any outstanding
costs of the Repairs, then second to pay amounts of interest and
principal as provided by this Note. The partners of the Borrower
shall have no obligations or liabilities under this Note.
Should any indebtedness represented by this Note be
collected at law or in equity, or in bankruptcy or other
proceeding, or this Note be placed in the hands of attorneys for
collection after any default hereunder, the Borrower agrees to
pay, in addition to the Outstanding Principal Balance and all
accrued and unpaid interest thereon, all actual costs of
collecting or attempting to collect this Note, including the
actual fees and expenses of the Lender's counsel (including those
incurred in connection with any appeal).
The Borrower expressly waives presentment, protest and
demand, notice of protest, demand, intention to accelerate the
maturity of this Note, dishonor and nonpayment of this Note, and
all other notices of any kind, and expressly agrees that this
Note, or any payment hereunder, may be extended from time to time
without in any way affecting the liability of the Borrower and
endorsers hereof.
If any provision (or any part of any provision) contained
in this Note shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision (or
remaining part of the affected provision) of this Note, but this
Note shall be construed as if such invalid, illegal or
unenforceable provision (or part thereof) had never been
contained herein but only to the extent it is invalid, illegal or
unenforceable.
All notices, demands, elections, deliveries and other
communications between the Borrower and the Lender required or
desired to be given in connection with this Note ("Notices"), to
be effective hereunder, shall be in writing and shall be deemed
to be given and received when (a) delivered personally; or (b)
deposited with the United States Postal Service as certified
mail, return receipt requested, with postage prepaid and
addressed as follows:
If to the Borrower,
USF&G/Legg Mason Realty Partners Limited
Partnership
c/o USF&G Real Estate Division
100 Light Street
Tenth Floor
Baltimore, Maryland 21202
Attention: Charles R. Werhane, General
Manager
with a copy to
Legg Mason Realty Partners, Inc.
Legg Mason Towers
111 South Calvert Street
Baltimore, Maryland 21203
Attention: Richard J. Himelfarb
And if to the Lender,
USF&G Realty Partners, Inc.
c/o USF&G Real Estate Division
100 Light Street
Tenth Floor
Baltimore, Maryland 21202
Attention: Charles R. Werhane, General
Manager
Either the Borrower or the Lender may from time to time designate
another address for the receipt of future Notices by a Notice
given as provided in this Section 7 to the other party at the
address set forth in, or as last provided by such other party in
accordance with, this Section 7.
Time is of the essence of this Note.
This Note shall be governed by, construed and enforced in
accordance with the laws of the State of Maryland.
No provision of this Note shall require the payment or
permit the collection of interest in excess of the maximum
permitted by law. If any such excess interest is so provided
for, or adjudicated to be so provided for in this Note, the
Borrower shall not be obligated to pay such interest in excess of
the amount permitted by law, the right to demand the payment of
any such excess shall be and is hereby waived, and this provision
shall control any other provision of this Note, the Mortgage, or
the other Loan Documents.
The Borrower acknowledges and agrees that this Note does
not provide for interest rates and other finance charges and fees
in excess of the amounts charged by unrelated banks on comparable
loans for the same purpose, in the same locality of the Premises,
as provided by Section 5.2B (iv) of the Partnership Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Promissory
Note to be duly executed and delivered under seal this 23rd day
of August, 1995, effective as of the date first written above.
WITNESS: USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP, a Maryland
limited partnership, Borrower
By: USF&G Realty Partners, Inc., a
Maryland corporation, general
partner
NICHOLAS F. MCCOY By: CHARLES R. WERHANE
Its: Vice President
By: Legg Mason Realty Partners,
Inc., a Maryland corporation,
general partner
By: RICHARD J. HIMELFARB
Its: President
- 1 -
EXHIBIT 10.49
CONSTRUCTION LOAN AGREEMENT
(St. Andrews Apartments, Orlando, Florida)
THIS CONSTRUCTION LOAN AGREEMENT ("this Agreement") is made
as of the 23rd day of August, 1995 by and between USF&G/LEGG MASON
REALTY PARTNERS LIMITED PARTNERSHIP, a Maryland limited
partnership, having its principal place of business at
100 Light Street, Baltimore, Maryland 21202 (the "Borrower"),
as borrower, and USF&G Realty Partners, Inc., a Maryland corporation
(the "Lender"), as lender.
Introduction
Borrower owns the improved real property located in Orange
County, Florida, commonly known as St. Andrews Apartments at
Westwood, consisting of approximately 14.5519 acres of land, more
particularly described in Exhibit A to this Agreement, located on
Westwood Boulevard in the City of Orlando, Orange County,
Florida, with the 16 two- and three-story buildings located
thereon containing 259 apartment units with not less than 216,560
aggregate net rentable square feet, and with 449 outside parking
spaces (the "Real Property").
Lender has made a loan to Borrower (the "St. Andrews Repair
Loan") for certain repairs to be made to the buildings located on
the Real Property, as more particularly described in Exhibit B to
this Agreement (the "Repairs"). To evidence the terms of
repayment of the St. Andrews Repair Loan, Borrower has executed
and delivered to Lender Borrower's $3,500,000 Promissory Note
dated this date (the "Note"). This Agreement and the Note are
together called the "Loan Documents."
As provided by this Agreement, Lender will disburse the
proceeds of the Note to Borrower, and Borrower will use such
proceeds to perform the Repairs.
Agreement
THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Repairs to the Real Property.
(a) Borrower shall perform the Repairs on the Real
Property as provided by the AIA A111 Standard Form of Agreement
Between Owner and Contractor dated this date by and between
Borrower, as owner, and Leffler Enterprises, Inc., as contractor,
a copy of which is attached to this Agreement as Exhibit B.
(b) Neither the acceptance nor approval by Lender of
any construction plans for the Repairs, nor any subsequent
inspections or approvals of the Real Property during construction
shall constitute a warranty or representation by Lender as to the
technical sufficiency, or adequacy or safety of the improvements
or any component parts thereof, nor shall such approvals or
inspections constitute such a warranty or representation as to
the subsoil conditions involved in the Real Property or any other
physical condition or feature pertaining to the Real Property.
Payments of Costs and Expenses.
Borrower shall pay all costs of performing the Repairs,
including, but not limited to, the fees and expenses of the
Consulting Engineer (defined in Section 4).
Contractors.
If any contractor or supplier of materials contracting
directly with Borrower for the Repairs (a "General Contractor"),
does not proceed diligently with the completion of or fails to
complete such work due to causes within the control of such
General Contractor, after the giving of notice and opportunity to
cure as provided by such General Contractor's contract, Borrower,
upon request by Lender, shall cause another General Contractor
satisfactory to Lender to complete the work. Borrower and such
new General Contractor shall execute a contract reasonably
satisfactory to Lender for the construction of the work.
Borrower shall make no changes in any contract directly between
Borrower and a contractor or supplier of materials (a "General
Contract") or in any major subcontract thereof, other than minor
changes in the field necessary to meet the practicalities of the
circumstances and of which Borrower notifies Lender promptly,
without the prior written consent of Lender.
Consulting Engineer.
Lender has approved Simpson Gumpertz & Heger, Inc. (the
"Consulting Engineer") to review any construction plans for the
Repairs and to inspect the performance of the Repairs from time
to time, at Borrower's sole cost.
Non-assignability.
Borrower shall not assign this Agreement, or assign,
encumber or hypothecate Borrower's rights to any advances of
proceeds of the St. Andrews Repair Loan under this Agreement
without the prior written consent of Lender. No right to an
advance hereunder shall be subject to the process of any court
upon legal action by or against Borrower or by or against anyone
claiming through or under Borrower.
Advances.
(a) Lender has retained the proceeds of the Note (the
"Note Funding"), to advance to Borrower on a monthly basis in
connection with the Repairs as provided by Section 1(a). Lender
shall advance the Note Funding for the Repairs in amounts equal
to the lesser of (i) the amounts set forth in the draw schedule
attached as part of Exhibit B to this Agreement (the "Draw
Schedule") for such uses, or (ii) the actual costs incurred by
Borrower for such uses and not paid out of the Recovered Funds
(as defined in the Note), and as further provided by this
Agreement.
(b) Lender shall only make advances of the Note
Funding upon satisfaction of the following conditions precedent:
(i) No Event of Default shall have occurred and be
continuing;
(ii) Receipt by Lender of a request for such
advance in writing and in such detail as Lender shall reasonably
require (a "Draw Request");
(iii) Receipt by Lender of evidence satisfactory
to Lender of the approval, if so required, by all governmental
authorities having jurisdiction over the Real Property and of any
construction plans, as applicable, with respect to the work for
which the advance is requested;
(iv) Receipt by Lender of the Consulting
Engineer's certificate stating that, with respect to the work for
which the advance is requested, such work has been substantially
completed in accordance with any construction plans, this
Agreement and the Draw Schedule, as applicable, all applicable
building codes, laws, statutes and regulations;
(v) Determination by Lender that the amounts
requested to be advanced are not in excess of those provided by
Section 6(a) or Section 7, as applicable, and that the uses of
such funds are as provided thereby; and
(vi) Satisfaction of all conditions precedent to
the commencement of the Repairs, as provided by Section 8.
Draw Procedures.
Subject to compliance by Borrower with all of the terms,
provisions and conditions of this Agreement, all advances of the
Note Funding shall be made as provided by the following
procedures:
(a) Lender may make any or all advances to Borrower
or, at Lender's sole option, jointly to Borrower and any one or
more of the General Contractors or subcontractors thereof. By
making one or more advances directly to Borrower, Lender does not
waive the right at any time or from time to time to make future
advances jointly to Borrower and any one or more of the General
Contractors or subcontractors thereof. Notwithstanding the other
provisions of this Agreement, upon the occurrence of an Event of
Default, Lender may, at its sole option and without liability to
Borrower, make all advances or any advance directly to any
General Contractor or subcontractor thereof or to any combination
of them, and shall pay all loan fees, taxes, appraisals,
inspection fees, recording charges, legal fees and any other
outstanding amounts due, relating to the St. Andrews Repair Loan
and to the Repairs. Any such advance or payment shall be deemed
to have been made to Borrower or for its account;
(b) Borrower shall submit each Draw Request to Lender
not less than three (3) days before the date on which Borrower
desires such advance, and Lender shall have three (3) days within
which to fund each such Draw Request. Lender shall not make
advances more than once each calendar month;
(c) Lender shall make no advances for (i) materials
which are not physically incorporated into the Real Property,
unless suitably stored on-site as approved by Lender; or (ii)
improvements to the Real Property other than as provided by
Section 1(a);
(e) Lender shall limit the total amount of the Note
Funding advanced at any time to an amount which, when deducted
from $3,500,000.00, leaves a balance to be advanced which is
equal to the cost of completion of the work described in Section
1(a) and shown on any construction plans for the Repairs, all as
determined by Lender and the Consulting Engineer from time to
time; and
(f) Lender shall make no advances of the Note Funding
after September 1, 1997. Lender shall not be obligated to
readvance any portion of the Note Funding after the Borrower has
repaid such portion to Lender, or to advance any portion of the
Note Funding for which all conditions to disbursement, as set
forth in this Agreement, have not been satisfied on or before
September 1, 1997.
Commencement of Work.
The following are conditions precedent to the commencement
of the Repairs:
(a) No Event of Default shall have occurred and be
continuing;
(b) Receipt by Lender of evidence satisfactory to
Lender of the approval, if so required, by all governmental
authorities having jurisdiction over the Real Property, of any
construction plans, as applicable, with respect to such Repairs;
(c) Receipt by Lender of copies of all required
permits by all governmental authorities having jurisdiction over
the Real Property, for the work shown on any construction plans,
as applicable, with respect to such Repairs;
(d) The Consulting Engineer shall have in its
possession a set of any Construction Plans for the Repairs, as
applicable, satisfactory to the Consulting Engineer, the sheets
of which are initialed or signed on behalf of all applicable
General Contractors, Borrower and Lender, or otherwise approved
in writing by such parties; and
(e) Receipt by Lender of all of such items with
respect to all of the Repairs previously commenced on the Real
Property.
Liability of Lender.
(a) Lender shall in no event be responsible or liable
to any person other than Borrower for any advance of or failure
to advance the proceeds of the Note Funding or the Note B Funding
or any part thereof. No General Contractor, subcontractor,
supplier or other person shall have any right or claim against
Lender under this Agreement or the administration thereof.
(b) Lender shall not be liable hereunder for any act
or omission by it, in the absence of gross negligence or fraud.
Lender shall incur no liability to Borrower by acting upon any
certificate or other paper believed by Lender to be genuine and
purporting to be signed by the proper party or with respect to
anything which Lender may do or refrain from doing unless it
amounts to gross negligence or fraud. Lender may consult with
counsel selected by Lender, and any action taken or suffered in
good faith by Lender in accordance with the opinion of such
counsel shall be full justification and protection to Lender.
Costs of Closing and Administration.
Borrower shall pay all actual costs incurred by Lender in
connection with the closing of the St. Andrews Repair Loan,
including, but not limited to, all of Lender's actual attorneys'
fees. Borrower shall also pay, promptly upon request by Lender,
all actual costs of Lender in administering future advances under
this Agreement or otherwise in connection with the administration
and management of the St. Andrews Repair Loan, including but not
limited to all actual costs in connection with advances, releases
of the Real Property, bonds, title matters and title insurance,
attorneys fees or any other matter relating to this Agreement or
otherwise relating to the continuing aspect of the St. Andrews
Repair Loan. No such costs shall be funded out of the Note
Funding.
Representations, Covenants and Warranties.
Each executed Draw Request, and the receipt of the funds
requested thereby, shall constitute an affirmation that the
representations, covenants and warranties of Borrower set forth
herein are true and correct as of the date thereof. Borrower
makes the following representations, covenants and warranties to
and with Lender:
(a) Borrower shall use all advances of the Note
Funding to pay the costs of the Repairs as provided by Section
1(a) and the Draw Schedule, as applicable, including payments of
costs due and payable to all General Contractors and
subcontractors and materials suppliers thereof; and
(b) The Construction Plans have been or will be
approved by all governmental authorities having jurisdiction over
the work shown on such plans, and all necessary building permits
and all other governmental and private authorizations and
approvals have been or will be obtained, as provided by this
Agreement.
Events of Default and Remedies.
The occurrence of one or more of the following events (an
"Event of Default") shall constitute a default under this
Agreement:
(a) If a default has occurred under any term,
condition, covenant, representation or warranty of the Note and
any applicable cure period or grace period thereunder has
expired;
(b) If a default has occurred under any term,
condition, covenant, representation or warranty of this
Agreement, except as otherwise expressly provided in this Section
12, and any applicable cure period or grace period hereunder has
expired;
(c) If Borrower does not perform the Repairs in
substantial compliance with any construction plans therefor
approved by Lender, as applicable (as amended from time to time
with the approval of Lender), and in accordance with all
applicable governmental requirements, or fails promptly to submit
to Lender and to the Consulting Engineer all amendments and
supplements to such construction plans, or in any event fails to
so submit them on or before the next succeeding requisition;
(d) If any court of competent jurisdiction shall sign
an order (i) adjudicating Borrower bankrupt, (ii) appointing a
trustee or receiver of the Real Property or of a substantial part
of the property of Borrower, or (iii) approving a petition for,
or effecting, an arrangement or reorganization in bankruptcy, or
any other judicial modification or alteration of the rights of
Lender or of other creditors of Borrower; or if Borrower shall
(iv) file any petition, (v) consent to any action, or (vi) seek
relief under any laws affecting creditor's rights; or if Borrower
shall make an assignment for the benefit of creditors or shall
admit in writing inability to pay debts generally as they become
due; or
(e) If Borrower fails to pay any sums due and owing
(except sums involved in good faith disputes, for which Borrower
has furnished security satisfactory to Lender) to a General
Contractor, subcontractor thereof or materials supplier, upon his
demand or upon the demand of Lender, for work done on or in
connection with the Real Property.
(f) Lender shall give Borrower thirty (30) days notice
thereof, and Borrower shall have the right to cure within such
period, for any default under Sections 12(a) through 12(e).
Lender's Rights to Complete.
(a) Lender may, after an Event of Default has occurred
and is continuing, but shall not be obligated to, apply any
unadvanced part of the Note Funding to the payment of all costs
and expenses that may be incurred by Lender to complete the
Repairs as provided by this Agreement and to the payment of
interest on or principal of the Note, in any order acceptable to
Lender.
(b) If an Event of Default occurs and is continuing,
Lender may, at its election, proceed to complete the Repairs.
For that purpose, Lender may employ such contractors, agents and
employees as it deems appropriate and may advance any proceeds of
the Note Funding remaining unadvanced. Lender may, but shall not
be obligated to, (i) perform all the obligations of Borrower
under the terms of this Agreement, with such amendments as Lender
shall deem appropriate; and (ii) exercise all the rights and
powers of Borrower under Borrower's contracts with General
Contractors, the contracts with Borrower's architects and
engineers and such other contracts and agreements as Borrower has
executed or should have executed or intends to execute in
connection with completion of the Repairs, and payment of all
costs relating thereto. Borrower hereby grants to Lender full
power and authority to do whatever is necessary or appropriate to
complete the Repairs and pay all costs in connection therewith,
exercisable only after the occurrence of an Event of Default.
(c) Upon the occurrence of an Event of Default,
Lender, at its sole discretion, may continue to make advances of
the Note Funding. All sums so advanced shall be deemed advances
under this Agreement and not modifications thereof.
Miscellaneous.
(a) Notices. All notices, demands and other
communications between Borrower and Lender required or desired to
be given in connection with this Agreement, to be effective
hereunder, shall be given as provided by the Note.
(b) No Waiver; Cumulative Remedies. No failure by
Lender to exercise, and no delay in exercising, any right, power
or privilege under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other further exercise
thereof or the exercise of any other right, power or privilege.
Each waiver shall be strictly construed and shall apply only to
the next succeeding advance.
(c) Survival of Agreements. All agreements,
representations, covenants and warranties of Borrower made in
this Agreement shall survive the making of the advances
hereunder.
(d) Successors. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
successors and permitted assigns. Borrower may not assign this
Agreement without the prior written consent of Lender, and any
assignment attempted by Borrower without such consent shall be
void. Wherever the word "Lender" is used herein it shall be
deemed to include also the successors and assigns of Lender. The
word "Borrower" shall include the successors of Borrower and
shall include those assignees of Borrower consented to in writing
by Lender. No consent by Lender to an assignment shall be deemed
to be a waiver of the requirement of consent by Lender of each
and every further assignment, as a condition precedent to the
effectiveness of such assignment.
(e) Time. Time is of the essence of this Agreement.
(f) Changes. The terms, conditions and provisions of
this Agreement may only be modified, waived or terminated in
writing, signed by the parties.
(g) Applicable Law. The performance, construction and
enforcement of this Agreement shall be governed by the laws of
the State of Maryland.
IN WITNESS WHEREOF, the parties have caused this
Construction Loan Agreement to be executed and delivered under
seal as of the date first written above.
WITNESS: USF&G Realty Partners, Inc., a
Maryland corporation, Lender
NICHOLAS F. MCCOY By: CHARLES R. WERHANE
Its: Vice President
WITNESS: USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP, a Maryland
limited partnership, Borrower
By: USF&G Realty Partners, Inc., a
Maryland corporation, general
partner
NICHOLAS F. MCCOY By: CHARLES. R WERHANE
Its: Vice President
By: Legg Mason Realty Partners,
Inc., a Maryland corporation,
general partner
By: RICHARD J. HIMELFARB
Its: President
EXHIBIT A
Description of Real Property
EXHIBIT B
Contract For Repairs
