SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
---------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
December 31, 1996 Commission File No. 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
incorporation or organization) Identification No.)
6225 Smith Avenue, Life Building (B1), Baltimore, Maryland 21209
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (410) 205-6900
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Units of Assignee Limited Partnership Interests
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 over the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Document from Which Portions Part of Form 10-K to which
are Incorporated by Reference Incorporated by Reference
1.Prospectus dated June 28, 1988 Part I, Part II and Part III
2.Prospectus Supplement No.1 dated Nov. 7, 1988 Part I
3.Prospectus Supplement No.2 dated Feb. 10, 1989 Part I
4.Prospectus Supplement No.4 dated May 18, 1989 Part I
5.Prospectus Supplement No.5 dated August 7, 1989 Part I
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Assignee Limited Partnership
Units and Related Security Holder Matters 6
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 19
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosures 42
PART III
Item 10 Directors and Executive Officers of the Partnership 43
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 47
Signatures 52
<PAGE>
PART I
Item 1. Business.
USF&G/Legg Mason Realty Partners Limited Partnership (the "Partnership") was
organized as a limited partnership under the Maryland Revised Uniform Limited
Partnership Act pursuant to a Certificate of Limited Partnership filed with the
Maryland State Department of Assessments and Taxation on April 12, 1988 and a
Limited Partnership Agreement and Amended Certificate of Limited Partnership
dated as of June 16, 1988 as subsequently amended (the "Partnership Agreement").
The Partnership was formed to acquire, hold, lease and ultimately dispose of
income-producing commercial and multifamily residential rental properties
located primarily in the Eastern United States. The General Partners of the
Partnership are USF&G Realty Partners, Inc., a Maryland corporation (the "USF&G
General Partner"), and Legg Mason Realty Partners, Inc., a Maryland corporation
(collectively, the "General Partners").
On June 28, 1988, the Registration Statement filed by the Partnership with the
Securities and Exchange Commission pursuant to an offering of 1,400,000 units of
Assignee Limited Partnership Interests ("Units") at $25 per Unit (with an option
to increase the number of Units offered for sale by up to 600,000 additional
Units) (the "Offering") was made effective. The initial closing for investors
was held on July 13, 1988. Reference is made to pages 2 to 7 of the
Partnership's Prospectus dated June 28, 1988, which is incorporated by reference
herein, for further information regarding the Offering.
On July 17, 1989, the assignee limited partners (the "Unitholders") of the
Partnership voted to authorize the General Partners to extend the offering
period to September 15, 1989, or such other date as the General Partners deemed
to be in the best interest of the Partnership, but no later than June 28, 1990.
The General Partners agreed to extend the offering period to December 31, 1989,
at which time the Offering terminated.
The USF&G General Partner and Legg Mason Realty Partners, Inc. contributed $900
and $100, respectively, to the Partnership, and the USF&G Assignor Limited
Partner, Inc. (the "Assignor Limited Partner") contributed $100, representing
the purchase of four Units. As of December 31, 1989, 1,094,283 Units had been
sold for aggregate gross proceeds of $27,357,075. This includes 400,000 Units
purchased by Fidelity and Guaranty Life Insurance Company, an affiliate of the
USF&G General Partner.
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. As of
December 31, 1990, substantially all of the offering proceeds available for
investment had been invested in four real property investments (the
"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"). The Partnership owned a fifty percent general
partnership interest in the Greenbrier Joint Venture. On April 26, 1995, the
Greenbrier Joint Ventures' sole property, Greenbrier Towers, was purchased by
the lender at foreclosure. The Greenbrier Joint Venture general partners
dissolved the Greenbrier Joint Venture during 1996.
The Partnership is in competition for tenants for the Properties with numerous
other entities engaged in real estate investment activities including other real
estate investment partnerships, individuals, corporations, and real estate
investment trusts ("REITs"). When evaluating a particular location to lease, a
tenant may consider many factors, including, but not limited to, space
availability, rental rates, lease terms, access, parking, quality of
construction, and quality of management. While the General Partners believe that
the Properties are generally competitive in terms of these factors, there can be
no assurance that, in the view of a prospective tenant, other properties may not
be more attractive.
The Partnership has no employees. The General Partners or affiliates employ
persons and contract with other entities and parties in the operation and
management of the business of the Partnership. Reference is made to the
description of management of the Partnership incorporated by reference from
"Item 10. Directors and Executive Officers of the Partnership" of this Annual
Report on Form 10-K. A detailed description of the real property investments is
incorporated by reference from "Item 2. Properties" of this Annual Report on
Form 10-K.
Item 2. Properties.
Shadeland Retail Center
On August 1, 1990, the Partnership acquired Shadeland Retail Center
("Shadeland"), located in Indianapolis, Indiana, from unaffiliated sellers for a
contract price of $9,690,850. In connection with the purchase, the Partnership
assumed a loan in the amount of $4,387,142. Shadeland consists of two
single-level neighborhood retail projects, Shadeland Station and Shadeland
Shoppes, containing in the aggregate approximately 105,000 net rentable square
feet on approximately 12.4 acres. The appraised value of Shadeland as of
December 1, 1996 was $9,890,000, an increase of $40,000 from December 1, 1995.
The increase was due primarily to increased occupancy as of the appraisal's
effective valuation date.
As of December 31, 1996, Shadeland was approximately 83% leased. Shadeland is
anchored by Marsh Supermarket and Osco Drugs, Inc. ("Osco"). During the fourth
quarter of 1995, Ace Hardware, a tenant in the Shadeland Shoppes, vacated its
8,000 square foot space at the end of its lease due to increased competition in
the immediate area. The Partnership continues to evaluate subdividing this still
vacant space for new or existing tenants. Net rental rates at Shadeland range
from $6.31 to $17.50 per square foot as of December 31, 1996. Operating leases
with tenants range in original term from 3 to 20 years. Approximately 20% of the
square feet leased as of December 31, 1996 will expire during 1997. The
following tenants leased more than 10% of the total rentable space leased at
Shadeland as of December 31, 1996:
% of Total Rentable
Space Leased as of
Tenant 12/31/96 Lease Expirations
------ ------------------- -----------------
Marsh Supermarket 35% 5/02/02
American Drug Stores, Inc. 13% 6/30/02
(dba, Osco Drugs, Inc.)
During 1996, the Partnership continued discussions with Marsh Supermarkets and
Osco regarding Marsh's expansion desires and submitted an expansion proposal to
Osco during the fourth quarter. Osco has rejected the expansion proposal thereby
preventing Marsh from expanding the front of their store into the parking lot.
The Partnership will continue to pursue Marsh's partial expansion, which does
not require Osco's approval, of 8,000 square feet toward the road to the north
of the shopping center. Expanding to the north is permitted since it will not
obstruct the visibility of Osco's store. The Partnership does not anticipate any
Marsh expansion during 1997. Marsh believes expansion is necessary so that it
does not lose market share to the Krogers Supermarket two miles away to the
east. Marsh has indicated its belief that the Shadeland store will not lose
significant market share to the new Marsh Superstore located two miles to the
northeast, based on Marsh's evaluation of the traffic patterns in the area.
Further discussion relating to Shadeland is incorporated by reference from Notes
B and G of the Notes to Financial Statements of the Partnership in "Item 8.
Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
St. Andrews Apartments at Westwood
On June 28, 1990, the Partnership purchased St. Andrews Apartments at Westwood
("St. Andrews") from an unaffiliated seller for a contract price of $13,700,000.
In connection with the purchase, interim financing in the amount of $8,500,000
was obtained from an affiliate of the USF&G General Partner. On August 14, 1990,
the Partnership replaced the interim financing with permanent financing in the
amount of $8,500,000 from an unaffiliated lender.
St. Andrews is located in Orlando, Florida and consists of 16 two-story and
three-story apartment buildings on 14.55 acres. The garden-style apartment
buildings contain 259 units with an aggregate of approximately 217,000 rentable
square feet. Construction repairs to address the numerous construction
deficiencies discovered during 1994 were completed during 1996. In addition, new
windows were installed and roofs replaced. Since discovery of the design and
construction deficiencies at St. Andrews, the Partnership has incurred
approximately $3,700,000 in contract construction costs and $850,000 in
engineering and related expenses in order to correct those deficiencies. These
expenditures include the costs associated with modifications to the original
$3,000,000 repair contract to install new windows and replace the roofs. In
addition, the Partnership has incurred $699,000 in legal fees and related
expenses in pursuing claims against potentially responsible parties as described
below. Those claims have resulted in recoveries by the Partnership of $707,500
through the end of 1996, and an additional $1,525,000 in settlements from
January 1, 1997 through March 7, 1997. (The additional $1,525,000 is carried as
a receivable on the Partnership's balance sheet as of December 31, 1996.) In
addition, $500,000 in insurance recoveries have been received with respect to
these matters.
The Partnership filed suit in state court in Orlando, Florida against the
seller, builder, developer, architect, product manufacturer, engineers, as well
as several other parties involved in the St. Andrews project. The suit seeks
recovery for the costs of the repairs as well as other consequential damages.
Further discussion relating to St. Andrews is incorporated by reference from
Notes B, G, and J of the Notes to Financial Statements of the Partnership in
"Item 8. Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
The appraised value of St. Andrews as of December 1, 1996 was $12,000,000 as
compared to $11,800,000 at December 1, 1995 which assumed completion of repairs.
The increase in the appraised value of $200,000 reflected the continued strength
of the Orlando apartment market.
As of December 31, 1996, St. Andrews was approximately 93% leased, the average
monthly non-corporate rental rate was $624/unit and the lease terms range from
seven to twelve months. The apartment market in the area continues to be very
strong and occupancies of St. Andrews' main competitors range from 90% to 99%. A
new apartment community, The Mission Club, a 352-unit luxury complex located
within one mile of the St. Andrews complex, was completed during the second
quarter of 1996. The new complex has had little impact on St. Andrews occupancy
and leasing activity has remained strong due to the strength of the market.
Northeast Business Campus
On November 8, 1988, the Partnership acquired Northeast Business Campus ("NEBC")
from an unaffiliated seller for $13,430,000 in cash. On August 22, 1989, the
Partnership obtained permanent financing from an unaffiliated lender for NEBC in
the amount of $7,975,000. NEBC is an office/service center complex comprised of
five buildings containing an aggregate of approximately 180,000 rentable square
feet, located in suburban Columbus, Ohio. NEBC consists of one two-story office
building containing 71,000 rentable square feet, constructed in 1984, two
one-story office buildings constructed in 1981, each containing approximately
31,100 rentable square feet, and two service center buildings constructed in
1981, each containing approximately 23,500 rentable square feet, situated on
19.95 acres.
As of December 31, 1996, NEBC was approximately 91% leased. Rental rates ranged
from $11.19 to $13.97 per square foot for office space and from $5.50 to $9.94
per square foot for service center space as of December 31, 1996. Operating
leases with tenants range in original term from one to five years. Approximately
27% or 43,500 of the current square feet leased as of December 31, 1996 will
expire during 1997 of which approximately 9,900 square feet was released by the
end of 1996.
The following tenants leased more than 10% of the total rentable space leased at
NEBC as of December 31, 1996:
% of Total Rentable
Space Leased as of
Tenant 12/31/96 Lease Expirations
------ ------------------- -----------------
Cigna 25% 6/30/99
Automatic Data Processing 19% 3/31/98
The appraised value of NEBC as of December 1, 1996 was $9,700,000 as compared to
$9,500,000 at December 1, 1995. The increase of $200,000 in the appraised value
from 1995 was due primarily to increased occupancy and market rental rates.
Occupancy increased to 91% at December 31, 1996 from 88% at December 31, 1995
due primarily to the 14,600 square foot Express Med expansion into Building 1
during the fourth quarter of 1996. This tenant previously occupied approximately
4,300 square feet in Building 3. Under the terms of their new lease, this tenant
initially occupied 14,600 square feet in Building 1 with a commitment to expand
into an additional 6,300 square feet in the second quarter of 1997 after the
current tenant's lease expires.
The Partnership reached an agreement with the NEBC lender to restructure the
NEBC mortgage during 1994. The modification improved NEBC's cash flow, thereby
allowing the Partnership to offer more competitive levels of tenant improvements
to prospective tenants. Under the terms of the loan restructure, the lender
received a participation interest in the property and all future cash flow
generated by the NEBC property is required to be held in a reserve account to be
used only for the benefit of NEBC or to meet obligations to the lender.
Further discussion relating to NEBC is incorporated by reference from Notes B
and G of the Notes to Financial Statements of the Partnership in "Item 8.
Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K. Also refer to pages 1 to 5 of Prospectus
Supplement No. 1 dated November 7, 1988, which is incorporated by reference
herein, and page 1 of Prospectus Supplement No. 2 dated February 10, 1989, which
is incorporated by reference herein, for additional information concerning NEBC.
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Partnership's business, to which the Partnership is
a party or of which any of the Partnership's Properties is the subject, other
than the suit filed by the Partnership against numerous parties in regard to the
design and construction problems at St. Andrews. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K.
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 1996 fiscal period covered by this report through solicitation of
proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Partnership's Assignee Limited Partnership Units and
Related Security Holder Matters.
Presently there is no public market for the Units and there is no expectation
that one will develop. Consequently, Unitholders may not be able to liquidate
their investment in the event of emergency or for any other reason. Further, the
transfer of Units is subject to certain limitations. As of December 31, 1996,
there were 1,097 Unitholders, owning an aggregate of 1,094,283 Units.
The General Partners have considered taking steps to facilitate the trading of
the Units. The General Partners believe that in view of the current value of the
Partnership's portfolio, and in certain cases the uncertainties regarding the
future prospects of its properties, as well as the generally unfavorable market
conditions for the resale of limited partnership interests and the costs
associated with certain types of actions to facilitate a trading market, an
effort to facilitate such a market would not be appropriate, and not feasible,
at this time. In addition, if a trading market in the Units were to be
facilitated, the value of the Units in any such market could be less than the
Right of Presentment purchase price discussed below.
In accordance with the Partnership Agreement of the Partnership, beginning May
1992, and on each anniversary period thereafter, the USF&G General Partner has
offered to purchase, under the Right of Presentment Program, up to 2% (13,886)
of the total number of Units originally issued to Investors, which does not
include the 400,000 Units purchased by Fidelity and Guaranty Life Insurance
Company. The USF&G General Partner is entitled to the beneficial rights
attributable to any purchased Units, including the rights to cash distributions
and a percentage of the Partnership's income, gains, losses, deductions and
credits, but not voting rights. The Right of Presentment provisions of the
Partnership's Partnership Agreement now provide that if in a year Units are
presented in excess of the amount required to be purchased by USF&G Realty
Partners, Inc. (13,886), then the General Partners may elect to purchase such
excess presented Units, provided that the total number of Units repurchased
shall not exceed 50% of the Units outstanding. As of December 31, 1996, the
General Partners had purchased 168,858 Units under the Right of Presentment
Program as follows:
USF&G Legg Mason
Repurchase Price Realty Partners, Inc. Realty Partners, Inc.
---------------- --------------------- ---------------------
1996 $ 4.39 13,886 69,930
1995 4.18 13,886 42,314
1994 4.17 13,886 -
1993 9.53 13,886 -
1992 11.27 1,070 -
------ ------
56,614 112,244
====== =======
The USF&G General Partner will repurchase Units under the 1997 Right of
Presentment at the 1997 Right of Presentment purchase price discussed below. If
more than 13,886 Units are presented for purchase, 13,886 Units will be
purchased by the USF&G General Partner on a pro rata basis from the Unitholders
that present. The other General Partner may elect to purchase all or a portion
of the excess Units presented up to 455,770 additional Units due to the 50%
limit discussed above. Units will be purchased by June 30, 1997. A Certificate
of Assignee Units of Limited Partnership Interests representing any Units
tendered but not purchased will be issued. The purchasing General Partner is
entitled to the beneficial rights attributable to any purchased Units, including
the rights to cash distributions, and a percentage of the Partnership's income,
gains, losses, deductions and credits, but not voting rights. For the
administrative convenience of the Partnership and Unitholders, the General
Partners have modified certain procedures for exercising the Right of
Presentment from those outlined in the Prospectus and Partnership Agreement.
Presentment is now based upon acceptance of the announced per Unit purchase
price. There is no longer a withdrawal period. Unitholders offering Units for
purchase must present Units by June 6, 1997.
The purchase price to be paid under the Right of Presentment equals 90% of the
value of the Units as estimated by the General Partners based upon current
appraisals of the Properties owned by the Partnership. Estimates of value may
not necessarily correspond to realizable value. The appraised values of the
Properties owned by the Partnership, as indicated by independent appraisals as
of December 1, 1996 are:
Northeast Business Campus: $ 9,700,000
Shadeland Retail Center: $ 9,890,000
St. Andrews Apartments at Westwood: $12,000,000
Using the above referenced appraised values, and after consideration of the
Partnership's debt and other assets but before selling expenses, the General
Partners have determined that the per Unit purchase price for the 1997 Right of
Presentment is $3.48. The 1996 Right of Presentment purchase price of $4.39
assumed recovery of all of the incurred and remaining estimated cost of the
repairs to St. Andrews. Currently estimated future recoveries net of litigation
expenses are not anticipated to result in full recovery of the Partnership's
costs at St. Andrews and, therefore, resulted in a decrease in the 1997 Right of
Presentment purchase price. That decrease was partially offset by increases in
the appraised values of Shadeland and St. Andrews as well as NEBC, net of the
lender's equity participation. See Note G to the financial statements. For
determining the 1997 Right of Presentment purchase price, actual settlement
agreements reached through March 1, 1997 (which amounts are included as a
receivable on the Partnership's balance sheet as of December 31, 1996) and an
allowance for additional estimated settlements (net of estimated future
litigation expenses) were credited. See the liquidity and capital resources
discussion included in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further discussion of the St.
Andrews litigation. There cannot be any assurance as to the timing or amount of
any additional recoveries from responsible parties to offset the completed
repairs at St. Andrews.
Any distributable cash flow is distributed to the partners on a quarterly basis,
no later than 45 days after the close of each quarter, 99% to the Unitholders
and 1% to the General Partners. To the extent that distributable cash flow from
operations is not sufficient to pay to the Unitholders a cumulative return of 2%
per quarter (or an 8% annual return) on their invested capital, the USF&G
General Partner had agreed to lend the Partnership an amount equal to up to 20%
of the gross proceeds of the Offering during the first five years to enable the
Partnership to pay Unitholders the cumulative return of 2% per quarter (the
"Cash Flow Protector Loan"). The obligations to make advances under the Cash
Flow Protector Loan expired on July 13, 1993. The Cash Flow Protector Loan
accrued interest at an annual simple rate of 8% through December 31, 1992 and 6%
thereafter. Interest, but not principal, of the Cash Flow Protector Loan is
subordinate to the return of Unitholder contributions. For additional
information concerning the Cash Flow Protector Loan, refer to Note F of Notes to
Financial Statements of the Partnership which is incorporated by reference from
"Item 8. Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K.
As of December 31, 1993, cumulative cash distributions of $10,545,983 and
$106,517 had been made to the Unitholders and General Partners, respectively.
These cash distributions represented a cumulative return of 2% on invested
capital for each calendar quarter through the period ended July 13, 1993. In
connection with cumulative cash distributions through July 13, 1993, the USF&G
General Partner had funded $4,849,734 pursuant to the Cash Flow Protector Loan.
Beginning May 1992, and on each anniversary period thereafter, the USF&G General
Partner has offered to purchase, under the Right of Presentment Program, up to
2% of the total number of Units originally issued to Investors, which does not
include the 400,000 Units purchased by Fidelity and Guaranty Life Insurance
Company.
During 1993, all of the cash distributions made to the Unitholders and General
Partners represented advances from the USF&G General Partner under the Cash Flow
Protector Loan. No additional distributions were made after the November 12,
1993 distribution due to the expiration of the Cash Flow Protector Loan and the
Partnership's need to retain funds for operating expenses and property
improvements. For the foreseeable future, the Partnership expects to apply cash
flow from operations to increase Partnership working capital reserves and to
provide for certain property maintenance and improvements, and consequently,
there is no expectation that distributable cash flow will be available to make
distributions to Unitholders.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
<S> <C> <C> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended For the Year Ended For the Year Ended
Statements of Operations December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
- ------------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Total Revenue $ 4,766,702 $ 4,609,318 $ 4,307,972 $ 4,149,803 $ 5,082,642
Total Expenses (***) 7,119,852 6,100,817 6,129,583 12,701,789 6,309,958
Net (Loss) Income (***) (2,353,150) (1,491,499) (1,821,611) (8,551,986) (1,227,316)
Per Unit (*):
Net (Loss) Income (***) $ (2.13) $ (1.35) $ (1.65) $ (7.74) $ (1.11)
Cash Distributions (**) 0.00 0.00 0.00 1.57 2.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
As of As of As of As of As of
Balance Sheets December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
- -------------- ----------------- ----------------- ----------------- ----------------- -----------------
Real Estate Investments (***) $27,801,201 $28,612,932 $29,427,139 $30,713,232 $38,982,810
Total Assets (***) 30,611,034 30,021,127 30,810,375 32,008,156 40,278,450
Debt (****) 28,369,222 25,645,265 25,705,421 25,564,553 23,878,694
</TABLE>
(*) Based on the weighted average number of Units outstanding for each
year in the five year period ended December 31, 1996, of 1,094,283 and
the net income or cash distributions allocated to the Unitholders.
(**) Includes only cash distributions paid during the corresponding period
or year.
(***) Includes writedowns of the investment in the Partnership's share of
Greenbrier Towers of $460,567, $348,450 and $2,652,000 in 1995, 1994
and 1993, respectively. 1993 also includes a writedown of the
investment in NEBC of $4,043,000.
(****) Includes principal balances of mortgages, Cash Flow Protector Loan,
St. Andrews Construction Loan and loans from General Partners.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The matters discussed in this Form 10-K include forward-looking statements as
contemplated by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements which relate to future operations,
strategies, financial results, or other developments. Forward-looking statements
are necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive risks, uncertainties and
contingencies, many of which are beyond the Partnership's control and many of
which, with respect to future business decisions, are subject to change. Many of
these factors are outlined in the "Risk Factors" section of the Partnership's
Prospectus dated June 28, 1988. These risks, uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by the Partnership.
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. On July 17, 1989, the Unitholders voted to
authorize the General Partners to amend the Partnership Agreement to extend the
offering period beyond the June 28, 1989 offering termination date to September
15, 1989, or such other date as the General Partners deemed to be in the best
interest of the Partnership, but no later than June 28, 1990. The General
Partners agreed to extend the offering period to December 31, 1989, at which
time the Offering terminated. A total of 1,094,283 Units were sold for aggregate
gross proceeds of $27,357,075.
As of December 31, 1989, Unitholders' capital contributions, after deducting
rebates of $835,001, totaled $26,522,074. After deducting $2,174,276 for
offering and organization costs and selling commissions, approximately
$24,348,000 was available for investment in income producing properties.
Offering costs were recognized ratably against gross proceeds from the Offering
of Units. At the termination of the Offering, the excess offering and
organization costs of $222,752 above the maximum amount allowable by the
Partnership Agreement were paid by the General Partners or their affiliates and
not by the Partnership.
As of December 31, 1990, the Partnership had invested in four income producing
properties. 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"). The Partnership
owned a fifty percent general partnership interest in the Greenbrier Joint
Venture. On April 26, 1995, the Greenbrier Joint Ventures' sole property,
Greenbrier Towers, was purchased by the lender at foreclosure. The Greenbrier
Joint Venture General Partners dissolved the Greenbrier Joint Venture during
1996. As of December 31, 1990, substantially all of the proceeds available for
investment had been invested in properties meeting the investment criteria of
the Partnership. For additional information concerning the Properties, refer to
Note B and C of Notes to Financial Statements of the Partnership which is
incorporated by reference from "Item 8. Financial Statements and Supplementary
Data" of this Annual Report on Form 10-K.
Liquidity and Capital Resources
The cash and cash equivalents position of the Partnership at December 31, 1996
decreased $106,828 from December 31, 1995. The decrease was primarily due to the
increased repair and legal costs at St. Andrews offset in part by additional
borrowings under the St. Andrews construction loan as well as St. Andrews
settlements and insurance recoveries received during the year. 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 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. Under the 1994 NEBC loan
modification, all future cash flow generated by the NEBC property must be used
only for the benefit of NEBC or to meet obligations to the lender. At December
31, 1996, the lender held $130,356 in reserves and escrows and the Partnership
held $310,423 in segregated funds subject to the lien and for the benefit of the
lender which was included in the Partnership's cash and cash equivalents
balance.
In connection with the acquisition of the Properties, the Partnership
established cumulative working capital reserves of approximately 3% of gross
offering proceeds. The Partnership expects for the foreseeable future to
continue to apply cash flow from operations to increase Partnership working
capital reserves, provide for certain property maintenance and improvements and
repay the St. Andrews construction loan. Consequently, there is no expectation
that Distributable Cash Flow will be available to make distributions to
Unitholders. This policy reflects the declining level of cash flow from
operations generated by the Partnership and 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 environments and is consistent with the Partnership's objective to
maintain and increase the value of the Properties.
The Partnership does not anticipate making any significant investments in income
producing properties during 1997 other than tenant improvements and leasing
commissions related to new tenants. The Partnership anticipates that these
investments at Shadeland and St. Andrews will be funded by cash flow from
operations during 1997. Any investment at NEBC will be funded from the reserve
accounts discussed above maintained by the lender and the Partnership.
During the second quarter of 1995, the Partnership entered into a $3,000,000
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter of 1995 and were completed during 1996. During 1995,
modifications to the original construction contract were made to install new
windows, replace the roofs and repair and replace the underlying wooden
structures as necessary on all the buildings. The 1995 modifications resulted in
a $617,600 increase in the $3,000,000 base contract. Additional modifications to
repair damaged drywall and make miscellaneous exterior repairs were made during
1996 which increased the total construction contract modifications by $208,900
to $826,500. During the third quarter of 1996, a $113,000 credit was issued to
adjust the unit pricing on select items of a 1995 modification. This decreased
the total construction contract modifications to $713,500. Thus, the total
completed contract cost was approximately $3,700,000. Since discovery of the
design and construction deficiencies at St. Andrews, the Partnership has
incurred approximately $3,700,000 in contract construction costs and $850,000 in
engineering and related expenses in order to correct those deficiencies. These
expenditures include the costs associated with modifications to the original
$3,000,000 repair contract to install new windows and replace the roofs. In
addition, the Partnership has incurred $699,000 in legal fees and related
expenses in pursuing claims against potentially responsible parties as described
below. Those claims have resulted in recoveries by the Partnership of $707,500
through the end of 1996, and an additional $1,525,000 in settlements from
January 1, 1997 through March 7, 1997. (The additional $1,525,000 is carried as
a receivable on the Partnership's balance sheet as of December 31, 1996). In
addition, $500,000 in insurance recoveries have been received with respect to
these matters.
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. The
Partnership continues to assert its claims against the remaining potentially
responsible parties. During 1997, the Partnership obtained, through settlement,
the right to pursue the general contractor's claims for indemnity and
contribution from the subcontractors who worked on the St. Andrews project. The
Partnership is continuing to pursue these claims against the subcontractors as
well as against the supervising architect. There can be no assurance as to the
outcome of such litigation.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1995 which permits the Partnership
to borrow up to $3,500,000 to complete the necessary repairs. Under its terms,
the loan will mature on September 1, 1997 and interest is payable monthly on
advanced funds at 9.0%. The terms also provide for early repayment from
additional settlements from the Partnership's lawsuit, net operating income
after reserves, or sale or refinancing proceeds. As of December 31, 1996,
advances of $2,790,000 had been made. An additional advance of $215,000 was made
in February 1997. $773,000 of the settlements received during 1997 have been
used to repay this loan. The Partnership anticipates the repayment of a
substantial portion of the loan prior to maturity from any remaining settlements
collected during 1997 and from excess proceeds from a new proposed refinancing
of Shadeland discussed below. The USF&G General Partner has indicated its
current intention to extend the loan if the existing mortgage loan is also
extended. The St. Andrews mortgage matures September 1, 1997. The Partnership
intends to refinance or seek an extension of the mortgage loan prior to that
date.
The Partnership obtained an extension on the Shadeland mortgage, presently in
the amount of $4,054,488 until April 1, 1997. The Partnership has completed an
application with an unaffiliated lender to refinance the mortgage loan with a
$5,000,000, five-year, 7.6% fixed interest rate loan with a 25-year
amortization. Although the Partnership has submitted an application to secure
this loan, there can be no assurance that it will be made. The loan would
provide total cash proceeds in excess of the current mortgage and closing costs
of approximately $845,000. Approximately $400,000 of the excess proceeds would
be used to fund certain future capital improvement costs at Shadeland. The
remaining proceeds of approximately $445,000 would be used to increase working
capital reserves or repay a portion of the St. Andrews Construction Loan.
Inflation
Inflation has not had a material impact on the operations of the Partnership.
The potential adverse effects on the Partnership's expenses from rising
inflation are limited. Most leases at Shadeland and NEBC are "triple net" which
enables the Partnership to pass certain cost increases directly through to
tenants at these respective Properties. However, there is no assurance that
inflation would not have an adverse effect on the future operations of the
Partnership.
Inflation may also impact the interest rates charged by lenders. An increase in
interest rates due to inflation occurring at the maturity date of any of the
Partnership's mortgage loans would have an adverse effect on the Partnership.
The interest rate on a new loan or the extension of an existing loan could be
higher or lower than the current rates, resulting in a change in debt service
and cash flow from operations.
<TABLE>
<CAPTION>
Results of Operations
<S> <C> <C> <C>
Net (Loss) Income Net (Loss) Income Net (Loss) Income
for the Year Ended for the Year Ended for the Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ ------------------
St. Andrews $ (308,732) $ (313,562) $ (334,056)
St. Andrews Repair and Legal Costs,
Net (1,516,240) (833,771) (165,224)
Shadeland 125,440 199,790 226,560
NEBC (63,739) (132,671) (585,168)
---------- ---------- ----------
(1,763,271) (1,080,214) (857,888)
Equity in Joint Venture Loss - Greenbrier 0 0 (566,012)
Partnership Expense (589,879) (411,285) (397,711)
---------- ---------- ----------
$(2,353,150) $(1,491,499) $(1,821,611)
========== ========== ==========
</TABLE>
<PAGE>
1996 to 1995
The Partnership incurred a net loss of $2,353,150 for the twelve months ended
December 31, 1996 ("current period") as compared to $1,491,499 for the twelve
months ended December 31, 1995 ("comparable period"). The increased net loss of
$861,651 was due primarily to the increased St. Andrews repair and legal costs,
net incurred in 1996. These costs were $1,516,240 during the current period and
$833,771 during the comparable period. Revenue for the current period was
$4,766,702 as compared to $4,609,318 for the comparable period. The increase of
$157,384 was primarily due to higher occupancy at NEBC and higher occupancy and
rental rates at St. Andrews during 1996. Property operating expenses increased
$109,277 to $1,885,432 for the current period from $1,776,155 for the comparable
period. The increase is due to higher operating expenses at St. Andrews and
Shadeland.
Northeast Business Campus
Rental revenue at NEBC increased $135,952 to $1,765,811 for the current period
as compared to $1,629,859 for the comparable period. The increase was the result
of increased occupancy and higher overall average net rental rates. The
occupancy at NEBC at December 31, 1996 was 91% as compared to 88% at December
31, 1995. Occupancy was higher due to the 14,589 square foot Electronic Data
Systems Corporation lease in Building 5 executed during July 1995. The occupancy
for office and service center component at December 31, 1996 was 90% and 91%,
respectively, as compared to 85% and 96%, respectively, at December 31, 1995.
The average net rental rate at December 31, 1996 decreased slightly to $8.70 per
square foot for office space, excluding free-rent allowances, and increased to
$7.07 per square foot for service center space as compared to $8.71 and $6.79,
respectively, at December 31, 1995. The decrease in the office space average
rental rates is due to new tenant leases at lower rental rates as a result of
lower tenant improvement allowances. The increase in service center average
rental rates is due primarily to a tenant renewal at a higher rental rate.
Operating expenses at NEBC decreased $16,184 to $690,705 for the current period
as compared to $706,889 for the comparable period. The decrease was primarily
due to lower real estate taxes partially offset by increased cleaning and
grounds and landscaping costs. The real estate taxes are lower in the current
period since the current period included a refund received as a result of a
successful tax appeal. Cleaning costs were higher due primarily to increased
average occupancy during 1996, especially in Building 5. Grounds and landscaping
costs are higher due to snow removal costs associated with severe 1996 winter
weather and higher parking lot surface repairs.
St. Andrews Apartments at Westwood
Rental revenue at St. Andrews increased $95,796 to $1,827,170 for the current
period as compared to $1,731,374 for the comparable period. The increase in
rental revenue was due to increased occupancy and higher rental rates for the
current period. The average monthly rental rate for the year ended December 31,
1996 increased to $607 per unit as compared to $597 for the year ended December
31, 1995. The average occupancy at St. Andrews for the current period was 94% as
compared to 91% for the comparable period. As of December 31, 1996, there were
twenty corporate units as compared to nine units at December 31, 1995.
Operating expenses at St. Andrews increased $78,138 to $862,630 for the current
period as compared to $784,492 for the comparable period. The increase was
primarily due to higher turnover costs, payroll, corporate unit expenses and
on-site third-party property management fees offset in part by lower real estate
tax expenses. Turnover costs were higher due to increased painting and cleaning
expenses from increased turnover related to the construction in the current
period. Payroll costs were higher due to a change in the bonus structure for
third-party management company employees. Corporate unit expenses were higher
during the current period due to the increased number of corporate units.
On-site third-party property management fees were higher due to the payment of
the 1995 incentive fee in 1996 as well as accrual of the 1996 incentive fee and
increased rental receipts during the current period. Real estate tax expenses
were lower due to a receipt in 1996 for a successful appeal of the property's
1995 assessed value.
The Partnership has incurred significant engineering, construction and legal
costs at St. Andrews related to assessing and repairing the construction
problems and pursuing legal remedies against potentially responsible parties. As
a result, these amounts are reported in the St. Andrews repair and legal costs,
net of recoveries category. The Partnership has negotiated and received
settlements from several of the responsible parties during 1996 and 1995.
Settlement recoveries received are used to offset repair and legal costs
incurred. During 1996, the Partnership incurred approximately $3,269,000 and
$352,000 of St. Andrews repair and legal costs, respectively, $1,605,000 of
which were offset by settlement recoveries and a $500,000 insurance recovery.
The Partnership incurred approximately $1,162,000 and $237,000 of St. Andrews
repair and legal costs, respectively, during 1995 which were offset in part by
recoveries of $565,000.
Shadeland Retail Center
Rental revenue at Shadeland decreased $40,387 to $1,153,550 for the current
period as compared to $1,193,937 for the comparable period. The decrease in
rental revenue was due primarily to the expiration and non-renewal of the Ace
Hardware lease at October 31, 1995 at the retail center which constituted
approximately 10% of the center's rentable square feet. Consequently, the
occupancy at Shadeland decreased to 83% at December 31, 1996 as compared to 86%
at December 31, 1995. However, the average net rental rates at December 31, 1996
increased to $10.49 per square foot as compared to $10.36 per square foot at
December 31, 1995.
Operating expenses at Shadeland increased $47,323 to $332,097 for the current
period as compared to $284,774 for the comparable period. The increase was due
to an increase in property taxes offset in part by a decline in legal and
professional fees. The increased real estate taxes were due to a tax assessment
in excess of the amount anticipated and accrued for in the comparable period.
The decline in legal and professional fees is due to less services rendered for
tenant evictions in the current year.
Partnership Expense
Partnership expense is comprised of general and administrative expenses, and the
interest expense related to the Cash Flow Protector loan, General Partner loans
and the St. Andrews construction loan partly offset by interest earned on
temporary investments. The increase in Partnership expense of $178,594 to
$589,879 for the current period as compared to $411,285 for the comparable
period is primarily due to interest expense related to the St. Andrews
construction loan. The initial draw on this loan occurred in February 1996. The
outstanding balance at December 31, 1996 was $2,790,000. The decline in interest
income, which offsets partnership expense, was due to a lower average cash
balance held by the Partnership during the current period.
General and Administrative
Total general and administrative expenses decreased by $8,711 to $128,365 for
the current period as compared to $137,076 for the comparable period. General
and administrative expenses include various costs required for the
administration of the Partnership. The decrease is primarily due to lower
professional fees and salary costs allocated to the Partnership in the current
year.
Interest
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews, and Shadeland of $623,076, $820,250 and $383,510,
respectively, and interest on the Cash Flow Protector Loan from the USF&G
General Partner, the General Partner loans and the St. Andrews construction loan
of $475,068. Interest expense increased $160,474 for the current period as
compared to the comparable period. The increase is primarily due to interest
incurred on the St. Andrews construction loan which was initially drawn upon in
February 1996.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation on the
buildings at NEBC, St. Andrews and Shadeland, depreciation of tenant
improvements, and amortization of leasing commissions incurred in connection
with the NEBC and Shadeland leasing activities. Depreciation and amortization
increased by $75,526 to $1,287,911 for the current period as compared to
$1,212,385 for the comparable period. The increase is primarily due to the
amortization of NEBC leasing commissions and tenant improvement additions and
the write-off of unamortized NEBC leasing commissions and tenant improvements.
The write-offs relate to tenants that have terminated their leases early or
tenants that have not renewed their leases upon expiration.
<PAGE>
1995 to 1994
The Partnership incurred a net loss of $1,491,499 for the twelve months ended
December 31, 1995 ("current period") as compared to $1,821,611 for the twelve
months ended December 31, 1994 ("comparable period"). The decreased net loss of
$330,112 was due primarily to the equity in Greenbrier Joint Venture losses
recognized during 1994. Revenue for the current period was $4,609,318 as
compared to $4,307,972 for the comparable period. The increase of $301,346 was
primarily due to higher occupancy at NEBC during 1995. Property operating
expenses decreased $76,003 to $1,776,155 for the current period from $1,852,158
for the comparable period. The difference is principally attributable to
expenses incurred in 1994 in connection with the restructuring of the NEBC loan.
Northeast Business Campus
Rental revenue at NEBC increased $304,212 to $1,629,859 for the current period
as compared to $1,325,647 for the comparable period. The increase was the result
of increased overall occupancy and higher overall average net rental rates. The
average occupancy at NEBC for the year ended December 31, 1995 was 84% as
compared to 66% for the year ended December 31, 1994. The occupancy for office
and service center component at December 31, 1995 was 85% and 96%, respectively,
as compared to 77% and 82%, respectively, at December 31, 1994. The average net
rental rate at December 31, 1995 decreased to $8.71 per square foot for office
space and $6.79 per square foot for service center space as compared to $8.99
and $7.86, respectively, at December 31, 1994.
Operating expenses at NEBC decreased $35,203 to $706,889 for the current period
as compared to $742,092 for the comparable period. The decrease was primarily
due to reduced legal costs partially offset by increased cleaning, maintenance,
and utilities. Cleaning, maintenance, and utilities costs were higher due
primarily to increased occupancy in 1995, especially in Building 5. Legal costs
in 1994 included debt restructure costs of $135,211 incurred in connection with
the loan modification.
St. Andrews Apartments at Westwood
Rental revenue at St. Andrews decreased $21,030 to $1,731,374 for the current
period as compared to $1,752,404 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 monthly rental rate for the year ended December 31, 1995 increased to
$597 per unit as compared to $595 for the year ended December 31, 1994. The
average occupancy at St. Andrews for the current period was 91% as compared to
92% for the comparable period. As of December 31, 1995, there were nine
corporate units as compared to two units at December 31, 1994.
Operating expenses at St. Andrews decreased $53,166 to $784,492 for the current
period as compared to $837,658 for the comparable period. The decrease was
primarily due to lower maintenance expenses since most repairs are construction
related.
The St. Andrews repair and legal costs, net of recoveries, related to the
construction problems have been reclassified to that category from property
operating expenses. The Partnership incurred significant engineering,
construction and legal costs at St. Andrews related to assessing and repairing
the construction problems and pursuing legal remedies against responsible
parties during 1995. Through December 31, 1995, the Partnership received
settlements totaling $627,500 from parties to the litigation, $565,000 of which
was received during 1995. The remaining $62,500 settlement payment was received
during the fourth quarter of 1994 and used to offset certain construction costs
incurred during 1994.
During 1995, the Partnership incurred approximately $1,162,000 and $237,000 of
St. Andrews repair and legal costs, respectively, $565,000 of which were offset
by settlements received during the year. The Partnership incurred approximately
$118,000 and $110,000 of St. Andrews engineering and legal costs during 1994
which were offset in part by recoveries of $62,500.
Shadeland Retail Center
Rental revenue at Shadeland decreased $6,354 to $1,193,937 for the current
period as compared to $1,200,291 for the comparable period. The decrease in
rental revenue was due primarily to the expiration of a lease at October 31,
1995 at the retail center which constituted approximately 10% of the center's
rentable square feet. Consequently, the occupancy at Shadeland decreased to 86%
at December 31, 1995 as compared to 96% at December 31, 1994. However, the
average net rental rates for the current period increased to $10.36 per square
foot as compared to $10.31 per square foot for the comparable period.
Operating expenses at Shadeland increased $12,366 to $284,774 for the current
period as compared to $272,408 for the comparable period. The increase was due
to an increase in property taxes
Greenbrier Towers
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's equity in joint venture loss is limited to
its investment in the Greenbrier Joint Venture balance. The Partnership's share
in joint venture income for the current period of $119,262 has been offset by
the recognition of cumulative unrecognized losses of $119,262 which were not
previously recognized in the prior year since the investment in joint venture
balance was reduced to zero as of December 31, 1994.
The Partnership's share of the joint venture income consisted of $363,012 in
revenue and $937,247 in operating expenses offset by the recognition of a
$693,497 gain on debt forgiveness. The 1995 operating expenses include a
$460,567 writedown for asset impairment in connection with the foreclosure.
Partnership Expense
Partnership expense is comprised of general and administrative expenses, and the
interest expense related to the Cash Flow Protector and General Partner loans
partly offset by interest earned on temporary investments. The increase of
$13,574 to $411,285 for the current period as compared to $397,711 for the
comparable period is primarily due to a full year of interest expense related to
the General Partner loans.
General and Administrative
Total general and administrative expenses increased by $6,981 to $137,076 for
the current period as compared to $130,095 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 legal
fees.
Interest
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews, and Shadeland of $623,078, $820,250 and $389,398,
respectively, and interest on the Cash Flow Protector Loan from the USF&G
General Partner and the General Partner loans of $308,704. Interest expense
decreased $145,125 for the current period as compared to the comparable period.
The decrease is primarily due to the loan modification during the fourth quarter
of 1994 which reduced the interest rate on the NEBC loan.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation on the
buildings at NEBC, St. Andrews and Shadeland, depreciation of tenant
improvements, and amortization of leasing commissions incurred in connection
with the NEBC and Shadeland leasing activities. Depreciation and amortization
increased by $82,846 to $1,212,385 for the current period as compared to
$1,129,539 for the comparable period. The increase is primarily due to the
amortization of NEBC leasing commissions and tenant improvement additions and a
full year's depreciation of NEBC parking lot improvements made during the fourth
quarter of 1994 and the write-off of unamortized NEBC tenant improvements in
vacant areas of the project with no remaining economic benefit.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Schedules
Page
USF&G/Legg Mason Realty Partners Limited Partnership
Report of Independent Auditors 20
Balance Sheets - December 31, 1996 and December 31, 1995 21
Statements of Operations - For the years ended
December 31, 1996, December 31, 1995, and December 31, 1994 22
Statements of Partners' Equity (Deficit) - For the years ended
December 31, 1996, December 31, 1995, and December 31, 1994 23
Statements of Cash Flows - For the years ended December 31, 1996,
December 31, 1995, and December 31, 1994 24
Notes to Financial Statements 25
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1996 39
Notes to Schedule III - Real Estate and Accumulated Depreciation 40
Schedule X - Supplementary Statements of Operations Information -
For the years ended December 31, 1996, December 31, 1995, and
December 31, 1994 41
All other schedules are omitted since they are not required, are not applicable
or the financial information required is included in the financial statements or
the notes thereto.
<PAGE>
Report of Independent Auditors
The Partners
USF&G/Legg Mason Realty Partners Limited Partnership
We have audited the accompanying balance sheets of USF&G/Legg Mason Realty
Partners Limited Partnership as of December 31, 1996 and 1995, and the related
statements of operations, partners' (deficit) equity and cash flows for each of
the three years in the period ended December 31, 1996. Our audits also included
the financial statement schedules listed in the accompanying Index to Financial
Statements and Schedules (Item 8). These financial statements and schedules are
the responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and schedules 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 the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USF&G/Legg Mason Realty
Partners Limited Partnership at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Baltimore, Maryland
March 7, 1997
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
<S> <C> <C>
December 31, 1996 December 31, 1995
Assets ----------------- -----------------
Real Estate Investments:
Income Producing Properties - Notes B and G $27,801,201 $28,612,932
Cash and Cash Equivalents (including temporary
investments at December 31, 1996 and 1995 of
$232,850 and $515,389, respectively) - Note D 780,727 887,555
Restricted Cash Escrow - Note G 130,356 192,402
Accounts Receivable, Net - Note A 108,082 68,776
St. Andrews Recovery Receivables - Note J 1,525,000 0
Other Assets - Note E 265,668 259,462
---------- ----------
Total Assets $30,611,034 $30,021,127
========== ==========
Liabilities
Mortgages Payable - Note G $20,529,488 $20,595,531
Accounts Payable and Other Liabilities - Note D 1,262,790 1,406,228
St. Andrews Construction Loan - Note J 2,790,000 0
Due to General Partners and Affiliates - Note F 2,249,346 1,886,808
Cash Flow Protector Loan - Note F 4,849,734 4,849,734
---------- ----------
31,681,358 28,738,301
Partners' (Deficit) Equity
General Partners (255,116) (231,585)
Assignor and Assignee Limited Partners,
1,094,283 Units Issued and Outstanding (815,208) 1,514,411
--------- ----------
(1,070,324) 1,282,826
--------- ----------
Total Liabilities and Partners' (Deficit) Equity $30,611,034 $30,021,127
========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ ------------------
Revenue:
Rental $ 4,746,531 $ 4,555,170 $ 4,278,341
Interest 20,171 54,148 29,631
---------- ---------- ----------
Total Revenue 4,766,702 4,609,318 4,307,972
Expenses:
Property Operating 1,885,432 1,776,155 1,852,158
Recognized Equity in Joint Venture Loss - Note C 0 0 566,012
St. Andrews Repair and Legal Costs,
Net of Recoveries - Note J 1,516,240 833,771 165,224
General and Administrative 128,365 137,076 130,095
Interest 2,301,904 2,141,430 2,286,555
Depreciation and Amortization 1,287,911 1,212,385 1,129,539
---------- ---------- ----------
Total Expenses 7,119,852 6,100,817 6,129,583
---------- ---------- ----------
Net Loss $(2,353,150) $(1,491,499) $(1,821,611)
========== ========== ==========
Net Loss Allocated to:
General Partners $ (23,531) $ (14,915) $ (18,216)
Assignor and Assignee Limited Partners (2,329,619) (1,476,584) (1,803,395)
---------- ---------- ----------
$(2,353,150) $(1,491,499) $(1,821,611)
========== ========== ==========
Net Loss per Unit - Note A $ (2.13) $ (1.35) $ (1.65)
========== ========== ==========
Weighted Average Number of Units 1,094,283 1,094,283 1,094,283
========== ========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Assignor and Assignee Limited Partners General Partners
Legg
USF&G Mason
USF&G Other Total Realty Realty Total
Limited Limited Limited Partners, Partners General
Partners Partners Partners Inc. Inc. Partners Total
-------- -------- -------- --------- -------- -------- -----
Partners' Equity
(Deficit) - January
1, 1994 $1,798,725 $ 2,995,665 $ 4,794,390 $(131,116) $(67,338) $(198,454) $ 4,595,936
Net Loss (695,293) (1,108,102) (1,803,395) (14,573) (3,643) (18,216) (1,821,611)
Right of
Presentment at
book value 60,821 (60,821) 0 0 0 0 0
--------- --------- --------- ------- ------- ------- ---------
Partners' Equity
(Deficit) - December
31, 1994 1,164,253 1,826,742 2,990,995 (145,689) (70,981) (216,670) 2,774,325
Net Loss (588,030) (888,554) (1,476,584) (11,932) (2,983) (14,915) (1,491,499)
Right of
Presentment at
book value 37,909 (37,909) 0 0 0 0 0
--------- --------- --------- ------- ------- ------- ---------
Partners' Equity
(Deficit) - December
31, 1995 614,132 900,279 1,514,411 (157,621) (73,964) (231,585) 1,282,826
Net Loss (957,301) (1,372,318) (2,329,619) (18,825) (4,706) (23,531) (2,353,150)
Right of
Presentment at
book value 19,163 (19,163) 0 0 0 0 0
--------- --------- --------- ------- ------- ------- ---------
Partner's Equity
(Deficit) - December
31, 1996 $ (324,006) $ (491,202) $ (815,208) $(176,446) $(78,670) $(255,116) $(1,070,324)
========= ========== ========= ======== ======= ======== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
Operating Activities
Net Loss $(2,353,150) $(1,491,499) $(1,821,611)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,287,911 1,212,385 1,129,539
Equity in joint venture loss 0 0 566,012
Change in net assets and liabilities related
to operating activities:
Decrease (increase) in restricted cash escrow 62,046 165,143 (71,000)
(Decrease) increase in accounts payable and
other liabilities (143,438) 457,705 187,932
Increase in due to general partners and
affiliates 362,538 304,702 295,030
(Increase) decrease in accounts receivable (39,306) 58,411 5,857
Increase in St. Andrews recovery receivables (1,525,000) 0 0
Increase in other assets (119,516) (81,311) (110,089)
---------- ---------- ----------
Net Cash (Used in) Provided by Operating Activities (2,467,915) 625,536 181,670
Investing Activities
Investment in income producing properties (362,870) (300,857) (409,980)
Reimbursement of improvement costs by tenant 0 0 85,104
Contribution to restricted cash reserve 0 0 (286,545)
---------- ---------- ----------
Net Cash Used in Investing Activities (362,870) (300,857) (611,421)
Financing Activities
Mortgage principal payments (66,043) (60,156) (59,132)
Proceeds from general partner loans 0 0 200,000
St. Andrews construction loan advances 2,790,000 0 0
---------- ---------- ----------
Net Cash Provided by (Used in) Financing Activities 2,723,957 (60,156) 140,868
---------- ---------- ----------
(Decrease) Increase in Cash and Cash Equivalents (106,828) 264,523 (288,883)
Cash and Cash Equivalents, Beginning of Period 887,555 623,032 911,915
---------- ---------- ----------
Cash and Cash Equivalents, End of Period $ 780,727 $ 887,555 $ 623,032
========== ========== ==========
See accompanying notes tothe financial statements.
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies
Organization
On June 28, 1988, the Registration Statement filed by USF&G/Legg Mason Realty
Partners Limited Partnership (the "Partnership") with the Securities and
Exchange Commission pursuant to an offering of 1,400,000 Units of Assignee
Limited Partnership Interests ("Units") at $25 per Unit (the "Offering") was
made effective.
The Partnership was organized as a limited partnership under the Maryland
Revised Uniform Limited Partnership Act pursuant to a Certificate of Limited
Partnership filed with the Maryland State Department of Assessments and Taxation
on April 12, 1988 and a Limited Partnership Agreement and Amended Certificate of
Limited Partnership dated as of June 16, 1988 as subsequently amended (the
"Partnership Agreement"). The fiscal year of the Partnership is the calendar
year.
The Partnership was formed to acquire, hold, lease and ultimately dispose of
income-producing commercial and multi-family residential rental properties
located primarily in the Eastern half of the United States.
USF&G Realty Partners, Inc. (the "USF&G General Partner") and Legg Mason Realty
Partners, Inc. (collectively, the "General Partners") contributed $900 and $100,
respectively, to the Partnership, and the USF&G Assignor Limited Partner, Inc.
(the "Assignor Limited Partner") contributed $100 which represents the purchase
of 4 units. As of December 31, 1989, at which time the Offering terminated,
1,094,283 Units had been sold for aggregate gross proceeds of $27,357,075. The
operations of the Partnership are managed by the General Partners.
Basis of Presentation
The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). Certain prior year amounts have been
reclassified to conform to the 1996 presentation.
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from the estimates.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies (Continued)
Depreciation and Amortization
Buildings and improvements are recorded at cost, adjusted for impairments as
discussed below. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Improvements are capitalized, and
repairs and maintenance are charged to operations as incurred. Leasing
commissions are amortized using the straight-line method over the term of the
related leases. Capitalized financing costs are amortized using the
straight-line method over the term of the related financing. Depreciation and
amortization expense of $1,174,602 and $113,309, and $1,115,064 and $97,321 was
recorded during 1996 and 1995, respectively.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The standard includes a requirement that impairments in the
value of real estate investments be recorded as direct reductions in the
carrying value of those investments. SFAS No. 121 also addresses the accounting
for long-lived assets that are to be disposed of. The Partnership adopted the
standard in the first quarter of 1996. Adoption of this standard did not have a
material effect on the financial statements of the Partnership.
Income Taxes
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Rental Revenue
Rental revenue is recognized on a straight-line basis over the lease terms. The
accounts receivable related to the recording of rental revenue on a
straight-line basis totaled $70,256 and $41,811 at December 31, 1996 and 1995,
respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies (Continued)
Allocation of Net (Loss) Income From Operations
Prior to the first sale of Units, net loss from operations was allocated 99.9%
to the USF&G General Partner and .1% to the Assignor Limited Partner.
Thereafter, net income and loss 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 the 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 the
USF&G General Partner and 20% to Legg Mason Realty Partners, Inc. while net
income is allocable on the basis of 50% to the USF&G General Partner and 50% to
Legg Mason Realty Partners, Inc.
The General Partners are entitled to the beneficial rights attributable to Units
purchased under the Right of Presentment Program including the rights to cash
distributions and a percentage of the Partnership's income, gains, losses,
deductions, credits, and distributions. As of December 31, 1996, the General
Partners have repurchased Units under the Right of Presentment Program as
follows:
USF&G Realty Legg Mason Realty
June 30 Price per Unit Partners, Inc. Partners, Inc. Total Price
- ------- -------------- -------------- ----------------- -----------
1996 $ 4.39 13,886 69,930 $367,952
1995 $ 4.18 13,886 42,314 $234,916
1994 $ 4.17 13,886 - $ 57,905
1993 $ 9.53 13,886 - $132,334
1992 $11.27 1,070 - $ 12,059
------ -------
56,614 112,244
====== =======
Note B - Income Producing Properties
On August 1, 1990, the Partnership acquired Shadeland Retail Center
("Shadeland"), located in Indianapolis, Indiana, from unaffiliated sellers for a
contract price of $9,690,850. In connection with the purchase of Shadeland, the
Partnership assumed a loan in the amount of $4,387,142. Shadeland consists of
two single-level neighborhood retail projects, containing in the aggregate
approximately 105,000 net rentable square feet on approximately 12.4 acres.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note B - Income Producing Properties (Continued)
On June 28, 1990, the Partnership purchased St. Andrews Apartments at Westwood
("St. Andrews") from an unaffiliated seller for a contract price of $13,700,000.
St. Andrews is located in Orlando, Florida and consists of 16 two-story and
three-story apartment buildings on 14.55 acres. The garden-style apartment
buildings contain 259 units with an aggregate of approximately 217,000 rentable
square feet. On August 14, 1990, the Partnership obtained permanent financing
for St. Andrews in the amount of $8,500,000. See Note J to the financial
statements for discussion on St. Andrews.
On November 8, 1988, the Partnership acquired Northeast Business Campus ("NEBC")
located in Columbus, Ohio, from an unaffiliated seller for a gross purchase
price of $13,430,000 which was paid in cash. On August 22, 1989, the Partnership
obtained permanent financing for NEBC in the amount of $7,975,000.
The Partnership wrote down the net book value of the NEBC investment during the
fourth quarter of 1993 in the amount of $4,043,000. The declining level of net
cash flow from operations required the use of cash flow generated by Shadeland
and St. Andrews to fund the NEBC debt service. The General Partners had
determined that additional investment in the property was not economically
justified without an acceptable modification to the mortgage and that the
Partnership may not recover the investment in NEBC. Consequently, the investment
in real estate at December 31, 1993 was written down to the appraised value.
Local market trends for commercial real estate contributed to the other than
temporary decline in value. The net book value, adjusted for the writedown,
became the new carrying value for the property. As such, historical cost and
accumulated depreciation were reduced accordingly.
The following table sets forth summarized financial information for NEBC, St.
Andrews and Shadeland, the three Properties owned directly by the Partnership,
at December 31, 1996 and 1995:
1996 1995
---- ----
Buildings and improvements $29,406,342 $29,118,982
Land 5,444,913 5,444,913
---------- ----------
34,851,255 34,563,895
Less: Accumulated depreciation (7,050,054) (5,950,963)
---------- ----------
$27,801,201 $28,612,932
========== ==========
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note B - Income Producing Properties (Continued)
Operating leases with tenants at NEBC and Shadeland range in term from one to
five and one to twenty years, respectively. The lease term at St. Andrews ranges
in term from seven to twelve months. The General Partners expect that in the
normal course of business these leases will be renewed or replaced by other
leases. Fixed future minimum rents to be received under existing leases at
December 31, 1996 are as follows:
1997 $2,800,742
1998 1,464,286
1999 1,102,898
2000 841,816
2001 589,630
Thereafter 184,861
---------
$6,984,233
=========
Note C - Investment in Joint Venture
On May 16, 1989, the Partnership entered into a general partnership agreement
(the "Greenbrier Joint Venture") with Greenbrier Towers Fidelity Associates
Limited Partnership ("Fidelity"), an affiliate of the USF&G General Partner, to
acquire, own and operate Greenbrier Towers (the "Property"), two existing office
buildings in Chesapeake, Virginia. The Partnership and Fidelity (the "Joint
Venture Partners") each owned a 50% general partnership interest in Greenbrier
Joint Venture. The Partnership accounts for its investment in Greenbrier Joint
Venture using the equity method.
On May 17, 1989, Greenbrier Joint Venture acquired Greenbrier Towers from an
unaffiliated seller for a gross purchase price of $23,200,000. In connection
with the acquisition, the Partnership and Fidelity were each required to
initially contribute approximately $5,150,000. The Joint Venture financed the
remaining purchase price with a $13,000,000 mortgage loan.
During 1995, the Prudential Insurance Company of America (Prudential) initiated
foreclosure proceedings, as a result of the Greenbrier Joint Venture's default
on the mortgage loan on December 19, 1994. The property was purchased by the
lender at the April 26, 1995 foreclosure sale. Prudential exercised its right
under the August 22, 1989 Assignment of Leases and Rents to directly collect all
tenant rents beginning January 26, 1995. At the time of foreclosure, current
assets and current liabilities generated by property operations, except those
included in the Statement of Net Assets in Liquidation, were transferred to
Prudential.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note C - Investment in Joint Venture (Continued)
Results of operations on a going concern basis were reflected in the statements
of operations through December 31, 1995. Subsequent to April 26, 1995, no
additional operating activity other than the payment of ordinary business
expenses was recorded in the Greenbrier Joint Venture's records. The
Partnership's share of the Greenbrier Joint Venture's net assets in liquidation
at December 31, 1995 included cash and an insurance reimbursement receivable
which were held for the benefit of the lender. The Joint Venture Partners
transferred the remaining net assets at December 31, 1995, excluding obligations
to other third parties, to Prudential in return for an indemnification of
liability during 1996. The Joint Venture Partners dissolved the Greenbrier Joint
Venture during 1996.
The following table discloses summarized information as to the Partnership's
equity in the revenue and expenses of Greenbrier Joint Venture for the dates and
periods indicated:
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
------------------ ------------------
Statements of Operations
Gross revenue $ 363,012 $1,099,116
Less expenses:
Property operating 152,572 425,794
Depreciation/amortization 90,224 345,851
Interest 233,884 664,795
Writedown 460,567 348,450
-------- ----------
Total expenses 937,247 1,784,890
-------- ----------
Gain on debt forgiveness 693,497 0
-------- ----------
Equity in joint venture income (loss) 119,262 (685,774)
-------- ----------
(Decrease) increase in cumulative
unrecognized joint venture loss (119,262) 119,762
-------- ----------
Recognized equity in joint venture loss $ 0 $ (566,012)
======== ==========
Unrecognized equity in joint venture loss $ 500 $ 119,762
======== ==========
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note C - Investment in Joint Venture (Continued)
The Partnership's total equity in the revenue and expenses of the Greenbrier
Joint Venture for the period ended December 31, 1994 was $119,262. The
Partnership recognized $119,262 of the 1994 suspended joint venture loss carry
forward in 1995 since full recognition would cause the investment in joint
venture to fall below zero. The additional loss carry forward was not recognized
since no additional net income was earned or additional capital contributed. The
remaining net liabilities of the Greenbrier Joint Venture were non-recourse to
the Greenbrier Joint Venture and the Partnership. As a result, the Partnership
has no obligation to share in these liabilities.
Note D - Financial Instruments
Fair value information is based on internal estimates using present value or
other valuation techniques since quoted market prices are not available. This
technique is significantly affected by the assumptions used, such as applicable
discount rate and estimated future cash flows. Therefore, the derived fair value
estimates cannot be substantiated by comparison to independent markets and may
not be realized in immediate settlement of the instrument. Fair value disclosure
requirements exclude certain financial instruments and all non-financial
instruments. It is assumed that the carrying amounts of the following
Partnership financial instruments approximate fair value:
Cash and Cash Equivalents - Includes temporary investments in
money market funds with maturities
of three months or less.
Restricted Cash Escrow - Note G
Accounts Receivable - Note A
Mortgages Payable - Note G
Accounts Payable and Other Liabilities - Includes accounts payable, accrued
expenses, prepaid rent and security
deposits.
Due to General Partners and Affiliates - Note F
Cash Flow Protector Loan - Note F
Note E - Other Assets
Other assets consist of deposits, leasing commissions, and capitalized financing
costs. As of December 31, 1996 and 1995, capitalized financing costs and leasing
commissions totaled $539,910 and $488,385, respectively and related accumulated
amortization totaled $290,942 and $245,623, respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note F - Related Party Transactions
On July 11, 1988, Fidelity & Guaranty Life Insurance Company (the "USF&G Limited
Partner") purchased the first 400,000 Units at a price of $25 per Unit,
representing a capital contribution of $10,000,000. Immediately following the
capital contribution, pursuant to the Partnership Agreement, the USF&G Limited
Partner received a rebate of $830,000 from the Partnership which represented a
rebate of selling commissions, the allocable portion of the dealer manager fee
and the non-accountable expense reimbursement allowance. The purchase of Units
by the USF&G Limited Partner resulted in net proceeds to the Partnership of
$9,170,000.
The General Partners and affiliates received fees and compensation in connection
with the Offering of Units in the Partnership and in connection with the
acquisition and financing of the real estate investments. Additionally, the
General Partners received reimbursement of organization, offering and
operational expenses paid by them on behalf of the Partnership. An affiliate of
one of the General Partners received selling commissions equal to 7% of the
gross proceeds of the Offering.
Pursuant to the Partnership Agreement, the Partnership was required to reimburse
the General Partners for organization and offering expenses up to a maximum of
4% of the gross proceeds of the Offering. Organization and offering expenses in
excess of 4% of the gross proceeds were paid for by the General Partners. In
addition, the Partnership reimburses the General Partners for the actual cost of
operating expenses paid on behalf of the Partnership and the actual cost
incurred to provide administrative services to the Partnership.
The General Partners are entitled to receive an acquisition fee of 5.75% of the
invested capital allocable to a property and reimbursement of actual
out-of-pocket acquisition expenses incurred. Total acquisition expenses paid to
the General Partners, affiliates and third parties are limited to 2% of the
allocable invested capital in a property. Acquisition expenses in excess of 2%
of the gross proceeds are payable by the General Partners.
USF&G Realty, Inc., the parent of the USF&G General Partner, is entitled to
receive an asset management fee (the "Asset Management Fee") equal to .5% of the
aggregate contract prices of the Properties owned and operated by the
Partnership, not to exceed an amount equal to 8% of annual distributable cash
flow from operations. The Asset Management Fee accrues as to each property
commencing with the date the property is acquired and is prorated in the event
Properties are held for only a portion of the year. Beginning on December 31,
1989 (the termination of the Offering), 40% of the Asset Management Fee is
payable currently and 60% is deferred to be paid from sale or refinancing
proceeds, if available.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note F - Related Party Transactions (Continued)
The following is a summary of compensation and reimbursements of expenses
incurred to the General Partners and their affiliates for the periods indicated:
For the Year Ended For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ ------------------
Charged to expenses:
Operating expenses $ 78,898 $ 85,455 $ 80,219
Interest expense 475,068 308,704 292,790
Asset management fee:
Current 0 0 181
Deferred 0 0 0
<TABLE>
<CAPTION>
Due to General Partners and affiliates consists of the following as of the dates
indicated:
<S> <C> <C>
December 31, 1996 December 31, 1995
----------------- -----------------
General Partner Loans $ 200,000 $ 200,000
Accrued Interest on General Partner Loans 36,045 19,503
Accrued Interest on the St. Andrews Construction Loan 42,548 0
Operating Expenses 21,727 10,060
---------- ----------
300,320 229,563
---------- ----------
Asset Management Fees 423,990 423,990
Accrued Interest on the Cash Flow Protector Loan 1,525,036 1,233,255
---------- ----------
Amounts Subordinate to the return of Unitholder
contributions 1,949,026 1,657,245
---------- ----------
$2,249,346 $1,886,808
========= =========
</TABLE>
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 the Partnership's distributable cash flow was insufficient to pay a 2%
cumulative quarterly return (8% annual return) to Unitholders (the "Cash Flow
Protector Loan"). The USF&G General Partner's commitment to lend such amounts
commenced on July 13, 1988, the initial closing date for the sale of Units, and
continued for five years thereafter, through July 13, 1993. The Cash Flow
Protector Loan accrued interest at an annual simple rate of 8% through December
31, 1993 and 6% thereafter and is due and payable on December 31, 2003 or
earlier, from sale or refinancing proceeds (see Note H). In conjunction with
cash distributions made through December 31, 1993, the USF&G General Partner
funded $4,849,734 pursuant to the Cash Flow Protector Loan.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note F - Related Party Transactions (Continued)
In connection with the loan modification at NEBC executed in the fourth quarter
of 1994 (see Note G), 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 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. It is assumed the carrying value of these
financial instruments approximates their fair value.
See Note J - St. Andrews Repair and Legal Costs for a discussion of an
additional loan from USF&G Realty Partners, Inc. Additionally, during 1995, 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.
<TABLE>
<CAPTION>
Note G - Mortgage Payables
Mortgages payable consists of the following as of the dates indicated:
<S> <C> <C>
December 31, 1996 December 31, 1995
----------------- -----------------
Mortgage loan, secured by Northeast Business Campus,
due August 15, 1999, interest at 8.00% (1) $7,975,000 $7,975,000
Mortgage loan, secured by St. Andrews at Westwood,
due September 1, 1997, interest at 9.65%(2) 8,500,000 8,500,000
Mortgage loan, secured by a portion of Shadeland Retail Center,
originally due January 1, 1997, interest at 9.375% (3) 4,054,488 4,120,531
---------- ----------
$20,529,488 $20,595,531
========== ==========
</TABLE>
(1) Interest only is payable monthly in the amount of $53,167 through
August 15, 1997 with payments thereafter of $59,813 through
August 15, 1999.
(2) Interest only is payable monthly in the amount of $68,354 over the life
of the loan.
(3) Monthly payments of $37,463, including principal and interest, are
based upon a 30-year amortization period. Principal payments of
$66,043 and $60,156 were made in 1996 and 1995, respectively. The loan
was extended until April 1, 1997 during the fourth quarter of 1996.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note G - Mortgage Payables (Continued)
On October 25, 1994, the Partnership executed a loan modification with the NEBC
lender to modify the NEBC mortgage. Under the terms of the loan restructuring,
the interest rate was reduced from 9.96% to 8% effective February 15, 1994, the
maturity date and principal balance remain unchanged, and the loan may be repaid
by the Partnership, at anytime, without penalty. In order to obtain the loan
modification, the Partnership agreed to permit the lender to participate in
sales proceeds above the outstanding debt and closing costs. 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. In connection with the 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 December 31, 1996, the lender held a total of $130,356
of restricted cash escrow which included $8,246 in reserves and $122,110 in tax
and insurance escrows. All 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.
The mortgage loans are non-recourse obligations. It is assumed the carrying
value of these financial instruments approximates their fair value. Interest
expense of $1,826,836, $1,832,726 and $1,993,765 was incurred on these mortgages
for the years ended December 31, 1996, 1995 and 1994, respectively. Interest
expense of $1,873,996, $1,815,419 and $1,928,544 was paid for the years ended
December 31, 1996, 1995 and 1994, respectively.
The General Partners anticipate that the balloon or principal balance payments
required on the mortgage loans at maturity will require an extension of the
existing mortgage loans or sale or refinancing of the property to which each
loan relates at such time. Maturities of mortgages payable as of December 31,
1996 are summarized as follows:
1997 $12,581,340
1998 84,975
1999 7,863,173
-----------
$20,529,488
===========
Note H - Distribution 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.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note H - Distribution to Partners (Continued)
As of December 31, 1996, cumulative cash distributions of $10,545,983 and
$106,517 had been made to the Unitholders and General Partners, respectively.
These cash distributions represented a cumulative return of 2% on invested
capital for each calendar period through the quarter ended July 13, 1993. No
distributions were made during 1996, 1995 or 1994.
Under Section 4.4 of the Partnership Agreement, distributions of sale or
refinancing proceeds are applied first to discharge the mortgage obligation of
the property sold or refinanced, then to discharge the debts and obligations of
the Partnership, including the St. Andrews construction loan, General Partner
loans and the Cash Flow Protector Loan, and to fund reserves for contingent
liabilities to the extent deemed reasonable by the General Partners. The
remaining sale or refinancing proceeds, if any, will be distributed to the
Unitholders. It is anticipated that any remaining proceeds will not be
sufficient to return the full amount of the Unitholders invested capital.
Note I - Reconciliation of Financial Statement Basis Net Loss and Partners'
(Deficit) Equity to Federal Income Tax Basis Net Loss and Partners'
Equity
<TABLE>
<CAPTION>
Reconciliation of financial statement basis net loss to federal income tax basis
net loss for the years indicated:
<S> <C> <C> <C>
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
Net loss - financial statement basis $(2,353,150) $(1,491,499) $(1,821,611)
(Excess) shortfall financial statement basis
equity in joint venture earnings over tax
basis equity in joint venture loss 0 (3,348,074) 110,142
(Shortfall) excess financial statement basis
rental income over tax basis rental income (10,204) (14,490) 18,548
Shortfall financial statement basis expenses
over tax basis expenses (100,520) (71,868) (85,069)
---------- ---------- ----------
Net loss - federal income tax basis $(2,463,874) $(4,925,931) $(1,777,990)
========== ========== ==========
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Note I - Reconciliation of Financial Statement Basis Net Loss and Partners'
(Deficit) Equity to Federal Income Tax Basis Net Loss and Partners'
Equity (Continued)
Reconciliation of financial statement basis partners' (deficit) equity to
federal income tax basis partners' equity as of the dates indicated:
<S> <C> <C> <C>
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Total partners' (deficit) equity - financial
statement basis $(1,070,324) $1,282,826 $ 2,774,325
Capitalization of selling commissions and
offering costs as a non-amortizable
intangible asset for federal income tax basis
statements 2,068,118 2,068,118 2,068,118
Current year excess financial statement basis
net loss over tax basis net loss (110,724) (3,434,432) 43,621
Prior years cumulative excess financial
statement basis net loss over tax basis net loss 4,836,010 8,270,442 8,226,821
---------- ---------- -----------
Total partners' equity - federal income tax basis $ 5,723,080 $8,186,954 $13,112,885
========== ========= ==========
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
Note J - St. Andrews Repair and Legal Costs
During the second quarter of 1995, the Partnership entered into a $3,000,000
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter of 1995 and were complete by the end of 1996. During 1995,
modifications to the original construction contract were made to install new
windows, replace the roofs and repair and replace the underlying wooden
structures as necessary on all the buildings. The 1995 modifications resulted in
a $617,600 increase in the $3,000,000 base contract. Additional modifications to
repair damaged drywall and make miscellaneous exterior repairs were made during
1996 which increased the total construction contract modifications by $208,900
to $826,500. During the third quarter of 1996, a $113,000 credit was issued to
adjust the unit pricing on select items of a 1995 modification. This decreased
the construction contract modifications to $713,500. The total completed
contract cost is now approximately $3,700,000.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Note J - St. Andrews Repair and Legal Costs (Continued)
The Partnership has incurred significant costs to date, including construction
and engineering expenses, in connection with assessing and repairing the
construction problems and pursuing legal remedies. The Partnership has recovered
$2,232,500 in settlements from responsible parties, including settlement
receipts of $80,000 in 1996, $565,000 during 1995 and $62,500 during 1994. In
addition to the $80,000 in settlements received during 1996, settlement
agreements of $1,525,000 which were reached during 1997 were used to offset 1996
construction costs incurred and are included in the $2,232,500. A receivable of
$1,525,000 was established for these settlements at December 31, 1996 of which
$1,350,000 was received by March 7, 1997. The settlements recovered during 1995
included a $100,000 settlement in the third quarter from an affiliate of the
USF&G General Partner as discussed in Note F. Settlement recoveries are used to
offset construction costs incurred.
During 1996, the Partnership incurred approximately $3,269,000 and $352,000 of
St. Andrews repair and legal costs, respectively, $500,000 of which were offset
by an insurance recovery and $1,605,000 of settlement recoveries from
responsible parties. The Partnership incurred approximately $1,162,000 and
$237,000 of St. Andrews repair and legal costs, respectively, during 1995,
$565,000 which were offset by settlements received during 1995. The Partnership
also incurred approximately $118,000 and $110,000 of St. Andrews engineering and
legal costs during 1994 which were offset by recoveries of $62,500.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1995 which permitted the Partnership
to borrow up to $3,500,000 to complete the necessary repairs. Under its term,
the loan will mature September 1, 1997 and pay interest monthly on advanced
funds at 9.0% per annum. 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 December 31, 1996, advances of
$2,790,000 had been made. As of December 31, 1995, no draws on this loan had
been made. Interest expense of $166,745 was incurred and interest payments
totaling $124,198 were made on this loan for the year ended December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------------------
Initial Cost Costs Capitalized Gross Amount at which carried
to Partnership Subsequent to Acquisition at December 31, 1996 (1)
--------------------------------------------------------------------------------------------
Building & Building &
Description Encumbrances Land Improvements Improvements Adjustments Land Improvements Totals (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Northeast Business
Campus Office/Service
Center, Columbus, Ohio $ 7,975,000 $2,398,944 $11,516,043 $1,142,597 $(4,773,511) $1,339,944 $ 8,944,129 $10,284,073
St. Andrews Apartments
at Westwood
Orlando, Florida $ 8,500,000 $2,527,918 $11,516,066 $ 276,465 $ (160,000) $2,527,918 $11,632,531 $14,160,449
Shadeland Retail
Shopping Center
Indianapolis, Indiana $ 4,054,488 $1,577,051 $ 8,628,943 $ 315,204 $ (114,465) $1,577,051 $ 8,829,682 $10,406,733
----------------------------------------------------------------------------------------------------------
$20,529,488 $6,503,913 $31,661,052 $1,734,266 $(5,047,976) $5,444,913 $29,406,342 $34,851,255
<C> <C> <C> <C>
Column F Column G Column H Column I
- -------------------------------------------------------------------------------
Accumulated Date of Date Depreciable
Depreciation Construction Acquired Life in Years
(2)
- --------------------------------------------------------------------------------
$2,423,508 1981, 1984 11/08/88 31.5
$2,763,543 1989 06/28/90 27.5
$1,863,003 1982, 1985 08/01/90 31.5
- --------------------------------------------------------------------------------
$7,050,054
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1 - Reconciliation of Real Estate:
For the Year Ended
December 31, 1996
------------------
Balance at beginning of period $34,563,895
Additions (deductions) during the period:
- Improvements 362,871
- Write-off fully depreciated real estate (75,511)
----------
Balance at end of period $34,851,255
==========
Note 2 - Reconciliation of Accumulated Depreciation:
For the Year Ended
December 31, 1996
------------------
Balance at beginning of period $5,950,963
Depreciation expense for the period 1,174,602
Write-off fully depreciated real estate (75,511)
---------
Balance at end of period $7,050,054
=========
Note 3 - Federal Income Tax Cost of Real Estate:
The federal income tax cost of the real estate differs from book cost, which is
reflected in Column E, by approximately $5,080,000. A guaranty payment received
in 1991 which was treated as a reduction to the book basis for GAAP and as
income for tax purposes in the amount of $160,000. Additionally, the 1994
writedown of the NEBC investment was not recognized for tax purposes.
Note 4 - Carrying Cost Adjustments:
There were no payments received or due during 1996 pursuant to seller net
operating income guarantees. For financial reporting purposes, payments received
pursuant to seller net operating income guarantees are recorded as adjustments
to the carrying value of the property. Guarantee payments of $160,000 related to
St. Andrews were received during 1991. In addition, a net writedown of
$4,043,000 was made during 1993 to adjust the carrying value of the NEBC
investment to appraised value. An adjustment of $75,511 was made to the carrying
value of NEBC to account for the write-off of fully depreciated real estate in
1996.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
SCHEDULE X - SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
For the Years Ended December 31, 1996, 1995, and 1994
Supplementary statements of operations information is as follows:
Column B -
Charged to Costs
Column A - Item and Expenses
1996 1995 1994
---- ---- ----
1. Maintenance and repairs $386,424 $357,209 $390,082
======= ======= =======
2. Real estate property taxes $434,025 $457,417 $487,280
======= ======= =======
<PAGE>
Item 9. Change In and Disagreements With Accountants on Accounting and
Financial Disclosures.
The USF&G/Legg Mason Realty Partners Limited Partnership has not changed
accountants since inception, nor have they had disagreements on any matter of
accounting principle, practice, financial statement disclosure, or audit scope
or procedure.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Partnership.
The Partnership does not have officers or directors. USF&G Realty Partners, Inc.
and Legg Mason Realty Partners, Inc. are the General Partners and have the
exclusive right and authority to manage the Partnership and conduct the business
of the Partnership.
USF&G Realty Partners, Inc.
USF&G Realty Partners, Inc. is a Maryland corporation that is wholly-owned by
USF&G Realty, Inc., a subsidiary of USF&G Corporation ("USF&G"). USF&G Realty
Partners, Inc. has the primary responsibility for overseeing the performance of
those with whom it contracts and who contract with the Partnership, cash
management of the Partnership's liquid assets, and the administration of
investor services, including general communications with and periodic reports
and distributions to Unitholders. Decisions with respect to the acquisition,
financing, refinancing and disposition of the Partnership's Properties are made
jointly by the General Partners. USF&G Assignor Limited Partner, Inc., a
wholly-owned subsidiary of USF&G Realty, Inc., is the Assignor Limited Partner
of the Partnership.
Officers and Directors of USF&G Realty Partners, Inc. and
USF&G Assignor Limited Partner, Inc.
Dan L. Hale, age 53, has been President and a director of USF&G Realty Partners,
Inc. and USF&G Assignor Limited Partner, Inc. since 1991. He is also Chief
Financial Officer of USF&G Corporation. Mr. Hale joined USF&G in February 1991
from the Chase Manhattan Corporation where he was President and Chief Executive
Officer of the Chase Manhattan Leasing Company. Before joining Chase in 1988,
Mr. Hale was a Managing Director of the Kidder Peabody Group of General Electric
Company. He also served as a Senior Vice President and General Manager of the
General Electric Capital Corporation's Corporate Finance Services Division, and
Vice President and General Manager of their Commercial Financing Division. Mr.
Hale holds a B.A. degree from Yale University.
Charles R. Werhane, age 42, has been Vice President and a director of USF&G
Realty Partners, Inc. and Vice President of USF&G Assignor Limited Partner, Inc.
since 1991. He is Vice President and Director of USF&G Realty, Inc., and is
President and CEO of USF&G Realty Advisors. Prior to joining USF&G in 1989, Mr.
Werhane was Vice President of the Real Estate Division of M Bank in Houston,
Texas, and from 1981 through 1988, he was associated with Western Bank in
Houston, Texas. Mr. Werhane holds a B.B.A. in Finance from the University of
Wisconsin, and a M.A. from Southern Methodist University's Southwestern Graduate
School of Banking.
John F. Hoffen, age 45, is Secretary of USF&G Realty Partners, Inc., USF&G
Assignor Limited Partner, Inc. and USF&G Realty, Inc. Mr. Hoffen has been
Corporate Secretary of USF&G since August, 1991. Mr. Hoffen joined USF&G in
1982, as a Tax Superintendent, and in 1989 was named Assistant Secretary. Prior
to joining USF&G, Mr. Hoffen was a Senior Tax Accountant with Monumental Life
Insurance Company. Mr. Hoffen holds a B.S. in Accounting from Loyola College, a
M.A. in Taxation and a J.D. from the University of Baltimore. Mr. Hoffen has
been a member of the Maryland Bar since December, 1987.
<PAGE>
Toby Slodden, age 39, is Vice President and Treasurer of USF&G Realty Partners,
Inc. and USF&G Assignor Limited Partner, Inc. Mr. Slodden joined USF&G in 1993
and is currently Assistant Treasurer of USF&G Corporation. Prior to joining
USF&G, Mr. Slodden spent eight years working for American Express Company and
its various subsidiaries, most recently serving as First Vice President of
Shearson Lehman Brothers. Mr. Slodden holds a MBA from The Wharton School and a
B.S. in Engineering from the University of Massachusetts.
Joseph A. Wesolowski, age 39, has been Vice President and a director of USF&G
Realty Partners, Inc. and USF&G Assignor Limited Partner, Inc. since 1991. Mr.
Wesolowski joined USF&G in January 1990 as Director of Financial Analysis of
USF&G Realty Advisors and currently serves as Senior Vice President/Chief
Financial Officer. Prior to joining USF&G, Mr. Wesolowski was the Chief
Financial Officer for Century Engineering, Inc. From 1983 to 1988, Mr.
Wesolowski held various positions at McCormick & Company, Inc., most recently
serving as Controller for its subsidiary McCormick Properties, Inc. Mr.
Wesolowski is a Certified Public Accountant and holds a B.A. degree in
Accounting from Loyola College, and a Masters of Administrative Science from the
Johns Hopkins University.
Legg Mason Realty Partners, Inc.
Legg Mason Realty Partners, Inc., a Maryland corporation, is a wholly-owned
subsidiary of Legg Mason, Inc. Legg Mason Realty Partners, Inc. participates
with USF&G Realty Partners, Inc. in the administration of investor services,
including general communications with and periodic reports and distributions to
Unitholders and reviews of Partnership operations. Legg Mason Realty Partners,
Inc. and USF&G Realty Partners, Inc. jointly make decisions with respect to the
acquisition, financing, refinancing and disposition of properties.
Officers and Directors of Legg Mason Realty Partners, Inc.
Richard J. Himelfarb, age 55, has been President and a director of Legg Mason
Realty Partners, Inc. since 1988. He is a Senior Executive Vice President and a
director of Legg Mason, Inc. and Legg Mason Wood Walker, Inc. Mr. Himelfarb has
senior management responsibility for the Corporate Finance, Real Estate Finance
and Direct Investments Departments of Legg Mason Wood Walker, Inc. From 1972
until he joined Legg Mason, Inc. in 1983, Mr. Himelfarb was a partner in the
Baltimore law firm where he served as senior outside counsel for Legg Mason,
Inc. He is a graduate of the Johns Hopkins University and the Yale Law School.
Audrey B. Drossner, age 40, who joined Legg Mason, Inc. in 1987, has been Vice
President, Treasurer and a director of Legg Mason Realty Partners, Inc. since
1988. She is Vice President of Legg Mason Wood Walker, Inc. From 1983 through
1987, she served as a Manager in the tax department of Coopers and Lybrand,
Baltimore, Maryland. Ms. Drossner is a graduate of the Wharton School of the
University of Pennsylvania and is a Certified Public Accountant.
<PAGE>
Gerard F. Petrik, Jr., age 38, is Secretary and a director of Legg Mason Realty
Partners, Inc. and Legg Mason Realty Capital, Inc. He is Vice President of Legg
Mason Wood Walker, Inc. Mr. Petrik joined Legg Mason in April 1987 and serves as
Manager of the Direct Investments Department. Prior to his employment at Legg
Mason, Mr. Petrik was a Senior Associate at Paine Webber Properties, Inc. Mr.
Petrik received his undergraduate and graduate degrees from Loyola College.
Item 11. Executive Compensation.
The Partnership has not paid and does not propose to pay any cash compensation,
bonuses or deferred compensation, compensation pursuant to retirement or other
plans, or other compensation to the officers or directors of the General
Partners.
During the offering, operating and liquidation stages of the Partnership, the
General Partners and their affiliates are entitled to receive various fees and
distributions. For information on these types of payments, incorporation by
reference is made to the section entitled "Management Compensation" on pages
9-13 of the Partnership's Prospectus dated June 28, 1988, which is incorporated
by reference herein.
<TABLE>
<CAPTION>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
Except as otherwise noted in (b) "Security Ownership of Management",
no individual or group, as defined by Section 13(d)(3) of the
Securities and Exchange Act of 1934, known to the registrant is the
beneficial owner of more than 5 percent of the registrant's
securities.
(b) Security Ownership of Management
<S> <C> <C> <C>
Amount and Nature Percent
of of
Title of Class Beneficial Owner Beneficial Ownership Class
- -------------- ---------------- -------------------- -------
Assignee Limited
Partnership Interests
$25 per Unit Fidelity & Guaranty Life Insurance Company 400,000 Units 37%
$25 per Unit USF&G Realty Partners, Inc. 56,614 Units 5%
$25 per Unit Legg Mason Realty Partners, Inc. 112,244 Units 10%
</TABLE>
(c) Change in Control
No arrangements are known to the Partnership which may result in a
change in control of the Partnership.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
(a) During the offering, operating and liquidation stages of the
Partnership, the General Partners and their affiliates are entitled
to receive various fees and distributions. For information on these
types of payments, incorporation by reference is made to the section
entitled "Management Compensation" on pages 9-13 of the Partnership's
Prospectus dated June 28, 1988, which is incorporated by reference
herein.
For a discussion of compensation to or accrued for the benefit of the
General Partners or affiliates in 1996, 1995, and 1994 refer to Note
F of Notes to Financial Statements of the Partnership which is
incorporated by reference from Part II, "Item 8. Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K.
(b) None
(c) No management person is indebted to the Partnership.
(d) Not applicable
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements and Schedules:
See Index to Financial Statements and Schedules, on Page 19 of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Partnership during the
quarter ended December 31, 1994.
(c) Exhibits:
3.1 Certificate of Limited Partnership of USF&G/Legg Mason Realty
Partners Limited Partnership dated April 8, 1988 (3)
4.1 USF&G/Legg Mason Realty Partners Limited Partnership Agreement and
Amended Certificate of Limited Partnership dated as of June 16, 1988
(3)
4.2 First Amendment to Limited Partnership Agreement and Amended
Certificate of Limited Partnership dated as of November 10, 1988 (2)
4.3 Second Amendment to Limited Partnership Agreement and Amended
Certificate of Limited Partnership dated as of February 6, 1989 (2)
4.4 USF&G/Legg Mason Realty Partners Amended and Restated Agreement of
Limited Partnership dated as of July 17, 1989 (1)
4.5 Form of Subscription Agreement (3)
4.6 Form of Notice of Exercise of Right of Presentment (3)
10.1 Management Services Agreement dated April 8, 1988 (3)
10.2 Form of Advisory Agreement with USF&G Realty, Inc. (3)
10.3 Purchase Agreement for Northeast Business Campus in Columbus, Ohio
dated November 2, 1988 (2)
10.4 Management Agreement between the Partnership and Galbreath - Huff
Companies, Inc. for property management services dated November 8,
1988 (2)
10.5 Leasing Agreement between the Partnership and Galbreath - Huff
Companies, Inc. for property leasing services dated November 8, 1988
(2)
<PAGE>
10.6 Lease Agreement dated August 17, 1989 between the Partnership and
Automatic Data Processing, Inc. (1)
10.7 Modification and Ratification of Lease dated May 27, 1988 between
Northeast Business Campus Associates and Abbott Laboratories
(including as an Exhibit thereto, Lease Agreement dated November 23,
1987) (2)
10.8 Lease Agreement dated May 15, 1987 between Northeast Business Campus
Associates and Peer Review Systems, Inc. (2)
10.9 Lease Agreement dated June 22, 1988 between the Partnership and Peer
Review Systems, Inc. (1)
10.10 Lease Agreement dated March 6, 1989 between the Partnership and Peer
Review Systems, Inc. (1)
10.11 Lease Agreement dated July 10, 1989 between the Partnership and Peer
Review Systems, Inc. (1)
10.12 Lease Agreement dated October 11, 1989 between the Partnership and
Professional Review Network Incorporated, a subsidiary of Peer
Review Systems, Inc. (1)
10.13 $7,975,000 Note Secured by Mortgage dated August 22, 1989 between the
Partnership and The Prudential Insurance Company of America (1)
10.14 Mortgage dated August 22, 1989 between the Partnership and The
Prudential Insurance Company of America (1)
10.29 Purchase Agreement for St. Andrews Apartments at Westwood, Orlando,
Florida dated June 25, 1990 (7)
10.30 Management and Leasing Agreement between the Partnership and Epoch
Management, Inc. dated as of July 2, 1990 (7)
10.31 Promissory Note and Mortgage Renewal and Modification Agreement dated
August 14, 1990 between the Partnership and Allstate Life Insurance
Company (7)
10.32 Consolidation and Renewal Mortgage Note dated August 14, 1990 between
the Partnership and Allstate Life Insurance Company (7)
10.33 Purchase Agreement for Shadeland Station Retail Center and Shadeland
Shops dated June 28, 1990 (7)
10.34 Shadeland Station Retail Center Leasing and Management Agreement
between the Partnership and Duke Management, Inc. dated as of
August 1, 1990 (7)
10.35 Shadeland Shops Leasing and Management Agreement between the
Partnership and Duke Management, Inc. dated as of August 1, 1990 (7)
<PAGE>
10.36 Lease Amendment dated December 31, 1983 between Shadeland Station
Associates and Marsh Supermarkets, Ind. (including as an Exhibit
thereto, Leasse Agreement between Shadeland Station Developers and
Marsh Supermarkets, Inc. dated August 31, 1981) (7)
10.37 First Lease Amendment dated December 29, 1983 between Shadeland
Station Associates and Peoples Drug Stores, Incorporated (including
as an Exhibit thereto, Lease Agreement between Shadeland Station
Developers and Peoples Drug Stores, Incorporated dated September 17,
1981) (7)
10.38 Assignment, Assumption and Modification Agreement dated as of
August 1, 1990 between IDS Life Insurance Company, Shadeland Station
Associates Limited Partnership and the Partnership (7)
10.39 Management and Leasing Agreement between the Partnership and Lincoln
Property Company dated as of October 7, 1991 (8)
10.40 Management and Leasing Agreement between the Partnership and ROI
Realty Services, Inc. dated as of November 1, 1991 (8)
10.41 Loan Extension Agreement between Shadeland Station Retail and IDS
Financial Corporation dated as of November 18, 1991 (8)
10.42 Management and Leasing Agreement between USF&G/Legg Mason Realty
Partners Limited Partnership and Summit Management Company dated as
of December 1, 1993 (10)
10.43 Management and Leasing Agreement between USF&G/Legg Mason Realty
Partners Limited Partnership and Mathews Click Bauman, Inc. dated as
of January 3, 1994 but effective as of July 1, 1993 (10)
10.46 Amended and Restated Note Secured by Mortgage dated 10/25/94 with
Prudential Insurance Company of America (11)
10.50 Management and Leasing Agreement between USF&G/Legg Mason Realty
Partners Limited Partnership and F.C. Tucker Company, Inc. dated as
of April 1, 1996
10.51 Loan Extension Agreement between Shadeland Shopping Center and IDS
Life Insurance Company dated as of December 17, 1996
28.1 Appraisal of Northeast Business Campus (4)
28.3 Appraisal of St. Andrews at Westwood (7)
28.4 Appraisal of Shadeland Station Shopping Center (7)
28.5 Pages 2 to 7 of the Registrant's Prospectus dated June 28, 1988 (3)
28.6 Pages 9 to 13 of the Registrant's Prospectus dated June 28, 1988 (3)
<PAGE>
28.7 Pages 1 to 5 of the Registrant's Prospectus Supplement No. 1 dated
November 7, 1988 (4)
28.8 Page 1 of the Registrant's Prospectus Supplement No. 2 dated
February 10, 1989 (4)
28.9 Pages 1 to 5 of the Registrant's Prospectus Supplement No. 4 dated
May 18, 1989 (5)
28.10 Page 5 of the Registrant's Prospectus Supplement No. 5 dated
August 7, 1989 (6)
28.11 Appraisal Update of Northeast Business Campus at October 1, 1992 (9)
28.13 Appraisal Update of St. Andrews at Westwood at December 1, 1992 (9)
28.14 Appraisal Update of Shadeland Station Shopping Center at
November 1, 1992 (9)
28.15 Appraisal Update of Northeast Business Campus at
December 1, 1993 (10)
28.17 Appraisal Update of St. Andrews at Westwood at December 1, 1993 (10)
28.18 Appraisal Update of Shadeland Station Shopping Center at
December 1, 1993 (10)
28.19 Appraisal Update of Northeast Business Campus at
December 1, 1994 (11)
28.21 Appraisal Update of St. Andrews at Westwood at December 1, 1994 (11)
28.22 Appraisal Update of Shadeland Station Shopping Center at
December 1, 1994 (11)
28.23 Appraisal of Northeast Business Campus at December 1, 1995 (12)
28.24 Appraisal of St. Andrews at Westwood at December 1, 1995 (12)
28.25 Appraisal Update of Shadeland Station Shopping Center at
December 1, 1995 (12)
28.26 Appraisal of Northeast Business Campus at December 1, 1996
28.27 Appraisal of St. Andrews at Westwood at December 1, 1996
28.28 Appraisal of Shadeland Station Shopping Center at December 1, 1996
<PAGE>
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934
(File No. 33-21623)
(3) Incorporated by reference to the Registrant's Registration Statement
on Form S-11 under the Securities Act of 1933 (File No. 33-21623)
(4) Incorporated by reference to the Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form S-11 under the
Securities Act of 1933 (File No. 33-21623)
(5) Incorporated by reference to the Registrant's Post-Effective
Amendment No. 4 to Registration Statement of Form S-11 under the
Securities Act of 1933 (File No. 33-21623)
(6) Incorporated by reference to the Registrant's Post-Effective
Amendment No. 5 to Registration Statement on Form S-11 under the
Securities Act of 1933 (File No. 33-21623)
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(8) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(9) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(10) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(11) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
(12) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (File No. 0-17633)
<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.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: USF&G Realty Partners, Inc.
General Partner
______________________________
Dan L. Hale, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
Signature (Position Within USF&G Realty Partners, Inc.) Date
- --------- --------------------------------------------- ----
President and Director
_______________ (Chief Executive Officer) _________
Dan L. Hale
_______________ Vice President and Director __________
Charles R. Werhane
Vice President and Director
_________________ (Chief Financial and Accounting Officer) _________
Joseph A. Wesolowski
<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.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: USF&G Realty Partners, Inc.
General Partner
/s/ Dan L. Hale
Dan L. Hale, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
Signature (Position Within USF&G Realty Partners, Inc.) Date
- --------- --------------------------------------------- ----
President and Director
/s/ Dan L. Hale (Chief Executive Officer) ________
- ---------------
Dan L. Hale
/s/ Charles R. Werhane Vice President and Director _________
- ----------------------
Charles R. Werhane
Vice President and Director
/s/ Joseph A. Wesolowski (Chief Financial and Accounting Officer) __________
- ------------------------
Joseph A. Wesolowski
<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.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: Legg Mason Realty Partners, Inc.
General Partner
________________________________
Richard J. Himelfarb, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
Signature (Position Within Legg Mason Realty Partners, Inc.) Date
- --------- ------------------------------------------------- ----
President and Director
____________________ (Chief Executive Officer) _________
Richard J. Himelfarb
Vice President, Treasurer and Director
____________________ (Chief Financial and Accounting Officer) _________
Audrey B. Drossner
___________________ Secretary and Director __________
Gerard F. Petrik, Jr.
<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.
USF&G/LEGG MASON REALTY
PARTNERS LIMITED PARTNERSHIP
BY: Legg Mason Realty Partners, Inc.
General Partner
/s/ Richard J. Himelfarb
Richard J. Himelfarb, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title
Signature (Position Within Legg Mason Realty Partners, Inc.) Date
- --------- -------------------------------------------------- ----
President and Director
/s/ Richard J. Himelfarb (Chief Executive Officer) _________
- ------------------------
Richard J. Himelfarb
Vice President, Treasurer and Director
/s/ Audrey B. Drossner (Chief Financial and Accounting Officer) _________
- ----------------------
Audrey B. Drossner
/s/ Gerard F. Petrik, Jr. Secretary and Director _________
- -------------------------
Gerard F. Petrik, Jr.
EXHIBIT 10.50
MANAGEMENT AND LEASING AGREEMENT
dated as of
March 1, 1996
between
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP, Owner
and
F.C. TUCKER COMPANY, INC., Manager
<PAGE>
TABLE OF CONTENTS
Article Page
1. Appointment, Commencement and Termination Dates 1
2 Manager's Duties and Responsibilities 2
3 Employees 11
4 Budgets and Accounts 13
5 Insurance 15
6 Financial Reporting and Recordkeeping 18
7 Owner's Right to Audit 21
8 Bank Accounts 21
9 Payments of Expenses 22
10. Manager's Non-Reimbursable Costs 23
11 Insufficient Gross Income 24
12 Leasing of the Property 24
13 Compensation 29
14 Notices 30
15 Indemnification 30
16 Contributions by Manager 31
17 Termination 32
18 Miscellaneous 33
Exhibits
A Property Description
B Initial Property Employees
C Budget Categories
D Account Classification
E Monthly and Financial Statements
F Form Lease
G Leasing Standards
<PAGE>
MANAGEMENT AND LEASING AGREEMENT
------------------------
THIS MANAGEMENT AND LEASING AGREEMENT ("Agreement") is dated as of this 1st day
of March, 1996 between USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP, a
Maryland limited partnership having its office at 100 Light Street, Baltimore,
Maryland 21202, ("Owner"), as owner, and F.C. TUCKER COMPANY, INC., having its
principal office at 2500 One American Square, Indianapolis, Indiana 46282
("Manager"), as manager and leasing agent.
Owner is the owner of land known as Shadeland Station Retail Center, State of
Indiana (the "Land") described in Exhibit A.
The Land is improved with two retail buildings containing a total of 105,182 net
rentable square feet, approximately 657 parking spaces and other related
facilities (the "Improvements"). The Land and Improvements, commonly known as
Shadeland Station Retail Center, are called the "Property." The metropolitan
area of Indianapolis is called the "Metropolitan area."
Manager is in the business of managing, operating, maintaining, servicing and
repairing projects similar to the Property. Manager possesses the personnel,
skills and experience necessary for the efficient first-class management,
operation, maintenance, service and repair of the Property.
Owner desires to retain Manager to manage, operate, maintain, service, and
repair the Property as the sole exclusive management agent for the Property.
Manager desires to perform such services for Owner upon the terms and conditions
set forth herein.
THEREFORE, the parties agree as follows:
ARTICLE 1. APPOINTMENT, COMMENCEMENT AND TERMINATION DATES
1.1. Appointment. Owner hereby appoints Manager the sole and exclusive manager
for the Property upon the terms and conditions set forth herein. Article 2 sets
forth the particular obligations of Manager. Article 13 sets forth Manager's
compensation for performance of such obligations. Manager accepts the
appointment on the terms and conditions set forth herein, and will furnish the
services of its organization for the management of the Property.
1.2. Experience of Manager. Manager represents that it is experienced and
capable in the managing of projects equal or better in quality, size and type to
the Property and acknowledges that Owner is relying on the foregoing
representation in entering into this Agreement.
1.3. Status of Manager. Manager is acting solely as an independent contractor
and shall have no authority to act for or obligate Owner in any manner
whatsoever, except to the extent set forth herein or as Owner may hereafter
authorize.
1.4. Duty of Care. Manager shall perform its duties under this Agreement with
at least the degree of care, skill, knowledge, judgment and diligence Manager
uses in its other management projects but in any case at least that necessary
and appropriate for first-class retail projects in the Metropolitan Area.
1.5. Construction and Furnishing of Property. Manager confirms Manager's
satisfaction with the current construction, maintenance, equipping, furnishing
and supplying of the Property.
1.6. Commencement of Agreement. Manager's duties and responsibilities under
this Agreement shall begin on the date of this Agreement and shall terminate in
accordance with Article 17. Unless this Agreement terminates pursuant to item
(i), (ii) or (iii) of Section 17.1, this Agreement will automatically continue
on a month-to-month term on the same terms as set forth herein, subject to the
termination provisions of Section 17.
ARTICLE 2. MANAGER'S RESPONSIBILITIES
2.1. Management.
(a) Manager shall manage, operate and maintain the Property in an efficient
manner in accordance with the provisions of this Agreement and as Owner may deem
advisable and shall arrange the proper operation of the Property for the tenants
thereof, subject to (i) the budgets, policies and limitations imposed by the
Owner and (ii) applicable governmental requirements.
(b) Manager shall perform all services in a diligent and professional manner in
accordance with recognized standards of the property management industry for
first-class retail complexes and in compliance with such standards and practices
as are prevalent for such type of real estate in the Metropolitan Area.
(c) Manager shall act in (i) a fiduciary capacity with respect to the proper
protection of and accounting for Owner's assets, (ii) an independent manner with
all third parties and (iii) the best interest of Owner at all times.
(d) Manager, at Owner's expense, shall enforce the observance of all rules and
regulations of the Property or applicable law by all reasonable means.
2.2. Compliance with Laws, and other Matters.
(a) Manager shall comply with, and require maintenance, use and occupancy of
the Property or its operation and management in accordance with:
(i) all covenants and restrictions, use permits and
development agreements applicable to the Property or
its operation and management and all governmental
requirements and all governmental requirements(as
now or hereafter in effect);
(ii) any occupancy certificate; and
(iii) the provisions of any insurance policy applicable to
the Property.
(b) Other than Manager's applicable overhead and employee expenses, Owner shall
pay all costs incurred in connection with such compliance. If Owner contests any
of the above requirements, Manager shall participate in such contest to the
extent Owner requests.
(c) Manager shall pay from the Operating Account (defined in Section 8.1)
expenses incurred to remedy violations to the extent that such expenses do not
exceed $100.00 in each instance. In all other instances, Manager shall pay the
expenses as Owner may designate from funds provided by Owner or from the
Operating Account.
(d) Manager shall familiarize itself with the terms of and be responsible for
compliance with all requirements of Owner set forth in any ground lease, space
lease, mortgage, deed of trust or other instrument affecting the Property
furnished to Manager by Owner or of which Manager otherwise has knowledge.
(e) Manager shall furnish to Owner, upon receipt by Manager, each notice or
order affecting the Property, including, without limitation, any notice from any
taxing or other governmental authority and notice of violation of any
governmental requirement or order issued by any Board of Fire Underwriters or
other similar body, against the Property or Owner, any notice of default or
otherwise from the holder of any mortgage or deed of trust or any notice of
renewal, termination or cancellation of any insurance policy. Manager, however,
shall not take any action under this Article so long as Owner is contesting or
has notified Manager of its intention to contest such notice, order or
requirement.
2.3. Expenditures by Manager.
(a) After Owner's approval, Manager shall implement the Approved Budget (defined
in Section 4.1) and has authority to make the expenditures and incur the
obligations provided in the Approved Budget. Manager shall not make, however,
without the prior approval of Owner, any expenditure or incur any obligation
which, even though included in an Approved Budget, when added to all other
expenditures actually made or to be made for the fiscal year covered by such
Approved Budget, exceeds the approved budgeted amount in any one budget line
item by five percent (5.0%) or more, or exceeds one thousand dollars
($1,000.00), except for utility bills, insurance premiums, real property tax
payments and payments to Owner.
(b) Manager shall not incur any expenses in any month in excess of the expenses
budgeted for such month, subject to the provisions herein regarding emergency
repairs or as provided for in Section 2.5. If expenses are likely to exceed
budgeted amounts, Manager shall inform Owner of the situation so that Owner may
have the opportunity to determine the appropriate action under the
circumstances.
2.4. Collection of Rents and Other Income.
(a) Manager, at Owner's expense, shall bill all tenants and shall take all other
proper and necessary action to enforce the terms of all leases and to collect
all rent and other charges due from or payable by tenants or other users of the
Property. Owner authorizes Manager to request, receive and receipt for all such
rent and other charges, and subject in each instance to the prior approval of
Owner, to settle or compromise the payment of such amounts.
(b) Manager shall obtain and review statements furnished by all tenants in
support of their respective payments of percentage rents and deductions, if any.
Such review does not include obtaining an outside audit of any such statement
unless Owner specifically so requests. If Manager fails to bill any tenant
properly for the full amount of rent payable under any lease, and tenant fails
to pay such amount, Manager promptly shall reimburse Owner any amounts due to
Owner upon Owner's written notice to Manager of such failure. At Owner's option,
Owner may deduct such amount due to Manager, plus interest, from that portion of
the Management Fee thereafter becoming due.
(c) Manager shall collect and identify any income due to Owner from
miscellaneous services provided to tenants or the public, including, without
limitation, application fees, forfeited deposits, parking income, tenant
storage, and coin operated machines of all types, such as vending machines and
pay telephones. Manager shall deposit all monies so collected in the Depository
Account (defined in Section 8.1).
2.5. Repairs and Maintenance.
(a) Manager shall maintain, or cause to be maintained, the buildings,
appurtenances and grounds of the Property, other than areas which are the
responsibility of tenants, in accordance with the standards for first-class
retail properties and in accordance with standards acceptable to Owner. Such
maintenance shall include, without limitation, all ordinary and extraordinary
repairs, cleaning, painting, decorations and alterations including electrical,
plumbing, carpentry, masonry, elevators and such other routine repairs as are
necessary or reasonably appropriate in the course of maintenance of the Property
(subject to the limitations of this Agreement). The expense incurred for such
maintenance, alteration or repair must be
(i) an ordinary and usual expense provided for in the
Approved Budget (as defined in Section 4.1) and which
does not exceed the limitation set forth in the
Approved Budget, or
(ii) an expense which is incurred under such circumstances
as Manager shall reasonably deem to be an emergency.
(b) If an emergency occurs, Manager shall make all repairs or take all action
immediately necessary to preserve the Property, avoid suspension of any
essential services to the Property, and avoid danger to persons or property.
Manager promptly, but in no event later than twenty-four (24) hours from the
time Manager learns of such emergency, shall notify Owner by telephone of any
such emergency. Immediately thereafter, Manager shall send Owner a written
notice setting forth the nature of the emergency and any action taken in
connection with the emergency. Except as set forth above with regard to
emergencies, Manager shall not make extraordinary or unusual expenses without
Owner's prior consent.
(c) Manager shall use all due diligence to require each tenant to comply with
its obligations to maintain its respective leased premises pursuant to its
lease. Manager shall pay actual and reasonable expenses for materials and labor
for such purposes from the Operating Account.
(d) All expenditures to refurbish, rehabilitate, remodel, or otherwise prepare
areas covered by new leases shall require Owner's prior consent and shall be
paid as Owner may direct from funds provided by Owner or from the Operating
Account subject to the restriction set forth in Section 2.3.
(e) Manager shall take all reasonable precautions against fire, vandalism,
burglary and trespass to the Property.
2.6. Purchase of Supplies and Materials.
(a) Manager shall purchase, on behalf of Owner and at Owner's expense, all
equipment, tools, appliances, materials and supplies reasonably necessary or
desirable for the care, maintenance and operation of the Property. All such
purchases shall be subject to the prior review and written approval of Owner if
such purchases are not included in the Approved Budget. Manager shall use such
purchases solely in connection with the operation and maintenance of the
Property and shall surrender them to the Owner upon termination of this
Agreement.
(b) In connection with the performance of its duties pursuant to this Section
2.6, Manager shall use its best efforts to qualify for any cash and trade
discounts, refunds, credits, concessions or other incentives. Any such
discounts, refunds, credits, concessions, or other incentives received by
Manager shall inure to and belong to Owner. If any such incentives are in cash,
Manager shall deposit the cash in the Operating Account.
2.7. Contracts With Third Parties.
(a) Subject to the prior review and approval of Owner, Manager shall be
responsible on behalf of Owner and at Owner's expense for the provision of all
independent contractors, suppliers and entities engaged in the operation,
repair, maintenance, servicing and promotion of the Property, including, without
limitation those entities
(i) necessary for the provision of all utility, cleaning,
repair, restoration, maintenance and security services;
(ii) necessary or desirable for the efficient operation of a
first-class project;
(iii) otherwise required by this Agreement or by any lease
affecting the Property; and
(iv) without limiting the application of any higher standards
required pursuant to (i), (ii) and (iii) immediately
above, as necessary or desirable to keep the Property in
as good, marketable and rentable condition as when it
became subject to this Agreement, reasonable wear and
tear and casualty excepted.
(b) As a condition to obtaining such approval, Manager shall supply Owner with a
copy of the proposed contract and shall state to Owner the relationship, if any,
between Manager, or the person in control of Manager, and the party proposed to
supply such goods or services. Each such service contract shall evidence the
following:
(i) be in the name of Owner;
(ii) be assignable, at Owner's option, to Owner's nominee;
(iii) include a provision for cancellation by Owner or Manager
upon 30 days or less notice. Manager shall directly
supervise and inspect the performance under all
applicable contracts, including without limitation, the
supervision, inspection and observation of all servicing,
cleaning, maintenance, repair, decorating or alteration
work at the Property during the progress thereof, and the
final inspection of the completed work and the approval
or disapproval, as appropriate, of all bills submitted
for payment.
(d) In connection with the foregoing, Manager shall use its best efforts to
obtain all necessary receipts, releases, waivers, discharges and assurances
necessary to keep the Property free from mechanics' and materialmen's liens and
other claims, all of which documentation shall be in such form as Owner requires
and at Owner's expense. Subject to Sections 2.3 and 11.1, Manager shall pay all
bills of such contractors, suppliers and entities properly approved by Manager,
but such bills shall be at the expense of Owner and shall be paid by Manager
from the Operating Account.
(e) Manager will require, and use its best efforts to assure, the maintenance by
all parties performing work or providing labor, goods, utilities or services to
or at the Property, without Owner's expense, of all insurance satisfactory to
Owner and any mortgagee of the Property or any portion thereof, including, but
not limited to, Worker's Compensation Insurance, Employer's Liability Insurance
and insurance against liability for injury to persons and property arising out
of all such contractors', suppliers', or other entities' operations, and the use
of owned, non-owned or hired automotive equipment in the pursuit of all such
operations.
(f) Manager shall not enter into any agreement or arrangement for the furnishing
to or by the Property of goods, services or space with itself or with any
Affiliate unless Owner has approved such agreement or arrangement in advance
after full disclosure of such relationship. "Affiliate," for purposes of this
item, means any person or entity (or a group of persons employed by the Manager)
which directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with Manager or any director, executive
retail or stockholder of Manager. "Control" means the ownership of ten percent
(10%) or more of the beneficial interest or the voting power of the appropriate
entity.
2.8. Interruption of Property Operations. Manager shall use only such
contractors, laborers and materials which in its best judgment will cause no
interruption in the construction, alteration, maintenance, operation, occupancy
or repair of the Property. If Owner shall notify Manager at any time that any
contractor or type of labor or materials used by Manager in or about the
Property have caused any unjustified interruption or difficulty then Manager, to
the extent permitted by law, shall at the written request of Owner, promptly
discontinue the use of any such contractor, laborer or material.
2.9. Capital Expenditures.
(a) The Approved Budget shall constitute authorization for Manager to make any
capital expenditures or tenant improvements to the extent that the expenditure
does not result in cumulative monthly expenditures exceeding by more than
$2,500, or 5%, whichever is less, of the cumulative monthly budgeted amount in
any one accounting category of the Approved Budget. All other capital
expenditures shall be subject to specific approval by Owner.
(b) With respect to the purchase and installation of major items of new or
replacement equipment (including, without limitation, elevators, heating or
air-conditioning equipment, incinerators, rugs, carpets or other floor
covering), Manager shall recommend that Owner purchase these items when Manager
believes such purchase is necessary or desirable. Unless Owner specifically
waives such requirements, or approves a particular contract, Manager shall award
all new or replacement equipment exceeding $2,000 on the basis of competitive
bidding, solicited in the following manner:
(i) Manager shall obtain a minimum of three (3) written bids
for each purchase;
(ii) Manager shall solicit each in a form approved by Owner so
that uniformity will exist in the bid quotes; and
(iii) Manager shall provide Owner with all bid responses
accompanied by Manager's recommendations as to the most
acceptable bid.
If Manager advises acceptance of other than the lowest bidder, Manager shall
specify its recommendations in writing.
(c) Owner may accept or reject any bid. Owner will communicate to Manager its
acceptance or rejection of bids. Owner may pay for capital expenses from its own
resources or the replacement reserve, or may authorize payment by Manager of its
duties and obligations under this Agreement or as required under any lease
covering any portion of the Property.
2.10. Permits and Authorization.
(a) Manager shall obtain and keep in full force and effect all obtainable
licenses, permits, consents and authorizations as may be necessary for the
maintenance, operation, management, promotion, repair, servicing or occupancy of
the Property or for the proper performance by Manager of its duties and
obligations under this Agreement or required under any lease covering any
portion of the Property.
(b) The cost of keeping in full force and effect all necessary licenses,
permits, consents and authorizations shall be at Owner's expense, except that
the cost of obtaining and keeping in full force and effect those licenses,
permits, consents, and authorizations necessary for the proper performance by
Manager and its employees of its or their duties or obligations shall be at
Manager's expense. All licenses, permits, consents and authorizations shall be
in the name of Owner, or its designee if required by Owner.
(c) Manager shall obtain any other licenses, permits, consents or authorizations
upon Owner's request. Unless Owner specifically waives such requirements or
approves a particular contract, either by memorandum or as an amendment to the
contract, all service contracts shall be subject to bid under the procedure as
specified in Section 2.9.
(d) If this Agreement terminates pursuant to Article 17, Manager, at Owner's
option, shall assign to Owner's nominee all of Manager's interest in all service
agreements pertaining to the Property.
2.11. Taxes, Mortgages.
(a) Unless Owner otherwise requests, Manager shall:
(i) obtain and verify bills for real estate and personal
property taxes, general and special real property
assessments and other like charges which are or may
become liens against the Property and recommend payment
or appeal as in its best judgment it may decide; and
(ii) make each payment from funds provided by Owner or from
the Operating Account on account of all taxes or of each
lease, mortgage, deed of trust or other security
instrument, if any, affecting the Property, and to pay
all utilities, unless otherwise instructed. Manager
shall ascertain the assessment and report such assessment
to Owner.
(b) Manager, if requested by Owner, will cooperate to prepare an application for
correction of the assessed valuation to be filed with the appropriate
governmental agency.
2.12. Inspections. Manager shall provide regular and systematic inspections of
the Property including, without limitation, the buildings, grounds, and parking
areas in order to comply with all Requirements (as defined in Section 2.2) and
assure proper maintenance of the Property. Manager shall not use armed guards or
guard dogs to provide security at the Property without the prior written
approval of Owner.
2.13. Policies and Procedures. Manager shall consult with and advise Owner
concerning all policies and procedures not already established by this Agreement
and implement all instructions of Owner concerning such policies and procedures.
All major policies and procedures shall be subject to the approval of Owner.
Moreover, Manager, at the request of Owner, shall schedule regular meetings with
Owner to discuss all aspects of the Property's operation and performance.
2.14. Complaints.
(a) Manager shall handle all complaints and requests from tenants,
concessionaires, licensees or parties. Manager shall record each such complaint
or request and its disposition in a logbook kept at the retail of Manager and
available for inspection by the Owner. Manager promptly shall notify Owner of
any major complaint made by any tenant, concessionaire, licensee, or party.
Manager promptly shall notify Owner of any defective condition in the Property
of which Manager knows which is a breach, default or violation of any lease,
contract or agreement relating to the Property or of any requirement of any
mortgage, insurance company, governmental body or agency, and shall promptly
provide Owner with copies of all documentation relevant to any such matter.
(b) Manager promptly shall notify Owner and, if directed by Owner, Owner's
general liability carrier after notice or knowledge of any personal injury or
property damage occurring at the Property which gives rise to a claim by any
tenant or third party and forward to Owner and, if directed by Owner, the
insurance carrier, any summons, subpoena, or other legal document served upon
Manager relating to actual or alleged potential liability of Manager or Owner.
2.15. Cooperation. Manager shall give Owner all pertinent information to defend
or otherwise dispose of any legal proceedings relating to Owner or the Property.
Although Manager shall have no obligation to institute in its name or in Owner's
name any landlord/tenant proceedings, Manager at Owner's request will assist in
Owner's prosecution of any such proceeding and will assist Owner in any
proceedings relating to the Property and instituted in Owner's name. Such
assistance will include, without limitation, coordinating and participating in
such proceedings with Owner's counsel, all without additional cost to Owner.
2.16. General Duties. Manager shall:
(a) maintain as the property of the Owner and readily accessible to Owner
orderly files containing rent records, insurance policies, leases and subleases,
correspondence, receipted bills and vouchers, bank statements, cancelled checks,
deposit slips and debit and credit memos, and all other documents and papers
pertaining to the Property or the operation thereof;
(b) provide reports for Owner's accountants in the preparation and filing by
Owner of each income or other tax return required by any governmental authority;
(c) consider and record tenant service requests in systematic fashion showing
the action taken with respect to each, and thoroughly investigate and report to
Owner in a timely fashion with appropriate recommendations all complaints of a
nature which might have a material adverse affect on the Property or the
Approved Budget.
(d) supervise the moving in and moving out of tenants; arrange, to the extent
possible, the dates thereof to minimize disturbance to the operation of the
Property and inconvenience to other tenants; and render an inspection report, an
assessment for damages and a recommendation or the disposition of any deposit
held as security for the performance by the tenant under its lease with respect
to each premises vacated;
(e) check all bills received for the services, work and supplies ordered in
connection with maintaining and operating the Property and, except as otherwise
provided in this Agreement pay such bills when due and payable;
(f) be responsible for implementing all directives of Owner regarding the
Property, and such other functions or activities which are consistent with this
Agreement and necessary or desirable to achieve the maximum efficiency and
success of the Property, unless Owner shall determine that any such function or
activity is outside the scope of Manager's authority, in which event Manager,
upon notice from Owner, shall cease performing such functions and activities;
(g) directly supervise, manage and be responsible for other matters coming
within the terms of this Agreement;
(h) not engage in any activity or omit to do any act or permit third parties to
engage in any activity on the Property which would adversely affect or threaten
to adversely affect the title and interest of Owner in the Property; and
(i) fully cooperate with Owner in the event Owner shall decide to sell, pledge
or otherwise encumber or transfer part or all of its interest in the Property
(including without limitation furnishing certified rent rolls and other data,
prepare and obtain estoppel certificates, and such other similar activities as
may be required).
2.17. Limitation of Authority. Manager shall not, without the prior approval
of Owner:
(a) make any expenditure, whether from the Operating Account or otherwise, or
incur any obligation on behalf of Owner, except for (i) expenditures or
obligations approved by Owner, and (ii) expenditures made and obligations
incurred directly pursuant to the Approved Budget. All other obligations
incurred or expenditures made by Manager shall be the obligation and
responsibility of Manager and shall not be the obligation or responsibility of
the Owner, and Manager shall hold Owner harmless from and indemnify Owner
against any and all such obligations or expenditures;
(b) convey or otherwise transfer, pledge or encumber any property or other
asset of Owner;
(c) commence or threaten to commence any legal proceeding in performing its
obligations under this Agreement, unless Owner has approved such proceedings and
the counsel retained in connection with such proceedings. Manager, at Owner's
request, shall institute and coordinate such proceedings with counsel selected
and approved by Owner, except that Owner shall retain final authority over the
conduct of any such proceedings;
(d) terminate leases, except in accordance with any guidelines approved by
Owner for the enforcement of leases;
(e) pledge the credit of Owner except for purchases made in the ordinary course
of operating the Property or as otherwise contemplated pursuant to this
Agreement;
(f) obligate Owner for the payment of any fee or commission to any real estate
agents or brokers, including the Manager itself;
(g) borrow money or execute any promissory note or other obligation or
mortgage, deed of trust, security agreement or other encumbrance in the name of
or on behalf of Owner; or
(h) permit any retail or employee of Manager or any third party to handle, have
access to or be responsible for monies or personal property of Owner or bank
accounts related to the Property (including the Operating Account and the
Security Deposit Account), unless such property is bonded or insured pursuant to
Section 3.1.
ARTICLE 3. EMPLOYEES
3.1. Employees; Independent Contractor.
(a) Subject to the limitations set forth in the Agreement and subject to the
prior approval of Owner, Manager shall have the sole duty to:
(i) hire, promote, supervise, direct, discharge and train
the personnel necessary for the continuing maintenance
and operation of the Property in accordance with the
obligations of Manager under this Agreement;
(ii) establish the terms of compensation for such personnel,
and obtain coverage of all employees by fidelity bond
or under a comprehensive crime insurance policy and
liability insurance in amounts satisfactory to Owner,
as more particularly described in Sections 5.2 and 5.3
of this Agreement; and
(iii) establish and maintain all policies relating to the
employment of such personnel.
(b) Manager shall not change the number of employees retained for the management
and operation of the Property without obtaining Owner's prior approval.
(c) Manager will negotiate with any union lawfully entitled to represent such
employees and shall execute, in its own name, and not as an agent for Owner,
collective bargaining agreements or labor contracts resulting therefrom. Owner
shall have no liability with respect to any employment arrangements with
employees employed in connection with the management of the Property, and all
employment arrangements shall confirm this understanding.
(d) Manager shall comply with all applicable governmental requirements relating
to workmen's compensation, social security, unemployment insurance, hours of
labor, wages, working conditions, employment discrimination, and other
employer-employee related matters and shall prepare and file all forms required
in connection therewith.
3.2. Key Employees. Manager shall submit to Owner the complete and detailed
resumes of each candidate that Manager elects for the position of property
manager to permit Owner to assure itself of such candidate's objective
qualifications. Owner shall have the right to a personal meeting with any
proposed property manager and, notwithstanding any other provision of this
Agreement, the hiring of such candidate shall be subject to the prior approval
of Owner.
3.3. Exhibit of Employees. Manager initially shall employ in the direct
management of the Property those employees so designated on Exhibit B to this
Agreement. Exhibit B sets forth the title and pay rate of each initial employee.
All employee salaries and positions shall be consistent with the Approved
Budget, (defined in Article 4.1.)
3.4. Compensation of Employees. Manager, at Manager's sole cost and expense,
during the term of this Agreement, shall pay all compensation of its employees
at the Property. Manager shall charge no sum to Owner for any employees of
Manager unless approved by Owner. Manager shall charge no part of Manager's
central retail overhead or general or administrative expense to Owner.
3.5. Compliance with Legal Requirements.
Manager shall:
(a) execute and timely file all forms, reports and returns required by law
relating to the employment of personnel employed by Manager in connection with
the Property;
(b) directly control the time and manner of the work and services to be
performed by the employees of Manager and comply with all governmental
requirements applicable to such employees; and
(c) make all necessary payroll deductions for disability and unemployment
insurance, social security, withholding taxes and other applicable taxes and
prepare, maintain and file all necessary reports with respect to such taxes or
deductions and all other necessary statements and reports.
3.6. Employment of Professionals.
(a) When approved by Owner, and at Owner's expense, Manager shall retain and
coordinate the services of all independent architects, engineers, accountants,
attorneys and other professional persons and entities necessary or appropriate,
in Owner's judgment, in connection with the Property. The terms of retention or
employment of such parties and all compensation payable at Owner's expense to
such parties shall be subject to the prior approval of Owner.
(b) manager shall discharge and terminate the services of any such party as soon
as possible under receipt of a request therefore from Owner. Manager in
implementing such discharge and termination shall not act in a manner which will
increase, enlarge or adversely affect Owner's liability, if any, for damages or
claims.
3.7. Nondiscrimination. Manager shall not discriminate against any employee or
applicant for employment in connection with the management of the Property
because of race, creed, color, disability, age, sex, marital status or national
origin. Manager will take affirmative action to ensure that applicants are
employed, and that employees are treated during employment, without regard to
their race, creed, color, disability, age, sex, marital status or national
origin. Such affirmative action shall include but not be limited to the
following: employment, upgrading, demotion or transfer, recruitment or
recruitment advertising, layoff or termination, rates of any or other forms of
compensation, and selection for training, including apprenticeship. Manager
agrees to post in conspicuous places, available to employees and applicants for
employment, notices setting forth the provisions of this nondiscrimination
clause.
ARTICLE 4. BUDGETS AND ACCOUNTING
4.1. Approved Budgets and Operating Plan.
(a) Manager shall submit by June 1st of each year to Owner an operating and
capital budget (the "Proposed Budget") on a monthly basis for the promotion,
operation, leasing (including leasing parameters for the Property), repair,
maintenance and improvement of the Property for the period ending on December 31
of the following year which shall be subject to Owner's approval.
(b) Owner shall have forty five (45) days following the date of submission to
review and approve or object to the Proposed Budget. Owner shall be deemed to
have approved the Proposed Budget if Owner fails to respond within such forty
five (45) day period. The Proposed Budget approved by Owner shall be designated
the "Approved Budget."
(c) The Proposed Budget shall show in detail the estimated receipts, reserves
and expenditures (capital, operating and other) for the period covered by the
Proposed Budget on a month-to-month accrual basis. The Proposed Budget will
include a cash flow statement setting forth the actual timing of the payments of
all expenditures. The Proposed Budget shall set forth the proposed payments of
any compensation or fee in the period covered by the Proposed Budget to any
person or entity. Each Proposed Budget shall set forth the details of the
assumptions made as a basis of the Proposed Budget. The Proposed Budget also
shall set forth in a separate schedule detailed projections respecting each of
the following:
(i) proposed lease rates for each building or floor, as
requested by Owner;
(ii) proposed concessions for each building or floor as
requested by Owner;
(iii) working capital requirements, if any;
(iv) capital improvements proposed;
(v) proposed contracts;
(vi) book and tax depreciation and amortization, including
building improvements and equipment, tenant
improvements and leasing commission;
(vii) utility rates and consumption costs;
(viii) service contract costs broken down on a contract-by-
contract basis;
(ix) base rents, electricity income, tax escalation,
operating escalation percentage rent, and other
income; and
(x) insurance costs by coverage with deductibles
indicated.
The Proposed Budget shall not include any compensation (including
fringe benefits) of any of Manager's retailers or employees other than those
listed on Exhibit B. Approval of a Proposed Budget shall not be deemed approval
of the form of any contract or agreement in connection with the expenditure
authorized. Manager shall submit all such contracts and agreements to Owner for
approval before execution by Manager, unless Owner has agreed to forego its
right of approval.
(e) If either Owner or Manager determines that the Approved Budget is not
compatible with the prevailing condition of the Property, Manager shall prepare
a revised Proposed Budget for the balance of the fiscal year and submit such
revised Proposed Budget to Owner within fifteen (15) days after (i) receipt of
notice of such determination by Owner or (ii) such determination by Manager. The
revised Proposed Budget shall be subject to review and approval by Owner in the
same manner and with the same effect as the original Proposed Budget.
(f) Manager shall use all reasonable diligence and employ all reasonable efforts
to ensure that the actual cost to maintain and operate the Property shall not
exceed the Approved Budget. Manager shall charge all expenses to the proper line
item entry as specified on Exhibit C to this Agreement and not classify an
expense to avoid an excess in the annual budgeted amount in an accounting
category. During each calendar year, Manager shall inform Owner of any increase
or decrease in costs and expenses not foreseen during the budget preparation
period and not included in the Approved Budget as soon as Manager knows of such
changes.
(g) Upon submission of the Proposed Budget, Manager shall submit each year to
Owner for approval by Owner an operating plan for the Property, including a
proposed list of improvements to the Property, marketing plan and plan for the
general operation and maintenance of the Property. The Owner shall review and
comment on the plan and make whatever changes the Owner deems appropriate.
Thereafter the Manager shall revise the operating plan in accordance with the
Owner's requirements and such revised plan shall be the plan for such year.
ARTICLE 5. INSURANCE
5.1. Insurance.
(a) Owner, at its expense, may obtain and keep in force insurance against
physical damage (such as fire with extended coverage endorsement, boiler and
machinery) with a full replacement cost endorsement and a waiver of subrogation
right against Manager, if available, and against liability for loss, damage or
injury to property or persons which might arise out of the occupancy,
management, operation or maintenance of the Property. Upon written request,
Owner shall use reasonable efforts to include Manager as an additional insured
in any liability insurance maintained with respect to the Property, and, if so
obtained, shall provide Manager with evidence of such insurance.
(b) Owner shall advise Manager in writing of the proper insurance coverage for
the Property, and shall aid and cooperate in every reasonable way with respect
to such insurance and any loss thereunder. Owner may include in any hazard
policy covering the Property all personal property, fixtures and equipment
located thereon which are owned by Owner. Manager shall include in any fire
policies for its furniture, furnishings or fixtures situated at the Property
appropriate clauses pursuant to which the respective insurance carriers shall
waive all rights of subrogation against Owner with respect to losses payable
under such policies.
(c) Manager shall investigate and submit a written report to the insurance
carrier and Owner as to all accidents, claims for damage relating to the
ownership, operation and maintenance of the Property, any damage to or
destruction of the Property and the estimated costs of repair thereof, and
prepare and file with the insurance company in a timely manner and otherwise as
the insurance company requires all reports in connection therewith. Manager
shall take no action (such as admission of liability) which might preclude Owner
from obtaining any protections provided by any policy held by Owner or which
might prejudice Owner in its defense to a claim based on the applicable loss.
(d) Manager shall settle all claims against insurance companies arising out of
any policies, including the execution of proofs of loss, the adjustment of
losses, signing and collection of receipts and collection of money, except that
Manager shall not settle claims in excess of $1,000 without the prior approval
of Owner.
5.2. Manager's Insurance. Manager shall maintain, at its sole expense, the
following insurance:
(a) Commercial general liability insurance with limits of not less than Three
Million Dollars ($3,000,000) each occurrence and aggregate, combined single
limit for bodily injury, property damage, personal injury and advertising
injury, with an endorsement naming the Owner as additional insured; and,
(b) Comprehensive automobile liability insurance with limits of not less than
One Million Dollars ($1,000,000) each occurrence, combined single limit for
bodily injury and property damage to include owned, non-owned and hired
automobiles. Such insurance shall be endorsed to include the Owner as additional
insured; and,
(c) Workers compensation insurance - statutory coverage as required by the
applicable State law; and.
(d) Employer's liability insurance with limits of not less than $500,000 each
accident/$500,000 policy limit - disease/$500,000.00 each employee - disease;
and,
(e) Commercial umbrella excess liability with limits of not less than
$5,000,000 each occurrence and aggregate.
Manager shall provide Owner with certificates evidencing such insurance within
ten (10) days following the date of this Agreement. All policies of insurance
required by this Section shall be endorsed to provide thirty (30) days' prior
written notice in the event of cancellation or reduction in coverage. Manager
shall provide Owner with certificates at least ten (10) days prior to the
expiration of any policy or policies required herein.
5.3. Manager's Fidelity Bond. Manager and all those of Manager's employees who
have access to or are responsible for the handling of the Owner's funds, at
Manager's sole expense, also shall be bonded by a fidelity bond in such
reasonable amount and having such deductible as shall be determined from time to
time by Owner and underwritten by a bonding company selected by Manager and
approved by Owner. Manager shall deliver to Owner, within ten (10) days
following the date of this Agreement a certificate evidencing such bond and an
agreement that such coverage cannot be cancelled without thirty (30) days' prior
notice to Owner. If Manager is unable to procure such bond, Owner, at its
option, may attempt to procure such bond at Manager's expense and Manager shall
fully cooperate with Owner in this regard.
5.4. Contractor's, Subcontractor's Insurance. Manager shall require any and
all contractors and/or subcontractors entering upon the Property to perform
services to have, at the contractor's or subcontractor's expense, and in a form
acceptable to the Owner, the following minimum insurance coverage:
(a) Worker's Compensation - Statutory Coverage as required by the applicable
State law;
(b) Employer's liability insurance with limits of $500,000 each accident/
$500,000 policy limit - disease/$500,000 each employee - disease;
(c) Commercial general liability insurance with limits of One Million Dollars
($1,000,000) each occurrence and aggregate, combined single limit for bodily
injury and property damage, with an endorsement naming the Manager and Owner as
additional insureds; and
(d) Comprehensive auto liability insurance with limits of One Million Dollars
($1,000,000) each occurrence, combined single limit for bodily injury and
property damage to include owned, non-owned and hired automobiles. Such
insurance shall be endorsed to include the Manager and Owner as additional
insured; and
(e) Commercial umbrella excess liability with limits of One Million Dollars
($1,000,000) each occurrence and aggregate.
If the value of a contractor's or subcontractor's contract is in excess of Five
Million Dollars ($5,000,000), Manager shall consult with Owner prior to the
execution of such contract. Owner shall determine the appropriate amount of
insurance required in connection therewith and shall inform Manager of such
insurance requirements.
Manager shall obtain Owner's written permission before waiving any of the above
requirements.
Prior to the commencement of any work by a contractor or subcontractor, Manager
shall obtain and keep on file certificates evidencing that the insurance
required by this section has been obtained. All policies of insurance required
herein shall be endorsed to provide thirty (30) days' prior written notice to
the Manager and Owner in the event of cancellation or reduction in coverage.
ARTICLE 6. FINANCIAL REPORTING AND RECORDKEEPING
6.1. Books of Accounts.
(a) Manager shall maintain adequate and separate books and records for the
Property with the entries supported by sufficient documentation to ascertain
their accuracy with respect to the Property. Manager shall maintain such books
and records at Manager's retail at the Property or at Manager's address as set
forth in Section 14.1.
(b) Manager shall maintain such control over accounting and financial
transaction as is reasonably necessary to protect Owner's assets from theft,
error or fraudulent activity by employees of the Manager. Manager shall bear
losses arising from such instances, including, without limitation, the
following:
(i) theft of assets by Manager's associates, principals or
retailers or those individuals affiliated with Manager;
(ii) overpayment or duplicate payment of invoices arising from
either fraud or gross negligence;
(iii) overpayment of labor costs arising from either fraud or gross
negligence, unless credit is subsequently received by Owner;
(iv) overpayment resulting from payment or transfer of property
from suppliers to Manager's employees or associates arising
from the purchase of goods or services for the Property; and
(v) unauthorized use of facilities or equipment by Manager or
Manager's employees or associates.
6.2. Account Classification. Manager shall adopt a system of classification of
accounts as set forth on Exhibit D.
6.3. Monthly Operating Statement; Financial Report.
(a) No later than the fifteenth (15th) day of each month, Manager shall furnish
to Owner, a monthly report (the "Monthly Operating Statement") detailing all
relevant activity and all financial transactions occurring during the prior
month, which for the purposes of this Agreement shall end at the conclusion of
the thirtieth (30th) day of the preceding month and maybe modified periodically
as required by Owner.
(c) The Monthly Financial Report shall be prepared on both a cash and accrual
basis according to generally accepted accounting principles with no
qualifications objectionable to Owner. There shall be three cash reports; one
for the retail center, one for the shoppes, and a consolidated report.
(d) With each Monthly Operating Statement Manager shall deliver to Owner or to
Owner's designee, a copy of all executed leases, modifications, amendments or
subleases for space in the Property executed during the prior month.
(e) The Monthly Operating Statement shall include in narrative form, a report on
all significant operations of the Property in the prior month and shall contain
information in the form of text, charts, graphs or schedules as necessary to
address activities at the Property in the following areas:
(i) Leases under negotiation or executed;
(ii) Lease amendments, modifications, extensions, renewals,
options or terminations;
(iii) Lease proposals and the status of negotiations;
(iv) Lease expirations and the relevant details about each;
(v) Tenant move ins or move outs and any relevant details;
(vi) Tenant improvement construction or alterations;
(vii) Arrears in rent or any other type of payment from all
tenants;
(viii) Litigation of any type which reasonably affects the
Property;
(ix) Personnel changes in the staff of the Manager;
(x) Maintenance contracts executed, amended or terminated by
Manager related to the Property;
(xi) Major maintenance work being undertaken at the Property
during the previous month or to commence in the next two
(2) months;
(xii) Gross sales reports;
(xiii) Tenant insurance certificate status report;
(xiv) Capital expenditure report; and
(xv) Any other items of interest to the Owner that the Manager
believes contributes to the carrying out of the Manager's
fiduciary duty as manager of the Property.
6.4. Final Statement
(a) Manager shall also deliver to Owner within sixty (60) days after (i) the
close of a calendar year and (ii) the termination of this Agreement, unaudited
financial statements (the "Final Statement"), including, without limitation,
(i) statement of income and expenses;
(ii) balance sheet;
(iii) cash flow statement; and
(iv) variance report.
(b) The Final Statement shall be prepared on a cash and accrual basis according
to generally accepted accounting principles with no qualifications objectionable
to Owner.
6.5. Supporting Documentation. As additional support to the Monthly Operating
Report, unless otherwise directed by Owner, and at the expense of the Owner, if
requested by Owner, Manager shall copy and forward to Owner, or to Owner's
designee, no later than the fifteenth (15th) day of each month copies of the
following documentation for the prior month:
(a) all bank statements, bank deposit slips, bank debit and credit memos,
canceled checks and bank reconciliations;
(b) detailed cash receipts and disbursement records;
(c) detailed trial balance for receivables and payables and billed and
unbilled revenue items;
(d) paid invoices, or microfiche copies thereof;
(e) detailed adjusting journal entries as part of the annual audit process;
(f) appropriate details of accrued expenses and property records;
(g) detailed statement of Manager's transactions with any affiliates (as
defined in Section 2.7);
(h) detailed cash reconciliations; and
(i) information regarding the operation of the Property as is reasonably
requested by Owner for preparation of the tax returns for the Owner.
ARTICLE 7. OWNER'S RIGHT TO AUDIT
7.1. Owner's Right to Audit
(a) Owner, or persons appointed by Owner, at Owner's expense, may examine all
books, records and files maintained for Owner by Manager. At Owner's expense and
upon reasonable notice, Owner may perform any audit or investigations relating
to Manager's activities either at the Property or at any retail of Manager if
such audit or investigation relates to Manager's activities for Owner.
(b) Should Owner's employees or appointees discover either weaknesses in
internal control or errors in recordkeeping, Manager shall undertake with all
appropriate due diligence to correct such discrepancies either upon discovery or
within a reasonable period of time. Manager shall inform Owner in writing of the
action taken to correct any audit discrepancies.
(c) Each audit conducted by Owner's employees or appointees will be at the sole
expense of Owner, except that if any audit reveals errors or discrepancies due
to fraud, negligence or gross negligence in excess of two percent (2%) of Gross
Rental Revenue, as defined below in Section 13.2, Manager shall pay the cost of
such audit which shall not exceed $8,000.
ARTICLE 8. BANK ACCOUNTS
8.1. Depository and Operating Accounts.
(a) Manager shall deposit daily all rents and other funds collected from the
operation of the Property in a bank designated by Owner in a special account for
the Property in the name of Owner or as Owner may designate, (the "Depository
Account"). Manager shall not have the right to draw on the Depository Account.
(b) Owner shall deposit into an operating account (the "Operating Account")
monies requested by Manager for purpose of Manager to pay property expenses.
(c) Manager shall pay from the Operating Account the operating expenses of the
Property and any other payments relative to the Property as required by this
Agreement. If more than one account is necessary to operate the Property, each
account shall have a unique name.
8.2. Security Deposits
(a) If law requires a segregated account of security deposits, Manager will open
a separate account at a bank approved by Owner. Manager shall maintain such
account in accordance with applicable law. Manager shall use the account only to
maintain security deposits.
(b) Manager shall account for all interest which security deposits earn and
shall have the right to draw on such account and shall refund all security
deposits from such account.
(c) Manager shall inform the bank to hold the funds in trust for Owner. Manager
shall maintain detailed records of all security deposits deposited, and allow
Owner or its designees access to such records. Manager shall obtain approval of
Owner before the return of any deposit to a tenant.
8.3. Change of Banks. Owner may direct Manager to change the Depository Account,
the Operating Account, or the Security Deposit Account bank arrangements. If the
bank so designated by Owner is not a bank customarily used by Manager, then
Owner shall pay any additional costs incurred by Manager to administer the new
account.
8.4. Access to Account. As authorized by signature cards, representatives of
Owner shall have access to all funds in the bank accounts described in Sections
8.1 and 8.2.
ARTICLE 9. PAYMENTS OF EXPENSES
9.1. Costs Eligible for Payment From Operating Account. Other than the
Management Fee (the method for payment of which is set forth in Article 13),
Manager may pay all expenses of the operation, maintenance and repair of the
Property included in the Approved Budget directly from the Operating Account,
subject to the conditions set forth in Article 2, including the following:
(a) cost to correct the violation of any governmental requirement relating to
the leasing, use, repair and maintenance of the Property, or relating to the
rules, regulations or orders of the local Board of Fire Underwriters or other
similar body, subject to the limitations set forth in Section 2.3 and Section
2.5, if such cost is not the result of Manager's gross negligence;
(b) actual and reasonable cost to make all repairs, decorations and alterations,
subject to Section 2.3 and 2.5, if such cost is not the result of Manager's
gross negligence;
(c) cost incurred by Manager in connection with all service agreements approved
by Owner;
(d) cost of collection of delinquent rents collected by a collection agent
approved by Owner in advance of retention;
(e) legal fees of attorneys, provided such fees are included in the Approved
Budget; legal fees not so included shall be eligible for payment from the
Operating Account only if Owner has approved the specific rate for such
attorney's fee and the specific task of such attorney in advance of payment;
(f) cost of all audits pursuant to the Owner's direction;
(g) cost of capital expenditures subject to the restrictions in Section 2.9 and
in this Article;
(h) cost of printed checks for each bank account required by Owner plus any
other bank charges;
(i) cost of all utilities provided to the Property and not billed directly to
tenants;
(j) cost of advertising, including brochures and mailers, approved by Owner;
(k) cost of printed forms and supplies required for use at the Property; and
(l) First Class postage for Monthly Operating Statements, Final Statements, and
other normal, routine communications and overnight letter postage for time
sensitive, extraordinary mailings.
Manager shall pay from the Operating Account the cost of refurnishing,
rehabilitating, remodeling or otherwise preparing areas covered by leases as
provided in the Approved Budgets. All other amounts payable with respect to the
Property shall be payable from the Operating Account to the extent approved by
Owner, as provided in this Agreement, or in such other manner as Owner
designates.
ARTICLE 10. MANAGER'S NON-REIMBURSABLE COSTS
10.1. Non-reimbursable Costs. The following expenses or costs incurred by or
on behalf of Manager in connection with the management and leasing of the
Property shall be at the sole cost and expense of Manager and shall not be
reimbursed by Owner:
(a) cost of gross salary and wages, payroll taxes, insurance, workmen's
compensation, and other benefits of initial Property personnel whose positions
are neither identified in Exhibit B nor subsequently approved by Owner pursuant
to the Approved Budgets;
(b) general accounting and reporting services within the reasonable scope of the
Manager's responsibility to Owner;
(c) cost of forms, papers, ledgers, and other supplies and equipment used in the
Manager's retail at any location off the Property;
(d) cost of electronic data processing equipment, computers or computer software
located at the Manager's retail off the Property for preparation of all reports
or other communications prepared by Manager pursuant to this Agreement;
(e) cost of electronic data processing provided by any outside computer service
companies for preparation of all reports or other communications prepared by
Manager under the terms of this Agreement;
(f) cost of routine travel by Manager or Manager's employees or associates to
and from the Property although travel during the workday related to property
operations are permitted;
(g) cost attributable to losses arising from gross negligence or fraud on the
part of Manager, Manager's associates or employees; and
(h) cost of insurance purchased by Manager for its own account.
ARTICLE 11. INSUFFICIENT GROSS INCOME
11.1. Priorities. If at any time the amount of funds in the Operating Account
shall be insufficient to pay the bills and charges incurred with respect to the
Property, Manager will pay such items in the following order or priority:
(a) first, to bills and charges for utilities and taxes;
(b) second, to bills and charges of vendors providing goods for the Property;
and
(c) third, to Manager's fee as described in Section 13;
(d) fourth, to bills and charges of contractors providing services for the
Property; and
(e) fifth, to debt service for the Property.
11.2. Statement of Unpaid Items. After Manager has paid, to the extent of
available gross income, all bills and charges based upon the ordered priorities
set forth in Section 11.1, Manager shall submit to Owner a statement of all
remaining unpaid bills.
11.3. Segregation of Accounts. If Manager manages several properties for Owner,
or affiliates of Owner, Manager shall segregate into separate operating bank
accounts the income and expenses of each property so as to apply gross income
from each property only to the bills and charges from that property.
ARTICLE 12. LEASING OF THE PROPERTY
12.1. General Duties of Manager as Leasing Agent. Manager shall use diligent
efforts to obtain tenants for, and negotiate leases for rental. In that
connection, Manager shall conduct the following activities:
(a) advise Owner in the promotion and advertising of the space in the Property,
including the development and implementation of marketing
strategies;
(b) assist Owner to develop the business terms of a standard lease form;
(c) negotiate the leases; and
(d) undertake such other activities as is customary for a Manager to lease space
in a first-class project in the Metropolitan Area.
12.2. Marketing Plan.
(a) Manager shall develop and submit to Owner, as part of its Proposed Budget,
an annual marketing and publicity program (the "Marketing Plan" ) in connection
with its overall marketing activities of the Property. The Marketing Plan of
Manager shall be in form, scope and substance acceptable to Owner, but also
similar in form to those of other similarly marketed centers in the area.
(b) If and to the extent reasonably requested by the Owner, Manager shall
present alternative advertising programs or promotional material for Owner's
consideration and evaluation.
12.3. Reports to Owner.
(a) Manager shall submit to Owner monthly, annually, and upon termination, in
each case within the time periods as set forth in Article 6, a summary report
for such month showing the tenant prospects interested in space in the Property,
calls made by Leasing Agent, the number of leases which have been executed and a
calculation of the occupancy rate.
(b) Manager shall discuss with Owner from time to time, as may be reasonably
requested by Owner, but in no event less than twice each month, to advise Owner
as to the status of the leasing activities for the Property, and shall apprise
Owner of its marketing program and a year-to-date summary of all the
effectiveness of the marketing program in place and of alternative approaches
which may be undertaken to maximize leasing.
(c) Manager shall assist Owner in connection with all matters and questions
pertaining to Manager's activities hereunder and shall use its best efforts to
coordinate marketing requirements with all other planning considerations of
Owner with regard to the development and management of the Property.
(d) In addition to the foregoing, Manager shall perform such other services as
are customarily performed or rendered by leasing agents in the Metropolitan
Area.
12.4. Fiduciary Relationship.
(a) Manager shall use diligent efforts (consistent with practices in the leasing
and brokerage business in the Metropolitan Area), to negotiate and consummate
leases for all available space at the Property at rents and upon other terms and
conditions provided for in Section 12.5 or otherwise acceptable to Owner.
Manager shall lease such space as expeditiously as possible, consistent with
sound business practices under all of the circumstances relating thereto.
Manager actively and diligently shall promote the Property and the space therein
subject to Owner's approval and payment.
(b) Manager at all times shall act in a fiduciary capacity for Owner with
respect to all of Manager's obligations under this Agreement. Manager shall deal
at arms length with all third parties and act in the best interest of Owner in
connection with its leasing activities.
12.5. Execution of Leases.
(a) Attached as Exhibit F to this Agreement is a form lease for the Property as
approved by Owner (the "Form Lease"). Manager shall negotiate and prepare leases
on behalf of Owner conforming to the Form Lease and the leasing standards
approved by Owner each year as established in the Approved Budget. The leasing
standards approved by Owner for the remainder of 1995 are attached to this
Agreement as Exhibit G. For all subsequent years, the parties shall amend this
Agreement or otherwise identify, in a writing signed by both parties, the
leasing standards approved by the Owner pursuant to the Approved Budget.
(b) In order to solicit Owner's approval, before execution of each Lease by a
tenant, Manager shall deliver to Owner a black-lined copy of the new lease
marked to show all changes made from the previously approved Form Lease. Owner
shall determine, in Owner's sole and absolute discretion, whether or not the
submitted lease satisfies the leasing standards and is otherwise acceptable to
Owner. No tenant may occupy space on the Property without an executed lease.
12.6. Compliance with Laws. Manager shall recommend and with the approval of
Owner take all action necessary to comply with the governmental requirements
relating to the leasing of the space. Manager, with the approval of Owner,
promptly shall remedy any violation of any such governmental requirements.
12.7. Tenant Funds. Manager, in its capacity as leasing agent, shall not accept
or maintain any funds, whether by deposit or otherwise, paid tenants or
prospective tenants and shall direct payment of such funds to Owner or to
appropriate accounts maintained by Manager in its function as manager of the
Property.
12.8. Dissemination of Information. Manager shall not at any time, whether
during negotiations or after consummation of any lease or, without limitation,
any amendment, extension, renewal or termination thereof, make any news release,
public announcement, denial, or confirmation, or otherwise disseminate any
information or publicity in connection with any activity under this Agreement
without the prior consent of Owner. Manager shall keep confidential any
privileged or confidential information obtained in connection with Manager's
activities under this Agreement, except to the extent required by law and
subject to Manager giving Owner a prior explanation as to why the law requires
such disclosure. Upon Owner's prior written approval, Manager may announce
leasing activity via news releases or tombstone ads.
12.9. Cooperation with Sales Brokers and Other Leasing Agents.
(a) Manager shall have the exclusive right to lease the space in the Property,
but shall cooperate with each broker or agent with respect to the leasing of
space, sale or other disposition of all or any part of the Property.
(b) Manager will permit the broker or agent to exhibit the Property during
reasonable business hours.
(c) Except if Manager is the sole procuring broker or agent and has executed a
separate sales commission agreement with Owner providing for a sales commission
to be paid to Manager, no commission shall be payable to Manager for or in
connection with the sale or other disposition of all or any part of the Property
by any broker or agent employed by Owner under this Article.
12.10. Commissions.
(a) If, during the term of this Agreement, any space in the Property is leased
to any person, firm or entity, (other than to Manager or to any affiliate
(defined in Section 17.1) of Owner), Owner shall pay Manager, and Manager shall
accept in full payment for all such leasing, a commission in an amount equal to
the amount set forth on Schedule G.
(b) Manager shall receive no commission or compensation for any increase in
space or rental agreed upon with any tenant after the termination of this
Agreement, except as otherwise agreed upon between Owner and Manager in writing.
Within five (5) days following the notice of termination of the
Agreement, Manager shall provide a list of not more than four bona fide
prospects (the "Prospective Tenants") to whom Manager has made a firm written
proposal and introduced the Property by physical inspection. Manager shall be
entitled to a commission in accordance with this Agreement if a lease with a
Prospective Tenant is executed within sixty (60) days after the termination of
this Agreement.
(c) The parties shall consider any commission paid pursuant to this Article to
cover any out-of-pocket administrative and overhead expenses incurred by Manager
in connection with the leasing of the space in the Property and the performance
of its leasing obligations hereunder. Unless otherwise agreed by the parties,
and except as otherwise provided herein, Manager will not be entitled to
reimbursement from Owner for any leasing expense, except leasing commissions,
brochures, and other marketing expenses as set forth in the Approved Operating
and Capital Budget.
(d) (1) For the purposes of this Section 12.10 and computing commissions in
accordance with Schedule G "fixed minimum rental" shall mean the net rent in
accordance with the lease exclusive of the following amounts: (a) amounts
payable by reason of rent inclusion or otherwise, for after hours utilities,
utilities services, heat or air-conditioning or other services, (b) real estate
tax calculation adjustments, whether or not Owner must make payments for real
estate taxes, or is excused therefrom pursuant to an abatement of tax payments,
in whole or part, granted by such applicable government entity; (c) operating
expense or wage rate escalation adjustments; cost of living increases or any
other escalation adjustments or lease cancellation payments; (d) any rent paid
or credited by Owner to a tenant by reason of Owner's retaining as subtenant or
otherwise any portion of the premises demised to such tenant; (e) with respect
to construction work, repairs or decorating (or other work) which Owner has
agreed to perform for such tenant, to Owner (either by way of increased rentals
or in a lump sum); (f) any moving costs of tenant paid by Owner or credited to
tenant; and (g) any other credits given by Owner to tenant against rent for any
reason, including, but not limited to, adjustment in accordance with the
provisions of subsection 12.10.(d)(2). With respect to any lease which provides
for adjustments in "Fixed minimum rental", if the "fixed minimum rental" payable
during any portion of the second or any subsequent lease year during the term of
the lease is not determinable on the date the Conditions (as defined in
subsection 12.10(e)) are fulfilled, the parties shall deem the "fixed minimum
rental" during such lease year to be at the annual rate payable during the year
immediately preceding such portion of the term of the lease.
(2) The parties shall deem the "fixed minimum rental" payable by a
tenant reduced by (i) an amount (a) equal to any credits allowed against basic
rentals under the lease for payments made by the tenant to its landlord in
another building to satisfy, cancel or discharge its obligations under its
existing leases or agreements, or (b) paid by or on behalf of Owner to any
landlord, in another building, of a tenant to satisfy, cancel or discharge the
tenant's basic rental obligations under its existing leases, and (ii) any
expense paid by or on behalf of Owner for a tenant's space in another building
("take-over space") if Owner must pay such expense pursuant to a lease or
separate agreement entered into and affecting the Buildings. If Owner shall
overpay any commissions as a result of an error, Manager shall repay such
overpayment promptly to Owner and, if as a result of an error not so repaid,
Owner may deduct the overpayment from any other amounts due to Manager under
this Article. Owner shall reimburse any underpayment to Manager promptly.
e. (1) Subject to the provisions of subsection 12.10(e)(2), any commission
due Manager, or co-brokers shall be earned and shall be payable as set forth
below and upon the satisfaction of both of the following conditions
("Conditions"):
(A) Fifty percent (50%) of the commission when the tenant executes and
delivers a signed Lease and makes payment of the security deposit, if any, and
makes advance payment of any rental payment for the applicable space; and
Fifty percent (50%) upon the tenant taking occupancy of the
applicable space under the Lease and commencement of rental payments.
(2) If Manager negotiates with a co-broker a commission payment
arrangement, Owner shall make payment to Manager in accordance with such
arrangement.
(3) If for any reason, including without limitation, acts of God,
governmental restrictions, acts of any public enemy, casualty, or other cause
beyond Owner's control, the tenant does not take possession of the demised
premises and commence the performance of the tenant's obligations under the
lease, in any such event, no commission or brokerage, or any portion thereof,
shall be due, payable or earned, or shall be paid to manager or any other broker
by the Owner, and the Owner is and shall be relieved from liability for the
payment of any and all commissions, claims or charges whatsoever with respect to
such transaction.
(f) Owner and Manager shall consider changes in the payment of commissions if
the market changes as to amount and method of payment of commissions.
(g) Owner need not pay any commission with respect to any lease of space in the
Buildings for the use of the Manager or of any affiliate of any partner or
shareholder of the Owner.
12.11. Manager's Obligations Upon Termination. With respect to Manager's leasing
activities, immediately after termination of this Agreement, Manager shall
deliver to Owner original leases, copies of all files, books, records,
documents, prospect lists, and other matters in Manager's possession relating to
the Property.
ARTICLE 13. COMPENSATION
13.1. Management Fee. Manager shall receive for its services in managing the
Property in accordance with the terms of this Agreement, a monthly management
fee equal to a percentage of Gross Rental Revenue (as hereafter defined)
collected during such month (the "Management Fee") based on the Property's
occupancy. The management fee will be as follows: 3% if occupancy is 92% or
greater, and 2 1/2% if occupancy is below 92%.
13.2. Gross Rental Revenue. The term "Gross Rental Revenue" as used herein shall
mean the gross amount of payments to Owner or Manager for the benefit of Owner
made as rent, fees, charges or otherwise for the use or occupancy of the
Property of for any services, equipment or furnishings provided in connection
with such use or occupancy, but Gross Rental Revenue shall not include security
deposits, prepaid rents (if collected more than one month in advance), money
received pursuant to bills separately rendered to tenants for tenant
improvements or after hours utility costs.
13.3 Payment of Management Fee. The Owner shall pay Manager the Management Fee
on or before the twentieth (20th) day of each calendar month based upon the
Gross Rental Revenue collected for the preceding calendar month. The Management
Fee shall be subject to appropriate annual adjustment promptly after Manager has
delivered to Owner the Final Statement required by Article 6.4. The parties
shall calculate the Management Fee on the basis of such Final Statement and as
otherwise required by this Agreement. For any period of less than one month, the
parties shall calculate the Management Fee on a proportionate basis based upon
the actual collected Gross Rental Revenue in such month.
ARTICLE 14. NOTICES
14.1. Notices.
(a) All notices, demands, consents, approvals, reports and other communications
provided for in this Agreement shall be in writing and shall be given to Owner
or Manager at the address set forth below or at such other address as they may
specify hereafter in writing:
Owner: Attn: Gerald Trainor
c/o USF&G Real Estate Division
TW1001
100 Light Street, 10th Floor
Baltimore, Maryland 21202
with a copy to:
Attn: Nicholas F. McCoy
TW3201
United States Fidelity and Guaranty Company
100 Light Street, 32nd Floor
Baltimore, Maryland 21202
Manager __________________
F.C. Tucker Company, Inc.
2500 One American Square
Indianapolis, Indiana 46282
(b) Such notice or other communication may be mailed by United States registered
or certified mail, return receipt requested, postage prepaid or nationally
recognized overnight courier and shall be deposited in a United States Post
Office or a depository for the receipt of mail regularly maintained by the post
retail or such overnight courier. Notices shall be deemed received upon the
earlier of actual receipt, whether delivered by hand delivery, express services
or other form of delivery.
ARTICLE 15. INDEMNIFICATION
15.1. Indemnification by Manager. Manager shall indemnify, defend and hold Owner
harmless from any and all claims, demands, causes of action, losses, damages,
fines, penalties, liabilities, costs and expenses, including reasonable
attorney's fees and court costs, sustained or incurred by or asserted against
Owner by reason of any negligence, willful action or fraud of Manager or which
arise from Manager's breach or non-performance of Manager's obligations required
by this Agreement. If any person or entity makes a claim or institutes a suit
against Owner on a matter for which Owner claims the benefit of the foregoing
indemnification, then
(a) Owner shall give Manager immediate notice thereof in writing;
(b) Manager may defend such claim or action by counsel of its own choosing
provided such counsel is reasonably satisfactory to Owner; and
(c) Neither Owner nor Manager shall settle any claim without the other's
written consent.
15.2. Indemnification by Owner. Owner shall indemnify, defend and hold Manager
harmless from any and all claims, demands, causes of action, losses, damages,
fines, penalties, liabilities, costs and expenses, including reasonable
attorney's fees and court costs, sustained or incurred by or asserted against
Manager by reason of the operation, leasing, management and maintenance of the
Property and the performance by Manager of Manager's obligations under this
Agreement or which arise out of Owner's breach of the duties and obligations
required by this Agreement to be performed by it, but only to the extent of
Owner's interest in the Property except for those which arise from Manager's
negligence, willful action or fraud or by the breach or nonperformance of the
Manager's obligations under this Agreement. If any person or entity makes a
claim or institutes a suit against Manager on a matter for which Manager claims
the benefit of the foregoing indemnification, then
(a) Manager shall give Owner immediate notice thereof in writing;
(b) Owner may defend such claim or action by counsel of its own choosing
provided such counsel is reasonably satisfactory to Manager; and
(c) neither Manager nor Owner shall settle any claim without the other's
written consent.
ARTICLE 16. CONTRIBUTIONS BY MANAGER
16.1. Contributions
(a) Neither Manager nor any employee or third party acting on behalf of Manager
shall make or take any bribes, kickbacks, or other payments regardless of form
whether in money, property or services, directly or indirectly, to or for the
benefit of any government official or employee, domestic or foreign, whether on
the national level or a lower level, such as state, county or local (in the case
of a foreign government also including any level inferior to the national level)
and including regulatory agencies of governmentally-controlled businesses,
corporations, companies or societies for the purpose of affecting his action or
the action of the government he represents to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for business
secured or special concessions obtained in the past.
(b) No money or property of Owner shall be paid or used or offered, nor shall
Manager, any employee or third party acting on behalf of Manager directly or
indirectly, pay or use or offer, consent or agree to pay or use or offer any
money or property of Owner, for or in aid of any political party, committee or
organization, or for, or in aid of, any corporation, joint-stock or other
association organized or maintained for political purposes, or for, in aid of,
any candidate for political retail or for nomination for such retail, or in
connection with any election including referendum or constitutional amendment,
or for any political purpose whatever or for lobbying in connection with
legislation or regulation thereunder, or for the reimbursement or
indemnification of any person for monies or property so used.
ARTICLE 17. TERMINATION
17.1. Termination. This Agreement shall terminate on the earlier of
(i) the sale or other transfer of the Property by Owner other than to
an affiliate of Owner (defined below in this Section) or termination of Owner's
right to collect the rents therefrom,
(ii) termination as provided in Section 17.2 or 17.3, or
(iii) termination as herein otherwise provided.
"Affiliate of Owner" shall mean any person or entity (or a group of persons
employed by the Owner) which directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with Owner
or any director, executive retailer or stockholder of Owner. "Control" means the
ownership of ten percent (10%) or more of the beneficial interest or the voting
power of the appropriate entity.
17.2. Termination by Owner. Owner, in its sole and absolute discretion, on not
fewer than five (5) days' written notice to Manager, may terminate this
Agreement with or without cause at any time. Owner must give Manager 30 days
prior written notice to terminate this Agreement during the first 12 months of
this Agreement.
17.3. Termination by Manager. Manager may resign its duties as Manager effective
on the last day of any calendar month by giving written notice to Owner not
fewer than sixty (60) days before the effective date of the resignation. The
notice must specify the effective date of the resignation.
17.4. Mutual Obligations Upon Termination. Upon termination of this Agreement,
each party shall continue to be liable for its own obligations through the
termination date. Each shall pay to the other all amounts due under the terms of
this Agreement within ten (10) days after determination of the applicable
amounts.
17.5. Manager's Obligation Upon Termination.
(a) Upon the effective date of termination Manager shall
(i) give to Owner control of the Property and all rents and income of
the Property and other monies of Owner then held by Manager or in
any bank account (including, without limitation, the Operating
Account (defined in Section 8.1) and the Security Deposit Account
(defined in Section 8.2);
(ii) deliver to Owner as received any monies or other property due
Owner under this Agreement but received after termination;
(iii) deliver to Owner the originals of the books, permits, plans,
leases, licenses, contracts, records, keys and all other
materials, property and supplies pertaining to the Property or
this Agreement;
(iv) confirm the assignment to Owner of any rights Manager may have to
the records of the Property as Owner shall require; and
(v) deliver all cash on hand derived from the Property.
(b) Manager hereby grants a power of attorney to Owner to endorse any checks
received in connection with the Property, and hereby assigns to Owner effective
upon the date of termination all rights Manager may have to the records of the
Property. Manager shall do all other things necessary for an orderly transition
of the management of the Property without detriment to the rights of Owner or to
the continued management of the Property.
ARTICLE 18. MISCELLANEOUS
18.1. No Assignment. Manager may not assign or transfer in any manner all or
any part of this Agreement either voluntarily or by operation of law, unless
approved by Owner.
18.2. Consent and Approvals. Owner may give consents or approvals only by
representatives of Owner from time to time designated in writing by Owner's
designated representative in charge of property management located at the
address designated in Section 14.1. Unless otherwise specified herein, all such
consents or approvals shall be in Owner's sole and absolute discretion.
18.3. Amendments. Except as otherwise provided, each amendment, addition or
deletion to this Agreement shall not be effective unless approved by the parties
in writing.
18.4. Funds Held in Trust. Manager will hold in trust for Owner the Property
records, funds pertaining to the Property and any other rental or other monies
received by Manager from or on account of the operation, management or promotion
of the Property which may belong to Owner.
18.5. Data Bank. Manager shall not provide any third party including any
individual or pooled data bank (which shall include without limitation
computerized systems) any information with respect to the Property or tenants
occupying portions thereof, including without limitation, information pertaining
to the names or businesses of tenants, the amount of space occupied by any
tenant, or the terms of any leases in the Property, without the
written consent of Owner.
18.6. No Signs or Advertising. Manager shall make no publication, announcement
or other public advertisement of Owner's name in connection with the Property
except as required by applicable law or approved by Owner. Manager shall not
place on the Property any sign indicating Owner's or Manager's name without
Owner's prior authorization.
18.7. Successors and Assigns. Subject to the restrictions on transfers and
encumbrances set forth herein, this Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and permitted
assigns. Reference to any entity or party shall include a reference to the
successors and permitted assigns of such entity or party.
18.8. Additional Remedies. The rights and remedies of the parties under this
Agreement shall not be mutually exclusive. The exercise of one or more of the
provisions of this Agreement shall not preclude the exercise of any other
provisions of this Agreement.
18.9. Attorneys Fees. Should any action be brought arising out of this
Agreement, including without limitation any action for declaratory or injunctive
relief, the prevailing party shall be entitled to reasonable attorneys' fees and
costs and expenses of investigation all as actually incurred and including,
without limitation, attorneys' fees, costs and expenses of investigation
incurred in appellate proceedings or in any action or participation in, or in
connection with, any proceeding under the federal Bankruptcy Code or any
successor statutes, and any judgment or decree rendered in any such actions or
proceedings shall include an award thereof.
18.10. Ownership of Fixtures and Personal Property. Manager acknowledges that
Owner owns all fixtures and personal property situated on or about the Property
and used in or necessary for the operation, maintenance and occupancy of the
Property, excluding only personal property and fixtures owned by tenants under
leases of space within the Property or owned or paid for by Manager from its
funds and not on behalf of Owner.
18.11. Entire Agreement. This Agreement, including all exhibits attached hereto,
represents the entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior oral or written
understandings. The attached exhibits are an integral part of this Agreement.
18.12. Amendments. Any amendment or waiver to this Agreement shall not be
effective unless in writing signed by each party.
18.13. Terminology. All headings are for convenience and ease of reference only
and irrelevant to the construction and interpretation of this Agreement. Each
gender shall include each other gender. The singular shall include the plural
and vice-versa.
18.14. Counterparts. The parties may execute this Agreement in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
18.15. Interpretation. No provision of this Agreement shall be construed against
or interpreted to the disadvantage of any party by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.
18.16. Governing Law. This Agreement and the obligations of Owner and Manager
shall be interpreted, construed and enforced in accordance with the laws of the
state where the Property is located.
18.17. Survival. The provisions of Sections 12.8, 12.9, 17.5 and 18.5 and
Article 15 shall survive the termination of Manager's management obligations
under this Agreement.
18.18. No Waiver. The failure by Owner or Manager to insist upon the strict
performance of or to seek remedy of any one of the terms or conditions of this
Agreement or to exercise any right, remedy, or election set forth herein or
permitted by law shall not constitute or be construed as a waiver or
relinquishment for the future of such term, condition, right, remedy or
election, but such item shall continue and remain in full force and effect. All
rights or remedies of Owner or Manager specified in this Agreement and all other
rights or remedies that Owner or Manager may have at law, in equity or otherwise
shall be distinct, separate and cumulative rights or remedies, and no one of
them, whether exercised by Owner or Manager or not, shall be deemed to be in
exclusion of any other consent, waiver or approval of Owner or Manager of any
act or matter must be in writing and shall apply only to the particular act or
matter to which such consent or approval is given.
18.19. Enforcement of Manager's Rights. In the enforcement of its rights under
this Agreement, Manager shall not seek or obtain a money judgment or any other
right or remedy against any general or limited partners or disclosed or
undisclosed principals of Owner. Manager shall enforce its rights and remedies
solely against the estate of Owner in the Property or the proceeds of any sale
of all or any portion of Owner's interest therein.
18.20. Severability. If any provision of this Agreement or application to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid and unenforceable to any extent, the remainder of
this Agreement, where the application of such provisions or circumstances other
than those as to which it is determined to be invalid or unenforceable shall not
be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
OWNER: USF&G/Legg Mason Realty Partners
Limited Partnership
WITNESS:
_____________________________ By: _________________________(Seal)
its
MANAGER: F.C. Tucker Company, Inc.
WITNESS:
_____________________________ By: _________________________(Seal)
<PAGE>
Exhibit A
PROPERTY DESCRIPTION
<PAGE>
Exhibit B
INITIAL PROPERTY EMPLOYEES
Property
Location
City
State
Employee
Title
On-Site:
Off-Site:
<PAGE>
Exhibit C
BUDGET CATEGORIES
<PAGE>
Exhibit D
ACCOUNT CLASSIFICATION
[See attached]
Awaiting Policies
<PAGE>
Exhibit E
MONTHLY FINANCIAL REPORTS
1. Statement of income and expenses on a cash and accrual basis, based on
generally accepted accounting principles and including depreciation for tenant
and building improvements, furniture, fixture and equipment, and amortization
or leasing commissions;
2. Balance Statement;
3. Monthly rent roll, including a lease expiration schedule;
4. Monthly tenant aging receivable report;
5. Monthly narrative budget and actual variance report;
6. Monthly source and use of cash reconciliation;
7. Monthly Management Fee reconciliation;
8. Monthly Bank Statements and reconciliations;
<PAGE>
Exhibit F
FORM LEASE
<PAGE>
Exhibit G
LEASING STANDARDS
All leases for space in the Property shall conform with the conditions set forth
below (the "Leasing Standards") or upon such other terms as Owner may reasonably
accept:
1. The standard form of lease shall not be materially altered or amended without
the prior written consent of Owner.
2. All leases conforming to this Exhibit G and which are on the form lease as
set forth on Exhibit F shall be duly submitted to Owner for its approval or
rejection in Owner's sole discretion.
3. Unless approved by Owner, in writing, the primary term of any Lease shall be
for a term of not fewer than thirty-six (36) months nor more than sixty (60)
months.
4. The Leases may include rights and options to renew the term thereof at the
then prevailing market rental for a period not to exceed sixty (60) months.
5. The Leases shall provide for effective annual rent per square foot of net
rentable area leased in an amount acceptable to Owner. Effective annual rents
per square foot of net rentable area shall be calculated as follows:
where
A. is the total rent payable over the applicable term of the
Lease, including any concession or free rent periods;
B. is the number of years in the applicable term of the Lease,
including any concession or free rent periods; and
C. is the number of net rentable square feet of area to be leased.
6. Tenant improvement expenditures will vary depending on lease terms.
7. All Leases shall be duly authorized and properly executed by the tenant
pursuant to all necessary corporate or partnership authorization, consent or
other action.
8. Potential tenants shall provide financial statements to Manager, must be an
ongoing business for at least three (3) years immediately preceding execution of
the lease and must have a net worth of at least three (3) times the annual
rental obligation of the lease. Owner will pay for D&B's and credit checks if
Owner requests such reports.
9. Manager to secure Owner's approval and execution of any new lease or renewal.
Manager must contact Owner with salient points (term, rate, concessions, etc.)
on any new lease or renewal as soon as conversation with any tenant or
prospective tenant has begun.
These leasing standards shall apply from the date of this Agreement until
otherwise modified in writing by Owner by advice of Manager.
LEASING COMMISSIONS
Owner shall pay Manager in the manner described in Section 12.10 (e)(1)
the following leasing commissions:
1. Four percent (4%) of fixed minimum rental, as defined in Section
12.10(d)(1) for new leases with no co-broker.
2. Two percent (2%) of fixed minimum rental as defined in Section
12(10)(d)1) for renewals or extensions of existing leases of the rental rate at
the time of the renewal or extension. For extensions and modifications of
existing leases, a commission will be computed at the commencement of the
extension term.
3. Five percent (5%) of fixed minimum rental, as defined in Section
12.10(d)(1) for new leases with a co-broker entitled to a minimum of 3%.
4. For lease terms greater than 5 years, the leasing commission will be
as stated above for the first 5 years, then one half of the stated amount for
year 5 and beyond (i.e. 1% on renewals and 3% on co-brokered new deals).
Note: A Co-Broker is defined as any broker that does not work for the F.C.
Tucker Company, Inc.
EXHIBIT 10.51
December 17, 1996
USF&G/Legg Mason Realty Partners L.P.
c/o Gerry Trainor
P. O. Box 1138
Baltimore, MD 21203-1138
RE: IDS Life Insurance Company ("IDSL") Loan #694001040
Shadeland Shopping Center
Indianapolis, IN
Dear Gerry:
The maturity on the above referenced loan has been granted an extension until
April 1, 1997. Pursuant to your request for an extension in order to reach an
agreement on expanding the center, IDSL agrees as follows:
1. The maturity date shall be extended to April 1, 1997.
2. You shall continue to make regular mortgage payments (including applicable
tax and/or insurance escrow payment) until April 1, 1997, at which time
all loan amounts are due and payable in full.
3. IDSL shall receive an extension fee equal to $2,000 upon execution of this
letter.
Except as specifically amended hereby, the loan terms shall remain unchanged.
All other requests for modifications are hereby denied.
Please sign and return a copy of this letter by December 27, 1996 to Jon
Gargulak indicating your acceptance of this extension.
IDS LIFE INSURANCE COMPANY
BY: ___________________
Nancy Hughes
ITS: Assistant Vice President
Agreed and accepted this _____ day of December, 1996.
USF&G/Legg Mason Realty Partners, L.P.
BY: ___________________________
ITS: ___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 780727
<SECURITIES> 0
<RECEIVABLES> 1633082
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34851255
<DEPRECIATION> 7050054
<TOTAL-ASSETS> 30611034
<CURRENT-LIABILITIES> 0
<BONDS> 20529488
0
0
<COMMON> (1070324)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30611034
<SALES> 0
<TOTAL-REVENUES> 4766702
<CGS> 0
<TOTAL-COSTS> 4817948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2301904
<INCOME-PRETAX> (2353150)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2353150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2353150)
<EPS-PRIMARY> (2.13)
<EPS-DILUTED> (2.13)
</TABLE>
EXHIBIT 28.26
February 5, 1997
Ms. Julie C. Tyler, MAI
Manager, Real Estate Valuations
United States Fidelity and Guaranty Company
P. O. Box 1138
Baltimore, MD 21203-1138
RE: Northeast Business Campus ("NEBC")
Corporate Drive
Columbus, Franklin County, Ohio
Ms. Tyler:
In accordance with the engagement letter dated November 5, 1996, I have
appraised the Northeast Business Campus. The purpose of this appraisal is to
estimate the leased fee interest in the subject. The "as is" market value
estimate also reflects the market value of the property at stabilized occupancy.
This complete, self-contained report is to be used in conjunction with your
internal decision-making process in regard to the Right of Presentment for the
"Fund". The date as of which the value estimate shall apply is December 1, 1996,
which is also the date of my initial property inspection; the property was
re-inspected on December 2, 1996. The appraisal reflects market conditions as of
the date of the initial property inspection.
The subject is located within the southeast quadrant of East Dublin-Granville
Road (State Route 161) and Westerville Road (a.k.a. Columbus-Wooster Road or
State Route 3) in Columbus, Franklin County, Ohio. The improvements consist of
five office and office/warehouse buildings containing a total of 180,472
rentable square feet. The structures are situated on a total of 20.143 acres. A
complete description of the property is stated in the accompanying sections of
this report. Your attention is called to the Standard and Special Conditions and
Certification sections of this report.
Subject to all conditions and explanations contained herein and in the
subsequent report, it is my opinion that the current market value of the leased
fee interest in Buildings 1 through 5 of the Northeast Business Campus,
expressed in financial terms equivalent to cash, as of December 1, 1996, is:
Nine Million Seven Hundred Thousand Dollars
$9,700,000
The accompanying prospective financial analysis is based on estimates and
assumptions developed in connection with the appraisal. Some assumptions,
however, may not materialize, and unanticipated events and circumstances may
occur; therefore, actual results achieved during the period covered by the
prospective financial analysis may vary from the estimates and the variations
may be material. Further, the appraiser has not been engaged to evaluate the
effectiveness of management, and is not responsible for future marketing efforts
and other management actions upon which actual results will depend.
<PAGE>
This report, the final estimates of value, and the prospective financial
analysis are intended solely for your information and assistance for the
function stated and should not be relied upon for any other purpose. Neither
this report nor any of its contents nor any reference to the appraiser or
PINNACLE ASSOCIATES, INC. may be included or quoted in any document, offering
circular or registration statement, prospectus, sales brochure, other appraisal,
or other agreement without PINNACLE ASSOCIATES, INC.'S prior written approval of
the form and context in which it appears. Steven R. Reynolds, MAI has received
general appraisal certification from the State of Ohio.
Respectfully submitted,
PINNACLE ASSOCIATES, INC.
Steven R. Reynolds, MAI
President
EXHIBIT 28.27
December 13, 1996
Julie C. Tyler, MAI
Manager, Real Estate Valuations
United States Fidelity and Guaranty Company
100 Light Street
Baltimore, MD 21202
RE: Appraisal of St. Andrews Apartments (259 Units)
11500 Westwood Boulevard, Orlando, Florida
CBC File No. 96-O247
Dear Ms. Tyler:
At your request and authorization, CB Commercial Real Estate Group, Inc. has
prepared an update of our Complete Appraisal report, CBC File Number 95-144,
dated December 1, 1995. That report was presented in a self-contained format,
and estimated the market value of the fee simple estate in the above-referenced
real property, subject to the existing short term leases, at $8,800,000 as of
December 1, 1995. It also projected the prospective future market value upon
completion of the capital improvements program as of December 1, 1996 at
$11,800,000.
The subject property consists of a 259 unit garden apartment complex, and is
more fully described, legally and physically, within the enclosed report. The
capital improvements program which was recently completed (except for a few
"punch list" items) has cured the deferred maintenance problems of rotten
masonite siding and damaged roof tiles noted in our last appraisal. This has
resulted in the rental income returning to a competitive market position with a
resulting increase in value from $8,800,000 in December 1995, to $12,000,000 in
December 1996. This is within $200,000 of our projected future value in last
year's appraisal. The slight difference is due to improved market conditions and
the rents currently being achieved at the subject property. We have assumed that
any remaining "punch list" items will be completed by the contractor within the
budgeted retainer. Therefore, the purpose of this update appraisal, which is
presented as a completed appraisal in a self-contained format, is to estimate
the market value of the fee simple interest, subject to the existing short term
leases as of December 1, 1996.
Data, information, and calculations leading to the value conclusion are
incorporated in the report following this letter. The report, in its entirety,
including all assumptions and limiting conditions, is an integral part of and
inseparable from this letter.
Based on research and analysis contained in this report, it is estimated that
the current market value of the fee simple estate interest, subject to the
existing short term leases, in the subject property, "as is" on December 1,
1996, was:
TWELVE MILLION DOLLARS
($12,000,000)
<PAGE>
The following appraisal sets forth the most pertinent data gathered, the
techniques employed, and the reasoning leading to the opinion of value. The
analyses, opinions and conclusions were developed based on, and this report has
been prepared in conformance with, our interpretation of the guidelines and
recommendations set forth in the Uniform Standards of Professional Appraisal
Practice (USPAP), the requirements of the Code of Professional Ethics and
Standards of Professional Appraisal Practice of the Appraisal Institute; and the
appropriate regulations and guidelines set forth by United States Fidelity and
Guaranty Company, as submitted to us.
It has been a pleasure to assist you in this assignment. If you have any
questions concerning the analysis, or if CB Commercial Real Estate Group, Inc.
can be of further service, please do not hesitate to contact us.
Respectfully Submitted,
CB COMMERCIAL REAL ESTATE GROUP, INC.
APPRAISAL SERVICES
by:
- ----------------------------- -------------------------------
John S. Galt, MAI, CCIM Sam Hines, MAI, SGA
Vice President/Senior Analyst First Vice President/Regional Manager
St. Cert. Gen. REA RZ0000818 St. Cert. Gen. REA RZ0000126
EXHIBIT 28.28
December 17, 1996
Ms. Julie A. Tyler, MAI
Manager, Real Estate Valuations
USF & G Realty Advisors
100 Light Street, Tenth Floor
Baltimore, MD 21202
RE: Up-date Appraisal, As of December 1, 1996
Shadeland Station Retail Center
SEQ Shadeland Avenue and East 75th Street
Indianapolis, IN
Dear Ms. Tyler:
As you requested, we have performed the necessary research to provide you with
an update of the appraisal of the referenced property. The purpose of this
appraisal update is to estimate the market value as of December 1, 1996, of the
leased fee estate, subject to the conditions and limitations stated in this
report.
The terms of reference of this assignment call for us to up-date and analyze
market data with specific respect to the changes which have occurred since the
date of the original appraisal. Accordingly, this appraisal up-date
incorporates, by reference, the full appraisal document covering the subject
property and dated January 6, 1990 and the updates dated November 1, 1991,
November 1, 1992, December 1, 1993, December 1, 1994 and December 1, 1995. This
appraisal up-date will focus, therefore, only on significant changes in market
conditions which have occurred subsequent to the date of the most recent update
appraisal.
The attached report is a presentation of our research which concludes that the
market value of the leased fee estate, as of December 1, 1996, is:
NINE MILLION EIGHT HUNDRED NINETY THOUSAND DOLLARS
($9,890,000).
This represents the as-is value of the subject.
Based on current marketing conditions, it is estimated that the property would
require a marketing time of six to nine months.
Analysis of Value Change
The value reported for the subject reflects a upward change of $40,000 since the
previous appraisal. The subject exhibits a current vacancy of 12,590 SF/GLA,
which is above previous long term levels, but represents a decrease over a year
ago. Prospects exist for most of the vacant space, with current deals pending on
4,590 SF/GLA.
Market support to the subject remains good. At the time of the last appraisal,
increased competition was seen from new product which had been developed in the
immediate area. This new supply has experienced strong support, without
negatively affecting the subject. Effective rents in the subject remain high as
new deals being negotiated and renewal rates have been favorable. Therefore,
good future performance is indicated and absorption of vacant space is forecast
to be fairly rapid.
<PAGE>
The Marsh/Osco expansion remains in question for yet another year. Osco approval
is required for Marsh to go forward and at this time Osco's corporate position
does not favor an investment in the Indianapolis market. Current proposals
provide for the cost of Osco expansion, fixturization and remodeling to be
amortized over a new lease term to overcome this obstacle. While the decision of
Osco as to expansion is unknown at this time, this tenant has given notification
of their intention to renew their current lease.
While the high effective rents and leasing prospects are positive, an investor
would consider the overall risk to the subject with respect to vacancy, rent
loss during lease-up of vacancy and capital expenditures in the form of leasing
commissions and tenant improvements. As the future prospects for the subject
remain good, no change in the capitalization and yield rates applied is
indicated. Rather the temporary risk of increased expenditures is accounted for
with the application of tenant improvements to all spaces to maintain the appeal
of the subject. In addition, a decrease in normative vacancy from 10 percent to
6 percent accounts for the repositioning of the subject following what seemed a
transition period. The continued discontinuation of expense stops in combination
with the decreased vacancy has an upward effect on value.
This letter must remain attached to the report which follows in order for the
value opinion set forth to be considered valid.
Sincerely,
Sabra A. Sullivan
Certified General Appraiser-Indiana (#CG49300206)
Frederick C. Terzo, CRE, MAI, AICP Certified General Appraiser - Indiana
(#CG69100042) for Terzo & Bologna, Inc.
