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, 1997 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 Centennial Way (FB0101), 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 eriod 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
Part of Form 10-K to
Document from Which Portions which Incorporated by
are Incorporated by Reference 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. ("the Legg
Mason General Partner"), a Maryland Corporation (collectively, the "General
Partners").
The USF&G General Partner is wholly-owned by USF&G Realty, Inc., a subsidiary
of USF&G Corporation ("USF&G"). USF&G is a holding company whose principal
subsidiaries provide a variety of commercial and personal property/casualty
insurance, surety bonds, reinsurance, life insurance and annuity products. On
January 19, 1998, The St. Paul Companies, Inc. ("St. Paul"), a Minnesota
corporation, and USF&G announced the signing of a definitive merger agreement
pursuant to which a wholly-owned subsidiary of St. Paul will be merged into
USF&G. Completion of the transaction is subject to, among other things,
approvals by the shareholders of USF&G and St. Paul, in addition to certain
regulatory approvals, and is expected to occur in mid-1998.
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. The Partnership obtained a mortgage
loan during May 1997 from an unaffiliated lender to refinance the existing
Shadeland mortgage loan. The new loan is a $5,000,000, five-year, 7.60% fixed
interest rate loan with a 25-year amortization. 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, 1997 was $10,800,000, as
compared to $9,890,000 at December 1, 1996. The increase in the appraised
value of $910,000 was due primarily to increased occupancy as of the appraisal's
effective valuation date, lower property taxes from a successful tax
appeal and increased rental rates.
As of December 31, 1997, Shadeland was approximately 88% 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 may subdivide 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, 1997. Operating leases with tenants
range in original term from 1 to 20 years. Leases covering approximately 11% of
the square feet leased as of December 31, 1997 will expire during 1998. The
following tenants leased more than 10% of the total rentable space leased at
Shadeland as of December 31, 1997:
% of Total Rentable
Space Leased as of
Tenant 12/31/97 Lease Expirations
- ------ -------- -----------------
Marsh Supermarket 33% 5/02/02
American Drug Stores, Inc.
(dba, Osco Drugs, Inc.) 13% 6/30/02
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. The St. Andrews mortgage loan,
originally due September 1, 1997 and subsequently extended to October 1, 1997,
was refinanced in September 1997 with an unaffiliated lender. The new loan is
an $8,500,000, three-year, floating interest rate loan with a 30-year
amortization due October 2, 2000. The interest rate on the new loan resets
every 90 days at the 90 day London Interbank Offering Rate plus 1.30%. The
interest rate on the new mortgage loan at the time of the refinance was 7.02%.
The interest rate at December 31, 1997 was 7.20%.
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. This included
the installation of new windows and replacement of the roofs. The Partnership
incurred approximately $3,700,000 to complete these repairs and improvements
and $850,000 in engineering and related expenses through 1996. In addition, the
Partnership has incurred $699,000 in legal fees and related expenses in pursuing
claims against potentially responsible parties as described below through 1996.
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.
The construction costs and legal fees through the end of 1996 were offset by
settlement and insurance recoveries of $2,732,500. 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 to the Financial
Statements. Settlement recoveries are used to offset construction costs
incurred. During 1997, the Partnership incurred approximately $19,000 and
$13,000 of St. Andrews repair and legal costs, respectively. The 1997 repair
costs relate to engineering fees necessary to assess additional repairs during
the warranty period related to the original construction contract. The
Partnership received payment of settlement recoveries in the amount of $33,000
from responsible parties during 1997. The Partnership received an additional
$145,000 in settlements from several of the subcontractors from January 1, 1998
through February 17, 1998. (The additional $145,000 is carried as a receivable
on the Partnership's balance sheet as of December 31, 1997.) The Partnership
used this amount and excess operating cash flow to repay a portion of the
St. Andrews construction loan during the first quarter of 1998.
The appraised value of St. Andrews as of December 1, 1997 was $12,750,000 as
compared to $12,000,000 at December 1, 1996. The increase in the appraised
value of $750,000 reflected the higher rental rates due to continued strength
of the Orlando apartment market and a lower capitalization rate used in the
appraisal.
As of December 31, 1997, St. Andrews was approximately 94% leased, the average
monthly rental rate was $667 per unit and the lease terms ranged 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%.
Leasing activity at St. Andrews has remained strong due to the strength of the
market and the high number of corporate leases in place.
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.
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. 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 August 15, 1999 maturity
date and the principal balance remained unchanged, and the loan may be repaid by
the Partnership, at any time 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 or the appraised
value in excess of the outstanding debt, if refinanced. 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, 1997, the lender held a total of $89,069
of restricted cash escrow which included $8,625 in reserves and $80,444 in
tax and insurance escrows. The Partnership also held $395,990 in segregated
funds subject to the lien for the benefit of the lender which was included in
the Partnership's cash and cash equivalents balance. 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.
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, 1997, NEBC was approximately 97% leased. Gross rental
rates ranged from $11.29 to $14.32 per square foot for office space and from
$7.55 to $10.05 per square foot for service center space as of December 31,
1997. Operating leases with tenants range in original term from one to five
years. Leases covering approximately 23% or 40,187 of the current square feet
leased as of December 31, 1997 will expire during 1998.
The following tenants leased more than 10% of the total rentable space leased at
NEBC as of December 31, 1997:
% of Total Rentable
Space Leased as of
Tenant 12/31/97 Lease Expirations
------ -------- -----------------
Cigna 23% 6/30/99
Automatic Data Processing 18% 3/31/98
Express - Med 14% 4/30/02
Electronic Data Systems 11% 4/30/02
The Partnership has reached an agreement in principal during the first quarter
of 1998 with Automatic Data Processing related to their lease renewal. The
Partnership has presented a lease to ADP for signature which has not yet been
executed.
The appraised value of NEBC as of December 1, 1997 was $10,200,000 as compared
to $9,700,000 at December 1, 1996. The increase of $500,000 in the appraised
value from 1996 was due primarily to increased occupancy and market rental
rates. Occupancy increased to 97% at December 31, 1997 from 91% at December 31,
1996 due primarily to the expansion of two existing tenants in Buildings 3 and
5 during 1997.
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 1997 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,
1997, there were 1,031 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 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, 1997, the
General Partners had purchased 185,774 Units under the Right of Presentment
Program as follows:
Repurchase Price USF&G Realty Legg Mason
Partners, Inc. Realty Partners, Inc.
---------------- -------------- ---------------------
1997 $ 3.48 13,886 3,030
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 -
------ -------
70,500 115,274
====== =======
The USF&G General Partner will repurchase Units under the 1998 Right of
Presentment at the 1998 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 447,312 additional Units due to the 50%
limit discussed above. Units will be purchased by June 30, 1998. 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 5, 1998.
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. An appraisal is only an
estimate of current value and should not be relied upon as a reflection of
realizable value. Furthermore, the appraisals reflect value to the owner, and
therefore, do not make allowance for expenses that would be incurred in selling
the properties. The appraised values of the Properties owned by the Partnership,
as indicated by independent appraisals as of December 1, 1997 are:
Northeast Business Campus: $10,200,000
Shadeland Retail Center: $10,800,000
St. Andrews Apartments at Westwood: $12,750,000
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 1998 Right of
Presentment is $5.36. The increase in the Right of Presentment value from
$3.48 in 1997 is due to the increase in the appraised value of St. Andrews,
Shadeland as well as NEBC, net of the lender's equity participation. (See Note
G to the Financial Statements.) For determining the 1998 Right of Presentment
purchase price, actual settlements reached through February 17, 1998 in the
construction litigation related to St. Andrews (which amounts are included as a
receivable on the Partnership's balance sheet as of December 31, 1997) 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.
The Partnership Agreement provides that 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. Payment
of interest, but not principal, on 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, to
paydown the St. Andrews construction loan or mortgage obligations, 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 For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
Statements of Operations December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- ------------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Total Revenue $ 5,239,669 $ 4,766,702 $ 4,609,318 $ 4,307,972 $ 4,149,803
Total Expenses (***) 5,602,072 7,119,852 6,100,817 6,129,583 12,701,789
Net (Loss) Income (***) (362,403) (2,353,150) (1,491,499) (1,821,611) (8,551,986)
Per Unit (*):
Net (Loss) Income (***) $ (0.33) $ (2.13) $ (1.35) $ (1.65) $ (7.74)
Cash Distributions (**) 0.00 0.00 0.00 0.00 1.57
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
As of As of As of As of As of
Balance Sheets December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- -------------- ----------------- ----------------- ----------------- ----------------- -----------------
Real Estate Investments (***) $27,159,596 $27,801,201 $28,612,932 $29,427,139 $30,713,232
Total Assets (***) 29,168,031 30,611,034 30,021,127 30,810,375 32,008,156
Debt (****) 27,489,004 28,369,222 25,645,265 25,705,421 25,564,553
</TABLE>
(*) Based on the weighted average number of Units outstanding for each year
in the five year period ended December 31, 1997, of 1,094,283 and the
net income or cash distributions allocated to the Unitholders. The
calculation accounts for basic and diluted per unit activity.
(**) 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, 1997
increased $289,291 from December 31, 1996. The increase was primarily due
to the increased cash provided by operating activities due to the improved
operating performance at each property. 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 the properties; (2) increasing as net rental income and interest income are
received; and (3) decreasing as expenses (including debt service requirements
and construction loan repayments) 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, 1997, the lender held $89,069 in reserves and escrows and the Partnership
held $395,990 in segregated funds subject to the lien 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 St. Andrews and Shadeland maintenance and
improvements and repay the St. Andrews construction loan and mortgage debt.
Consequently, there is no expectation that Distributable Cash Flow will be
available to make distributions to Unitholders. This policy reflects the
commitment by the General Partners to maintain adequate working capital
reserves. The General Partners believe that such a policy is prudent in view
of the current real estate and economic 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 1998 other than tenant improvements and
leasing commissions related to new tenants and facade renovations at Shadeland.
The Partnership anticipates that these investments at Shadeland and St. Andrews
will be funded by cash flow from operations during 1998. Any investment at NEBC
will be funded from the reserve accounts discussed above maintained by the
lender and the Partnership.
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
repairs were necessary to address numerous construction deficiencies discovered
during 1994. The Partnership continues to assert its claims against the
remaining potentially responsible parties. During 1997, the Partnership
received payment of settlement recoveries in the amount of $33,000 from
responsible parties and 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 received
an additional $145,000 in settlements from several of the subcontractors from
January 1, 1998 through February 17, 1998. (The additional $145,000 is carried
as a receivable on the Partnership's balance sheet as of December 31, 1997.)
The Partnership is continuing to pursue these claims against the remaining
subcontractors. 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 permitted the Partnership
to borrow up to $3,500,000 to complete the necessary repairs at St. Andrews.
Under its original terms, the loan matured on September 1, 1997. The USF&G
General Partner extended the construction loan on November 7, 1997, effective
as of September 1, 1997, until October 2, 2000. The construction loan was
extended to coincide with the maturity of the new St. Andrews mortgage loan.
The terms continue to require monthly interest payments on advanced funds at
9.0% and also provide for early repayment from additional settlements from the
Partnership's lawsuit, net operating income after reserves, or sales or
refinancing proceeds. As of December 31, 1997, the outstanding balance of the
construction loan was $1,037,000. This balance reflected a February 1997
advance of $215,000 and 1997 principal repayments of $1,968,000 from settlement
recoveries and excess refinancing proceeds from the Shadeland mortgage discussed
below. No further advances on the loan are expected. The Partnership made an
additional principal repayment of $400,000 from operating cash flow and
settlement recoveries during the first quarter of 1998. The Partnership
anticipates further principal repayments prior to maturity from operating
cash flow and from settlement recoveries.
The Partnership obtained a mortgage loan during May 1997 from an unaffiliated
lender to refinance the existing Shadeland mortgage loan. The new loan is a
$5,000,000, five-year, 7.60% fixed interest rate loan with a 25-year
amortization. The lender required a $150,000 cash hold-back to be used for
expenses relating to parking lot resurfacing. The resurfacing of the parking
lot was completed in July 1997 and the escrow reserve was distributed to the
Partnership in August 1997. The loan provided total cash proceeds in excess of
the prior mortgage and closing costs of approximately $945,000. Approximately
$250,000 of the excess proceeds may be used to fund certain future additional
capital improvement costs and leasing commissions at Shadeland. The Partnership
applied the remaining proceeds of approximately $695,000 to the repayment of the
St. Andrews construction loan.
The St. Andrews mortgage loan, originally due September 1, 1997 and subsequently
extended to October 1, 1997, was refinanced in September 1997 with an
unaffiliated lender. The new loan is an $8,500,000, three-year, floating
interest rate loan with a 30-year amortization due October 2, 2000. The interest
rate on the new loan resets every 90 days at the 90 day London Interbank
Offering Rate plus 1.30%. The interest rate on the new mortgage loan at the time
of the refinance was 7.02%. The interest rate at December 31, 1997 was 7.20%.
The General Partners completed their St. Andrews marketing analysis during the
fourth quarter of 1997 and have decided to not market St. Andrews for sale
at this time. The General Partners will continue to periodically evaluate the
investment strategy for each property.
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 fixed interest rate mortgage loans or during the duration of the
St. Andrews floating interest rate loan 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. A change in interest rates would
also have the same effect for a floating interest rate loan.
Year 2000 Issue
- ---------------
The "Year 2000 Issue" is the result of computer programs that were designed with
the inability to accept, process or display dates in the next century.
Computer programs and various types of electronic equipment that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This problem may also effect embedded systems where software
is contained within the hardware.
The Partnership's Year 2000 readiness issues include their computer systems
used to report property level financial results to the Partnership as well as
the embedded systems that are part and parcel of the buildings owned by the
Partnership. This may include heating, ventilation and air-conditioning
controls, elevators, boilers and security systems.
The Partnership has initiated discussions with the General Partners and its
property managers to ensure that they have appropriate plans to fix the Year
2000 issues. The Partnership believes that these parties will adopt appropriate
Year 2000 compliance programs, although there can be no assurances in this
regard, it is not anticipated that the Year 2000 issue will have a significant
effect on operations of the Partnership.
<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, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
St. Andrews $(136,917) $ (308,732) $ (313,562)
St. Andrews Repair and Legal
Net Recovery (Costs) 146,149 (1,516,240) (833,771)
Shadeland 256,278 125,440 199,790
NEBC (65,845) (63,739) (132,671)
--------- ----------- -----------
199,665 (1,763,271) (1,080,214)
Partnership Expense (562,068) (589,879) (411,285)
--------- ----------- -----------
$(362,403) $ (2,353,150) $(1,491,499)
========= ============ ===========
</TABLE>
<PAGE>
1997 to 1996
------------
The Partnership incurred a net loss of $362,403 for the twelve months ended
December 31, 1997 ("current period") as compared to $2,353,150 for the twelve
months ended December 31, 1996 ("comparable period"). The decreased net loss of
$1,990,747 was due primarily to the significant St. Andrews repair and legal
costs incurred in 1996. These costs were $1,516,240 during the comparable period
while net recoveries of $146,149 were realized during the current period.
Revenue for the current period was $5,239,669 as compared to $4,766,702 for the
comparable period. The increase of $472,967 was primarily due to higher
occupancy and greater expense reimbursements at NEBC and higher occupancy and
rental rates and more corporate leases in place at St. Andrews during 1997.
Property operating expenses increased $139,479 to $2,024,911 for the current
period from $1,885,432 for the comparable period. The increase is due to higher
operating expenses at St. Andrews and NEBC, offset in part by lower operating
expenses at Shadeland.
Northeast Business Campus
- -------------------------
Rental revenue at NEBC increased $126,156 to $1,891,967 for the current period
as compared to $1,765,811 for the comparable period. The increase was the result
of increased occupancy and greater expense reimbursements from Express Med's
expansion into Building 1 during the fourth quarter of 1996, offset in part by
lease termination fees in the comparable period. The occupancy at NEBC at
December 31, 1997 was 97% as compared to 91% at December 31, 1996. Occupancy
was higher due primarily to the expansion of two existing tenants in Buildings
3 and 5 during 1997. The occupancy for the office and service center component
at December 31, 1997 was 97% and 96%, respectively, as compared to 90% and 91%,
respectively, at December 31, 1996. The average net rental rate at December 31,
1997 decreased to $8.41 per square foot for office space, excluding free-rent
allowances, and increased slightly to $7.10 per square foot for service center
space as compared to $8.70 and $7.07, respectively, at December 31, 1996. The
decrease in the office space average rental rate is due to the Express Med
expansion into Building 1 at a lower rental rate than prior leases.
Operating expenses at NEBC increased $100,664 to $791,369 for the current period
as compared to $690,705 for the comparable period. The increase was primarily
due to higher maintenance costs and real estate taxes, offset in part by lower
grounds and landscaping costs. Maintenance costs are higher due to the
power-washing and painting of Buildings 3 and 4 and increased HVAC repairs.
Real estate taxes are higher due to a successful tax appeal which resulted in
a refund in the comparable period. Grounds and landscaping costs are lower due
to higher parking lot surface repairs and higher snow removal costs associated
with severe winter weather in the comparable period.
St. Andrews Apartments at Westwood
- ----------------------------------
Rental revenue at St. Andrews increased $277,340 to $2,104,510 for the current
period as compared to $1,827,170 for the comparable period. The increase in
rental revenue was due to higher occupancy and rental rates and an increased
number of corporate leases in place in the current period. The average monthly
rental rate for the year ended December 31, 1997 increased to $667 per unit as
compared to $607 for the year ended December 31, 1996. The increase was due to
the strength of the rental market which has resulted in a decline in rental
concessions offered to prospective tenants in the current period. The average
occupancy at St. Andrews for the current period was 96% as compared to 94% for
the comparable period. As of December 31, 1997, there were forty-one corporate
units as compared to twenty units at December 31, 1996. Corporate unit leases
at St. Andrews include a corporate unit premium fee to compensate for the
additional services provided to the tenants. The corporate unit premium fee
was $92,315 and $29,756 for the current and comparable periods, respectively.
Operating expenses at St. Andrews increased $140,025 to $1,002,655 for the
current period as compared to $862,630 for the comparable period. The increase
was primarily due to higher real estate taxes, corporate unit expenses and
maintenance costs. Real estate tax expenses were higher due to a receipt in
1996 relating to a successful tax appeal and a higher property tax assessment
in the current period. Corporate unit expenses which may include furnishings,
cable and utilities were higher due to increased corporate unit rentals.
Maintenance costs were higher due to the power-washing of the new vinyl siding
and increased general building maintenance costs due to higher turnover in the
current period. The manufacturer and engineering consultant have recommended
periodic power-washing to maintain the siding's appearance in the Florida
climate.
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 1997 and 1996.
Settlement recoveries received are used to offset repair and legal costs
incurred. The Partnership incurred approximately $19,000 and $13,000 of St.
Andrews repair and legal costs, respectively, during 1997 which were more than
offset by the recoveries of $178,000. 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.
Shadeland Retail Center
- -----------------------
Rental revenue at Shadeland increased $51,547 to $1,205,097 for the current
period as compared to $1,153,550 for the comparable period. The increase in
rental revenue was due primarily to higher expense reimbursements in the current
period. The increase in expense reimbursements was due primarily to collecting
the higher reimbursable real estate taxes from Marsh and Osco for 1996 in the
current period. The occupancy at Shadeland increased to 88% at December 31, 1997
as compared to 83% at December 31, 1996. The increase in occupancy was due to a
greater number of tenant move-ins than move-outs during the current period. The
average net rental rate at December 31, 1997 increased to $10.61 per square foot
as compared to $10.49 per square foot at December 31, 1996.
Operating expenses at Shadeland decreased $101,210 to $230,887 for the current
period as compared to $332,097 for the comparable period. The decrease was
due to a decrease in property taxes and grounds and landscaping costs offset in
part by higher legal costs. The decrease in property taxes was due to refunds in
the current period resulting from a successful tax appeal and also due to a
lower anticipated tax assessment in the current period. Grounds and landscaping
costs decreased due to higher snow removal costs associated with the severe
winter in 1996. Legal costs increased due to an increased number of prospective
leases.
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 decrease in Partnership expense of $27,811 to
$562,068 for the current period as compared to $589,879 for the comparable
period is primarily due to higher interest income. The increase in interest
income is due to higher average working capital balances as a result of excess
proceeds from the Shadeland mortgage loan refinance and excess net cash flow
generated by the properties. See Note F of Notes to Financial Statements of the
Partnership which is incorporated by reference from "Item 8 Financial
Statement and Supplemental Data" of the Annual Report on Form 10-K.
General and Administrative
- --------------------------
Total general and administrative expenses decreased by $5,020 to $123,345 for
the current period as compared to $128,365 for the comparable period. General
and administrative expenses include various costs required for the
administration of the Partnership. The decrease is due to lower overall
administrative costs.
Interest
- --------
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews, and Shadeland of $622,808, $764,396 and $377,806,
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 $471,900 (see Note F). Interest expense decreased $64,994 for the
current period as compared to the comparable period. The decrease is primarily
due to lower interest expense as a result of refinancing the St. Andrews
mortgage loan at a lower floating rate than the prior fixed rate mortgage loan.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization consists primarily of depreciation on the
buildings at NEBC, St. Andrews and Shadeland, depreciation of tenant
improvements, amortization of loan fees resulting from the refinance of the
Shadeland and St. Andrews mortgage loans and amortization of leasing commissions
incurred in connection with the NEBC and Shadeland leasing activities.
Depreciation and amortization increased by $75,144 to $1,363,055 for the current
period as compared to $1,287,911 for the comparable period. The increase is
primarily due to the depreciation of tenant improvement additions at NEBC,
Shadeland and St. Andrews, the amortization of the Shadeland mortgage loan
refinance costs, and the amortization of the leasing commissions, incurred at
NEBC in 1997.
<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 (see Note F). 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>
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, 1997 and December 31, 1996 21
Statements of Operations - For the years ended December 31, 1997,
December 31, 1996, and December 31, 1995 22
Statements of Partners' Equity (Deficit) - For the years ended
December 31, 1997, December 31, 1996, and December 31, 1995 23
Statements of Cash Flows - For the years ended December 31, 1997,
December 31, 1996, and December 31, 1995 24
Notes to Financial Statements 25
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997 39
Notes to Schedule III - Real Estate and Accumulated Depreciation 40
Schedule X - Supplementary Statements of Operations Information -
For the years ended December 31, 1997, December 31, 1996, and
December 31, 1995 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, 1997 and 1996, and the related
statements of operations, partners' (deficit) equity and cash flows for each of
the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, 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
February 17, 1998
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
BALANCE SHEETS
<S> <C> <C>
December 31, 1997 December 31, 1996
----------------- -----------------
Assets
Real Estate Investments:
Income Producing Properties - Notes B and G $27,159,596 $27,801,201
Cash and Cash Equivalents (including temporary
investments at December 31, 1997 and 1996 of
$509,955 and $232,850 respectively) - Note D 1,070,018 780,727
Restricted Cash Escrow - Note G 89,069 130,356
Accounts Receivable, Net - Note A 218,744 108,082
St. Andrews Recovery Receivables - Note J 145,000 1,525,000
Other Assets - Note E 485,604 265,668
----------- -----------
Total Assets $29,168,031 $30,611,034
=========== ===========
Liabilities
Mortgages Payable - Note G $21,402,270 $20,529,488
Accounts Payable and Other Liabilities - Note D 769,689 1,262,790
St. Andrews Construction Loan - Note J 1,037,000 2,790,000
Due to General Partners and Affiliates - Note F 2,542,065 2,249,346
Cash Flow Protector Loan - Note F 4,849,734 4,849,734
----------- -----------
30,600,758 31,681,358
Partners' (Deficit) Equity
General Partners (258,740) (255,116)
Assignor and Assignee Limited Partners,
1,094,283 Units Issued and Outstanding (1,173,987) (815,208)
----------- -----------
(1,432,727) (1,070,324)
----------- -----------
Total Liabilities and Partners' (Deficit) Equity $29,168,031 $30,611,034
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------ ------------------ ------------------
Revenue:
Rental $5,201,574 $ 4,746,531 $ 4,555,170
Interest 38,095 20,171 54,148
---------- ----------- -----------
Total Revenue 5,239,669 4,766,702 4,609,318
Expenses:
Property Operating 2,024,911 1,885,432 1,776,155
St. Andrews Repair and Legal
Net (Recovery) Costs - Note J (146,149) 1,516,240 833,771
General and Administrative 123,345 128,365 137,076
Interest 2,236,910 2,301,904 2,141,430
Depreciation and Amortization 1,363,055 1,287,911 1,212,385
----------- ----------- -----------
Total Expenses 5,602,072 7,119,852 6,100,817
----------- ----------- -----------
Net Loss $ (362,403) $(2,353,150) $(1,491,499)
=========== =========== ===========
Net Loss Allocated to:
General Partners $ (3,624) $ (23,531) $ (14,915)
Assignor and Assignee Limited Partners (358,779) (2,329,619) (1,476,584)
----------- ----------- -----------
$ (362,403) $(2,353,150) $(1,491,499)
=========== =========== ===========
Net Loss per Unit - Note A (Basic and Diluted) $ (0.33) $ (2.13) $ (1.35)
----------- ----------- -----------
Weighted Average Number of Units 1,094,283 1,094,283 1,094,283
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
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, 1995 $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)
Net Loss (151,984) (206,795) (358,779) (2,899) (725) (3,624) (362,403)
Right of
Presentment at
book value (10,276) 10,276 0 0 0 0 0
--------- ----------- ----------- --------- -------- --------- -----------
Partner's Equity
(Deficit) - December
31, 1997 $(486,266) $ (687,721) $(1,173,987) $(179,345) $(79,395) $(258,740) $(1,432,727)
========= =========== =========== ========= ======== ========= ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------ ------------------ ------------------
Operating Activities
Net Loss $ (362,403) $(2,353,150) $(1,491,499)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,363,055 1,287,911 1,212,385
Change in net assets and liabilities related
to operating activities:
Decrease in restricted cash escrow 41,287 62,046 165,143
(Decrease) increase in accounts payable and
other liabilities (493,101) (143,438) 457,705
Increase in due to general partners and
affiliates 292,719 362,538 304,702
(Increase) decrease in accounts receivable (110,662) (39,306) 58,411
Decrease (increase) in St. Andrews
recovery receivables 1,380,000 (1,525,000) 0
Increase in other assets (357,071) (119,516) (81,311)
----------- ------------ ------------
Net Cash Provided by (Used in) Operating Activities 1,753,824 (2,467,915) 625,536
----------- ------------ ------------
Investing Activities
Investment in income producing properties (584,315) (362,870) (300,857)
----------- ------------ ------------
Net Cash Used in Investing Activities (584,315) (362,870) (300,857)
----------- ------------ ------------
Financing Activities
Mortgage loan advances 13,500,000 0 0
Mortgage principal payments (12,627,218) (66,043) (60,156)
St. Andrews construction loan advances 215,000 2,790,000 0
St. Andrews construction loan payments (1,968,000) 0 0
----------- ------------ ------------
Net Cash (Used in) Provided by Financing Activities (880,218) 2,723,957 (60,156)
----------- ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 289,291 (106,828) 264,523
Cash and Cash Equivalents, Beginning of Year 780,727 887,555 623,032
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 1,070,018 $ 780,727 $ 887,555
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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").
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, 1997
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
required under 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." 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 $1,225,920 and $137,135, and $1,174,602 and $113,309
was recorded during 1997 and 1996, respectively.
New Accounting Standards
- ------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share," which is required to be adopted for periods
ending after December 15, 1997. The standard was issued to change the current
method used by public companies to compute earnings per share. SFAS No. 128
had no effect on the Partnership's computation of net earnings or loss per
share.
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 $163,457 and $70,256 at December 31, 1997 and 1996,
respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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, 1997, 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
------- -------------- -------------- -------------- -----------
1997 $ 3.48 13,886 3,030 $ 58,868
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
------ -------
70,500 115,274
====== =======
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, 1997
Note B - Income Producing Properties (Continued)
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 (also see Note J - St. Andrews) and Shadeland, the three Properties
owned directly by the Partnership, at December 31, 1997 and 1996:
1997 1996
---- ----
Buildings and improvements $29,959,857 $29,406,342
Land 5,444,913 5,444,913
----------- -----------
35,404,770 34,851,255
Less: Accumulated depreciation (8,245,174) (7,050,054)
----------- -----------
$27,159,596 $27,801,201
=========== ===========
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, 1997 are as follows:
1998 $2,952,704
1999 1,649,076
2000 1,356,852
2001 1,095,155
2002 447,303
Thereafter 242,517
----------
$7,743,607
==========
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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 accounted 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.
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.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
Note C - Investment in Joint Venture (Continued)
The following table discloses summarized information as to the Partnership's
equity in the revenue and expenses of Greenbrier Joint Venture for the period
indicated:
For the Year Ended
December 31, 1995
-----------------
Statements of Operations
- ------------------------
Gross revenue $ 363,012
Less expenses:
Property operating 152,572
Depreciation/amortization 90,224
Interest 233,884
Writedown 460,567
-------
Total expenses 937,247
-------
Gain on debt forgiveness 693,497
-------
Equity in joint venture income 119,262
-------
Decrease in cumulative
unrecognized joint venture loss (119,262)
--------
Recognized equity in joint venture loss $ 0
==========
Unrecognized equity in joint venture loss $ 500
==========
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.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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
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
See Note G for the Mortgage Payable fair value disclosure.
Note E - Other Assets
Other assets consist of deposits, prepaid expenses, leasing commissions, and
capitalized financing costs. As of December 31, 1997 and 1996, capitalized
financing costs and leasing commissions totaled $844,751 and $539,910,
respectively and related accumulated amortization totaled $391,855 and $290,942,
respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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. The asset management fees of $423,990 accrued as of
December 31, 1997 are subordinate to the return of unitholder contributions.
Asset management fees have not been accrued since the first quarter of 1994,
due to a lack of distributable cash flow.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
Charged to expenses:
Operating expenses $ 78,715 $ 78,898 $ 85,455
Interest expense:
General Partner
Loans 16,878 16,542 17,708
St. Andrews
Construction Loan 164,038 166,745 0
Cash Flow Protector
Loan 290,984 291,781 290,996
Asset management fee:
Current 0 0 0
Deferred 0 0 0
Due to General Partners and affiliates consists of the following as of the
dates indicated:
December 31, 1997 December 31, 1996
----------------- -----------------
General Partner Loans $ 200,000 $ 200,000
Accrued Interest on General
Partner Loans 52,923 36,045
Accrued Interest on the St. Andrews
Construction Loan 16,600 42,548
Operating Expenses 32,532 21,727
---------- ----------
302,055 300,320
---------- ----------
Asset Management Fees 423,990 423,990
Accrued Interest on the Cash Flow
Protector Loan 1,816,020 1,525,036
---------- ----------
Amounts Subordinate to the return
of Unitholder contributions 2,240,010 1,949,026
---------- ----------
$2,542,065 $2,249,346
========== ==========
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, 1997
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 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 arm's length between counsel for the
Partnership and the claims representative.
Note G - Mortgage Payables
<TABLE>
<CAPTION>
Mortgage payables consists of the following as of the dates indicated:
<S> <C> <C>
December 31, 1997 December 31, 1996
----------------- -----------------
Mortgage loan, secured by Northeast Business Campus,
due August 15, 1999, interest at 8.00% (1) $ 7,948,148 $ 7,975,000
Mortgage loan, secured by St. Andrews at Westwood,
- originally due September 1, 1997, interest at 9.65%(2) 0 8,500,000
- due October 2, 2000, floating rate (3) 8,500,000 0
Mortgage loan, secured by a portion of Shadeland Retail Center,
due May 2002, interest at 7.60% (4) 4,954,122 4,054,488
----------- -----------
$21,402,270 $20,529,488
=========== ===========
</TABLE>
(1) Interest only was payable monthly in the amount of $53,167 through August
15, 1997 with payments of principal and interest thereafter of $59,813
through August 15, 1999.
(2) Interest only was payable monthly in the amount of $68,354 over the life
of the loan. This loan was refinanced on September 1, 1997.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
Note G - Mortgage Payables (Continued)
(3) The interest rate on the new loan resets every 90 days at the 90 day London
Interbank Offering Rate plus 1.30%. The interest rate at December 31,
1997 was 7.20%. Interest only is payable monthly through October 2, 1999
and principal and interest is payable monthly through October 2, 2000,
based upon a 30-year amortization period.
(4) Monthly payments of $37,275, including principal and interest, are based
upon a 25-year amortization period. Principal payments of $63,436 and
$66,043 were made in 1997 and 1996, respectively. The loan, originally due
January 1, 1997 and subsequently extended to May 31, 1997, was
refinanced in May 1997.
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 or the appraised
value in excess of the outstanding debt, if refinanced. 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, 1997, the lender held a total of $89,069
of restricted cash escrow which included $8,625 in reserves and $80,444 in tax
and insurance escrows. The Partnership also held $395,990 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. 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 the Shadeland and St. Andrews mortgage obligations approximates the
fair value. The fair value of the NEBC mortgage obligation approximates
$8,920,000. Interest expense of $1,765,010, $1,826,836 and $1,832,726 was
incurred on these mortgages for the years ended December 31, 1997, 1996 and
1995, respectively. Interest expense of $1,862,723, $1,873,996 and $1,815,419
was paid for the years ended December 31, 1997, 1996 and 1995, 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,
1997 are summarized as follows:
1998 $ 151,962
1999 7,962,697
2000 8,563,825
2001 91,439
2002 4,632,347
-----------
$21,402,270
===========
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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.
As of December 31, 1997, 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 1997, 1996 or 1995.
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
Reconciliation of financial statement basis net loss to federal income tax
basis net loss for the years indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------ ------------------ ------------------
Net loss - financial statement basis $ (362,403) $(2,353,150) $(1,491,499)
(Excess) shortfall financial statement basis
equity in joint venture earnings over tax
basis equity in joint venture loss 0 0 (3,348,074)
(Shortfall) excess financial statement basis
rental income over tax basis rental income (94,017) (10,204) (14,490)
Excess (shortfall) financial statement basis
expenses over tax basis expenses 19,407 (100,520) (71,868)
---------- ----------- -----------
Net loss - federal income tax basis $ (437,013) $(2,463,874) $(4,925,931)
========== =========== ===========
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
Total partners' (deficit) equity - financial
statement basis $(1,432,727) $(1,070,324) $1,282,826
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 (74,610) (110,724) (3,434,432)
Prior years cumulative excess financial
statement basis net loss over tax basis net loss 4,725,286 4,836,010 8,270,442
----------- ----------- -----------
Total partners' equity - federal income tax basis $ 5,286,067 $ 5,723,080 $ 8,186,954
=========== =========== ===========
</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
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.
St. Andrews repair and legal costs to address the numerous construction
deficiencies discovered during 1994 were completed during 1996. This included
the installation of new windows and replacement of the roofs. The Partnership
incurred approximately $3,700,000 to complete these repairs and improvements and
$850,000 in engineering and related expenses through 1996. In addition, the
Partnership has incurred $699,000 in legal fees and related expenses in
pursuing claims against potentially responsible parties as described below.
Total costs approximated $3,621,000 and $1,399,000 during 1996 and 1995,
respectively which were offset by recoveries of approximately $2,105,000 and
$565,000 during 1996 and 1995, respectively. The settlements recovered during
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
Note J - St. Andrews (Continued)
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 1997, the Partnership incurred
approximately $19,000 and $13,000 of St. Andrews repair and legal costs,
respectively. The 1997 repair costs relate to engineering fees necessary to
assess additional repairs during the warranty period related to the original
construction contract. The Partnership received payment of settlement recoveries
in the amount of $33,000 from responsible parties during 1997. In addition, the
Partnership received an additional $145,000 in settlements from January 1, 1998
through February 17, 1998. (The additional $145,000 is carried as a receivable
on the Partnership's balance sheet as of December 31, 1997.)
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 at St. Andrews.
Under its original terms, the loan matured on September 1, 1997. The USF&G
General Partners extended the construction loan on November 7, 1997, effective
as of September 1, 1997, until October 2, 2000. The construction loan was
extended to coincide with the maturity of the new St. Andrews mortgage loan.
The terms continue to require monthly interest payments on advanced funds at
9.0% and also provide for early repayment from additional settlements from the
Partnership's lawsuit, net operating income after reserves, or sales or
refinancing proceeds. As of December 31, 1997, the outstanding balance of the
construction loan was $1,037,000. This balance reflected total advances of
$3,005,000 offset in part by 1997 principal repayments of $1,968,000 from
settlement recoveries and excess refinancing proceeds from the Shadeland
mortgage. A February 1997 advance of $215,000 was made, however, no further
advances on the loan are expected. The Partnership made an additional principal
repayment of $400,000 from operating cash flow and settlement recoveries during
the first quarter of 1998. The Partnership anticipates further principal
repayments prior to maturity from operating cash flow and from settlement
recoveries. Interest expense of $164,038 and $166,745 was incurred and interest
payments totaling $189,986 and $124,198 were made on this loan for the years
ended December 31, 1997 and 1996, respectively.
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<S> <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, 1997 (1)
---------------------------------------------------------------------------------------
Buildings & Buildings &
Description Encumbrances Land Improvements Improvements Adjustments Land Improvements Totals (3)
- ---------------------- -------------- ------------------------ -------------------------------------------------------------------
Northeast Business
Campus Office/Service
Center, Columbus, Ohio $ 7,948,148 $2,398,944 $11,516,043 $1,418,279 $(4,804,311) $1,339,944 $ 9,189,011 $10,528,955
St. Andrews Apartments
at Westwood $ 8,500,000 $2,527,918 $11,516,066 $ 361,269 $ (160,000) $2,527,918 $11,717,335 $14,245,253
Orlando, Florida
Shadeland Retail
Shopping Center
Indianapolis, Indiana $ 4,954,122 $1,577,051 $ 8,628,943 $ 539,033 $ (114,465) $1,577,051 $ 9,053,511 $10,630,562
-------------- ------------------------ ------------------------- -----------------------------------------
$ 21,402,270 $6,503,913 $31,661,052 $2,318,581 $(5,078,776) $5,444,913 $29,959,857 $35,404,770
<C> <C> <C> <C>
Column F Column G Column H Column I
- -------------------------------------------------------------------------------
Accumulated Date of Date Depreciable
Depreciation (2) Construction Acquired Life in Years
- -------------------------------------------------------------------------------
$2,848,253 1981, 1984 11/08/88 31.5
$3,219,663 1989 06/28/90 27.5
$2,177,258 1982, 1985 08/01/90 31.5
- -------------------------------------------------------------------------------
$8,245,174
</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, 1997
-----------------
Balance at beginning of period $34,851,255
Additions (deductions) during the period:
- Improvements 584,315
- Write-off fully depreciated real estate (30,800)
-----------
Balance at end of period $35,404,770
===========
Note 2 - Reconciliation of Accumulated Depreciation:
For the Year Ended
December 31, 1997
-----------------
Balance at beginning of period $7,050,054
Depreciation expense for the period 1,225,920
Write-off fully depreciated real estate (30,800)
----------
Balance at end of period $8,245,174
==========
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 1997 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 $30,800 and $75,511 was made
to the carrying value of NEBC to account for the write-off of fully depreciated
real estate in 1997 and 1996, respectively.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
SCHEDULE X - SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
For the Years Ended December 31, 1997, 1996, and 1995
Supplementary statements of operations information is as follows:
Column B -
Charged to Costs
Column A - Item and Expenses
- --------------- ------------
1997 1996 1995
---- ---- ----
1. Maintenance and repairs $437,998 $386,424 $357,209
======== ======== ========
2. Real estate property taxes $464,208 $434,025 $457,417
======== ======== ========
<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 54, 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 43, 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 46, 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 40, 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 Vice President, Corporate Risk Analysis 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 an MBA
from The Wharton School and a B.S. in Engineering from the University of
Massachusetts.
Joseph A. Wesolowski, age 40, 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 56, 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 a 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 41, 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.
Gerard F. Petrik, Jr., age 39, 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 is
a REIT analyst in the firm's real estate research group. Prior to his
employment at Legg Mason, Mr. Petrik was an acquisitions and marketing
associate at Paine Webber Properties, Inc. Mr. Petrik received his
undergraduate and graduate degrees from Loyola College.
<PAGE>
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.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount and Percent
Nature 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. 70,500 Units 6%
$25 per Unit Legg Mason Realty Partners, Inc. 115,274 Units 11%
(c) Change in Control
</TABLE>
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. ("the Legg Mason General Partner"), a Maryland Corporation
(collectively, the "General Partners"). The USF&G General Partner is
wholly-owned by USF&G Realty, Inc., a subsidiary of USF&G Corporation ("USF&G").
USF&G is a holding company whose principal subsidiaries provide a variety of
commercial and personal property/casualty insurance, surety bonds, reinsurance,
life insurance and annuity products. On January 19, 1998, The St. Paul
Companies, Inc. (St. Paul"), a Minnesota corporation, and USF&G announced the
signing of a definitive merger agreement pursuant to which a wholly-owned
subsidiary of St. Paul will be merged into USF&G. Completion of the transaction
is subject to, among other things, approvals by the shareholders of USF&G and
St. Paul, in addition to certain regulatory approvals, and is expected to occur
in mid-1998.
<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 1997, 1996, and 1995 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,
Lease 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 (13)
10.51 Loan Extension Agreement between Shadeland Shopping Center and IDS Life
Insurance Company dated as of December 17, 1996 (13)
10.57 Management and Leasing Agreement between USF&G/Legg Mason Realty Partners
Limited Partnership and ZOM Residential Services, Inc. dated as of
November 1, 1997
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 (13)
28.27 Appraisal of St. Andrews at Westwood at December 1, 1996 (13)
28.28 Appraisal of Shadeland Station Shopping Center at December 1, 1996 (13)
28.29 Appraisal of Northeast Business Campus at December 1, 1997
28.30 Appraisal of St. Andrews at Westwood at December 1, 1997
28.31 Appraisal of Shadeland Station Shopping Center at December 1, 1997
<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)
(13) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 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
(Position Within USF&G
Signature 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 Date
- --------- Realty Partners, Inc.) ----
----------------------
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 _______________
_________________________ Joseph A. Wesolowski
Accounting Officer)
<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
(Position Within Legg Mason
Signature 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
(Position Within Legg Mason
Signature Realty Partners, Inc.) Date
--------- ---------------------- ----
President and Director
/s/ Richard J. Himelfarb (Chief Executive Officer) _______________
_________________________
Richard J. Himelfarb
Vice President, Treasurer
/s/ Audrey B. Drossner and Director (Chief Financial _______________
_________________________ and Accounting Officer)
Audrey B. Drossner
/s/ Gerard F. Petrik, Jr. Secretary and Director _______________
_________________________
Gerard F. Petrik, Jr.
EXHIBIT 10.57
MANAGEMENT AND LEASING AGREEMENT
dated as of
November 1, 1997
between
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP, Owner
and
ZOM RESIDENTIAL SERVICES, INC., Manager
<PAGE>
TABLE OF CONTENTS
Article Page
1. Appointment, Commencement and Termination Dates 1
2. Manager's Duties and Responsibilities 2
3. Employees 12
4. Budgets and Accounts 14
5. Insurance 16
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 24
11. Insufficient Gross Income 24
12. Leasing of the Property 25
13. Compensation 28
14. Notices 29
15. Indemnification 29
16. Contributions by Manager 30
17. Termination 31
18. Miscellaneous 32
Exhibits
A Property Description
B Initial Property Employees
C Budget Categories
D Account Classification
E Monthly and Annual Financial Statements
F Form Lease
G Leasing Standards
H Schedule of Management Fee
<PAGE>
MANAGEMENT AND LEASING AGREEMENT
St. Andrews at Westwood
THIS MANAGEMENT AND LEASING AGREEMENT ("Agreement") is dated as of this ____ day
of October, 1997 between USF&G/LEGG MASON PARTNERS LIMITED PARTNERSHIP, having
its office at c/o USF&G Realty Partners, Inc, 6225 Centennial Way, Baltimore,
Maryland 21209 (collectively the "Owner"), as owner, and ZOM RESIDENTIAL
SERVICES, INC, a Florida corporation having its principal office at 1950 Summit
Park Drive, Suite 30, Orlando, Florida, 32810 ("Manager"), as manager and
leasing agent.
Owner is the owner of land located at 11500 Westwood Boulevard in
Orlando, Florida (the "Land") described in Exhibit A.
The Land is improved with Two Hundred Fifty-Nine (259) apartment units,
outside parking spaces and related facilities (the "Improvements").
The Land and Improvements, commonly known as St. Andrews, are called
the "Property." The metropolitan area of Orlando 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.
Manager acknowledges that the former property manager's management agreement
will continue beyond the date hereof to November 30th (the "Transition Period").
Manager shall use its best efforts during the Transition Period to provide
management services in accordance with the provisions of this Agreement
Manager shall not receive compensation or fees during the Transition Period for
these services.
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 apartment 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 renew
for a single one (1) year term on the same terms as set forth herein but not any
additional automatic renewal.
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 apartment 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 and all governmental
requirements (as now or hereafter in effect):
(i) all covenants and restrictions, use permits and
development agreements applicable to the Property or
its operation and management and all governmental
requirements;
(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 take all 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 deliver
receipts 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) 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.
(c) The amount Manager shall reimburse under section 2.4(b) shall include
the amount undercharged with interest thereon at the lesser of
fifteen percent (15%) per year or the maximum rate of interest
permitted under applicable law. At Owner's option, Owner may deduct
such amount due to Owner, plus interest, from that portion of the
Management Fee thereafter becoming due.
(d) 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 apartment 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.
(iii) ordinary and unusual expenses exceeding the
Budget, but approved by Owner.
(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
if they exceed $1,000 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 not fewer than thirty (30) days
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 entity's
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
officer 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 (if
applicable), heating or air-conditioning equipment, incinerators (if
applicable), 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 $1,000 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
Property 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, canceled 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, assembling and copying due
diligence information, 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, (ii) expenditures made
and obligations incurred directly pursuant to the Approved Budget,
and (iii) expenditures made under such circumstances as Manager shall
deem an emergency. 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 (other than routine evictions and
actions against tenants for non-payment of rent), 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 (unless pursuant
to a program previously approved by Owner);
(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 office 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) During the term of this Agreement, Manager shall employ such employees
as Owner shall reasonably deem adequate. 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. Except for the initial Manager hires, 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 assignment 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 which shall be delivered to Owner within 30 days from the
date of this agreement, 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. Except as expressly provided in Section
4.1(d) or as approved by Owner, Manager, at Manager's sole cost and expense,
during the term of this Agreement, shall pay all compensation of its employees
at the Property.
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 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 or familial 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) Owner has approved a Budget for 1998 for the promotion, operation,
leasing (including leasing parameters for the Property), repair,
maintenance and improvement of the Property for the period from
January 1, 1998 to December 31, 1998.
(b) Manager shall submit by July 1 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.
(c) Owner shall have sixty (60) 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 sixty (60) day period. The Proposed Budget approved by
Owner shall be designated the "Approved Budget."
(d) 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,
including the estimated net operating income for purposes of Schedule
H. 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 unit type;
(ii) proposed concessions for each unit type;
(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 commissions;
(vii) utility rates and consumption costs;
(viii) service contract costs broken down on a contract-by-
contract basis;
(ix) base rents, electricity income (if applicable),
tax escalations, operating escalations 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 officers 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 in any other accounting categories. 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 and plans
for the general operation, marketing 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 in its sole discretion obtain and keep in
force (i) insurance against physical damage (such as fire with
extended coverage endorsement, boiler and machinery) with a full
replacement cost endorsement and (ii) insurance 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.
(b) Manager shall be responsible for familiarizing itself with 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 its hazard policy covering the
Property all personal property, fixtures and equipment located thereon
which are owned by Owner. Manager, on behalf of itself and its agents
and representatives, hereby waives all subrogation rights or other
rights of recovery against Owner with respect to property damage.
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 with respect to losses payable under such
policies.
(c) Manager shall investigate and after advance notice and approval by
Owner, shall 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 (and the Owner approves) 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 canceled 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 Three Million
Dollars ($3,000,000) each occurrence and annual aggregate, combined
single limit for bodily injury, 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 Five Million
Dollars ($5,000,000) 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 office 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
transactions 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 officers 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 a monthly financial report (the
"Monthly Financial Report:) in the form shown on Exhibit E containing
all financial transactions occurring during the prior month, which for
the purposes of this Agreement and modified periodically as required
by Owner.
(b) 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.
(c) 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) The number of leases executed;
(ii) The number of leases amended, modified, extended,
renewed or terminated;
(iii) Current market trends;
(iv) Lease expirations and the relevant details about
each;
(v) Any relevant details about the type and the
number of move outs;
(vi) Tenant improvement construction or alterations
(if applicable);
(vii) Arrears in rent or any other type of payment from
all tenants;
(viii)Litigation of any type which affects the Property
directly or indirectly;
(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; and
(xiii)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;
(iv) variance report; and
(v) year-to-date detailed General Ledger.
(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
Financial 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 (if requested by Owner) 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 (if requested by Owner);
(e) detailed adjusting journal entries as part of the annual audit process;
(f) support documentation for payroll, payroll taxes and employee benefits;
(g) appropriate details of accrued expenses and property records;
(h) detailed statement of Manager's transactions with any affiliates (as
defined in Section 2.7);
(i) detailed cash reconciliations; and
(j) 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 office 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.
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, as follows: The St. Andrews Depository Account" (the
"Depository Account"). Manager shall not have the right to draw on the
Depository Account, except to make transfers to Owner's investment
account.
(b) Owner shall deposit either into an operating account designated as
follows: "The St. Andrews Operating Account" or into Manager's general
account (either account is defined as the "Operating Account") the
initial rent receivable from operation of the Property, or such greater
or lesser amount as may be necessary to pay the first month's budgeted
expenses. Thereafter Owner shall maintain the Operating Account so
that an amount at least as great as the budgeted expenses for such
month is in such Operating Account as of the first of each month or
such other time as Owner may select. If possible, the Depository
Account and Operating Account shall be accounts for which all funds
therein at the end of the day are invested overnight.
(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 and will designate
the account as follows: The St. Andrews Security Deposit Account (the
"Security Deposit Account").
(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) costs of the gross salary and wages or proportional shares thereof,
payroll taxes, workmen's compensation, termination benefits payable
pursuant to applicable law and all other benefits of Manager's
employees required to manage, operate and maintain the Property
properly, afely and economically, which costs are approved by Owner
pursuant to the Approved Budgets, subject to this Agreement, provided
that shall not pay such employees in advance;
(b) 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;
(c) 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;
(d) cost incurred by Manager in connection with all service agreements
approved by Owner;
(e) cost of collection of delinquent rents collected by a collection agent
approved by Owner in advance of retention;
(f) 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;
(g) cost of all audits pursuant to the Owner's direction;
(h) cost of capital expenditures subject to the restrictions in Section 2.9
and in this Article;
(i) cost of printed checks for each bank account required by Owner plus any
other bank charges;
(j) cost of all utilities provided to the Property and not billed directly
to tenants;
(k) cost of advertising, including brochures and mailers, approved by
Owner;
(l) cost of printed forms and supplies required for use at the Property;
and
(m) 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,
(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 office at any location off the Property;
(d) cost of electronic data processing equipment, computers or computer
software, located at the Manager's office 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;
(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 or under
Sections 5.2 and 5.3.
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;
(c) third, to bills and charges of contractors providing services for the
Property;
(d) fourth, to Manager's fee as described in Section 13; 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 the Property available
for rental. In that connection, Manager shall conduct the following activities:
(a) advise Owner in the promotion and advertising of 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
units in a first-class apartment project in the Metropolitan Area.
12.2. Advertising 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, and shall include, without limitation,
the following:
(i) A mailing campaign incorporating brochures,
circulars and flyers advertising the Property.
Such written material shall be commensurate with
the highest standards of similar brochures in the
Metropolitan Area. Such written materials shall
identify the Manager as the exclusive leasing
broker of the Property.
(ii) Design and installation of a series of signs,
including a general project identification sign
indicating that residential units are available
at the Property. Owner authorizes Manager to
place a sign(s) at the Property if, in the
Manager's opinion such would facilitate the
leasing of the Property. All advertising and
signage shall be subject to Owner's reasonable
consent.
(b) Owner shall pay such expenses or reimburse Manager if Manager pays such
expenses which are included in the Approved Budget or otherwise
approved by Owner.
(c) 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, 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 are
attached to this Agreement as Exhibit G. For all subsequent years,
the parties shall attach to this Agreement or otherwise identify the
leasing standards approved by the Owner pursuant to the Approved
Budget.
(b) In order to solicit Owner's approval for a change in the Form Lease,
Manager shall deliver to Owner a black-lined copy of the new Form
Lease marked to show all changes made from the previously approved
Form Lease. 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.
12.9. Sales Brokers and Other Leasing Agents.
(a) Manager shall have the exclusive right to lease the space in the
Property during the term of this Agreement.
(b) Except if Manager is the sole procuring broker or agent and has
executed a separate sales commission agreement with Owner, 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. Managers shall
not hold itself out as a broker or sales agent, shall not on its own
market the property for sale or disposition, and shall promptly
forward all inquiries from prospective purchasers and their agents to
Owner.
12.10. 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. Commencing December 1, 1997 Manager shall receive for
its services in managing the Property in accordance with the terms of this
Agreement, a monthly management fee as set forth in Exhibit H (the "Management
Fee").
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 tenant reimbursements of water and sewer charges to be
includeable in Gross Rental Revenue, or money received pursuant to tax and
operating recapture or escalation clauses in lease instruments affecting the
Property which have the effect of increasing income.
13.3 Payment of Management Fee. The Owner shall pay Manager the Management
Fee in accordance with Exhibit H. 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.
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: USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP
c/o USF&G Realty Partners
6225 Centennial Way - Mailstop LB 0101
Baltimore, Maryland 21209
with a copy to:
Nicholas F. McCoy, Esquire
Legal Department
6225 Centennial Way - Mailstop LB 0301
Baltimore, Maryland 21209
Manager: ZOM RESIDENTIAL SERVICES, INC,
1950 Summit Park Drive
Suite 300, Orlando, Florida 32810
Attn: President
(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 office 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.
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
office or for nomination for such office, 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,
(iii) termination as herein otherwise provided, or
(iv) one (1) year from the date of this Agreement.
"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 officer 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 thirty (30) days' written notice to Manager, may terminate
Manager's management appointment under this Agreement with or without cause at
any time.
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 one hundred eighty (180) 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 by Manager. 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.
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 include in any individual or pooled data
bank (including 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.
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. Manager hereby
consents to any assignment by Owner of the Agreement, including an assignment
to Owner's lenders.
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 and Article 18 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.
18.21. Binding Arbitration and Jury Trial Waiver. The parties, on behalf of
themselves and their respective officers, directors, employees, agents,
successors and assigns, agree that if they cannot resolve any dispute or claim
between themselves (including, but not limited to, any dispute as to whether a
particular matter must be arbitrated or any claim that a party was fraudulently
induced into entering this contract or any part of this Agreement), the dispute
or claim shall be decided solely and exclusively by final and binding
arbitration. The location of the arbitration shall be in Baltimore, Maryland.
The arbitration shall be in lieu of litigation in state or federal court and in
lieu of trial by judge or by jury, and shall instead be conducted by
JAMS-ENDISPUTE, or its successor, in accordance with its applicable Arbitration
Rules and Procedures then in effect. The arbitrator(s) will be chosen from
JAMS-ENDISPUTE's panel of retired judges. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction and the
parties shall be entitled to utilize the courts to enforce the award. The
parties hereby knowingly and voluntarily, and irrevocably waive their right to
a trial by jury and agree that if the foregoing binding arbitration provision is
determined for any reason to be unenforceable or inapplicable to a particular
dispute then such dispute shall be decided solely by a judge (without the use
of a jury) sitting in a court of competent jurisdiction. This binding
arbitration and jury trial waiver provision shall survive termination of this
Agreement.
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
By: USF&G Realty Partners, Inc.
WITNESS:
_______________________________ By:_________________________(Seal)
MANAGER:
ZOM RESIDENTIAL SERVICES, INC.
WITNESS:
_______________________________ By: _________________________(Seal)
<PAGE>
Exhibit A
DESCRIPTION OF LAND
Parcel 12, ORANGEWOOD NEIGHBORHOOD 2, according to the Plat thereof as
recorded in Plat Book 17, Pages 81 through 87, Public Records of
Orange County, Florida.
<PAGE>
Exhibit B
INITIAL PROPERTY EMPLOYEES
Property St. Andrews Apartments at Westwood
Location 11500 Westwood Boulevard, Orlando, Florida
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Employee No. With
Title Title Rate
On-Site: Community Manager 1
Leasing Consultant 2
Maintenance 1
Supervisor
Maintenance Assistant 1
Off-Site:
</TABLE>
<PAGE>
Exhibit C
BUDGET CATEGORIES
[See Attached]
<PAGE>
Exhibit D
ACCOUNT CLASSIFICATION
Account Number Account Name
Assets
10-10-00 Cash-Depository
10-11-00 Cash-Operating
10-12-00 Cash-Security Deposits
10-20-00 Accounts Receivable
10-25-00 Allowance for Doubtful Accounts
10-26-00 Notes Receivable
10-30-00 Prepaid Insurance
10-31-00 Prepaid Expenses
10-32-00 Deposits
10-40-00 Abated Rent
10-50-00 Building and Improvements
10-52-00 Tenant Improvements
10-54-00 Furniture and Equipment
10-55-00 Parking Lot
10-56-00 Accumulated Depreciation
10-57-00 Loan Fees
10-58-00 Accumulated Amort.-Loan Fees
10-60-00 Lease Commissions
10-65-00 Accumulated Amort.-Lease Commissions
10-66-00 Organization Costs
10-67-00 Accumulated Amort.-Org. Costs
10-70-00 Land
10-80-00 Other Assets
Liabilities
20-10-00 Accounts Payable
20-11-00 Accrued Expenses
20-15-00 Construction Payable
20-20-00 Security Deposits
20-25-00 Prepaid Rent
20-30-00 Accrued Property Taxes
20-40-00 Other Liabilities
20-50-00 Mortgage Payable
20-55-00 Note Payable-USF&G
Capital
30-05-00 [Investment by USF&G/Legg Mason]
30-06-00 [Investment by F&G Life]
30-10-00 Current Year
30-15-00 Retained Earnings
Revenue
40-10-00 Rental Income
40-30-00 Corporate Income
40-40-00 Expense Reimbursements
40-55-00 Interest Income
40-60-00 Miscellaneous Income
Expenses
50-10-00 Janitorial/Cleaning
50-15-00 Maintenance
50-20-00 Grounds & Landscaping
50-25-00 Security
50-30-00 Utilities
50-40-00 Other Operating
50-45-00 Marketing & Leasing
50-50-00 General and Administrative
50-55-00 Payroll
50-60-00 Corporate Expenses
50-65-00 Management Fees
50-70-00 Insurance
50-75-00 Real Estate Taxes
50-80-00 Bad Debt Expense
50-85-00 Interest
50-90-00 Depreciation
50-95-00 Lease Commission Amortization
50-96-00 Other Amortization
<PAGE>
Exhibit E
MONTHLY FINANCIAL REPORTS
Monthly and annual operating reports;
Monthly rent roll, including a lease expiration schedule for the
current year;
Monthly tenant aged receivables report;
Monthly tenant and leasing status reports, including percentage
occupancy and percentage leased schedule by unit type, recap of
move-out reasons, forecast of lease expirations, source of traffic
summary, closing ratios by leasing agent and unit mix and asking rent
schedule;
Monthly and annual narrative budget/actual variance reports;
Monthly balance sheet;
Monthly and annual source and use of cash reconciliations;
Monthly management fee reconciliation;
Monthly detailed general ledger;
Monthly bank statements and reconciliations;
Monthly wire advice confirmation of any mortgage payments;
Monthly canceled checks if requested by Owner and paid receipts of
real estate property taxes and assessments and all insurance premium
payments;
Schedule of accounts receivable and doubtful accounts;
Prepaid insurance schedule;
Loan fee amortization schedule;
Fixed asset schedules (bldg. & ff&e);
Accounts payable schedule;
Accrued property tax schedule;
Equity roll forward schedule;
Schedule of prepaid rent;
Schedule of security deposits;
Monthly tenant service request and action report;
Copies of all leases and modifications, amendments and subleases of
leases executed during the prior month;
Monthly tenant security deposit reconciliation;
Monthly reconciliation of cash deposited with rents recorded on rent
roll;
Monthly property inspection report
Monthly narrative summary of market conditions, including survey of
market comparables occupancy, asking rents and concessions;
Monthly recap of capital expenditures, including a detail of
expenditures for carpet replacements, noting apartment unit number,
reason replaced, cost and year to date number of replacements; and
Monthly narrative description of current month and planned social
activities.
<PAGE>
Exhibit F
FORM LEASE
[See Attached]
<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 primary term of any lease shall be for a term of not fewer than
seven months nor more than twelve months.
2. The standard form of lease shall not be materially altered or amended
without the prior written consent of Owner.
3. All leases conforming to this Exhibit G and which are on the form
lease as set forth on Exhibit F shall be duly authorized and properly
executed by Manager on behalf of Owner pursuant to all necessary
corporate or partnership action.
These leasing standards shall apply from the date of this Agreement until
otherwise modified in writing by Owner by advice of Manager.
<PAGE>
Exhibit H
SCHEDULE OF MANAGEMENT FEE
Base Fee: 3.5% of Gross Rental Revenue
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,070,018
<SECURITIES> 0
<RECEIVABLES> 363,744
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,404,770
<DEPRECIATION> 8,245,174
<TOTAL-ASSETS> 29,168,031
<CURRENT-LIABILITIES> 0
<BONDS> 21,402,270
0
0
<COMMON> (1,432,727)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,168,031
<SALES> 0
<TOTAL-REVENUES> 5,239,669
<CGS> 0
<TOTAL-COSTS> 3,365,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,236,910
<INCOME-PRETAX> (362,403)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,403)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
EXHIBIT 28.29
March 3, 1998
Ms. Julie C. Tyler, MAI
Director, Valuations
USF&G Realty Advisors, Inc.
6225 Smith Avenue
Baltimore, MD 21209-3653
Re: Northeast Business Campus ("NEBC")
Corporate Drive
Columbus, Franklin County, Ohio
Ms. Tyler:
In accordance with the engagement letter dated November 12, 1997, 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 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, 1997, which
is also the date of my property inspection. The appraisal reflects market
conditions as of the date of the 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 180,660
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.
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, 1997, is:
Ten Million Two Hundred Thousand Dollars
$10,200,000
<PAGE>
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.
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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE COMPLETE EACH LINE ITEM FOR EACH BUILDING IN THE SUBJECT PROPERTY, WHERE
APPROPRIATE. IF AN ITEM DOES NOT APPLY, INDICATE N/A. ADDITIONAL
ITEMS/COMMENTS NOT INCLUDED IN THIS CHART MAY BE INDICATED BELOW IN "COMMENTS".
THIS FORM MUST APPEAR DIRECTLY AFTER THE TABLE OF CONTENTS IN THE APPRAISAL
REPORT.
- --------------------------------------------------------------------------------
APPRAISAL REPORT SUMMARY
- --------------------------------------------------------------------------------
I. GENERAL INFORMATION
APPRAISER'S NAME: Steven R. Reynolds, MAI
NAME OF THE APPRAISAL FIRM: Pinnacle Associates, Inc.
DATE OF THE APPRAISAL REPORT: ISSUED March 3, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PROJECT NAME: Northeast Business Campus - Columbus, Ohio
- -----------------------------------------------------------------------------------------------------------------------------------
Building 1 Building 2 Building 3 Building 4 Building 5 Total
3592 Corporate 3660 Corporate 3681 Corporate 3711 Corporater 3700 Corporate
Drive Drive Drive Drive Drive
- -----------------------------------------------------------------------------------------------------------------------------------
TYPE OF PROPERTY: Office Office Office/Warehs Office/Warehs Office
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDINGS SIZE 31,561 32,812 24,138 23,991 71,000 183,502
GROSS BUILDING AREA: ---------------------------------------------------------------------------------------------
RENTABLE BUILDING AREA: 31,105 31,105 23,545 23,717 71,000 180,472
--------------------------------------------------------------------------------------------------------------------------
ACTUAL AGE OF IMPROVEMENTS: 16 years 16 years 16 years 16 years 14 years
--------------------------------------------------------------------------------------------------------------------------
EFFECTIVE AGE OF IMPROVEMENTS: 16 years 16 years 16 years 16 years 16 years
--------------------------------------------------------------------------------------------------------------------------
REMAINING ECONOMIC LIFE: 34 years 34 years 34 years 34 years 34 years
--------------------------------------------------------------------------------------------------------------------------
EFFECTIVE VALUATION DATE: Dec 1, 1997 Dec 1, 1997 Dec 1, 1997 Dec 1, 1997 Dec 1, 1997
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
II. SUMMARY OF FINAL VALUES
Note: If there are several buildings, the indicated
value, or contribution of each building to the total
value must be shown, as well as the total value by each
approach.
--------------------------------------------------------------------------------------------------------------------------
INDICATED VALUE BY THE COST $1,540,000 $1,550,000 $940,000 $960,000 $5,250,000 $10,250,000
APPROACH:
--------------------------------------------------------------------------------------------------------------------------
* LAND VALUE $320,000 $300,000 $150,000 $160,000 $840,000 $1,800,000
* REPLACEMENT COST BEFORE $1,621,578 $1,658,047 $1,053,869 $1,058,827 $5,857,950 $11,250,272
ACCRUED DEPRECIATION
* RATIO OF LAND VALUE TO 17.8% 15.8% 13.0% 13.3% 20.2% 18.2%
FINAL MARKET VALUE "AS IS"
--------------------------------------------------------------------------------------------------------------------------
INDICATED VALUE BY THE DIRECT
SALES $1,800,000 $1,800,000 $1,180,000 $1,190,000 $4,250,000 $10,200,000
COMPARISON APPROACH: to to to to to to
$1,930,000 $1,930,000 $1,270,000 $1,280,000 $4,550,000 $10,950,000
--------------------------------------------------------------------------------------------------------------------------
INDICATED VALUE BY THE INCOME $1,780,000 $1,930,000 $1,150,000 $1,250,000 $4,000,000 $10,100,000
APPROACH: (rounded)
--------------------------------------------------------------------------------------------------------------------------
FINAL MARKET VALUE: $1,800,000 $1,900,000 $1,150,000 $1,200,000 $4,150,000 $10,200,000
--------------------------------------------------------------------------------------------------------------------------
DATE OF MARKET VALUE "AS IS" Dec 1, 1997 Dec 1, 1997 Dec 1, 1997 Dec 1, 1997 Dec 1, 1997 Dec 1, 1997
--------------------------------------------------------------------------------------------------------------------------
DATE OF FUTURE VALUE UPON N/A N/A N/A N/A N/A N/A
STABILIZED OCCUPANCY
--------------------------------------------------------------------------------------------------------------------------
PAGE ONE
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
III. ASSUMPTIONS 100.0% 100.0% 100.0% 100.0% 94.2% 97.7%
Current Occupancy Rate (%)
of the Subject
Property As of the Effective
Valuation Date
Current Market Occupancy
Rate (%) 90%-95% 90%-95% 90%-95% 90%-95% 90%-95% 90%-95%
Est. Stabilized Occupancy
Rate (%) of the Sub. 94.1% 92.3% 94.1% 94.1% 94.1%
Property
Absorption Rate (month/year
in sf) N/A N/A N/A N/A 6 months
Holding Period in DCF Model 10 years 10 years 10 years 10 years 10 years
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
RENTS
Average Contract Rent (1996) $8.25 $11.75 $8.05 $9.75 $10.37
Average Contract Rent
(YTD 10/97) $6.80 $9.79 $7.16 $7.15 $9.80
Average Contract Rent
(Ann'l. 1997) $8.16 $11.75 $8.59 $8.58 $11.75
-------------------------------------------------------------------------------------------------------------------------
Current Market Rent Estimate $7.75 net $7.75 net $6.75 net $6.75 net $7.75 net
--------------------------------------------------------------------------------------------------------------------------
Total Gross Rent - Year One $12.55 $11.83 $8.78 $9.75 $12.37
--------------------------------------------------------------------------------------------------------------------------
Rental Concessions N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------
Effective Market rent $7.75 net $7.75 net $6.75 net $6.75 net $7.75 net
--------------------------------------------------------------------------------------------------------------------------
Other Income 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------
Market Rent Growth Rate 3.5% 3.5% 3.5% 3.5% 3.5%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
VACANCY
Vacancy Rate (%) over holding
period: 5.2% 6.7% 5.9% 5.2% 5.3%
-------------------------------------------------------------------------------------------------------------------------
Credit/Collection Loss Rate 2% 2% 2% 2% 2%
over holding period:
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
EXPENSES
Total Last Year Expenses
(1996): $ 4.71 $4.03 $1.91 $1.90 $5.07
Total Current Year Expenses
(anl. 97): $6.26 $4.14 $2.60 $2.61 $5.20
Total Expenses in Year 1 $5.71 $4.21 $2.74 $2.76 $6.10
Projection:
Current Expense Stop N/A N/A N/A N/A N/A
Current Expense Stop
Projection N/A N/A N/A N/A N/A
Expense Growth Rate over
period 4.0% 4.0% 4.0% 4.0% 4.0%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
NET OPERATING INCOME
Current Actual NOI (ann'l.97) $1.96 $7.75 $6.03 $6.02 $6.60
Year One Projection $6.84 $7.62 $6.04 $6.99 $6.27
Stabilized NOI N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------
PAGE TWO
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
OTHER ASSUMPTIONS-RENEWAL
PROBABILITY, TENANT FINISH,
LEASING COMMISSIONS
Renewal Rate Probability 60% 50% 60% 60% 60%
Specific Vacancy/Downtime
Between Leases 3 months 4 months 3 months 3 months 3 months
Rental Concessions N/A N/A N/A N/A N/A
Tenant Improvement (TI) Cost
Shell Space ($/sf) $8.32 $9.36 $6.24 $6.24 $8.32
Retrofit-Renewals ($/sf) $3.12 $3.12 $2.08 $2.08 $3.12
Rollovers ($/sf) $8.32 $9.36 $6.24 $6.24 $8.32
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATES (DERIVED FROM
MARKET)
Terminal Capitalization Rate
Range 8.5% to 13.0% 8.5% to 13.0% 8.5% to 13.0% 8.5% to 13.0% 8.5% to 13.0%
Terminal Capitalization 10.5% 10.5% 10.5% 10.5% 10.5%
Rate Selected
Sales Cost Percentage 3.0% 3.0% 3.0% 3.0% 3.0%
Discount Rate Range 10.0% to 16.0% 10.0% to 16.0% 10.0% to 16.0% 10.0% to 16.0% 10.0% to 16.0%
Discount Rate Selected 13.0% 12.5% 13.0% 13.0% 12.5%
Overall Cap. Rate Range 7.1% to 13.9% 7.1% to 13.9% 7.1% to 13.9% 7.1% to 13.9% 7.1% to 13.9%
Overall Cap. Rate (Implied) 12.0% 12.3% 12.4% 13.3% 11.1% 11.9%
EGIM Range 4.03 to 6.71 4.03 to 6.71 4.03 to 6.71 4.03 to 6.71 4.03 to 6.71 4.03 to 6.71
EGIM Selected 5.0 5.0 5.0 5.0 5.0 5.0
- --------------------------------------------------------------------------------=--------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Briefly Summarize the Overall Economic Climate of the Subject's MSA/Market Area
- -----------------------------------------------------------------------------------------------------------------------------------
The Columbus metro area has seen steady growth in population, a trend that is projected to continue. All of these factors and the
solid economic outlook for Columbus bode well for the prospects of continued long-term economic growth.
Accordingly, the office sector should benefit from this growth as the region continues to recover from the national recession.
- -----------------------------------------------------------------------------------------------------------------------------------
Other Comments:
- -----------------------------------------------------------------------------------------------------------------------------------
The subject is located near the suburb of Westerville in northeast Columbus, Franklin County, Ohio. The site has frontage along
State Route 161, although access is not direct; consequently, vehicular ingress/egress can be difficult.
Westerville is considered to be a desirable, but not a stellar, location. The Westerville office submarket is experiencing healthy
occupancy and minimal amounts of build-to-suit and speculative construction. Other suburban markets, such as Dublin and
Worthington, are considered to be more desirable office environments. Northeast Business Campus' location is negatively impacted
by other improvements in its immediate neighborhood. The neighborhood also has limited ancillary amenities such as restaurants,
hotels, and quality shopping.
The subject's improvements are very competitive with the rent comparables in terms of quality, age, tenant finish, and overall
appeal; however, the subject must often rely primarily upon price to attract tenants. This appears to have been the case with
CIGNA, the subject's largest tenant, who was looking for a low-cost alternative to their previous (extravagant and costly)
location. The image of the park might be enhanced by increasing permanent signage along Corporate Drive and State Route 161.
Three of the subject's buildings - NEBC 1, NEBC 2, and NEBC 5 - are 100% office. the remaining two buildings are office/warehouse
buildings with a relatively higher percentage of office finish. Given that the office/warehouse buildings are in an office park
environment, they are able to attract office tenants who need limited warehouse space and who desire a non-industrial atmosphere.
The subject is considered to more closely resemble a suburban office property, as opposed to an office/warehouse property. The
subject's office/warehouse properties tend to be positively impacted by their proximity to the subject's office properties.
Conversely, the subject's office properties appear to be impacted in a slightly negative manner by their proximity to the subject's
office/warehouse properties.
The Cost Approach suggests a degree of external obsolescence affecting the subject, especially in the case of NEBC 5. A point also
might be made that NEBC 5 contains excess - albeit unusable - land. These factors were not specifically quantified; however, they
are incorporated in my final value conclusion.
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE THREE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 28.30
December 17, 1997
Julie C. Tyler, MAI
Manager, Real Estate Valuations
United States Fidelity and Guaranty Company
6225 Centennial Way
Baltimore, MD 21209-3653
RE: Appraisal of St. Andrews Apartments (259 Units)
11500 Westwood Boulevard, Orlando, Florida
CBC File No. 97-O241
Dear Ms. Tyler:
At your request and authorization, CB Commercial Real Estate Services Group,
Inc. (CB Commercial) has prepared a Complete Appraisal presented in a
self-contained appraisal report of the "as-is" market value of the fee simple
estate in the referenced real property.
The subject property consists of a 259 unit garden apartment complex, and is
more fully described, legally and physically, within the enclosed report.
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.
It is estimated that the "as-is" market value of the fee simple estate in the
subject property, as of December 1, 1997, was:
TWELVE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS
$12,750,000
<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, The
Financial Institutions Reform, Recovery, Enforcement Act of 1989 (FIRREA),
Title XI Regulations and 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 can be of further
service, please do not hesitate to contact us.
Respectfully submitted,
CB COMMERCIAL REAL ESTATE SERVICES 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
JG
<PAGE>
SUMMARY OF SALIENT FACTS
Property Name: St. Andrews Apartments
Location: 11500 Westwood Boulevard, Orlando, Florida
Assessor's Parcel Number: 13-24-28-6283-00-120
Property Type: Apartment (1-4 Story)
Highest and Best Use
As Though Vacant: Multifamily Residential
As Improved: Multifamily Residential
Property Rights Appraised: Fee Simple
Date of Value: December 1, 1997
Date of Inspection: December 15, 1997
Land Area: 14.55 AC 633,885 SF
Improvements
Number of Buildings: 16
Number of Stories: 1 - 3
Gross Building Area: 222,828 SF
Net Rentable Area: 198,916 SF
Number of Units: 259
Average Unit Size: 768 SF
Year Built: 1989
Condition: Good
Effective Age: 8 Years
Estimated Exposure Time: 12 months or less
Financial Indicators
Current Occupancy: 90.0%
Stabilized Occupancy: 91.0%
Estimated Lease-up Period: 0 Months
Overall Capitalization Rate: 8.75%
Discount Rate: 11.50%
Total Per Unit
Stabilized Operating Data:
Effective Gross Income (EGI): $2,053,678 $7,929
Operating Expenses: $949,464 $3,666
Expense Ratio (Exp/EGI): 46.23%
Net Operating Income (NOI): $1,104,214 $4,263
Valuation
Land Value: $2,250,000
Cost Approach: $12,470,000 $48,147
Sales Comparison Approach: $12,820,000 $49,498
Income Capitalization Approach: $12,750,000 $49,228
Concluded Market Value: $12,750,000 $49,228
Insurable Value: $10,390,000 $40,116
EXHIBIT 28.31
December 17, 1997
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, 1997
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, 1997, 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, December 1, 1995 and
December 1, 1996. 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, 1997, is:
TEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($10,800,000).
<PAGE>
Ms. Julie A. Tyler, MAI
December 17, 1997
Page 2
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 in value of $910,000
since the previous appraisal. The subject exhibits a current vacancy of
12,400 SF/GLA, which is above previous long term levels, but represents a
decrease over a year ago. Strong prospects exist for 4,000 SF/GLA with deals
in negotiation and likely to be concluded.
The expenses for the subject have been lowered due primarily to a successful
tax appeal. The subject's previous assessment was within the range of
assessments exhibited by comparable properties, however the reduced assessment
has placed the subject near to the lower end of the range. The resultant tax
liability is approximately $30,000 below the forecast expense of a year ago.
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.
The Marsh/Osco expansion remains in question for yet another year. Discussions
with both of these tenants continues with the focus of negotiation now on an
Osco relocation.
The subject exhibits effective rents for new leases and renewals which support
an increase in asking rent for space in both the Center and the Shoppes. A
new pylon sign is generating additional income from tenants for advertising.
Therefore, current and potential income are higher. Future prospects for the
subject remain good therefore no change in the capitalization and yield rates
applied is indicated. The risk of increased expenditures is accounted for with
the application of tenant improvements to all spaces to maintain the appeal of
the
<PAGE>
Ms. Julie A. Tyler, MAI
December 17, 1997
Page 3
subject. A normative vacancy of 6 percent seems market supported and reflects
the strengthening of the subject's tenant base. The continued discontinuation
of expense stops in combination with the decreased vacancy continues to have 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.
SAS/FCT
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT II
- --------------------------------------------------------------------------------
PLEASE COMPLETE EACH LINE ITEM FOR EACH BUILDING IN THE SUBJECT PROPERTY, WHERE
APPROPRIATE. IF AN ITEM DOES NOT APPLY, INDICATE N/A. ADDITIONAL
ITEMS/COMMENTS NOT INCLUDED IN THIS CHART MAY BE INDICATED BELOW IN "COMMENTS."
THIS FORM MUST APPEAR DIRECTLY AFTER THE TABLE OF CONTENS IN THE APPRAISAL
REPORT.
- --------------------------------------------------------------------------------
APPRAISAL REPORT SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
I. GENERAL INFORMATION
- -------------------------------------------
APPRAISERS' NAME: Sabra A. Sullivan; Frederick C. Terzo,
CRE, MAI, AICP
NAME OF THE APPRAISAL FIRM: Terzo & Bologna, Inc.
DATE OF THE APPRAISAL REPORT: 12/17/97
PROJECT NAME: Shadeland Station Retail
Center
PROPERTY ADDRESS: SEQ Shadeland Avenue and
East 75th Street
TYPE OF PROPERTY: Indianapolis, Indiana
BUILDING SIZE (SF/NO. OF UNITS):
GROSS BUILDING AREA: 109,103 GSF
------------------------------------
RENTABLE BUILDING AREA: 104,976 SF/GLA
------------------------------------
ACTUAL AGE OF IMPROVEMENTS: 12-Center 12-Shoppes
------------------------------------
EFFECTIVE AGE OF IMPROVEMENTS: 11-Center 10-Shoppes
------------------------------------
REMAINING ECONOMIC LIFE: 30-Center 39-Shoppes
------------------------------------
EFFECTIVE VALUATION DATE: 12/01/97
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MARKET VALUE PROSPECTIVE FUTURE VALUE
"AS IS" UPON STABILIZED OCCUPANCY
------------- ---------------------------
II. SUMMARY OF FINAL VALUES
- -------------------------------------------
Note: If there are several buildings,
the indicated value, or contribution
of each building to the total value must
be shown, as well as the total value
by each approach.
INDICATED VALUE BY THE COST $9,600,000
APPROACH:
----------- -------------------------
*LAND VALUE ESTIMATE $2,120,000
-----------
*REPLACEMENT COST BEFORE
ACCRUED DEPRECIATION $9,823,000
-----------
*RATIO OF LAND VALUE TO FINAL
MARKET VALUE "AS IS" 19.6%
-----------
INDICATED VALUE BY THE DIRECT SALES
--------------------------
COMPARISON APPROACH: $10,500,000
-----------
INDICATED VALUE BY THE INCOME $10,900,000
APPROACH: ----------- --------------------------
- -------------------------------------------------------------------------------------------------------------------
FINAL VALUE ESTIMATE
----------- --------------------------
- -------------------------------------------------------------------------------------------------------------------
DATE OF MARKET VALUE "AS IS" $10,800,000
-----------
DATE OF FUTURE VALUE UPON
STABILIZED OCCUPANCY --------------------------
-------------
PAGE ONE
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
III. ASSUMPTIONS Building 1 Building 2 Building 3
- ------------------------------------------- ------------- ------------- -------------
* Current Occupancy Rate (%) of the Subject
Property
As of the Effective Valuation Date: 88.2%
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* Current Market Occupancy Rate (%): 95.6%
------------- ------------- -------------
* Est. Stabilized Occupancy Rate (%) of the Sub.
Property: 94.0%
------------- ------------- -------------
* Absorption Rate (month/year in
SF/# of units):
------------- ------------- -------------
* Absorption Period of Vacant Space 9 months
(months/years):
------------- ------------- -------------
* Holding Period in the Discounted Cash Flow
Model (No.): 10 years
------------- ------------- -------------
RENTS
----------
* Average Contract Rent over the past year
(total year):
------------- ------------- -------------
* Average Contract Rent (Year-to-Date/no. of
months):
------------- ------------- -------------
* Average Contract Rent
(Annualized Year-to-date):
------------- ------------- -------------
* Current Market Rent Estimate (face rent)--$ See Text
amt./$/sf/units):
------------- ------------- -------------
* Total Gross Rent in Year One $1,087,982
Projection:
------------- ------------- -------------
* Rent Concessions (%/$/sf): 0
------------- ------------- -------------
* Effective Market Rent ($/sf/units):
------------- ------------- -------------
* Other Income ($ amt./$/sf/unit): $2,689
------------- ------------- -------------
* Market Rent Growth Rate Over the 3.5%
holding period:
------------- ------------- -------------
VACANCY
-------
* Vacancy Rate (%) over the 6.0%
holding period:
------------- ------------- -------------
* Credit and Collection Loss Rate (%) over the 1.0%
holding period:
------------- ------------- -------------
EXPENSES
--------
* Total Last Year Expenses ($ $243,544
amt./$/sf/unit):
------------- ------------- -------------
* Total Current Year Expenses: $296,032
------------- ------------- -------------
* Total Expenses In Year One $304,142
Projection:
------------- ------------- -------------
------------- ------------- -------------
* Current Expense Stop ($/SF): N/A
------------- ------------- -------------
* Current Expenses Stop Projection N/A
($/SF):
------------- ------------- -------------
* Expense Growth Rate over the 3.5%
holding period:
------------- ------------- -------------
NET OPERATING INCOME
--------------------
* Current Actual NOI ($ Amt./$/SF): $865,002
------------- ------------- -------------
* Year One Projection: $964,167
------------- ------------- -------------
* Stabilized NOI:
------------- ------------- -------------
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PAGE TWO
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<PAGE>
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Building 1 Building 2 Building 3
------------- ------------- -------------
OTHER ASSUMTIONS-RENEWAL PROBABILITY,
TENANT FINISH, LEASING COMMISSIONS
-------------------------------------
* Probability of Renewal Rate: 70.0%
------------- ------------- -------------
* Specific Vacancy/Downtime Between Leases 3 months
(months):
------------- ------------- -------------
* Rental Concessions (months/rate): 0
------------- ------------- -------------
* Tenant Improvement (TI) Cost
Shell Space ($/sf): N/A
------------- ------------- -------------
Retrofit-Renewals ($/sf): $1.00
------------- ------------- -------------
Rollovers ($/sf): $5.00
------------- ------------- -------------
Escalation Rate Over the 3.5%
holding period:
------------- ------------- -------------
* Leasing Commissions (%)
New Tenants (%): 5.0%
------------- ------------- -------------
Renewals (%): 2.0%
------------- ------------- -------------
Rollovers:
------------- ------------- -------------
FINANCIAL RATES (DERIVED FROM MARKET)
-------------------------------------
* Terminal Capitalization Rate 8.25-12.0
Range:
------------- ------------- -------------
* Terminal Capitalization Rate Selected for the 9.75%
Subject:
------------- ------------- -------------
* Sales Cost Percentage: 2.0%
------------- ------------- -------------
* Discount Rate Range: 10.0-14.0
------------- ------------- -------------
* Discount Rate Selected for the 11.25%
Subject:
------------- ------------- -------------
* Overall Cap. Rate Range (as indicated by 9.25%
sales, etc.):
------------- ------------- -------------
* Overall Cap. Rate Selected for 9.25%
the Subject:
------------- ------------- -------------
* EGIM/GIM/NIM Range (Note: whatever is
applicable
in that market and applied in N/A
the report):
------------- ------------- -------------
* EGIM/GIM/NIM Selected for the N/A
Subject:
------------- ------------- -------------
Briefly Summarize the Overall Economic Climate of the Subject's MSA/Market Area
(I.e. comment if supply and demand are in balance; years to absorb existing and projected supply; trend in
job growth, population, etc.)
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The subject and proximate comparable appear to remain well supported in the face of regional retail growth to the
north.
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The surrounding office product remains especially beneficial.
Other Comments (Indicate whether deferred maintenance exists, or presence of functional or external
obsolescence, etc.):
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Page Three
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</TABLE>
