SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
................Century HillCreste Apartment Investors, L.P................
(Name of registrant as specified in its charter)
................................................................................
(Name of person(s) filing proxy statement if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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1) Title of each class of securities to which transaction applies:
. . . . . . . . . Depository Units, each of which consists of one limited partnership interest.......
2) Aggregate number of securities to which transaction applies:
. . . . . . . . . 7,258,000 Depository Units.........................................................
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state how it was determined):
. . . . . . . . . N/A................................................................................
4) Proposed maximum aggregate value of transaction:
. . . . . . . . . N/A.............................................................................
5) Total fee paid:
. . . . . . . . . N/A................................................................................
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11-(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No:
3) Filing Party:
4) Date Filed:
678600.8
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CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
9090 Wilshire Boulevard
Beverly Hills, California 90211
___________ __, 1998
To the Limited Partners:
National Partnership Investments Corp., a California corporation ("NAPICO"), one
of the two general partners of Century HillCreste Apartment Investors, L.P. (the
"Partnership"), is writing to recommend, and seek your consent to, (i) a
proposed sale (the "Sale") of the Partnership's 315-unit rental apartment
complex located in West Los Angeles, California ( the "Property") to a real
estate investment trust (the "REIT") to be organized by Casden Properties, a
California general partnership; and (ii) certain amendments to the Partnership's
Agreement of limited Partnership necessary to permit such sale. Casden
Properties and certain of its affiliates are referred to collectively herein as
"Casden".
In evaluating the proposed Sale, the Limited Partners should note that:
o Based upon a purchase price for the Property of $52,500,000, which is
payable in cash, it is anticipated that the Partnership will make a
distribution out of the proceeds of the Sale and the available cash of
the Partnership of approximately $7.68 per depository unit, which
amount is anticipated to be sufficient to pay any federal and state
income taxes that would be due in connection with the Sale, assuming
federal capital gains rates of 25% on long-term capital gain
attributable to depreciation not recaptured as ordinary income and 20%
on any remaining long-term capital gain on assets held more than 18
months, and an effective state capital gains rate of 5%. Each
depository unit (a "Unit") is entitled to the beneficial interest of a
limited partnership interest in the Partnership. The original cost per
Unit was $10.00.
o One of the Partnership's original investment objectives was to dispose
of the Property within five to eleven years after completion of
construction, although there was no assurance that such time period
would be met. The Sale would allow the Partnership to meet this
objective. Another principal objective was to provide quarterly cash
distributions to Limited Partners. From January 1, 1989 through
December 31, 1997, Limited Partners received aggregate cash
distributions of $41,497,171.
o Pursuant to the terms of the Amended and Restated Agreement of Limited
Partnership, Casden Properties, which is an affiliate of NAPICO, has a
right of first refusal to acquire the Property at the same price and
terms as any third-party offer (the "Right of First Refusal"). A class
action lawsuit challenging the enforceability of the Right of First
Refusal was dismissed with prejudice by the court having jurisdiction
over the lawsuit on November 25, 1997. NAPICO believes that the
uncertainties resulting from that lawsuit as to the enforceability of
the Right of First Refusal impaired the Partnership's ability to sell
the Property at a fair price.
o NAPICO believes that the terms of the proposed Sale are fair to the
Limited Partners from a financial point of view. A number of Limited
Partners have contacted NAPICO to indicate their
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desire to liquidate the Partnership. In light of such discussions, as
well as current conditions in the real estate and capital markets,
NAPICO believes that it is in the best interests of the Limited
Partners to effect a disposition of the Property in the near term. In
addition, the proposed purchase price offered in connection with the
Sale is significantly higher than any prior offer received by the
Partnership to date.
o Robert A. Stanger & Company, Inc., a recognized independent investment
banking firm, has determined that, subject to the assumptions,
limitations and qualifications contained in its opinion, the Purchase
Price to be received by the Partnership for the Property in the Sale is
fair from a financial point of view to the Limited Partners.
There are certain issues that the Limited Partners should consider in evaluating
the proposed Sale, such as:
o The Property has not been marketed for sale to third parties and the
terms of the Sale have not been negotiated at arm's length. Five
unsolicited third-party offers have been made for the Property, all of
which have been for less than the offer made by the REIT. However,
NAPICO has made no additional attempts to determine if other offers for
the Property are available.
o Casden is both an affiliate of NAPICO and the sponsor of the REIT and,
as discussed in the enclosed materials, would receive substantial
benefits as a result of the Sale and the successful formation and
capitalization of the REIT that will not be available to Limited
Partners.
o By approving the Sale, Limited Partners will be relinquishing certain
benefits of continued ownership of the Property, including the
opportunity to benefit from future events and continuing distributions.
It is possible that the value of the Property will increase in the
future and that a prospective buyer would be willing to pay more for
the Property at a later date.
o The Sale and the liquidation of the Partnership will have a tax impact
on Limited Partners. Limited Partners will recognize a gain from the
Sale and the liquidation of the Partnership of approximately $1.46 per
Unit. The gain recognized will be in addition to taxable income
recognized from the Partnership through the date of the Sale.
The REIT is to be formed by combining a substantial portion of Casden's
multi-family housing assets, which consist of real estate, businesses and
property interests, with properties acquired from several Casdensponsored and/or
managed partnerships and from third-party sellers. Casden will receive a
significant ownership interest in the REIT in exchange for contributing
substantially all of its multi-family housing assets to the REIT. The REIT
proposes to acquire the Property for cash, which it plans to raise in connection
with a private placement of its equity securities that, if consummated, will
close prior to the closing of the Sale. The closing of the Sale is subject to,
among other things, (i) the consummation of such private placement by the REIT;
(ii) the consummation of a minimum number of similar sales transactions with
other Casden-affiliated partnerships; and (iii) approval of a majority in
interest of the Limited Partners of the Partnership .
If the Limited Partners do not approve the Sale, the Partnership will most
likely retain ownership of the Property.
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We urge you to carefully read the enclosed Consent Solicitation Statement in
order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE APPROVAL REQUIRES
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF LIMITED
PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE SALE. To be sure your vote is represented, please sign, date and
return the enclosed consent as promptly as possible. The proposed Sale is fully
described in the enclosed Consent Solicitation Statement. Return your signed
consent form either by facsimile by ______________ or in the enclosed envelope
on or before ________ __, 1998.
If you have any questions, please do not hesitate to contact Ms. Patricia Toy of
Investor Services at (800) 666-6274.
Very truly yours,
Bruce E. Nelson
President
National Partnership Investments Corp.
678600.8
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Century HillCreste Apartment Investors, L.P.
9090 Wilshire Boulevard
Beverly Hills, California 90211
________ __, 1998
CONSENT SOLICITATION STATEMENT
On the terms described in this Consent Solicitation Statement, National
Partnership Investments Corp., a California corporation ("NAPICO"), one of two
general partners of Century HillCreste Apartment Investors, L.P., a California
limited partnership (the "Partnership"), is seeking the consent of the Limited
Partners of the Partnership to (i) the sale of the Partnership's 315-unit rental
apartment complex located in West Los Angeles, California (the "Property"), to a
real estate investment trust (the "REIT") to be organized by Casden Properties,
a California general partnership, for a purchase price of $52,500,000 (the
"Purchase Price"), payable in cash; and (ii) an amendment to the Partnership's
agreement of limited partnership (the "Amendments"). Casden Properties and
certain of its affiliates are referred to collectively herein as "Casden."
Consents are also being sought from the limited partners of certain other
limited partnerships, the general partners of which are affiliated with Casden
(the Partnership and such other limited partnerships are hereinafter
collectively referred to as the "Casden Partnerships"), to allow the sale of
certain real estate assets owned by the other Casden Partnerships to the REIT.
The transaction by which the Partnership proposes to sell the Property to the
REIT and to amend the Partnership Agreement (hereinafter defined) is hereinafter
referred to as the "Sale." The series of transactions by which Casden proposes
to form the REIT and acquire certain real estate assets from the Casden
Partnerships and others is hereinafter referred to as the "REIT Transaction."
It is anticipated that the Partnership will make a distribution of
approximately $7.68 per depository unit from the net proceeds of the Sale and
from available cash from the Partnership that will be distributed upon
liquidation. Each depository unit (a "Unit") entitles the holder thereof to the
beneficial interest of a limited partnership interest in the Partnership.
Pursuant to the terms of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), Casden Properties (sometimes referred
to herein as the "Special Limited Partner"), which is an affiliate of NAPICO,
has a right of first refusal to acquire the Property at the same price and terms
as any third-party offer for the property (the "Right of First Refusal"). A
class action lawsuit challenging the enforceability of the Right of First
Refusal was dismissed with prejudice by the court having jurisdiction over the
lawsuit on November 25, 1997.
The Sale is conditioned upon, among other things, (i) approval of a
majority in interest of the Limited Partners of the Partnership to the Sale;
(ii) consummation of a proposed private placement of the REIT's equity
securities; and (iii) the consummation of a minimum number of real estate
purchases from the Casden Partnerships in connection with the REIT Transaction.
NAPICO has approved the terms of the Sale, including the Purchase
Price, has concluded that the Sale is fair to the Limited Partners and
recommends that the Limited Partners consent to the Sale. Limited Partners
should note, however, that NAPICO's recommendation is subject to inherent
conflicts of interest. See "CONFLICTS OF INTEREST."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON ________ __, 1998, UNLESS EXTENDED
678600.8
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TABLE OF CONTENTS
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I. SUMMARY OF CONSENT SOLICITATION STATEMENT....................................................................1
The Partnership..............................................................................................1
The Sale.....................................................................................................1
Potential Benefits of the Sale...............................................................................2
Potentially Adverse Factors..................................................................................4
Limited Partner Approval.....................................................................................6
Third-Party Opinion..........................................................................................6
Recommendation of NAPICO.....................................................................................6
Conflicts of Interest........................................................................................7
Certain Federal Income Tax Consequences......................................................................7
Transaction Expenses.........................................................................................8
Voting Procedures............................................................................................8
II. THE PARTNERSHIP..............................................................................................8
General......................................................................................................8
The Property................................................................................................10
Market for Depository Interests and Related Security Holder Matters.........................................10
Distribution History........................................................................................11
III. THE SALE..................................................................................................11
Background and Reasons for the Sale.........................................................................11
Acquisition Agreement.......................................................................................12
Transaction Costs...........................................................................................13
Distribution of Sale Proceeds; Accounting Treatment.........................................................13
Conditions..................................................................................................13
Potential Benefits of the Sale..............................................................................14
Potential Adverse Effects of the Sale.......................................................................16
Fairness Opinion............................................................................................17
Alternatives to the Sale....................................................................................20
Recommendation of NAPICO; Fairness..........................................................................21
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT...................................................................23
V. CONFLICTS OF INTEREST.......................................................................................23
General.....................................................................................................23
Fiduciary Responsibility....................................................................................25
VI. SELECTED FINANCIAL INFORMATION..............................................................................25
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................................................26
VIII. LEGAL PROCEEDINGS ........................................................................................27
678600.8
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IX. LIMITED PARTNERS CONSENT PROCEDURE..........................................................................28
Distribution of Solicitation Materials......................................................................28
Voting Procedures and Consents..............................................................................28
Completion Instructions.....................................................................................29
Withdrawal and Change of Election Rights....................................................................29
No Dissenters Rights of Appraisal...........................................................................30
Solicitation of Consents....................................................................................30
X. IMPORTANT NOTE...............................................................................................31
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ANNEXES
Annex A -- Fairness Opinion of Robert Stanger & Company, Inc.
678600.8
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AVAILABLE INFORMATION
Century HillCreste Apartment Investors, L.P. is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, consent
solicitation statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, consent solicitation statements and
other information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices,
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
are incorporated by reference in this Consent Solicitation Statement:
(a) Annual Report on Form 10-K of the Partnership for the fiscal year
ended December 31, 1996;
(b) Amended Annual Report on Form 10-K/A of the Partnership for the
fiscal year ended December 31, 1996;
(c) Quarterly Report on Form 10-Q of the Partnership for the quarter
ended September 30, 1997; and
(d) Proxy Statement of the Partnership pursuant to Section 14(A) of
the Exchange Act dated January 9, 1997 and as amended on June 2,
1997.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Consent
Solicitation Statement to the extent that a statement contained herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.
678600.8
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I. SUMMARY OF CONSENT SOLICITATION STATEMENT
The following summary is intended to provide only highlights of the
materials contained in this Consent Solicitation Statement. This summary is not
intended to be a complete statement of all material features of the proposed
Sale and is qualified in its entirety by the more detailed information contained
herein. Cross references in the summary are to the indicated captions or
portions of this Consent Solicitation Statement.
The Partnership
Century HillCreste Apartment Investors, L.P. (the "Partnership") is a
California limited partnership, the general partners of which are National
Partnership Investments Corp., a California corporation ("NAPICO"), and
HillCreste Properties Inc. (the "Non-Managing General Partner"), a California
corporation (NAPICO and the Non-Managing General Partner are referred to
collectively herein as the "General Partners").
The Partnership owns a 315-unit rental garden-style luxury apartment
complex located in West Los Angeles, California (the "Property"). The Property
consists of seven separate three-story apartment buildings on a 5.75-acre site,
and the seven buildings contain approximately 358,000 square feet of interior
space. The Property contains 126 one-bedroom/one-bathroom apartments and 189
two-bedroom/twobathroom apartments. See "THE PARTNERSHIP -- The Property."
The Partnership maintains offices at 9090 Wilshire Boulevard, Beverly
Hills, California 90211 (310-278-2191). The Partnership was organized as a
California limited partnership on June 6, 1988. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell the Property to the REIT for cash. It
is the intention of NAPICO to liquidate the Partnership in accordance with the
Amended and Restated Agreement of Limited Partnership (the"Partnership
Agreement") following consummation of the Sale. See "THE SALE."
The Partnership will receive aggregate consideration of $52,500,000 for
the sale of the Property, payable in cash. The REIT intends to raise the cash to
be paid to the Partnership through a private placement of approximately $285
million of its equity securities (the "Private Placement"). The REIT intends to
commence an initial public offering of its equity securities subsequent to the
consummation of the Sale.
The net proceeds of the Sale will be distributed to the Limited and
General Partners in accordance with the cash distribution provisions of the
Partnership Agreement. See "THE SALE--Distribution of Sale Proceeds" for a
summary of the cash distribution rules applicable to such distributions. Limited
Partners are expected to receive a distribution of approximately $7.68 in cash
per depository unit from the net proceeds of the Sale and the liquidation of the
Partnership. Each depository unit (a "Unit") entitles the holder thereof to the
beneficial interest of a limited partnership interest in the Partnership. From
January 1, 1989 through December 31, 1997, Limited Partners received aggregate
cash distributions of $41,497,171. The Units were originally sold at a cost of
$10.00 per Unit. All expenses of the Sale will be borne by the Partnership.
678600.8
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The distribution is anticipated to be sufficient to pay any federal and
state income taxes that would be due in connection with the Sale. For the
Limited Partners, the Sale should result in a net cash distribution of $7.23 per
Unit, after deduction of federal and state income taxes of $0.45 per Unit,
assuming federal tax rates of 25% on long-term capital gain attributable to
depreciation not recaptured as ordinary income and 20% on any remaining
long-term capital gain on assets held more than 18 months (and assuming an
effective 5% state tax rate). Each Limited Partner is urged to consult his, her
or its own tax advisor for a more detailed explanation of the specific tax
consequences to such Limited Partner from the Sale. NAPICO will be entitled to
receive a distribution in connection with the Sale of $563,391. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
The Special Limited Partner, an affiliate of Casden, holds
approximately 10% of the voting power held by Limited Partners. It is the
intention of Casden to vote its interests in favor of the Sale.
The Sale is conditioned upon, among other things, (i) approval of a
majority in interest of the Limited Partners of the Partnership; (ii) the
consummation of the Private Placement; and (iii) the consummation of a minimum
number of real estate purchases from the Casden Partnerships in connection with
the REIT Transaction. See "THE PARTNERSHIP -- Regulatory Arrangements" and "THE
SALE -Conditions."
Potential Benefits of the Sale
NAPICO believes that the Sale achieves the Partnership's investment
objectives for the following reasons:
o Receipt of Cash. The Sale will result in a cash distribution
of $7.68 per Unit to Limited Partners, which amount is
anticipated to be sufficient to pay any federal and state
income taxes that would be payable in connection with the
Sale, assuming federal capital gains rates of 25% on long-term
capital gain attributable to depreciation not recaptured as
ordinary income and 20% on any remaining long-term capital
gain on assets held more than 18 months and effective state
capital gains rates of 5%. The Partnership made distributions
to the Limited Partners of $2,322,466, or approximately $0.32
per Unit, in 1997. If the Sale is not completed, there can be
no assurance that the Partnership will be able to make
distributions at the current rate or that the Partnership will
be able to make any future distributions.
o Achievement of Partnership Objectives. One of the
Partnership's original investment objectives was to dispose of
the Property within five to eleven years after completion of
construction, although there was no assurance that such time
period would be met. The Sale would allow the Partnership to
meet this objective. Another principal objective was to
provide quarterly cash distributions to Limited Partners. From
January 1, 1989 through December 31, 1997, Limited Partners
received aggregate cash distributions of $41,497,171.
o Right of First Refusal. Pursuant to the terms of the
Partnership Agreement, the Special Limited Partner, which is
an affiliate of NAPICO, has a right of first refusal to
acquire the Property at the same price and terms as any
third-party offer (the "Right of First Refusal"). A class
action lawsuit challenging the enforceability of the Right of
First Refusal was dismissed with prejudice by the court having
jurisdiction over the lawsuit on November 25,
678600.8
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1997. NAPICO believes that the uncertainties resulting from
that lawsuit as to the enforceability of the Right of First
Refusal impaired the Partnership's ability to sell the
Property at a fair price.
o Third Party Fairness Opinion. Robert A. Stanger & Company,
Inc. ("Stanger"), an independent, nationally recognized real
estate investment banking firm, has been engaged by the
Partnership to render an opinion (the "Fairness Opinion") to
the Partnership as to the fairness, from a financial point of
view, to Limited Partners of the Purchase Price to be received
by the Partnership for the Property in connection with the
Sale. Stanger has conducted certain reviews described herein
and has concluded, subject to the assumptions, qualifications
and limitations contained in its opinion, that the Purchase
Price to be received for the Property in connection with the
Sale is fair, from a financial point of view, to Limited
Partners.
o Eliminating the Risks of Real Estate Investing. Continued
ownership of the Property subjects the Partnership to
continued risks inherent in real estate ownership, such as
national and local economic trends, supply and demand factors
in the local property market, the cost of operating and
maintaining the physical condition of the Property and the
cost and availability of financing for prospective buyers of
the Property. No assurance can be given that a prospective
buyer would be willing to pay an amount equal to or greater
than the Purchase Price for the Property in the future.
o Attractive Sale Terms. The Partnership has received five
Unsolicited Offers to purchase the Property (the "Unsolicited
Offers"). The first offer was made by Bay Apartment
Communities, on December 17, 1996 to purchase the Property for
$41,700,000, subject to review of the Partnership's records
and an inspection of the Property. The second offer was made
by TC Residential San Diego, Inc., on December 19, 1996 to
purchase the Property for $44,700,000, subject to inspection
and review, this offer was increased to $48,000,000 on March
17, 1997. The third offer was made by Security Capital Pacific
Trust on December 20, 1996 to purchase the Property for
$40,200,000, subject to due diligence, this offer was
increased to $47,400,000 on March 7, 1997. The fourth offer
was made by R.W. Selby & Company. Inc., on December 30, 1996
to purchase the Property for $41,000,000, subject to
inspection of the Property and approval of the Partnership's
records, with the Partnership paying all transfer fees
incurred in connection with the sale. The fifth offer was from
Everest HillCreste Investors, on March 7, 1997 to purchase the
Property for $47,000,000, subject to review of the
Partnership's records and an inspection of the Property. The
terms of the proposed Sale include a Purchase Price that is
$4.5 million higher than the highest Unsolicited Offer. The
Unsolicited Offers each reserve the right to reduce the
offering price contained therein following inspection of the
property and due diligence, including environmental
engineering reviews. In contrast the REIT has offered to
purchase the Property "as is".
o Unattractiveness of Other Options. NAPICO does not believe
that other alternatives available to the Partnership are as
attractive to the Partnership as the Sale. For example,
continued ownership of the Property by the Partnership would
be inconsistent with the Partnership's objective of selling
the Property within eleven years of its construction and would
continue to subject Limited Partners to the risks inherent in
real estate ownership.
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NAPICO also considered marketing the Property to third
parties; however, NAPICO does not believe that such
alternative would be in the interests of the Limited Partners,
because NAPICO does not believe that, in light of the
Unsolicited Offers, such efforts would result in a purchase
price for the Property as high as the Purchase Price offered
in connection with the Sale. In addition, NAPICO believes that
marketing the Property to third parties would result in
significant delays and uncertainties. Several of the options
considered by NAPICO, including the reorganization of the
Partnership as a real estate investment trust and a rollup
involving the Partnership, would have (i) been prohibitively
expensive and logistically impractical; (ii) entailed
compliance with the rollup rules promulgated under the
Securities Act of 1933, as amended (the "Securities Act"),
which may have resulted in significant delays, thereby
potentially causing the Partnership to miss the currently
favorable market conditions for real estate investment trusts;
and (iii) resulted in the Limited Partners receiving publicly
traded securities rather than cash in exchange for their
Units. Such publicly traded securities would be subject to the
market risks generally applicable to equity securities. NAPICO
believes that receipt of such securities would be inconsistent
with the Partnership's ultimate objective of returning cash to
the Limited Partners and winding up the business of the
Partnership.
o Reduced Transaction Costs. The Partnership will not be
required to pay brokerage commissions (which would likely have
ranged from $1.5 - 2.5 million) in connection with the Sale.
As a result, the Sale is likely to produce a higher cash
distribution to Limited Partners than a comparable sale to an
unaffiliated third party.
Potentially Adverse Factors
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
o Loss of Opportunity to Benefit from Future Events. It is
possible that the future performance of the Property will
improve or that prospective buyers may be willing to pay more
for the Property in the future. It is possible that Limited
Partners might earn a higher return on their investment if the
Partnership retained ownership of the Property. By approving
the Sale, Limited Partners will also be relinquishing certain
current benefits of ownership of the Property, such as
continuing distributions.
o No Solicitation of Third Party Offers. While the proposed
Purchase Price exceeds the respective purchase prices for the
Property reflected in the Unsolicited Offers, NAPICO has not
solicited any offers from third parties to acquire the
Property. While NAPICO believes that the terms of the Sale
would be more beneficial to the Partnership than offers that
could be obtained from third parties, there is no assurance
that NAPICO would not be able to obtain higher or better
offers if such offers were to be solicited from independent
third parties.
o Sale Not Negotiated at Arms-Length. Affiliates of NAPICO will
possess a significant ownership interest in the REIT and
receive substantial other benefits from the formation of the
REIT and the Sale. Although a fairness opinion has been
obtained, the Purchase Price was not negotiated at arm's
length. The Purchase Price was established by NAPICO and the
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Partnership did not retain an independent financial or legal
advisor to negotiate the terms of the Sale.
o Conflicts of Interest. In evaluating the proposed Sale,
Limited Partners should consider that Casden is both the
sponsor of the REIT and an affiliate of NAPICO. If the REIT is
successfully formed and capitalized, the current owners of
Casden are likely to realize a substantial increase in the
value and liquidity of their investment in Casden. The terms
of the Sale have been determined on behalf of the Partnership
by affiliates of Casden who will directly benefit from the
Sale. Unlike Casden, the Limited Partners will not have the
right to participate in the REIT. It is anticipated that
approximately 51% of the equity securities of the REIT will be
held by Casden and its affiliates following the Private
Placement, based on the terms of the Private Placement as
currently contemplated.
o Tax Consequences. The Sale and liquidation of the Partnership
will have a tax impact on Limited Partners, producing a
long-term capital gain of approximately $1.46 per Unit (which
will result in $0.45 in federal and state income taxes). The
Sale will not produce ordinary income attributable to
depreciation recapture. For the Limited Partners, the Sale
should result in a net cash distribution of $7.23 per Unit,
after deduction of federal and state income taxes of $0.45 per
Unit, assuming federal tax rates of 25% on long- term capital
gain attributable to depreciation not recaptured as ordinary
income and 20% on any remaining long-term capital gain on
assets held more than 18 months (and an effective 5% state
tax). For Limited Partners who are subject to the alternative
minimum tax, the gain from the Sale will be reduced by $0.52
per Unit (and the corresponding federal and state income taxes
will be reduced by $0.15 per Unit). See "CERTAIN FEDERAL TAX
CONSEQUENCES." THE SPECIFIC TAX IMPACT OF THE SALE ON LIMITED
PARTNERS SHOULD BE DETERMINED BY LIMITED PARTNERS IN
CONSULTATION WITH THEIR TAX ADVISORS.
o No Recent Appraisals. In 1996 NAPICO commissioned an
independent real estate appraiser to conduct an appraisal of
the Property. The independent appraiser issued a report on
February 7, 1996, listing the Property's appraised value as
$46.9 million. Although NAPICO has obtained the Fairness
Opinion, it has not obtained any additional independent
appraisals of the Property to determine its current value.
NAPICO is not aware of any appraisals conducted subsequent to
the February 1996 appraisal.
o No Dissenter's Rights. Under the Partnership Agreement and
California law, Limited Partners do not have dissenters'
rights of appraisal in connection with the Sale.
o Conditions to Sale. The Sale is subject to certain conditions
in addition to approval of the Sale by the Limited Partners,
including consummation of the Private Placement. Accordingly,
even if the Sale is approved by the Limited Partners and a
purchase and sale agreement is entered into, the consummation
of the Sale could be delayed for a significant period of time
and it is possible that the Sale may not be consummated. The
execution of a purchase and sale agreement with respect to the
Sale could delay the timing of the ultimate disposition of the
Property if the Sale is not consummated.
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Amendment to Partnership Agreement
An Amendment to the Partnership Agreement is necessary in connection
with the consummation of the Sale. The Partnership Agreement currently prohibits
a sale of any of the Properties to NAPICO or its affiliates. Accordingly,
consent of the Limited Partners is being sought for an amendment to the
Partnership Agreement that eliminates such prohibition.
The consent of Limited Partners holding a majority in interest of the
Units is required in order to amend the Partnership Agreement.
Limited Partner Approval
NAPICO is seeking the consent of the Limited Partners to the Sale.
Consent to the Sale will be deemed to include consent to the Amendment. The
Partnership Agreement requires the prior consent of Limited Partners holding a
majority of the outstanding Units (a "Majority Vote") to any sale of all or
substantially all of the Partnership's assets, and to an amendment to the
Partnership Agreement.
If the Limited Partners do not approve the Sale by a Majority Vote, or
the other conditions to the consummation of the Sale are not met, there will be
no change in its investment objectives, policies and restrictions and the
Partnership will continue to be operated in accordance with the terms of the
Partnership Agreement.
Approval of the Non-Managing General Partner
Pursuant to a certain Memorandum of Understanding entered into as of
August 11, 1995 by and among the Non-Managing General Partner, the Partnership
and NAPICO, among others (the "MOU"), the Sale may be subject to the prior
written consent of the Non-Managing General Partner.
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent
real estate investment banking firm, an opinion that the Purchase Price to be
received by the Partnership for the Property in connection with the Sale is fair
to the Limited Partners from a financial point of view. In the course of
preparing its Fairness Opinion, Stanger conducted such reviews as it deemed
appropriate and discussed its methodology, analysis and conclusions with NAPICO.
NAPICO has not obtained independent appraisals to determine the value of the
Property. The Fairness Opinion, which is subject to certain assumptions,
qualifications and limitations, is attached hereto as Exhibit A. See "THE SALE--
Fairness Opinion."
Recommendation of NAPICO
After a comprehensive review of the Unsolicited Offers and various
other alternatives, NAPICO believes that the Sale is in the best interests of
the Limited Partners. NAPICO believes that the current interest rate environment
and the availability of capital for real estate investment trusts will enable
Casden to form the REIT and make the proposal to the Partnership for the Sale,
which provides the Partnership with an opportunity to maximize the value of the
Property. See "THE SALE--Alternatives to the Sale."
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Based upon their analysis of the alternatives and their own business
judgment, NAPICO believes that the terms of the Sale, including the Purchase
Price of the Property, is fair from a financial point of view to the Limited
Partners. In addition, the NAPICO has reviewed the Fairness Opinion. NAPICO has
approved the Sale and recommends that it be approved by the Limited Partners.
Limited Partners should note, however, that NAPICO's recommendation is subject
to inherent conflicts of interest. See "CONFLICTS OF INTEREST."
The Non-Managing General Partner has not taken a position with respect
to the Sale nor has it participated in the preparation of this Consent
Solicitation Statement.
Conflicts of Interest
A number of conflicts of interest are inherent in the relationships
among NAPICO, the Casden Partnerships, Casden and the REIT, which may, among
other things, influence the recommendation of NAPICO. These conflicts include
the following:
1. The terms of the Sale (including the Purchase Price) were
established by the REIT and NAPICO (which are related parties) without the
participation of any independent financial or legal advisor. There can be no
assurance that arms-length negotiations would not have resulted in terms more
favorable to the Limited Partners.
2. Although Stanger provided an independent opinion with respect to the
fairness of the Purchase Price, no independent financial or legal advisor was
engaged to represent the interests of the Limited Partners and no third party
appraisals of the Property were obtained.
3. If the REIT Transaction is consummated, affiliates of NAPICO will
receive substantial interests in the REIT in exchange for the contribution of
real property assets and the property management operations of Casden. NAPICO
anticipates that it will receive significant economic benefits as a result of
receiving interests in the REIT. Such interests are expected to enjoy greater
liquidity than NAPICO's current interests in the Partnership if the REIT
successfully completes an initial public offering following its initial
formation as a private REIT. Unlike Casden, the Limited Partners will not have
the right to participate in the REIT. It is anticipated that approximately 51%
of the equity securities of the REIT will be held by Casden and its affiliates
following the Private Placement, based on the terms of the Private Placement as
currently contemplated.
4. It is anticipated that the return from the interests in the REIT, to
be received by NAPICO and its affiliates in connection with the REIT Transaction
if successfully consummated. will exceed the return such persons currently
receive from the real estate assets such persons will contribute or sell to the
REIT.
5. The officers and employees of Casden and its affiliates will be
employed by the REIT. See "CONFLICTS OF INTEREST."
Certain Federal Income Tax Consequences
Generally, the Sale will result in a gain to the Partnership and,
accordingly, to the Limited Partners, to the extent that the consideration
received by the Partnership with respect to the Sale exceeds its adjusted basis
in the Property. The income tax calculations contained in this Consent
Solicitation Statement assume
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federal tax rates equal to 25% for capital gain attributable to depreciation not
recaptured as ordinary income and 20% on any remaining long-term capital gain on
assets held more than 18 months and an effective 5% state tax rate. Limited
Partners should consult their own tax advisors with respect to their individual
tax situations and as to the federal, state, local and other tax consequences of
the Sale. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
Transaction Expenses
The Partnership will bear its direct costs relating to the Sale,
including customary closing costs such as transfer taxes, the seller's portion
of title insurance and escrow fees, and the costs incurred in connection with
this solicitation of consents. The aggregate amount of such costs is expected to
be $195,225, which the Partnership expects to pay using cash or cash equivalents
held by the Partnership. The cost of this solicitation of consents will be borne
by the Partnership whether or not the Sale is approved by the Limited Partners
or ultimately consummated. Costs incurred individually by the Casden
Partnerships, including accounting and legal fees, will be borne directly by
such Partnerships.
Voting Procedures
This Consent Solicitation Statement outlines the procedures to be
followed by Limited Partners in order to consent to the Sale. A form of Consent
of Limited Partner (a "Consent") is attached hereto. These procedures must be
strictly followed in order for the instructions of a Limited Partner as marked
on such Limited Partner's Consent to be effective. The following is a summary of
certain of these procedures:
1. A Limited Partner may make his or her election on the Consent only
during the solicitation period commencing upon the date of delivery of this
Consent Solicitation Statement and continuing until the earlier of (i)
___________, 1998 or such later date as may be determined by NAPICO and (ii) the
date upon which NAPICO determines that a Majority Vote has been obtained (but no
earlier than ________, 1998) (the "Solicitation Period").
2. Limited Partners are encouraged to return a properly completed and
executed Consent to the Partnership prior to the expiration of the Solicitation
Period.
3. A Consent delivered by a Limited Partner may be changed prior to the
expiration of the Solicitation Period by delivering to the Partnership a
substitute Consent, properly completed and executed, together with a letter
indicating that the Limited Partner's prior Consent has been revoked.
4. A Limited Partner submitting a signed but unmarked Consent will be
deemed to have voted FOR the Partnership's participation in the Sale, including
the Amendments.
II. THE PARTNERSHIP
General
The Partnership is a limited partnership formed under the laws of the
State of California on June 6, 1988. On September 8, 1988, the Partnership sold
in an underwritten public offering 7,258,000 depository units (each depository
unit being entitled to the beneficial interest of a limited partnership
interest) at $10
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per unit for a total amount raised of $72,580,000. There are currently 7,258,000
depository units outstanding.
Concurrent with the issuance of the Units, the Partnership purchased
the Property from the Special Limited Partner for a purchase price of
$68,548,000. In order to complete the purchase of the Property, the Special
Limited Partner purchased a 10% special limited partnership interest in the
Partnership for $6,855,000. The Partnership Agreement provides that the 10%
special limited partnership interest is subordinate to the other Limited
Partners' specified priority return in the case of distributions of net cash
flow from operations, plus the other Limited Partners' return of capital in the
case of net sales or refinancing distribution proceeds. The Special Limited
Partner will not receive a distribution in connection with the Sale.
The General Partners of the Partnership are NAPICO and the Non-Managing
General Partner. The business of the Partnership is conducted primarily by
NAPICO. The Partnership has no employees of its own. NAPICO receives an annual
partnership management fee of $50,000.
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden.
The Partnership's principal objectives are to (i) provide quarterly
cash distributions, (ii) preserve and protect capital, and (iii) achieve
long-term appreciation in the value of the Property for distribution on sales.
It was originally anticipated that the Partnership would hold the Property for
five to eleven years.
Right of First Refusal
The Special Limited Partner, a Casden affiliate, is entitled to, under
the terms of the Partnership Agreement, a right of first refusal to purchase the
Property on the identical terms and at the same price offered by a third party.
The Right of First Refusal may be invoked only if the third-party offeror is
unaffiliated with either of the General Partners and the offer is accompanied by
a deposit equal to 10% of the proposed purchase price. The Right of First
Refusal was a material inducement to the Special Limited Partner to sell the
Property to the Partnership and to purchase a subordinated special limited
partnership interest in the Partnership for $6,855,000. An action seeking, among
other things, a declaratory judgment that the Right of First Refusal was
unenforceable was brought against the Partnership in 1997. That action, which is
described below, was dismissed with prejudice by the court having jurisdiction
over the matter on November 25, 1997.
J/B Lawsuit
On February 13, 1997, J/B Investment Partners filed an action in the
Los Angeles Superior Court (the "J/B Lawsuit") against NAPICO and its directors,
and Casden Properties and certain of its affiliates (collectively, the
"Defendants").
The J/B Lawsuit was styled as a class action brought against the
Defendants on behalf of all Limited Partners of the Partnership, and a
derivative action brought on behalf of the Partnership itself. The Partnership
was named as a nominal defendant. The complaint sought damages for breach of
fiduciary duty,
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<PAGE>
breach of contract and unjust enrichment. It also sought a declaratory judgment
that the Special Limited Partner cannot enforce the Right of First Refusal.
On November 25, 1997, pursuant to a motion by the Defendants, the J/B
Lawsuit was dismissed with prejudice in favor of the Partnership.
The Property
The property is a 315-unit rental apartment complex located in West Los
Angeles, California. Construction of the Property was completed in 1988. The
Property consists of seven separate three-story apartment buildings on a
5.75-acre site, and the seven buildings contain approximately 358,000 square
feet of interior space. The Property contains 126 one-bedroom/one-bathroom
apartments and 189 twobedroom/two-bathroom apartments. For the nine months
ending September 30, 1997, the average occupancy rate for the property was 97%.
The average monthly rental rate for the Property was $1,445 and $2,120 for one
bedroom and two bedroom apartments, respectively.
A deferred maintenance report prepared in November, 1997 by NAPICO
recommended that up to approximately $225,000 (including revised costs based on
current bills) needs to be spent by the Partnership over the next four years to
replace and repair appliances, equipment and structures at the Property. The
recommended work includes approximately $9,800 for landscaping, $5,000 for pool
maintenance, $17,500 to refurbish the fitness center, $27,309 for pool decks,
$12,600 for new drainage irrigation, $5,528 to repair walkway decking, $3,900
for appliance contingency, $5,000 in elevator and alarm expenses, $8,715 for
paving, $5,000 to replace lobby carpets with tile and $125,172 for carpet
replacement. A copy of the report is available upon request to NAPICO.
The Property suffered substantial damage as a result of the January 17,
1994 Northridge Earthquake. The required repair work was completed in 1995.
Market for Depository Interests and Related Security Holder Matters
Depository interests in the Partnership were sold through a public
offering managed by Shearson Lehman Hutton Inc., a predecessor of Lehman
Brothers Inc., an affiliate of the Non-Managing General Partner, and are not
traded on a public exchange. There is currently no public market for Units and
it is not anticipated that any market will develop for the purchase and sale of
Units. Pursuant to the Partnership Agreement, Units may be transferred only if
certain requirements are satisfied. On December 31, 1996, there were 6,670
registered holders of Units in the Partnership, none of which were beneficially
owned by Casden.
The high and low value of secondary market trades during the
twelve-month period ending December 31, 1997 as compiled by NAPICO were $5.75
and $3.50, respectively per unit. No established market for the Units was ever
expected to develop and the secondary market transactions for the Units have
been limited and sporadic. It is not known to what extent the transactions in
the secondary market are between buyers and willing sellers, each having access
to relevant information regarding the financial affairs of the Partnerships,
expected value of their assets, and their prospects for the future. Many
transactions in the secondary market are believed to be distressed sales where
sellers are highly motivated to dispose of the Units and willing to accept
substantial discounts from what might otherwise be regarded as the fair value of
the interest being sold, to facilitate the sales. Secondary market prices
generally do not reflect the current market of the Partnerships' assets, nor are
they indicative of total return, since prior cash distributions and
678600.8
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tax benefits received by the original investor are not reflected in the price.
Nonetheless, notwithstanding these qualifications, the second market prices, to
the extent that the reported data are reliable, are indicative of the prices at
which the Units trade in the illiquid secondary markets.
Distribution History
The Partnership has made regular distributions to the Limited Partners.
In connection with its acquisition of the Property, the Partnership received a
guarantee from the Special Limited Partner pursuant to which the Special Limited
Partner agreed to make payments in amounts sufficient to enable the Partnership
to provide Limited Partners with a minimum level of distributions. The Special
Limited Partner funded an aggregate of $13,130,998 to the Partnership pursuant
to the guarantee, which terminated on December 31, 1993. From January 1, 1989
through December 31, 1997, Limited Partners received aggregate cash
distributions from the Partnership of $41,497,171, including the amounts funded
pursuant to the guarantee.
III. THE SALE
Background and Reasons for the Sale
The Partnership has received five Unsolicited Offers to purchase the
Property. The first offer was made by Bay Apartment Communities, on December 17,
1996 to purchase the Property for $41,700,000, subject to review of the
Partnerships records and an inspection of the Property. The second offer was
made by TC Residential San Diego, Inc. on December 19, 199, to purchase the
Property for $44,700,000, subject to inspection and review, this offer was
increased to $48,000,000 on March 17, 1997. The third offer was made by Security
Capital Pacific Trust on December 20, 1996 to purchase the Property for
$40,200,000, subject to due diligence, this offer was increased to $47,400,000
on March 7, 1997. The fourth offer was made by R.W. Selby & Company. Inc., on
December 30, 1996 to purchase the Property for $41,000,000, subject to
inspection of the Property and approval of the Partnerships records, with the
Partnership paying all transfer fees incurred in connection with the sale. The
fifth offer was from Everest HillCreste Investors, on March 7, 1997 to purchase
the Property for $47,000,000, subject to review of the Partnership's records and
an inspection of the Property. The current offer by the REIT is $4.5 million
higher than the highest unsolicited offer and is for a purchase of the Property
"as is."
In recent years, real estate investment activity by publicly owned
corporations and trusts, such as real estate investment trusts ("REIT
Entities"), has increased dramatically. REIT Entities have become a major source
of capital for the real estate market as well as one of its most prominent
purchasers of real property. A publicly-traded REIT Entity is organized as a
real estate company to own and operate a portfolio of properties, has access to
new capital and its shares can be sold or transferred in the public securities
markets. Over the last year, NAPICO and Casden have had discussions with several
investment banking firms with regard to the formation of a REIT Entity that
would purchase the apartment properties owned by the Casden Partnerships,
together with certain other selected properties. Following the aforementioned
discussions, Casden decided to form the REIT.
NAPICO believes that the REIT, through its potential access to the
capital markets and its familiarity with the Property, is in a position to
purchase the Property on terms that are favorable to the Partnership. NAPICO
believes that the current market for securities issued by REIT Entities will
provide the Partnership
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with an opportunity to sell the Property to the REIT for a fair price. It should
be noted that the Partnership has received five Unsolicited Offers to buy the
Property over the last 18 months, but at proposed purchase prices that are less
than the Purchase price offered by the REIT. Limited Partners should also note,
however, that NAPICO's recommendation is subject to inherent conflicts of
interest. See "CONFLICTS OF INTEREST."
Prior to the consummation of the Sale, the REIT intends to sell $285
million of its equity securities in connection with the Private Placement. The
proceeds of the Private Placement will be used to finance the Sale and other
property acquisitions to be made in connection with the REIT Transaction. The
REIT intends to commence an initial public offering of its equity securities
subsequent to the consummation of the Sale. Casden and its affiliates are
expected to own approximately 51% of the equity securities of the REIT upon
completion of the Private Placement.
Acquisition Agreement
If the Sale is approved by the Limited Partners, it is contemplated
that the Partnership will enter into a purchase and sale agreement with a
subsidiary partnership of the REIT (the "Operating Partnership"). The purchase
and sale agreement will set forth the terms and conditions under which the
Partnership and the REIT and the Operating Partnership are obligated to proceed
with the Sale and will set forth certain other agreements of such parties with
respect to the Sale.
Representations and Warranties. The Partnership will not make any
representations and warranties to the REIT and the Operating Partnership in the
purchase and sale agreement with respect to the Property, and the Property will
be sold "as is."
Conditions. As described in detail below under the heading " -
Conditions" below, the purchase and sale agreement will include a number of
conditions to the REIT's obligation to consummate the Sale.
Amendment and Closing. The Partnership and the REIT or the Operating
Partnership may amend the terms of the purchase and sale agreement in a manner
which, in the good faith judgment of the General Partners (consistent with the
General Partners' fiduciary duty to the Partnership and the Limited Partners),
does not materially reduce the benefits to be received by the Limited Partners
from the Sale without resoliciting the consent of the Limited Partners. If the
Sale is approved by a Majority Vote of the Limited Partners and the other
conditions to the Sale and the REIT Transaction are satisfied, it is anticipated
that the Sale will be consummated by _____________, 1998. If the closing does
not occur by December 31, 1998 the purchase and sale agreement will be
terminated.
Source of Funds
The REIT intends to raise the cash to be paid to the Partnership
through a private placement of approximately $285 million of its equity
securities.
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Transaction Costs
The Casden General Partners estimate that the transaction costs in
connection with the Sale will be as follows:
Transfer Taxes........................................ $ 57,750
Legal and Accounting ................................. 25,000
Escrow Costs (seller's portion)....................... 7,500
Title Policy (seller's portion)....................... 28,875
Physical Inspection................................... 12,000
Stanger Fairness Opinion.............................. 39,100
Miscellaneous Costs................................... 25,000
---------
Total................................................. $195,225
========
Distribution of Sale Proceeds; Accounting Treatment
Following the Sale, and assuming that the Property is sold, it is
anticipated that the Partnership's affairs will be wound up and the Partnership
will be liquidated. After the payment of all liabilities and expenses, the
consideration to be paid to the Partnership for the Property will be allocated
and distributed among Limited and General Partners in accordance with the cash
distribution rules set forth in the Partnership Agreement. Pursuant to the
Partnership Agreement, net liquidation proceeds are distributable as follows:
Upon liquidation of the Partnership, distributions shall be distributed
to the Partners in accordance with their respective adjusted capital account
balances after taking into account all capital account adjustments for the
Partnership taxable year during which such liquidation occurs, by the end of the
taxable year of the liquidation or , if later, within 90 days after the date of
the liquidation.
Based on the distribution priority in the Partnership Agreement, and
assuming (i) the net proceeds of the Sale are $52,304,775 and (ii) cash
available for distribution (after payment of expenses) of approximately
$4,034,318, the Limited Partners will be entitled to receive $55,775,702 ($7.68
per Unit). NAPICO will be entitled to receive a distribution in connection with
the Sale of $563,391. The Special Limited Partner will not receive a
distribution in connection with the Sale.
Conditions
In addition to the consent by Majority Vote of the Limited Partners,
the Purchase and Sale Agreement is expected to contain, among others, the
following conditions (which may be waived by the REIT) as conditions precedent
to the REIT's obligation to consummate the Sale:
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o Subject to certain exceptions, no material adverse change shall have
occurred with respect to the Property that has a material adverse
effect on the value of the Property as a whole;
o The Partnership shall have delivered to the REIT any required third
party consents to the Sale; and
o The REIT shall have consummated the Private Placement, which will be
conditioned upon, among other things, the transfer of a minimum number
of properties to the REIT (or Operating Partnership) by the Casden
Partnerships and third parties in connection with the REIT Transaction.
Potential Benefits of the Sale
NAPICO believes that the Sale achieves the Partnership's investment
objectives for the following reasons:
Receipt of Cash. The Sale will result in a cash distribution of $7.68
per Unit to Limited Partners, which amount is anticipated to be sufficient to
pay any federal and state income taxes that would be payable in connection with
the Sale, assuming federal capital gains rates of 25% on long-term capital gain
attributable to depreciation not recaptured as ordinary income and 20% on any
remaining long-term capital gain on assets held more than 18 months and
effective state capital gains rates of 5%. The Partnership made distributions to
the Limited Partners of $2,322,466, or approximately $0.32 per Unit, in 1997. If
the Sale is not completed, there can be no assurance that the Partnership will
be able to make distributions at the current rate or that the Partnership will
be able to make any future distributions.
Achievement of Partnership Objectives. One of the Partnership's
original investment objectives was to dispose of the Property within five to
eleven years after completion of construction, although there was no assurance
that such time period would be met. The Sale would allow the Partnership to meet
this objective. Another principal objective was to provide quarterly cash
distributions to Limited Partners. From January 1, 1989 through December 31,
1997, Limited Partners received aggregate cash distributions of $41,497,171.
Right of First Refusal. Pursuant to the terms of the Partnership
Agreement the Special Limited Partner which is an affiliate of NAPICO, has a
right of first refusal to acquire the Property at the same price and terms as
any third-party offer. A class action lawsuit challenging the enforceability of
the Right of First Refusal was dismissed with prejudice by the court having
jurisdiction over the lawsuit on November 25, 1997. NAPICO believes that the
uncertainties resulting from that lawsuit as to the enforceability of the Right
of First Refusal impaired the Partnership's ability to sell the Property at a
fair price.
Third Party Fairness Opinion. Stanger, an independent, nationally
recognized real estate investment banking firm, has been engaged by the
Partnership to render an opinion to the Partnership as to the fairness, from a
financial point of view, to Limited Partners of the Purchase Price to be
received by the Partnership for the Property in connection with the Sale.
Stanger has conducted certain reviews described herein and has concluded,
subject to the assumptions, qualifications and limitations contained in its
opinion, Purchase Price to be received by the Partnership for the Property in
the Sale is fair, from a financial point of view, to Limited Partners. See
"Fairness Opinion."
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Eliminating the Risks of Real Estate Investing. Continued ownership of
the Property subjects the Partnership to continued risks inherent in real estate
ownership, such as national and local economic trends, supply and demand factors
in the local property market, the cost of operating and maintaining the physical
condition of the Property and the cost and availability of financing for
prospective buyers of the Property. No assurance can be given that a prospective
buyer would be willing to pay an amount equal to or greater than the Purchase
Price for the Property in the future.
Attractive Sale Terms. The Partnership has received five Unsolicited
Offers to purchase the Property. The first offer was made by Bay Apartment
Communities, on December 17, 1996 to purchase the Property for $41,700,000,
subject to review of the Partnership's records and an inspection of the
Property. The second offer was made by TC Residential San Diego, Inc., on
December 19, 1996 to purchase the Property for $44,700,000, subject to
inspection and review, this offer was increased to $48,000,000 on March 17,
1997. The third offer was made by Security Capital Pacific Trust, on December
20, 1996 to purchase the Property for $40,200,000, subject to due diligence,
this offer was increased to 47,400,000 on March 7,1997. The fourth offer was
made by R.W. Selby & Company. Inc., on December 30, 1996 to purchase the
Property for $41,000,000 subject to inspection of the Property and approval of
the Partnership's records, with the Partnership paying all transfer fees
incurred in connection with the sale. The fifth offer was from Everest
HillCreste Investors, on March 7, 1997 to purchase the Property for $47,000,000,
subject to review of the Partnership's records and an inspection of the
Property. The terms of the proposed Sale include a Purchase Price that is $4.5
million higher than the highest Unsolicited Offer. The Unsolicited Offers each
reserve the right to reduce the offering price contained therein following
inspection of the property and due diligence, including environmental
engineering reviews. In contrast the REIT has offered to purchase the Property
"as is".
Unattractiveness of Other Options. NAPICO does not believe that other
alternatives available to the Partnership are as attractive to the Partnership
as the Sale. For example, continued ownership of the Property by the Partnership
would be inconsistent with the Partnership's objective of selling the Property
within eleven years of its construction and would continue to subject Limited
Partners to the risks inherent in real estate ownership. NAPICO also considered
marketing the Property to third parties; however, NAPICO does not believe that
such alternative would be in the interests of the Limited Partners, because
NAPICO does not believe that, in light of the Unsolicited Offers, such efforts
would result in a purchase price for the Property as high as the Purchase Price
offered in connection with the Sale. In addition, NAPICO believes that marketing
the Property to third parties would result in significant delays and
uncertainties. Several of the options considered by NAPICO, including the
reorganization of the Partnership as a real estate investment trust and a rollup
involving the Partnership, would have (i) been prohibitively expensive and
logistically impractical; (ii) entailed compliance with the rollup rules
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
which may have resulted in significant delays, thereby potentially causing the
Partnership to miss the currently favorable market conditions for real estate
investment trusts; and (iii) resulted in the Limited Partners receiving publicly
traded securities rather than cash in exchange for their Units. Such publicly
traded securities would be subject to the market risks generally applicable to
equity securities. NAPICO believes that receipt of such securities would be
inconsistent with the Partnership's ultimate objective of returning cash to the
Limited Partners and winding up the business of the Partnership.
Reduced Transaction Costs. The Partnership will not be required to pay
brokerage commissions (which would likely have ranged from $1.5 - 2.5 million)
in connection with the Sale. As a result, the Sale is likely to produce a higher
cash distribution to Limited Partners than a comparable sale to an unaffiliated
third party.
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Potential Adverse Effects of the Sale
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
Loss of Opportunity to Benefit from Future Events. It is possible that
the future performance of the Property will improve or that prospective buyers
may be willing to pay more for the Property in the future. It is possible that
Limited Partners might earn a higher return on their investment if the
Partnership retained ownership of the Property. By approving the Sale, Limited
Partners will also be relinquishing certain current benefits of ownership of the
Property, such as continuing distributions.
No Solicitation of Third Party Offers. While the proposed Purchase
Price exceeds the respective purchase prices for the Property reflected in the
Unsolicited Offers, NAPICO has not solicited any offers from third parties to
acquire the Property. While NAPICO believes that the terms of the Sale would be
more beneficial to the Partnership than offers that could be obtained from third
parties, there is no assurance that NAPICO would not be able to obtain higher or
better offers if such offers were to be solicited from independent third
parties.
Sale Not Negotiated at Arms Length. Affiliates of NAPICO will possess a
significant ownership interest in the REIT and receive substantial other
benefits from the formation of the REIT and the Sale. Although a fairness
opinion has been obtained, the Purchase Price was not negotiated at arm's
length. The Purchase Price was established by NAPICO and the Partnership did not
retain an independent financial or legal advisor to negotiate the terms of the
Sale.
Conflicts of Interest. In evaluating the proposed Sale, Limited
Partners should consider that Casden is both the sponsor of the REIT and an
affiliate of NAPICO. If the REIT is successfully formed and capitalized, the
current owners of Casden are likely to realize a substantial increase in the
value and liquidity of their investment in Casden. The terms of the Sale have
been determined on behalf of the Partnership by affiliates of Casden who will
directly benefit from the Sale. Unlike Casden, the Limited Partners will not
have the right to participate in the REIT. It is anticipated that approximately
51% of the equity securities of the REIT will be held by Casden and its
affiliates following the Private Placement, based on the terms of the Private
Placement as currently contemplated.
Tax Consequences. The Sale will have a tax impact on Limited Partners,
producing a long-term capital gain of approximately $1.46 per Unit (which will
result in $0.45 in federal and state taxes). The Sale will not produce ordinary
income due to depreciation recapture. For the Limited Partners, the Sale should
result in a net cash distribution of $7.23 per Unit, after deduction of federal
and state income taxes of $0.45 per Unit, assuming federal tax rates of 25% on
long-term capital gain attributable to depreciation not recaptured as ordinary
income and 20% on any remaining long-term capital gain on assets held more than
18 months (and an effective 5% state tax). For Limited Partners who are subject
to the alternative minimum tax, the gain from the Sale will be reduced by $0.52
per Unit (and the corresponding federal and state income taxes will be reduced
by $0.15 per Unit). THE SPECIFIC TAX IMPACT OF THE SALE ON LIMITED PARTNERS
SHOULD BE DETERMINED BY LIMITED PARTNERS IN CONSULTATION WITH THEIR TAX
ADVISORS.
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No Recent Appraisals. In 1996 NAPICO commissioned an independent real
estate appraiser to conduct an appraisal of the Property. The independent
appraiser issued a report on February 7, 1996, listing the Property's appraised
value as $46.9 million. Although NAPICO has obtained a Fairness Opinion, it has
not obtained any additional independent appraisals of the Property to determine
its current value. NAPICO is no aware of any appraisals conducted subsequent to
the February 1996 appraisal.
No Dissenter's Rights. Under the Partnership Agreement and California
law, Limited Partners do not have dissenters' rights of appraisal in connection
with the Sale.
Conditions to Sale. The Sale is subject to certain conditions in
addition to approval of the Sale by the Limited Partners, including consummation
of the Private Placement. Accordingly, even if the Sale is approved by the
Limited Partners and a purchase and sale agreement is entered into, the
consummation of the Sale could be delayed for a significant period of time and
it is possible that the Sale may not be consummated. The execution of a purchase
and sale agreement with respect to the Sale could delay the timing of the
ultimate disposition of the Property if the Sale is not consummated.
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by the
Partnership to conduct an analysis and to render an opinion as to whether the
Purchase Price to be received by the Partnership for the Property is fair, from
a financial point of view, to the Limited Partners. Stanger has advised NAPICO
that, subject to the assumptions, limitations and qualifications contained in
its Fairness Opinion, the Purchase Price to be received by the Partnership for
the Property in the proposed Sale is fair, from a financial point of view, to
the Limited Partners. The full text of the Fairness Opinion, which contains a
description of the matters considered and the assumptions, limitations and
qualifications made, is set forth as Exhibit A hereto and should be read in its
entirety. The summary set forth herein does not purport to be a complete
description of the review performed by Stanger in rendering the Fairness
Opinion. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial analysis or amenable to summary description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates have
provided information, research, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax,
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corporate and other purposes. Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically held through
partnerships, such as real estate, oil and gas reserves, cable television
systems and equipment leasing assets. Stanger was selected because of its
experience and reputation in connection with real estate partnerships, real
estate assets and mergers and acquisitions.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion, Stanger reviewed: (i) a draft of this Consent Solicitation
Statement related to the Sale in substantially the form which will be
distributed to Limited Partners; (ii) the Partnership's annual reports on Form
10-K for the years ended December 31, 1995 and 1996 and the Partnership's
quarterly report on Form 10-Q for the period ended September 30, 1997, which
reports the Partnership's management has indicated to be the most current
available financial statements; (iii) descriptive information concerning the
Property provided by management, including location, number of units and unit
mix, age, and amenities; (iv) summary historical operating statements for the
Property for the years ended December 31, 1994, 1995 and 1996 and the ten months
ended October 31, 1997; (v) operating budgets for the Property for 1997 and
forecasts for 1998, as prepared by NAPICO; (vi)information regarding market
rental rates and conditions for apartment properties in the general market area
of the Property and other information relating to acquisition criteria for
apartment properties; (vii) the prices offered for the Properties among bids
received for the Proposal during 1996 and 1997 and (viii) conducted other
studies, analysis and inquiries as Stanger deemed appropriate.
In addition, Stanger discussed with management of the Partnership and
NAPICO the market conditions for apartment properties, conditions in the market
for sales/acquisitions of properties similar to that owned by the Partnership,
historical, current and projected operations and performance of the Property,
the physical condition of the Property including any deferred maintenance, and
other factors influencing value of the Property. Stanger also performed a site
inspection of the Property, reviewed local real estate market conditions, and
discussed with property management personnel conditions in the local apartment
rental market and market conditions for sales and acquisitions of Property
similar to the Property.
Summary of Reviews. The following is a summary of certain reviews
conducted by Stanger in connection with and in support of its Fairness Opinion.
The summary of the opinion and reviews of Stanger set forth in this Consent
Solicitation Statement is qualified in its entirety by reference to the full
text of such opinion.
In preparing its Fairness Opinion, Stanger performed a site inspection
of the Property during November, 1997. In the course of the site visits, the
physical facilities of the Property were observed, current rental and occupancy
information for the Property were obtained, current local market conditions were
reviewed, a sample of similar properties were identified, and local property
management personnel were interviewed concerning the Property and local market
conditions. Stanger also reviewed and relied upon information provided by the
Partnership and NAPICO, including, but not limited to, financial schedules of
historical and current rental rates, occupancies, income, expenses, reserve
requirements, cash flow and related financial information; property descriptive
information including unit mix and rentable square footage; and information
relating to any required capital expenditures and any deferred maintenance.
Stanger also reviewed historical operating statements for the Property
for 1995, 1996 and the ten months ending October 31, 1997, the operating budget
for 1997 and operating forecasts for 1998 for each Property, as prepared by
NAPICO and discussed with management the current and anticipated operating
results of the Property.
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In addition, Stanger interviewed management personnel of the
Partnership. Such interviews included discussions of conditions in the local
market, economic and development trends affecting the Property, historical and
budgeted operating revenues and expenses and occupancies and the physical
condition of the Property (including any deferred maintenance and other factors
affecting the physical condition of the improvements), projected capital
expenditures and building improvements, and expectations of management regarding
the impact of various regulatory factors and proposed changes on the operating
results of the Property.
Stanger also reviewed the acquisition criteria used by owners and
investors in the type of real estate owned by the Partnership, utilizing
available published information and information derived from interviews
conducted by Stanger with various real estate owners and investors.
Conclusions. Stanger concluded, based upon its analysis of the
foregoing and the assumptions, qualifications and limitations stated below, as
of the date of the Fairness Opinion, that the Purchase Price to be received by
the Partners for the Property is fair to the Limited Partners from a financial
point of view.
Assumptions, Limitations and Qualifications. In rendering the Fairness
Opinion, Stanger relied upon and assumed, without independent verification, the
accuracy and completeness of all financial information and data, and all other
reports and information contained in this Consent Solicitation Statement or that
were provided, made available, or otherwise communicated to Stanger by the
Partnership, NAPICO and/or its affiliates, the Company, the management of the
Property. Stanger has not performed an independent appraisal, engineering study
or environmental study of the assets and liabilities of the Partnership. Stanger
relied upon the representations of NAPICO and its affiliates, the management of
the Property concerning, among other things, any environmental liabilities,
deferred maintenance and estimated capital expenditure requirements, and the
terms and conditions of any debt encumbering the Property. Stanger also relied
upon the assurance of the Partnership, Casden, NAPICO and their affiliates, and
the management of the Property that any financial statements, projections,
budgets, capital expenditure estimates, debt information, value estimates and
other information contained in this Consent Solicitation Statement or provided
or communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments; that no material changes have
occurred in the value of the Property or other information reviewed between the
date of such information provided and the date of the Fairness Opinion; that the
Partnership, Casden, NAPICO and their affiliates, the management of the Property
are not aware of any information or facts that would cause the information
supplied to Stanger to be incomplete or misleading in any material respect; and
that the highest and best use of the Property is as improved.
Stanger was not requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered to the Partnership in the Sale;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to approve or reject the proposed Sale; or (iii) express any opinion as
to (a) the tax consequences of the proposed Sale to the Limited Partners, (b)
the terms of the Partnership Agreement or the proposed amendment to the
Partnership Agreement, or the terms of any agreements or contracts between the
Partnership, the Company and any affiliates of the General Partners, (c)
NAPICO's business decision to effect the proposed Sale, (d) the adjustments made
by NAPICO to the Purchase Price to arrive at net amounts distributable to the
Limited Partners, including but not limited to, balance sheet adjustments to
reflect NAPICO's estimates of the value of other aspects and liabilities of the
Partnership and other expenses and fees associated with the Sale, and (e)
alternatives to the proposed Sale, other than the Purchase Price to be received
by the Partnership for the Property.
678600.8
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Stanger is not expressing any opinion as to the fairness of any terms
of the proposed Sale other than the Purchase Price to be received by the
Partnership for the Property. Stanger's opinion is based on business, economic,
real estate market, and other conditions as of the date of its analysis and
addresses the proposed Sale in the context of information available as of the
date of its analysis. Events occurring after such date and before the closing of
the proposed Sale of the Property to the REIT could affect the Property or the
assumptions used in preparing the Fairness Opinion. Stanger has no obligation to
update the Fairness Opinion on the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not
engaged to, and consequently did not, prepare any written report or compendium
of its analysis for internal or external use beyond the analysis set forth in
Exhibit A.
Compensation and Material Relationships. Stanger has been retained by
NAPICO and its affiliates to provide fairness opinions to the Partnership and
the other Casden Partnerships included in the REIT Transaction. Stanger will be
paid an aggregate fee of up to approximately $490,000, plus $4,100 per property
by the Casden Partnerships, a portion of which is payable upon consummation of
the REIT Transaction. The portion of the fee allocable to the Partnership is
$39,100. In addition, Stanger is entitled to reimbursement for reasonable legal,
travel and out-of-pocket expenses incurred in making site visits and preparing
the Fairness Opinion, and is entitled to indemnification against certain
liabilities, including certain liabilities under federal securities laws.
Alternatives to the Sale
The following is a brief discussion of alternatives to the Sale
considered by NAPICO and the possible benefits and disadvantages of such
alternatives:
Continuation of the Partnership. One alternative considered by NAPICO
was the continuation of the Partnership in accordance with its existing business
plan and its Partnership Agreement. Limited Partners received distributions of
$2,322,466, or approximately $0.32 per unit in 1997. By selling the Property,
the Limited Partners would abandon any future distributions the Partnership may
make in the future. There is, however, no guarantee that rental levels or
occupancy levels supporting the current distributions can be maintained in the
future. In addition, if the Partnership continues to own the Property, it will
eventually have to sell the Property and such sale could lose the benefits of
the current opportune time to sell the Property. Because there is no active
trading market for the Units, Limited Partners may not be able to liquidate
their investment in the Units while the Partnership remains in existence.
Marketing the Property for Sale to Third Parties. NAPICO also
considered marketing the Property to third parties. However, NAPICO does not
believe that such alternative would be in the best interests of the Limited
Partners, because NAPICO believes that such a sale would not result in a net
purchase price for the Property as high as the Purchase Price offered in
connection with the Sale. A sale of the Property to an unaffiliated third party
would likely result in brokerage commissions and closing costs as high as $2.5
million.
The Partnership has received five Unsolicited Offers to purchase the
Property. The first offer was made by Bay Apartment Communities, on December 17,
1996 to purchase the Property for $41,700,000 subject to review of the
Partnerships records and an inspection of the Property. The second offer was
made by TC Residential San Diego, Inc. on December 19, 1996 to purchase the
Property for $44,700,000, subject
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to inspection and review, this offer was increased to $48,000,000 on March 17,
1997. The third offer was made by Security Capital Pacific Trust, on December
20, 1996 to purchase the Property for $40,200,000 subject to due diligence, this
offer was increased to $47,000,000 on March 7, 1997. The fourth offer was made
by R.W. Selby & Company. Inc., on December 30, 1996, to purchase the Property
for $41,000,000, subject to inspection of the Property and approval of the
Partnerships records, with the Partnership paying all transfer fees incurred in
connection with the sale. The fifth offer was from Everest HillCreste Investors,
on March 7, 1997 to purchase the Property for $47,000,000, subject to review of
the Partnership's records and an inspection of the Property. The current offer
by the REIT is $4.5 million higher than the highest offer and is for a purchase
of the Property "as is."
Rollup. NAPICO considered combining the Casden Partnerships into a new
corporation that would qualify as a REIT entity. As a result of such a
transaction, the Limited Partners would have received shares of stock in the
REIT (or partnership interests convertible into REIT shares), which would have
been listed on a national stock exchange. Such a transaction would be expected
to (a) provide investors in the new entity with the opportunity to liquidate
their investment through the sale of the shares received in the transaction, (b)
permit distribution to investors of a simpler federal income tax Form 1099-DIV
(rather than Schedule K-1), and (c) provide investors with the potential for
receiving securities with a greater value than the proceeds they will receive as
a result of the Sale. Furthermore, such an entity would provide increased asset
diversification and, due to its size, improved access to capital markets.
NAPICO believes, however, that such a transaction would have
significant disadvantages. As a result of new legislation and regulations, they
believe that obtaining necessary regulatory approvals for a rollup would be very
difficult, expensive and time-consuming. NAPICO was not confident that a rollup
transaction could be completed within a reasonably practical time period.
Furthermore, NAPICO believes that there could be significant selling pressure on
the securities issued in connection with a rollup and that such selling pressure
might cause the price of the stock of the rollup entity to decline following
completion of the rollup transaction.
Another disadvantage of a rollup transaction is that the transaction
would cause the Limited Partners to incur a tax on the gain reflected in the
value of the stock of the new entity. NAPICO determined that Limited Partners
would not be able to defer taxation through the use of an UPREIT structure due
to difficulties likely to be experienced in obtaining approval from various
states for the distribution of operating partnership interests. Unless a Limited
Partner sold all or a portion of the securities received in the transaction,
such Limited Partner would have no additional cash with which to pay the taxes
which would result from the completion of a rollup transaction. The need for
cash to pay the taxes on the transaction could cause downward pressure on the
price of the stock. In addition, a Limited Partner would incur brokerage
commissions on the sale of any securities received in a rollup transaction,
thereby reducing the net proceeds received in the transaction.
Recommendation of NAPICO; Fairness
The recommendation of NAPICO in favor of the Sale is based upon its
belief that the Sale is fair to the Limited Partners for, among others, the
following reasons: (a) their belief that the terms and conditions of the Sale,
including the Purchase Price, are fair to the Limited Partners of the
Partnership; (b) its belief that the alternatives available to the Partnership
are not as attractive to the Limited Partners as the Sale; (c) its belief that
now may be an opportune time for the Partnership to sell the Property, given
current conditions
678600.8
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in the real estate and capital markets; and (d) its belief that the Purchase
Price represents a higher amount than a third party would offer the Partnership
for the Property.
NAPICO has not obtained a recent real estate appraisal to establish the
fair market value of the Property, but, based upon significant real estate
experience, it believes that the Purchase Price is not less than the fair market
value of the Property. In addition, Stanger has opined that the Purchase Price
for the Property is fair to the Limited Partners from a financial point of view.
The Purchase Price was determined by NAPICO. NAPICO valued the Property
by applying capitalization rates ranging from 6.5 to 7.0% to the budgeted net
operating income before management fees of the Property for 1998 (as provided by
the property manager), subject to certain adjustments by NAPICO, less
anticipated capital expenditures.
The following table sets forth a comparison of the amount each Limited
Partner would receive from the Sale and subsequent liquidation of the
Partnership against historical secondary market prices paid for the Units:
Secondary Market Prices(2)
-----------------------------------------
Amount to be
Received from
Sale and
Liquidation(1) High Low
-------------- ---- ---
$ 7.68 $ 5.75 $ 3.50
- ---------------------
(1) This amount is an estimate of the total amount expected to be distributed
per Unit to Limited Partners as a result of the liquidation of the
Partnership after the Sale. This amount includes the proceeds of the Sale
plus cash available for distribution. This amount will be distributed in
one or a series of distributions.
(2) Based on the high and low value of secondary market trades during the
twelve months ended December 31, 1997 as compiled by NAPICO. NAPICO has
advised that its methodology for compiling trade prices is as follows:
trade price information reflects per Unit transaction prices for trades
involving the purchase of Units by third-party investors during the
applicable period. Firms supplying trade price data are instructed to
provide information only on those transactions whereby third-party
investors acquired Units from or through such firms. Due to commission and
mark-ups, sellers of Units typically receive less than the amounts paid for
Units by buyers as set forth in the table.
No established market for the Units was ever expected to develop and
the secondary market transactions for the Units have been limited and sporadic.
It is not known to what extent the transactions in the secondary market are
between buyers and willing sellers, each having access to relevant information
regarding the financial affairs of the partnerships, expected value of their
assets, and their prospects for the future. Many transactions in the secondary
market are believed to be distressed sales where sellers are highly motivated to
dispose of the Units and willing to accept substantial discounts from what might
otherwise be regarded as the fair value of the interest being sold, to
facilitate the sales. Secondary market prices generally
678600.8
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do not reflect the current market of the partnerships' assets, nor are they
indicative of total return, since prior cash distributions and tax benefits
received by the original investor are not reflected in the price. Nonetheless,
notwithstanding these qualifications, the secondary market prices, to the extent
that the reported data are reliable, are indicative of the prices at which the
Units trade in the illiquid secondary markets.
A number of Limited Partners have contacted NAPICO to indicate their
desire to liquidate the Partnership. In light of such discussions, as well as
current conditions in the real estate and capital markets, NAPICO believes that
it is in the best interests of the Limited Partners to effect a disposition of
the Property in the near term. In addition, the proposed purchase price offered
in connection with the Sale is significantly higher than any prior offer
received by the Partnership to date.
Uncertainties as to the enforceability of the Right of First Refusal
were to some extent resolved on November 25, 1997 when a class action lawsuit
challenging the enforceability of the Right of First Refusal (among other
things) was dismissed with prejudice. NAPICO believes that uncertainties
pertaining to the Right of First Refusal impaired its ability to sell the
Property at a fair price.
The Partnership has received five Unsolicited Offers to purchase the
Property. The terms of the Sale include a Purchase Price that is $4.5 million
higher than the highest Unsolicited Offer.
NAPICO did not give any specific weight to any one of the foregoing
factors but viewed them in the aggregate in supporting their fairness
determination. NAPICO recommends that the Sale be approved by the Limited
Partners. Limited Partners should note, however, that NAPICO's recommendation is
subject to inherent conflicts of interest. See "CONFLICTS OF INTEREST."
The Non-Managing General Partner has not taken a position with respect
to the Sale nor has it participated in the preparation of this Consent
Solicitation Statement.
IV. AMENDMENTS TO THE PARTNERSHIP AGREEMENT
An amendment to the Partnership Agreement is necessary in connection
with the consummation of the Sale. The Partnership Agreement currently prohibits
a sale of any of the Properties to NAPICO or its affiliates. Accordingly,
consent of the Limited Partners is being sought for an amendment to the
Partnership Agreement that eliminates such prohibition. The consent of Limited
Partners holding a majority of outstanding Units is required in order to amend
the Partnership Agreement.
V. CONFLICTS OF INTEREST
General
Due to the key role of affiliates of NAPICO in the organization of the
REIT, and the relationships among NAPICO, the Casden Partnerships, Casden and
Casden's directors and officers, NAPICO has certain conflicts of interest in
recommending the Sale to the Limited Partners. Some important conflicts are:
1. The terms of the Sale were established by the REIT and NAPICO, which
are related parties. Accordingly, the terms and conditions of the proposed Sale
were not determined through arms-length
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negotiations. There can be no assurance that arms-length negotiations would not
have resulted in terms more favorable to the Limited Partners.
2. Although the General Partners are accountable to the Partnership and
the Limited Partners as fiduciaries and are obligated to exercise good faith and
fair dealing toward other members of the Partnership, and although Stanger
provided an independent opinion with respect to the fairness of the Purchase
Price to be received by the Partnership for the Property, from a financial point
of view, no independent financial or legal advisor was engaged to determine the
Purchase Price or to represent the interests of the Limited Partners. There can
be no assurance that the involvement of financial or legal advisors, or other
third parties, on behalf of the Limited Partners would not have resulted in a
higher Purchase Price or terms more favorable to the Limited Partners.
3. If the REIT Transaction is consummated, affiliates of NAPICO will
receive substantial interests in the REIT in exchange for the contribution of
real property assets and the property management operations of Casden, including
direct or indirect interests in NAPICO. The General Partners anticipate that
they will receive significant economic benefits as a result of receiving
interests in the REIT. Such interests in the REIT are likely to enjoy greater
liquidity than NAPICO's current interests in the Partnership if the REIT
successfully completes an initial public offering following its initial
formation as a private REIT. Unlike Casden, the Limited Partners will not have
the right to participate in the REIT. It is anticipated that approximately 51%
of the equity securities of the REIT will be held by Casden and its affiliates
following the Private Placement, based on the terms of the Private Placement as
currently contemplated. The implied value of the REIT's securities (based on the
pricing of the REIT's securities in the Private Placement and in contemplated
subsequent public offerings, if consummated) that will be attributed to the
other assets being contributed to the REIT may exceed the Purchase Price paid by
the REIT for such interest in the Property because of (i) the combination of
real estate assets and businesses and the resultant opportunities for enhanced
access to equity capital and financing alternatives that are likely to be
available to the REIT; (ii) the expected liquidity of the REIT's capital stock;
(iii) the current favorable public market valuation of real estate investment
trusts; (iv) the inclusion of certain real estate business and management
companies owned by affiliates of Casden in the REIT; and (v) the greater asset
diversification of the REIT, and other factors. Such realization of excess value
is dependent on economic, interest rate and real estate market trends, as well
as market conditions at the time of the formation of the REIT and the Private
Placement (and subsequent public offering) of its securities and, if realized,
will likely provide affiliates of NAPICO with significant economic benefits.
4. It is anticipated that the return from the interests in the REIT to
be received by NAPICO and its affiliates in connection with the REIT Transaction
will exceed the return such persons currently receive from the real estate
assets such persons will contribute or sell to the REIT.
5. Substantially all of the officers and employees of Casden and its
affiliates will be employed as officers and employees of the REIT. For their
services as officers, directors or employees of the REIT, such persons will be
paid a salary and may be eligible to participate in the REIT's bonus plan,
option plan and other employee benefit plans. In addition, through the REIT
Transaction, the REIT will ensure continuity of the business established by
NAPICO and its affiliates. The Property, if acquired by the REIT will continue
to be managed by the REIT's officers and employees for as long as the REIT
continues to own the Property. In addition, unlike the Partnership, the REIT
will have the ability to reinvest proceeds from any future sale of the Property.
The REIT will therefore afford ongoing employment opportunities for those
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persons currently employed to assist with the administration and day-to-day
operations of the Property and the REIT.
Fiduciary Responsibility
The General Partners are accountable to the Partnership and the Limited
Partners as fiduciaries and consequently are obligated to exercise good faith
and fair dealing toward other members of the Partnership. The Partnership
Agreement provides that the General Partners and their officers, directors,
employees, agents, affiliates, subsidiaries and assigns are entitled to be
indemnified for any claim, loss, expense, liability, action or damage resulting
from any act or omission performed or omitted by them pursuant to the
Partnership Agreement, but the General Partners are not entitled to be
indemnified or held harmless for any act or omission constituting fraud,
negligence, breach of fiduciary duty or willful misconduct. In addition,
pursuant to the Partnership Agreement, the General Partners have no liability or
obligation to the other partners or the Partnership for any decision made or
action taken in connection with the discharge of their duties under the
Partnership Agreement, if such decision or action was made or taken in good
faith.
If a claim is made against the General Partners in connection with
their actions on behalf of the Partnership with respect to the Sale, the General
Partners expect that they will seek to be indemnified by the Partnership with
respect to such claim. Any expenses (including legal fees) incurred by the
General Partners in defending such claim shall be advanced by the Partnership
prior to the final disposition of such claim, subject to the receipt by the
Partnership of an undertaking by the General Partners to repay any amounts
advanced if it is determined that the General Partners' actions constituted
fraud, bad faith, gross negligence, or failure to comply with any
representation, condition or agreement contained in the Partnership Agreement.
As a result of these indemnification rights, a Limited Partner's remedy with
respect to claims against the General Partners relating to the General Partners'
involvement in the sale of the Partnership's interest in the Property to the
REIT could be more limited than the remedy which would have been available
absent the existence of these rights in the Partnership Agreement. A successful
claim for indemnification, including the expenses of defending a claim made,
would reduce the Partnership's assets by the amount paid.
VI. SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial and
operating data of the Partnership for the nine months ended September 30, 1997
and September 30, 1996 and the fiscal years ended December 31, 1996, 1995, 1994,
1993 and 1992.
The selected historical financial and operating data of the Partnership
for the nine months ended September 30, 1997 and September 30, 1996 are derived
from unaudited consolidated financial statements of the Partnership which, in
the opinion of NAPICO, include all adjustments (consisting only of normal
recurring items unless otherwise disclosed) necessary for a fair presentation of
the Partnership's financial position and results of operations. The results set
forth for the nine months ended September 30, 1997 and September 30, 1996 are
not necessarily indicative of results to be expected for a full year.
678600.8
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<PAGE>
The following information should be read in conjunction with the
Partnership's Annual Report on Form 10-K, as amended, and its Quarterly Report
on Form 10-Q attached hereto as Annexes B and C, respectively.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income from Rentals. $ 2,675,170 $ 2,498,336 $ 1,224,739 $ 1,848,761 $ 972,848 $ 2,000,385 $ 1,968
Net Income allocated to
Limited Partners........ $ 2,648,418 $ 2,473,353 $ 1,212,492 $ 1,830,273 $ 963,120 $ 1,980,381 $ 1,949
Net Income per Depository
Unit..................... $ 0.37 $ 0.34 $ 0.17 $ 0.25 $ 0.13 $ 0.28 $ 0
Total assets............ $ 38,040.786 $ 37,684,178 $38,577,456 $41,344,209 $44,340,806 $ 38,174,100 $ 38,096
</TABLE>
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material tax consequences
relating to the proposed Sale and the distribution of approximately $7.68 per
Unit. However, each Limited Partner is urged to consult his, her or its own tax
advisor for a more detailed explanation of the specific tax consequences to such
Limited Partner from the Sale.
Upon consummation of the Sale each Limited Partner will recognize his,
her or its share of the taxable gain of the Partnership to the extent that the
sum of the cash exceeds the Partnership's adjusted basis for the Property. Gain
realized by the Partnership on the Sale will generally be a Section 1231 gain,
(i.e., long-term capital gain). A Partner's share of gains and losses from
Section 1231 transactions from all sources would be netted and would be taxed as
capital gains or constitute ordinary losses, as the case may be.
The taxable income realized by each Limited Partner by reason of the
Sale should be characterized as income from a "passive activity" and may be
offset by a Limited Partner's available "passive activity losses" (including
suspended losses) from other passive activities. Losses from passive activities
may only be offset against income from passive activities or may be deducted in
full when the taxpayer disposes of the passive activity from which the loss
arose.
It is estimated that as a consequence of the Sale and liquidation of
the Partnership, each Limited Partner will have taxable income equal to
approximately $1.46 per Unit all of which will constitute long-term capital
gain. The income tax consequences of the Sale to any Limited Partner depends in
large part upon whether the Limited Partner has losses from other passive
activities and the amount of such losses which were applied by such Limited
Partner to offset his or her taxable income. If a Limited Partner has no passive
losses from other activities to offset the income from the Partnership, the
Limited Partner will have a net federal and state tax liability of approximately
$0.45 per unit. The anticipated cash distribution of approximately $7.68 per
Unit would be sufficient to pay the federal and state tax liability arising from
the Sale, assuming a federal capital gains rate of 25% on long-term capital gain
attributable to depreciation not recaptured as ordinary income and 20% on any
remaining long-term capital gain on assets held more than 18 months and assuming
an effective state tax rate of 5% and would result in a net distribution, after
federal
678600.8
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<PAGE>
and state income taxes, of $7.23. In addition to assuming federal income tax
rates, the calculation of income tax liability of a Limited Partner assumes that
such Limited Partner has no net Section 1231 losses for the five most recent
prior taxable years. If this latter assumption is not applicable to a Limited
Partner, the income tax liability of such Limited Partner could increase because
certain income would be taxed at ordinary, instead of capital gains tax rates.
Limited Partners are advised to consult with their own tax advisors for specific
application of the tax rules where the above-described assumption is not
applicable. The foregoing does not take into consideration the effect of any
local tax liabilities that may be applicable to the Sale.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF PASSIVE LOSSES ANY
LIMITED PARTNER HAS FROM OTHER PASSIVE ACTIVITIES TO OFFSET HIS, HER OR ITS
TAXABLE INCOME, THE GENERAL PARTNERS CANNOT ESTIMATE THE INCOME TAX LIABILITY OF
EACH LIMITED PARTNER ARISING FROM THE SALE, THEREFORE, EACH LIMITED PARTNER
SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR CONCERNING THE INCOME TAX
CONSEQUENCES OF CONSENTING TO THE SALE WITH RESPECT TO SUCH LIMITED PARTNER'S
OWN TAX SITUATION.
VIII. LEGAL PROCEEDINGS
On June 25, 1997, the Securities and Exchange Commission (the
"Commission") entered into a consent decree with NAPICO, three members of
NAPICO's senior management and three affiliated entities (collectively, the
"NAPICO Affiliates") in connection with their alleged roles in two separate
series of securities laws violations. In connection therewith, certain NAPICO
Affiliates agreed to cease and desist from committing or causing securities law
violations. In addition, National Partnership Equities, Inc. ("NPEI"), a
brokerage firm affiliated with NAPICO, agreed to undergo a review of certain of
its policies and procedures and pay a $100,000 penalty. The NAPICO Affiliates
consented to the above sanctions and relief without admitting or denying the
Commission's findings.
The two series of securities law violations relate to the NAPICO
Affiliates' (i) satisfying the minimum offering threshold of a "part or none"
private placement by utilizing a subscription from a non-bona fide investor and
failing to disclose such violation in subsequent offering materials for such
private placement and (ii) failing to disclose in the periodic reports for
another of its programs the fact that such program's cash was used to pay the
expenses of properties not owned by such program that were managed by an
affiliate and failing to maintain adequate internal controls to detect such
violations.
On February 13, 1997, J/B Investment Partners filed an action in the
Los Angeles Superior Court against NAPICO and its directors, and Casden
Properties and certain of its affiliates. The J/B Lawsuit was styled as a class
action brought against the Defendants on behalf of all Limited Partners of the
Partnership, and a derivative action brought on behalf of the Partnership
itself. The Partnership was named as a nominal defendant. The complaint in the
J/B Lawsuit sought damages for breach of fiduciary duty, breach of contract and
unjust enrichment. It also sought a declaratory judgment that the Special
Limited Partner's Right of First Refusal was unenforecable. On November 25,
1997, pursuant to a motion by the Defendants, the J/B Lawsuit was dismissed with
prejudice by the court having jurisdiction over the matter.
678600.8
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<PAGE>
IX. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about ________ __, 1998. Only Limited
Partners of record on ___________, 1998 (the "Record Date") will be given notice
of, and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and the
letter from NAPICO, constitute the Solicitation Materials to be distributed to
the Limited Partners to obtain their votes for or against the Sale. The
Solicitation Period is the time frame during which Limited Partners may vote for
or against the Sale. The Solicitation Period will commence upon the date of
delivery of this Consent Solicitation Statement and will continue until the
earlier of (i) _________, 1998 or such later date as may be determined by NAPICO
and (ii) the date upon which NAPICO determines that a Majority Vote has been
obtained. At its discretion, NAPICO may elect to extend the Solicitation Period.
Under no circumstances will the Solicitation Period be extended beyond
______________, 1998. Any Consents delivered to the Partnership prior to the
termination of the Solicitation Period will be effective provided that such
Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Approval of Non-Managing General Partner
Pursuant to the MOU, the sale may be subject to the prior written
consent of the Non-Managing General Partner.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale. Consent to the Sale will
also include consent to the proposed Amendment to the Partnership Agreement that
eliminates a restriction against sales of Partnership assets to affiliates of
NAPICO.
The Consent included in the Solicitation Materials constitutes the
ballot to be used by Limited Partners in casting their votes for or against the
Sale. By marking this ballot, the Limited Partner may either vote "for,"
"against" or "abstain" as to the Partnership's participation in the Sale. Once a
Limited Partner has voted, he may not revoke his vote unless he submits a second
Consent, properly signed and completed, together with a letter indicating that
this prior Consent has been revoked, and such second Consent is received by
_________ (the "Tabulator") prior to expiration of the Solicitation Period. See
"Withdrawal and Change of Election Rights" below.
The Special Limited Partner holds approximately 10% of the voting power
held by Limited Partners. The Special Limited Partner intends to exercise its
vote in favor of the Sale.
678600.8
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<PAGE>
The Sale will not be completed unless it is approved by a Majority
Vote. See "THE SALE-Conditions" for a discussion of the other conditions
precedent to the Sale. BECAUSE APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST, FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE SALE.
Any Limited Partner who returns his Consent signed but does not specify
"for," "against" or "abstain" will be deemed to have voted "for" the Sale.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Consent will be determined by the
Tabulators, whose determination will be final and binding. The Tabulators
reserve the absolute right to reject any or all Consents that are not in proper
form or the acceptance of which, in the opinion of their counsel, would be
unlawful. The Tabulators also reserve the right to waive any irregularities or
conditions of the Consent as to particular Units. Unless waived, any
irregularities in connection with the Consents must be cured within such time as
the Tabulators shall determine. The Partnership, NAPICO and the Tabulators shall
be under no duty to give notification of defects in such Consents or shall incur
liabilities for failure to give such notification. The delivery of the Consents
will not be deemed to have been made until such irregularities have been cured
or waived.
Completion Instructions
Each Limited Partner is requested to complete and execute the Consent
in accordance with the instructions contained therein. For his Consent to be
effective, each Limited Partner must deliver his Consent to the Tabulator at any
time prior to the termination of the Solicitation Period to the Partnership at
the following address:
A pre-addressed stamped envelope for return of the Consent has been
included with the Solicitation Materials. Limited Partners may also telecopy an
executed copy of this Consent to the Partnership at ______________. The Consents
will be effective only upon actual receipt by the Partnership. The method of
delivery of the Consent to the Partnership is at the election and risk of the
Limited Partner, but if such delivery is by mail it is suggested that the
mailing be made sufficiently in advance of _______ __, 1998 to permit delivery
to the Partnership on or before such date.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or facsimile transmission notice of withdrawal or change in
vote must be timely received by the Tabulator at its address set forth under
"Completion Instructions" above and must specify the name of the person having
executed the Consent to be withdrawn or vote changed and the name of the
registered holder if different from that of the person who executed the Consent.
678600.8
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<PAGE>
No Dissenters Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners do
not have dissenters' rights of appraisal. If the Sale is approved by a Majority
Vote, and the other conditions to consummation of the Sale are satisfied, all
Limited Partners, both those voting in favor of the Sale and those not voting in
favor, will be entitled to receive the resulting cash distributions.
Solicitation of Consents
NAPICO and its officers, directors and employees may assist in the
solicitation of consents and in providing information to Limited Partners in
connection with any questions they may have with respect to this Consent
Solicitation Statement and the voting procedures. Such persons and entities will
be reimbursed by the Partnership for out of pocket expenses in connection with
such services. The Partnership may also engage third parties to assist with the
solicitation of Consents and pay fees and reimburse the expenses of such
persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE
PROMPTLY.
If you have any questions about the consent procedure or require
assistance, please contact :
678600.8
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<PAGE>
X. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
_________ ___, 1998
NATIONAL PARTNERSHIP INVESTMENTS CORP.
By:
Bruce E. Nelson
President
678600.8
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<PAGE>
Century HillCreste Apartment Investors, L.P.
9090 Wilshire Boulevard
Beverly Hills, California 90211
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to Century HillCreste
Apartment Investors, L.P. (the "Partnership") that, with respect to the
transaction by which the Partnership proposes to sell all of its real estate
assets to a real estate investment trust (the "REIT") formed by affiliates of
the managing general partner of the Partnership or to a subsidiary partnership
of the REIT (the "Sale"), the undersigned votes all of his, her or its
depository units of limited partnership interest as indicated below:
/ / For the Sale (including the Amendments)
/ / Against the Sale
/ / Abstain
The undersigned acknowledges receipt from NAPICO of
the Consent Solicitation Statement dated _________
__, 1998.
Dated: _____________, 1998 _______________________________
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
Please sign exactly as name appears hereon. When
units are held by joint tenants, both should sign.
When signing as an attorney, as executor,
administrator, trustee or guardian, please give full
title of such. If a corporation, please sign name by
President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON ________ [__],
1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO _____
_______ OR BY USING THE ENCLOSED PREPAID ENVELOPE TO THE ADDRESS FIRST
WRITTEN ABOVE, ATTENTION: _______________. IF YOU HAVE ANY QUESTIONS, PLEASE
CALL ______________.
A LIMITED PARTNER SUBMITTING A SIGNED BUT UNMARKED CONSENT WILL BE
DEEMED TO HAVE VOTED FOR THE PARTNERSHIP'S PARTICIPATION IN THE SALE.
678600.8
- --------------------------------------------------------------------------------
ROBERT A. STANGER & CO., INC. 1129 Broad Street
Shrewsbury, NJ 07702-4314
Financial and Management Consultants (908) 389-3600
FAX: (908) 389-1751
(908) 544-0779
- --------------------------------------------------------------------------------
FORM OF OPINION
Century Hillcreste Apartment Investors L.P.
9090 Wilshire Boulevard
Beverly Hills, California 90211
Gentlemen:
You have advised us that Century Hillcreste Apartment Investors L.P.
(the "Partnership), National Partnership Investment Corp., one of the two
general partners ("NAPICO") of the Partnership, and Casden Properties and
certain of its affiliates ("Casden"), an affiliate of NAPICO, are contemplating
a transaction in which the Partnership would sell the Partnership's 315-unit
rental apartment complex owned by the Partnership to a newly formed real estate
investment trust or its designated affiliate to be organized by Casden [, which
in turn will contribute the Property at its cost to a newly formed real estate
investment trust (the "REIT") sponsored by an affiliate of Casden,] subject to,
among other matters, the requisite approval of the limited partners (the
"Limited Partners") of the Partnership (the "Sale").
You have further advised us that in connection with the proposed Sale
the Property will be sold to Casden for $52,500,000 (the "Purchase Price")
payable in cash.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide to the Partnership an opinion as to whether the Purchase Price to be
received by the Partnership for the Property in connection with the Sale is fair
to the Limited Partners from a financial point of view.
In the course of our analysis for rendering this opinion, we have,
among other things:
o Reviewed a draft of the consent solicitation statement (the
"Consent") related to the Sale in a form the Partnership's
management has represented to be substantially the same as
will be distributed to the Limited Partners;
o Reviewed the Partnership's annual reports on form 10-K filed
with the Securities and Exchange Commission for the years
ended December 31, 1995 and 1996, and the quarterly report on
form 10-Q for the period ending September 30, 1997, which the
Partnership's management has indicated to be the most current
financial statements;
o Reviewed descriptive information concerning the Property,
including location, number of units and unit mix, age,
amenities and land acreage;
o Reviewed summary historical operating statements for the
Property for the years ended December 31, 1994, 1995 and 1996
and the ten months ending October 31, 1997;
o Reviewed the 1997 and 1998 operating budgets for the Property
prepared by the Partnership's management;
o Discussed with management of the Partnership and NAPICO the
conditions in the local market for apartment properties;
conditions in the market for sale/acquisitions of properties
similar to that owned by the Partnership; historical, current
and projected operations and performance of the Property; the
physical condition of the Property including any deferred
maintenance; and other factors influencing value of the
Property;
o Performed a site visit of the Property
o Reviewed data and discussed with local sources real estate
rental market conditions in the market of the Property, and
reviewed available information relating to acquisition
criteria for income-producing properties similar to the
Property;
o Reviewed the prices offered for the Property among bids
received for the Property during 1996 and 1997; and
o Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information that were provided, made available or otherwise communicated to us
by the Partnership, Casden, NAPICO and their affiliates, or the management of
the Property. We have not performed an independent appraisal, engineering study
or environmental study of the assets and liabilities of the Partnership. We have
relied upon the representations of the Partnership, Casden, NAPICO and their
affiliates and management of the Property concerning, among other things, any
environmental liabilities, deferred maintenance and estimated capital
expenditure requirements. We have also relied upon the assurance of the
Partnership, Casden, NAPICO and their affiliates, and the management of the
Property that any pro forma financial statements, projections, budgets,
forecasts, capital expenditure estimates, value estimates and other information
contained in the Consent or otherwise provided or communicated to us were
reasonably prepared on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership, Casden, NAPICO and their affiliates, and the management of
the Property are not aware of any information or facts that would cause the
information supplied to us to be incomplete or misleading in any material
respect; that the highest and best use of the Property is as improved; and that
all calculations and projections were made in accordance with the terms of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement").
We have not been requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered to the Partnership in the Sale;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to approve or reject the proposed Sale; (iii) express any opinion as to
(a) the tax consequences of the proposed Sale to the Limited Partners, (b) the
terms of the Partnership Agreement or the proposed amendments to the Partnership
Agreement, or of any agreements or contracts between the Partnership, Casden and
any affiliates of NAPICO, (c) NAPICO's business decision to effect the proposed
Sale, (d) the adjustments made by NAPICO to the Purchase Price to arrive at net
amounts distributable to the partners, including but not limited to, balance
sheet adjustments to reflect NAPICO's estimates of the value of other assets and
liabilities of the Partnership, and other expenses and fees associated with the
proposed Sale, and (e) alternatives to the proposed Sale. We are not expressing
any opinion as to the fairness of any terms of the proposed Sale other than the
Purchase Price to be received by the Partnership for the Property.
Our opinion is based on business, economic, real estate and capital
market, and other conditions as they existed and could be evaluated as of the
date of our analysis and addresses the proposed Sale in the context of
information available as of the date of our analysis. Events occurring after
that date could affect the assumptions used in preparing the opinion.
Based upon and the subject to the foregoing, it is our opinion that as
of the date of this letter the Purchase Price to be received by the Partnership
for the Property in connection with the Sale is fair to the Limited Partners of
the Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
____________, 1998
