UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 33-24129
Historic Preservation Properties 1989 Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 04-3021042
(State or other jurisdiction (I.R.S.
Employer
of incorporation or Identification
No.)
organization)
Batterymarch Park II, Quincy, Massachusetts 02169
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 472-1000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Voting stock held by non-affiliates of the registrant: Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Part of the Form 10-K Document
into which Incorporated Incorporated by Reference
I Prospectus of the registrant
dated December 19, 1988 (the
"Prospectus").
III The Prospectus.
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Sequential
Page No. Page No.
PART I
Item 1 Business K- 3 4
Item 2 Properties K- 7 8
Item 3 Legal Proceedings K- 7 8
Item 4 Submission of Matters to a
Vote of Unit Holders K- 7 8
PART II
Item 5 Market for the Registrant's
Units and Related Unit
Holder Matters K- 8 9
Item 6 Selected Financial Data K- 9 10
Item 7 Management's Discussion and
Analysis of Financial
Condition and Results of
Operations K-10 11
Item 8 Financial Statements and
Supplementary Data K-15 16
Item 9 Changes In and Disagreements
with Accountants on Accounting
and Financial Disclosure K-15 16
PART III
Item 10 Director and Executive
Officer of the Registrant K-16 17
Item 11 Executive Compensation K-17 18
Item 12 Unit Ownership of Certain
Beneficial Owners and
Management K-17 18
Item 13 Certain Relationships and
Related Transactions K-18 19
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K K-19 20
SIGNATURES K-20 21
SUPPLEMENTAL INFORMATION K-21 22
PART I
Item 1. Business
Historic Preservation Properties 1989 Limited Partnership (HPP'89,
also referred to as the Partnership), a Delaware limited partnership,
was organized under the Delaware Revised Uniform Limited Partnership
Act on September 1, 1988, for the purpose of investing in a
diversified portfolio of real properties which qualified for
rehabilitation tax credits (Rehabilitation Tax Credits) afforded by
Section 47 of the Internal Revenue Code of 1986, as amended (the
Code), and rehabilitating such properties (or acquiring such
properties in the process of rehabilitation and completing such
rehabilitation) in a manner intended to render the cost of such
rehabilitation eligible for classification as "Qualified
Rehabilitation Expenditures", as such term is defined in the Code,
and thus eligible for Rehabilitation Tax Credits. The Partnership
was initially capitalized with contributions of $100 from its general
partner and $100 from each of three initial limited partners. On
September 2, 1988, the Partnership filed a Registration Statement on
Form S-11, File Number 33-24129 (the Registration Statement), with
the Securities and Exchange Commission (the Commission) with respect
to the public offering of units of limited partnership interest
(Units) in the Partnership. The Registration Statement, covering the
offering of up to 100,000 Units at a purchase price of $1,000 per
Unit (an aggregate of $100,000,000), was declared effective on
December 19, 1988. The offering of Units terminated on December 29,
1989, at which time the Partnership had received gross offering
proceeds of $26,588,000 from 2,505 investors.
The general partner of the Partnership is Boston Historic Partners
Limited Partnership (the General Partner), a Massachusetts limited
partnership. The general partners of the General Partner are (i)
Portfolio Advisory Services, Inc. (PAS), a Massachusetts corporation
organized for the purpose of acting as a general partner of the
General Partner, and (ii) Terrence P. Sullivan (Sullivan). Limited
partnership interests in the General Partner are held by investors
unaffiliated with the General Partner (except for an approximately
one-half percent limited partnership interest which is owned by
Sullivan).
The Partnership does not have any employees. For the period January
1, 1995 through September 30, 1995, accounting, asset management and
investor services for the Partnership were performed by PAS who
received no fee but was reimbursed for operating costs of providing
such services.
On October 1, 1995, HPP'89 engaged Claremont Management Corporation
(CMC), an unaffiliated Massachusetts Corporation, to provide asset
management, accounting and investor services for an annual fee of
$76,800 and reimbursement of all operating expenses of providing such
services. Commencing July 1, 1996, the annual fee for such services
was reduced to $67,200. The contract with CMC, which originally
expired on June 30, 1997, was renewed until June 30, 1998 and is
automatically renewed on a yearly basis unless otherwise terminated
as provided for in the agreement.
The Partnership's only business is investing in real properties for
which the cost of rehabilitating such properties qualifies for
Rehabilitation Tax Credits. A presentation of information about
industry segments is not applicable and would not be helpful in
understanding the Partnership's business taken as a whole. The
Partnership's investment objectives and policies are described on
pages 28-36 of its Prospectus dated December 19, 1988 (the
Prospectus) under the caption "Investment Objectives and Policies",
which description is incorporated herein by this reference. The
Prospectus was filed with the Commission pursuant to Rule 424 (b) on
January 5, 1989.
The Partnership originally invested an aggregate of $11,158,064 in
three limited partnerships (collectively, the "Investee
Partnerships") through the acquisition of general partnership
interests in the Investee Partnerships, each of which owned or
acquired real properties, the rehabilitation of which qualified for
Rehabilitation Tax Credits. The Partnership also originally invested
$5,000,000 in a real property that the Partnership purchased
directly. As of December 31, 1997, 100% of the Limited Partners'
capital contributions (net of selling commissions, organizational and
sales costs, acquisition fees and reserves) had been invested in real
property investments.
As discussed below, in March 1996, the Partnership contributed its
interest in the property it owned directly to an Investee Limited
Liability Company, of which the Partnership maintained an interest.
The Investee Partnerships and the Investee Limited Liability Company
are herein collectively referred to as "the Investee Entities". Each
of the Investee Entities' agreements is different, but in general,
provides for a sharing of management duties and decisions among
HPP'89 and the respective local general partners or other managing
members and certain priorities to HPP'89 with respect to return on
and return of invested capital. Significant Investee Entity
decisions require the approval of both HPP'89 and the local general
partners or other managing members. In addition, each Investee Entity
has entered into various agreements with its local general partners
or an other member, or their affiliates, to provide development,
management and other services, for which the local general partners,
other member, or their affiliates, are paid fees by the respective
Investee Entity. All the Investee Entities are subject to first
mortgage loans (except for Jenkins Court Associates Limited
Partnership, as discussed below). See Management's Discussion and
Analysis of Financial Condition and Results of Operations included as
part of this Annual report on Form 10-K for further detail.
The Investee Entities of the HPP'89 are 402 Julia Street Associates
Limited Partnership, Jenkins Court Associates Limited Partnership,
The Cosmopolitan at Mears Park Limited Liability Company and Portland
Lofts Associates Limited Partnership.
402 Julia Street Associates Limited Partnership (402 Julia) is a
Delaware limited partnership formed on July 25, 1989 to acquire,
construct, rehabilitate, operate and manage a 19,000 square foot site
and the building situated thereon and to rehabilitate the building
into 24 residential units and approximately 3,500 net rentable square
feet of commercial space located thereon at 402 Julia Street, New
Orleans, Louisiana.
HPP'89 originally contributed $775,000 to the capital of 402 Julia
and owns a general partnership interest therein. HPP'89's original
investment in 402 Julia represented approximately 4% of the aggregate
amount which HPP'89 has contributed to the capital of its three
Investee Entities acquired in 1989 and to purchase its direct
interest in the Cosmopolitan Building.
On September 16, 1993, the Partnership sold one-third of its general
partnership interest in 402 Julia to the developer general partner.
The Partnership's percentage of interest in 402 Julia was thereby
reduced from 98% to 65%.
Rehabilitation Tax Credits generated by 402 Julia and previously
allocated to HPP'89 Limited Partners totaled $248,796 since
inception. As of March 31, 1995, 100% of these credits were fully
vested.
Jenkins Court Associates Limited Partnership (Jenkins Court) is a
Delaware limited partnership which was formed on December 20, 1988 to
acquire, construct, rehabilitate, operate and manage a 144,000 net
rentable square foot five-story building and 30,000 net rentable
square feet of new retail space, including storage areas and parking
facilities, located at Old York Road and Rydal Road, Jenkintown
Borough, Pennsylvania.
HPP'89 contributed $6,563,064 through the date of Jenkins Court's
Chapter 11 filing (see below) to the capital of Jenkins Court and had
a general partnership interest therein. HPP'89's investment in
Jenkins Court represented approximately 36% of the aggregate amount
which HPP'89 originally contributed to the capital of its three
Investee Entities acquired during 1989 and to purchase its direct
interest in the Cosmopolitan Building.
Jenkins Court filed for protection under Chapter 11 federal
bankruptcy laws on November 23, 1994. On August 31, 1995, after
maximum vesting of the remaining Rehabilitation Tax Credits had been
achieved for 1995 and considering the unlikelihood of a successful
plan of reorganization, Jenkins Court negotiated with the mortgage
holder to transfer the deed and title of the property to the mortgage
holder in lieu of foreclosure.
The transfer of deed and title of the property to the mortgage holder
resulted in a recapture of Rehabilitation Tax Credits in 1995 of
$42,229 to HPP'89, of which $41,807 was allocated to the Limited
Partners of HPP'89. Tax credits allocated to the Limited Partners of
HPP'89 totaling $2,758,113 were vested on or before June 15, 1995.
Therefore, 98.5% of the Limited Partners' tax credits were vested
prior to the loss of the property.
On December 18, 1989, HPP'89 acquired the Cosmopolitan Building
(The Cosmopolitan) containing 255 residential units and
approximately 2,200 square feet of commercial space. The building
was renovated, and certain renovation costs qualified for
Rehabilitation Tax Credits. HPP'89's investment in The
Cosmopolitan represented approximately 39% of the aggregate amount
which HPP'89 originally contributed to the capital of its three
Investee Entities acquired in 1989 and to purchase its direct
interest in The Cosmopolitan.
Rehabilitation Tax Credits generated by the purchase of the
Cosmopolitan Building and previously allocated to HPP'89's limited
partners totaled $4,307,491 since inception. As of December 31,
1994, 100% of these tax credits were fully vested.
In March 1996, the Partnership contributed The Cosmopolitan and
certain other assets and liabilities to The Cosmopolitan at Mears
Park, LLC (TCAMP), a Delaware limited liability company, for a 50%
ownership interest in TCAMP. Concurrently, a party related to CMC
contributed $650,000 in cash to TCAMP for a 50% ownership interest in
TCAMP. Simultaneously, TCAMP issued a mortgage note, the proceeds of
which, along with the $650,000 cash contribution, were used to settle
in full the Partnership's mortgage note related to The Cosmopolitan.
Portland Lofts Associates Limited Partnership (Portland Lofts) is a
Delaware limited partnership formed on August 8, 1989 to acquire,
construct, rehabilitate, operate and manage three buildings
containing 89 residential units including 29,250 square feet of
ground floor space useable as either commercial space or as
home/studio space for artists, located at 555 Northwest Park Avenue
in Portland, Oregon.
HPP'89 contributed $3,820,000 through December 31, 1997 to the
capital of Portland Lofts and owns a general partnership interest
therein. HPP'89's investment in Portland Lofts represents
approximately 21% of the aggregate amount which HPP'89 originally
contributed to the capital of its three Investee Entities acquired in
1989 and to purchase its direct interest in the Cosmopolitan
Building.
Rehabilitation Tax Credits generated by Portland Lofts and allocated
to HPP'89's Limited Partners totaled $1,775,571 since inception. As
of April 1, 1996, 100% of these tax credits were fully vested.
The Investee Entities are, and will continue to be, subject to
competition from existing and future projects in their respective
geographic areas. The success of the Partnership will depend on
factors, many of which are beyond the control of the Partnership and
which cannot be predicted at this time. Such factors include general
economic and real estate market conditions, both on a national basis
and in those geographic areas where the projects are located, the
availability and cost of borrowed funds, real estate tax rates,
operating expenses, energy costs and government regulations. In
addition, other risks inherent in real estate investment may
influence the ultimate success of the Partnership, including (i)
possible reduction of rental income due to an inability to maintain
high occupancy levels or adequate rental levels, or (ii) possible
adverse changes in general economic conditions and adverse local
conditions, such as competitive overbuilding, or a decrease in
employment or adverse changes in real estate laws, including building
codes. In particular, changes in federal and state income tax laws
affecting real estate ownership or limited partnerships could have a
material and adverse effect on the business of the Partnership.
Item 2. Properties
See Item 1 above.
Item 3. Legal Proceedings
The Partnership and its Investee Entities are not party to, to the
best knowledge of the General Partner, any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Unit Holders.
No matters were submitted to a vote of Unit holders.
PART II
Item 5. Market for Registrant's Units and Related Unit Holder Matters.
(a) There is no established public market for the Units and no
such market is expected to develop. Trading in the Units is
limited and sporadic and occurs solely through private
transactions.
(b) As of March 16, 1998, there were 2,520 holders of Units.
The Amended and Restated Agreement of Limited Partnership (the
Partnership Agreement) requires that any Cash Flow (as defined
therein) be distributed quarterly to the investor limited partners
(Limited Partners) in specified proportions and priorities and that
Sale or Refinancing Proceeds (as defined therein) be distributed as
and when available. There are no restrictions on the Partnership's
present or future ability to make distributions of Cash Flow or Sale
or Refinancing Proceeds. For the years ended December 31, 1997, 1996
and 1995, no distributions of Cash Flow or Sale or Refinancing
Proceeds were paid or accrued to the Limited Partners.
Item 6. Selected Financial Data.
Periods Ended December 31,
1997 1996 1995 1994 1993
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue $ 8,912 $ 552,395 $ 2,164,691 $ 2,188,421 $2,074,655
Net Income (Loss) $(96,522) $ 473,848 $(1,928,010) $(1,391,927)$(1,476,662)
Net Income (Loss)
per weighted
average Unit
outstanding:
Loss before
extraordinary
gain $ (3.59) $(324.25) $ (71.79) $ (51.83) $ (54.98)
Extraordinary
gain $ - $ 341.89 $ - $ - $ -
Net Income
(Loss) $ (3.59) $ 17.64 $ (71.79) $ (51.83) $ (54.98)
Total Assets as
of December 31, $783,736 $ 892,540 $17,160,719 $19,092,470 $19,495,840
Long Term Debt,
excluding
discount as of
December 31, $ 0 $ 0 $17,579,606 $18,496,144 $17,884,892
Cash Distributions
per weighted
average Unit
Outstanding $ 0 $ 0 $ 0 $ 0 $ 0
Rehabilitation
Tax Credit per
Unit $ 0 $ 0 $ 0 $ 0 $ 0
See Item 7 for a discussion of the factors that may materially affect
the foregoing information in future years.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources. The Partnership terminated its
offering of Units on December 29, 1989, at which time Limited
Partners had purchased 26,588 Units, representing gross capital
contributions of $26,588,000. The Partnership originally invested an
aggregate of $11,158,064 in three Investee Partnerships which owned
or acquired real properties, the rehabilitation of which qualified
for Rehabilitation Tax Credits. The Partnership also originally
invested $5,000,000 in The Cosmopolitan, real property that the
Partnership had purchased directly, and was required to place a total
of $2,000,000 in an escrow account with the mortgage lender for this
property for the purpose of funding operating deficits.
Such amounts originally contributed represent approximately 100% of
the Limited Partners' capital contributions after deduction of
selling commissions, organizational and sales costs, acquisition fees
and reserves. The Partnership does not expect to make any additional
investments in new real estate.
The Cosmopolitan is a 255 unit residential property with traditional,
annual operating leases to individuals that expire within one year of
signing. This 255 unit building operates in a very competitive
lowertown St. Paul market.
On January 5, 1995, the Partnership resolved a dispute with the
holder of the Cosmopolitan's mortgage over certain amounts in an
escrow account. As a result, the Partnership received approximately
$286,000 from the escrow account which was used to fund and reserve
for the general and administrative expenses of the Partnership, and
obtained the opportunity to purchase the mortgage note at the fair
market value of the property, in exchange for the release of the
principal funds from the escrow account as a payment toward the
mortgage principal and a reduction of the mortgage term by three
years. Effective March 15, 1996, HPP'89 contributed The
Cosmopolitan, and certain other assets and liabilities, to TCAMP (a
Limited Liability Company) for a 50% ownership interest.
Concurrently, another member contributed $650,000 cash to TCAMP for a
50% ownership interest. Simultaneously, TCAMP issued a mortgage note
in the amount of $7,000,000 the proceeds of which along with the
$650,000 contributed cash, were used to settle in full HPP'89's
mortgage note payable related to the Cosmopolitan Building. TCAMP's
mortgage bears interest at 9.14%: amortizes over a 25 year schedule
and requires monthly payments of principal, interest, real estate tax
and replacement reserve deposits totaling $92,735; the mortgage
matures in March 2003, at which time all unpaid principal and accrued
interest is due. After March 14, 1996, HPP'89 no longer had any
operations directly related to real estate activity or generated cash
from rental activity of The Cosmopolitan. As of March 15, 1996, the
Partnership accounts for its investment in TCAMP under the equity
method of accounting.
Jenkins Court filed for protection under Chapter 11 Federal Bankruptcy
laws on November 23, 1994. On August 31, 1995, after maximum vesting
of the remaining Rehabilitation Tax Credits had been achieved for 1995,
and considering the unliklihood of a successful plan of reorganization,
Jenkins Court negotiated with the mortgage holder to transfer the deed
and the title of the property to the mortgage holder, in lieu of
foreclosure.
Although Jenkins Court no longer owns its investment property and
will no longer have property operations, the Jenkins Court
partnership will remain in existence until the resolution of certain
partnership assets and liabilities. These liabilities include a
$250,000 default loan and accrued interest thereon, which has been
provided by HPP'89 and secured by the developer's interest in an
unaffiliated limited partnership. As a result of the Chapter 11
proceedings, The Partnership is not expected to be liable as a
general partner of Jenkins Court for any remaining obligations of
Jenkins Court.
Due to the foreclosure proceeding related to Jenkins Court, HPP'89 no
longer has an investment in the property. As of December 31, 1995,
the investment in Jenkins Court and its corresponding reserve, both
totaling $5,471,055, were eliminated from the balance sheet.
In May 1996, Portland Lofts reached a settlement agreement with the
holder of its mortgage note and an unsecured note. According to the
Settlement Agreement, Portland Lofts was allowed until, July 31,
1996, to pay $5,400,000 to the holder in full satisfaction of both
the mortgage note and an unsecured note.
On June 20, 1996, Portland Lofts issued a promissory mortgage note in
the amount of $5,625,000 and a promissory note to a general partner
in the amount of $340,000 to provide sufficient funds to pay in full
the $5,400,000 settlement amount with the holder in full satisfaction
of both the mortgage note, the unsecured note payable and all related
closing costs. The transaction resulted in an extraordinary gain on
extinguishment of debt of $1,656,579. The current mortgage note on
the property: bears interest at 9.0%; amortizes over a 25-year
schedule; requires monthly payments of principal and interest of
$47,205; and matures on July 1, 2006, at which time all unpaid
principal and interest is due.
402 Julia is a mix-use property with 24 residential units and 3,500
square feet of commercial space. On September 16, 1993, HPP'89 sold
one-third of its general partnership interest in 402 Julia to the
developer general partner for $185,000. HPP'89's percentage of
interest in 402 Julia was thereby reduced from 98% to 65%. The
terms of the sale required an initial payment of $100,000, which
was received in September 1993, and requires annual payments of
$3,500 through 2016 and a final payment of $4,500 in 2017. 402
Julia's mortgage loan bears interest at 10%; amortizes over a 35-
year schedule; requires monthly payments of principal and interest,
real estate tax, insurance and replacement reserve escrow deposits
totaling $11,014; and matures in May of 2001, at which time all
unpaid principal and accrued interest is due.
The short-term liquidity of the Investee Entities, with the exception
of Jenkins Court, depends on their ability to generate sufficient
rental income to fund operating expenses and debt service
requirements. TCAMP, Portland Lofts and 402 Julia have stabilized
operations and, after considering the effects of TCAMP's and Portland
Lofts' recent respective refinancings, are expected to generate cash
flow. For the year ended December 31, 1997, the Partnership received
distributions from Portland Lofts of $156,000 and for the year ended
December 31, 1996, the Partnership received distributions from
Portland Lofts and TCAMP totaling $26,000 and $98,200, respectively.
HPP'89's cash is used primarily to fund general and administrative
expenses of managing the public fund. The Partnership's only source
of short term liquidity is from distributions received from Investee
Entities and the proceeds from the previous sale of a partial
interest in 402 Julia. The Partnership expects to fund its expenses
with cash flow distributions from Portland Lofts, and from TCAMP if
such distributions are available to HPP'89 and are required to fund
expenses. As of December 31, 1997 and 1996, the Partnership had
$175,288 and $163,316 of total cash.
To the extent that The Partnership accumulates from whatever sources
operating reserve amounts greater than $140,000 at the end of any
fiscal year, The Partnership is required to contribute such excess
within thirty days of the end of such fiscal year to TCAMP as
additional capital contributions to be distributed by TCAMP to its
other member as a return of the outstanding portion of her original
capital contribution. Since the Partnership anticipates funding its
expenses principally from distributions received from Portland Lofts,
the Partnership does not expect that this requirement will affect its
ability to fund its expenses. Subsequent to the year ended December
31, 1997, HPP'89 contributed approximately $35,000 to TCAMP.
Cash flow generated from the Partnership's investment properties and
the Partnership's share of the proceeds from the sale of such
properties is expected to be the source of future long-term
liquidity.
Results of Operations. As a result of the contribution of The
Cosmopolitan to TCAMP for a 50% ownership interest in TCAMP, subsequent
to March 14, 1996 HPP'89 no longer had operations directly related to
real estate activity. As of the date of contribution, the Partnership
accounts for its investment in TCAMP under the equity method of
accounting.
Due to the foreclosure proceeding related to Jenkins Court, HPP'89 no
longer has an investment in the property. As of December 31, 1995, the
investment in Jenkins Court and its corresponding reserve, both
totaling $5,471,055, were eliminated from the balance sheet.
The Partnership accounts for its investments in its three remaining
investee entities under the equity method. In general, under the
equity method of accounting for investments, the investment is
recorded at cost and the current allocable portion of earnings
(losses) of an Investee Entity is recorded as income (loss) with
a corresponding increase
(decrease) to the investment account. The allocable portion of losses
of an Investee Entity are not recorded after the respective investment
account is reduced to zero. The allocable portion of earnings of an
Investee Entity are not recorded until all previously unrecorded
losses are absorbed. The Partnership's allocable share of operating
income and/or losses in investee entities range from 50% to 99%.
As of December 31, 1997, 402 Julia leased 89% of its residential units
and 100% of its commercial space for a combined occupancy of 91%. 402
Julia has benefited from a relatively strong New Orleans market and
continues to record stable operations in recent years. The average
occupancy has decreased slightly compared to prior years due to the
increased availability of low mortgage rates in the single family
home market. 402 Julia rents units to residential tenants, half of
which are under short-term operating leases with the remaining
rented under month-to-month arrangements. For the year ended
December 31, 1997, 402 Julia recorded a net loss of approximately
$16,000 of which included depreciation and amortization of
approximately $44,000.
At December 31, 1997, Portland Lofts had leased approximately 93%
of its residential apartment units and 91% of the commercial space
for a combined occupancy of 92%. Portland Lofts rents space to
residential tenants principally under month-to-month arrangements and
to commercial tenants under operating leases of varying terms expiring
through 2004. As of December 31, 1997, the Partnership had entered
into fifteen commercial leases. The Partnership's largest commercial
tenant occupancies 23% of the commercial space at December 31, 1997,
representing only 5.8% of the total square feet of the property. For
the year ended December 31, 1997, Portland Lofts recorded a net loss of
approximately $175,000 of which included depreciation and amortization
of approximately $283,000.
TCAMP operates in the competitive lowertown district of St. Paul.
Despite the availability of low mortgage rates in the single family
house market, the building has increased rental rates with the market
and maintained occupancy above 95% for several years.
TCAMP has achieved stable occupancy and had an economic occupancy of
98% for the years ended December 31, 1997 and 1996, respectively.
TCAMP completed its first full year of operations under the Limited
Liability Company ownership and recorded net income of approximately
$194,000, which included depreciation and amortization expense of
approximately $268,000, for the year ended December 31, 1997.
Distributions received are recorded as reductions to the investment
account. Distributions received from an Investee Entity whose
respective investment account has been reduced to zero are recorded as
income.
In 1990, the Partnership fully reserved against its investment in
Portland Lofts, due to the substantial doubt it would continue as a
going concern. Accordingly, since the Portland Lofts investment was
fully reserved for, the Partnership had cumulative unrecorded losses
of $1,325,926 associated with the investment as of December 31,
1995.
Principally as a result of an extraordinary gain on extinguishment of
debt, Portland Lofts generated net income of $1,547,514 in 1996, of
which HPP'89 has been allocated $1,532,039. This allocated net
income allowed HPP'89 to recover all of its cumulative unrecorded
losses from Portland Lofts. HPP'89's net income in equity recognized
in 1996, after recovery all of cumulative unrecorded losses, from the
Portland Lofts Investment, totaled $206,113. As of December 31,
1996, the net balance of HPP'89's investment in Portland Lofts
totaled approximately $180,100.
For the year ended December 31, 1997, Portland Lofts allocated a net
loss of $173,710 and cash distributions of $156,000 to HPP'89. During
1997, HPP'89's investment in Portland Lofts was reduced to zero due
to allocation of losses and distributions received. Accordingly,
HPP'89 has cumulative unrecorded losses at December 31, 1997 totaling
$95,391 and recorded distributions received of $54,203 as equity
income of Investee Entities. Although HPP'89's investment in
Portland Lofts has been reduced to zero, Portland Lofts is expected
to continue as a going concern and to continue to provide
distributions to HPP'89.
The Partnership recorded a net loss, under generally accepted
accounting principles, of $96,522 for the year ended December 31,
1997, compared to net income of $473,848 for the year ended
December 31, 1996. This $569,405 decrease is primarily
attributable to transactions relating to the contribution in 1996
of The Cosmopolitan to TCAMP and a decrease in HPP'89's share of
equity in income of investee entities. The contribution of The
Cosmopolitan to TCAMP in 1996 resulted in a provision for
impairment of real estate of $8,437,963, the difference between
the carrying value and the fair market value of the property at
transfer, and an extraordinary gain on extinguishment of debt of
$9,182,017, the amount outstanding under the mortgage payable and
the amount accepted by the lender from TCAMP in full settlement.
The decrease in HPP'89's share of equity in income of investee
entities is primarily due to the allocated net income from
Portland Lofts in 1996. Portland Lofts' net income for the year
ended December 31, 1996 was primarily attributable to the
extraordinary gain on extinguishment of debt, the difference
between the amount outstanding under the mortgage payable and
previous agreed settlement amount with the holder of the mortgage
and the unsecured note.
The Partnership recorded net income of $473,848, under generally
accepted accounting principles, for the year ended December 31,
1996, compared to a net loss of $1,928,010 for the year ended
December 31, 1995. This $2,401,858 increase in income from 1995
to 1996, was primarily due to the contribution of The Cosmopolitan
to TCAMP, as discussed above, and an increase in equity in income
of investee entities. The increase in equity in income of
investee entities for the year ended December 31, 1996, compared
to the previous year, is primarily due to the allocated net income
from Portland Lofts and TCAMP for the year ended December 31,
1996. As mentioned above, Portland Lofts allocated net income to
the Partnership in 1996, due to the extraordinary gain of
extinguishment of debt in 1996. TCAMP allocated net income to the
Partnership in 1996, under the equity method of accounting, prior
to March 15, 1996 the Partnership recorded operations from The
Cosmopolitan directly due to real estate activity.
Inflation and Other Economic Factors
Recent economic trends have kept inflation relatively low, although
the Partnership cannot make any predictions as to whether recent
trends will continue. The assets of the Partnership, principally
investments in Investee Entities, are highly leveraged in view of the
fact that each Investee property is subject to a long-term first
mortgage loan. Operating expenses and rental revenue of each
Investee property are subject to inflationary factors. Low rates of
inflation could result in
slower rental rate increases, and to the extent that these factors
are outpaced by increases in property operating expenses (which could
arise as a result of general economic circumstances such as an
increase in the cost of energy or fuel, or from local economic
circumstances), the operations of the Partnership and its Investees
could be adversely affected. Actual deflation in prices generally
would, in effect, increase the economic burden of the mortgage debt
service with a corresponding adverse effect.
High rates of inflation, on the other hand, raise the operating
expenses for projects, and to the extent they cannot be passed on to
tenants through higher rents, such increases could also adversely
affect Partnership and Investee operations. Although, to the extent
rent increases are commensurable, the burden imposed by the mortgage
leverage is reduced with a favorable effect. Low levels of new
construction of similar projects and high levels of interest rates
may foster demand for existing properties through increasing rental
income and appreciation in value.
Year 2000 Issues
The Partnership and its Investee Entities have analyzed the effect of
the Year 2000 on their respective financial and computer systems and
have incorporated and/or expect to have incorporated the necessary
modifications to avert any negative consequences. The Partnership
does not anticipate Year 2000 issues to have any material effect on
its operations or the operations of the Investee Entities, or incur
substantial costs to address Year 2000 issues.
Item 8. Financial Statements and Supplementary Data.
See the Financial Statements of the Partnership included as part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Director and Executive Officer of the Registrant.
(a) and (b) Identification of Director and Executive Officer.
The following table sets forth the name and age of the director and
executive officer of PAS and the offices held by such person.
Name Office Age
Terrence P. Sullivan President and Director 51
Mr. Sullivan has served as a director and executive officer of
PAS, which is a general partner of the General Partner since November
1986. Since that time, he has also been a general partner of the
General Partner. He will continue to serve in the capacity indicated
above until his successor is elected and qualified. Mr. Sullivan is
also an executive officer of Boston Capital Planning Group, Inc.
(Boston Capital Planning), a Massachusetts corporation.
(c) Certain Significant Employees.
None.
(d) Family Relationships.
None.
(e) Business Experience.
The background and experience of the executive officer and director
of PAS and Boston Capital Planning identified above in Items 10(a)
and 10(b) is as follows:
Terrence P. Sullivan, 51, is the founder and sole shareholder of
Boston Capital Planning, a financial consulting and real estate
syndication firm, and its wholly-owned subsidiary, Boston Bay
Capital, Inc. (Boston Bay Capital). Founded in 1979, Boston Bay
Capital was an NASD-Registered broker/dealer specializing in
placement of interests in real estate limited partnerships which own
historic and restoration properties. From 1979 through December 31,
1986, Boston Bay Capital participated in the placement of limited
partnership interests in 98 real estate programs, approximately 60 of
which were historic rehabilitation or restoration partnerships,
placing a total of approximately $140,000,000 in equity. In
addition, Boston Bay Capital served as dealer manager in connection
with the sale of Units of limited partnership interest in Historic
Preservation Properties Limited Partnership, Historic Preservation
Properties 1988 Limited Partnership, the Partnership, and Historic
Preservation Properties 1990 L.P. Tax Credit Fund, four public
programs sponsored by the General Partner and an affiliate of the
General Partner. Such public programs sold an aggregate of
approximately $82 million of Units of limited partnership interest.
From 1972 to 1978, Mr. Sullivan was Tax Shelter coordinator for the
Boston office of White, Weld & Co., Inc., an investment banking firm.
Mr. Sullivan graduated from Worcester Polytechnic Institute in 1968
with a Bachelor of Science degree in mechanical engineering.
He received a Masters in Business Administration from the University
of Massachusetts (Amherst) in 1971. Mr. Sullivan serves as a general
partner of BBC Restoration Properties II Limited Partnership. In
addition, an entity controlled by Mr. Sullivan serves as the general
partner of Institutional Credit Partners Limited Partnership (ICP), a
partnership organized to invest in a diversified portfolio of
properties which qualify for low-income housing tax credits,
Rehabilitation Tax Credits, or both. In 1989, ICP completed a
private placement of $5,790,000 of limited partnership interest to
corporations and other institutional investors.
(f) Involvement in Certain Legal Proceedings.
None.
Item 11. Executive Compensation.
The director and executive officer of PAS and Boston Capital Planning
receives no remuneration from the Partnership.
Under the Partnership Agreement, the General Partner and its
affiliates are entitled to receive various fees, expense
reimbursements, commissions, cash distributions, allocations of
taxable income or loss and tax credits from the Partnership. The
amounts of these items and the times at which they are payable to the
General Partners and their affiliates are described on pages 13-15
and 36-39 of the Prospectus under the captions "Management
Compensation" and "Cash Distributions and Net Profits and Net
Losses", respectively, which descriptions are incorporated herein by
this reference.
The General Partner and its affiliates for the year ended December
31, 1995 were reimbursed for Administrative Expenses totaling $67,955
(unaudited). There were no expense reimbursements paid to or accrued,
for the years ended December 31, 1996 and 1997.
For the years ended December 31, 1997, 1996 and 1995 the Partnership
allocated to the General Partner unaudited taxable income (losses) of
$(120,227), $104,578 and $(20,545), respectively. See Note 4 of
Notes to Financial Statements for additional information about
transactions between the Partnership and the General Partner and its
affiliates.
Item 12. Unit Ownership of Certain Beneficial Owners and
Management.
(a) Unit Ownership of Certain Beneficial Owners.
No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at March 15, 1998.
Pursuant to the Partnership Agreement, the voting rights of the
Limited Partners are limited and, in some circumstances, are subject
to the prior receipt of certain opinions of counsel or judicial
decisions.
Under the Partnership Agreement, the right to manage the business of
the Partnership is vested solely in the General Partner, although the
consent of a majority in interest of the Limited Partners is required
for the sale at one time of all or substantially all of the
Partnership's assets and with respect to certain other matters. See
Item 1 above for a description of the General Partner and its general
partners.
(b) Unit Ownership of Management.
No director or executive officer of PAS, Boston Capital Planning or
their affiliates had any beneficial ownership of Units as of March
15, 1998. However, a former Vice President of Boston Capital
Planning purchased 20 Units ($20,000) in the Partnership during 1989.
No officer or director of PAS or Boston Capital Planning, nor any
general partner of the General Partner, nor any of their respective
affiliates, possesses the right to acquire Units.
(c) Change in Control.
There exists no arrangement known to the Partnership which may at a
subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
See Note 4 of Notes to Financial Statements for information about
transactions between the Partnership and the General Partner and its
affiliates. See Item 11 above for information concerning the
reimbursements which the Partnership paid to the General Partner and
its affiliates for the year ended December 31, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) The following documents are filed as part of this
report:
1. Financial Statements - The Financial Statements
listed on the accompanying Index to Financial
Statements and Schedules are filed as part of this
Annual Report.
2. Financial Statement Schedules - The Financial
Statement Schedules listed on the accompanying Index
to Financial Statements is filed as part of this
Annual Report.
3. Exhibits - The Exhibits listed on the accompanying
Index to Exhibits are filed as part of this Annual
Report and incorporated in this Annual Report as set
forth in said Index.
(b) Reports on Form 8-K - The Partnership did not file
any Current Reports on Form 8-K during the fourth
quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
HISTORIC PRESERVATION PROPERTIES 1989
LIMITED PARTNERSHIP
By: Boston Historic Partners Limited
Partnership, General Partner
By: Portfolio Advisory Services,
Inc., General Partner
Date: March 16, 1998 By: /s/Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: March 16, 1998 By: /s/Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
Individual General Partner
of Boston Historic Partners Limited
/s/Terrence P. Sullivan Partnership and President, Principal
Terrence P. Sullivan Executive Officer and Director of
Portfolio Advisory Services, Inc.,
Date: March 16, 1998 General Partner of Boston Historic
Partners Limited Partnership.
Principal Financial and Principal
Accounting Officer of Portfolio
/s/Terrence P. Sullivan Advisory Services, Inc., General
Terrence P. Sullivan Partner of Boston Historic Partners
Limited Partnership
Date: March 16, 1998
Supplemental Information to be Furnished with Reports Filed Pursuant
to Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
An annual report will be furnished to Unit holders subsequent to
filing of this Form 10-K.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Historic Preservation Properties 1989 Limited Partnership
EXHIBITS
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
Index to Exhibits
Exhibit No. Title of Documents
3(a) Certificate of Limited Partnership of Historic
Preservation Properties 1989 Limited Partnership
dated as of August 30, 1988 (filed as an exhibit to
the Partnership's Registration Statement of Form
S-11, File No. 33-24129, and incorporated herein by this
reference).
3(b) Agreement of Limited Partnership of Historic
Preservation Properties 1989 Limited Partnership
dated as of August 30, 1988 (filed as an exhibit to the
Partnership's Registration Statement on Form
S-11, File No. 33-24129, and incorporated herein by this
reference).
3(c) Amended and Restated Agreement of Limited Partnership of
Historic Preservation Properties 1989 Limited Partnership
dated as of December 19, 1988, as currently in effect,
other than amendments thereto which provide solely for the
admission or withdrawal of investors as limited partners
of the Partnership (filed as an exhibit to the
Partnership's Registration Statement of Form S-11,
File No. 33-2419, and incorporated herein by this
reference).
4(a) See Exhibits 3(a), 3(b) and 3(c).
10(a) Sales Agency Agreement between Historic Preservation
Properties 1989 Limited Partnership and Boston Bay
Capital, Inc., dated December 19, 1989 (filed as
Exhibit No. 10(a) to the Partnership's Form
10-K as of December 31, 1989 and incorporated herein
by this reference).
10(b) Escrow Deposit Agreement between Historic Preservation
Properties 1989 Limited Partnership and Wainwright Bank
and Trust Company dated December 19, 1989 (filed as
Exhibit No. 10(b) to the Partnership's Form 10-K as of
December 31, 1989 and incorporated herein by this
reference).
10(c) Documents relating to the acquisition of a general
partnership interest in Jenkins Court Associates Limited
Partnership (filed as part of Post-Effective Amendment
No. 1 to the Partnership's Registration Statement of Form
S-11, File No. 33-24129, and incorporated herein by this
reference).
10(d) Documents relating to the acquisition of a general
partnership interest in Portland Lofts Associates
Limited Partnership (filed as part of Post-Effective
Amendment No. 2 to the Partnership's Registration
Statement on Form S-11, File No. 33-24129, and
incorporated herein by this reference).
10(e) Documents relating to the acquisition of a general
partnership interest in 402 Julia Street Associates
Limited Partnership (filed as a part of Post-Effective
Amendment No. 2 to the Partnership's Registration
Statement on Form S-11, File No. 33024129, and
incorporated by this reference).
10(f) Documents relating to the acquisition of the Cosmopolitan
Building, St. Paul, Minnesota.
I. Purchase and Sale Agreement between Historic
Landmarks Realty Growth Fund: The Cosmopolitan
(the "Seller"), as Seller, and Historic Preservation
Properties 1989 Limited Partnership (the
"Partnership"), as Buyer, dated as of July 14, 1989
(filed as part of Post-Effective Amendment No. 2
to the Partnership's Registration Statement on
Form S-11, File No. 33-24129, and incorporated
herein by this reference).
II. Amendment to Purchase and Sale Agreement dated
September, 1989, between the Seller and the
Partnership (filed as Exhibit No. 10(f) to the
Partnership's Form 10-K as of December 31, 1989 and
incorporated herein by this reference).
III. Loan Agreement dated December 18, 1989 between the
Partnership and Meritor Savings Bank (filed as
Exhibit No. 10(f) to the Partnership's Form 10-K
as of December 31, 1989 and incorporated herein
by this reference).
IV. Allonge to First Loan Note and Second Loan Note
dated December 18, 1989, between the Partnership
and Meritor Savings Bank (filed as Exhibit No.
10(f) to the Partnership's Form 10-K as of
December 31, 1989 and incorporated herein by this
reference).
V. Mortgage, Security Agreement, Modification,
Consolidation and Amendment Agreement dated
December 18, 1989, between the Partnership
and Meritor Savings Bank (filed as Exhibit No.
10(f) to the Partnership's Form 10-K as of
December 31, 1989 and incorporated herein by this
reference).
VI. Security Agreement dated December 18, 1989 between
the Partnership and Meritor Savings Bank (filed as
Exhibit No. 10(f) to the Partnership's Form 10-K
as of December 31, 1989 and incorporated herein
by this reference).
VII. Assignment of Leases, Consolidation and Modification
Agreement dated December 18, 1989 between the
Partnership and Meritor Savings Bank (filed as
Exhibit No. 10(f) to the Partnership's Form 10-K
as of December 31, 1989 and incorporated herein
by this reference).
VIII. Assignment of Depository accounts dated December 18,
1989 between the Partnership and Meritor Savings Bank
(filed as Exhibit No. 10(f) to the Partnership's
Form 10-K as of December 31, 1989 and incorporated
herein by this reference).
IX. Assignment and Subordination of Management and
Leasing Consolidation and Modification Agreement
dated December 18, 1989 between the Partnership
and Meritor Savings Bank (filed as Exhibit No.
10(f) to the Partnership's Form 10-K as of
December 31, 1989 and incorporated herein by this
reference).
X. Management and Leasing Agreement dated as of October
17, 1989 between the Partnership and McKenna
Management Associates (filed as Exhibit 10(f) to the
Partnership's Form 10-K as of December 31, 1989 and
incorporated herein by this reference).
10(g) Documents relating to $400,000 loan to Portland Lofts
Associated Limited Partnership
I. Promissory Note, dated December 29, 1989, delivered
by Portland Lofts Associates Limited Partnership to
Capital Consultants, Inc. (filed as Exhibit 10(g)
to the Partnership's Form 10-K as of December 31,
1989 and incorporated herein by this reference).
II. Deed of Trust and Security Agreement dated
December 29, 1989, between Portland Lofts Associates
Limited Partnership and Capital Consultants, Inc.
(filed as Exhibit No. 10(g) to the Partnership's
Form 10-K as of December 31, 1989 and incorporated
herein by this reference).
III. Assignment of Surplus dated December 29, 1989,
delivered by Joseph W. Angel II and Lynne I. Angel
to Capital Consultants, Inc. (filed as Exhibit No.
10(g) to the Partnership's Form 10-K as of
December 31, 1989 and incorporated herein by this
reference).
IV. Guaranty of Note and Deed of Trust dated December 29,
1989, delivered by Joseph W. Angel II and Dennis M.
Gilman to Capital Consultants, Inc. (filed as
Exhibit No. 10(g) to the Partnership's Form 10-K
as of December 31, 1989 and incorporated herein
by this reference).
10(h) Management Agreement dated August 20, 1989 between Portland
Lofts Associates Limited Partnership and Great Northwest
Management (filed as Exhibit No. 10(h) to the Partnership's
Form 10-K as of December 31, 1989 and incorporated herein
by this reference).
10(i) Documents relating to Settlement of Fleet National Bank
Loan to Jenkins Court Associates Limited Partnership
(all dated as of February 7, 1991).
I. Settlement Agreement between Fleet National Bank
("Fleet") and Jenkins Court Associates Limited
Partnership ("Jenkins Court") (filed as Exhibit No.
10(i) to the Partnership's Form 10-K as of
December 31, 1991 and incorporated herein by this
reference).
II. Agreement between Fleet and Jenkins Court (filed as
Exhibit No. 10(i) to the Partnership's Form 10-K
as of December 31, 1991 and incorporated herein
by this reference).
III. $250,000 Promissory Note of Jenkins Court (filed as
Exhibit No. 10(i) to the Partnership's Form 10-K
as of December 31, 1991 and incorporated herein
by this reference).
IV. $20,820,000 Amended and Restated Promissory Note
of Jenkins Court (filed as Exhibit No. 10(i) to the
Partnership's Form 10-K as of December 31, 1991 and
incorporated herein by this reference).
V. Open End Mortgage Modification Agreement between
Fleet and Jenkins Court (filed as Exhibit No.
10(i) to the Partnership's Form 10-K as of
December 31, 1991 and incorporated herein by this
reference).
VI. Assignment Modification Agreement between Fleet
and Jenkins Court (filed as Exhibit No. 10(i)
to the Partnership's Form 10-K as of December 31,
1991 and incorporated herein by this reference).
10(j) Documents relating to Amended Settlement of Fleet Loan to
Jenkins Court (all dated as of January 29, 1992).
I. First Amended and Restated Settlement Agreement
between Fleet and Jenkins Court (filed as Exhibit
No. 10(j) to the Partnership's Form 10-K as of
December 31, 1991 and incorporated herein by this
reference).
II. First Allonge to Amended and Restated Promissory
Note of Jenkins Court (filed as Exhibit No. 10(j)
to the Partnership's Form 10-K as of December 31,
1991 and incorporated herein by this reference).
III. Open End Mortgage Modification Agreement between
Fleet and Jenkins Court (filed as Exhibit No.
10(j) to the Partnership's Form 10-K as of
December 31, 1991 and incorporated herein by this
reference).
IV. Assignment Modification Agreement between Fleet
and Jenkins Court (filed as Exhibit No. 10(j)
to the Partnership's Form 10-K as of December 31,
1991 and incorporated herein by this reference).
V. Closing Letter between Fleet and Jenkins Court
(filed as Exhibit No. 10(j) to the Partnership's
Form 10-K as of December 31, 1991 and incorporated
herein by this reference).
10(k) Agreement for Extension of Debt and Related Matters between
Security Pacific Bank Oregon, Portland Lofts Associates
Limited Partnership and Joseph W. Angel, II dated May 7,
1991 (filed as Exhibit No. 10(k) to the Partnership's
Form 10-K as of December 31, 1991 and incorporated herein
by this reference).
10(l) Documents related to the Second Amended Settlement of Fleet
Loan to Jenkins Court dated as of July 2, 1992.
I. Second Amended and Restated Settlement Agreement
between Fleet and Jenkins Court (filed as Exhibit
No. 10(l) to the Partnership's Form 10-K as of
December 31, 1992 and incorporated herein by this
reference).
10(m) Documents relating to the Amended $6,800,000 Construction
Loan to Portland Lofts Associates Limited Partnership
(all dated as of March 31, 1992).
I. Promissory Note of Portland Lofts to Security
Pacific Bank Oregon (Security Pacific) (now
Bank of America) (filed as Exhibit No. 10(m) to the
Partnership's Form 10-K as of December 31, 1992 and
incorporated herein by this reference).
II. Deed of Trust and Security Agreement between
Portland Lofts and Security Pacific (filed
as Exhibit No. 10(m) to the Partnership's
Form 10-K as of December 31, 1992 and incorporated
herein by this reference).
III. Assignment of Leases and Conditional Assignment of
Rentals by Portland Lofts to Security Pacific (filed
as Exhibit No. 10(m) to the Partnership's Form
10-K as of December 31, 1992 and incorporated herein
by this reference).
IV. Guarantees of Note and Deed of Trust delivered by
East Bank Development, Inc., Joseph W. Angel, II,
Dennis M. Gilman and Martin J. Soloway to Security
Pacific (filed as Exhibit No. 10(m) to the
Partnership's Form 10-K as of December 31, 1992 and
incorporated herein by this reference).
V. Arbitration Agreement between Portland Lofts
and Security Pacific (filed as Exhibit No.
10(m) to the Partnership's Form 10-K as of
December 31, 1992 and incorporated herein by this
reference).
10(n) Management Agreement dated April 1, 1992 between Portland
Lofts Associates Limited Partnership and C & R Realty
(filed as Exhibit No. 10(n) to the Partnership's Form 10-K
as of December 31, 1992 and incorporated herein by this
reference).
10(o) Documents relating to the sale of a portion of the general
partnership interest in 402 Julia Street Associates Limited
Partnership (all dated September 16, 1993)
I. Second Amendment to the Amended and Restated
Agreement of Limited Partnership of 402 Julia
Street Associates Limited Partnership (filed as
Exhibit No. 10(o) to the Partnership's Form 10-K
as of December 31, 1993 and incorporated herein
by this reference).
II. Assignment and Assumption Agreement between the
Partnership, and Henry M. Lambert and R. Carey Bond.
(filed as Exhibit No. 10(o) to the Partnership's
Form 10-K as of December 31, 1993 and incorporated
herein by this reference).
III. Security Agreement between the Partnership,
and Lambert and Bond (filed as Exhibit No. 10(o)
to the Partnership's Form 10-K as of December 31,
1993 and incorporated herein by this reference).
10(p) Agreement for Extension of Loan from Fleet Bank to Jenkins
Court Associates Limited Partnership (dated as of June
15, 1993) (filed as Exhibit No. 10(p) to the Partnership's
Form 10-K as of December 31, 1993 and incorporated herein
by this reference).
10(q) Agreement for Extension of Loan from Capital Consultants,
Inc. to Portland Lofts Associates Limited Partnership
(dated January 3, 1994) (filed as Exhibit No. 10(q) to the
Partnership's Form 10-K as of December 31, 1993 and
incorporated herein by this reference).
10(r) Documents relating to the $15,000 loan to Portland Lofts
Associates Limited Partnership (all dated March 2, 1992)
I. Rehabilitation Loan Agreement between Portland Lofts
and the City of Portland (acting by and through the
Portland Development Commission) (filed as Exhibit
No. 10(r) to the Partnership's Form 10-K as of
December 31, 1993 and incorporated herein by this
reference).
II. Promissory Note between Portland Lofts and the
City of Portland (acting by and through the
Portland Development Commission) (filed as
Exhibit No. 10(r) to the Partnership's Form 10-K
as of December 31, 1993 and incorporated herein
by this reference).
III. Trust Deed between Portland Lofts and the City of
Portland (acting by and through the Portland
Development Commission) (filed as Exhibit No.
10(r) to the Partnership's Form 10-K as of
December 31, 1993 and incorporated herein by this
reference).
10(s) Documents relating to the settlement of amounts payable
between Portland Lofts and Richard E. Ragland, AIA
I. Letter of agreement signed by Portland Lofts
and Ragland (dated March 17, 1994) (filed as
Exhibit No. 10(s) to the Partnership's Form 10-K
as of December 31, 1993 and incorporated herein
by this reference).
II. Promissory Note between Portland Lofts and Ragland
(dated February 22, 1994) (filed as Exhibit No.
10(s) to the Partnership's Form 10-K as of
December 31, 1993 and incorporated herein by this
reference).
III. Release of Claims between Portland Lofts and Ragland
(dated February 22, 1994) (filed as Exhibit No.
10(s) to the Partnership's Form 10-K as of
December 31, 1993 and incorporated herein by this
reference).
IV. Release of All Claims between Ragland and Portland
Lofts (dated March 1, 1994) (filed as Exhibit No.
10(s) to the Partnership's Form 10-K as of
December 31, 1993 and incorporated herein by this
reference).
10(t) Documents relating to the amendment of loan documents
by and between Historic Preservation Properties 1989
Limited Partnership and Mellon Bank, N.A. (all dated
December 28, 1994, but executed January 4, 1995),
(filed as Exhibit 10(t) to the Partnership's Form 10-K as
of December 31, 1994 and incorporated herein by the reference).
I. First Amendment to Note Mortgage and Assignment of
Leases.
II. Second Amendment to Loan Agreement
III. Letter Agreement on Payment of Legal Fees
10(u) Letter Agreement on Management Functions by and between
Historic Preservation Properties 1989 Limited
Partnership and Jenkins Court Investors Limited Partnership
(dated September 8, 1994), (filed as Exhibit 10(u) to the
Partnership's Form 10-K as of December 31, 1994 and
incorporated herein by this reference).
10(v) Stipulation of Settlement, and Transfer Deed, dated
August 31, 1995, by and among Jenkins Court Associates
Limited Partnership, Miles S. Katzen, Jenkins Court
Investors Limited Partnership, MSK Associates, Inc.,
Jane Katzen, Frank Seidman, the Jane II Corporation
and Jenkins Court Pennsylvania L.P, (filed as Exhibit
10(v) to the Partnership's Form 10-K as of December 31,
1995 and incorporated herein by this reference).
10(w) Asset Management Agreement, dated October 1, 1995,
by and among Historic Preservation Properties Limited
Partnership, Historic Preservation Properties 1988 Limited
Partnership, Historic Preservation Properties 1989
Limited Partnership, Historic Preservation Properties 1990
L.P. Tax Credit Fund and Claremont Management
Corporation, (filed as Exhibit 10(w) to the Partnership's
Form 10-K as of December 31, 1995 and incorporated herein
by this reference).
10(x) Property Management Agreement, dated November 1, 1995,
by and between Historic Preservation Properties 1989 L.P.
and Claremont Management Corporation, (filed as
Exhibit 10(x) to the Partnership's Form 10-K as of
December 31, 1995 and incorporated herein by this
reference).
10 (y) First Amendment to Loan Documents, dated June 1, 1995,
by and between Portland Lofts Associates Limited Partnership
and Capital Consultants, Inc., (filed as Exhibit 10(y)
to the Partnership's Form 10-K as of December 31, 1995 and
incorporated herein by this reference).
10 (z) Documents relating to the organization and management of
The Cosmopolitan at Mears Park, LLC. 1996 (filed as Exhibit
10(z) to the Partnership's Form 10-K as of December 31, 1996
and incorporated herein by this reference).
I. Operating Agreement of the Cosmopolitan at Mears Park,
LLC, dated March 15, 1996 (filed as Exhibit 10(z) to the
Partnership's Form 10-K as of December 31, 1996
and incorporated herein by this reference).
II. Management Agreement between The Cosmopolitan at Mears
Park, LLC and Claremont Management Corporation,
dated March 20, 1996 (filed as Exhibit 10 (z) to the
Partnership's Form 10-K as of December 31, 1996
and incorporated herein by this reference).
10 (aa) Documents relating to the refinancing of The Cosmopolitan
at Mears Park, LLC Mortgage Debt. (filed as Exhibit 10 (aa)
to the Partnership's Form 10-K as of December 31, 1996 and
incorporated herein by this reference).
I. Promissory Note between the Cosmopolitan at Mears Park,
LLC and Heller Financial, Inc., dated March 20, 1996
(filed as Exhibit 10 (aa) to the Partnership's Form 10-K
as of December 31, 1996 and incorporated herein
by this reference).
II. Mortgage, Assignment of Rents and Security Agreement
between the Cosmopolitan at Mears Park, LLC and Heller
Financial, Inc., dated March 20, 1996 (filed as Exhibit
10 (aa) to the Partnership's Form 10-K as of December
31, 1996 and incorporated herein by this reference).
III. Letter Agreement between Patrick Carney and Heller
Financial regarding Personal Liability for carve-
outs to non-recouse language dated March 20, 1996
(filed as Exhibit 10 (aa) to the Partnership's Form
10-K as of December 31, 1996 and incorporated herein
by this reference).
10 (bb) Settlement Agreement of the Amended Construction Loan to
Portland Lofts Associates, L.P., (Amended Construction
Loan Agreement filed as Exhibit No. 10(m) to the
Partnership's Form 10-K as of December 31, 1992) (filed
as Exhibit 10 (bb) to the Partnership's Form 10-K
as of December 31, 1996 and incorporated herein by this
reference).
10 (cc) Documents relating to the refinancing of the Portland Lofts
Associates, L.P. Mortgage Debt, (all dated as of June 20,
1996).
I. Promissory Note between Portland Lofts Associates,
L.P. and Bank of America Oregon (filed as Exhibit 10
Form 10-K as of December 31, 1996 and incorporated
herein by this reference).
II. The Standing Loan Agreement between Portland Lofts
Associates, L.P. and Bank of America Oregon
(filed as Exhibit 10 (cc) to the Partnership's Form
10-K as of December 31, 1996 and incorporated herein
by this reference).
III. The Deed of Trust, with Assignment of Rents,
Security Agreement and Fixture Filing between
Portland Lofts Associates, L.P. and Bank of America
Oregon (filed as Exhibit 10 (cc) to the
Partnership's Form 10-K as of December 31, 1996
and incorporated herein by this reference).
IV. The Payment Guaranty between Joseph W. Angel, II
and Bank of America Oregon (filed as Exhibit 10 (cc)
to the Partnership's Form 10-K as of December 31,
1996 and incorporated herein by this reference).
V. The Payment Guaranty between Lynne I. Angel and
Bank of America Oregon (filed as Exhibit 10 (cc)
to the Partnership's Form 10-K as of December 31,
1996 and incorporated herein by this reference).
10 (dd) Promissory Note between Portland Loft Associates, L.P.
and Joseph Angel and Lynne Angel, dated December 18, 1996
(filed as Exhibit 10 (dd) to the Partnership's Form 10-K as
of December 31, 1996 and incorporated herein by this
reference).
10 (ee) Forbearance Agreement between Historic Preservation
Properties 1989, L.P. and East Bank Angel Joint Venture,
dated July 1, 1997.
22 List of Investee Partnerships (filed as Exhibit No. 22
to the Partnership's Form 10-K as of December 31, 1989 and
incorporated herein by this reference).
28(ii)(a) Pages 13-25, 28-36 and 36-39 of the Partnership's
Prospectus dated December 19, 1988 (filed with the
Commission pursuant to Rule 424(b) on January 5, 1989
and incorporated herein by this reference).
28(ii)(b) Supplement No. 1 to the Partnership's Prospectus dated
January 20, 1989 (filed as a part of Post-Effective
Amendment No. 1 to the Partnership's Registration
Statement on Form S-11, File No. 33-24129, and incorporated
herein by this reference).
28(ii)(c) Supplement No. 2 to the Partnership's Prospectus dated
June 30, 1989 (filed as part of Post-Effective Amendment
No. 2 to the Partnership's Registration Statement on Form
S-11, File No. 33-24129 and incorporated herein by this
reference).
28(ii)(d) Supplement No. 3 to the Partnership's Prospectus dated
July 25, 1989 (filed as a part of Post-Effective Amendment
No. 2 to the Partnership's Registration Statement on Form
S-11, File No. 33-24129, and incorporated herein by this
reference).
28(ii)(e) Supplement No. 4 to the Partnership's Prospectus dated
September 13, 1989 (filed as a part of Post-Effective
Amendment No. 2 to the Partnership's Registration
Statement on Form S-11, File No. 33-24129, and incorporated
herein by this reference).
28(ii)(f) Supplement No. 5 to the Partnership's Prospectus dated
September 19, 1989 (filed as a part of Post-Effective
Amendment No. 2 to the Partnership's Registration
Statement on Form S-11, File No. 33-24129, and incorporated
herein by this reference).
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ANNUAL REPORT ON FORM 10-K
Items 14 (a) (1) and (2) and 14 (d)
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Historic Preservation
Properties 1989 Limited Partnership
Independent Auditors' Report F-3
Balance Sheets as of December 31, 1997 and 1996 F-4
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-5
Statements of Changes in Partners' Equity (Deficit) for the
Years Ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-7
Notes to Financial Statements F-9
Independent Auditors' Report on Accompanying Information F-18
Financial Statement Schedule:
Real Estate and Accumulated Depreciation Held
Directly and by Investee Entities F-19
Financial Statements of The Cosmopolitan at Mears Park, LLC
(the St. Paul, Minnesota
Investee Entity)
Independent Auditors' Report................................ F-21
Balance Sheets as of December 31, 1997 and 1996 F-22
Statements of Operations for the Year Ended December 31, 1997
and for the Period March 15, 1996 (Inception) through
December 31, 1996 F-23
Statements of Changes in Members' Equity (Deficit) for the
Year Ended December 31, 1997 and the Period March 15, 1996
(Inception) through December 31, 1996 F-24
Statements of Cash Flows for the Year Ended December 31, 1997
and for the Period March 15, 1996 (Inception) through
December 31, 1996 F-25
Notes to Financial Statements F-27
Financial Statements of Portland Lofts Associates
Limited Partnership (the Portland, Oregon
Investee Partnership)
Independent Auditors' Report.................................. F-32
Balance Sheets as of December 31, 1997 and 1996 F-33
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-34
Statements of Changes in Partners' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-35
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-36
Notes to Financial Statements F-38
INDEX TO FINANCIAL STATEMENTS (Continued)
Page
Financial Statements of 402 Julia Street Associates
Limited Partnership (the New Orleans, Louisiana
Investee Partnership)
Independent Auditors' Report................................ . F-44
Balance Sheets as of December 31, 1997 and 1996 F-45
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-46
Statements of Changes in Partners' Equity (Deficit) for the
Years Ended December 31, 1997, 1996 and 1995 F-47
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-48
Notes to Financial Statements F-49
INDEPENDENT AUDITORS' REPORT
The Partners
Historic Preservation Properties 1989 Limited Partnership
Quincy, Massachusetts
We have audited the accompanying balance sheets of Historic
Preservation Properties 1989 Limited Partnership (the Partnership)
as of December 31, 1997 and 1996 and the related statements of
operations, partners' equity (deficit) and cash flows for the year
ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations,
changes in partners' equity (deficit) and cash flows for the years
ended December 31, 1996 and 1995, we did not extend our auditing
procedures to enable us to express an opinion on the results of the
Partnership's operations, changes in partners' equity (deficit) and
cash flows of Historic Preservation Properties 1989 Limited
Partnership for the years ended December 31, 1996 and 1995.
Accordingly, we express no opinion on them.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial
position of Historic Preservation Properties 1989 Limited
Partnership as of December 31, 1997 and 1996, and the results of
its operations and cash flows for the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
February 27, 1998
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
INVESTMENTS IN INVESTEE ENTITIES $ 4,000,210 $ 4,097,336
Less reserve for realization of investments
in Investee Entities (3,469,267) (3,469,267)
530,943 628,069
CASH EQUIVALENTS 175,288 163,316
OTHER ASSETS 77,505 101,155
$ 783,736 $ 892,540
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 33,562 $ 45,844
Total liabilities 33,562 45,844
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY
Limited Partners' Equity - Units of
Investor Limited Partnership Interest,
$1,000 stated value per Unit-Issued
and outstanding 26,588 units 974,008 1,069,565
General Partner's Deficit (223,834) (222,869)
Total partners' equity 750,174 846,696
$ 783,736 $ 892,540
The accompanying notes are an integral part of these financial statements.
F-4
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
REVENUE:
Rental and related income $ - $ 533,027 $ 2,043,734
Interest and other income 8,912 19,368 120,957
8,912 552,395 2,164,691
EXPENSES:
Operating and administrative 164,308 177,397 131,791
Property operating expenses:
Other property operating - 57,709 313,375
Management fees - 21,940 86,771
Repairs and maintenance - 52,728 192,568
Utilities - 84,691 302,788
Real estate taxes - 85,698 330,492
Insurance - 7,295 30,150
Depreciation and amortization - 124,804 524,903
164,308 612,262 1,912,838
PROVISION FOR IMPAIRMENT OF REAL
ESTATE - (8,437,963) -
INCOME (LOSS) FROM OPERATIONS (155,396) (8,497,830) 251,853
INTEREST EXPENSE - 508,073 2,163,677
EQUITY IN INCOME (LOSS)
OF INVESTEE ENTITIES 58,874 297,734 (16,186)
NET LOSS BEFORE EXTRAORDINARY
GAIN (96,522) (8,708,169) (1,928,010)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - 9,182,017 -
NET INCOME (LOSS) $ (96,522) $ 473,848 $(1,928,010)
NET INCOME (LOSS) ALLOCATED
TO GENERAL PARTNER $ (965) $ 4,738 $ (19,280)
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ (95,557) $ 469,110 $(1,908,730)
NET INCOME (LOSS) PER UNIT OF
INVESTOR LIMITED PARTNERSHIP
INTEREST, BASED ON 26,588 UNITS
ISSUED AND OUTSTANDING:
LOSS BEFORE EXTRAORDINARY GAIN $ (3.59) $ (324.25) $ (71.79)
EXTRAORDINARY GAIN - 341.89 -
NET INCOME (LOSS) $ (3.59) $ 17.64 $ (71.79)
The accompanying notes are an integral part of these financial statements.
F-5
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
Units of
Investor Investor
Limited Limited General
Partnership Partners' Partner's
Interest Equity Deficit Total
BALANCE, December 31,
1994 (Unaudited) 26,588 $ 2,509,185 $ (208,327) $ 2,300,858
Net Loss (Unaudited) - (1,908,730) (19,280) (1,928,010)
BALANCE, December 31,
1995 (Unaudited) 26,588 600,455 (227,607) 372,848
Net Income (Unaudited) - 469,110 4,738 473,848
BALANCE, December 31,
1996 (Unaudited) 26,588 1,069,565 (222,869) 846,696
Net Loss - (95,557) (965) (96,522)
BALANCE, December 31,
1997 26,588 $ 974,008 $(223,834) $ 750,174
The accompanying notes are an integral part of these financial statements.
F-6
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (96,522) $ 473,848 $ (1,928,010)
Adjustment to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization - 124,804 524,903
Amortization of discount on
mortgage payable - 233,893 930,442
Provision for impairment of
real estate at transfer
of ownership interest in real
estate to investee entity - 8,437,963 -
Extraordinary gain on
extinguishment of debt - (9,182,017) -
Deferred interest expense added
to the principal of mortgage
payable - 78,237 94,087
Equity in (income) loss in
investee entities (58,874) (297,734) 16,186
Decrease (increase) in other
assets 23,650 (23,306) 10,701
Increase (decrease) in accounts
payable and accrued expenses (12,282) 87,087 (27,705)
Net cash used in operation
activities (144,028) (67,225) (79,396)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to building and
improvements - - (16,369)
Purchase of furniture and
equipment - (2,694) (2,349)
Decrease in due from investee
entities - - 3,000
Cash payment at transfer of
ownership interest in
investment in real estate
to investee entity - (679,567) -
Cash distributions from
investee entities 156,000 124,200 -
Net cash provided by (used
in) investing activities 156,000 (558,061) (15,718)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payment on mortgage
note payable - - (1,310,625)
Payment of deferred financing
fees - - (19,593)
Cash used in financing
activities - - (1,330,218)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 11,972 (625,286) (1,425,332)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 163,316 788,602 2,213,934
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 175,288 $ 163,316 $ 788,602
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ - $ 301,349 $ 832,170
The accompanying notes are an integral part of these financial statements.
F - 7
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NON-CASH INVESTING ACTIVITY:
On March 15, 1996, Historic Preservation Properties 1989 Limited
Partnership contributed the following assets and liabilities to
The Cosmopolitan at Mears Park, LLC:
Land $ 1,009,000
Building and improvements 6,074,104
Furniture and equipment 200,994
Cash and cash equivalents 144,633
Cash, security deposits 94,093
Real estate tax escrow 168,416
Rent receivable 6,533
Deferred financing fees 233,397
Mortgage note payable (7,650,000)
Accounts payable and accrued expenses (184,799)
Security deposits (96,371)
The accompanying notes are an integral part of these financial statements.
F-8
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) Organization and General Partner - BHP
Historic Preservation Properties 1989 Limited Partnership
(HPP'89) was formed on September 1, 1988 under the Delaware
Revised Uniform Limited Partnership Act. The purpose of HPP'89
is to invest in a diversified portfolio of real properties, for
which certain costs of rehabilitation have qualified for
rehabilitation tax credits (Rehabilitation Tax Credits).
Boston Historic Partners Limited Partnership (BHP), a
Massachusetts limited partnership, is the general partner of
HPP'89. BHP was formed in November 1986 for the purpose of
organizing, syndicating and managing publicly offered real
estate limited partnerships (Public Rehabilitation
Partnerships). As of December 31, 1997, BHP had established
three such partnerships, including HPP'89. Officers of Boston
Capital Planning Group, Inc. (BCPG), an affiliate of BHP, were
the initial limited partners of HPP'89. The initial limited
partners withdrew as limited partners upon the first admission
of Investor Limited Partners (Limited Partners). Prior to
admission of the Limited Partners, all costs incurred by HPP'89
were paid by BHP. On May 3, 1989, the first Limited Partners
were admitted to HPP'89 and operations commenced.
The Amended and Restated Agreement of Limited Partnership
(Partnership Agreement) of HPP'89 generally provides that all
net profits, net losses, tax credits and cash distributions of
HPP'89 from normal operations subsequent to admission of
Limited Partners shall be allocated 99% to the Limited Partners
and 1% to BHP. Proceeds from sales or refinancings generally
will be distributed 100% to the Limited Partners until they
have received an amount equal to their Adjusted Capital
Contributions (as defined in the Partnership Agreement) plus,
priority returns and additional incentive priority returns for
certain Limited Partners admitted to HPP'89 on or prior to
certain specified dates.
(2) Summary of Significant Accounting Policies
Investments in Investee Entities
HPP'89 accounts for its investments in its four investee
entities (Investee Entities) under the equity method. In
general, under the equity method of accounting for investments,
the investment is recorded at cost and the current allocable
portion of earnings (losses) of an Investee Entity is recorded
as income (loss) with a corresponding increase (decrease) to
the investment account. The allocable portion of losses of an
Investee Entity are not recorded after the respective
investment account is reduced to zero. The allocable portion
of earnings of an Investee Entity are not recorded until all
previously unrecorded losses are absorbed.
Distributions received are recorded as reductions to the
investment account. Distributions received from an Investee
Entity whose respective investment account has been reduced to
zero are recorded as income.
Expenditures attributable to HPP'89's investments (primarily
evaluation and acquisition fees and interest expense incurred
during construction periods) are treated as additional
investment basis and are amortized on a straight-line basis
over the estimated life of the investee assets (40 years).
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(2) Summary of Significant Accounting Policies (Continued)
Investment in Real Estate and Depreciation
Investment in real estate was held for lease and stated at cost through the
date of contribution to TCAMP (see Note 3). Depreciation was computed on
a straight-line basis over 40 years for real property and over seven years
for personal property.
Cash, Cash Equivalents and Concentration of Credit Risk
HPP'89 considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December
31, 1997 and 1996, cash equivalents totaled $175,288 and $163,316,
respectively.
At December 31, 1997 and 1996, HPP'89 had approximately $77,600
and $63,600, respectively, of cash equivalents on deposit in a
bank in excess of amounts insured by the Federal Deposit Insurance
Corporation.
Deferred Evaluation and Acquisition Costs
Expenditures related to the direct purchase of real estate had
been capitalized and were being amortized on a straight-line
basis over the estimated life of real property (40 years)
through the date of the contribution of real estate to TCAMP (see Note 3).
Rental Income
Until March 15, 1996, HPP'89 had a direct ownership interest in
a property located in St. Paul, Minnesota (see Note 3).
Revenue under annual operating leases from that property was
recorded when due.
Income Taxes
No provision (benefit) for income taxes is reflected in the
accompanying financial statements of HPP'89. Partners of
HPP'89 are required to report on their tax returns their
allocable share of income, gains, losses, deductions and
credits determined on a tax basis.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies
During 1989, HPP'89 acquired general partnership interests in
three Investee Entities, as well as a direct interest in a
property located in St. Paul, Minnesota. Each such Investee
Entity placed a property in service in December 1989 and
commenced initial leasing activity.
As discussed below, in March 1996, HPP'89 contributed land,
building and improvements and furniture and equipment related
to its property located in St. Paul, Minnesota (the
Cosmopolitan Building), and certain other assets and
liabilities, to a limited liability company for a 50% ownership
interest in the Investee Entity.
F-10
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
HPP'89's current allocable percentage of operating income
and/or losses in the Investee Entities ranges from 50% to 99%.
Each of the Investee Entities' agreements is different but, in
general, provides for a sharing of management duties and
decisions among HPP'89 and the respective local general
partners or other managing members, and certain priorities to
HPP'89 with respect to return on and return of invested
capital. Significant Investee Entity decisions require the
approval of both HPP'89 and the local general partners or other
managing members. In addition, each Investee Entity has
entered into various agreements with its local general partners
or members, or their affiliates, to provide development,
management and other services, for which the local general
partners or other members (or their affiliates), are paid fees
by the respective Investee Entity.
Following is summary of information regarding the Investee
Entities and HPP'89's investments therein:
Jenkins Court Associates Limited Partnership (Jenkins Court) is
a Delaware limited partnership which was formed on December 20,
1988 to acquire, construct, rehabilitate, operate and manage a
144,000 net rentable square foot five-story building and 30,000
net rentable square feet of new retail space, including storage
areas and parking facilities, located at Old York Road and
Rydal Road, Jenkintown Borough, Pennsylvania.
HPP'89 contributed $6,563,064 through the date of Jenkins
Court's Chapter 11 filing (see below) to the capital of Jenkins
Court and had a general partnership interest therein. HPP'89's
investment in Jenkins Court represented approximately 36% of
the aggregate amount which HPP'89 originally contributed to the
capital of its three Investee Entities acquired during 1989 and
to purchase its direct interest in the Cosmopolitan Building.
On November 23, 1994, Jenkins Court filed a petition for relief
under Chapter 11 of the federal bankruptcy laws in United
States Bankruptcy Court for the jurisdiction of the Eastern
District of Pennsylvania. On August 31, 1995, after maximum
vesting of the remaining Rehabilitation Tax Credits had been
achieved for 1995 and considering the unlikelihood of a
successful plan of reorganization, Jenkins Court and the
mortgage holder entered into a settlement agreement under which
Jenkins Court transferred the deed and title of the property to
the mortgage holder. The mortgage holder released Jenkins
Court and its guarantors for the entire indebtedness, and
Jenkins Court received $25,000 to pay certain professional fees
incurred during the bankruptcy proceedings. The transfer of
deed and title of the property to the mortgage holder resulted
in a recapture of Rehabilitation Tax Credits in 1995 of $44,451
to HPP'89, of which $44,007 was allocated to the Limited
Partners of HPP'89. Tax credits allocated to the Limited
Partners of HPP'89 totaling $2,758,113 were vested on or before
June 15, 1995. Therefore, 98.4% of the Limited Partners' tax
credits were vested prior to the loss of the property.
Although Jenkins Court no longer owns investment property or
has property operations after August 31, 1995, the Jenkins
Court partnership will remain in existence until the resolution
of certain partnership assets and liabilities. Partnership
assets include approximately $312,000 of unsecured receivables
from the developer and its affiliates which have been fully
reserved for at December 31, 1997 and 1996; partnership
liabilities include approximately $94,000 of trade payables
which have been fully reserved for at December 31, 1997 and
1996 since HPP'89 does not believe such amount will be recourse
to HPP'89, as well as a $250,000 default loan and accrued
interest thereon which had been provided by HPP'89 and secured
by the developer's interest in an unaffiliated limited
partnership.
F-11
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
402 Julia Street Associates Limited Partnership (402 Julia) is
a Delaware limited partnership formed on July 25, 1989 to
acquire, construct, rehabilitate, operate and manage a 19,000
square foot site and the building situated thereon and to
rehabilitate the building into 24 residential units and
approximately 3,500 net rentable square feet of commercial
space located thereon at 402 Julia Street, New Orleans,
Louisiana. At December 31, 1997, 402 Julia had leased 89%
(unaudited) of its residential units and 100% (unaudited) of
its commercial space for a combined occupancy of 91%
(unaudited).
HPP'89 originally contributed $775,000 to the capital of 402
Julia and owns a general partnership interest therein. HPP'89's
original investment in 402 Julia represented approximately 4%
of the aggregate amount which HPP'89 has contributed to the
capital of its three Investee Entities acquired in 1989 and to
purchase its direct interest in the Cosmopolitan Building.
On September 16, 1993, HPP'89 sold one-third of its general
partnership interest in 402 Julia to the developer general
partner for $185,000. HPP'89's percentage of interest in 402
Julia was thereby reduced from 98% to 65%. The terms of the
sale required an initial payment of $100,000, which was
received in September 1993, and requires annual payments of
$3,500 through 2016 and a final payment of $4,500 in 2017.
At December 31, 1997 and 1996, the remaining uncollected
payments total $71,000 and $74,500, respectively, which are
secured by the interest sold to the developer general
partner. The sale transaction did not generate any Investment
Tax Credit recapture.
Rehabilitation Tax Credits generated by 402 Julia and
previously allocated to HPP'89 Limited Partners totaled
$248,796 since inception. As of March 31, 1995, 100% of these
credits were fully vested.
HPP'89 recorded a net loss of $10,596, $3,327 and $12,934 for
the years ended December 31, 1997, 1996, and 1995 respectively,
as well as amortization of $3,252 for each of the years ended
December 31, 1997, 1996 and 1995, from the 402 Julia
Investment.
Portland Lofts Associates Limited Partnership (Portland Lofts)
is a Delaware limited partnership formed on August 8, 1989 to
acquire, construct, rehabilitate, operate and manage three
buildings containing 89 residential units and 29,250 square
feet of ground floor space useable as either commercial space
or as home/studio space for artists, located at 555 Northwest
Park Avenue in Portland, Oregon. At December 31, 1997, Portland
Lofts had leased approximately 93% (unaudited) of its
residential apartment units and 91% (unaudited) of the
commercial space for a combined occupancy of 92% (unaudited).
HPP'89 contributed $3,820,000 through December 31, 1997 to the
capital of Portland Lofts and owns a general partnership
interest therein. HPP'89's investment in Portland Lofts
represents approximately 21% of the aggregate amount which
HPP'89 originally contributed to the capital of its three
Investee Entities acquired in 1989 and to purchase its direct
interest in the Cosmopolitan Building.
Rehabilitation Tax Credits generated by Portland Lofts and
allocated to HPP'89's Limited Partners totaled $1,775,571 since
inception. As of April 1, 1996, 100% of these tax credits were
fully vested.
On May 21, 1996, Portland Lofts and the holder of its mortgage
note and a $550,000 unsecured note entered into a Settlement
Agreement (the Agreement) to resolve claims concerning the
mortgage note and the unsecured note (the Notes). According to
the Agreement, Portland Lofts was allowed, until July 31, 1996,
to pay $5,400,000 to the holder in full satisfaction of the
Notes.
F-12
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
On June 20, 1996, Portland Lofts issued a promissory mortgage
note to a bank in the amount of $5,625,000 and a promissory
note to one of its general partners in the amount of $340,000
to provide sufficient funds to pay in full the $5,400,000
settlement amount with the holder, a separate $400,000 note
payable and all related closing costs. The transaction
resulted in an extraordinary gain on extinguishment of debt of
$1,656,579.
In 1990, HPP'89 had reserved against its investment in Portland
Lofts reducing such investment to zero due to the substantial
doubt that Portland Lofts may not be able to continue as a
going concern. Due to the debt settlement and refinancing
completed in June 1996, Portland Lofts is expected to continue
as a going concern. Generally, under the equity method of
accounting, an investment may not be carried below zero.
Accordingly, since the Portland Lofts Investment was fully
reserved for, HPP'89 had cumulative unrecorded losses of
$1,325,926 at December 31, 1995. Principally as a result of
the extraordinary gain on extinguishment of debt, Portland
Lofts generated net income of $1,547,514 during the year ended
December 31, 1996 of which HPP'89 has been allocated
$1,532,039. Consequently, HPP'89 was able to recover all of its
cumulative unrecorded losses from Portland Lofts and recognize
income in equity from its investment in Portland Lofts of
$206,113 for the year ended December 31, 1996. At December 31,
1996, HPP'89's net investment balance in Portland Lofts
totaled approximately $180,000.
For the year ended December 31, 1997, Portland Lofts allocated
a net loss of $173,710 and paid cash distributions of $156,000
to HPP'89. As mentioned above, generally, under the equity
method of accounting, an investment may not be carried below
zero. During 1997, HPP'89's investment in Portland Lofts was
reduced to zero due to allocated losses and distributions
received. Although HPP'89's investment in Portland Lofts has
been reduced to zero, Portland Lofts is expected to continue as
a going concern and to continue to provide distributions to
HPP'89. At December 31, 1997, HPP'89 has cumulative unrecorded
losses totaling $95,392 and recorded distributions received of
$54,206 as equity in income of investee entities for the year
ended December 31, 1997.
The Cosmopolitan at Mears Park, LLC (TCAMP) On December 18,
1989, HPP'89 acquired the Cosmopolitan Building containing 255
residential units and approximately 2,200 square feet of
commercial space. The building was renovated, and certain
renovation costs qualified for Rehabilitation Tax Credits.
HPP'89's investment in The Cosmopolitan Building represented
approximately 39% of the aggregate amount which HPP'89
originally contributed to the capital of its three Investee
Entities acquired in 1989 and to purchase its direct interest
in the Cosmopolitan Building. At December 31, 1997, the
economic occupancy of TCAMP was 98% (unaudited).
Rehabilitation Tax Credits generated by the purchase of the
Cosmopolitan Building and previously allocated to HPP'89's
Limited Partners totaled $4,307,491 since inception. As of
December 31, 1994, 100% of these tax credits were fully vested.
The mortgage HPP'89 assumed relating to its purchase of the
Cosmopolitan Building had an original maturity date of December
18, 1999. On January 5, 1995, HPP'89 consummated the Second
Amendment to the Loan Agreement (Second Amendment) with the
holder to resolve a dispute over funds in a restricted escrow
account. The terms of the Second Amendment allowed HPP'89 to
be paid the interest earned on, and overfunded deposits to,
the escrow account. Also, HPP'89 received an option to buy the
mortgage note for the fair market value of the property. In
exchange, HPP'89 released the principal funds of the escrow
account (approximately $1,311,000) for payment on the
outstanding mortgage and agreed to reduce the maturity date of
the note from December 18, 1999 to December 18, 1996.
F-13
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan
Building, and certain other assets and liabilities, to TCAMP (a
Limited Liability Company) for a 50% ownership interest.
Concurrently, another member contributed $650,000 cash to TCAMP
for a 50% ownership interest. Simultaneously, TCAMP issued a
mortgage note in the amount of $7,000,000, the proceeds of
which along with the $650,000 contributed cash were used to
settle in full HPP'89's mortgage note payable related to the
Cosmopolitan Building. The fair value of the Cosmopolitan
Building and other assets contributed by HPP'89 approximated
the fair value of liabilities transferred to TCAMP by HPP'89
and the amount paid by TCAMP to settle in full HPP'89's
mortgage note payable related to the Cosmopolitan Building.
This transaction resulted in a provision for impairment of real
estate of $8,437,963 to recognize a reduction to fair value at
the date of contribution to TCAMP and an extraordinary gain on
debt extinguishment of $9,182,017 to recognize the difference
between the amount outstanding under the mortgage payable and
the amount accepted by the lender from TCAMP in full
settlement. Distributions from TCAMP to HPP'89 and the other
members are subject to the order of distributions as specified
in the Operating Agreement of TCAMP. To the extent that the
Partnership accumulates from whatever sources operating reserve
amounts greater than $140,000 at the end of any fiscal year,
the Partnership is required to contribute such excess within
thirty days of the end of such fiscal year to TCAMP as
additional capital contributions to be distributed by TCAMP to
its other member as a return of its original capital
contribution.
As a result of the contribution of the Cosmopolitan to TCAMP
for a 50% ownership interest in TCAMP, HPP'89 no longer has
operations directly related to real estate activity. As of
March 15, 1996 (the date of contribution), the Partnership
accounts for its investment in TCAMP under the equity method of
accounting.
HPP'89 recorded net income of $96,834 and $32,334 for the year
ended December 31, 1997 and for the period March 15, 1996
(inception) through December 31, 1996, respectively, from the
TCAMP Investment. HPP'89 received cash distributions of
$98,200 from TCAMP for the period March 15, 1996 (inception)
through December 31, 1996. Generally, under the equity method
of accounting, an investment cannot be carried below zero. At
December 31, 1996, HPP'89 reduced its investment in TCAMP to
zero and recorded distributions received of $65,866 as equity
in income of investee entities.
HPP'89's investments in the Investee Entities at December 31,
1997 and 1996 are summarized as follows:
Cumulative: 1997 1996
Investments and advances made in cash $ 4,845,000 $ 4,845,000
Evaluation and acquisition costs 835,709 835,709
Interest capitalization and other costs 39,615 39,615
Net equity in loss of Investee Entities (1,151,818) (1,213,944)
Reserves for realization of investments (3,469,267) (3,469,267)
Amortization of certain costs (46,476) (43,224)
Distributions received from Investee
Entities (280,200) (124,200)
Sale of one third interest of Investee
Entity (241,620) (241,620)
$ 530,943 $ 628,069
The above summary of HPP'89's investments in Investee Entities
does not include its investment in Jenkins Court.
The equity in income (loss) of Investee Entities reflected in
the accompanying statements of operations included allocated
income of $62,126 and $300,986 (unaudited) for the years ended
December 31, 1997 and 1996, respectively, and a loss of $12,934
(unaudited) for the year ended December 31, 1995, and annual
amortization of certain costs of $3,252, for the years ended
December 31, 1997, 1996 (unaudited) and 1995 (unaudited).
F-14
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
Summary combined balance sheets of the four Investee Entities
as of December 31, 1997 and 1996, and summary combined
statements of operations for the years ended December 31, 1997,
1996 and 1995 are as follows:
COMBINED BALANCE SHEETS
ASSETS
1997 1996
Buildings and improvements, (net of
accumulated depreciation;
$2,896,633, 1997; $2,350,515, 1996) $ 15,855,989 $ 16,382,387
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization; $105,861, 1997;
$47,543, 1996) 561,218 722,333
Cash and cash equivalents 173,001 296,895
Total assets $ 18,631,534 $ 19,442,941
LIABILITIES AND PARTNERS' EQUITY
1997 1996
Liabilities:
Mortgage and notes payable $ 13,412,706 $ 13,564,967
Other liabilities 735,828 754,195
Total liabilities 14,148,534 14,319,162
Partners' equity:
HPP'89 3,385,594 3,629,067
Other partners 1,097,406 1,494,712
Total partners' equity 4,483,000 5,123,779
Total liabilities and partners'
equity $ 18,631,534 $ 19,442,941
Members' equity in TCAMP has been classified as
partners' equity in the combined balance sheets.
F-15
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (Continued)
COMBINED STATEMENTS OF OPERATIONS
1997 1996 1995
(Unaudited) (Unaudited)
Revenue:
Rental revenue $ 3,575,199 $ 2,959,725 $ 2,635,084
Interest and other income 128,522 651,311 92,415
3,703,721 3,611,036 2,727,499
Expenses:
Interest expense 1,269,792 1,248,150 821,471
Depreciation and amortization 594,870 548,737 1,017,302
Operating expenses 1,837,074 1,404,210 1,075,333
Loss on transfer of property - - 1,142,247
3,701,736 3,201,097 4,056,353
Net income (loss) from operations 1,985 409,939 (1,328,854)
Extraordinary item: gain on
settlement of debt - 1,656,579 -
Net income $ 1,985 $2,066,518 $(1,328,854)
Net income (loss) allocated to
HPP'89 $ (87,473) $1,997,503 $(1,266,194)
Net income (loss) allocated to
other partners $ 89,458 $ 69,015 $ (62,660)
The net loss for the year ended December 31, 1995 includes operating income
from Jenkins Court of $74,608 (unaudited) through August 31, 1995, the
date of transfer of the property.
(4) Transactions With Related Parties and Commitments
In July 1993, HPP'89 engaged Portfolio Advisory Services, Inc.
(PAS), corporate general partner of BHP, to provide asset
management, accounting, and investor services to HPP'89. PAS
performed such services for no fee, but was reimbursed for all
operating costs of providing such services. For the period
January 1, 1995 to September 30, 1995, PAS was reimbursed
approximately $68,000 (unaudited) for asset management,
accounting and investor services to HPP'89.
On October 1, 1995, HPP'89 engaged Claremont Management
Corporation (CMC), a Massachusetts corporation previously
unaffiliated and a related party as of March 15, 1996 through
ownership by a member of TCAMP, to provide asset management,
accounting and investor services. CMC provides such services
for an annual management fee of $67,200 plus reimbursement of
all its costs of providing these services. The contract with
CMC expires June 30, 1998 and is automatically extended on a
yearly basis unless otherwise terminated as provided for in the
agreement. For the years ended December 31, 1997 and 1996 and
for the period October 1, 1995 through December 31, 1995, CMC
was reimbursed $73,850, $61,635 (unaudited) and $15,397
(unaudited), respectively, for operating costs.
On November 1, 1995, HPP'89 entered into a management agreement
with CMC, to manage the Cosmopolitan Building. CMC's
management agreement required the payment of management fees
equal to the greater of $5,200 monthly or 4% of gross receipts
as defined in the agreements. For the period November 1, 1995
through December 31, 1995, and for the period January 1, 1996
through March 15, 1996, CMC was paid $14,400 (unaudited) and
$21,940 (unaudited), respectively, in property management fees.
The CMC management agreement also required the Cosmopolitan to
maintain with CMC at all times an Operating Account in the
amount of $100,000 and a Contingency Reserve Account in the
amount of $50,000 for the benefit of the Cosmopolitan when
HPP'89 contributed the property to TCAMP. On March 15, 1996,
the property management contract between HPP'89 and CMC was
terminated and TCAMP directly engaged CMC under similar
management fee terms.
F-16
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(5) Fair Value of Financial Instruments
The fair values of cash equivalents and accounts payable and
accrued expenses at December 31, 1997 and 1996 approximate
their carrying amounts due to their short maturities.
F-17
Independent Auditors' Report on Accompanying Information
The Partners
Historic Preservation Properties 1989 Limited Partnership
Quincy, Massachusetts
We have audited, in accordance with generally accepted auditing
standards, the financial statements as of and for the year ended
December 31, 1997 and the balance sheet as of December 31, 1996 of
Historic Preservation Properties 1989 Limited Partnership (the
Partnership) and have issued our report thereon dated February 27,
1998. Our audits were made for the purpose of forming an opinion on
the 1997 basic financial statements and 1996 balance sheet taken as a
whole. The supplemental schedule is the responsibility of the
Partnership's management and is presented for the purposes of complying
with the Securities and Exchange Commission's rules and is not part of
the 1997 basic financial statements or 1996 balance sheet. The
information included in this schedule has been subjected to the
auditing procedures applied in the audits of the 1997 basic financial
statements and 1996 balance sheet, and in our opinion fairly states in
all material respects the financial data required to be set forth
therein in relation to the 1996 basic financial statements and 1996
balance sheet as a whole.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
February 27, 1998
F-18
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
REAL ESTATE & ACCUMULATED DEPRECIATION HELD DIRECTLY
BY INVESTEE ENTITIES
DECEMBER 31, 1997
(IN THOUSANDS)
Costs Capitalized
Initial Costs Subsequent to Acquisition
Building &
Description and Encum- Improve- Improve- Carrying
Ownership Percentage brances Land ments ments Costs
Residential Building/
Commercial Building
402 Julia Street
Associates L.P.
New Orleans, Louisiana
65% 1,010 133 282 1,154 145
Residential Building/
Commercial Building
Portland Lofts
Associates L.P.
Portland, Oregon
99% 5,534 900 886 9,273 610
Residential Building
The Cosmopolitan at
Mears Park, LLC
St. Paul, Minnesota
50% 6,869 1,009 6,074 328 -
Total $ 13,413 $ 2,042 $ 7,242 $ 10,755 $ 755
Gross Amounts at
December 31, 1997 (Note 1)
Accum-
ulated
Building & Deprec-
Description and Improve- Total iation
Ownership Percentage Land ments (Note 3) (Note 2)
Residential Building/
Commercial Building
402 Julia Street
Associates L.P.
New Orleans, Louisiana
65% 133 1,581 1,714 316
Residential Building/
Commercial Building
Portland Lofts
Associates L.P.
Portland, Oregon
99% 900 10,769 11,669 2,174
Residential Building
The Cosmopolitan at
Mears Park, LLC
St. Paul, Minnesota
50% 1,009 6,40 7,411 407
Total $ 2,042 $ 18,752 $20,794 $ 2,897
Date of Date Depreciable
Description and Construction Interest Life
Ownership Percentage or Rehabilitation Acquired (Years)
Residential Building/
Commercial Building
402 Julia Street
Associates L.P.
New Orleans, Louisiana
65% 8/1/89 7/25/89 40
Residential Building/
Commercial Building
Portland Lofts
Associates L.P.
Portland, Oregon
99% 8/31/89 8/8/89 40
Residential Building
The Cosmopolitan at
Mears Park, LLC
St. Paul, Minnesota
50% 12/18/89 3/15/96 34
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
REAL ESTATE & ACCUMULATED DEPRECIATION HELD DIRECTLY
BY INVESTEE ENTITIES (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
Note 1: The aggregate cost of each property on a tax basis net of
the reduction due to the rehabilitation tax credit at December 31,
1997, 1996 and 1995 are as follows:
1997 1996 1995
Jenkintown, Pennsylvania $ - $ - $ -
New Orleans, Louisiana 1,458 1,458 1,458
Portland, Oregon 9,733 9,733 9,733
St. Paul, Minnesota 21,013 21,013 20,997
$ 32,204 $ 32,204 $ 32,188
Note 2: The changes in accumulated depreciation for the
years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
Balance at beginning of period $ 2,351 $ 4,692 $ 7,849
Depreciation during the year 546 620 822
Write-off due to disposal of
property - (3,979)
Transfer of property - (2,961) -
$ 2,897 $ 2,351 $ 4,692
Note 3: The changes in total costs of land, building and
improvements for the years ended December 31, 1997, 1996
and 1995 are as follows:
1997 1996 1995
Balance at beginning of period 20,774 $ 29,103 $ 55,628
Additional Building and
Improvements 20 109 76
Disposal of Building and
Improvements (Jenkins Court) - - (26,601)
Provision for write down of
building & improvement
(The Cosmopolitan) - (8,438) -
Balance at end of period $ 20,794 $ 20,774 $ 29,103
F-20
THE COSMOPOLITAN AT MEARS PARK, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
THE COSMOPOLITAN AT MEARS PARK, LLC
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
Table of Contents
Page
Independent Auditors' Report F-21
Balance Sheets as of December 31, 1997 and 1996 F-22
Statements of Operations for the Year Ended December 31,
1997 and for the Period March 15, 1996 (Inception)
through December 31, 1996 F-23
Statements of Changes in Members' Equity (Deficit)
for the Year Ended December 31, 1997 and for the
Period March 15, 1996 (Inception) through December 31,
1996 F-24
Statements of Cash Flows for the Year Ended December 31,
1997 and the Period March 15, 1996 (Inception)
through December 31, 1996 F-25
Notes to Financial Statements F-27
F-20
Independent Auditors' Report
The Members
The Cosmopolitan at Mears Park, LLC
Quincy, Massachusetts
We have audited the accompanying balance sheets of The
Cosmopolitan at Mears Park, LLC (the "Company") as of December 31, 1997
and 1996, and the related statements of operations, changes in members'
equity (deficit) and cash flows for the year ended December 31, 1997
and for the period March 15, 1996 (inception) through December 31,
1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
The Cosmopolitan at Mears Park, LLC as of December 31, 1997 and 1996,
and the results of its operations and cash flows for the year ended
December 31, 1997 and for the period March 15, 1996 (inception)
through December 31, 1996, in conformity with generally accepted
accounting principles.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
February 27, 1998
F-21
THE COSMOPOLITAN AT MEARS PARK, LLC
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Investment in real estate:
Land $ 1,009,000 $ 1,009,000
Building and improvements 6,194,821 6,179,155
Furniture and equipment 207,476 206,421
7,411,297 7,394,576
Less accumulated depreciation 407,054 172,569
7,004,243 7,222,007
Cash 51,763 68,711
Cash equivalent, security deposits 21,069 111,603
Real estate tax escrow 56,557 67,448
Replacement reserve 38,641 34,411
Rent receivable 1,775 698
Prepaid expenses 17,563 15,211
Deferred financing fees, less accumulated
amortization (1997, $58,349; 1996, $25,007) 175,048 208,390
$ 7,366,659 $ 7,728,479
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage note payable $ 6,868,764 $ 6,949,879
Accounts payable and accrued expenses 61,499 64,047
Accrued interest 52,317 52,935
Security deposits 103,955 106,900
Total liabilities 7,086,535 7,173,761
Commitments (Notes 4 and 5)
Members' equity 280,124 554,718
$ 7,366,659 $ 7,728,479
The accompanying notes are an integral part of these financial statements.
F-22
THE COSMOPOLITAN AT MEARS PARK, LLC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
1997 1996
Revenue:
Rental income $ 2,302,138 $ 1,659,166
Interest and other income 26,254 15,637
Total revenue 2,328,392 1,674,803
Expenses:
Operating and administrative 232,858 171,672
Management fee 93,136 66,819
Repairs and maintenance 228,972 164,186
Utilities 315,586 237,425
Real estate taxes 332,496 251,926
Insurance 32,590 22,839
Depreciation and amortization 267,827 197,576
Total expenses 1,503,465 1,112,443
Income from operations 824,927 562,360
Interest expense 631,259 497,692
Net income $ 193,668 $ 64,668
The accompanying notes are an integral part of these financial statements.
F-2
THE COSMOPOLITAN AT MEARS PARK, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
Historic
Preservation
Properties 1989 Total
Lillian Limited Members'
Carney Partnership Equity
Capital contributions $ 650,000 $ - $ 650,000
Distributions (61,750) (98,200) (159,950)
Net income 32,334 32,334 64,668
Balance, December 31,
1996 620,584 (65,866) 554,718
Distributions (468,262) - (468,262)
Net income 96,834 96,834 193,668
Balance, December 31,
1997 $ 249,156 $ 30,968 $ 280,124
Thee accompanying notes are an integral part of these financial statements.
F-24
THE COSMOPOLITAN AT MEARS PARK, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 193,668 $ 64,668
Adjustment to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 267,827 197,576
Decrease (increase) in rent receivable (1,077) 5,835
Increase in prepaid expenses (2,352) (15,211)
Decrease in accounts payable and
accrued expenses (2,548) (129,496)
Decrease (increase) in cash equivalent,
security deposits, net 87,589 (6,981)
Increase (decrease) in accrued interest (618) 52,935
Net cash provided by operating activities 542,489 169,326
CASH FLOWS FROM INVESTING ACTIVITIES:
Funds disbursed for acquisition of real
estate and property assets and liabilities - (650,000)
Purchase of improvements, furniture and
equipment (16,721) (101,734)
Decrease in real estate tax escrow and
replacement reserve 6,661 66,557
Net cash used in investing activities (10,060) (685,177)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from member contribution - 650,000
Principal payments on mortgage note
payable (81,115) (50,121)
Distributions to members (468,262) (159,950)
Net cash provided by (used in) financing
activities (549,377) 439,929
NET DECREASE IN CASH (16,948) (75,922)
CASH, BEGINNING 68,711 144,633
CASH, END OF YEAR $ 51,763 $ 68,711
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 631,877 $ 444,757
The accompanying notes are an integral part of these financial statements.
F-25
THE COSMOPOLITAN AT MEARS PARK, LLC
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
NON-CASH INVESTING ACTIVITY:
On March 15, 1996, Historic Preservation Properties 1989
Limited Partnership contributed the following assets and
liabilities to The Cosmopolitan at Mears Park, LLC:
Land $ 1,009,000
Building and improvements 6,074,104
Furniture and equipment 200,994
Cash and cash equivalents 144,633
Cash, security deposits 94,093
Real estate tax escrow 168,416
Rent receivable 6,533
Deferred financing fees 233,397
Mortgage note payable paid by TCAMP
on behalf of HPP'89 (7,650,000)
Accounts payable and accrued expenses (184,799)
Security deposits (96,371)
Also, on March 15, 1996, The Cosmopolitan at Mears Park, LLC paid the
above noted $7,650,000 mortgage note in full with the proceeds of a
$7,000,000 mortgage note issued to a lender and $650,000 of cash
contributions received from a Member.
The accompanying notes are an integral part of these financial statements.
F-26
THE COSMOPOLITAN AT MEARS PARK, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
(1) Organization and Description of Business
The Cosmopolitan at Mears Park, LLC (TCAMP), a Limited
Liability Company, was formed on March 15, 1996, under the
Delaware Limited Liability Company Act. The purpose of
TCAMP is to engage in investment in, and operation and
development of, real estate and interests therein. The
members of TCAMP are Historic Preservation Properties 1989
Limited Partnership and Lillian Carney (the Members).
Effective March 15, 1996, Historic Preservation Properties
1989 Limited Partnership (HPP'89) contributed land, building
and improvements and furniture and equipment (Contributed
Real Estate), and certain other assets and liabilities to
TCAMP for a 50% ownership interest. Concurrently, Lillian
Carney contributed $650,000 cash to TCAMP for a 50%
ownership interest. Simultaneously, TCAMP issued a
$7,000,000 mortgage note, the proceeds of which, along with
the $650,000 contributed cash, were used to settle in full
HPP'89's mortgage note payable related to the Contributed
Real Estate. The fair value of the Contributed Real Estate
and other assets contributed by HPP'89 approximated the fair
value of liabilities transferred to TCAMP by HPP'89 and the
amount paid by TCAMP to settle in full HPP'89's mortgage
note payable related to the Contributed Real Estate.
TCAMP owns a residential apartment complex containing 255
units located at 250 6th Street, St. Paul, Minnesota. At
December 31, 1997, the economic occupancy of TCAMP was 98%
(unaudited).
(2) Basis of Presentation and Summary of Significant Accounting
Policies
Basis of accounting
TCAMP's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted
accounting principles.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Investment in real estate and depreciation
Investment in real estate is held for lease. Contributed
Real Estate was recorded at fair value and subsequent
additions are stated at cost. Depreciation is computed on a
straight-line basis over the estimated economic lives of the
assets.
Depreciation expense for the year ended December 31, 1997
and for the period March 15, 1996 (inception) through
December 31, 1996 totaled $234,485 and $172,569,
respectively.
F-27
THE COSMOPOLITAN AT MEARS PARK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
(2) Basis of Presentation and Summary of Significant Accounting
Policies (Continued)
Cash, cash equivalents and concentration of credit risk
TCAMP considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash equivalents at December 31, 1997 and 1996
totaled $21,069 and $111,603, respectively.
At December 31, 1997 and 1996, TCAMP had $20,980 and
$82,528, respectively, of cash and cash equivalents on
deposit in banks in excess of amounts insured by the Federal
Deposit Insurance Corporation.
Deferred financing fees
Deferred financing fees have been capitalized and are being
amortized on a straight-line basis over the term of the
mortgage note payable. Amortization expense for the year
ended December 31, 1997 and for the period March 15, 1996
(inception) through December 31, 1996 totaled $33,342 and
$25,007, respectively.
Revenue recognition
Revenue, principally under annual operating leases, is
recorded when due. In most cases, management expects that
in the normal course of business, leases will be renewed or
replaced by other leases.
Income taxes
No provision (benefit) for income taxes is reflected in the
accompanying financial statements since the Members of TCAMP
are required to report their allocable share of net income
(loss) on their respective income tax returns.
(3) Mortgage Note Payable and Escrow Accounts
TCAMP's mortgage note with the lender bears interest at
9.14% per annum and amortizes over a 25 year schedule. The
mortgage note requires monthly payments of principal and
interest, real estate tax escrow deposits and replacement
reserve deposits of $59,416, $29,069 and $4,250,
respectively. The mortgage note matures in March 2003, at
which time all unpaid principal and accrued interest is due.
The mortgage note is secured by TCAMP's property, rents and
assignments of leases.
At December 31, 1997, annual maturities of the mortgage note
for each of the next five years are as follows:
For the year ended December 31, Amount
1998 $ 88,851
1999 97,321
2000 106,599
2001 116,761
2002 127,891
F-28
THE COSMOPOLITAN AT MEARS PARK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
(4) Related Party Transaction and Commitment
TCAMP entered into a management agreement with Claremont
Management Corporation (CMC) to manage the property. The
sole shareholder of CMC is related to Lillian Carney. The
agreement expires on June 30, 1998 and automatically renews
thereafter on an annual basis, unless terminated as provided
for in the agreement. The management agreement requires the
payment of a management fee equal to the greater of $5,200
monthly or 4% of gross receipts, as defined in the
agreement, plus the reimbursement of all CMC's costs of
providing these services. Management fees under the
management agreement totaled $93,136 and $66,819,
respectively, for the year ended December 31, 1997 and the
period March 15, 1996 (inception) through December 31, 1996.
Expense reimbursements to CMC for the year ended December
31, 1997 and the period March 15, 1996 (inception) through
December 31, 1996 totaled $264,484 and $208,820,
respectively.
During the period March 15, 1996 (inception) through
December 31, 1996, TCAMP paid $8,744 in construction
management fees to First Claremont Corporation, an affiliate
of CMC.
(5) Liability of Members, Distributions of Cash and Subsequent
Event
The liability of the Members for losses, debts and
obligations of TCAMP is limited to their capital
contributions, except under applicable law Members may,
under certain circumstances, be liable to TCAMP to the
extent of previous distributions received by the Members in
the event TCAMP does not have sufficient assets to discharge
its liabilities.
Distributions by TCAMP to the Members at the end of each
fiscal year, or at such time as determined by the Board of
Managers, are as follows:
(i) First, to Lillian Carney in payment of any current
or accrued portion of the 12% preferred return on
her unreturned original capital contribution;
(ii) Second, to HPP `89 in an amount when added to all
other cash available to HPP'89 from its operations
or any other source equals $140,000;
(iii) Third, to Lillian Carney in payment of any unpaid
principal portion of Lillian Carney's original
capital contribution;
(iv) Fourth, to the payment of any principal or interest
due with respect to any loans from Members, with
any such payments to be applied first to accrued but unpaid
interest and then to principal; and
(iv) Fifth, the balance, if any, to the Members in
accordance with their respective percentage
interests (50% HPP `89 and 50% Lillian Carney).
To the extent that HPP `89 accumulates from whatever sources
operating reserve amounts greater than $140,000 at the end of
any fiscal year, HPP `89 is required to contribute such excess
within thirty days of the end of such fiscal year to TCAMP as
additional capital contributions to be distributed by TCAMP to
Lillian Carney as a return of the outstanding portion of her
original capital contribution.
F-29
THE COSMOPOLITAN AT MEARS PARK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
AND
FOR THE PERIOD MARCH 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
(5) Liability of Members, Distributions of Cash and Subsequent
Event (Continued)
Distributions to Lillian Carney for the year ended December 31, 1997 and
for the period March 15, 1996 to December 31, 1996 include a preferred
return of $42,035 and $61,750, respectively. Distributions to Lillian
Carney for the year ended December 31, 1997 also include a return of
$426,227 of her original capital contribution. On February 27, 1998,
HPP'89 contributed to TCAMP an additional $35,288 representing
operating reserves in excess of $140,000 as of December 31, 1997.
The funds were subsequently distributed to Lillian Carney by TCAMP as a
return of her original capital contribution.
(6) Fair Value of Financial Instruments
At December 31, 1997 and 1996, the carrying amounts of cash
and cash equivalents, cash equivalent security deposits,
real estate tax escrow, replacement reserve, rent
receivable, prepaid expenses, accounts payable and accrued
expenses, accrued interest and security deposits approximate
their fair values due to their short maturities. The fair
value of the mortgage note payable at December 31, 1997 and
1996 approximates its carrying amount based on interest
rates available to TCAMP for similar financing arrangements.
All financial instruments are held for non-trading
purposes.
F-30
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
Page
Independent Auditors' Report F-32
Balance Sheets as of December 31, 1997 and 1996 F-33
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-34
Statements of Changes in Partners' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-35
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-36
Notes to Financial Statements F-38
F-31
INDEPENDENT AUDITORS' REPORT
The Partners
Portland Lofts Associates Limited Partnership
Quincy, Massachusetts
We have audited the accompanying balance sheets of Portland Lofts
Associates Limited Partnership (the Partnership) as of December 31,
1997 and 1996, and the related statements of operations, changes in
partners' equity and cash flows for the year ended December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations,
changes in partners' equity and cash flows for the years ended December
31, 1996 and 1995, we did not extend our auditing procedures to enable
us to express an opinion on the results of operations, changes in
partners' equity and cash flows of Portland Lofts Associates Limited
Partnership for the years ended December 31, 1996 and 1995.
Accordingly, we express no opinion on them.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial
position of Portland Lofts Associates Limited Partnership as of
December 31, 1997 and 1996, and the results of its operations and cash
flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
February 27, 1998
F-32
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Investment in real estate:
Land $ 899,526 $ 899,526
Buildings and improvements 10,684,704 10,684,704
Furniture and equipment 84,051 81,051
11,668,281 11,665,281
Less accumulated depreciation 2,173,528 1,901,434
9,494,753 9,763,847
Cash 2,220 19,626
Rent receivable 5,006 2,841
Prepaid expenses 19,789 24,473
Replacement reserves 32,787 161,720
Deferred costs, less accumulated
amortization (1997, $17,357;
1996, $21,912) 94,535 96,270
$ 9,649,090 $ 10,068,777
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes payable:
Mortgage $ 5,534,391 $ 5,599,534
General partner 320,221 340,000
Other 733 4,918
Accounts payable and accrued expenses 86,931 83,584
Accrued interest 50,665 60,732
Security deposits 16,010 8,405
Total liabilities 6,008,951 6,097,173
Commitments (Note 5)
Partners' equity 3,640,139 3,971,604
$ 9,649,090 $ 10,068,777
The accompanying notes are an integral part of these financial statements.
F-3
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
Revenue:
Rental income $ 1,040,430 $ 1,059,286 $ 1,072,709
Interest and other income 92,766 96,107 42,548
Total revenue 1,133,196 1,155,393 1,115,257
Expenses:
Operating and administrative 154,526 119,295 156,283
Management fees 63,289 39,086 33,146
Repairs and maintenance 154,355 111,164 83,021
Utilities 54,917 49,901 47,694
Real estate taxes 37,888 36,702 40,568
Insurance 23,407 19,809 21,410
Depreciation and amortization 282,981 300,925 298,914
Total expenses 771,363 676,882 681,036
Income from operations 361,833 478,511 434,221
Interest expense 537,298 587,575 675,638
Net loss before extraordinary item (175,465) (109,064) (241,417)
Extraordinary item - gain on
extinguishment of debt - 1,656,579 -
Net income (loss) $ (175,465) $ 1,547,515 $ (241,417)
The accompanying notes are an integral part of these financial statements.
F-34
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Historic
Preservation East Bank
Properties Angel Total
1989 Limited Joint Partners'
Partnership Venture Equity
Balance, December 31,
1994 (Unaudited) $ 1,657,462 $ 1,034,044 $ 2,691,506
Net loss (239,003) (2,414) (241,417)
Balance, December 31,
1995 (Unaudited) 1,418,459 1,031,630 2,450,089
Distributions (26,000) - (26,000)
Net income 1,532,040 15,475 1,547,515
Balance, December 31,
1996 (Unaudited) 2,924,499 1,047,105 3,971,604
Distributions (156,000) - (156,000)
Net loss (173,710) (1,755) (175,465)
Balance, December 31,
1997 $ 2,594,789 1,045,350 $ 3,640,139
The accompanying notes are an integral part of these financial statements.
F-3
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (175,465) $ 1,547,515 $ (241,417)
Adjustments to reconcile net
income (loss)to net cash
provided by operating
activities:
Depreciation and amortization 282,981 300,925 298,914
Extraordinary gain on
extinguishment of debt - (1,656,579) -
Decrease in tenant improvement
escrow - - 60,265
Decrease (increase) in rent
receivable (2,165) 8,891 3,636
Decrease (increase) in prepaid
expenses 4,684 (24,473) 21,600
Increase in deferred costs (9,152) - -
Increase in accounts payable
and accrued expenses 3,347 22,527 18,466
Increase (decrease) in accrued
interest (10,067) 4,616 102
Increase (decrease) in security
deposits 7,605 (720) 200
Net cash provided by operating
activities 101,768 202,702 161,766
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to buildings and
improvements - (3,655) -
Purchase of tenant
improvements (3,000) - (60,000)
Decrease (increase) in replacement
reserves 128,933 (161,720) -
Net cash provided by (used in)
investing activities 125,933 (165,375) (60,000)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from refinancing - 5,625,000 -
Proceeds from general partner
note payable - 340,000 -
Payment on mortgage, notes
payable and construction loan - (5,815,000) -
Principal payments on mortgage
and other notes payable (89,107) (69,778) (78,416)
Payment of deferred financing
fees - (94,739) (11,162)
Distributions (156,000) (26,000) -
Net cash used in financing
activities (245,107) (40,517) (89,578)
NET INCREASE (DECREASE) IN CASH (17,406) (3,190) 12,188
CASH, BEGINNNG OF YEAR 19,626 22,816 10,628
CASH, END OF YEAR $ 2,220 $ 19,626 $ 22,816
The accompanying notes are an integral part of these financial statements.
F-36
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 547,365 $ 582,959 $ 676,536
NON-CASH FINANCING ACTIVITY:
In June 1996, Portland Lofts settled $7,621,579 of mortgage and
other notes payable and paid closing costs through issuing a
promissory mortgage note and other promissory note totaling
$5,965,000 and recognizing an extraordinary gain of $1,656,579.
The accompanying notes are an integral part of these financial statements.
F-37
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Organization and Description of Business
Portland Lofts Associates Limited Partnership (the Partnership),
a Delaware limited partnership, was formed on August 8, 1989 to
acquire, rehabilitate and operate three buildings and the
related land (the Property) containing 89 residential apartment
units and 23,470 net rentable square feet of commercial space,
located at 555 Northwest Park Avenue, Portland, Oregon.
The general partners of the Partnership are East Bank Angel
Joint Venture (EBAJV), an Oregon general partnership (also
known as the developer), and Historic Preservation Properties
1989 Limited Partnership (HPP'89), a Delaware limited
partnership whose sole general partner is Boston Historic
Partners Limited Partnership. EBAJV, whose venturers are Pacific
Star Corporation and Joseph Angel (Angel), is also the only
limited partner (see Note 5).
At December 31, 1997 the Partnership had leased 93% (unaudited)
of the residential apartment units and 91% (unaudited) of the
commercial space for a combined occupancy of 92% (unaudited).
2. Basis of Presentation and Significant Accounting Policies
Basis of accounting
The Partnership's financial statements are prepared on the
accrual basis of accounting in accordance with generally
accepted accounting principles.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in real estate and depreciation
Investment in real estate is held for lease and stated at cost.
Depreciation is computed on a straight-line basis over 40 years
for buildings and improvements, and over 7 years for personal
property.
Depreciation expense for the years ended December 31, 1997, 1996
and 1995 totaled $272,094, $293,263 (unaudited) and $292,362
unaudited), respectively.
Cash, cash equivalents and concentration of credit risk
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. The Partnership had no cash equivalents at
December 31, 1997 and 1996.
At December 31, 1997 and 1996, the Partnership had no cash on
deposit in banks in excess of amounts insured by the Federal
Deposit Insurance Corporation.
F-38
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. Basis of Presentation and Significant Accounting Policies
(Continued)
Deferred costs
Costs to lease residential apartment units are generally
expensed; however, leasing costs associated with commercial
space are capitalized and amortized on a straight-line basis
over the related lease terms. Amortization of costs associated
with leasing for the years ended December 31, 1997, 1996 and 1995
totaled $1,413, $1,798 (unaudited) and $2,488 (unaudited), respectively.
Direct costs attributable to obtaining financing are capitalized
and amortized on a straight-line basis over the terms of the
related debt. Financing costs capitalized during the year ended
December 31, 1996 totaled $94,739. Amortization of financing
costs for the years ended December 31, 1997, 1996 and 1995
totaled $9,474, $5,864 (unaudited) and $4,064 (unaudited),
respectively.
Revenue recognition
Rental revenue from commercial leases is recorded by recognizing
the aggregate minimum rentals to be received over the terms of
each lease in equal monthly installments over the related lease
terms. Rental income recorded prior to actual cash collections
under the terms of the leases is included in rents receivable
($4,000 and $2,746 as of December 31, 1997 and 1996, respectively).
Principally all residential apartment units are rented under
month-to-month arrangements and rent is recorded when due.
Income taxes
No provision (benefit) for income taxes is reflected in the
accompanying financial statements since income or loss of the
Partnership is required to be reported in the tax returns of the
respective partners.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have
been reclassified to conform to the 1997 presentation.
3. Mortgage and Notes Payable
The Partnership's original mortgage note was to mature on April
1, 1997. Principal and interest payments, which commenced May
1, 1992, were based upon an amortization period of 30 years. A
balloon payment of all unpaid principal and accrued interest was
due on April 1, 1997. The interest rate was variable based on
the LIBOR rate plus 2.5%. The interest rate was adjusted every
30 days. Also, the Partnership had an unsecured note which it
assumed from EBAJV effective December 19, 1989 bearing interest
at the prime rate plus 1%.
On May 21, 1996, the Partnership and the holder of the mortgage
note and the unsecured note entered into a Settlement Agreement
(Settlement Agreement) to resolve claims concerning the debt.
According to the Settlement Agreement, the Partnership was
allowed, until July 31, 1996, to pay $5,400,000 to the new holder
in full satisfaction of the mortgage note and the unsecured note.
F-39
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. Mortgage and Notes Payable (Continued)
On June 20, 1996, the Partnership issued a promissory mortgage
note to a bank in the amount of $5,625,000 and a promissory note
to Angel in the amount of $340,000 to provide sufficient funds
to pay in full the $5,400,000 settlement amount with the holder
of the mortgage note and unsecured note, a separate $400,000
promissory note bearing interest at 13.11% and due currently,
and all related closing costs. The transaction resulted in an
extraordinary gain on extinguishment of debt of $1,656,579. The
mortgage note bears interest at 9%; amortizes over a 25-year
schedule; requires monthly payments of principal and interest of
$47,205; and matures on July 1, 2006, at which time all unpaid
principal and interest is due. The mortgage note is secured by
the Property, rents and assignments of leases.
The Angel Note bears interest at 11%; amortizes over a 10-year
schedule; requires monthly principal and interest payments in
the amount of $4,684; and matures January 1, 2007.
At December 31, 1997, aggregate annual maturities under the mortgage
note payable and note payable to general partner are as follows:
Year Ending Mortgage Note Payable to
December 31, Note Payable General Partner Total
1998 $ 71,254 $ 22,068 $ 93,322
1999 77,938 24,622 102,560
2000 85,249 27,471 112,720
2001 93,246 30,650 128,896
2002 101,994 34,197 136,191
The Partnership also has another note payable bearing interest
at 9.0%, maturing February, 1998, and requiring monthly
principal and interest payments of $350.
4. Partners' Equity
Profits, losses and tax credits shall be distributed to the
partners, as defined in the Partnership Agreement, as follows :
99% to HPP'89, .9% to EBAJV and .1% to EBAJV as a limited
partner. However, if cash flows are distributed to the partners
in accordance with (b) and (c) below, then profits, losses and
tax credits shall be distributed in accordance with those same
formulas.
Cash flows from operations shall be distributed to the partners,
as defined in the Partnership Agreement, as follows:
a. 100 percent to the payment of accrued interest on, and
then the unpaid principal balance of, any outstanding
loans made to the Partnership by HPP'89.
b. Thereafter, 100 percent to HPP'89 until HPP'89 has received
distributions of cash flow in such year in an amount equal to
an 8 percent cumulative, noncompounded return on its weighted
average HPP'89 invested capital for such year.
c. The remaining balance, if any, prior to call/put date
(discussed below), 50% to HPP'89, 49.9% to EBAJV and .1%
to EBAJV as limited partner, and after the call/put
date, 75% to HPP'89, 24.9% to EBAJV and .1% to EBAJV as
limited partner.
F-40
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. Partners' Equity (Continued)
The Partnership Agreement provides HPP'89 with certain put
rights, as defined in the agreement, to require the Developer to
purchase HPP'89's interest in the Partnership. On July 1, 1997,
HPP'89 and the Developer entered into an agreement under which
the parties acknowledged that HPP'89's put right commenced July
1, 1997 and HPP'89 agreed not to exercise its put right until
July 1, 2000 provided it receives distributions of no less than
$30,000 per quarter. Under the put right, the Developer is
required to pay HPP'89 the excess of $5,750,000, plus $25,467 for
each month commencing July 1, 1997 through the month in which the
closing of the sale of HPP'89's interest is consummated pursuant
to the put right, less the amount previously distributed to
HPP'89. The Developer, provided it has met certain conditions
defined in the agreement, shall have the right to locate a third
party to purchase HPP '89's interest on behalf of the Developer.
Cash from the sale or refinancing of the Property shall be
distributed to repay any outstanding loans and related interest
and then to the partners, as defined in the Partnership
Agreement.
5. Transactions with Related Parties and Commitments
Interest expense for the years ended December 31, 1997 and 1996
totaled $36,241 and $18,735 (unaudited), respectively, related
to the Angel Note. At December 31, 1997 and 1996, $9,152 and
$18,735 is included in accrued interest.
In November 1996, the Partnership entered into an agreement to
pay EBAJV a monthly fee of $2,400 for partnership management
services provided to the Partnership. Partnership management
fees for the years ended December 31, 1997 and 1996 totaled
$28,800 and $4,800 (unaudited), respectively. Accounts payable
and accrued expenses at December 31, 1996 include $4,800 in
partnership management fees payable to EBAJV.
The Partnership has a management agreement with an unrelated
party to manage the property for a fee equal to 3% of gross
receipts as defined in the agreement. Management fees for the
years ended December 31, 1997, 1996 and 1995 totaled $34,489,
$34,286 (unaudited) and $33,146 (unaudited). The unrelated party
also receives leasing commissions equal to 5% of amounts due
under commercial leases.
6. Minimum Future Rentals under Operating Leases
The Partnership rents space to commercial tenants under operating
leases of varying terms expiring through 2004. Approximately 16%
of all residential apartment units are rented to tenants under
short-term operating leases and the remaining rented under
month-to-month arrangements. As of December 31, 1997, the
Partnership had entered into fifteen commercial leases covering
approximately 92% (unaudited) of the building's net rentable
commercial space. The Partnership's largest commercial tenant
occupancies 23% of the commercial space at December 31, 1997,
representing only 5.8% of the total square feet of the property.
At December 31, 1997, minimum future rentals, excluding reimbursement
of real estate taxes and certain operating expenses, to be received under
noncancellable commercial leases for each of the next five years
are as follows:
Year Ending December 31,
1998 $ 280,203
1999 228,086
2000 121,162
2001 73,848
2002 51,365
F-41
PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. Minimum Future Rentals under Operating Leases (Continued)
The above amounts do not include additional rentals that will
become due as a result of escalation provisions in the
commercial leases.
In most cases, management expects that in the normal course of
business, commercial leases will be renewed or replaced by other
leases and month-to-month arrangements with residential tenants
will be continued or replaced by short-term operating leases.
7. Fair Value of Financial Instruments
The carrying amounts of cash, rent receivable, prepaid expenses,
replacement reserves, accounts payable and accrued expenses,
accrued interest and security deposits at December 31, 1997 and
1996 approximate their fair values due to their short
maturities. The fair values of the Partnership's mortgage note
payable and other notes payable at December 31, 1997 and 1996
approximate their carrying amounts based on interest rates
currently available to the Partnership for similar financing
arrangements. All financial investments are held for non-
trading purposes.
F-42
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 , 1996 AND 1995
Table of Contents
Page
Independent Auditors' Report F-44
Balance Sheets as of December 31, 1997 and 1996 F-45
Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 F-46
Statements of Changes in Partners' Equity
(Deficit) for the Years Ended December 31, 1997,
1996 and 1995 F-47
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-48
Notes to Financial Statements F-49
F-43
NDEPENDENT AUDITORS' REPORT
The Partners
402 Julia Street Associates Limited Partnership
Quincy, Massachusetts
We have audited the accompanying balance sheets of 402 Julia Street
Associates Limited Partnership (the Partnership) as of December 31,
1997 and 1996, and the related statements of operations, changes in
partners' equity (deficit) and cash flows for the year ended December
31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations,
changes in partners' equity (deficit) and cash flows for the years
ended December 31, 1996 and 1995, we did not extend our auditing
procedures to enable us to express an opinion on the results of
operations, changes in partners' equity (deficit) and cash flows of 402
Julia Street Associates Limited Partnership for the years ended
December 31, 1996 and 1995. Accordingly, we express no opinion on
them.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial
position of 402 Julia Street Associates Limited Partnership as of
December 31, 1997 and 1996, and the results of its operations and cash
flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
February 27, 1998
F-44
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Investment in real estate:
Land $ 132,800 $ 132,800
Building and improvements 1,581,571 1,581,571
1,714,371 1,714,371
Less accumulated depreciation 316,051 276,512
1,398,320 1,437,859
Cash 46,067 44,925
Cash equivalent, security deposits 19,094 18,843
Accounts receivable 1,314 -
Real estate tax and insurance escrow 20,944 13,087
Replacement reserve 23,700 20,100
Deferred financing fees, less accumulated
amortization (1997, $30,154; 1996 $25,631) 15,077 19,600
$ 1,524,516 $ 1,554,414
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage note payable $ 1,009,551 $ 1,015,553
Accounts payable and accrued
expenses 15,325 4,625
Accrued interest 8,413 8,463
Security deposits 19,759 19,586
Total liabilities 1,053,048 1,048,227
Commitments (Note 4)
Partners' equity 471,468 506,187
$ 1,524,516 $ 1,554,414
The accompanying notes are an integral part of these financial statements.
F-45
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
Revenue:
Rental income $ 232,631 $ 241,273 $ 223,105
Interest and other income 9,502 5,234 5,330
Total revenue 242,133 246,507 228,435
Expenses:
Operating and administrative 37,681 24,362 22,706
Management fees 23,075 22,400 19,575
Repairs and maintenance 33,249 26,830 28,938
Utilities 5,401 8,371 9,191
Real estate taxes 5,836 6,046 5,989
Insurance 7,813 11,546 9,271
Depreciation and amortization 44,062 50,236 50,234
Total expenses 157,117 149,791 145,904
Income from operations 85,016 96,716 82,531
Interest expense 101,235 101,809 102,328
Net loss $ (16,219) $ (5,093) $ (19,797)
The accompanying notes are an integral part of these financial statements.
F-46
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Historic
Preservation
Properties Limited
1989 Limited Developers Partners Total
Balance
December 31, 1994
(Unaudited) $ 385,008 $ 183,100 $ (31) $ 568,077
Distributions - (18,500) - (18,500)
Net loss (12,934) (6,863) - (19,797)
Balance,
December 31, 1995
(Unaudited) 372,074 157,737 (31) 529,780
Distributions - (18,500) - (18,500)
Net loss (3,327) (1,766) - (5,093)
Balance,
December 31, 1996
(Unaudited) 368,747 137,471 (31) 506,187
Distributions - (18,500) - (18,500)
Net loss (10,596) (5,623) - (16,219)
Balance,
December 31, 1997 $ 358,151 $ 113,348 $ (31) $ 471,468
The accompanying notes are an integral part of these financial statements.
F-47
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (16,219) $ (5,093) $ 19,797)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization 44,062 50,236 50,234
Decrease (increase) in
accounts receivable (1,314) 377 (370)
Increase (decrease) in
accounts payable and
accrued expenses 10,700 (4,625) 4,625
Increase (decrease) in
security deposits, net (78) 743 -
Decrease in accrued interest (50) (45) (41)
Net cash provided by operating
activities 37,101 34,353 25,227
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in real estate tax
and insurance escrow
and replacement reserve (11,457) (3,620) (4,712)
Cash used in investing
activities (11,457) (3,620) (4,712)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on mortgage
note payable (6,002) (5,433) (4,918)
Distributions (18,500) (18,500) (18,500)
Cash used in financing
activities (24,502) (23,933) (23,418)
NET INCREASE IN CASH 1,142 14,040 6,521
CASH, BEGINNING OF YEAR 44,925 30,885 24,364
CASH, END OF YEAR $ 46,067 $ 44,925 $ 30,885
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 101,285 $ 101,854 $ 102,369
The accompanying notes are an integral part of these financial statements.
F-48
402 JULIA STREET ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) Organization and Description of Business
402 Julia Street Associates Limited Partnership (the
Partnership), a Delaware limited partnership, was formed on
July 25, 1989 to acquire a 19,000 square foot site and the
building situated thereon in New Orleans, Louisiana, and
rehabilitate the building into 24 residential apartment units
and approximately 3,500 net rentable square feet of commercial
space known as the Loft (the Property). The Partnership is
owned by Historic Preservation Properties 1989 Limited
Partnership (HPP 1989) as a general partner (65.33%), by Henry
M. Lambert and R. Carey Bond (the Developers) as a general
partner (34.66%), and by John D. Lambert III (the Limited
Partner) as a limited partner (.01%).
At December 31, 1997, the Partnership had leased 89%
(unaudited) of the residential apartment units and 100%
(unaudited) of the commercial space for a combined occupancy of
91% (unaudited).
(2) Basis of Presentation and Significant Accounting Policies
Basis of accounting
The Partnership's financial statements are prepared on the
accrual basis of accounting in accordance with generally
accepted accounting principles.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in real estate and depreciation
Investment in real estate is held for lease and stated at cost.
Depreciation is provided over the estimated economic useful
lives of the assets using the straight-line method.
Depreciation expense for the years ended December 31, 1997,
1996 and 1995 totaled $39,539, $45,713 (unaudited) and $45,711
(unaudited), respectively.
Cash, cash equivalents and concentration of credit risk
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash equivalents at December 31, 1997 and 1996
totaled $19,094 and $18,843, respectively.
At December 31, 1997 and 1996, the Partnership had no cash and
cash equivalents on deposit in banks in excess of amounts
insured by the Federal Deposit Insurance Corporation.
Deferred financing fees
Deferred financing fees are being amortized on a straight-line
basis over the term of the mortgage note. Amortization expense
for each of the years ended December 31, 1997, 1996
(unaudited), and 1995 (unaudited) totaled $4,523.
F-49
(2) Basis of Presentation and Significant Accounting Policies (Continued)
Revenue recognition
Revenue from commercial units, principally under short-term operating leases,
is recorded when due. Approximately half of all residential apartment units
are rented under short-term operating leases and the remaining rented under
month-to-month arrangements. Rental revenue is recorded when due.
Income taxes
No provision (benefit) for income taxes is reflected in the accompanying
financial statements since income or loss of the Partnership is required
to be reported in the tax returns of the respective partners.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
(3) Mortgage Note Payable
The Partnership's mortgage note with the lender bears interest at
10.0% and amortizes over a 35-year schedule. The mortgage note requires
monthly payments of principal and interest, real estate tax and
insurance escrow deposits, and replacement reserve deposits in the
aggregate amount of $8,941, $1,773 and $300, respectively. The mortgage
note matures in May 2001, at which time all unpaid principal and
accrued interest is due.
At December 31, 1997, annual maturities of the mortgage note are as follows:
Year Ending December 31, Amount
1998 $ 6,630
1999 7,325
2000 8,091
2001 987,505
The mortgage note is secured by the Partnership's property, rents and
assignment of leases.
(4) Transactions with Related Party and Commitments
The Partnership has a month-to-month property management and lease
broker agreement with a company owned by the Developers (the Affiliate)
to manage the Property for a fee equal to 6% of gross rental
receipts and to serve as the lease broker for a fee equal to one half
of one month's rent for each lease signed or continuation of existing
rental relationship. For the years ended December 31, 1997, 1996 and
1995, fees paid under this agreement totaled $23,075, $22,400 (unaudited)
and $19,575 (unaudited), respectively.
The Partnership reimbursed to the Affiliate certain payroll and related
payroll costs totaling $11,437, $7,657 (unaudited) and $8,463 (unaudited)
for the years ended December 31, 1997, 1996 and 1995, respectively.
F-50
(5) Leases
At December 31, 1997, the future minimum rental to be received in cash
under the terms of noncancellable commercial leases, excluding
reimbursement for real estate taxes and certain operating expenses,
is as follows:
Year Ending December 31, Amount
1998 $ 11,060
Real estate tax and operating expense reimbursements for the years
ended December 31, 1997, 1996 and 1995 totaled $2,655, $2,581 (unaudited)
and $2,210 (unaudited), respectively, and have been reported
as a reduction of expenses in the accompanying financial statements.
In most cases, management expects that in the normal course of business,
commercial leases will be renewed or replaced by other leases and
month-to-month arrangements with residential tenants will be
continued or replaced by short-term operating leases.
(6) Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalent security deposits,
accounts receivable, real estate tax and insurance escrow, replacement
reserve, accounts payable and accrued expenses, accrued interest and
security deposits approximate their fair values at December 31, 1997
and 1996 due to their short maturities. The fair value of the mortgage
note payable at December 31, 1997 and 1996 approximates its carrying
amount based on the interest rates currently available to the Partnership
for similar financing arrangements. All financial instruments are held
for non-trading purposes.
F-51
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 175,288
<SECURITIES> 0
<RECEIVABLES> 77,505
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 783,736
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 783,736
<SALES> 0
<TOTAL-REVENUES> 8,912
<CGS> 0
<TOTAL-COSTS> 164,308
<OTHER-EXPENSES> (58,874)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (96,522)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,522)
<EPS-PRIMARY> (3.59)
<EPS-DILUTED> (3.59)
</TABLE>
FORBEARANCE AGREEMENT
FORBEARANCE AGREEMENT dated as of July 1, 1997 by and among HISTORIC
PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP, a Delaware limited
Partnership ("HPP"), and EAST BANK ANGEL JOINT VENTURE, an Oregon General
partnership (the "Developer").
RECITALS
A. HPP and the Developer are the partners of Portland Lofts Associates
Limited Partnership, a Delaware limited partnership (the "Partnership"),
pursuant to the Amended and Restated Agreement of Limited Partnership of
the Partnership dated as of August 30, 1989 (the "Partnership Agreement").
B. The parties desire to clarify their understanding regarding certain
provisions of the Partnership Agreement and amend the Partnership
Agreement as set forth below.
C. Capitalized terms used herein are not otherwise defined shall have
the meaning set forth in the Partnership Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement as follows:
1. The parties acknowledge and ratify the provisions of Section 5.12
of the Partnership Agreement, subject to the changes described herein.
2. The parties agree that the "Fifth Anniversary Date" for purposes
of Section 5.12 of the Partnership Agreement is December 31, 1996.
3. The parties agree that the Call Option expired on June 30, 1997.
4. The parties agree that HPP's Put Right began on July 1, 1997.
5. Provided that HPP receives distributions of no less than $30,000
for each quarter commencing July 1, 1997, HPP agrees that it will forbear
its right to exercise its Put Right until July 1, 2000.
6. For purposes of determination of the "Fixed Price" under Section
5.12(a), the language reading "(A) $5,750,000 over.." is hereby changes
to "(A) $5,750,000 plus $25,467 for each month commencing July 1, 1997
through the month in which the closing of the sale of HPP's interest is
consummated pursuant to the Put Right over.."
7. In all other respects, the provision of the Partnership Agreement,
including, without limitation, Section 5.12 as modified herein, and
Section 9.09 are hereby ratified and confirmed.
IN WITNESS WHEREOF, the Partners have executed this agreement as
of the date first above written.
HISTORIC PRESERVATION PROPERTIES 1989
LIMITED PARTNERSHIP
By: Boston Historic Partners Limited Partnership
general partner
By: Portfolio Advisory Services, Inc.,
general partner
By: /s/ Terrence P. Sullivan, President
Terrence P. Sullivan, President
and
By: /s/ Terrence P. Sullivan, GP
Terrence P. Sullivan, general partner
EAST BANK ANGEL JOINT VENTURE
By: /s/ Joseph W. Angel
Joseph W. Angel, partner
and
By: PACIFIC STAR CORPORATION, partner
By: /s/ Joseph W. Angel
Joseph W. Angel, President
S:\HPP89\89ForbearExh97.doc
