SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 30, 1996
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23954 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
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CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Page No.
Item 2. Acquisition or Disposition of Assets 5
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report
(Longmeadow Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Longmeadow Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Longmeadow Apartments)*
b. Independent Auditors' Report
(Trophy Chase (Westfield) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Trophy Chase (Westfield) Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Trophy Chase (Westfield)
Apartments)*
c. Independent Auditors' Report
(Beacon Hill Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Beacon Hill Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Beacon Hill Apartments)*
d. Independent Auditors' Report
(Meadow Creek Apartments)*
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* To be filed by amendment.
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Historical Statement of Income and
Direct Operating Expenses
(Meadow Creek Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Meadow Creek Apartments)*
e. Independent Auditors' Report
(Summer Walk (Lakewood) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Summer Walk (Lakewood) Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Summer Walk (Lakewood) Apartments)*
f. Independent Auditors' Report
(Willow Creek Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Willow Creek Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Willow Creek Apartments)*
g. Pro Forma Statement of Operations for
the Three Months ended March 31, 1996
(unaudited)*
Pro Forma Balance Sheet as of
March 31, 1996 (unaudited)*
Pro Forma Statement of Operations
for the Year ended December 31, 1995
(unaudited)*
h. Exhibits
10.1 Purchase Contract for Longmeadow
Apartments
10.2 Property Management Agreement for
Longmeadow Apartments
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* To be filed by amendment.
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10.3 Purchase Contract for Trophy Chase
(Westfield) Apartments
10.4 Property Management Agreement for Trophy
Chase (Westfield) Apartments
10.5 Purchase Contract for Beacon Hill
Apartments
10.6 Property Management Agreement for Beacon
Hill Apartments
10.7 Purchase Contract for Meadow Creek
Apartments
10.8 Property Management Agreement for Meadow
Creek Apartments
10.9 Purchase Agreement for Summer Walk
(Lakewood) Apartments
10.10 Property Management Agreement for Summer
Walk (Lakewood) Apartments
10.11 Purchase Agreement for Willow Creek
Apartments
10.12 Property Management Agreement for Willow
Creek Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
23.3 Consent of Independent Auditors*
23.4 Consent of Independent Auditors*
23.5 Consent of Independent Auditors*
23.6 Consent of Independent Auditors*
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* To be filed by amendment.
<PAGE>
Item 2. Acquisition or Disposition of Assets
LONGMEADOW APARTMENTS
Charlotte, North Carolina
On April 30, 1996, effective April 1, 1996, the Company purchased the
Longmeadow Apartments, a 120-unit apartment complex having an address of 6017
Williams Road in Charlotte, North Carolina (the "Property"). The Company
purchased the Property from a seller which is unaffiliated with the Company, the
Advisor and their Affiliates. The purchase price was $5,025,000. At closing, the
Company paid the entire purchase price in cash with the proceeds of the
Offering. Title to the Property was conveyed to the Company by limited warranty
deed.
Location. The following information was obtained from the Mecklenburg
County Chamber of Commerce. Charlotte is the most populous city in North
Carolina and the county seat of Mecklenburg County. It is located 225 miles
northeast of Atlanta, Georgia and 350 miles southwest of Washington, D.C. As of
1995, Charlotte and Mecklenburg County had an aggregate population in excess of
442,750, and the greater Charlotte trading area, known as Metrolina, had a
population in excess of 1.3 million.
The area holds the largest supply of business capital between
Philadelphia and Dallas, with $43 billion in assets held by banks headquartered
in Charlotte. Charlotte is the third largest financial center in the U.S.
(behind New York and San Francisco) with two of the nation's 10 largest banks.
First Union and NationsBank have their executive headquarters in Charlotte. One
reason for Charlotte's high employment rate is the continued attraction of new
business to Charlotte. Although distribution and finance are the primary areas
of activity and growth, there are more than 950 manufacturing firms in
Mecklenburg County.
Charlotte's geographic location and diversified economic base have
accounted for its growth as a distribution and transportation hub. The
Charlotte area is served by Interstate Highways I-85 and I-77 and U.S. Highways
21, 29 and 74. Additionally, plans are underway for construction of I-285 and
the Independence Expressway, which will connect the major expressways. There
are 10 major commercial airlines serving the area, with 184 flights to and from
Charlotte daily. The
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Charlotte/Douglas International Airport is the nation's 23rd largest airport in
terms of passenger boardings, and provides direct and non-stop service to over
100 cities daily.
The Charlotte area is home to an extensive higher education system.
Charlotte is the location of one branch of the University of North Carolina and
there are 25 other colleges and universities within the Metrolina area. They
collectively represent an enrollment of over 90,000 persons.
The Property is located on Williams Road off of Harris Boulevard in the
City of Charlotte. The immediate area consists of other multi-family housing,
commercial and retail development and single-family housing. The Property is
convenient to area shopping centers. The Property is readily accessible from
Interstates 85 and 77. The downtown area and Charlotte/Douglass International
Airport are easily accessible from the Property via Interstate 77.
Description of the Property. The Property consists of 120 garden style
apartments located in 13 buildings on approximately seven acres of land. The
Property was constructed in 1986.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$60,000 for repairs and improvements, including painting and exterior
renovations.
The unit mix and rents currently being charged new tenants are as
follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
3 studio 568 $465
3 studio-deluxe 596 485
12 1 bedroom, 1 bath 624 490
6 1 bedroom, 1 bath 648 510
18 1 bedroom, 1 bath 672-690 505-525
72 2 bedrooms, 2 baths 958-995 605-635
6 3 bedrooms, 2 baths 1,115 750
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The apartments provide a combined total of 104,000 square feet of net
rentable area.
Leases at the Property are for the terms of one year or less. Average
rental rates for the past five years have generally remained constant, with some
recent increase. As an example, a two bedroom, two bath apartment rented for
$520 in 1991, $520 in 1992, $520 in 1993, $520 in 1994, and $570 in 1995. The
average effective annual rental per square foot at the Property for 1991, 1992,
1993, 1994, and 1995, was $7.44, $7.44, $7.44, $7.44, and $8.16, respectively.
The buildings are wood frame construction on concrete slabs. Roofs are
pitched and covered with composition shingles. Windows are aluminum with dual
panes.
The amenities at the Property include an outdoor swimming pool,
playground, laundry facilities and a combined clubhouse and rental office. There
is an ample paved parking.
All apartments units have wall-to-wall carpeting in living areas and
vinyl floors in the kitchen and bath. Each unit has a cable television hook-up,
washer and dryer connection, miniblinds and an individually controlled heating
and air-conditioning unit. Most of the apartment units include fireplaces,
vaulted ceilings, bay windows and room-sized decks. Each kitchen is equipped
with a refrigerator/freezer, electric range and oven, dishwasher and garbage
disposal. The owner of the Property supplies cold water, sewer service and trash
removal. The tenants pay for their own electricity usage, which covers heat,
air-conditioning, cooking, hot water and lights.
There are at least five apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey. Cornerstone Management Group, Inc., estimates that occupancy in nearby
competing projects now averages approximately 95%.
The seller is a limited partnership which originally built the Property
in 1986. Approximately two years ago, the seller filed for protection under
Chapter 11 of the Bankruptcy Code. In the opinion of the Company and Cornerstone
Management Group, Inc., the operating difficulties encountered by the seller are
attributable to excessive mortgage debt and the absence of needed partnership
capital. Since the Company expects to own the Property on a debt-free basis and
plans to improve management and marketing activities, the Company and
Cornerstone Management
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Group, Inc. believe that the difficulties encountered by the seller will not be
similarly encountered by the Company.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 95% in 1991, 95% in 1992, 96% in 1993, 96%
in 1994, and 97% in 1995. On May 21, 1996, the Property was 97% occupied. The
tenants are a mix of white-color and blue-collar workers and students. Major
employers of tenants include IBM and the University of North Carolina at
Charlotte.
In 1995 real estate tax rate applicable to the Property was
approximately $1.233 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $47,315. The assessed value was $3,600,510. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $4,230,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
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Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$100,500. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
TROPHY CHASE APARTMENTS
Charlottesville, Virginia
On April 30, 1996, effective April 1, 1996, the Company purchased the
Westfield Apartments, a 185-unit apartment complex having an address of 2704
Peyton Drive outside of Charlottesville, Virginia (the "Property"). The Company
has renamed the Property the "Trophy Chase Apartments." The purchase price was
$3,710,000. At closing, the entire purchase price was paid in cash using the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
The Company purchased the Property from a limited partnership in which
Glade M. Knight, an Affiliate of the Advisor, served as a co-general partner.
The other general partner is an affiliate of a major investment banking firm. A
company owned and controlled by Mr. Knight also managed the Property since 1983.
All of the distributable cash received from the Company as a result of the
purchase will be distributed to the limited partners of the seller as a partial
return of their equity. Mr. Knight, in his capacity as a general partner of the
seller, will not receive any cash from the proceeds of the sale. The other
general partner, which effectively represents the interests of the limited
partners of the seller, had reached a business decision to terminate its
activities in the real estate industry. In addition, the other general partner
had determined that, as a result of the Tax Reform Act of 1986, the limited
partners of the seller had maximized the value of their investment in the
Property.
Pursuant to the Bylaws of the Company, the purchase from an Affiliate
must be approved by a majority of the Company's Independent Directors. The
purchase was approved by unanimous vote of such Independent Directors. The
Company also obtained an independent appraisal and engineering report in
accordance with its standard practice and Bylaws. The appraised value was in
excess of the purchase price of the Property.
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Location. The following information is based in part upon information
provided by the Charlottesville Chamber of Commerce. The Property is located in
Virginia, within Albemarle County, in close proximity to the City of
Charlottesville. The greater Charlottesville metropolitan area has a population
of approximately 130,000. Growth has been steady since the 1970's, and steady
growth is expected to continue throughout the 1990's. Charlottesville is located
approximately 70 miles northwest of Richmond, Virginia and approximately 95
miles southwest of Washington, D.C.
The Charlottesville area has a diverse economy. However, the largest
employer in the area is the University of Virginia, which has approximately
10,500 employees. The University of Virginia was designed by Thomas Jefferson in
1815 and has grown into one of the largest colleges in Virginia, with an
undergraduate program as well as graduate schools in law, business, medicine,
engineering, commerce and education. There are over 20,000 students at the
school. The University of Virginia was responsible for bringing close to 480,000
visitors to the area during 1992, whose spending totaled almost $44 million.
The Property is located in the northern portion of the metropolitan
area. The immediate area consists of extensive commercial and retail
development. The Property is readily accessible from U.S. Route 29, which
provides access to Interstate 64, the major interstate highway in the area.
Description of the Property. The Property consists of 185 garden-style
apartments in nine buildings on approximately 7.5 acres of land. The Property
was constructed in two phases in 1969 and 1970.
Management believes that the Property has been well maintained and is in
generally good condition. However, the Company has budgeted approximately
$522,000 for repairs and improvements, including office renovation, siding
replacement and interior renovations.
The Property offers numerous unit types. The unit mix and rents
currently being charged new tenants are as follows:
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Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
35 1 bedroom, 1 bath 659 $420
(breakfast bar)
24 1 bedroom, 1 bath 843 455
(den)
31 1 bedroom, 1 bath 659 420
22 1 bedroom, 1 bath 659 435
(tudor)
16 2 bedrooms, 1 bath 799 460
16 2 bedrooms, 1 bath 1,064 510
(den)
19 2 bedrooms, 1 bath 922 480
(tudor)
12 2 bedrooms, 2 baths 922 485
10 3 bedrooms, 2 baths 1,197 560
The apartments provide a combined total of 148,500 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the last five years have generally been constant. As an example, a one
bedroom, one bath apartment rented for $420 in 1991, $420 in 1992, $420 in 1993,
$420 in 1994, and $420 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, and 1995, was $6.84, $6.84,
$6.84, $6.84, and $6.84, respectively.
The buildings are of wood frame construction, with a combination of
brick veneer and white aluminum siding on either concrete slabs or concrete and
block foundations. In one phase, roofs are pitched and covered with fiberglass
shingles, and, in the other phase are flat with rubber membrane surfacing.
Windows are single pane with aluminum frames.
The amenities at the Property include two outdoors swimming pools, a
sunbathing area, a clubhouse and laundry facilities.
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All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up and an
individually controlled heating and air-conditioning unit. All kitchens are
equipped with a refrigerator/freezer, electric range and oven, and garbage
disposal. Some, but not all, units have dishwashers. The owner of the Property
supplies cold water, sewer service and trash removal. The tenants pay for their
own electricity usage, which covers heat, air-conditioning, cooking, hot water
and lights.
There are at least seven apartment properties which compete with the
Property. All offer similar amenities and have rents that are generally higher
when compared with those of the Property. Based on a recent telephone survey,
Cornerstone Management Group, estimates that occupancy at nearby competing
projects now averages approximately 94%.
Physical occupancy at the Property averaged approximately 90% in 1991,
90% in 1992, 90% in 1993, 90% in 1994, and 90% in 1995. On May 21, 1996, the
Property was 90% occupied. Most of the tenants are blue-collar workers.
Approximately 25% are white-collar workers and 5% of the tenants are graduate
students.
The 1995 real estate tax rate applicable to the Property was
approximately $0.72 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $36,226. The assessed value was $5,031,500. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $2,770,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the
Charlottesville, Virginia area will enjoy continued economic development and
steady population increase, and that such development and increase, together
with the presence of the
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University of Virginia, will support stable occupancy rates and reasonable
increases in rents at the Property.
2. Based upon an engineering report and its own inspections,
the Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to
major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$74,200. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
BEACON HILL APARTMENTS
Charlotte, North Carolina
On May 30, 1996, effective May 1, 1996, the Company purchased the Beacon
Hill Apartments, a 349-unit apartment complex having an address of 5625 South
Boulevard, Charlotte, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor and their Affiliates. The purchase price was
$13,300,000. At closing, the entire purchase price was paid in cash from the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. A description of Charlotte, North Carolina appears under
"Longmeadow Apartments" in this report. The Property is located on South
Boulevard at Tyvola Road in Charlotte, North Carolina. The immediate area
consists of other multi-family housing, commercial and retail development and
single-family housing. The Property is located close to major shopping, dining
and entertainment. The Property has convenient access to Interstate 77 and
Interstate 85, the Charlotte-area
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interstates. The downtown area and Charlotte/Douglas International Airport are
readily accessible from the Property via Interstate 77.
Description of the Property. The Property consists of 349 garden-style
apartments in 14 buildings located on approximately 14.2 acres of land. The
Property was constructed in 1985.
The Company believes that the Property is generally in good condition.
However, the Company has budgeted approximately $60,000 for repairs and
improvements, to include clubhouse renovation and parking lot repair.
The Property offers a number of unit types. The unit mix and rents
currently being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- --------
69 1 bedroom, 1 bath 530 $460
112 1 bedroom, 1 bath 652 480-500
31 1 bedroom, 1 bath 745 520-540
w/sun room
39 1 bedroom, 1 bath 748 545-570
28 2 bedrooms, 1.5 baths 826 605-640
16 2 bedrooms, 2 baths 892 660-680
12 2 bedrooms, 2 baths 958 685-690
w/sun room
42 2 bedrooms, 2 baths 1,079 705-725
The apartments provide a combined total of 256,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally remained constant or increased. As
an example, a one bedroom apartment rented for $395 in 1991, $395 in 1992, $395
in 1993, $405 in 1994, and $430 in 1995. The average effective annual rental per
square foot at the Property for 1991, 1992, and 1993, 1994, and 1995 was $7.79,
$7.79, $7.79, $7.92, and $8.47, respectively.
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The buildings are wood frame construction on concrete slab. Roofs are
pitched and covered with composition shingles. Exteriors are brick veneer and
hardboard siding. The windows are aluminum with dual panes. All of the siding
was repainted by the former owner in April 1996 at a cost of approximately
$50,000.
The Property has two outdoor swimming pools, two hot tubs, two laundry
facilities, a car wash area and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as cable television hook-ups, and
individually controlled heating and air conditioning units. Most apartment units
include such amenities as a fireplace, ceiling fans, an over-sized patio or
balcony and washer/dryer connections. All kitchens have a refrigerator/freezer,
electric range and oven, dishwasher and garbage disposal. The owner of the
Property supplies cold and hot water, sewer service and trash removal. The
tenants pay for their own electricity usage which covers heat, air conditioning,
cooking, and lights.
There are at least seven apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 92% in 1991, 92% in 1992, 96% in 1993, 94%
in 1994, and 93% in 1995. On June 7, 1996, the Property was 90% occupied. Most
of the tenants are employed as professionals or white-collar workers and only a
small percentage of the residents are employed in blue-collar jobs. According to
information and tenant files, at the time of the Company's acquisition of the
Property, approximately one quarter of the tenants had household incomes in
excess of $35,000. The major employers of the tenants include USAir, Microsoft
and Carolina Medical.
The 1995 real estate tax rate applicable to the Property was
approximately $1.233 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $145,319. The assessed value was $11,134,740. The
basis of the depreciable residential real property portion of the Property
(currently estimated at about $8,738,000) will be depreciated over 27.5 years on
a straight line basis. The basis of the personal property portion will be
depreciated in accordance with the
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modified accelerated cost recovery system of the Code. Amounts to be spent by
the Company on repairs and improvements will be treated for tax purposes as
permitted by the Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$266,000. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
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MEADOW CREEK APARTMENTS
Pineville, North Carolina
On May 31, 1996, effective June 1, 1996, the Company purchased the
Meadow Creek Apartments, a 250-unit apartment complex having an address of 12821
Meadow Creek Lane in Pineville, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor, and their Affiliates. The purchase price was
$11,100,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Pineville is a suburb located southeast of Charlotte, North
Carolina. For a description of the greater Charlotte, North Carolina area, see
"Longmeadow Apartments" in this report.
Southeast Charlotte is one of the more popular residential locations in
the Charlotte area. Historically, most growth in the Charlotte area has been to
the south of the city. At one time, Highway 51 represented a southern boundary
for growth. However, in the last ten years, growth has continued beyond Highway
51. Such growth has been encouraged by substantial major road improvements in
the area, including widening of Highway 51 to a four-lane highway, and the
partial completion of Interstate 485, the Charlotte Beltway.
One of the more significant economic elements in the growth in the
southern area of Charlotte was the construction of Carolina Place Mall, which
comprises 1,200,000 square feet. This mall, completed in 1991, has Belk's,
JCPenney, Dillard's and Hecht's as its anchors. The mall is located
approximately five miles from the Property.
Residential growth in the area has also been vigorous. The area
southeast of Charlotte has the largest number of new apartments under
construction, as well as some of the more affluent neighborhoods in the region,
including Piper Glen, Providence Country Club and Ballantyne. Ballantyne is an
approximately 2,000-acre mixed used development including high- end
single-family housing, a country club, and retail and corporate office sites.
There is an entrance to Ballantyne approximately 1.5 miles from the Property.
The immediate area surrounding the Property consists of other
multi-family housing, commercial and retail development and
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single-family housing. The Property is located near major shopping, dining and
entertainment. The Property is approximately one mile from Interstate 485.
Description of the Property. The Property consists of 250 garden-style
apartments in twelve two-story and three-story buildings on approximately 21.8
acres of land. The Property was constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$150,000 for repairs and improvements, including roof replacement and clubhouse
renovation.
The Property offers three unit types. The unit mix and rents currently
being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
110 1 bedroom, 1 bath 696 $520
120 2 bedrooms, 2 baths 958 625
20 3 bedrooms, 2 baths 1,170 740
The apartments provide a combined total of 215,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $490 in 1991, $495 in 1992, $515 in 1993, $555 in
1994, and $575 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $7.12, $7.12, $7.41, $7.98,
and $8.27, respectively.
The buildings are wood frame construction with pitched roofs covered
with asphalt shingles. There are mostly poured concrete foundations, but some
buildings are constructed on a crawl space. The exteriors are a combination of
hardboard and brick siding. The windows are double-paned and insulated. Over the
past 18 months, 230 of the 250 apartments have had the individual heating and
air conditioning units replaced. In addition, the Property was repainted less
than two years ago and the pool area was recently reconditioned. Also, over the
last 18 months, the
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former owner expended approximately $98,000 in exterior improvements including
roof replacement. About half of the roofs are new or in otherwise excellent
condition.
The Property features an outdoor swimming pool with jacuzzi, two lighted
tennis courts, a children's playground, a sauna and weight room, and a
designated car wash area. There is also a clubhouse with a rental office. There
is ample paved parking for residents and, at the back of the Property, a
designated parking area for recreational vehicles.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen, bath and utility closets. Each unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each unit has a fireplace and washer/dryer connections, and some apartment
units feature a bay window, full size pantry and large walk-in closets. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property provides cold water,
sewer service and trash removal. The tenants pay for their own electricity usage
which covers heat, air conditioning, cooking, hot water, and lights. The prior
owner states that it spent approximately $79,000 in carpet replacement and
$10,000 in appliance replacement over the last 18 months.
There are at least six apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%. There are a number of
competing projects now under construction, and additional construction of
competing projects in the future is likely.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 86% in 1991, 88% in 1992, 94% in 1993, 94%
in 1994, and 94% in 1995. On June 7, 1996, the Property was 97% occupied. The
tenants are employed in a mix of white-collar and blue-collar jobs. According to
tenant files, approximately one quarter of the residents had household incomes
in excess of $40,000 as of the date of the Company's purchase of the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $0.995 per $100 of assessed value, the real estate taxes for 1995
were calculated to be $79,324. The assessed value was $7,392,080. The basis of
the depreciable residential real
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property portion of the Property (currently estimated at about $6,631,350) will
be depreciated over 27.5 years on a straight line basis. The basis of the
personal property portion will be depreciated in accordance with the modified
accelerated cost recovery system of the Code. Amounts to be spent by the Company
on repairs and improvements will be treated for tax purposes as permitted by the
Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections,
the Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
4. The Property is located in a particularly attractive,
"up-scale" suburban area of Charlotte, in close proximity to a number of
affluent neighborhoods. Thus, the Property may be deemed a particularly
attractive residence by prospective tenants.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$222,000, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will
serve as property manager for the Property and for its
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services will be paid by the Company a monthly management fee equal to 5% of the
gross revenues of the Property.
SUMMER WALK APARTMENTS
Concord, North Carolina
On May 31, 1996, effective May 1, 1996, the Company purchased the
Lakewood Apartments, a 160-unit apartment complex having an address of 500
Summerlake Drive, in Concord, North Carolina (the "Property"). The Company has
changed the name of the Property to "Summer Walk."
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor, and their Affiliates. The purchase price was
$5,660,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Concord is a suburb of Charlotte, North Carolina. For a
description of the greater Charlotte, North Carolina area, see "Longmeadow
Apartments" in this report.
Concord is approximately 20 miles east of Charlotte, and is located
within Cabarras County. The population of Cabarras County is approximately
157,000.
Concord is the home of Charlotte Motor Speedway, as well as many
manufacturing plants for companies such as Philip Morris, Fieldcrest Cannon,
Perdue Farms, S&D Coffee and Willis Hosiery Mills. The area is served by
Interstate Highways I-85 and I-77, and U.S. Highways 21, 29 and 74.
The immediate neighborhood surrounding the Property are characterized by
various retail centers, restaurants and businesses.
Description of the Property. The Property consists of 160 garden-style
apartments in 14 buildings located on approximately 27 acres of land. The
Property was constructed in 1983.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$320,000 for repairs and improvements including roof and siding replacement and
clubhouse renovation.
The Property offers a variety of unit types. The unit mix and rents
currently being charged new tenants are as follows:
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Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
10 1 bedroom, 1 bath 700 $445
12 1 bedroom, 1 bath w/FP 700 450
10 1 bedroom, 1 bath, FP, 700 450
cathedral ceiling
6 1 bedroom, 1 bath, 700 445
handicapped
2 1 bedroom, 1 bath, 700 450
handicapped w/FP
20 2 bedrooms, 1 bath 1,000 530
14 2 bedrooms, 1 bath 1,000 540
w/FP
6 2 bedrooms, 1 bath, 1,000 550
FP, cathedral ceiling
16 2 bedrooms, 2 baths 1,000 550
30 2 bedrooms, 2 baths 1,000 560
w/FP
14 2 bedrooms, 2 baths, 1,000 570
FP, cathedral ceiling
8 3 bedrooms, 2 baths 1,300 640
12 3 bedrooms, 2 baths 1,300 650
w/FP
The apartments provide a combined total of 154,000 square feet of net
rentable area.
The Property is subject to a Housing Assistance Payments (HAP) Contract
with HUD, under which the owner receives rent subsidies in exchange for
maintaining certain rent-restricted apartment units. Under the HAP Contract, the
Property must make available 32 apartment units. These currently consist of 12
one-bedroom, one-bath units (current rent of $427), and 20 two-bedroom, one-bath
units (current rent of $497). The current rents are $23 and $33, respectively,
below market rents for
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similar units. The HAP Contract expires on January 31, 1998, and the Company
does not plan to seek its renewal.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. However, rental rates
decreased in 1995. The Company and Cornerstone Management Group, Inc. believe
that such decrease was attributable to inadequate attention by the former
management company and the lack of capital, while the Property was in
bankruptcy, properly to maintain the Property. As an example, a one bedroom
apartment (with fireplace) rented for $383 in 1991, $393 in 1992, $425 in 1993,
$467 in 1994, and $413 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, 1995 was $6.20, $6.36, $6.88,
$7.56, and $6.63, respectively.
The buildings are wood frame construction on concrete slab or crawl
space. Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding.
The Property has an outdoor swimming pool, two tennis courts, a fishing
lake, hiking trails, a laundry room and a clubhouse with a rental office. There
is ample paved parking for residents.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and are individually controlled heating and air conditioning unit. Each
apartment unit has a washer/dryer connection and 150 apartment units include
microwaves. Each kitchen has a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property supplies cold water,
sewer service and trash removal. The tenants pay for their own electricity
usage, which includes heat, air conditioning, cooking, hot water and lights.
There are at least four apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 88% in 1991, 86% in 1992, 91% in 1993, 85%
in 1994, and 90% in 1995. On June 7, 1996, the Property was 90% occupied. The
tenants are a mix of
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white-collar and blue-collar workers and students. According to tenant files, at
the time of the Company's acquisition of the Property, over 40% of the tenants'
household incomes were in excess of $35,000. The major employers of the tenants
include Philip Morris, UNC Charlotte and Cabarras Memorial Hospital.
The seller was a North Carolina limited partnership which originally
built the Property. The seller filed for protection under Chapter 11 of the
Bankruptcy Code approximately two years ago. During the bankruptcy period, the
Property was managed by at least three different management companies. In the
opinion of Cornerstone Management Group, Inc., the management by these companies
was substandard. However, Cornerstone Management Group, Inc. does not believe
that any problems associated with the operation of the Property cannot be
remedied by new management. In addition, the Company and Cornerstone Management
Group, Inc. believe that the prior bankruptcy was largely a result of excessive
debt encumbering the Property and the lack of partnership capital of the seller.
Since the Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $1.005 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $34,307. The assessed value was $3,413,680. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $2,480,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the eastern areas of
Charlotte, North Carolina will enjoy continued economic development and steady
population increase, and that
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<PAGE>
such development and increase will support stable occupancy rates and reasonable
increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to a large
number of major employers and shopping.
4. The Property has a wide variety of unit types, which can
appeal to a wide variety of prospective tenants.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$113,200, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will serve
as property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property.
WILLOW CREEK APARTMENTS
Durham, North Carolina
On May 31, 1996, effective May 1, 1996, the Company purchased the Willow
Creek Apartments, a 200-unit apartment complex having an address of 18 Weather
Hill Circle, Durham, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor and their Affiliates. The purchase price was
$8,345,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Durham, North Carolina is located in the North Central portion
of North Carolina, approximately equidistant between Atlanta and New York. The
Blue Ridge Mountains are approximately 150 miles to the west and the Atlantic
Coast is approximately 150 miles to the east. As of 1992, Durham was the fifth
largest city in the state of North Carolina, with a
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population of 144,000. Durham County had a population of 189,000 in 1992.
Durham is home to Duke University, and its nationally known medical
center, which are located within 10 miles of the Property. Research Triangle
Park is approximately 20 miles from the Property. Both the Durham Regional
Hospital and Northgate Mall are in the same general area as the Property.
The immediate neighborhood surrounding the Property is characterized by
various retail centers, restaurants, and businesses. The Property is within
walking distance of a strip shopping center which has two grocery stores, a
state employees' credit union, Willow Dale Spa and Willow Dale Cinemas. The
movie theater houses ten theaters and the spa is frequently used by residents of
the Property. The Raleigh/Durham International Airport is accessible from
Interstate 85, which is within three miles of the Property.
Description of the Property. The Property consists of 200 garden-style
apartments in 12 buildings on approximately 21 acres of land. The Property was
constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However the Company has budgeted approximately
$400,000 for repairs and improvements, including siding replacement and
clubhouse renovation.
The Property offers seven unit types. The unit mix and rents currently
being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
26 1 bedroom, 1 bath 750 $550-560
32 1 bedroom, 1 bath w/FP 750 550-560
10 1 bedroom, 1 bath, 750 550-560
handicapped
24 2 bedrooms, 2 baths 1,000 630-640
16 2 bedroom, 2 baths, 1,000 630-640
w/FP
48 2 bedrooms, 2 baths 1,100 645-655
(split)
44 2 bedrooms, 2 baths 1,100 645-655
(split) w/FP
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<PAGE>
The apartments provide a combined total of 192,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $487 in 1991, $510 in 1992, $565 in 1993, $640 in
1994, and $655 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $6.39, $6.69, $7.41, $8.40,
and $8.59, respectively.
The buildings are wood frame construction on concrete slab or crawl
space. Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding. The Property has an outdoor swimming pool, two tennis courts, a
playground, a laundry room and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each unit has a fire extinguisher, cable
television hook-up, and an individually controlling heating and air conditioning
unit. All top-floor units have a fireplace. All apartment units have
washer-dryer connections, mini blinds, vertical blinds, and a patio or balcony.
Each kitchen is equipped with a microwave, refrigerator/freezer, electric range
and oven, dishwasher and garbage disposal. The owner of the Property supplies
cold water, sewer service and trash removal. The tenants pay for their own
electricity usage, which includes, heat, air conditioning, cooking, hot water
and lights.
There are at least four apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
slightly higher when compared with those of the Property. Based on a recent
telephone survey,
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Cornerstone Management Group, Inc. estimates that occupancy in nearby competing
projects now averages approximately 94%.
According to information provided by the Seller, physical occupancy at
the Property averaged approximately 96% in 1991, 95% 1992, 94% 1993, 98% 1994,
and 93% in 1995. On June 7, 1996, the Property was 89% occupied. The tenants are
a mix of white collar and blue collar workers and students. According to tenant
files, at the time of the Company's acquisition of the Property, over half of
the tenants' household incomes were in excess $40,000.
The seller was a North Carolina limited partnership which originally
built the Property. The seller filed for protection under Chapter 11 of the
Bankruptcy Code approximately two years ago. During the bankruptcy period, the
Property was managed by at least three different management companies. In the
opinion of Cornerstone Management Group, Inc., the management by these companies
was substandard. However, Cornerstone Management Group, Inc. does not believe
that any problems associated with the operation of the Property cannot be
remedied by new management. In addition, the Company and Cornerstone Management
Group, Inc. believe that the prior bankruptcy was largely a result of excessive
debt encumbering the Property and the lack of partnership capital of the seller.
Since the Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $1.6227 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $108,883. The assessed value was $6,818,200. The
basis of the depreciable residential real property portion of the Property
(currently estimated at about $5,982,000) will be depreciated over 27.5 years on
a straight line basis. The basis of the personal property portion will be
depreciated in accordance with the modified accelerated cost recovery system of
the Code. Amounts to be spent by the Company on repairs and improvements will be
treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
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<PAGE>
1. The Advisor and the Company believe that the Durham, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Advisor and the Company believe that the presence of Duke University and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$166,900, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will serve
as property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property.
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<PAGE>
ITEM 7.a.*
ITEM 7.b.*
ITEM 7.c.*
ITEM 7.d.*
ITEM 7.e.*
ITEM 7.f.*
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the due date for filing this report.
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ITEM 7.g.*
* To be filed by amendment. It is impracticable to include herein the required
pro forma financial information. The required pro forma financial information
will be filed as an amendment to this report as soon as possible, but in no
event more than 60 days after the due date for filing this report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
Date: June 14, 1996 By: /s/ STANLEY J. OLANDER, JR.
Stanley J. Olander, Jr.,
Vice President of
Cornerstone Realty
Income Trust, Inc.
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<PAGE>
EXHIBIT INDEX
Cornerstone Realty Income Trust
Form 8-K dated April 30, 1996
Exhibit Number Exhibit Page Number
10.1 Purchase Contract for
Longmeadow Apartments
10.2 Property Management Agreement
for Longmeadow Apartments
10.3 Purchase Contract for Trophy
Chase (Westfield) Apartments
10.4 Property Management Agreement
for Trophy Chase (Westfield)
Apartments
10.5 Purchase Contract for Beacon
Hill Apartments
10.6 Property Management Agreement
for Beacon Hill Apartments
10.7 Purchase Contract for Meadow
Creek Apartments
10.8 Property Management Agreement
for Meadow Creek Apartments
10.9 Purchase Agreement for Summer
Walk (Lakewood) Apartments
10.10 Property Management Agreement
for Summer Walk (Lakewood)
Apartments
10.11 Purchase Agreement for Willow
Creek Apartments
10.12 Property Management Agreement
for Willow Creek Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
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23.3 Consent of Independent Auditors*
23.4 Consent of Independent Auditors*
23.5 Consent of Independent Auditors*
23.6 Consent of Independent Auditors*
* To be filed by amendment.
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<PAGE>
Exhibit 10.1
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 30th day of April 1996, between
CORNERSTONE REALTY GROUP, INC. or its nominee, (hereinafter called "Purchaser")
and LONGMEADOW APARTMENTS, LTD., (hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 Sale of Property. Seller agrees to sell and convey, and Purchaser
agrees to purchase, Seller's real property known as LONGMEADOW APARTMENTS
located in CHARLOTTE, NC, with-all buildings and improvements located thereon,
as more particularly described in the attached legal description in Exhibit A
including, but not limited to 120 individually heated and air conditioned
apartment units, with all appurtenances, together with all appliances, drapes,
carpeting, shrubbery and all other personal property used in connection with the
premises, including, the inventory of personal property to be supplied by Seller
and attached hereto as Exhibit B (all such real and personal property
hereinafter collectively referred to as the "Property" unless the context
clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 Purchase Price. The total purchase price shall be FOUR MILLION NINE
HUNDRED SEVENTY FIVE THOUSAND ($4,975,000) DOLLARS as evidenced by cash or cash
equivalent at closing.
2.2 Deposit. $50,000 to be placed in escrow at the end of the "Inspection
Period" described in Article VI below. Said deposit shall be placed in escrow
with the Title Company of North Carolina or its authorized agent as an earnest
money deposit which may be credited against the purchase price or applied as per
Article XI below.
2.3 Closing in Escrow. The parties shall comply with all of the required
documentation prior to April 30, 1996 and deposit all documents and the Purchase
Price in escrow with the title company set forth in the above Paragraph 2.2. At
said time, the Purchaser shall assume all of the benefits and liabilities of
ownership, including the management of the property, with the actual closing
taking place as soon thereafter as Purchaser may elect, but not later than May
31, 1996. The Purchase Price shall be paid by (i) payment from Purchaser to
Seller at closing the
<PAGE>
amount by which the Purchaser Price exceeds the amount due from the Seller to
Condor One, Inc. under the OMNIBUS CONSENT ORDER 1) ALLOWING INTERIM LIMITED USE
OF CASH COLLATERAL, 2) PROVIDING ADEQUATE PROTECTION, 3) RELATING TO 11 U.S.C.
SS 363 (f) AND 363 (k) and 4) GRANTING RELIEF FROM STAY ("Consent Order") as of
the date of closing; and (ii) payment from Purchaser to Seller (or Seller's
assignee) on or before May 31, 1996 the amount by which the Purchase Price
exceeds the amount paid under (1) of this paragraph, with interest on and after
the date of closing in escrow as provided in the Consent Order. In all events,
the Purchaser shall have paid to Seller by May 31, 1996 the Purchase Price as
defined in Paragraph 2.1. All payments to be held by the title company in an
interest-bearing account pending disbursements.
2.4 Best Efforts. Seller and Purchaser hereby agree to use their best
efforts to close all transactions contemplated by this Agreement on or before
April 30, 1996. The parties further agree to take whatever steps are necessary
to receive an assignment of the mortgage to the Purchaser or its nominee at
agreed price and Seller will provide Purchaser with a deed in lieu of
foreclosure.
2.5 Existing Mortgage. Seller and Purchaser acknowledge that at the date of
closing the Property will be encumbered by an existing deed of trust in favor of
Cameron-Brown Company, the beneficial interest in which has been assigned to
Condor One, Inc. ("Condor") for which Condor has agreed to accept Four Million
Four Hundred Thousand Dollars ($4,400,000), with interest at an annual rate of
9.45 percent on or before July 1, 1996. Seller and Purchaser hereby agree that
interest accruals shall be prorated in accordance with Paragraph 4.1 and that
any payments of interest to Condor shall accrue to the benefit of the party
whose funds were used to make such payment. The Seller and Purchaser agree to
use their best efforts to obtain from Condor, on or before July 1, 1996 in
conjunction with payment of the full balance due Condor, an assignment of the
Condor note, deed of trust, and collateral documents to such entity as Purchaser
may direct, but obtaining such assignment is not a condition of any obligation
of Purchaser under this agreement.
ARTICLE III
TITLE MATTERS
3.1 Marketable Title. Seller, shall convey good and marketable title by
General Warranty Deed, subject only to general taxes for the current year not
yet due and payable and utility easements which could never interfere with the
present use of the Property and existing deed restrictions.
(A) Title shall be free from any and all liens or mortgages and Seller
shall be responsible for any prepayment penalties necessary to deliver such free
title.
2
<PAGE>
3.2 Title Defects; Election to Cure. If title is not marketable, except as
stated above in the preceding paragraph, Purchaser shall give written notice of
any defects in title to Seller's counsel within five (5) days after Purchaser's
receipt of a title report which report shall include copies of backup documents
relating to any title exceptions, a current survey, a flood zone certification
letter and a Surveyor's Certification letter. Seller may, at its option, elect
whether to cure said defects or by written notice to Purchaser indicate its
intention not to cure. The commitment shall be furnished without cost to
Purchaser, except and unless Purchaser obtains a policy.
3.3 Election Not to Cure Defects. Should Seller elect not to cure title
defects, this Agreement, at Purchaser's option, shall be void; each party shall
thereupon be released from all obligations hereunder; and all deposits shall be
immediately returned to Purchaser.
ARTICLE IV
PRORATIONS
4.1 Income and Expense Allocations. The following shall be prorated, on a
calendar-month basis as of the first (1st) day of the month in which closing
occurs: rents and other income from the Property; operating expenses (on such
service contracts and other obligations as Purchaser may agree to assume);
interest; and general and real property taxes and personal and business property
taxes for the year of closing (based on the most recent assessment and the most
recent levy).
4.2 Closing Costs. Purchaser and Seller shall pay their customary share of
all taxes, recording fees, if any, imposed on the Deed, or any other documents
executed in connection with the transfer of the Property. Purchaser agrees to
pay cost of title insurance. Seller shall pay any prepayment penalty charged by
the holders of any existing notes.
4.3 Allocation of Rents. Rents collected by Seller prior to Closing shall
be prorated as agreed in 4.1 above. Purchaser shall apply rents received after
Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
4.4 Prior Lease Concessions. Seller has no knowledge of any future rent
concessions other than those for employees of the managing company and has
consulted with the management company
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regarding the same.
ARTICLE V
POSSESSION OF THE PROPERTY
5.1 Possession. Possession of the Property shall be delivered to Purchaser
at closing, subject to the rights of the tenants under existing leases and
rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent. Purchaser's obligation to purchase shall be
subject to and contingent upon the satisfaction of the following conditions
precedent:
(A) Receipt by Purchaser of an engineering report of building and site
conditions, reasonably satisfactory to Purchaser, said report to include in
part, a description of any hazardous waste sites, hazardous wastes and/or
hazardous materials affecting the property. Purchaser shall have until April 26,
1996 in which to review the reports set forth herein and exercise its right to
reject the Property based thereon or the right hereunder shall be deemed waived.
Purchaser hereby agrees to instruct the entity preparing the engineering report
to provide a copy of such report to Seller simultaneously upon provision to
Purchaser.
(B) The receipt by Purchaser of Seller documents described in 7.2
below.
(C) On the condition that Sellers representations and warranties
described in Article VIII below remain true and correct.
(D) On the condition that there have been no material or adverse
changes to the property or leases.
(E) Seller acknowledges that Purchaser is a public entity and that it
is required to furnish financial statements to the Securities and Exchange
Commission in connection with this acquisition. Seller agrees to make the
information available for Purchaser to audit the last 12 months of operation of
the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission.
(F) Purchaser shall have until May 1st to procure a Survey which shall
show no encroachments onto the Land from any adjacent property, no encroachments
by or from the Land onto adjacent property and no violation of or encroachments
upon any recorded building lines, restrictions or easements affecting the
Property. If the Survey discloses any such encroachment or violation, Seller
shall have five (5) days from the date of
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delivery of the Survey (with a commensurate extension of the closing date) to
have the Title Insurer issue its endorsement insuring against damage caused by
such encroachment or violation and to provide evidence thereof to Purchaser, and
if Seller fails to or is unable to have the same insured against within such
five (5) day period, Purchaser may elect, on or before the Closing Date, to (i)
terminate this Agreement (in which case the Earnest Money shall be returned to
Purchaser) and neither party shall have any further liability or obligation to
the other hereunder, or (ii) accept the property subject to any such
encroachment or violation.
6.2 Inspection. This Agreement shall be further subject to and contingent
upon Purchaser's satisfactory inspection as follows herein below.
6.2.1 Preparation for Inspection. At the execution of this Agreement,
Seller shall deliver to Purchaser copies of the following: The current rent roll
for the Property; detailed statements of income and expenses with respect to the
Property for the past two years; the most recent tax bills for the Property;
utility bills for the Property for the twelve (12) months previous to the date
hereof; all contract, mortgages, and other documents creating liens of security
interest on the Property, or any part thereof and all promissory notes secured
thereby; all insurance policies applicable to the Property to include loss runs
for the last five (5) years; Plans and Specifications for the Property, service
contracts, Certificates of Occupancy, to the extent reasonably available; a copy
of the title policy and most recent survey for the Property. A copy of any
environmental or engineering reports on the property. All these items shall be
certified by Seller to be accurate and complete to the best of its knowledge and
belief. In the event Purchaser has not received any of the documents referenced
by this Paragraph 6.2.1 by April 26, 1996, Purchaser shall notify Seller in
writing by April 29, 1996 or waiver the right to receive such documents.
6.2.2 Inspection of Books and Records; Access. Upon receipt by Purchaser of
all documents requested in the paragraph above, Purchaser, its employees, agents
and contractors shall have 14 days (the "Inspection Period") to enter upon the
Property subject to the rights of the tenants during normal business hours for
the purpose of making physical inspections thereof, including but not limited to
roofs, heating, cooling, electrical and plumbing systems, swimming pool,
appliances, and structural elements of the buildings. Upon the conclusion of the
Inspection Period this contract shall be deemed to be a firm agreement of
purchase and sale binding the parties hereto, except as it may be terminated by
other provisions and conditions contained herein, including but not limited to
the condition imposed by Paragraph 6.1(A) above.
6.2.3 Right of Termination During Inspection Period. Purchaser shall also
be permitted to review all original leases,
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expense records, tenant cards and occupancy data available. If Purchaser is not
satisfied, in its sole and exclusive discretion, with the state of maintenance
and repair of the Property or the rents, occupancy or expenses of the Property,
then notwithstanding anything contained herein to the contrary, Purchaser shall
have the right to terminate this Agreement by giving written notice to Seller
before the end of the Inspection Period, and no party hereto shall have any
further liability to any other party hereto, and all deposits shall be returned
to Purchaser.
6.2.4 "Rent Ready". During the "Inspection Period", both Seller and
Purchaser will inspect an apartment unit at the Property and mutually agree that
said apartment shall be representative of a "rent ready" unit by which all other
units shall be judged for "rent ready" condition at closing. All vacant
apartment units, are to be in a "rent ready" condition (as defined above), at
the time of closing, containing, but not limited to the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating, plumbing and
electrical systems.
6.2.5 Condition of Personal Property at Closing. All personal property
included in the sale and all mechanical, electrical, heating, air conditioning,
sewer, water and plumbing systems will be in the same working order at the time
of closing and in the same condition as at the time of the initial inspection by
Purchaser. If Seller fails to make reasonable efforts to conserve the property
and Seller does not pay at closing for any damages resulting from Seller's
failure to make reasonable efforts to converve the property, Purchaser shall
have the option of waiving such requirement, in writing, and proceeding to
closing, or Purchaser may void this Agreement and obtain a prompt return of its
deposit. This clause shall survive closing for three (3) business days.
6.2.6 Satisfaction of Due Diligence Requirement. The Purchaser acknowledges
receipt of all documents required from Seller for the completion of its
inspection.
ARTICLE VII
CLOSING
7.1 Closing. Closing will be held on or before April 30, 1996 at such place
and at such time as the parties may agree.
7.2 Seller's Deliveries. At closing, Seller shall execute and deliver to
Purchaser the General Warranty Deed referred to in Paragraph 3 hereof and shall
also execute, where necessary, and deliver to Purchaser, the following:
(A) A Bill of Sale, with warranty of title transferring the personal
property (as shown in Schedule B) to
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Purchaser free of all liens, charges and encumbrances.
(B) Originals or copies of all signed leases and rental agreements in
effect with tenants of the Property.
(C) All security deposits made by such tenants. Seller will give the
tenants the required notice of such transfer in compliance with the laws of
North Carolina.
(D) An affidavit of Seller in such form as will cause the Title Company
to omit from the title insurance policy the exclusion relating to unrecorded
mechanic's and materialmen's liens.
(E) A rent roll certified by Seller to be true and correct as of the
date of closing showing the name of, and the amount of monthly rental payable,
by each tenant of the Property, the apartment occupied by the tenant, the date
to which rent has been paid, any advance payment of rent, and the amount of any
escrow, or security deposit of tenant.
(F) A standard affidavit of Seller as required by the title company
that to the best of its information and belief there are, on the date of
closing, no unsatisfied judgments, creditor's claims or tax liens involving
Seller, which would affect the title to the Property.
(G) Purchaser shall provide its own termite bond.
(H) Assignments of all Seller's interest in the following: (1) all
assignable licenses, and permits relating to the operation of the Property, (2)
the leases and rental agreements with tenants of the Property, (3) the existing
Property telephone number and (4) the business and trade name as set forth in
Par. 1.1.
(I) Assignments of all warranties and guarantees to the extent such are
still in effect and provide Purchaser with copies of all such warranties and
guarantees without limitation for all appliances, dishwashers, disposals,
refrigerators, heating and air conditioning units, washers and dryers.
(J) Evidence satisfactory to Purchaser that all water, sewer, gas,
electric, telephone, and drainage facilities and all other utilities required by
law or by the normal use and operation of the Property are and at the time of
closing will be installed to the property line, are and at the time of closing
will be connected pursuant to valid permits, and are and at the time of closing
adequate to service the Property and to permit full compliance with all
requirements of law and normal usage of the Property by the tenants thereof and
their licensees and invitees.
(K) Consent of the Seller's authorized officer to the sale of the
Property and any other approvals required under
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Seller's articles or by-laws, which may affect Seller's ability to convey
marketable title.
(L) Provide documents for the transfer of the telephone, electric,
water and sewer, and gas utilities, as may be required by the utility, for
execution at closing.
(M) Satisfactory evidence of the power and authority of Seller to enter
into and consummate this agreement, including but not limited to:
(i) An opinion of Seller's counsel, in a form satisfactory to
Purchaser, stating that:
(a) The individual(s) executing the deed and related documents
are duly authorized to do all such acts as are necessary to consummate this
sale, without further consent of any other party.
(b) That the partner or officer can bind the Partnership or
Corporation.
(N) Affidavit that Seller has no actual knowledge of the presence of
asbestos and/or any other hazardous material at the Property.
(O) Seller shall provide a satisfactory and valid written termination
of the management agreement executed by the existing management and rental agent
for the Property, without cost to the Purchaser.
(P) A notice letter to all the residents of the apartment complex as to
change of ownership in the form prepared by the Purchaser.
(Q) All such other documents as are normally transferred at settlement
in the jurisdiction in which the property is located or are reasonably requested
by Purchaser or its counsel.
(R) A representation letter as normally required by auditors for a
public company in the form attached hereto as Exhibit C.
7.3 Purchaser's Deliveries. At closing and contemporaneously with the
Seller's compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the cash portion of the purchase price, adjusted for
the prorations herein provided for in Articles II and IV.
(B) Execute and deliver an assumption of obligations under leases,
securities, any contracts which may be
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accepted by the Purchaser and any other obligations specifically set forth
herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and delivered
by the Purchaser and is a valid and binding agreement of Purchaser, and
(ii) Purchaser has complete unrestricted power to buy the Property
from the Seller and to execute any documents required to effectuate the
transfer.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations of the Parties. Seller warrants (which warranties shall
not survive settlement for more than ninety (90) days unless designated to the
contrary) that as of the date of closing hereof;
(A) That Seller, is the owner in fee simple of the Property and has the
power to convey same upon the express approval of the bankruptcy court.
(B) That Seller is not subject to any other agreements or arrangements,
with the exception of those contained in any existing mortgage documents or in
the Seller's pending bankruptcy proceeding which would prevent Seller from
selling the Property to Purchaser.
(C) All necessary action has been taken by Seller to authorize the
execution of this Agreement and the performance of the obligations contemplated
hereunder, which are not excluded elsewhere in existing mortgage documents.
(D) Seller has no actual knowledge and has not been advised in writing
that it is in default under any lease, rental agreement service or equipment
contract, or mortgage or other encumbrances relating to the Property except as
affected by the bankruptcy.
(E) Seller has no actual knowledge of any patent or latent defect in
the Property or any part thereof.
(F) Seller has no actual knowledge of any existing or threatened
litigation which relates to or which would affect the Property.
(G) The Property abuts on and has direct vehicular access to a public
road.
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(H) All building and other improvements at the Property are located
entirely within the boundary lines of the Property.
(I) Seller has no actual knowledge that any part of the Property or the
operation of the Property, is in violation or may violate any governmental
statute, regulation, ordinance or building code or of any private restriction,
that any governmental authority requires any work to be done on or affecting the
Property, or that any governmental authority has expressed an intent to condemn
or to make special improvements for the benefit of the Property or any part
thereof.
(J) That to the best knowledge of the Seller, the drainage within the
project is satisfactory and complies in all respects with all government
regulation.
(K) That Seller is not a "foreign person" within the meaning of the
Internal Revenue Code of 1954, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
(L) That to the best of Seller's actual knowledge, the Property was
never utilized as a disposal site for hazardous waste products and will furnish
to Purchaser an affidavit confirming same.
(M) Seller covenants and agrees that, between this date and the date of
closing, Seller shall continue to maintain, operate and manage the Property in a
manner consistent with its prior practices, making every reasonable effort to do
nothing which might damage the reputation of the Property or the relationships
with the tenants. Seller shall not permit the modification, extension or
cancellation of any tenant lease (except in accordance with the terms of such
lease) or any dealing with any tenant other than the ordinary course of managing
the Property, without the prior written consent of Purchaser. If the leases of
any tenants expire before thirty (30) days after the date of closing, Seller
shall, up to the date of closing and without cost to the Purchaser, continue its
normal course of operation with respect to causing tenants to be obtained for
apartments which are unrented.
8.2 Continuation of Representations, Warranties and Covenants to the Date
of Closing. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated, Seller shall return all
payments made by Purchaser, or Purchaser may elect to close the sale and waive
failure of the warranties.
8.2 (A) Breach of Representations, Warranties and Covenants.
Notwithstanding the provisions of 8.2 above, Seller
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shall indemnify Purchaser for all reasonable costs incurred as a result of the
failure of any of Seller's representations, warranties or covenants contained
herein to remain true as of the date of closing.
(B) Non-Recourse Agreement. Any and all warranties and representations
contained in this Agreement shall be deemed to have been made solely by the
Seller and not by any of its general or limited partners. Additionally, any and
all liability of individual partners under this Agreement shall be non-recourse
in nature. Purchaser expressly acknowledges that neither its general or limited
partners shall have any personal liability under this Agreement.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 Property Damage. If, prior to closing, any part of the Property is
damaged by fire or other casualty, Seller shall repair such damage before the
date provided herein for closing. If such damage cannot be repaired by such
time, this Agreement may be canceled at the option of the Purchaser. In the
event of cancellation as aforesaid, this Agreement shall become null and void
and the parties shall be released and all payments made shall be returned.
Should Purchaser elect to carry out this Agreement despite such damage Seller
shall assign to Purchaser all insurance proceeds arising from such damage and
will compensate Purchaser for lost rent collections to the extent of insurance
proceeds received. Seller shall promptly notify Purchaser in writing upon the
occurrence of any such damage.
9.2 Condemnation. In the event of any actual or threatened taking, pursuant
to the power of eminent domain, all or any part thereof, or any actual or
proposed sale in lieu thereof, the Seller shall give written notice thereof to
the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property (any part of the building or more than
5% of the parking area), Purchaser may elect to either (a) terminate this
Agreement, in which event the Deposit shall be immediately returned to Purchaser
and all other rights and obligations of the parties hereunder shall terminate
immediately, or (b) to waive its right to terminate this Agreement and proceed
to closing, in which event all proceeds, awards and other payments arising out
of such condemnation or sale (actual or threatened) shall be paid to the
Purchaser at closing, if such payment has been received or Seller shall assign
to Purchaser the rights to such payments.
9.3 Risk of Loss. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
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BROKER'S COMMISSION
10.1 Commission. Seller agrees to pay a brokerage fee to PERCIVAL'S INC.
not to exceed Fifty Thousand ($50,000) Dollars, pursuant to a separate agreement
between Seller and Broker. Said brokerage fee shall be deemed earned if, and
only if, settlement occurs hereunder, and shall not be deemed earned even if
Purchaser and/or Seller wrongfully fail(s) to consummate the purchase and sale
herein contemplated. Purchaser shall not be obligated for any brokerage fees to
any broker, and Seller agrees to hold Purchaser harmless in connection with such
fees. Seller and Purchaser represent and warrant to each other that no other
brokerage fees are or shall be owing in connection with this transaction or in
any way with the Apartments and Seller and Purchaser hereby indemnify and hold
the other harmless from any and all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 Default Defined. Default for the purpose of this Agreement shall mean
any failure by Seller or Purchaser to fulfill all the terms, conditions and
covenants contained herein, however, it shall not be an event of default for
either party to exercise its rights to terminate this contract as contained in
other provisions herein.
11.2 Seller's Default. Upon Seller's default, the Purchaser, at it's
election, may either (1) require specific performance of Seller, or pursue its
other remedies at law or equity, (2) cancel this Agreement and obtain a prompt
return of the deposit, in which case this Agreement shall be terminated and the
parties released from all obligations hereunder, or (3) the Purchaser may waive
such defaults and proceed to settlement. Seller shall indemnify Purchaser for
any reasonable costs incurred by Purchaser if Purchaser elects to pursue its
option (1) noted above, to include reasonable attorney fees.
11.3 Purchaser's Default. Upon Purchaser's default, this Agreement shall be
terminated and both parties released from all obligations hereunder, and the
deposit shall be retained by the Seller as liquidated damages or in the
alternative the Purchaser shall have the same remedies as are available to the
Seller in Paragraph 11.2.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Entire Agreement. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
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12.2 Assignment. Purchaser may assign this Agreement without the consent of
Seller.
12.3 Severability. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 Binding Effect. The parties to the Agreement mutually agree that it
shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 Controlling Law. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State set forth in Par. 1.1
12.6 Counterparts. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 Incorporation by Reference. All of the Exhibits referred to herein
and/or attached hereto shall be deemed to constitute a part of the Agreement.
12.8 Headings. The headings of the Articles and sections hereof are
inserted for convenience only and shall not be deemed to constitute a part of
the Agreement.
12.9 Construction of Contract. Each party hereto have reviewed and revised
(or requested revisions of) this Agreement, and therefore the normal rule of
construction that any ambiguities are to be resolved against a particular party
shall not be applicable in the construction and interpretation of this Contract
or any amendments or exhibits hereto.
ARTICLE XIII
NOTICE
13.1 Notice. All notices required or permitted to be given under this
Agreement shall be in writing and shall be sent or delivered to the address set
forth below (or such other address as may be hereafter specified in writing):
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To Seller: Longmeadow Apartments, Ltd.
c/o G. F. Marshall
16 E. Rowan Stree, Suite 402
Raleigh, NC 27609
With a copy to
Seller's Attorneys: James L. Bagwell, Esq.
Rayburn, Moon & Smith, P.A.
227 West Trade Street, Suite 1200
Charlotte, NC 28202
To Purchaser: S. J. Olander
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
and
Alison R. Cayton, Esq.
Manning Fulton & Skinner
3605 Glenwood Ave., POB 20389
Raleigh, NC 27619-0389
13.2 Delivery of Notice. Notices sent either by Registered or Certified
Mail, Return Receipt Requested, or by overnight express mail shall be deemed
given when deposited in the United States Mail, postage prepaid, or delivered to
a reliable overnight courier. Notices sent in any other manner shall be deemed
given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed this day and date first written above.
SELLER:
LONGMEADOW APARTMENTS, LTD.
By: _______________________
Its: ______________________
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ S. J. OLANDER
Its: Senior Vice President
______________________
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Exhibit 10.2
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of April, 1996 by
and between Cornerstone Realty Income Trust, Inc., a Virginia corporation
(hereinafter referred to as "Owner"), and Cornerstone Management Group, Inc., a
Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Longmeadow Apartments, (hereinafter referred
to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby engages
Manager as sole and exclusive manager to rent, manage and operate the Property,
upon the conditions and for the term and compensation herein set forth. All or
a portion of the services being performed by Manager may be contracted or
subcontracted to another property management company, provided that such company
agrees to be bound by the terms of this Agreement.
2. Term of Agreement: Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be implemented in the forthcoming year,
which recommendations shall be accompanied by an estimated budget for such
items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
1. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be based upon the
income received by Owner (for such month) which has been obtained by such date.
If additional gross revenues are received by Owner after the day Manager is
paid, the sum due to Manager on account of such additional income shall be paid
to Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this
Agreement as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
-36-
<PAGE>
Exhibit 10.3
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 30th day of April 1996, between
CORNERSTONE REALTY GROUP INC. or its nominee or its assignee permitted under
Section 12.2, (hereinafter called "Purchaser") and WESTFIELD CLUB ASSOCIATES
L.P., (hereinafter called "Seller") and K-A WESTFIELD/CLUB PARTNERS, Managing
General Partner of Seller, (hereinafter sometimes referred to as "Managing
General Partner" or Managing Agent.
ARTICLE I
THE PROPERTY
1.1 SALE OF PROPERTY. Seller agrees to sell and convey, and Purchaser
agrees to purchase, Seller's real property known as WESTFIELD APARTMENTS located
in THE COUNTY OF ALBEMARLE, VA, with all buildings and improvements located
thereon, as more particularly described in the attached legal description in
Exhibit A including, but not limited to 185 individually heated and air
conditioned apartment units, with all appurtenances, together with right, title
and interest of Seller in all appliances, drapes, carpeting, shrubbery and all
other personal property used in connection with the premises, including, the
inventory of personal property to be supplied by Seller and attached hereto as
Exhibit B (all such real and personal property hereinafter collectively referred
to as the "Property" unless the context clearly indicates otherwise).
1.2 APPROVAL. This sale is subject to the approval by the Board of
Directors of Purchaser.
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price shall be THREE MILLION SEVEN
HUNDRED TEN THOUSAND ($3,710,000) DOLLARS as evidenced by cash at closing in the
sum of Three Hundred Seven Thousand Six Hundred Twenty Six & 42/100
($307,626.42) Dollars in the form of a wire transfer to a financial institution
designated by Seller and Three Million Four Hundred Two Thousand Three Hundred
Seventy Three & 58/100 ($3,402,373.58) Dollars payable to satisfy the existing
First Mortgage, which shall be accomplished by delivering said amount to the
title company.
ARTICLE III
TITLE MATTERS
3.1 MARKETABLE TITLE. Seller, shall convey good and marketable title by
Special Warranty Deed, subject only to general taxes for the current year not
yet due and payable and utility easements which do not materially interfere with
the present use of the Property and except for those exceptions set forth in
Seller's existing title policy and accepted by Purchaser, as evidenced by
Purchaser's recordation of the deed.
(A) Title shall be conveyed free and clear of all liens as insured by
the title company (the necessary funds to satisfy the mortgage shall be
deposited with the title company) and pursuant to the terms of the Escrow
Agreement attached hereto as Exhibit C.
3.2 TITLE DEFECTS; ELECTION TO CURE. Purchaser shall obtain a commitment
for Title Insurance, (the commitment). If title is not marketable, except as
stated above in the preceding paragraph, Purchaser shall give written notice of
any defects in title to Seller's counsel within fifteen (15) days after
Purchaser's receipt of a title report which report shall include copies of
backup documents relating to any title exceptions, a current survey, a flood
zone certification letter and a Surveyor's certification letter. Seller may, at
its option, elect whether to cure said defects or by written notice to Purchaser
indicate its intention not to cure.
3.3 ELECTION NOT TO CURE DEFECTS. Should Seller elect not to cure title
defects, this Agreement, at Purchaser's option, shall be void; each party shall
thereupon be released from all obligations hereunder.
3.4 APPROVAL OF TITLE. Notwithstanding anything herein to the contrary,
Purchaser acknowledges that Purchaser has examined title to the property and has
notified Seller that there are no defects in title.
ARTICLE IV
PRORATIONS
4.1 INCOME AND EXPENSE ALLOCATIONS. The following shall be prorated, on a
calendar-month basis, as of April 1, 1996: rents and other income from the
Property; operating expenses (on such service contracts and other obligations as
Purchaser may agree to assume); and general and real property taxes and personal
and business property taxes for the year of closing (based on the most recent
assessment and the most recent levy).
4.2 CLOSING COSTS. Purchaser shall pay all customary taxes and recording
fees, if any, imposed on the Deed, or any other documents executed in connection
with the transfer of the Property. Purchaser agrees to pay cost of title
insurance. Seller shall pay any prepayment penalty charged by the holders of any
existing notes.
4.3 ALLOCATION OF RENTS. Rents collected by Seller prior to Closing shall
be prorated as agreed in 4.1 above. Purchaser shall apply rents received after
Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
ARTICLE V
POSSESSION OF THE PROPERTY
5.1 POSSESSION. Possession of the Property shall be delivered to Purchaser
at closing, subject to the rights of the tenants under existing leases and
rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT. Purchaser's obligation to purchase shall be
subject to and contingent upon the satisfaction of the following conditions as
of date of closing, all of which shall be deemed waived if not satisfied by
closing;
(A) The receipt by Purchaser of Seller documents described in 7.2
below.
(B) On the condition that all representations and warranties described
in Article VIII below remain true and correct.
(C) On the condition that there have been no material or adverse
changes to the property or leases.
(D) Seller acknowledges that Purchaser is a public entity and that it
is required to furnish financial statements to the Securities and Exchange
Commission in connection with this acquisition. The Managing General Partner of
Seller agrees to make the information available for Purchaser to audit the last
12 months of operation of the Property so that a report can be generated that is
in compliance with accounting Regulation S-X of the Securities and Exchange
Commission, receipt of which is hereby acknowledged by Purchaser.
(E) Survey which shall show no encroachments onto the Land from any
adjacent property, no encroachments by or from the Land onto adjacent property
and no violation of or encroachments upon any recorded building lines,
restrictions or easements affecting the Property, receipt of which is hereby
acknowledged.
6.2 INSPECTION. This Agreement shall be further subject to and contingent
upon Purchaser's satisfactory inspection of the Property, books and records,
which has been completed and Purchaser agrees to accept the Property "as is",
"where is".
ARTICLE VII
CLOSING
7.1 CLOSING. Closing will be held on or before April 30, 1996 or on such
other date as the parties may agree and at such place and at such time as the
parties may agree.
7.2 SELLER'S DELIVERIES. At closing, Seller shall execute and deliver to
Purchaser the Special Warranty Deed referred to in Paragraph 3 hereof and shall
also execute, where necessary, and deliver to Purchaser, the following:
(A) A Bill of Sale transferring the personal property (as shown in
Schedule B) to Purchaser "as is", "where is".
(B) Originals or copies of all signed leases and rental agreements in
effect with tenants of the Property, which Purchaser acknowledges receipt of.
(C) All security deposits made by such tenants. The Managing General
Partner on behalf of Seller will give the tenants the required notice of such
transfer in compliance with the laws of VIRGINIA.
(D) An affidavit of the Managing General Partner on behalf of Seller
in such form as will cause the Title Company to omit from the title insurance
policy the exclusion relating to unrecorded mechanic's and materialmen's liens.
(E) A rent roll certified by the Managing General Partner to be true
and correct as of the date of closing showing the name of, and the amount of
monthly rental payable, by each tenant of the Property, the apartment occupied
by the tenant, the date to which rent has been paid, any advance payment of
rent, and the amount of any escrow, or security deposit of tenant.
(F) An affidavit of the Managing General Partner that to the best of
its information and belief there are, on the date of closing, no unsatisfied
judgments, creditor's claims, tax liens, or pending bankruptcies involving
Seller.
(G) Seller shall assign current Pest Control Bond, if any, which is in
possession of the Managing General Partner to the extent assignable.
(H) To the extent assignable, Seller shall assign its interest in the
following: (1) all assignable licenses, and permits relating to the operation of
the Property, (2) the leases and rental agreements with tenants of the Property,
(3) the existing Property telephone number and (4) the business and trade name
as set forth in Par. 1.1.
(I) To the extent assignable, Seller shall assign all warranties and
guarantees to the extent such are still in effect and provide Purchaser with
copies of all such warranties and guarantees in its possession without
limitation for all appliances, dishwashers, disposals, refrigerators, heating
and air conditioning units, washers and dryers.
(J) Satisfactory evidence of the power and authority of Seller to
enter into and consummate this agreement to the satisfaction of the title
company, including but not limited to evidence that:
(a) The individual(s) executing the deed and related documents
are duly authorized to do all such acts as are necessary to consummate this
sale, without further consent of any other party.
(b) That the partner or officer can bind the Partnership.
(K) Affidavit of Managing General Partner that it has no actual
knowledge of the presence of asbestos and/or any other hazardous material at the
Property.
(L) Seller shall provide a satisfactory and valid written termination
of the management agreement executed by the existing management and rental agent
for the Property, without cost to the Purchaser.
(M) A notice letter for Purchaser to forward to all the residents of
the apartment complex as to change of ownership in the form prepared by the
Purchaser.
(N) All such other documents as are normally transferred at settlement
in the jurisdiction in which the property is located or are reasonably requested
by Purchaser or its counsel.
(O) A representation letter from the Managing General Partner to the
extent required by auditors for a public company, a copy of which is annexed
hereto as Exhibit D.
7.3 PURCHASER'S DELIVERIES. At closing and contemporaneously with the
Seller's compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the purchase price provided for in Article II,
adjusted for the prorations herein provided for in Article IV.
(B) Execute and deliver an assumption of obligations under leases,
securities, any contracts which may be accepted by the Purchaser and any other
obligations specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a valid and binding agreement of Purchaser,
and
(ii) Purchaser has complete unrestricted power to buy the Property
from the Seller and to execute any documents required to effectuate the
transfer.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS OF THE SELLER. Seller warrants (which warranties shall
not survive settlement) that as of the date of closing hereof:
(A) That Seller, is the owner in fee simple of the Property and has
the power to convey same.
(B) All necessary action has been taken by Seller to authorize the
execution of this Agreement and the performance of the obligations contemplated
hereunder, which are not excluded elsewhere in existing mortgage documents.
(C) That Seller is not a "foreign person" within the meaning of the
Internal Revenue Code of 1954, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
8.2 REPRESENTATIONS OF THE MANAGING GENERAL PARTNER.
(A) The Managing General Partner has no actual knowledge of any
existing or threatened litigation which relates to or which would affect the
Property.
(B) The Managing General Partner has no actual knowledge that any part
of the Property or the operation of the Property, is in violation or may violate
any governmental statute, regulation, ordinance or building code or of any
private restriction, that any governmental authority requires any work to be
done on or affecting the Property, or that any governmental authority has
expressed an intent to condemn or to make special improvements for the benefit
of the Property or any part thereof.
(C) The Managing General Partner covenants and agrees that, between
this date and the date of closing, Seller shall continue to maintain, operate
and manage the Property in a manner consistent with its prior practices, making
every reasonable effort to do nothing which might damage the reputation of the
Property or the relationships with the tenants. Seller shall not permit the
modification, extension or cancellation of any tenant lease (except in
accordance with the terms of such lease) or any dealing with any tenant other
than the ordinary course of managing the Property, without the prior written
consent of Purchaser. If the leases of any tenants expire before thirty (30)
days after the date of closing and without cost to the Purchaser, continue its
normal course of operation with respect to causing tenants to be obtained for
apartments which are unrented.
8.3 CONTINUATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS TO THE DATE
OF CLOSING. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated, Seller shall return all
payments made by Purchaser, or Purchaser may elect to close the sale and waive
failure of the warranties. Notwithstanding anything herein to the contrary, all
representations, warranties and covenants of Seller and/or any of its partners
contained herein shall not survive the execution and delivery of the deed and
shall be merged therein.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property is
damaged by fire or other casualty, Seller shall repair such damage before the
date provided herein for closing. If such damage cannot be repaired by such
time, this Agreement may be canceled at the option of the Purchaser. In the
event of cancellation as aforesaid, this Agreement shall become null and void
and the parties shall be released. Should Purchaser elect to carry out this
Agreement despite such damage Seller shall assign to Purchaser all insurance
proceeds arising from such damage and will compensate Purchaser for lost rent
collections to the extent of insurance proceeds received. Seller shall promptly
notify Purchaser in writing upon the occurrence of any such damage.
9.2 CONDEMNATION. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, all or any part thereof, or any actual
or proposed sale in lieu thereof, the Seller shall give written notice thereof
to the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property (any part of the building or more than
5% of the parking area), Purchaser may elect to either (a) terminate this
Agreement and all other rights and obligations of the parties hereunder shall
terminate immediately, or (b) to waive its right to terminate this Agreement
immediately, or (b) to waive its right to terminate this Agreement and proceed
to closing, in which event all proceeds, awards and other payments arising out
of such condemnation or sale (actual or threatened) shall be paid to the
Purchaser at closing, if such payment has been received or Seller shall assign
to Purchaser the rights to such payments.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
BROKER'S COMMISSION
10.1 NO BROKER. Seller and Purchaser represent and warrant to each other
that no broker brought about this transaction and they each indemnify and hold
the other harmless from any claim by any broker.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this Agreement shall mean
any failure by Seller or Purchaser to fulfill all the terms, conditions and
covenants contained herein, however, it shall not be an event of default for
either party to exercise its rights to terminate this contract as contained in
other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at its
election, may either (1) require specific performance of Seller, or pursue its
other remedies at law or equity, (2) cancel this Agreement in which case this
Agreement shall be terminated and the parties released from all obligations
hereunder, or (3) the purchaser may waive such defaults and proceed to
settlement.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, the Seller, at its
election, may terminate this Agreement or have the same rights as the Purchaser
in Paragraph 11.2 and both parties released from all obligations hereunder.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
12.2 ASSIGNMENT. Purchaser may assign this Agreement to Cornerstone Realty
Income Trust, Inc. without the written consent of Seller. Any other assignment
shall require Seller's prior written consent.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree that it
shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the Commonwealth of Virginia.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to herein
and/or attached hereto shall be deemed to constitute a part of the Agreement.
12.8. HEADINGS. The headings of the Articles and sections hereof are
inserted for convenience only and shall not be deemed to constitute a part of
the Agreement.
12.9 CONSTRUCTION OF CONTRACT.
(A) Each party hereto have reviewed and revised (or requested
revisions of) this Agreement, and therefore the normal rule of construction that
any ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Contract or any
amendments or exhibits hereto.
(B) Neither Seller nor any of the Seller's Partners, other than the
Managing General Partner, shall be responsible for any covenants, warranties,
affidavits or representations given by the Managing General Partner to the
Purchaser herein.
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under this
Agreement shall be in writing and shall be sent or delivered to the address set
forth below (or such other address as may be hereafter specified in writing):
To Seller: Westfield Club Associates, L.P.
306 E. Main Street
Richmond, VA 23219
With a copy to
Seller's Attorneys: Nancy R. Little, Esq.
McGuire Woods Battle & Boothe LLP
901 East Cary Street
Richmond, VA 23219
To Purchaser: S. J. Olander
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
and
Steven Delaney, Esq.
LeClair Ryan
707 East Main Street - 11th Fl.
Richmond, VA 23219
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or Certified
Mail, Return Receipt Requested, or by overnight express mail shall be deemed
given when deposited in the United States Mail, postage prepaid, or delivered to
a reliable overnight courier. Notices sent in any other manner shall be deemed
given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed this day and date first written above.
SELLER:
WESTFIELD CLUB ASSOCIATES L.P.
By: /s/ GLADE M. KNIGHT
Its: General Partner of K-A Westfield Club Partners, General Partner
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ S. J. OLANDER
Its: Senior Vice President
MANAGING GENERAL PARTNER
K-A WESTFIELD CLUB PARTNERS
By: /s/ GLADE M. KNIGHT
Its: General Partner
<PAGE>
Exhibit 10.4
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
April, 1996 by and between Cornerstone Realty Income Trust, Inc.,
a Virginia corporation (hereinafter referred to as "Owner"), and
Cornerstone Management Group, Inc., a Virginia corporation
thereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Westfield Club Apartments,
(hereinafter referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this
Agreement for the purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein
contained, and for other valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner
hereby engages Manager as sole and exclusive manager to rent,
manage and operate the Property, upon the conditions and for the
term and compensation herein set forth. All or a portion of the
services being performed by Manager may be contracted or
subcontracted to another property management company, provided
that such company agrees to be bound by the terms of this
Agreement.
2. Term of Agreement: Renewal. This Agreement shall be
valid for an initial term of two (2) years. In the event Owner
sells its interest in the Property this Agreement will terminate
upon the date of such sale. Unless either party by written
notice sent to the other party at least sixty (60) days before
the end of any two-year term hereof elects not to renew this
Agreement, this Agreement shall renew automatically for
successive terms of two (2) years on the same terms as contained
herein.
3. Acceptance of Engagement. Manager hereby accepts its
engagement as the manager of the Property and agrees to perform
all services necessary for the care, protection, maintenance and
operation of the Property, including the following:
a. The collection of all rents and other income from
the Property, provided that nothing herein contained shall
constitute a guarantee by Manager of the payment of rent by
tenants;
b. The purchase, at the expense of Owner, of all
equipment, tools, appliances, materials, supplies and uniforms
necessary for the maintenance or operation of the Property;
c. The contracting on behalf of Owner for water, gas,
electricity and other services necessary for the operation and
maintenance of the Property;
d. The advertising for the rental of space in the
Property, the cost of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the
Property rented by procuring tenants for the Property and
negotiating and executing on behalf of Owner all leases for space
in the Property;
f. The employment, discharge and payment of all
employees or contractors necessary to be employed in the
management and operation of the Property. Owner agrees that all
wages (and federal and state unemployment insurance and other
required charges) of such employees, and all compensation of such
employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and
other documents (other than promissory notes, mortgages, deeds of
trust or other documents or instruments which would encumber the
Property) required under the Federal Insurance Contributions Act
and the Federal Unemployment Tax Act, or any similar federal or
state legislation. Manager shall also file returns and reports,
and pay from Owner's funds, all sums as may from time to time be
required by the state or locality in which the Property is
located;
h. The maintenance of full books of account with
correct entries of all receipts and expenditures, which books of
account shall be the property of Owner and shall at all times be
open to the inspection of Owner or any of its employees or duly
authorized agents;
i. The furnishing to Owner of all lenders' annual
property inspection letters regarding repairs necessary to avoid
mortgage loan defaults. The furnishing monthly of a detailed
statement of all receipts and disbursements for that month, such
statement to be furnished on or before the 20th day of each month
for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers,
duplicate invoices and similar documentation covering all items
of income and expense, which shall be kept in Manager's office
and shall be available for inspection by Owner's representatives
at all times. Manager shall also furnish a monthly operating
statement showing the income and expense for the month, and year
to date, and for the same month of the preceding year. The cost
of performing the accounting functions outlined in paragraphs h
and i shall be paid for by Owner pursuant to the terms of this
Agreement;
j. The furnishing of annual reports to Owner which
shall contain a composite financial report of the monthly
statements provided in accordance with paragraph i, plus a
statement by Manager as to the operations of the Property during
the previous year and recommendations, if any, as to necessary
policy changes or improvements which should be implemented in the
forthcoming year, which recommendations shall be accompanied by
an estimated budget for such items;
k. The furnishing from time to time, at least semi-annually,
of a tentative budget of expenses;
l. The furnishing from time to time, at least
annually, of the following schedules: (1) forecast of rental and
occupancy changes; (2) review of lease negotiations; (3) annual
analysis of leases; and (4) schedule of capital improvements and
method of financing such improvements;
m. The furnishing, on a regular basis, of all forms
necessary to operate and lease the Property and manage the
personnel including, but not limited to, form leases, contracts
and management policies; and
n. During the initial term of this Agreement,
supervising the transition from former ownership of the Property
and implementing new management systems with respect to operation
of the Property.
4. Deposits of Rent and Other Income. All sums received
from rents, tenant security deposits or other deposits on space
in the Property, deposits on keys and other income from the
Property, shall be deposited from time to time as collected by
Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be
disbursed only in accordance with the terms of each individual
lease and in accordance with any applicable federal, state or
local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies
with respect to the Property and its operation. Manager shall be
included as an insured in the policies covering general
liability, public liability and workers' compensation insurance.
In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of
coverage and the risks insured shall be subject to the approval
of Owner.
6. Indemnification. Owner hereby agrees to indemnify and
hold harmless Manager against and in respect of any loss, cost or
expense (including reasonable investigative expenses and
attorneys' fees), judgment, award, amount paid in settlement,
fine, penalty and liability of any and every kind incurred by or
asserted against Manager by reason of or in connection with the
employment of Manager hereunder, the performance by Manager of
the services described herein or the occurrence or existence of
any event or circumstance which results or is alleged to have
resulted in death or injury to any person or destruction of or
damage to any property and any suit, action or proceeding
(whether threatened, initiated or completed) by reason of the
foregoing; provided, however, that no such indemnification of
Manager shall be made, and Manager shall indemnify and hold Owner
harmless against, and to the extent of, any loss that a court of
competent jurisdiction shall, by final adjudication, determine to
have resulted from willful misconduct, gross negligence or fraud
by or on the part of Manager.
7. Compensation of Manager for Managing the Property.
Owner shall pay to Manager a "Property Management Fee" for
management of the Property pursuant to this Agreement in an
amount equal to five percent (5%) of the monthly gross revenues
from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be
based upon the income received by Owner (for such month) which
has been obtained by such date. If additional gross revenues are
received by Owner after the day Manager is paid, the sum due to
Manager on account of such additional income shall be paid to
Manager when Manager is paid its fees for the next succeeding
month.
8. Reimbursement of Expenses. Owner shall reimburse
Manager for Manager's expenses, including salaries and related
overhead expenses, associated with bookkeeping, accounting and
financial reporting services pertaining to the Property.
9. Reserves for Capital Items. Owner acknowledges that
the budget prepared by Manager, pursuant to paragraph 3(k), will
contain a category labeled "Reserve for Capital Items." Owner
agrees to place rents and other income in a bank account, or to
permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget.
Such funds shall be placed in the account on a monthly basis as
reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared
by Manager, pursuant to paragraph 3(k), will contain a category
labeled "Cash Flow." Owner agrees, in the event that the
budgeted cash flow for the Property is "negative" in any month
covered by the budget, to place sufficient funds in a bank
account, or to permit Manager to transfer Owner's funds to such
account, to make up the budgeted operating deficit. These funds
must be placed in such account at least forty-five (45) days
before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and
appoints Manager its true and lawful attorney-in-fact, for it and
in its name, place and stead and for its use and benefit to sign,
acknowledge and file all documents and agreements (other than
promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) necessary to
perform or effect the duties and obligations of Manager under the
terms of this Agreement. The foregoing power of attorney is a
special power of attorney coupled with an interest. It may only
be terminated by cancelling this Agreement as provided herein.
12. Relationship of Parties. The parties agree and
acknowledge that Manager is and shall operate as an independent
contractor in performing its duties under this Agreement, and
shall not be deemed an employee or agent of Owner.
13. Entire Agreement. This Agreement represents the entire
understanding between the parties hereto with regard to the
transactions described herein and may only be amended by a
written instrument signed by the party against whom enforcement
is sought.
14. Governing Law. This Agreement shall be construed in
accordance with and be governed by the laws of the Commonwealth
of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
-38-
<PAGE>
Exhibit 10.5
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 20th day of May 1996,
between CORNERSTONE REALTY GROUP, INC., a Virginia corporation (hereinafter
called "Purchaser") and BH APARTMENTS LIMITED PARTNERSHIP, a Texas limited
partnership (hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 Sale of Property. Seller agrees to sell and convey, and
Purchaser agrees to purchase, Seller's real property known as BEACON HILL
APARTMENTS located in CHARLOTTE, NC, with all buildings and improvements
located thereon, as more particularly described in the attached legal
description in Exhibit A including, but not limited to 349 individually heated
and air conditioned apartment units, with all appurtenances, together with all
appliances, drapes, carpeting, shrubbery and all other personal property used in
connection with the premises, including, the inventory of personal property to
be supplied by Seller and attached hereto as Exhibit B (all such real and
personal property hereinafter collectively referred to as the "Property" unless
the context clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 Purchase Price. The total purchase price shall be THIRTEEN
MILLION THREE HUNDRED THOUSAND ($13,300,000) DOLLARS, subject to adjustments as
hereinafter provided, and shall be paid to Seller at closing in funds available
for investment by Seller on the date of Closing.
2.2 Deposit. ONE HUNDRED THOUSAND ($100,000) DOLLARS to be placed
in escrow at the end of the "Inspection Period" described in Article VI below.
Said deposit shall be placed in escrow with Old Republic National Title
Insurance Company or its authorized agent as an earnest money deposit which may
be credited against the purchase price or applied as per Article XI below.
ARTICLE III
TITLE MATTERS
3.1 Title. Seller, shall convey the Property to Purchaser subject
only to the Permitted Exceptions, as hereinafter defined, pursuant to the
instruments set forth in 7.2, below.
3.2 Permitted Encumbrances; Title Defects; Election to Terminate.
Seller has delivered to Purchaser a copy of Seller's title insurance policy
showing the matters set forth on Exhibit "C". All of the matters shown on
Exhibit "C" are referred to herein as "Permitted Encumbrances". Purchaser has
obtained a commitment for Title Insurance (the commitment) together with copies
of all of the instruments shown thereon which are not part of the Permitted
Encumbrances. Seller has also delivered to Purchaser a copy of Seller's survey
of the real property and improvements thereon and Purchaser has obtained an
updated survey. Both the commitment and the survey shall be delivered to
Purchaser at the cost and expense of Seller. In the event the commitment or the
survey show any matters which may constitute an exception to title to the
Property which is not a Permitted Encumbrance, Purchaser's sole remedy shall be
to exercise its right to terminate this Agreement on or before 5:00pm Central
Daylight Time on May 22, 1996, in which event the provisions of 6.2.3 shall
apply. In the event there are exceptions to title shown on the commitment or the
survey which are not listed in Exhibit "C" and Purchaser does not elect to
terminate this Agreement within the period stated above, such additional items
shall be deemed to be Permitted Exceptions and shall be referred to as such in
the conveyance documents listed at 7.2, below.
ARTICLE IV
PRORATIONS AND CLOSING COSTS
4.1 Income and Expense Allocations and Prorations. The following
shall be prorated at closing:
A. Taxes assessed upon the Property for calendar year 1996
shall be prorated based on 1995 taxes (unless the actual bills for
1996 taxes are available at or prior to Closing). Purchaser shall
give Seller notice of its receipt and copies of the 1996 tax bills
relating to the Property (or any part thereof) within ten (10) days
of the date each is received. Taxes prorated at Closing shall be
re-prorated between the parties within five (5) days of the date of
such notice, but not later than November 30, 1996.
B. Utility charges shall not be prorated but, rather,
instructions shall be given to the utility companies by Seller to
read the meters on the date of Closing and to issue separate
statements thereafter. If applicable, utility deposits will be
credited to Seller and assigned to Purchaser at Closing. In the
event that any provider of utilities refuses to issue separate
statements, the charges made by such provider shall be prorated in
the same manner as rents.
C. Prepaid or unpaid amounts due under service contracts
which Purchaser assumes at Closing shall be prorated to the date of
Closing. Any amounts prepaid to Seller under any long term contracts
shown on Schedule "I" shall not be prorated.
D. Any other expenses and income attributable to the
Property or the operation thereof which shall become the obligation
of the Purchaser at Closing pursuant to any other provision of this
Agreement shall be prorated as of Closing in the manner set forth
in B, above.
4.2 Closing Costs. Purchaser and Seller shall pay their customary
share of all taxes, recording fees, if any, imposed on the Deed, or any other
documents executed in connection with the transfer of the Property. Purchaser
agrees to pay cost of title insurance and any fees or other amounts necessary to
prepay the Existing Indebtedness (as hereinafter defined). As used herein, the
Existing Indebtedness is the debt evidenced and secured by the documents listed
in Exhibit "D" which is attached hereto and made a part hereof for all purposes.
4.3 Allocation of Rents. Rents collected by Seller prior to Closing
shall be prorated to the date of Closing. Purchaser shall apply rents received
after Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
ARTICLE V
POSSESSION OF THE PROPERTY
5.1 Possession. Possession of the Property shall be delivered to
Purchaser at closing, subject to the rights of the tenants under existing leases
and rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent. Purchaser's obligation to purchase shall
be subject to and contingent upon the satisfaction of the following conditions
precedent:
A. The receipt by Purchaser of Seller documents described
in 7.2 below.
B. Sellers representations and warranties described in
Article VIII below remain true and correct.
C. There have been no material changes to the Property or
leases other than those changes occurring in the ordinary course of
Seller's business of operating the property as a residential
apartment project.
D. Seller acknowledges that Purchaser is a public entity
and that it is required to furnish financial statement to the
Securities and Exchange Commission in connection with this
acquisition. Seller agrees to make the Seller's books and records
for the most recent twelve (12) months available for Purchaser and
its auditors to audit. Seller acknowledges in this regard that
Purchaser is a reporting company pursuant to relevant securities
laws and is required to complete and submit to the Securities and
Exchange Commission a report that is in compliance with accounting
Regulation S-X of the Securities and Exchange Commission; provided,
however, that in the event Purchaser does not terminate this
agreement pursuant to 6.2.3, below, the failure of this condition
shall not give rise to any right on the part of Purchaser to the
return of the deposit. Purchaser agrees that it will provide Seller
with a copy of any reports it receives or files regarding the
Property which reports contain information relating to the period
prior to Closing with respect which Seller has provided any
information.
6.2 Inspection. This Agreement shall be further subject to and
contingent upon Purchaser's satisfactory inspection as follows:
6.2.1 Preparation for Inspection. Prior to the date of this
agreement, Seller delivered to Purchaser, the receipt of which
Purchaser hereby acknowledges, the information listed on Exhibit "E"
attached hereto. Seller hereby certifies to Purchaser that to the
best of Seller's knowledge and belief, all of such items are accurate
and complete in all material respects.
6.2.2 Inspection of Books and Records: Access; Indemnification.
During the period beginning on the date hereof and ending on May 17,
1996 (the "Inspection Period"), Purchaser, its employees, agents and
contractors shall have the right to enter upon the Property (subject
to the rights of the tenants) during normal business hours for the
purpose of making physical inspections thereof, including but not
limited to roofs, heating, cooling, electrical and plumbing systems,
swimming pool, appliances, and structural elements of the buildings.
In the event Seller or Seller's agents or employees does not allow
Purchaser or Purchaser's agents, employees or contractors to enter
upon the Property at the times and under the conditions stated
herein, the Inspection Period shall be extended one (1) day for each
day the inspection is not allowed; provided, however, that Purchaser
shall give Seller notice of the delay within two (2) days of the date
Purchaser believes it has been delayed. Failure to give timely notice
of the delay shall preclude an extension of the Inspection Period
attributable thereto. Purchaser shall not be entitled to conduct any
studies or testing which may result in any destruction of the
Property or any part thereof, any intrusive studies or testing
regarding environmental matters, or any studies or testing which
interferes in any way with the usual and customary operation of the
Property without the prior written consent of the Seller, which
consent will not be unreasonably withheld or delayed. Purchaser
agrees to provide Seller with evidence of insurance covering any acts
or omissions of Purchaser or its employees or agents while on the
property and, Purchaser agrees to indemnify, defend and hold Seller
and Seller's agents, employees, officers, directors, partners and
shareholders harmless of and from any and all liabilities, costs,
claims, causes of action or expenses (including reasonable attorneys
fees and expenses resulting from or in any way connected to any act
or omission of Purchaser or Purchaser's agent or employee while on or
about the property. Seller shall give Purchaser notice of any claim
made against purchaser hereunder within a reasonable period after
Seller is notified of the same to allow Purchaser to defend the same.
Purchaser and Purchaser's agents or employees are not authorized and
may not take or authorize any acts that may result in the imposition
of a lien on any of the Property. Purchaser agrees that if such a
lien is asserted by any person or entity as a result of the act or
omission of Purchaser, its agent or employee, Purchaser shall, within
five (5) days of notice thereof by Seller, cause the release of such
lien.
6.2.3 Right of Termination During Inspection Period. Purchaser
shall also be permitted to review all original leases, expense
records, tenant cards and occupancy data available. If Purchaser is
not satisfied, in its sole and exclusive discretion, with the state
of maintenance and repair of the Property or the rents, occupancy or
expenses of the Property, then notwithstanding anything contained
herein to the contrary, Purchaser shall have the right to terminate
this Agreement by giving written notice to Seller before 5:00 p.m.,
Central Daylight Time, on May 17, 1996, and no party hereto shall
have any further liability to any other party hereto (other than the
indemnity and insurance obligations in Section 6.2.2), and all
deposits shall be returned to Purchaser.
6.2.4 "Rent Ready". During the "Inspection Period," both
Seller and Purchaser will inspect an apartment unit at the Property
and mutually agree that said apartment shall be representative of a
"rent ready" unit by which all other units shall be judged for "rent
ready" condition at closing. All vacant apartment units, are to be in
a "rent ready" condition (as defined above), at the time of closing
and shall contain (but not be limited to) the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating,
plumbing and electrical systems standard for the apartment project.
6.2.5 Condition of Personal Property at Closing. All personal
property included in the sale and all mechanical, electrical,
heating, air conditioning, sewer, water and plumbing systems will be
in the same working order at the time of closing and in the same
condition as at the time of the initial inspection by Purchaser. If
Seller fails to make reasonable efforts to conserve the property,
Purchaser shall have the option of waiving such requirement, in
writing, and proceeding to closing, or Purchaser may void this
Agreement and obtain a prompt return of its deposit.
ARTICLE VII
CLOSING
7.1 Closing. Closing will be held on or before May 31, 1996, at
the offices of the agent for Old Republic National Title Insurance Company, at
10:00am Eastern Daylight Time.
7.2 Seller's Deliveries. At closing, Seller shall execute and
deliver to Purchaser a Special Warranty Deed to the property conveying to
Purchaser title to the property described in Exhibit "A" free and clear of all
liens, charges and encumbrances except the Permitted Exceptions, and shall also
execute, where necessary, and deliver to Purchaser, the following:
A. A Bill of Sale, with warranty of title, transferring
the personal property (as shown in Exhibit "B") to Purchaser free of
all liens, charges and encumbrances except the Permitted
Encumbrances.
B. Originals or copies of all signed leases and rental
agreements in effect with tenants of the Property.
C. All security and cleaning deposits made by such
tenants. Seller and Purchaser will give the tenants the required
notice of such transfer in compliance with the laws of NORTH
CAROLINA.
D. A bills paid affidavit of Seller in the form attached
hereto as Exhibit "F" which is required by the Title Company to omit
from the title insurance policy the exclusion relating to unrecorded
mechanic's and materialmen's liens.
E. A rent roll certified by Seller to be true and correct
as of the date of closing showing the name of, and the amount of
monthly rental payable, by each tenant of the Property, the
apartment occupied by the tenant, the date to which rent has been
paid, any advance payment of rent, and the amount of any escrow, or
security deposit of tenant.
F. An affidavit of Seller that to the best of its
information and belief there are, on the date of closing, no
unsatisfied judgments, creditor's claims, tax liens, or pending
bankruptcies involving Seller.
G. Seller shall provide, a certificate from a licensed
extermination contractor, who is regularly engaged in the business of
pest control, that all buildings are free from any termite or other
wood-boring insect infestation. Said certificate shall be dated
within 90 days of closing, bearing the Contractor's name, contractors
license number, the signature of the party authorized to sign for the
Contractor and the date of the inspection. Subject to the last
sentence of this Section 7.2G, should damage exist Seller shall
proceed to have any corrective work completed prior to closing or
Purchaser, at its option, may either proceed to settlement and have
such sums required for repairs deducted from Seller's proceeds, or
may in its sole discretion terminate this Agreement upon which the
deposit shall be promptly returned to Purchaser and no party shall
have any rights hereunder except as set forth in Section 6.2.2.
Notwithstanding the foregoing, in the event the cost to repair
exceeds $25,000.00, Seller shall have the right, in its sole
discretion, to either make such repairs or to notify Purchaser that
it has elected not to make such repairs, in which event the Purchaser
may elect to terminate this Agreement and any deposit shall be
promptly returned to Purchaser and no party shall have any rights
hereunder except as set forth in Section 6.2.2.
H. Assignments of all Seller's interest in the following: (1)
all assignable licenses and permits relating to the operation of the
Property; (2) the leases and rental agreements with tenants of the
Property; (3) the existing Property telephone number; and (4) the
business and trade name as set forth in Paragraph 1.1.
I. Assignments of all warranties and guarantees to the
extent such are still in effect and provide Purchaser with copies
(which are in Seller's possession) of all such warranties and
guarantees without limitation for all appliances, dishwashers,
disposals, refrigerators, heating and air conditioning units, washers
and dryers.
J. Consent of the partners of Seller as required pursuant to
the Seller's partnership agreement (and Seller agrees to provide to
Purchaser evidence of such consent on or before May 24, 1996).
K. Provide documents for the transfer of the telephone,
electric, water and sewer, and gas utilities, as may be required by the
utility, for execution at closing.
L. Reasonably satisfactory evidence of the power and
authority of Seller to enter into and consummate this agreement,
including but not limited to:
(i) An opinion of Seller's counsel, in a form
reasonably satisfactory to Purchaser, stating that:
(a) The individual(s) executing the deed and
related documents are duly authorized to do all such acts
as are necessary to consummate this sale, without further
consent of any other party; and
(b) That the partner or officer can bind the
partnership or Corporation.
M. Seller shall provide a satisfactory and valid written
termination of the management agreement executed by the existing
management and rental agent for the Property, without cost to the
Purchaser.
N. A notice letter to all the residents of the apartment
complex as to change of ownership in the form prepared by the
Purchaser and approved by Seller, which approval will not be
unreasonably withheld or delayed.
O. All such other documents as are reasonably required or
appropriate to transfer the Property in accordance with North
Carolina law or are reasonably requested by Purchaser or its
counsel.
P. A representation letter as normally required by
auditors for a public company in the form attached hereto as Exhibit
"G". This clause shall survive closing for one year.
Q. An indemnity agreement in a form reasonably acceptable
to Purchaser indemnifying Purchaser from any acts or omissions of
Seller occurring on or before the date of Closing.
7.3 Purchaser's Deliveries. At closing and contemporaneously with
the Seller's compliance with the provisions of Section 7.2, Purchaser shall:
A. Pay to Seller the cash portion of the purchase price,
adjusted for the prorations and credits provided for in this
agreement.
B. Execute and deliver an assumption of obligations under
leases, securities, any contracts which may be accepted by the
Purchaser and any other obligations specifically set forth herein.
C. Execute and deliver an indemnity agreement in a form
reasonably acceptable to Seller indemnifying Seller from any acts or
omissions of Purchaser occurring from and after the date of Closing.
D. Deliver to Seller reasonably satisfactory evidence of
the power and authority of Purchaser to enter into and consummate
this agreement, including but not limited to:
(i) An opinion of Purchaser's counsel, in form
reasonably satisfactory to Seller, stating that:
(a) The individual(s) executing the documents
delivered at Closing are duly authorized to do all such
acts as are necessary to consummate the transactions
described herein, without further consent of any other
party; and
(b) The officer can bind the corporation.
E. Pay the amounts required to be paid to the holder of
the Existing Indebtedness as a prepayment penalty, yield maintenance
charge or otherwise, as provided in Section 4.2, above; provided,
however, such amount shall not exceed $171,281.16. In the event the
amount does exceed $171,281.16, Seller shall have the right to pay
the amount in excess of $171,281.16; however, if Seller elects not
to pay the excess, Purchaser may either pay the same or terminate
this Agreement in which event neither party shall have any further
liability to any other party hereto (other than the indemnity and
insurance obligations in Section 6.2.2), and all deposits shall be
returned to Purchaser.
7.4 Insured Closing Letter. At Closing, and as a condition thereof,
Seller shall have been provided an insured closing letter from Old Republic
National Title Insurance Company in a form reasonably acceptable to Seller and
in accordance with ALTA practices.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations of the Parties. Seller warrants (which
warranties shall not survive settlement unless designated to the contrary) that
as of the date of closing hereof:
A. That Seller, is the owner in fee simple of the Property
and has the power to convey same.
B. That Seller is not subject to any other agreements or
arrangements, with the exception of those contained in any existing
mortgage documents and those for which consents will be obtained
prior to Closing which would prevent Seller from selling the
Property to Purchaser. This warranty shall survive for one year
following closing.
C. All necessary action has been or will be taken by Seller
prior to the end of the inspection period to authorize the execution
of this Agreement and the performance of the obligations contemplated
hereunder, which are not excluded elsewhere in existing mortgage
documents. This warranty shall survive for one year following
closing.
D. Except as shown on the rent roll, Seller has no actual
knowledge and has not been advised in writing that it is in default
under any lease, rental agreement service or equipment contract, or
mortgage or other encumbrances relating to the Property. This
warranty shall survive for one year following closing.
E. Seller has no actual knowledge of any patent or latent
defect in the Property or any part thereof. This warranty shall
survive for one year following closing.
F. Seller has no actual knowledge of any existing or
threatened litigation which relates to or which would affect the
Property other than any actions that may relate to collection of
delinquent rent. This warranty shall survive for one year following
closing.
G. To the best of Seller's knowledge, the drainage within
the project is satisfactory and Seller has received no written notice
that it fails to comply with government regulations; however, Seller
has received a report regarding storm water under cover of letter
dated July 27, 1993, from Campco Engineering, Inc., consulting
engineers, and has provided the same to Purchaser. This
representation shall survive for one year following closing.
H. Seller has not received any written notice that any part
of the Property or the operation of the Property, is in violation or
may violate any governmental statute, regulation, ordinance or
building code or of any private restriction, that any governmental
authority requires any work to be done on or affecting the Property,
or that any governmental authority has expressed an intent to condemn
or to make special improvements for the benefit of the Property or
any part thereof. This warranty shall survive for one year following
closing.
I. That Seller is not a "foreign person" within the
meaning of the Internal Revenue Code of 1954, as amended (the
"Code"), and that Seller will furnish to Purchaser prior to closing
an affidavit in form satisfactory to Purchaser confirming the same.
J. Based solely on the environmental assessment obtained by a limited
partner of Seller dated September 20, 1991, from Law Engineering, Inc., a
copy of which has been delivered to Purchaser and the update of that
environmental assessment obtained by Purchaser, to the best of Seller's
knowledge, the Property was never utilized as a disposal site for hazardous
waste products and will furnish to Purchaser an affidavit confirming same.
K. Seller covenants and agrees that, between this date and the date of
closing, Seller shall continue to maintain, operate and manage the Property
in a manner consistent with its prior practices, making reasonable efforts to
do nothing which might damage the reputation of the Property or the
relationships with the tenants. From and after the end of the Inspection
Period, except upon a default by the tenant thereunder, Seller shall not
permit the modification, extension or cancellation of any tenant lease
(except in accordance with the terms of such lease, or extension in
accordance with market rate and terms) or any dealing with any tenant other
than the ordinary course of managing the Property, without the prior written
consent of Purchaser. If the leases of any tenants expire before (30) days
after the date of closing, Seller shall, up to the date of closing and
without cost to the Purchaser, continue its normal course of operation with
respect to causing tenants to be obtained for apartments which are unrented.
L. Except as shown on the rent roll, Seller has not given any tenants
under any of the leases any monetary concessions that can be claimed by the
tenant after Closing.
8.2 CONTINUATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS TO THE DATE OF
CLOSING. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated (subject to the
provisions of Section 6.2.2), and Seller shall return all payments made by
Purchaser, or Purchaser may elect to close the sale and waive failure of the
warranties.
8.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding the
provisions of 8.2 above, in the event Purchaser has actual knowledge of any
breach by Seller of a representation and warranty at or before Closing,
Purchaser's remedy shall be to elect to (i) close the transaction in accordance
with the terms of this agreement and waive such breach, or (ii) terminate this
agreement, in which event the deposit shall be promptly returned to Purchaser,
the provisions of Section 6.2.2 shall continue to apply, and Seller shall
indemnify Purchaser for all reasonable costs incurred by Purchaser and which are
directly attributable the transaction described herein including, without
limitation, any costs incurred by Purchaser in connection with its due diligence
(including reasonable attorneys fees and expenses); provided, however, any such
damages shall be limited to not more than $50,000.00 and in no event shall
Seller be liable or responsible for any loss of opportunity, consequential, or
other damages alleged to have been incurred by Purchaser.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property is
damaged by fire or other casualty, Seller shall repair such damage before the
date provided herein for closing. If such damage cannot be repaired by such
time, and the reasonable cost of such repair exceeds $200,000.00 (as reasonably
determined by Purchaser and Seller), this Agreement may be canceled at the
option of the Purchaser; provided, however, if Purchaser does not elect to
cancel, Purchaser shall close hereunder in which event Seller shall pay to
Purchaser or credit the Purchase Price with the amount of any applicable
deductible and assign the insurance proceeds to Purchaser at closing. In the
event of cancellation as aforesaid, this Agreement shall become null and void
and the parties shall be released (except for the obligations under Section
6.2.2) and all payments made shall be returned. In the event the damage is less
than $200,000.00, or should Purchaser elect to carry out this Agreement despite
such damage, Seller and Purchaser shall attempt to agree to such repair and/or
replacement and determine the amount of insurance proceeds available therefor
and, upon such agreement, Seller shall assign to Purchaser all insurance
proceeds arising from such damage and will compensate Purchaser for lost rent
collections to the extent of insurance proceeds actually received. Seller shall
promptly notify Purchaser in writing upon the occurrence of any such damage.
9.2 CONDEMNATION. In the event of any actual or threatened taking, pursuant
to the power of eminent domain, all or any part thereof, or any actual or
proposed sale in lieu thereof, the Seller shall give written notice thereof to
the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property (any part of the building or more than
5% of the parking area), Purchaser may elect to either (a) terminate this
Agreement, in which event the Deposit shall be immediately returned to Purchaser
and all other rights and obligations of the parties hereunder shall terminate
immediately, or (b) to waive its right to terminate this Agreement and proceed
to closing, in which event all proceeds, awards and other payments arising out
of such condemnation or sale (actual or threatened) shall be paid to the
Purchaser at closing, if such payment has been received or Seller shall assign
to Purchaser the rights to such payments.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
BROKER'S COMMISSION
10.1 COMMISSION. Seller agrees to pay a brokerage fee to LAT PURSER & ASSOC.,
pursuant to a separate agreement between Seller and Brokers. Said brokerage fee
shall be deemed earned if, and only if, settlement occurs hereunder, and shall
not be deemed earned even if Purchaser and/or Seller wrongfully fail(s) to
consummate the purchase and sale herein contemplated. Purchaser shall not be
obligated for any brokerage fees to any broker, and Seller agrees to hold
Purchaser harmless in connection with such fees. Seller and Purchaser represent
and warrant to each other that no other brokerage fees are or shall be owing in
connection with this transaction or in any way with the Apartments and Seller
and Purchaser harmless in connection with such fees. Seller and Purchaser
represent and warrant to each other that no other brokerage fees are or shall be
owing in connection with this transaction or in any way with the Apartments, and
Seller and Purchaser hereby indemnify and hold the other harmless from any and
all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this Agreement shall mean
any failure by Seller or Purchaser to fulfill all the terms, conditions and
covenants contained herein after notice of default has been given to the party
whose act or omission has created a default or alleged default and such party
has failed to cure the default within ten (10) days after such notice; however,
it shall not be an event of default for either party to exercise its rights to
terminate this contract as contained in other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at its election,
may either (1) require specific performance of Seller, (2) cancel this Agreement
and obtain a prompt return of the deposit, in which case this Agreement shall be
terminated and the parties released from all obligations hereunder (except as
set forth in Section 6.2.2), or (3) the Purchaser may waive such defaults and
proceed to settlement. Seller shall indemnify Purchaser for any reasonable costs
incurred by Purchaser if Purchaser elects to pursue its option (1) noted above,
to include reasonable attorney fees; provided, however, that Purchaser's damages
at law in connection with such remedy shall be limited to (i) the direct costs
of Purchaser in connection with its due diligence efforts (including reasonable
attorneys fees and expenses), (ii) reasonable attorneys fees and expenses
incurred in connection with such action and (iii) only in the event of a wilful
breach of this Agreement with regard to a matter within the control of Seller,
an amount equal to the difference between the amount Purchaser would have earned
on its investment in the project had the transaction described herein closed on
the date Purchaser tendered full performance and the amount Purchaser earned (or
did not incur) on the funds required to close but limited to not more than
$150,000.00.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, this Agreement shall be
terminated and both parties released from all obligations hereunder, and the
deposit shall be retained by the Seller as liquidated damages. Seller shall have
no other remedy against Purchaser in the event of Purchaser's default.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
12.2 ASSIGNMENT. Purchaser may assign this Agreement to Cornerstone Realty
Income Trust, Inc. but may not otherwise assign this Agreement without Seller's
consent; provided, however that such consent will not be unreasonably withheld
or delayed subject to Purchaser's demonstration to the reasonable satisfaction
of Seller that the proposed assignee is not a party in interest (as such term is
used in the Employee Retirement Income Security Act of 1974, as amended) of
Seller or any of the holders of a direct or indirect interest in Seller.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree that it
shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State set forth in Paragraph 1.1.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be executed in
as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to herein
and/or attached hereto shall be deemed to constitute a part of the Agreement.
12.8 HEADINGS. The headings of the Articles and sections hereof are inserted
for convenience only and shall not be deemed to constitute a part of the
Agreement.
12.9 CONSTRUCTION OF CONTRACT. Each party hereto have reviewed and revised
(or requested revisions of) this Agreement, and therefore the normal rule of
construction that any ambiguities are to be resolved against a particular party
shall not be applicable in the construction and interpretation of this Contract
or any amendments or exhibits hereto.
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under this
Agreement shall be in writing and shall be sent or delivered to the address set
forth below (or such other address as may be hereafter specified in writing):
To Seller: BH Apartments Limited Partnership
c/o The Jagger Company
1201 Spyglass Drive, Suite 200
Austin, Texas 78746
With a copy to
Seller's Attorneys: Robert E. Morrison
Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, Texas 75201
With a copy to: Invesco Realty Advisors, Inc.
One Lincoln Center
Suite 1200
5400 LBJ Freeway, Lock Box 2
Dallas, Texas 75240
Attn: Asset Manager, Beacon Hill
To Purchaser: S. J. Olander
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or Certified Mail,
Return Receipt Requested, or by overnight express mail shall be deemed given
when deposited in the United States Mail, postage prepaid, or delivered to a
reliable overnight courier. Notices sent in any other manner shall be deemed
given only when actually delivered at the specified address.
13.3 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
contained herein or in any document executed in connection herewith, the limited
partner of Seller shall not be liable to Purchaser for any obligations contained
herein or in any documents executed and delivered in connection herewith.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement
to be executed this day and date first written above.
SELLER:
BH APARTMENTS LIMITED PARTNERSHIP
BY: BEACON HILL APARTMENTS JOINT VENTURE, a Texas
joint venture, its Managing General Partner
BY: Jagger Interests, Ltd., a Texas limited
partnership, a joint venturer
BY: The Jagger Company, a Texas corporation,
its general partner
BY:/s/ VINCENT J. SCALCO
Vincent J. Scalco, President
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ S. J. OLANDER
Its: Senior Vice President
Exhibit 10.6
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of May, 1996 by
and between Cornerstone Realty Income Trust, Inc., a Virginia corporation
(hereinafter referred to as "Owner"), and Cornerstone Management Group, Inc., a
Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Beacon Hill Apartments, (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby engages
Manager as sole and exclusive manager to rent, manage and operate the Property,
upon the conditions and for the term and compensation herein set forth. All or
a portion of the services being performed by Manager may be contracted or
subcontracted to another property management company, provided that such company
agrees to be bound by the terms of this Agreement.
2. Term of Agreement: Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be implemented in the forthcoming year,
which recommendations shall be accompanied by an estimated budget for such
items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be based upon the
income received by Owner (for such month) which has been obtained by such date.
If additional gross revenues are received by Owner after the day Manager is
paid, the sum due to Manager on account of such additional income shall be paid
to Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this
Agreement as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
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<PAGE>
Exhibit 10.7
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement"), is entered into as of the 23rd
day of May, 1996, by and between Cornerstone Realty Group Incorporated, a
Virginia corporation ("Purchaser"), and Meadowcreek Partners Limited
Partnership, an Illinois limited partnership ("Seller").
WITNESSETH:
1. PURCHASE AND SALE. Purchaser agrees to purchase and Seller agrees to sell at
the price of ELEVEN MILLION ONE HUNDRED THOUSAND AND NO/100 Dollars
($11,100,000.00) (the "Purchase Price"), that certain property commonly known as
Meadowcreek Apartments, Charlotte (Pineville), North Carolina, legally described
on Exhibit A attached hereto (the "Property") containing 250 units. Included in
the Purchase Price is all of the personal property set forth on Exhibit B
attached hereto (the "Personal Property").
2. PURCHASE PRICE. The Purchase Price shall be paid by Purchaser as follows:
2.1. Upon the execution of this Agreement, the sum of TWO HUNDRED THOUSAND
AND NO/100 Dollars ($200,000.00) (the "Earnest Money") to be held in escrow by
and in accordance with the provisions of the Escrow Agreement ("Escrow
Agreement") attached hereto as Exhibit C; and
2.2. On the "Closing Date" (hereinafter defined), the balance of the
Purchase Price, adjusted in accordance with the prorations, by federally wired
"immediately available" funds, on or before 12:00 p.m Chicago time.
3. TITLE COMMITMENT AND SURVEY.
3.1. Attached hereto as Exhibit D is a copy of a title commitment for an
owner's standard title insurance policy issued by First American Title Insurance
Company (hereinafter referred to as "Title Insurer") dated March 7, 1996 for the
Property (the "Title Commitment"). For purposes of this Agreement, "Permitted
Exceptions" shall mean: (a) the general printed exceptions contained in the
standard title policy to be issued by Title Insurer based on the Title
Commitment; (b) general real estate taxes, association assessments, special
district taxes and related charges not yet due and payable; (c) matters shown on
the "Existing Survey" (hereinafter defined); (d) matters caused by the actions
of Purchaser; and (e) the title exceptions set forth in Schedule B of the Title
Commitment as Numbers 1 through 6 and 8 through 12 inclusive, to the extent that
same effect the Property. All other exceptions to title shall be referred to as
"Unpermitted Exceptions". The Title Commitment shall be conclusive evidence of
good title as therein shown as to all matters to be insured by the title policy,
subject
<PAGE>
only to the exceptions therein stated. On the Closing Date, Title Insurer shall
deliver to Purchaser a standard title policy in conformance with the previously
delivered Title Commitment, subject to Permitted Exceptions and Unpermitted
Exceptions waived by Purchaser (the "Title Policy"). Purchaser shall pay for all
of the costs of the Title Commitment and Title Policy and the cost of any
endorsements to, or extended coverage on, the Title Policy.
3.2. Purchaser has received a survey of the Property prepared by Don Allen
& Associates, last updated March 29, 1996 (the "Survey"). Purchaser shall pay
for the costs of the Survey. Purchaser hereby acknowledges that all matters
disclosed by the Survey are acceptable to Purchaser.
3.3. The ob1igation of Purchaser to pay various costs set forth in
Paragraphs 3.1 and 3.2 shall survive the termination of this Agreement.
4. PAYMENT OF CLOSING COSTS.
4.1. Seller shall pay for the costs of the documentary or transfer stamps
to be paid with reference to the "Deed" (hereinafter defined) and Purchaser
shall pay, in addition to the costs set forth in Paragraphs 3.1 and 3.2, all
other stamps, intangible, recording, sales tax and surtax imposed by law with
reference to any other sale documents delivered in connection with the sale of
the Property to Purchaser and all other charges of the Title Insurer in
connection with this transaction.
4.2. In addition to the costs set forth in Paragraphs 3.1, 3.2 and 4.1,
and excepting Seller's attorney's fees, Purchaser shall pay for all other costs
associated with title insurance, recording and survey.
5. CONDITION OF TITLE.
5.1. If, prior to "Closing" (as hereinafter defined), a date-down to the
Title Commitment discloses any new Unpermitted Exception, Seller shall have
thirty (30) days from the date of the date-down to the Title Commitment, at
Seller's expense, to (i) bond over, cure and/or have any Unpermitted Exceptions
which, in the aggregate, do not exceed $100,000.00 (a "Minor Unpermitted
Exception"), removed from the Title Commitment or to have the Title Insurer
commit to insure against loss or damage that may be occasioned by such
Unpermitted Exceptions, or (ii) have the right, but not the obligation, to bond
over, cure and/or have any Unpermitted Exceptions which, in the aggregate, equal
or exceed $100,000.00, removed from the Title Commitment or to have the Title
Insurer commit to insure against loss or damage that may be occasioned by such
Unpermitted Exceptions. In such event, the time of Closing shall be delayed, if
necessary, to give effect to said aforementioned time periods. If Seller fails
to cure or have said Unpermitted Exception removed or have the Title Insurer
commit to insure as specified above within said thirty (30) day period or if
Seller elects not to exercise its rights under (ii) in the preceding sentence,
Purchaser may terminate this Agreement upon notice to Seller within seven (7)
days after the expiration of said thirty (30) day period provided,
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<PAGE>
however, and notwithstanding anything contained herein to the contrary, if the
Unpermitted Exception which gives rise to Purchaser's right to terminate was
recorded against the Property as a result of the affirmative, willful action of
Seller (and not by any unrelated third party) with the intention to prevent the
sale of the Property in accordance with the terms hereof or if Seller is able to
bond over, cure or remove a Minor Unpermitted Exception for a cost not to exceed
$100,000 or the Title Insurer is willing to insure over a Minor Unpermitted
Exception for a cost not to exceed $100,000 in accordance with the terms hereof
and Seller fails to expend said funds in either case, then Purchaser shall have
the additional rights contained in Paragraph 11 herein. Absent notice from
Purchaser to Seller in accordance with the preceding sentence, Purchaser shall
be deemed to have elected to take title subject to said Unpermitted Exception.
If Purchaser terminates this Agreement in accordance with the terms of this
Paragraph 5.1, this Agreement shall become null and void without further action
of the parties and all Earnest Money theretofore deposited into the escrow by
Purchaser together with any interest accrued thereon, shall be returned to
Purchaser, and neither party shall have any further liability to the other,
except for Purchaser's obligation to indemnify Seller and restore the Property,
as more fully set forth in Paragraph 7.
5.2. Seller agrees to convey fee simple title to the Property to Purchaser
by special warranty deed (the "Deed") in recordable form subject only to the
Permitted Exceptions and any Unpermitted Exceptions waived by Purchaser.
6. CONDEMNATION, EMINENT DOMAIN, DAMAGE AND CASUALTY.
6.1. Except as provided in the indemnity provisions contained in Paragraph
7.1 of this Agreement, Seller shall bear all risk of loss with respect to the
Property up to the earlier of the dates upon which either possession or title is
transferred to Purchaser in accordance with this Agreement. Notwithstanding the
foregoing, in the event of damage to the Property by fire or other casualty
prior to the Closing Date, repair of which would cost less than or equal to
$100,000.00 (as determined by Seller's insurance adjuster) Purchaser shall not
have the right to terminate its obligations under this Agreement by reason
thereof, but Seller shall have the right to elect to either repair and restore
the Property (in which case the Closing Date shall be extended until completion
of such restoration) or to assign and transfer to Purchaser on the Closing Date
all of Seller's right, title and interest in and to all insurance proceeds paid
or payable to Seller on account of such fire or casualty, and Seller shall pay
to Purchaser at the Closing the amount of Seller's insurance deductible. Within
ten (10) days of such an occurrence, Seller shall notify Purchaser in writing of
any such fire or other casualty and Seller's determination of the cost to repair
the damage caused thereby. In the event of damage to the Property by fire or
other casualty prior to the Closing Date, repair of which would cost in excess
of $100,000.00 (as determined by Seller's insurance adjuster), then this
Agreement may be terminated at the option of Purchaser, which option shall be
exercised, if at all, by Purchaser's written notice thereof to Seller within
seven (7) business days after Purchaser receives written notice of such fire or
other casualty and Seller's determination of the amount of such damages, and
upon the exercise of such option by Purchaser this Agreement shall become null
and void, the Earnest Money deposited by Purchaser shall be returned to
Purchaser
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<PAGE>
together with interest thereon, and neither party shall have any further
liability or obligations hereunder. In the event that Purchaser does not
exercise the option set forth in the preceding sentence, the Closing shall take
place on the Closing Date and Seller shall assign and transfer to Purchaser on
the Closing Date all of Seller's right, title and interest in and to all
insurance proceeds paid or payable to Seller on account of the fire or casualty,
and Seller shall pay to Purchaser at the Closing the amount of Seller's
insurance deductible.
6.2. If between the date of this Agreement and the Closing Date, any
condemnation or eminent domain proceedings are initiated which might result in
the taking of any part of the Property or the taking or closing of any right of
access to the Property, Seller shall immediately notify Purchaser of such
occurrence. In the event that the taking of any part of the Property shall: (i)
impair access to the Property; (ii) cause any non-compliance with any applicable
law, ordinance, rule or regulation of any federal, state or local authority or
governmental agencies having jurisdiction over the Property or any portion
thereof; or (iii) and adversely impair the use of the Property as it is
currently being operated (hereinafter collectively referred to as a "Material
Event"), Purchaser may:
6.2.1. terminate this Agreement by written notice to Seller, in
which event the Earnest Money deposited by Purchaser, together with interest
thereon, shall be returned to Purchaser and all rights and obligations of the
parties hereunder with respect to the closing of this transaction will cease; or
6.2.2. proceed with the Closing, in which event Seller shall assign
to Purchaser all of Seller's right, title and interest in and to any award made
in connection with such condemnation or eminent domain proceedings.
6.3. Purchaser shall then notify Seller, within seven (7) business days
after Purchaser's receipt of Seller's notice, whether Purchaser elects to
exercise its rights under Paragraph 6.2.1 or Paragraph 6.2.2. Closing shall be
delayed, if necessary, until Purchaser makes such election. If Purchaser fails
to make an election within such seven (7) business day period, Purchaser shall
be deemed to have elected to exercise its rights under Paragraph 6.2.2. If
between the date of this Agreement and the Closing Date, any condemnation or
eminent domain proceedings are initiated which do not constitute a Material
Event, Purchaser shall be required to proceed with the Closing, in which event
Seller shall assign to Purchaser all of Seller's right, title and interest in
and to any award made in connection with such condemnation or eminent domain
proceedings.
7. INSPECTION AND AS-IS CONDITION.
7.1. Purchaser, at Purchaser's sole cost and expense, has completed its
inspection of the Property.
Purchaser shall restore the Property to the condition existing prior to
the performance of its inspection of the Property. Purchaser shall defend,
indemnify and hold Seller and any
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affiliate, parent of Seller, and all shareholders, employees, officers and
directors of Seller or Seller's affiliate or parent (hereinafter collectively
referred to as "Affiliate of Seller") harmless from any and all liability, cost
and expense (including without limitation, reasonable attorney's fees, court
costs and costs of appeal) suffered or incurred by Seller or Affiliates of
Seller for injury to persons or property caused by Purchaser's investigations
and inspection of the Property. Seller shall notify Purchaser if Seller receives
notice of threatened, or actually instituted claims, for injury to persons or
property caused by Purchaser's investigations and inspection of the Property.
Purchaser shall undertake its obligation to defend set forth in the preceding
sentence using attorneys selected by Seller, in Seller's sole discretion.
Notwithstanding anything contained herein to the contrary, Purchaser's
obligation to indemnify Seller and restore the Property, as more fully set forth
in this Paragraph 7.1, shall survive the Closing and the delivery of the Deed
with respect to claims of any third parties, and shall survive the termination
of this Agreement (for any reason other than Closing) with respect to all claims
(i.e. third party or otherwise).
7.2. Purchaser acknowledges and agrees that it will be purchasing the
Property and the Personal Property based solely upon its inspections and
investigations of the Property and the Personal Property, and that Purchaser
will be purchasing the Property and the Personal Property "AS IS" and "WITH ALL
FAULTS", based upon the condition of the Property and the Personal Property as
of the date of this Agreement, wear and tear and loss by fire or other casualty
or condemnation excepted. Without limiting the foregoing, Purchaser acknowledges
that, except as may otherwise be specifically set forth elsewhere in this
Agreement, neither Seller nor its consultants, brokers or agents have made any
representations or warranties of any kind upon which Purchaser is relying as to
any matters concerning the Property or the Personal Property, including, but not
limited to, the condition of the land or any improvements comprising the
Property, the existence or non-existence of "Hazardous Materials" (as
hereinafter defined), economic projections or market studies concerning the
Property, any development rights, taxes, bonds, covenants, conditions and
restrictions affecting the Property, water or water rights, topography,
drainage, soil, subsoil of the Property, the utilities serving the Property or
any zoning or building laws, rules or regulations or "Environmental Laws"
(hereinafter defined) affecting the Property. Seller makes no representation or
warranty that the Property complies with Title III of the Americans with
Disabilities Act or any fire code or building code. Purchaser hereby releases
Seller and the Affiliates of Seller from any and all liability in connection
with any claims which Purchaser may have against Seller or the Affiliates of
Seller, and Purchaser hereby agrees not to assert any claims for contribution,
cost recovery or otherwise, against Seller or the Affiliates of Seller, relating
directly or indirectly to the existence of asbestos or Hazardous Materials on,
or environmental conditions of, the Property, whether known or unknown. As used
herein, "Environmental Laws" means all federal, state and local statutes, codes,
regulations, rules, ordinances, orders, standards, permits, licenses, policies
and requirements (including consent decrees, judicial decisions and
administrative orders) relating to the protection, preservation, remediation or
conservation of the environment or worker health or safety, all as amended or
reauthorized, or as hereafter amended or reauthorized, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act
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("CERCLA"), 42 U.S.C. (S) 9601 et seq., the Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. (S) 6901 et seq., the Emergency Planning and
Community Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C. (S) 11001 et seq.,
the Clean Air Act ("CAA"), 42 U.S.C. (S) 7401 et seq., the Federal Water
Pollution Control Act ("Clean Water Act"), 33 U.S.C. (S) 1251 et seq., the Toxic
Substances Control Act ("TSCA"), 15 U.S.C. (S) 2601 et seq., the Safe Drinking
Water Act ("Safe Drinking Water Act"), 42 U.S.C. (S) 300f et seq., the Atomic
Energy Act ("AEA"), 42 U.S.C. (S) 2011 et seq., the Occupational Safety and
Health Act ("OSHA"), 29 U.S.C. (S) 651 et seq., and the Hazardous Materials
Transportation Act (the "Transportation Act"), 49 U.S.C. (S) 1802 et seq. As
used herein, "Hazardous Materials" means: (1) "hazardous substances," as defined
by CERCLA; (2) "hazardous wastes," as defined by RCRA; (3) any radioactive
material including, without limitation, any source, special nuclear or
by-product material, as defined by AEA; (4) asbestos in any form or condition;
(5) polychlorinated biphenyls; and (6) any other material, substance or waste to
which liability or standards of conduct may be imposed under any Environmental
Laws. Notwithstanding anything contained herein to the contrary, Purchaser's
obligations, as more fully set forth in this Paragraph 7.2 shall survive the
Closing and the delivery of the Deed and termination of this Agreement.
Purchaser's Initials SJO Seller's Initials PS.
7.3. Seller has provided to Purchaser certain unaudited historical
financial information regarding the Property relating to certain periods of time
in which Seller owned the Property. Seller and Purchaser hereby acknowledge that
such information has been provided to Purchaser at Purchaser's request solely as
illustrative material. Seller makes no representation or warranty that such
material is complete or accurate or that Purchaser will achieve similar
financial or other results with respect to the operations of the Property, it
being acknowledged by Purchaser that Seller's operation of the Property and
allocations of revenues or expenses may be vastly different than Purchaser may
be able to attain. Purchaser acknowledges that it is a sophisticated and
experienced purchaser of real estate and further that Purchaser has relied upon
its own investigation and inquiry with respect to the operation of the Property
and releases Seller and the Affiliates of Seller from any liability with respect
to such historical information. Notwithstanding anything contained herein to the
contrary, Purchaser's obligations, as more fully set forth in this Paragraph 7.3
shall survive the Closing and the delivery of the Deed and termination of this
Agreement.
Purchaser's Initials SJO Seller's Initials PS.
7.4. Seller has provided to Purchaser the following existing report: a
Phase I Environmental Site Assessment Report, prepared by H&GCL, Inc., 180
Canal Street, Boston, Massachusetts 02114, dated April 30,1993 ("Existing
Report"). Seller makes no representation or warranty concerning the accuracy or
completeness of the Existing Report. Purchaser hereby releases Seller and the
Affiliates of Seller from any liability whatsoever with respect to the Existing
Report, or, including, without limitation, the matters set forth in the Existing
Report, and the accuracy and/or completeness of the Existing Report.
Furthermore, Purchaser
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acknowledges that it will be purchasing the Property with all faults disclosed
in the Existing Report. Notwithstanding anything contained herein to the
contrary, Purchaser's obligations, as more fully set forth in this Paragraph 7.4
shall survive the Closing and the delivery of the Deeds and termination of this
Agreement.
Purchaser's Initials SJO Seller's Initials PS.
8. CLOSING.
The closing of this transaction (the "Closing") shall be on May 31, 1996
(the "Closing Date"), at the office of Title Insurer, Charlotte (Pineville),
North Carolina at which time Seller shall deliver possession of the Property to
Purchaser. This transaction shall be closed through an escrow with Title
Insurer, in accordance with the general provisions of the usual and customary
form of deed and money escrow for similar transactions in North Carolina, or at
the option of either party, the Closing shall be a "New York style" closing at
which the Purchaser shall wire the Purchase Price to Title Insurer on the
Closing Date and prior to the release of the Purchase Price to Seller, Purchaser
shall receive the Title Policy or marked up commitment dated the date of the
Closing Date. In the event of a New York style closing, Seller shall deliver to
Title Insurer any customary affidavit in connection with a New York style
closing. All closing and escrow fees shall be divided equally between the
parties hereto.
9. CLOSING DOCUMENTS.
9.1. On the Closing Date, Seller and Purchaser shall execute and deliver
to one another a joint closing statement. In addition, Purchaser shall deliver
to Seller the balance of the Purchase Price, an assumption of the documents set
forth in Paragraph 9.2.3 and 9.2.4 and such other documents as may be reasonably
required by the Title Insurer in order to consummate the transaction as set
forth in this Agreement.
9.2. On the Closing Date, Seller shall deliver to Purchaser the following:
9.2.1. the Deed (in the form of Exhibit E attached hereto), subject
to Permitted Exceptions and those Unpermitted Exceptions waived by
Purchaser;
9.2.2. a bill of sale conveying the Personal Property (in the form
of Exhibit F attached hereto);
9.2.3. assignment and assumption of intangible property (in the form
attached hereto as Exhibit G), including, without limitation, the service
contracts listed in Exhibit H;
9.2.4. an assignment and assumption of leases and security deposits
(in the form attached hereto as Exhibit I;
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<PAGE>
9.2.5. non-foreign affidavit (in the form of Exhibit J attached
hereto);
9.2.6. original, and/or copies of, leases affecting the Property
in Seller's possession;
9.2.7. all documents and instruments reasonably required by the
Title Insurer to issue the Title Policy;
9.2.8. possession of the Property to Purchaser;
9.2.9. evidence of the termination of the management agreement;
9.2.10. notice to the tenants of the Property of the transfer of
title and assumption by Purchaser of the landlord's obligation under the
leases and the obligation to refund the security deposits (in the form of
Exhibit K); and
9.2.11. a certified updated rent roll.
10. DEFAULT BY PURCHASER. ALL EARNEST MONEY DEPOSITED INTO THE ESCROW IS TO
SECURE THE TIMELY PERFORMANCE BY PURCHASER OF ITS OBLIGATIONS AND UNDERTAKINGS
UNDER THIS AGREEMENT. IN THE EVENT OF A DEFAULT OF THE PURCHASER UNDER THE
PROVISIONS OF THIS AGREEMENT, SELLER SHALL RETAIN ALL OF THE EARNEST MONEY AND
THE INTEREST THEREON AS SELLER'S SOLE RIGHT TO DAMAGES OR ANY OTHER REMEDY,
EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND RESTORE THE PROPERTY
AS SET FORTH IN PARAGRAPH 7.1 HEREOF. THE PARTIES HAVE AGREED THAT SELLER'S
ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY PURCHASER, WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICAL TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS
BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON,
AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES .
Purchaser's Initials SJO Seller's Initials PS
11. SELLER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF SELLER'S DEFAULT,
PURCHASER'S SOLE REMEDY SHALL BE THE RETURN OF ALL EARNEST MONEY TOGETHER WITH
ANY INTEREST ACCRUED THEREON, AND THIS AGREEMENT SHALL THEN BECOME NULL AND VOID
AND OF NO EFFECT AND THE PARTIES SHALL HAVE NO FURTHER LIABILITY TO EACH OTHER
AT LAW OR IN EQUITY, EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND
RESTORE THE PROPERTY AS SET FORTH MORE FULLY IN PARAGRAPH 7 AND PURCHASER'S
RIGHT TO RECEIVE FROM SELLER ITS ACTUAL, DOCUMENTED THIRD PARTY EXPENSES
INCURRED IN THE PERFORMANCE OF ITS DUE DILIGENCE HEREUNDER AND THE PREPARATION
OF THIS AGREEMENT, NOT
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<PAGE>
TO EXCEED $25,000. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IF
SELLER'S DEFAULT IS (I) ITS (AND NOT AN UNRELATED THIRD PARTY'S) AFFIRMATIVE,
WILLFUL ACTION WHICH RESULTS IN THE RECORDING OF AN ENCUMBRANCE AGAINST THE
PROPERTY WITH THE INTENTION TO PREVENT THE SALE OF THE PROPERTY IN ACCORDANCE
WITH THE TERMS HEREOF AND WHICH GIVES RISE TO PURCHASER'S RIGHT TO TERMINATE
THIS AGREEMENT PURSUANT TO PARAGRAPH 5 HEREOF; (II) ITS FAILURE TO EXPEND UP TO
$100,000 IF (A) SELLER IS ABLE TO BOND OVER, CURE OR REMOVE A MINOR UNPERMITTED
EXCEPTION FOR A COST NOT TO EXCEED $100,000 OR (B) THE TITLE INSURER IS WILLING
TO INSURE OVER A MINOR UNPERMITTED EXCEPTION FOR A COST NOT TO EXCEED $100,000
IN ACCORDANCE WITH THE TERMS HEREOF OR (III) ITS WILLFUL REFUSAL TO DELIVER THE
DEED, THEN PURCHASER WILL BE ENTITLED TO SUE FOR SPECIFIC PERFORMANCE.
Purchaser's Initials SJO Seller's Initials PS
12. PRORATIONS.
12.1. Rents (exclusive of delinquent rents, but including prepaid rents);
refundable security deposits (which will be assigned to and assumed by Purchaser
and credited to Purchaser at Closing); water and other utility charges; fuels;
prepaid operating expenses; incentive fees paid pursuant to any laundry
contract; provided, however, such fee shall only be prorated if actually
received by Seller and only to the extent any fee was not used to improve the
laundry facilities at the Property; real and personal property taxes and other
similar items shall be adjusted ratably as of 11:59 p.m. on the Closing Date,
and credited to the balance of the cash due at Closing. Assessments payable in
installments which are due subsequent to the Closing Date shall be paid by
Purchaser. If the amount of any of the items to be prorated is not then
ascertainable, the adjustments thereof shall be on the basis of the most recent
ascertainable data. All prorations will be final except as to delinquent rent
referred to in Paragraph 12.2 below.
12.2. All basic rent paid following the Closing Date by any tenant of the
Property who is indebted under a lease for basic rent for any period prior to
and including the Closing Date shall be deemed a "Post-Closing Receipt" until
such time as all such indebtedness is paid in full. Within ten (10) days
following each receipt by Purchaser of a Post-Closing Receipt, Purchaser shall
pay such Post-Closing Receipt to Seller. Purchaser shall use its best efforts to
collect all amounts which, upon collection, would constitute Post-Closing
Receipts hereunder. Within 120 days after the Closing Date, Purchaser shall
deliver to Seller a reconciliation statement of Post-Closing Receipts through
the first 90 days after the Closing Date. Upon the delivery of the Post-Closing
Receipts reconciliation, Purchaser shall deliver to Seller any Post-Closing
Receipts owing to Seller and not previously delivered to Seller in accordance
with the terms hereof. Seller retains the right to conduct an audit, at
reasonable times and upon reasonable notice, of Purchaser's books and records to
verify the accuracy of the Post-Closing Receipts reconciliation statement and
upon the verification of additional funds owing to Seller, Purchaser shall pay
to Seller said additional Post-Closing Receipts and the cost of performing
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<PAGE>
Seller's audit. Paragraph 12.2 of this Agreement shall survive the Closing and
the delivery and recording of the deed.
13. RECORDING. Neither this Agreement nor a memorandum thereof shall be recorded
and the act of recording by Purchaser shall be an act of default hereunder by
Purchaser and subject to the provisions of Paragraph 10 hereof.
14. ASSIGNMENT. The Purchaser shall not have the right to assign its interest in
this Agreement without the prior written consent of the Seller. Any assignment
or transfer of, or attempt to assign or transfer, Purchaser's interest in this
Agreement shall be an act of default hereunder by Purchaser and subject to the
provisions of Paragraph 10 hereof. Notwithstanding the foregoing, Purchaser may
assign its interest in this Agreement without the consent of Seller to
Cornerstone Realty Income Trust, Inc. provided that Purchaser remains liable for
and the assignee assumes the obligations of Purchaser hereunder.
15. BROKER. The parties hereto represent and warrant that no broker commission
or finder fee is due and payable in connection with this transaction other than
to CB Commercial Real Estate Group, Inc. (to be paid by Seller). Seller's
commission to CB Commercial Real Estate Group, Inc. shall only be payable out of
the proceeds of the sale of the Property in the event the transaction set forth
herein closes. Purchaser and Seller shall indemnify, defend and hold the other
party hereto harmless from any claim whatsoever (including without limitation,
reasonable attorney's fees, court costs and costs of appeal) from anyone
claiming by or through the indemnifying party any fee, commission or
compensation on account of this Agreement, its negotiation or the sale hereby
contemplated other than to CB Commercial Real Estate Group, Inc. The
indemnifying party shall undertake its obligations set forth in this Paragraph
15 using attorneys selected by the indemnifying party and reasonably acceptable
to the indemnified party. The provisions of this Paragraph 15 will survive the
Closing and delivery of the Deed.
16. REPRESENTATIONS AND WARRANTIES.
16.1. Any reference herein to Seller's knowledge or notice of any matter
or thing shall only mean such knowledge or notice that has actually been
received by Philip Schechter or Mike Becker (the "Seller's Representatives"),
and any representation or warranty of the Seller is based upon those matters of
which the Seller's Representatives has actual knowledge. Any knowledge or notice
given, had or received by any of Seller's agents, servants or employees shall
not be imputed to Seller, the general partner or limited partners of Seller, the
subpartners of the general partner or limited partners of Seller or Seller's
Representatives.
16.2. Subject to the limitations set forth in Paragraph 16.1, Seller
hereby makes the following representations and warranties, which representations
and warranties are made to Seller's knowledge and which shall, subject to
Paragraph 16.4, be remade at Closing: (i) Seller has no knowledge of any pending
or threatened litigation, claim, cause of action or administrative proceeding
concerning the Property; (ii) Seller has the power to execute this Agreement and
consummate the transactions contemplated herein; (iii) the rent roll (which
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<PAGE>
includes a list of actual security deposits) attached hereto as Exhibit L which
Seller will update as of the Closing Date is accurate as of the date set forth
thereon; (iv) Seller has not received written notice from any governmental
agency that the Property is in violation of any government statute or
regulation; (v) except as may be set forth in the Existing Report, Seller has
not received any notice from any governmental authority having jurisdiction over
the Property of any uncured violation of any Environmental Law with respect to
the Property; and (vi) except as may be set forth on the rent roll, Seller has
not delivered any coupons or similar items to any of the tenants at the Property
which would allow any such tenant to remit to the owner of the Property
following the Closing such coupon or similar item in complete or partial
satisfaction of said tenant's monthly rental obligation.
16.3. Purchaser hereby represents and warrants to Seller that Purchaser
has the full right, power and authority to execute this Agreement and consummate
the transactions contemplated herein.
16.4. If at any time after the execution of this Agreement, either
Purchaser or Seller become aware of information which makes a representation and
warranty contained in this Agreement to become untrue in any material respect,
said party shall promptly disclose said information to the other party hereto.
Provided the party making the representation or warranty did not take any
deliberate actions to cause the representation or warranty in question to become
untrue in any material respect, said party shall not be in default under this
Agreement and the sole remedy of the other party shall be to terminate this
Agreement. Notwithstanding anything contained herein to the contrary, if the
status of any of the tenancies changes from the date of the rent roll attached
hereto and the date of the rent roll delivered at Closing, provided the change
in status is not caused by a breach of Seller's covenants contained in Article
16 herein, then Purchaser shall not have the right to terminate this Agreement
or make any claim for a breach of a representation or warranty hereunder
involving the rent roll or tenancies thereunder. Purchaser and Seller are
prohibited from making any claims against the other party hereto after the
Closing with respect to any breaches of the other party's representations and
warranties contained in this Agreement that the claiming party has actual
knowledge of prior to the Closing.
16.5. The parties agree that the representations contained herein shall
survive Closing for a period of sixty (60) days (i.e., the claiming party shall
have no right to make any claims against the other party for a breach of a
representation or warranty after the expiration of sixty (60) days immediately
following Closing).
16.6. Seller covenants to operate and manage the Property in the same
manner that it has managed, maintained and operated the Property during the
period of Seller's ownership, subject to reasonable wear and tear and casualty.
17. LIMITATION OF LIABILITY. Neither Seller, nor any of its respective
beneficiaries, shareholders, partners, officers, agents or employees, heirs,
successors or assigns shall have any personal liability of any kind or nature
for or by reason of any matter or thing whatsoever under, in connection with,
arising out of or in any way related to this Agreement and the transactions
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<PAGE>
contemplated herein, and Purchaser hereby waives for itself and anyone who may
claim by, through or under Purchaser any and all rights to sue or recover on
account of any such alleged personal liability.
18. TIME OF ESSENCE. Time is of the essence of this Agreement.
19. NOTICES. Any notice or demand which either party hereto is required or may
desire to give or deliver to or make upon the other party shall be in writing
and may be personally delivered or given or made by overnight courier such as
Federal Express, by facsimile transmission or made by United States registered
or certified mail addressed as follows:
TO SELLER: c/o The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Ilona Adams
with copies to: The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Alan Lieberman
(708) 317-4360
(708) 317-4462 (FAX)
and to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Daniel J. Perlman, Esq.
(312) 902-5532
(312) 902-1061 (FAX)
TO PURCHASER: Comerstone Realty Group Incorporated
306 East Main Street
Richmond Virginia 23219
Attention: Mr. Gus Remppies and Mr. Jay Olander
(804) 643-1761
(804) 782-9302 (FAX)
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<PAGE>
and one copy to:
Zuckerbrod & Taubenfeld
575 Chestnut Street
Cedarhurst, New York 11516
Attention: Harry Taubenfeld, Esq.
(516) 374-3133
(516) 374-3490 (FAX)
and one copy to: Manning, Fulton & Skinner, P.A.
3605 Glenwood Avenue, Suite 500
Raleigh, North Carolina 27612
Attention: Ted Oliver, Esq.
(919) 787-8880
(919) 781-0811 (FAX)
subject to the right of either party to designate a different address for itself
by notice similarly given. Any notice or demand so given shall be deemed to be
delivered or made on the next business day if sent by overnight courier, or the
same day as given if sent by facsimile transmission and received by 5:00 p.m.
Chicago time or on the 4th business day after the same is deposited in the
United States Mail as registered or certified matter, addressed as above
provided, with postage thereon fully prepaid. Any such notice, demand or
document not given, delivered or made by registered or certified mail, by
overnight courier or by facsimile transmission as aforesaid shall be deemed to
be given, delivered or made upon receipt of the same by the party to whom the
same is to be given, delivered or made. Copies of all notices shall be served
upon the Escrow Agent.
20. EXECUTION OF AGREEMENT AND ESCROW AGREEMENT. Purchaser will execute two (2)
copies of this Agreement and three (3) copies of the Escrow Agreement and
forward them to Seller for execution, accompanied with the Earnest Money payable
to the Escrow Agent set forth in the Escrow Agreement. Seller will forward one
(1) copy of the executed Agreement to Purchaser and will forward the following
to the Escrow Agent:
(A) Earnest Money;
(B) One (1) fully executed copy of this Agreement; and
(C) Three (3) copies of the Escrow Agreement signed by the parties with a
direction to execute two (2) copies of the Escrow Agreement and deliver a fully
executed copy to each of the Purchaser and the Seller.
21. GOVERNING LAW. The provisions of this Agreement shall be governed by the
laws of the state of North Carolina, except that with respect to the retainage
of the Earnest Money as liquidated damages the laws of the State of Illinois
shall govern.
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<PAGE>
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all other negotiations, understandings and
representations made by and between the parties and the agents, servants and
employees.
23. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
24. CAPTIONS. Paragraph titles or captions contained herein are inserted as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or any provision hereof.
25. AUDIT. Seller will make available to Purchaser such books, accounts and
records necessary for Purchaser to conduct an audit of the Property's preceding
fiscal year. This audit will be conducted solely at Purchaser's expense for the
purpose of satisfying its requirements as a publicly held entity. Seller agrees
to execute and deliver a disclosure letter prepared by the auditors of Purchaser
in the form attached hereto as Exhibit M. The terms of this Paragraph 25 shall
survive the Closing for a period of one (1) year from the Closing Date.
26. LITIGATION COSTS. In the event of any action or proceeding at law or in
equity between Seller and Purchaser to enforce any provision of this Agreement
or to protect or establish any right or remedy of either party hereunder, the
unsuccessful party to such litigation shall pay the prevailing party all
litigation costs and expenses, including reasonable attorneys' fees incurred
therein by such prevailing party, and if such prevailing party shall recover
judgment in any such action or proceeding, such costs and expenses (including
such attorneys' fees) shall be included in and as a part of such judgment.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as of
the date first set forth above.
PURCHASER:
CORNERSTONE REALTY GROUP
INCORPORATED, a Virginia corporation
By: /S/ S. J. OLANDER
Name: S. J. Olander
Its: Senior Vice President
SELLER:
MEADOWCREEK PARTNERS LIMITED
PARTNERSHIP, an Illinois limited partnership
By: Meadowcreek Partners, Inc., an Illinois
corporation, its general partner
By: /s/ PHILLIP SCHECHTER
Name: Phillip Schechter
Its: Authorized Agent
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<PAGE>
_________________ of CB Commercial Real Estate Group, Inc. ("Seller's Broker")
executed this Agreement in its capacity as a real estate broker and acknowledges
that the fee or commission due it from Seller as a result of the transaction
described in this Agreement is as set forth in that certain Listing Agreement,
dated ___, 199_ between Seller and Seller's Broker (the "Listing Agreement").
Seller's Broker also acknowledges that payment of the aforesaid fee or
commission is conditioned upon the Closing and the receipt of the Purchase Price
by the Seller. Seller's Broker agrees to deliver a receipt to the Seller at the
Closing for the fee or commission due Seller's Broker and a release stating that
no other fees or commissions are due to it from Seller or Purchaser.
By: ____________________________
Name: ____________________________
Its: ____________________________
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<PAGE>
Exhibit 10.8
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 31st day of May, 1996 by
and between Cornerstone Realty Income Trust, Inc., a Virginia corporation
(hereinafter referred to as "Owner"), and Cornerstone Management Group, Inc., a
Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Meadow Creek Apartments, (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby engages
Manager as sole and exclusive manager to rent, manage and operate the Property,
upon the conditions and for the term and compensation herein set forth. All or
a portion of the services being performed by Manager may be contracted or
subcontracted to another property management company, provided that such company
agrees to be bound by the terms of this Agreement.
2. Term of Agreement: Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be implemented in the forthcoming year,
which recommendations shall be accompanied by an estimated budget for such
items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be based upon the
income received by Owner (for such month) which has been obtained by such date.
If additional gross revenues are received by Owner after the day Manager is
paid, the sum due to Manager on account of such additional income shall be paid
to Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this
Agreement as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
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<PAGE>
Exhibit 10.9
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 25th day of April 1996,
between CORNERSTONE REALTY GROUP, INC. or its nominee, (hereinafter called
"Purchaser") and LAKEWOOD APARTMENTS, LTD., (hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 SALE OF PROPERTY. Seller agrees to sell and convey, and
Purchaser agrees to purchase, Seller's real property known as LAKEWOOD
APARTMENTS located in CONCORD, NC, with all buildings and improvements located
thereon, as more particularly described in the attached legal description in
Exhibit A including, but not limited to 160 individually heated and air
conditioned apartment units, with all appurtenances, together with all
appliances, drapes, carpeting, shrubbery and all other personal property used in
connection with the premises, including, the inventory of personal property to
be supplied by Seller and attached hereto as Exhibit B (all such real and
personal property hereinafter collectively referred to as the "Property" unless
the context clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price shall be FIVE MILLION
SEVEN HUNDRED THOUSAND ($5,700,000) DOLLARS as evidenced by cash or cash
equivalent at closing provided that closing occurs on or before April 30, 1996.
If closing occurs during May, 1996, the total purchase price shall be FIVE
MILLION SIX HUNDRED FORTY THOUSAND ($5,640,000) DOLLARS as evidenced by cash or
cash equivalent at closing. In no event shall closing occur later than May 31,
1996 or shall the total price be less than $5,640,000. (The total purchase
price as defined in this paragraph shall hereinafter be referred to as "Purchase
Price".)
2.2 DEPOSIT. $50,000 to be placed in escrow at the end of the
"Inspection Period" described in Article VI below. Said deposit shall be placed
in escrow with the Title Company of North Carolina or its authorized agent as an
earnest money deposit which may be credited against the purchase price or
applied as per Article XI below.
2.3 CLOSING IN ESCROW. The parties shall comply with all of the
required documentation prior to April 30, 1996 and deposit all documents and the
Purchase Price in escrow with the title company set forth in the above Paragraph
2.2. At said time, the Purchaser shall assume all of the benefits and
liabilities of ownership, including the management of the property, with the
actual closing taking place as soon thereafter as Purchaser may elect, but not
later than May 31, 1996. The Purchase Price shall be paid by (i) payment from
Purchaser to Seller at closing the amount due from the Seller to the Secretary
of Housing and Urban Development under the Seller's confirmed bankruptcy plan
and ORDER ALLOWING CLAIM OF SECRETARY OF HOUSING AND URBAN DEVELOPMENT ("Consent
Order") as of the date of closing; and (ii) payment from Purchaser to Seller (or
Seller's assignee) on or before May 31, 1996 the amount by which the Purchase
Price exceeds the amount paid under (i) of this paragraph. In all events, the
Purchaser shall have paid to Seller by May 31, 1996 the Purchase Price as
defined in Paragraph 2.1. All payments to be held by the title company in an
interest-bearing account pending disbursement.
2.4 BEST EFFORTS. Seller and Purchaser hereby agree to use their
best efforts to close all transactions contemplated by this Agreement on or
before May 10, 1996.
2.5 HUD MORTGAGE. Seller and Purchaser acknowledge that at the date
of closing in escrow the Property will be encumbered by an existing deed of
trust in favor of Highland Mortgage Company, the beneficial interest in which
has been assigned to the Secretary of Housing and Urban Development ("HUD") and,
until satisfaction and cancellation of the same, subject to a cash collateral
order of the United States Bankruptcy Court for the Western District of North
Carolina entered for the adequate protection of HUD's interest in the Property.
HUD has agreed to accept, but only on or before June 1, 1996, the sum of
$4,854,868.21, reduced by any payments made thereon after February 21, 1996 and
by any Housing Assistance Payments withheld from Seller after February 21, 1996,
together with assumption of the existing Housing Assistance Payments (HAP)
Contract between the Seller and HUD, in satisfaction of HUD's claims under the
note secured thereby, as definitely set out in the Seller's Chapter 11 plan and
the Consent Order. The Seller and Purchaser hereby agree that (i) the Purchaser
shall assume the existing Housing Assistance Payments (HAP) Contract between the
Seller and HUD and any and all obligations of the Seller due HUD under the cash
collateral order, the Seller's plan, and the Consent Order, (ii) the obligations
assumed by the Purchaser shall be prorated in accordance with Paragraph 4.1 and
(iii) any payments made shall accrue to the benefit of the party whose funds
were used to make such payments. The Seller and Purchaser agree further to use
their best efforts to obtain from HUD on May 31, 1996, in conjunction with
payment of the full balance due HUD, an assignment of the HUD note, deed of
trust, and collateral documents to such entity as Purchaser may direct , but
obtaining such an assignment is not a condition of any obligation of Purchaser
under this agreement.
ARTICLE III
TITLE MATTERS
3.1 MARKETABLE TITLE. Seller, shall convey good and marketable
title by General Warranty Deed, subject to general taxes for the current year
not yet due and payable, utility easements of record which could not
reasonably interfere with the present use of the Property and existing deed
restrictions.
(A) Title shall be free from any and all liens or mortgages as
of June 1, 1996 and Seller shall be responsible for any prepayment penalties
necessary to deliver such free title as of June 1, 1996.
3. 2 TITLE DEFECTS; ELECTION TO CURE. If title is not
marketable, except as stated above in the preceding paragraph, Purchaser shall
give written notice of any defects in title to Seller's counsel within five (5)
days after Purchaser's receipt of a title report which report shall include
copies of backup documents relating to any title exceptions, a current survey,
a flood zone certification letter and a Surveyor's Certification letter.
Seller may, at its option, elect whether to cure said defects or by written
notice to Purchaser indicate its intention not to cure. The commitment shall be
furnished without cost to Purchaser, except and unless Purchaser obtains a
policy.
3.3 ELECTION NOT TO CURE DEFECTS. Should Seller elect not to cure
title defects, this Agreement, at Purchaser's option, shall be void; each party
shall thereupon be released from all obligations hereunder; and all deposits
shall be immediately returned to Purchaser.
ARTICLE IV
PRORATIONS
4.1 INCOME AND EXPENSE ALLOCATIONS. The following shall be
prorated, on a calendar-month basis as of the first (lst) day of the month in
which closing occurs: rents and other income from the Property; operating
expenses (on such service contracts and other obligations as Purchaser may agree
to assume); and general and real property taxes and personal and business
property taxes for the year of closing (based on the most recent assessment and
the most recent levy).
4.2 CLOSING COSTS. Purchaser and Seller shall pay their customary
share of all taxes, recording fees, if any, imposed on the Deed, or any other
documents executed in connection with the transfer of the Property. Purchaser
agrees to pay cost of title insurance. Seller shall pay any prepayment penalty
charged by the holders of any existing notes.
4.3 ALLOCATION OF RENTS. Rents collected by Seller prior to
Closing shall be prorated as agreed in 4.1 above. Purchaser shall apply
rents received after Closing first to payment of the current rent due to
Purchaser, then to delinquent rents due to Purchaser, and last to rents due to
Seller as of the Closing but uncollected prior to settlement. Purchaser agrees
to use its best efforts in good faith to collect the amount of any rental
arrears from tenants and Purchaser agrees to remit promptly to Seller any such
arrears actually paid by such tenants to Purchaser. Seller shall retain the
right to commence legal action against a tenant for any delinquent rent
apportioned to the Seller.
4.4 PRIOR LEASE CONCESSIONS. Seller has no knowledge of any future
rent concessions other than those for employees of the managing company and has
consulted with the managing company regarding the same.
ARTICLE V
POSSESSION OF THE PROPERTY AND
INDEMNIFICATION BY PURCHASER
5.1 POSSESSION. Possession of the Property shall be delivered to
Purchaser at closing, subject to the rights of the tenants under existing leases
and rental agreements. Additionally, the Property shall be delivered to the
Purchaser at closing subject to the existing Section 8 Contract on 40 units.
The existing Section 8 Contract shall remain in place for its duration, but
Purchaser is under no obligation to continue the Section 8 Contract beyond its
stated expiration.
5.2 INDEMNIFICATION. Purchaser acknowledges that it is assuming
certain obligations of Seller to HUD under the HUD Mortgage and collateral loan
documents, as amended in the Plan, and the existing Section 8 Contract
("Obligations"). Purchaser agrees to hold harmless and indemnify Seller from
any and all claims under the Obligations from and after the closing. Such
indemnity shall include reasonable attorneys' fees.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT. Purchaser's obligation to purchase shall
be subject to and contingent upon the satisfaction of the following conditions
precedent:
(A) Receipt by Purchaser of an engineering report of building
and site conditions, reasonably satisfactory to Purchaser, said report to
include in part, a description of any hazardous waste sites, hazardous wastes
and/or hazardous materials affecting the property. Purchaser shall have until
April 26, 1996 in which to review the reports set forth herein and exercise its
right to reject the Property based thereon or the right hereunder shall be
deemed waived. Purchaser hereby agrees to instruct the entity preparing the
engineering report to provide a copy of such report to Seller simultaneously
upon provision to Purchaser.
(B) The receipt by Purchaser of Seller documents described in
7.2 below.
(C) On the condition that Sellers representations and
warranties described in Article VIII below remain true and correct.
(D) On the condition that there have been no material or
adverse changes to the property or leases.
(E) Seller acknowledges that Purchaser is a public entity and
that it is required to furnish financial statement to the Securities and
Exchange Commission in connection with this acquisition. Seller agrees to make
the information available for Purchaser to audit the last 12 months of operation
of the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission.
(F) Purchaser shall have until May 1st to procure a Survey
which shall show no encroachments onto the Land from any adjacent property, no
encroachments by or from the Land onto adjacent property and no violation of or
encroachments upon any recorded building lines, restrictions or easements
affecting the Property. If the Survey discloses any such encroachment or
violation, Seller shall have five (5) days from the date of delivery of the
Survey (with a commensurate extension of the closing date) to have the Title
Insurer issue its endorsement insuring against damage caused by such
encroachment or violation and to provide evidence thereof to Purchaser, and if
Seller fails to or is unable to have the same insured against within such five
(5) day period, Purchaser may elect, on or before the Closing Date, to (i)
terminate this Agreement (in which case the Earnest Money shall be returned to
Purchaser) and neither party shall have any further liability or obligation to
the other hereunder, or (ii) accept the property subject to any such
encroachment or violation.
6.2 INSPECTION. This Agreement shall be further subject to and
contingent upon Purchaser's satisfactory inspection as follows herein below.
6.2.1 PREPARATION FOR INSPECTION. At the execution of this
Agreement, Seller shall use its best efforts to deliver to Purchaser copies of
the following: The current rent roll for the Property; detailed statements of
income and expenses with respect to the Property for the past two years; the
most recent tax bills for the Property; utility bills for the Property for the
twelve (12) months previous to the date hereof; all contract, mortgages, and
other documents creating liens of security interest on the Property, or any part
thereof and all promissory notes secured thereby; all insurance policies
applicable to the Property to include loss runs for the last five (5) years;
Plans and Specifications for the Property, service contracts, Certificates of
Occupancy, to the extent reasonably available; a copy of the title policy and
most recent survey for the Property. A copy of any environmental or engineering
reports on the property. All these items shall be certified by Seller to be
accurate and complete to the best of its knowledge and belief. In the event
Purchaser has not received any of the documents referenced by this Paragraph
6.2.1 by April 26, 1996, Purchaser shall notify Seller in writing by April 29,
1996 or waive the right to receive such documents.
6.2.2 INSPECTION OF BOOKS AND RECORDS; ACCESS. Purchaser, its
employees, agents and contractors shall have until April 22, 1996 (the
"Inspection Period") to enter upon the Property subject to the rights of the
tenants during normal business hours for the purpose of making physical
inspections thereof, including but not limited to roofs, heating, cooling,
electrical and plumbing systems, swimming pool, appliances, and structural
elements of the buildings. Upon the conclusion of the Inspection Period this
contract shall be deemed to be a firm agreement of purchase and sale binding the
parties hereto, except as it may be terminated by other provisions and
conditions contained herein, including but not limited to the condition imposed
by Paragraph 6.1(A) above.
6.2.3 RIGHT OF TERMINATION DURING INSPECTION PERIOD. Purchaser
shall also be permitted to review all original leases, expense records, tenant
cards and occupancy data available. If Purchaser is not satisfied, in its sole
and exclusive discretion, with the state of maintenance and repair of the
Property or the rents, occupancy or expenses of the Property, then
notwithstanding anything contained herein to the contrary, Purchaser shall have
the right to terminate this Agreement by giving written notice to Seller before
the end of the Inspection Period, and no party hereto shall have any further
liability to any other party hereto, and all deposits shall be returned to
Purchaser.
6.2.4 "RENT READY". During the "Inspection Period", both Seller
and Purchaser will inspect an apartment unit at the Property and mutually agree
that said apartment shall be representative of a "rent ready" unit by which all
other units shall be judged for "rent ready" condition at closing. All vacant
apartment units, are to be in a "rent ready" condition (as defined above), at
the time of closing, containing, but not limited to the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating, plumbing and
electrical systems.
6.2.5 Condition of Personal Property at Closing. All personal
property included in the sale and all mechanical, electrical, heating,
air conditioning, sewer, water and plumbing systems will be in the same working
order at the time of closing and in the same condition as at the time of the
initial inspection by Purchaser. If Seller fails to make reasonable efforts to
conserve the property and Seller does not pay at closing for any damages
resulting from Seller's failure to make reasonable efforts to conserve the
property, Purchaser shall have the option of waiving such requirement, in
writing, and proceeding to closing, or Purchaser may void this Agreement and
obtain a prompt return of its deposit. This clause shall survive closing for
three (3) business days.
6.2.6. SATISFACTION OF DUE DILIGENCE REQUIREMENT. The Purchaser
acknowledges receipt of all documents required from Seller for the completion of
its inspection.
ARTICLE VII
CLOSING
7.1 CLOSING. Closing will be held on or before May 31, 1996 at such
place and at such time as the parties may agree.
7.2 SELLER'S DELIVERIES. At closing, Seller shall execute and
deliver to Purchaser the General Warranty Deed referred to in Paragraph 3 hereof
and shall also execute, where necessary, and deliver to Purchaser, the
following:
(A) A Bill of Sale, with warranty of title transferring the
personal property (as shown in Schedule B) to Purchaser free of all liens,
charges and encumbrances, except any and all liens in favor of HUD and other
encumbrances of record.
(B) Originals or copies of all signed leases and rental
agreements in effect with tenants of the Property.
(C) All security deposits made by such tenants. Seller will
give the tenants the required notice of such transfer in compliance with the
laws of North Carolina.
(D) An affidavit of Seller in such form as will cause the Title
Company to omit from the title insurance policy the exclusion relating to
unrecorded mechanic's and materialmen's liens.
(E) A rent roll certified by Seller to be true and correct as
of the date of closing showing the name of, and the amount of monthly rental
payable, by each tenant of the Property, the apartment occupied by the tenant,
the date to which rent has been paid, any advance payment of rent, and the
amount of any escrow, or security deposit of tenant.
(F) An standard affidavit of Seller as required by
the title company that to the best of its information and belief there are, on
the date of closing, no unsatisfied judgments, creditor's claims or tax liens
involving Seller, which would affect the title to the Property.
(G) Purchaser shall provide its own termite bond.
(H) Assignments of all Seller's interest in the following:
(1) all assignable licenses, and permits relating to the operation of the
Property, (2) the leases and rental agreements with tenants of the Property, (3)
the existing Property telephone number and (4) the business and trade name as
set forth in Par. 1.1.
(I) Assignments of all warranties and guarantees to the extent
such are still in effect and provide Purchaser with copies of all such
warranties and guarantees without limitation for all appliances, dishwashers,
disposals, refrigerators, heating and air conditioning units, washers and
dryers.
(J) Evidence satisfactory to Purchaser that all water, sewer,
gas, electric, telephone, and drainage facilities and all other utilities
required by law or by the normal use and operation of the Property are and at
the time of closing will be installed to the property line, are and at the time
of closing will be connected pursuant to valid permits, and are and at the time
of closing adequate to service the Property and to permit full compliance with
all requirements of law and normal usage of the Property by the tenants thereof
and their licensees and invitees.
(K) Consent of the Seller's authorized officer to the sale of
the Property and any other approvals required under Seller's articles or
by-laws, which may affect Seller's ability to convey marketable title.
(L) Provide documents for the transfer of the telephone,
electric, water and sewer, and gas utilities, as may be required by the utility,
for execution at closing.
(M) Satisfactory evidence of the power and authority of Seller
to enter into and consummate this agreement, including but not limited to:
(i) An opinion of Seller's counsel, in a form satisfactory
to Purchaser, stating that:
(a) The individual(s) executing the deed and related
documents are duly authorized to do all such acts as are necessary to consummate
this sale, without further consent of any other party.
(b) That the partner or officer can bind the
Partnership or Corporation.
(N) Affidavit that Seller has no actual knowledge of the
presence of asbestos and/or any other hazardous material at the Property.
(O) Seller shall provide a satisfactory and valid written
termination of the management agreement executed by the existing management and
rental agent for the Property, without cost to the Purchaser.
(P) A notice letter to all the residents of the apartment
complex as to change of ownership in the form prepared by the Purchaser.
(Q) All such other documents as are normally transferred at
settlement in the jurisdiction in which the property is located or are
reasonably requested by Purchaser or its counsel.
(R) A representation letter as normally required by auditors
for a public company in the form attached hereto as Exhibit C.
7.3 PURCHASER'S DELIVERIES. At closing and contemporaneously with
the Seller's compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the cash portion of the purchase price,
adjusted for the prorations herein provided for in Articles II and IV.
(B) Execute and deliver an assumption of obligations
under leases, securities, any contracts which may be accepted by the Purchaser
and any other obligations specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a valid and binding agreement of Purchaser,
and
(ii) Purchaser has complete unrestricted power to buy
the Property from the Seller and to execute any documents required to effectuate
the transfer.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS OF THE PARTIES. Seller warrants (which
warranties shall not survive settlement for more than ninety (90) days unless
designated to the contrary) that as of the date of closing hereof:
(A) That Seller, is the owner in fee simple of the Property and
has the power to convey same upon the express approval of the bankruptcy court.
(B) That Seller is not subject to any other agreements or
arrangements, with the exception of those contained in any existing mortgage
documents or in the Seller's pending bankruptcy proceeding which would prevent
Seller from selling the Property to Purchaser.
(C) All necessary action has been taken by Seller to authorize
the execution of this Agreement and the performance of the obligations
contemplated hereunder, which are not excluded elsewhere in existing mortgage
documents.
(D) Seller has no actual knowledge and has not been advised in
writing that it is in default under any lease, rental agreement service or
equipment contract, or mortgage or other encumbrances relating to the Property
except as affected by the bankruptcy.
(E) Seller has no actual knowledge of any patent
or latent defect in the Property or any part thereof.
(F) Seller has no actual knowledge of any existing or
threatened litigation which relates to or which would affect the Property.
(G) The Property abuts on and has direct vehicular access to a
public road.
(H) All building and other improvements at the Property are
located entirely within the boundary lines of the Property.
(I) Seller has no actual knowledge that any part of the
Property or the operation of the Property, is in violation or may violate any
governmental statute, regulation, ordinance or building code or of any private
restriction, that any governmental authority requires any work to be done on or
affecting the Property, or that any governmental authority has expressed an
intent to condemn or to make special improvements for the benefit of the
Property or any part thereof.
(J) That to the best knowledge of the Seller, the drainage
within the project is satisfactory and complies in all respects with all
government regulation.
(K) That Seller is not a "foreign person" within the meaning of
the Internal Revenue Code of 1954, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
(L) That to the best of Seller's actual knowledge, the Property
was never utilized as a disposal site for hazardous waste products and will
furnish to Purchaser an affidavit confirming same.
(M) Seller covenants and agrees that, between this date and the
date of closing, Seller shall continue to maintain, operate and manage the
Property in a manner consistent with its prior practices, making every
reasonable effort to do nothing which might damage the reputation of the
Property or the relationships with the tenants. Seller shall not permit the
modification, extension or cancellation of any tenant lease (except in
accordance with the terms of such lease) or any dealing with any tenant other
than the ordinary course of managing the Property, without the prior written
consent of Purchaser. If the leases of any tenants expire before thirty (30)
days after the date of closing, Seller shall, up to the date of closing and
without cost to the Purchaser, continue its normal course of operation with
respect to causing tenants to be obtained for apartments which are unrented.
8.2 CONTINUATION OF REPRESENTATIONS. WARRANTIES AND COVENANTS TO THE
DATE OF CLOSING. If each of the warranties set forth in this section does not
remain true up to and including the time of closing as to any material matters,
this Agreement, at Purchaser's election, shall be terminated, Seller shall
return all payments made by Purchaser, or Purchaser may elect to close the sale
and waive failure of the warranties.
8.3 (A) BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding the provisions of 8.2 above, Seller shall indemnify Purchaser
for all reasonable costs incurred as a result of the failure of any of Seller's
representations, warranties or covenants contained herein to remain true as of
the date of closing.
(B) NON-RECOURSE AGREEMENT. Any and all warranties and
representations contained in this Agreement shall be deemed to have been made
solely by the Seller and not by any of its general or limited partners.
Additionally, any and all liability of individual partners under this Agreement
shall be non-recourse in nature. Purchaser expressly acknowledges that neither
its general or limited partners shall have any personal liability under this
Agreement. .
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property
is damaged by fire or other casualty, Seller shall repair such damage before the
date provided herein for closing. If such damage cannot be repaired by such
time, this Agreement may be canceled at the option of the Purchaser. In the
event of cancellation as aforesaid, this Agreement shall become null and void
and the parties shall be released and all payments made shall be returned.
Should Purchaser elect to carry out this Agreement despite such damage Seller
shall assign to Purchaser all insurance proceeds arising from such damage and
will compensate Purchaser for lost rent collections to the extent of insurance
proceeds received. Seller shall promptly notify Purchaser in writing upon the
occurrence of any such damage.
9.2 CONDEMNATION. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, all or any part thereof, or any actual
or proposed sale in lieu thereof, the Seller shall give written notice thereof
to the Purchaser promptly after Seller learns or receives notice thereof. Upon
a taking of a material part of the Property (any part of the building or more
than 5% of the parking area), Purchaser may elect to either (a) terminate this
Agreement, in which event the Deposit shall be immediately returned to
Purchaser and all other rights and obligations of the parties hereunder
shall terminate immediately, or (b) to waive its right to terminate this
Agreement and proceed to closing, in which event all proceeds, awards and other
payments arising out of such condemnation or sale (actual or threatened) shall
be paid to the Purchaser at closing, if such payment has been received or Seller
shall assign to Purchaser the rights to such payments.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by
every casualty shall be borne by the Seller.
ARTICLE X
BROKER'S COMMISSION
10.1 COMMISSION. Seller agrees to pay a brokerage fee to PERCIVAL'S
INC. not to exceed Fifty Thousand ($50,000) Dollars, pursuant to a separate
agreement between Seller and Broker. Said brokerage fee shall be deemed earned
if, and only if, settlement occurs hereunder, and shall not be deemed earned
even if Purchaser and/or Seller wrongfully fail(s) to consummate the purchase
and sale herein contemplated. Purchaser shall not be obligated for any brokerage
fees to any broker, and Seller agrees to hold Purchaser harmless in connection
with such fees. Seller and Purchaser represent and warrant to each other that no
other brokerage fees are or shall be owing in connection with this transaction
or in any way with the Apartments and Seller and Purchaser hereby indemnify and
hold the other harmless from any and all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this Agreement
shall mean any failure by Seller or Purchaser to fulfill all the terms,
conditions and covenants contained herein, however, it shall not be an event of
default for either party to exercise its rights to terminate this contract as
contained in other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at
it's election, may either (l) require specific performance of Seller, or pursue
its other remedies at law or equity, (2) cancel this Agreement and obtain a
prompt return of the deposit, in which case this Agreement shall be terminated
and the parties released from all obligations hereunder, or (3) the
Purchaser may waive such defaults and proceed to settlement. Seller shall
indemnify Purchaser for any reasonable costs incurred by Purchaser if Purchaser
elects to pursue its option (1) noted above, to include reasonable attorney
fees.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, this Agreement
shall be terminated and both parties released from all obligations hereunder,
and the deposit shall be retained by the Seller as liquidated damages or in the
alternative the Purchaser shall have the same remedies as are available to the
Seller in Paragraph 11.2.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding between the parties; it supersedes all previous agreements and
representations which are deemed merged herein and may not be modified except in
writing.
12.2 ASSIGNMENT. Purchaser may assign this Agreement without the
consent of Seller.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of
this agreement or the application thereof to any person or circumstance shall be
held invalid, the remainder of this Agreement or the application of such
provision, sentence, phrase, or word to persons or circumstances, other than
those as to which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree
that it shall be binding upon and inure to the benefit of their respective
heirs, representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that
all questions with respect to the construction of this Agreement and the rights
and liabilities of the parties shall be determined in accordance with the
provisions of the laws of the State set forth in Par. 1.1.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear in each counterpart
hereof, and it shall be sufficient that the signature on behalf of both parties
hereto appear on one or more such counterparts. All counterparts shall
collectively constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to
herein and/or attached hereto shall be deemed to constitute a part of the
Agreement.
12.8 HEADINGS. The headings of the Articles and sections hereof
are inserted for convenience only and shall not be deemed to constitute a part
of the Agreement.
12.9 CONSTRUCTION OF CONTRACT. Each party hereto have reviewed and
revised (or requested revisions of) this Agreement, and therefore the normal
rule of construction that any ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Contract or any amendments or exhibits hereto.
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under
this Agreement shall be in writing and shall be sent or delivered to the address
set forth below (or such other address as may be hereafter specified in
writing):
To Seller: Lakewood Apartments, Ltd.
c/o G.F. Marshall
16 E. Rowan Street, Suite 402
Raleigh, NC 27609
With a copy to
Seller's Attorneys: James L. Bagwell, Esq.
Rayburn, Moon & Smith, PA.
227 West Trade Street
Charlotte, NC 28202
To Purchaser: S. J. Olander
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 1l516
and
Alison R. Cayton, Esq.
Manning Fulton & Skinner
3605 Glenwood Ave., POB 20389
Raleigh, NC 27619-0389
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or
Certified Mail, Return Receipt Requested, or by overnight express mail shall be
deemed given when deposited in the United States Mail, postage prepaid, or
delivered to a reliable overnight courier. Notices sent in any other manner
shall be deemed given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed this day and date first written above.
SELLER:
LAKEWOOD APARTMENTS, LTD.
By:
Its:
PURCHASOR:
CORNERSTONE REALTY GROUP, INC.
By: S. J. OLANDER
Its: Senior Vice President
United States Mail, postage prepaid, or delivered to a reliable overnight
courier. Notices sent in any other manner shall be deemed given only when
actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed this day and date first written above.
SELLER:
WILLOW CREEK APARTMENTS, LTD.
By:
Its: General Partner
Purchaser:
CORNERSTONE REALTY GROUP, INC.
By:
Its:
<PAGE>
Exhibit 10.10
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of May, 1996 by
and between Cornerstone Realty Income Trust, Inc., a Virginia corporation
(hereinafter referred to as "Owner"), and Cornerstone Management Group, Inc., a
Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Lakewood Apartments, (hereinafter referred
to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby
engages Manager as sole and exclusive manager to rent, manage and operate the
Property, upon the conditions and for the term and compensation herein set
forth. All or a portion of the services being performed by Manager may be
contracted or subcontracted to another property management company, provided
that such company agrees to be bound by the terms of this Agreement.
2. Term of Agreement: Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform
<PAGE>
all services necessary for the care, protection, maintenance and operation of
the Property, including the following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be
2
<PAGE>
open to the inspection of Owner or any of its employees or duly authorized
agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be implemented in the forthcoming year,
which recommendations shall be accompanied by an estimated budget for such
items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the
3
<PAGE>
personnel including, but not limited to, form leases, contracts and management
policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner
4
<PAGE>
harmless against, and to the extent of, any loss that a court of competent
jurisdiction shall, by final adjudication, determine to have resulted from
willful misconduct, gross negligence or fraud by or on the part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be based upon the
income received by Owner (for such month) which has been obtained by such date.
If additional gross revenues are received by Owner after the day Manager is
paid, the sum due to Manager on account of such additional income shall be paid
to Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
5
<PAGE>
11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this
Agreement as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
6
<PAGE>
MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
-44-
<PAGE>
Exhibit 10.11
PURCHASE CONTRACT
THIS AGREEMENT made and entered into this 25th day of April 1996,
between CORNERSTONE REALTY GROUP, INC. or its nominee, (hereinafter called
"Purchaser") and WILLOW CREEK APARTMENTS, LTD., (hereinafter
called "Seller").
ARTICLE I
The Property
1.1 Sale of Property. Seller agrees to sell and convey, and Purchaser agrees to
purchase, Seller's real property known as WILLOW CREEK APARTMENTS located in
DURHAM, NC, with all buildings and improvements located thereon, as more
particularly described in the attached legal description in Exhibit A including,
but not limited to 200 individually heated and air conditioned apartment units,
with all appurtenances, together with all property used in connection with the
premises, including, the inventory of personal property to be supplied by Seller
and attached hereto as Exhibit B (all such real and personal property
hereinafter collectively referred to as the "Property" unless the context
clearly indicates otherwise).
ARTICLE II
Payment of Purchase Price
2.1 Purchase Price. The total purchase price shall be EIGHT MILLION FOUR HUNDRED
THOUSAND ($8,400,000) DOLLARS as evidenced by cash or cash equivalent at closing
provided that closing occurs on or before April 30, 1996. If closing occurs
during May, 1996, the total purchase price shall be EIGHT MILLION THREE HUNDRED
TWENTY-FIVE THOUSAND ($8,325,000) DOLLARS as evidenced by cash or cash
equivalent at closing. In no event shall closing occur later than May 31, 1996
or shall the total price be less than $8,325,000. (The total purchase price as
defined in this paragraph shall hereinafter be referred to as "Purchase Price".)
2.2 Deposit. $50,000 to be placed in escrow at the end of the "Inspection
Period" described in Article VI below. Said deposit shall be placed in escrow
with the Title Company of North Carolina or its authorized agent as an earnest
money deposit which may be credited against the purchase price or applied as per
Article XI below.
2.3 Closing in Escrow. The parties shall comply with all of the required
documentation prior to April 30, 1996 and
<PAGE>
deposit all documents in escrow with the title company set forth in the above
Paragraph 2.2. At said time, the Purchaser shall assume all of the benefits and
liabilities of ownership, including the management of the property, with the
actual closing taking place as soon as this matter is cleared for closing by the
Bankruptcy Court at which this matter is currently pending. The Purchase Price
shall be paid by (i) payment from Purchaser to Seller at closing the amount by
which the Purchase price exceeds the amount due from the Seller to HUD under the
Seller's confirmed bankruptcy plan ("Plan") and the Consent Order Regarding
Allowed Claim of HUD, as amended ("Consent Order") as of the date of closing;
and (ii) payment from Purchaser to Seller (or Seller's assignee) on May 31, 1996
the amount by which the Purchase Price exceeds the amount paid under (i) of this
paragraph. In all events, the Purchaser shall have paid to Seller by May 31,
1996 the Purchase Price as defined in Paragraph 2.1. All payments to be held by
the title company in an interest-bearing account.
2.4 Best Efforts. Seller and Purchaser hereby agree to use their best efforts to
close all transactions contemplated by this Agreement on or before May 30,
1996.*
2.5 HUD Mortgage. Seller and Purchaser acknowledge that at the date of closing
the Property will be encumbered by an existing mortgage in favor of HUD, which
mortgage is in the amount of $6,433,752.85 as of February 21, 1996 and which
shall be reduced by any payments made to HUD after that date ("HUD Mortgage").
The HUD Mortgage is due and payable on June 1, 1996 and the HUD Mortgage does
not bear interest. Seller and Purchaser hereby agree that any and all
obligations of the Seller under the HUD Mortgage and the Plan shall be prorated
in accordance with Paragraph 4.1 and that any payments made on the HUD Mortgage
shall inure to the benefit of the party whose funds were used to make such
payments. The Seller and Purchaser agree to use their best efforts to obtain
from HUD, on May 31, 1996 in conjunction with the payment of the balance due on
the HUD Mortgage, an assignment of the HUD Mortgage and collateral documents to
such entity as Purchaser may direct. BOTH SELLER AND PURCHASER EXPRESSLY
RECOGNIZE THAT THIS AGREEMENT IS SUBJECT TO THE EXPRESS APPROVAL OF THE
BANKRUPTCY COURT AND THE FAILURE OF THE BANKRUPTCY COURT TO APPROVE THIS
AGREEMENT, AS AMENDED, SHALL RENDER THIS AGREEMENT NULL AND VOID.
ARTICLE III
Title Matters
3.1 Marketable Title. Seller, shall convey good and marketable title by General
Warranty Deed, subject to general taxes for the current year not yet due and
payable, utility easements of record which could not reasonably interfere with
the present use of the Property and existing deed restrictions.
(A) Title shall be free from any and all liens or
2
* The parties further agree to take whatever steps are necessary to receive an
assignment of the mortgage to the Purchaser or its nominee and Seller will
provide Purchaser with a deed in lieu of foreclosure.
<PAGE>
mortgages as of June 1, 1996 and Seller shall be responsible for any prepayment
penalties necessary to delivery such free title as of June 1, 1996.
3.2 Title Defects; Election to Cure. If title is not marketable,
except as stated above in the preceding paragraph, Purchaser shall give written
notice of any defects in title to Seller's counsel within five (5) days after
Purchaser's receipt of a title report which report shall include copies of
backup documents relating to any title exceptions, a current survey, a flood
zone certification letter and a Surveyor's Certification letter. Seller may,
at its option, elect whether to cure said defects or by written notice to
Purchaser indicate its intention not to cure. The commitment shall be furnished
without cost to Purchaser, except and unless Purchaser obtains a policy.
3.3 Election Not to Cure Defects. Should Seller elect not to cure title
defects, this Agreement, at Purchaser's option, shall be void; each party
shall thereupon be released from all obligations hereunder; and all deposits
shall be immediately returned to Purchaser.
ARTICLE IV
Prorations
4.1 Income and Expense Allocations. The following shall be prorated, on a
calendar-month basis as of the first (1st) day of the month in which closing
occurs: rents and other income from the Property; operating expenses (on such
service contracts and other obligations as Purchaser may agree to assume); and
general and real property taxes and personal and business property taxes for the
year of closing (based on the most recent assessment and the most recent levy).
4.2 Closing Costs. Purchaser and Seller shall pay their customary share of all
taxes, recording fees, if any, imposed on the Deed, or any other documents
executed in connection with the transfer of the Property. Purchaser agrees to
pay cost of title insurance. Seller shall pay any prepayment penalty charged by
the holders of any existing notes.
4.3 Allocation of Rents. Rents collected by Seller prior to Closing shall be
prorated as agreed in 4.1 above. Purchaser shall apply rents received after
Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant
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for any delinquent rent apportioned to the Seller.
4.4 Prior Lease Concessions. Seller has no knowledge of any future rent
concessions other than those for employees of the managing company and has
consulted with the managing company regarding the same.
ARTICLE V
Possession of the Property and
Indemnification by Purchaser
5.1 Possession. Possession of the Property shall be delivered to Purchaser at
closing, subject to the rights of the tenants under existing leases and rental
agreements. Additionally, the Property shall be delivered to the Purchaser at
closing subject to the existing Section 8 Contract on 40 units. The existing
Section 8 Contract shall remain in place for its duration, but Purchaser is
under no obligation to continue the Section 8 Contract beyond its stated
expiration.
5.2 Indemnification. Purchaser acknowledges that it is assuming certain
obligations of Seller to HUD under the HUD Mortgage and collateral loan
documents, as amended in the Plan, and the existing Section 8 Contract
("Obligations"). Purchaser agrees to hold harmless and indemnify Seller from any
and all claims under the Obligations from and after the closing. Such indemnity
shall include reasonable attorneys' fees.
ARTICLE VI
Conditions Precedent to Closing
6.1 Conditions Precedent. Purchaser's obligation to purchase shall be subject to
and contingent upon the satisfaction of the following conditions precedent:
(A) Receipt by Purchaser of an engineering report of building and site
conditions, reasonably satisfactory to Purchaser, said report to include in
part, a description of any hazardous waste sites, hazardous wastes and/or
hazardous materials affecting the property. Purchaser shall have until April 26,
1996 in which to review the reports set forth herein and exercise its right to
reject the Property based thereon or the right hereunder shall be deemed waived.
Purchaser hereby agrees to instruct the entity preparing the engineering report
to provide a copy of such report to Seller simultaneously upon provision to
Purchaser.
(B) The receipt by Purchaser of Seller documents described in 7.2 below.
(C) On the condition that Sellers representations and warranties described in
Article VIII below remain true and correct.
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(D) On the condition that there have been no material or adverse changes to the
property or leases.
(E) Seller acknowledges that Purchaser is a public entity and that it is
required to furnish financial statement to the Securities and Exchange
Commission in connection with this acquisition. Seller agrees to make the
information available for Purchaser to audit the last 12 months of operation of
the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission.
(F) Purchaser shall have until May 1st to procure a Survey which shall show no
encroachments onto the Land from any adjacent property, no encroachments by or
from the Land onto adjacent property and no violation of or encroachments upon
any recorded building lines, restrictions or easements affecting the Property.
If the Survey discloses any such encroachment or violation, Seller shall have
five (5) days from the date of delivery of the Survey (with a commensurate
extension of the closing date) to have the Title Insurer issue its endorsement
insuring against damage caused by such encroachment or violation and to provide
evidence thereof to Purchaser, and if Seller fails to or is unable to have the
same insured against within such five (5) day period, Purchaser may elect, on or
before the Closing Date, to (i) terminate this Agreement (in which case the
Earnest Money shall be returned to Purchaser) and neither party shall have any
further liability or obligation to the other hereunder, or (ii) accept the
property subject to any such encroachment or violation.
6.2 Inspection. This Agreement shall be further subject to and contingent upon
Purchaser's satisfactory inspection as follows herein below.
6.2.1 Preparation for Inspection. At the execution of this Agreement, Seller
shall use its best efforts to deliver to Purchaser copies of the following: The
current rent roll for the Property; detailed statements of income and expenses
with respect to the Property for the past two years; the most recent tax bills
for the Property; utility bills for the Property for the twelve (12) months
previous to the date hereof; all contract, mortgages, and other documents
creating liens of security interest on the Property; or any part thereof and all
promissory notes secured thereby; all insurance policies applicable to the
Property to include loss runs for the last five (5) years; Plans and
Specifications for the Property, service contracts, Certificates of Occupancy,
to the extent reasonably available); a copy of the title policy and most recent
survey for the Property. A copy of any environmental or engineering reports on
the property. All these items shall be certified by Seller to be accurate and
complete to the best of its knowledge and belief. In the event Purchaser has not
received any of the documents referenced by this Paragraph
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6.2.1 by April 26, 1996, Purchaser shall notify Seller in writing by April 29,
1996 or waive the right to receive such documents.
6.2.2 Inspection of Books and Records; Access. Purchaser, its employees, agents
and contractors shall have until April 22, 1996 (the "Inspection Period") to
enter upon the Property subject to the rights of the tenants during normal
business hours for the purpose of making physical inspections thereof, including
but not limited to roofs, heating, cooling, electrical and plumbing systems,
swimming pool, appliances, and structural elements of the buildings. Upon the
conclusion of the Inspection Period this contract shall be deemed to be a firm
agreement of purchase and sale binding the parties hereto, except as it may be
terminated by other provisions and conditions contained herein, including but
not limited to the condition imposed by Paragraph 6.1(A) above.
6.2.3 Right of Termination During Inspection Period. Purchaser shall also be
permitted to review all original leases, expense records, tenant cards and
occupancy data available. If Purchaser is not satisfied, in its sole and
exclusive discretion, with the state of maintenance and repair of the Property
or the rents, occupancy or expenses of the Property, then notwithstanding
anything contained herein to the contrary, Purchaser shall have the right to
terminate this Agreement by giving written notice to Seller before the end of
the Inspection Period, and no party hereto shall have any further liability to
any other party hereto, and all deposits shall be returned to Purchaser.
6.2.4 "Rent Ready". During the "Inspection Period", both Seller and Purchaser
will inspect an apartment unit at the Property and mutually agree that said
apartment shall be representative of a "rent ready" unit by which all other
units shall be judged for "rent ready" condition at closing. All vacant
apartment units, are to be in a "rent ready" condition (as defined above), at
the time of closing, containing, but not limited to the following amenities,
i.e., carpet, refrigerator, range, garbage disposal, heating, plumbing and
electrical systems.
6.2.5 Condition of Personal Property at Closing. All personal property included
in the sale and all mechanical, electrical, heating, air conditioning, sewer,
water and plumbing systems will be in the same working order at the time of
closing and in the same condition as at the time of the initial inspection by
Purchaser. If Seller fails to make reasonable efforts to conserve the property
and Seller does not pay at closing for any damages resulting from Seller's
failure to make reasonable efforts to conserve the property, Purchaser shall
have the option of waiving such requirement, in writing, and proceeding to
closing, or Purchaser may void this Agreement and obtain a prompt return of its
deposit. This clause shall survive closing for three (3) business days.
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6.2.6 Satisfaction of Due Diligence Requirement. The Purchaser acknowledges
receipt of all documents required from Seller for the completion of its
inspection.
ARTICLE VII
Closing
7.1 Closing. Closing will be held on or before May 31, 1996 at such place and at
such time as the parties may agree.
7.2 Seller's Deliveries. At closing, Seller shall execute and deliver to
Purchaser the General Warranty Deed referred to in Paragraph 3 hereof and shall
also execute, where necessary, and deliver to Purchaser, the following:
(A) A Bill of Sale, with warranty of title transferring the personal property
(as shown in Schedule B) to Purchaser free of all liens, charges and
encumbrances, except any and all liens in favor of HUD and other encumbrances of
record.
(B) Originals or copies of all signed leases and rental agreements in effect
with tenants of the Property.
(C) All security deposits made by such tenants. Seller will give the tenants the
required notice of such transfer in compliance with the laws of North Carolina.
(D) As affidavit of Seller in such form as will cause the Title Company to omit
from the title insurance policy the exclusion relating to unrecorded mechanic's
and materialmen's liens.
(E) A rent roll certified by Seller to be true and correct as of the date of
closing showing the name of, and the amount of monthly rental payable, by each
tenant of the Property, the apartment occupied by the tenant, the date to which
rent has been paid, any advance payment of rent, and the amount of any escrow,
or security deposit of tenant.
(F) A standard affidavit of Seller as required by the title company that to the
best of its information and belief there are, on the date of closing, no
unsatisfied judgments, creditor's claims or tax liens involving Seller, which
would affect the title to the Property.
(G) Purchaser shall provide its own termite bond.
(H) Assignments of all Seller's interest in the following: (1) all assignable
licenses, and permits relating to the operation of the Property, (2) the leases
and rental agreements with tenants of the Property, (3) the existing Property
telephone
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number and (4) the business and trade name as set forth in Par. 1.1.
(I) Assignments of all warranties and guarantees to the extent such are still in
effect and provide Purchaser with copies of all such warranties and guarantees
without limitation for all appliances, dishwashers, disposals, refrigerators,
heating and air conditioning units, washers and dryers.
(J) Evidence satisfactory to Purchaser that all water, sewer, gas, electric,
telephone, and drainage facilities and all other utilities required by law or by
the normal use and operation of the Property are and at the time of closing will
be installed to the property line, are and at the time of closing will be
connected pursuant to valid permits, and are and at the time of closing adequate
to service the Property and to permit full compliance with all requirements of
law and normal usage of the Property by the tenants thereof and their licenses
and invitees.
(K) Consent of the Seller's authorized officer to the sale of the Property and
any other approvals required under Seller's articles or by-laws, which may
affect Seller's ability to convey marketable title.
(L) Provide documents for the transfer of the telephone, electric, water and
sewer, and gas utilities, as may be required by the utility, for execution at
closing.
(M) Satisfactory evidence of the power and authority of Seller to enter into and
consummate this agreement, including but not limited to:
(i) An opinion of Seller's counsel, in a form satisfactory to Purchaser, stating
that:
(a) The individual(s) executing the deed and related documents are duly
authorized to do all such acts as are necessary to consummate this sale, without
further consent of any other party.
(b) That the partner or officer can bind the Partnership or Corporation.
(N) Affidavit that Seller has no actual knowledge of the presence of asbestos
and/or any other hazardous material at the Property.
(O) Seller shall provide a satisfactory and valid written termination of the
management agreement executed by the existing management and rental agent for
the Property, without cost to the Purchaser.
(P) A notice letter to all the residents of the apartment complex as to change
of ownership in the form prepared by the Purchaser.
(Q) All such other documents as are normally transferred at settlement in the
jurisdiction in which the property is located or are reasonably requested by
Purchaser or its counsel.
(R) A representation letter as normally required by auditors for a public
company in the form attached hereto as Exhibit C.
7.3 Purchaser's Deliveries. At closing and contemporaneously with the Seller's
compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the cash portion of the purchase price, adjusted for the
prorations herein provided for in Articles II and IV.
(B) Execute and deliver an assumption of obligations under leases, securities,
any contracts which may be accepted by the Purchaser and any other obligations
specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and delivered by the
Purchaser and is a valid and binding agreement of Purchaser, and
(ii) Purchaser has complete unrestricted power to buy the Property from the
Seller and to execute any documents required to effectuate the transfer.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations of the Parties. Seller warrants (which warranties shall not
survive settlement for more than ninety (90) days unless designated to the
contrary) that as of the date of closing hereof:
(A) That Seller, is the owner in fee simple of the Property and has the power to
convey same upon the express approval of the bankruptcy court.
(B) That Seller is not subject to any other agreements or arrangements, with the
exception of those contained in any existing mortgage documents or in the
Seller's pending bankruptcy proceeding which would prevent Seller from selling
the Property to Purchaser.
(C) All necessary action has been taken by Seller to authorize the execution of
this Agreement and the performance of the obligations contemplated hereunder,
which are not excluded elsewhere in existing mortgage documents.
(D) Seller has no actual knowledge and has not been advised in writing that it
is in default under any lease, rental agreement service or equipment contract,
or mortgage or other encumbrances relating to the Property except as affected by
the bankruptcy.
(E) Seller has no actual knowledge of any patent or latent defect in the
Property or any part thereof.
(F) Seller has no actual knowledge of any existing or threatened litigation
which relates to or which would affect the Property.
(G) The Property abuts on and has direct vehicular access to a public road.
(H) All building and other improvements at the Property are located entirely
within the boundary lines of the Property.
(I) Seller has no actual knowledge that any part of the Property or the
operation of the Property, is in violation or may violate any governmental
statute, regulation, ordinance or building code or of any private restriction,
that any governmental authority requires any work to be done on or affecting the
Property, or that any governmental authority has expressed an intent to condemn
or to make special improvements for the benefit of the Property or any part
thereof.
(J) That to the best knowledge of the Seller, the drainage within the project is
satisfactory and complies in all respects with all government regulation.
(K) That Seller is not a "foreign person" within the meaning of the Internal
Revenue Code of 1954, as amended (the "Code"), and that Seller will furnish to
Purchaser prior to closing an affidavit in form satisfactory to Purchaser
confirming the same.
(L) That to the best of Seller's actual knowledge, the Property was never
utilized as a disposal site for hazardous waste products and will furnish to
Purchaser an affidavit confirming same.
(M) Seller covenants and agrees that, between this date and the date of closing,
Seller shall continue to maintain, operate and manage the Property in a manner
consistent with its prior practices, making every reasonable effort to do
nothing which might damage the reputation of the Property or the relationships
with the tenants. Seller shall not permit the modification, extension or
cancellation of any tenant lease (except in accordance with the terms of such
lease) or any dealing with any tenant other than the ordinary course of managing
the Property, without the prior written consent of Purchaser. If the leases of
any tenants expire before thirty (30) days after the date of closing, Seller
shall, up to the date of closing and without cost to the Purchaser, continue its
normal course of operation with respect to causing tenants to be obtained for
apartments which are unrented.
8.2 Continuation of Representations, Warranties and Covenants to the Date of
Closing. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated, Seller shall return all
payments made by Purchaser, or Purchaser may elect to close the sale and waive
failure of the warranties.
8.3 (A) Breach of Representations, Warranties and Covenants. Notwithstanding the
provisions of 8.2 above, Seller shall indemnify Purchaser for all reasonable
costs incurred as a result of the failure of any of Seller's representations,
warranties or covenants contained herein to remain true as of the date of
closing.
(B) Non-Recourse Agreement. Any and all warranties and representations contained
in this Agreement shall be deemed to have been made solely by the Seller and not
by any of its general or limited partners. Additionally, any and all liability
of individual partners under this Agreement shall be non-recourse in nature.
Purchaser expressly acknowledges that neither its general or limited partners
shall have any personal liability under this Agreement.
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 Property Damage. If, prior to closing, any part of the Property is damaged
by fire or other casualty, Seller shall repair such damage before the date
provided herein for closing. If such damage cannot be repaired by such time,
this Agreement may be canceled at the option of the Purchaser. In the event of
cancellation as aforesaid, this Agreement shall become null and void and the
parties shall be released and all payments made shall be returned. Should
Purchaser elect to carry out this Agreement despite such damage Seller shall
assign to Purchaser all insurance proceeds arising from such damage and will
compensate Purchaser for lost rent collections to the extent of insurance
proceeds received. Seller shall promptly notify Purchaser in writing upon the
occurrence of any such damage.
9.2 Condemnation. In the event of any actual or threatened taking, pursuant to
the power of eminent domain, all or any part thereof,or any actual or proposed
sale in lieu thereof, the Seller shall give written notice thereof to the
Purchaser promptly after Seller learns or receives notice thereof. Upon a taking
of a material part of the Property (any part of the building or more than 5% of
the parking area), Purchaser may elect to either (a) terminate this Agreement,
in which event the Deposit shall be immediately returned to Purchaser and all
other rights and obligations of the parties hereunder shall terminate
immediately, or (b) to waive its right to terminate this Agreement and proceed
to closing, in which event all proceeds, awards and other payments arising out
of such condemnation or sale (actual or threatened) shall be paid to the
Purchaser at closing, if such payment has been received or Seller shall assign
to Purchaser the rights to such payments.
9.3 Risk of Loss. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
BROKER'S COMMISSION
10.1 Commission. Seller agrees to pay a brokerage fee to PERCIVAL'S INC. not to
exceed Fifty Thousand ($50,000) Dollars, pursuant to a separate agreement
between Seller and Broker. Said brokerage fee shall be deemed earned if, and
only if, settlement occurs hereunder, and shall not be deemed earned even if
Purchaser and/or Seller wrongfully fail(s) to consummate the purchase and sale
herein contemplated. Purchaser shall not be obligated for any brokerage fees to
any broker, and Seller agrees to hold Purchaser harmless in connection with such
fees. Seller and Purchaser represent and warrant to each other that no other
brokerage fees are or shall be owing in connection with this transaction or in
any way with the Apartments and Seller and Purchaser hereby indemnify and hold
the other harmless from any and all claims of any other person so claiming.
ARTICLE XI
DEFAULT
11.1 Default Defined. Default for the purpose of this Agreement shall mean any
failure by Seller or Purchaser to fulfill all the terms, conditions and
covenants contained herein, however, it shall not be an event of default for
either party to exercise its rights to terminate this contract as contained in
other provisions herein.
11.2 Seller's Default. Upon Seller's default, the Purchaser, at it's election,
may either (1) require specific performance of Seller, or pursue its other
remedies at law or equity, (2) cancel this Agreement and obtain a prompt return
of the deposit, in which case this Agreement shall be terminated and the parties
released from all obligations hereunder, or (3) the Purchaser may waive such
defaults and proceed to settlement. Seller shall indemnify Purchaser for any
reasonable costs incurred by Purchaser if Purchaser elects to pursue its option
(1) noted above, to include reasonable attorney fees.
11.3 Purchaser's Default. Upon Purchaser's default, this Agreement shall be
terminated and both parties released from all obligations hereunder, and the
deposit shall be retained by the Seller as liquidated damages or in the
alternative the Purchaser shall have the same remedies as are available to the
Seller in Paragraph 11.2.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Entire Agreement. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
12.2 Assignment. Purchaser may assign this Agreement without the Consent of
Seller.
12.3 Severability. If any provision, sentence, phrase or word of this Agreement
or the application thereof to any person or circumstance shall be held invalid,
the remainder of this Agreement or the application of such provision, sentence,
phrase, or word to persons or circumstances, other than those as to which it is
held invalid, shall remain in full force and effect.
12.4 Binding Effect. The parties to the Agreement mutually agree that it shall
be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 Controlling Law. It is the intent of the parties hereto that all questions
with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State set forth in Par. 1.1.
12.6 Counterparts. To facilitate execution, this Agreement may be executed in as
many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 Incorporation by Reference. All of the Exhibits referred to herein and/or
attached hereto shall be deemed to constitute a part of the Agreement.
12.8 Headings. The headings of the Articles and sections hereof are inserted for
convenience only and shall not be deemed to constitute a part of the Agreement.
12.9 Construction of Contract. Each party hereto have reviewed and revised (or
requested revisions of) this Agreement, and therefore the normal rule of
construction that any ambiguities are to be resolved against a particular party
shall not be applicable in the construction and interpretation of this Contract
or any amendments or exhibits hereto.
ARTICLE XIII
NOTICE
13.1 Notice. All notices required or permitted to be given under this Agreement
shall be in writing and shall be sent or delivered to the address set forth
below (or such other address as may be hereafter specified in writing):
To Seller:
Willow Creek Apartments, Ltd.
c/o G.F. Marshall
16 E. Rowan Street, Suite 402
Raleigh, NC 27609
With a copy to
Seller's Attorneys: Ashley H. Story
Wyche & Story
P.O. Box Drawer 1389
Raleigh, NC 27602
To Purchaser: S. J. Olander
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
and
Alison R. Clayton, Esq.
Manning Fulton & Skinner
3605 Glenwood Ave., POB 20389
Raleigh, NC 27619-0389
13.2 Delivery of Notice. Notices sent either by Registered or Certified Mail,
Return Receipt Requested, or by overnight express mail shall be deemed given
when deposited in the United States Mail, postage prepaid, or delivered to a
reliable overnight courier. Notices sent in any other manner shall be deemed
given only when actually delivered at the specified address.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement to
be executed this day and date first written above.
SELLER:
WILLOW CREEK APARTMENTS, LTD.
By: /s/ GENERAL PARTNER
Its: General Partner
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ SENIOR VICE PRESIDENT
Its: Senior Vice President
<PAGE>
Exhibit 10.12
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of May, 1996 by
and between Cornerstone Realty Income Trust, Inc., a Virginia corporation
(hereinafter referred to as "Owner"), and Cornerstone Management Group, Inc., a
Virginia corporation (hereinafter referred to as "Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Willow Creek Apartments, (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby
engages Manager as sole and exclusive manager to rent, manage and operate the
Property, upon the conditions and for the term and compensation herein set
forth. All or a portion of the services being performed by Manager may be
contracted or subcontracted to another property management company, provided
that such company agrees to be bound by the terms of this Agreement.
2. Term of Agreement; Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as
the manager of the Property and agrees to perform
<PAGE>
all services necessary for the care, protection, maintenance and operation of
the Property, including the following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be
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open to the inspection of Owner or any of its employees or duly authorized
agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and i shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph i, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be implemented in the forthcoming year,
which recommendations shall be accompanied by an estimated budget for such
items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the
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personnel including, but not limited to, form leases, contracts and management
policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents,
tenant security deposits or other deposits on space in the Property, deposits on
keys and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to
the Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner
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harmless against, and to the extent of, any loss that a court of competent
jurisdiction shall, by final adjudication, determine to have resulted from
willful misconduct, gross negligence or fraud by or on the part of Manager.
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to
Manager on or before the 10th day of each month and shall be based upon the
income received by Owner (for such month) which has been obtained by such date.
If additional gross revenues are received by Owner after the day Manager is
paid, the sum due to Manager on account of such additional income shall be paid
to Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for
Manager's expenses, including salaries and related overhead expenses, associated
with bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget
prepared by Manager, pursuant to paragraph 3(k), will contain a category labeled
"Reserve for Capital Items." Owner agrees to place rents and other income in a
bank account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
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11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this
Agreement as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By: /s/ S. J. OLANDER
Title: Senior Vice President
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MANAGER:
CORNERSTONE MANAGEMENT GROUP, INC.
By: /s/ GLADE M. KNIGHT
Title: President
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