Item 1. Business - ----------------
Balcor Equity Properties Ltd.-VIII (the "Registrant") is a limited partnership formed in 1979 under the laws of the State of Illinois. The Registrant raised $30,005,000 from sales of Limited Partnership Interests. The Registrant's operations currently consist exclusively of investment in and operation of income-producing real property, and all financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire thirteen real property investments. The Registrant has since disposed of eight of these properties. The Registrant currently owns the five remaining properties described under Item 2.
Item 2. Properties - ------------------
As of December 31, 1994, the Registrant owns the five properties described below:
Location Description of Property - -------- -----------------------
San Antonio, Texas Cedar Creek Apartment Complex - Phase I: a 176-unit apartment complex located on approximately five acres.
San Antonio, Texas Cedar Creek Apartment Complex - Phase II: a 216-unit apartment complex located on approximately six acres.
Colorado Springs, Colorado Greentree Village Apartment Complex: a 216-unit apartment complex located on approximately eight acres.
San Antonio, Texas Walnut Hills Apartment Complex - Phase I: a 192-unit apartment complex located on approximately eight acres.
San Antonio, Texas Walnut Hills Apartment Complex - Phase II: a 232-unit apartment complex located on approximately eight acres.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its real estate investment properties.
Each of the above properties is held subject to various mortgages and other forms of financing.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.
Item 3. Legal Proceedings - -------------------------
Sherwood Lakes Apartments - -------------------------
In January 1988, the Registrant sold to ITT Commercial Finance Corp. ("ITT") a 78.4% interest in the $16,000,000 wrap-around mortgage note (the "Note") previously received by the Registrant from the purchaser ("Purchaser") as a portion of the sale price of Sherwood Lake Apartments. The Registrant retained a 21.6% junior interest in the Note pursuant to the terms of a participation agreement.
In June 1991, the Note matured and the Purchaser failed to pay the amount due under the Note. ITT did not make the required payment to the holder of the underlying second mortgage wrap note ("Second Note") which also matured and, in September 1991, the holder of the Second Note commenced foreclosure proceedings in the Circuit Court, Lake County, Indiana, Jim P. Koufos et al. vs. Sherwood Lake Associates, Ltd. Partnership, et al., Case No.: 45 CO 19109 CP 02085.
In November 1991, the Purchaser filed for protection under Chapter 11 of the U. S. Bankruptcy Code in the U.S. Bankruptcy Court, Northern District of Indiana, Hammond Division at Gary, Case No. 91-62140, In re Sherwood Lake Associates, Ltd. Partnership, which stayed the foreclosure proceedings. A joint liquidation plan ("Plan") was confirmed by the Bankruptcy Court in December 1993 which allowed the Purchaser until December 30, 1994 to complete a sale or refinancing of the property. On November 18, 1994, the Purchaser completed a refinancing of the property and the Registrant received $2,200,000 from the proceeds. The
repayment consisted of the Registrant's share of the principal balance of the note of $1,792,575 and interest income of $407,425. The foreclosure suit, in which the Registrant was a defendant, is expected to be dismissed during the first half of 1995.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant during 1994.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------------------------------------------------------------------------- Matters - -------
There has not been an established public market for Limited Partnership Interests and it is not anticipated that one will develop; therefore, the market value of the Limited Partnership Interests cannot reasonably be determined. For information regarding distributions, see Item 7. Liquidity and Capital Resources, below.
As of December 31, 1994, the number of record holders of Limited Partnership Interests of the Registrant was 3,333.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ---------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- Total income $6,175,042 $5,290,545 $5,336,906 $5,129,643 $5,161,547 Income (loss) before gains on sales of property, loss on prepayment of note receivable and extra- ordinary item 414,158 (327,499) (567,448) (679,607) (782,370) Net income (loss) 700,620 (327,499) 31,753 (679,607) (704,788) Net income (loss) per Limited Part- nership Interest 23.12 (10.81) 1.05 (22.42) (23.25) Total assets 15,387,316 15,170,384 14,278,492 16,312,664 16,211,899 Mortgage notes payable 15,320,720 15,419,064 13,226,872 14,570,999 12,866,457
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Summary of Operations - ---------------------
During 1994, Balcor Equity Properties Ltd. - VIII (the "Partnership") received a repayment of its interest in the Sherwood Lake Apartments wrap-around note receivable and the Partnership's properties experienced overall improvements in net operations. These were the primary reasons the Partnership recognized net income during 1994 as compared to a net loss during 1993.
During December 1992, title to the Barcelona Apartments was conveyed to an unaffiliated party, subject to the existing mortgage loan. In addition, during 1993 certain of the Partnership's remaining properties had an overall improvement in net operations as compared to 1992. As a result, the Partnership recognized net income during 1992 as compared to a net loss during 1993. Further discussion of the Partnership's operations is summarized below.
Operations - ----------
1994 Compared to 1993 - ---------------------
Rental rates and/or average occupancy levels increased at all of the Partnership's five properties resulting in increases in rental and service income and property management fees during 1994 as compared to 1993.
Due to higher average cash balances, primarily from the Sherwood Lakes repayment and higher interest rates earned on short-term investments, interest income on short-term investments increased during 1994 as compared to 1993.
During November 1994, the Sherwood Lake Apartments wrap-around note receivable was repaid. As a result of this repayment, the Partnership recognized interest income on wrap-around note receivable and the previously deferred gain on sale of property. No interest income was recognized in 1993 since the wrap-around note receivable had been placed on non-accrual status and, consistent with the Partnership's accounting policies, income is recorded only as cash payments are received from the purchaser.
The outstanding short-term loans from the General Partner were repaid during 1994, resulting in a decrease in interest expense on short-term loans during 1994 as compared to 1993.
The Partnership incurred refinancing fees in connection with the May 1993 mortgage loan refinancings on the Cedar Creek - Phases I and II and Walnut Hills - Phases I and II apartment complexes which are amortized over the term of the respective loan agreements. As a result, amortization of deferred expenses increased during 1994 as compared to 1993.
Primarily due to repairs in 1993 required by the new mortgage holders as a condition of the refinancings of Cedar Creek - Phases I and II and Walnut Hills - - Phases I and II, maintenance and repairs expense decreased during 1994 as compared to 1993.
Increased accounting and portfolio management fees and data processing costs resulted in an increase in administrative expenses during 1994 as compared to 1993.
1993 Compared to 1992 - ---------------------
The disposition of the Barcelona Apartments in December 1992 caused decreases
in rental and service income, interest on mortgage notes payable, depreciation, property operating expenses, maintenance and repairs expenses, real estate taxes and property management fees during 1993 as compared to 1992. The decreases resulting from this property disposition were offset by or in addition to other activity described below.
Higher rental rates at all of the Partnership's remaining five properties resulted in increases in rental and service income and property management fees at these properties during 1993. This partially offset the decreases relating to the disposition of the Barcelona Apartments.
During 1993, the Partnership completed the refinancings of the mortgage loans on the Cedar Creek - Phases I and II and Walnut Hills - Phases I and II apartment complexes. As a result of the refinancings the Partnership was able to borrow funds in excess of the previous loans. The excess funds were used to repay a portion of the General Partner debt which resulted in lower short-term interest expense during 1993. However, the increased loan balances resulted in increased interest expense on mortgage notes payable during 1993.
Lower interest rates on short-term loans, as well as a reduction in the amount of outstanding debt, resulted in a decrease in interest expense on short-term loans during 1993 as compared to 1992.
The Partnership incurred refinancing fees in connection with the May 1993 mortgage loan refinancings on the Cedar Creek - Phases I and II and Walnut Hills - Phases I and II apartment complexes which are amortized over the life of the respective loans. As a result, amortization of deferred expenses increased during 1993 as compared to 1992.
Increased payroll and utilities expenses at the Greentree Village apartment complex during 1993 as compared to 1992 partially offset the decrease in property operating expenses caused by the disposition of the Barcelona Apartments.
The decrease in maintenance and repair expenses during 1993 as compared to 1992 was primarily caused by the disposition of the Barcelona Apartments and exterior painting expenditures incurred on the Cedar Creek - Phases I and II apartment complexes during 1992. However, apartment interior upgrade expenditures at the Greentree Village and Walnut Hills - Phases I and II apartment complexes during 1993 partially offset this decrease.
Increases in 1993 assessed property valuations received from taxing authorities on the Cedar Creek - Phases I and II and Walnut Hills - Phases I and II apartment complexes resulted in an overall increase in real estate tax expense during 1993 as compared to 1992. These increases were partially offset by the property disposition discussed earlier.
During 1993 the Partnership incurred higher accounting and investor communications fees which resulted in an increase in administrative expenses during 1993 as compared to 1992. However, these increases were partially offset by a decrease in portfolio management fees.
The Partnership recognized an extraordinary gain on foreclosure of investment property of $599,201 in connection with the December 1992 foreclosure of the Barcelona Apartments located in Colorado Springs, Colorado.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership increased as of December 31, 1994 when compared to December 31, 1993. Operating activities consisted primarily of cash flow generated from property operations, which was partially offset by the payment of administrative expenses. Investing activities consisted of its share of the proceeds from the Sherwood Lake wrap-around note receivable and property improvements on the Cedar Creek - Phases I and II apartment complexes. Financing activities consisted of repayment of the short-term loans from the
General Partner, principal payments on mortgage notes payable, and the receipt of funds released from restricted escrow accounts.
As of December 31, 1994, the Partnership had repaid all loans from the General Partner. The loans were repaid with available cash flow from property operations.
The Partnership classifies the cash flow performance of its properties as either positive, a marginal deficit or a significant deficit, each after consideration of debt service payments unless otherwise indicated. A deficit is considered to be significant if it exceeds $250,000 annually or 20% of the property's rental and service income. The Partnership defines cash flow generated from its properties as an amount equal to the property's revenue receipts less property related expenditures, which include debt service payments. During 1994, four of the Partnership's five properties generated positive cash flow after debt service as compared to all five properties generating positive cash flow during 1993. The Walnut Hills - Phase I Apartments generated a marginal cash flow deficit in 1994 primarily due to increased debt service payments caused by an increase in the outstanding loan balance resulting from the 1993 refinancing. On a combined basis, Walnut Hills Phase I and Phase II apartment complexes generated positive cash flow after debt service payments.
While the cash flow of the Partnership's properties has improved, the General Partner continues to pursue actions aimed at further improving property operating performance and seeking rent increases where market conditions allow. As of December 31, 1994, the occupancy rates of the Partnership's properties ranged from 90% to 96%.
The Partnership retained a 21.6% interest in the wrap-around note receivable previously received by the Partnership as a portion of the selling price of the Sherwood Lake Apartments. The purchaser of the property was unable to make the balloon payment due under the note at maturity in June 1991 and in November 1991 filed for protection under the U.S. Bankruptcy Code. In December 1993, a liquidation plan was confirmed by the bankruptcy court. In November 1994, the Partnership received $2,200,000 representing its participation in the wrap- around note. The repayment consisted of the Partnership's share of the principal balance of the note of $1,792,575 and interest income of $407,425.
Each of the Partnership's properties is owned through the use of third-party mortgage loan financing and, therefore, the Partnership is subject to the financial obligations required by such loans. See Note 4 of Notes to Financial Statements for information concerning outstanding balances, maturity dates, interest rates and other terms related to each of these mortgage loans. As a result of the General Partner's efforts to obtain refinancing of existing loans with new lenders, the Partnership has no third-party financing which matures prior to 2002.
To date, investors have received distributions of Net Cash Receipts of $125.00 and Net Cash Proceeds of $82.50, totaling $207.50 per $1,000 Interest, as well as certain tax benefits. The General Partner is currently performing an analysis of the Partnership's portfolio to determine a disposition strategy for the remaining assets. This analysis will determine the remaining holding period for the Partnership's assets as well as provide a basis for future distributions. In light of results to date and current market conditions, the General Partner does not anticipate that investors will recover all of their original investment.
The General Partner has recently completed the outsourcing of the financial reporting and accounting services, transfer agent and investor records services, and computer operations and systems development functions that provided services to the Partnership. All of these functions are now being provided by independent third parties. Additionally, Allegiance Realty Group, Inc., which has provided property management services to all of the Partnership's properties, was sold to a third party. Each of these transactions occurred after extensive due diligence and competitive bidding processes. The
General Partner does not believe that the cost of providing these services to the Partnership, in the aggregate, will be materially different to the Partnership during 1995 when compared to 1994.
Inflation has several types of potentially conflicting impacts on real estate investments. Short-term inflation can increase real estate operating costs which may or may not be recovered through increased rents and/or sales prices, depending on general or local economic conditions. In the long-term, inflation can be expected to increase operating costs and replacement costs and may lead to increased rental revenues and real estate values.
Item 8.
Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
See Index to Financial Statements and Financial Statements Schedule.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
The net effect of the differences between the financial statements and the tax return is summarized as follows:
December 31, 1994 December 31, 1993 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- ---------- ----------- --------
Total assets $15,387,316 $17,613,469 $15,170,384 $18,111,315
Partners' (deficit) capital accounts: General Partner (225,399) (220,802) (232,405) (569,907) Limited Partners (483,243) 1,738,312 (1,176,857) 2,101,018 Net income (loss): General Partner 7,006 349,105 (3,275) 18,609 Limited Partners 693,614 (362,706) (324,224) (720,502) Per Limited Part- nership Interest 23.12 (12.09) (10.81) (24.01)
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - --------------------
There have been no changes in or disagreements with accountants on any matter of accounting principles, practices or financial statement disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
(a) Neither the Registrant nor BRI Partners-79, its General Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers and significant employees of the General Partner of the Registrant are as follows:
TITLE OFFICERS ----- --------
Chairman, President and Chief Thomas E. Meador Executive Officer Executive Vice President, Allan Wood Chief Financial Officer and Chief Accounting Officer Senior Vice President Alexander J. Darragh First Vice President Daniel A. Duhig First Vice President Josette V. Goldberg First Vice President Alan G. Lieberman First Vice President Brian D. Parker and Assistant Secretary First Vice President John K. Powell, Jr. First Vice President Reid A. Reynolds First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman, President and Chief Executive Officer and has responsibility for all ongoing day-to-day activities at Balcor. He is a Director of The Balcor Company. Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial real estate division where he was involved in various lending activities. Mr. Meador received his M.B.A. degree from the Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief Financial Officer and Chief Accounting Officer, is responsible for the financial and administrative functions. He is also a Director of The Balcor Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor, he was employed by Price Waterhouse where he was involved in auditing public and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has primary responsibility for the Portfolio Advisory Group. He is responsible for due diligence analysis and real estate advisory services in support of asset management, institutional advisory and capital markets functions. Mr. Darragh has supervisory responsibility of Balcor's Investor Services, Investment Administration, Fund Management and Land Management departments. Mr. Darragh received masters' degrees in Urban Geography from Queens's University and in Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is responsible for the Asset Management Department relating to real estate investments made by Balcor and its affiliated partnerships, including negotiations for modifications or refinancings of real estate mortgage investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary responsibility for all human resources matters. In addition, she has supervisory responsibility for Balcor's administrative and MIS departments. Ms. Goldberg has been designated as a Senior Human Resources Professional
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for Balcor's corporate and property accounting, treasury and budget activities. Mr. Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is responsible for the administration of the investment portfolios of Balcor's partnerships and for Balcor's risk management functions. Mr. Powell received a Master of Planning degree from the University of Virginia. He has been designated a Certified Real Estate Financier by the National Society for Real Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with the asset management of residential properties for Balcor. Mr. Reynolds is a licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has responsibility for various Asset Management functions, including oversight of the residential portfolio. From January 1986 through September 1994, Mr. Selby was Regional Vice President and then Senior Vice President of Allegiance Realty Group, Inc., an affiliate of Balcor providing property management services. Mr. Selby was responsible for supervising the management of residential properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any material legal proceedings nor were any such proceedings terminated during the fourth quarter of 1994.
Item 11.
Item 11. Executive Compensation - -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the executive officers and directors of the General Partner. Certain of these officers receive compensation from The Balcor Company (but not from the Registrant) for services performed for various affiliated entities, which may include services performed for the Registrant. However, the General Partner believes that any such compensation attributable to services performed for the Registrant is immaterial to the Registrant. See Note 7 of Notes to Financial Statements for the information relating to transactions with affiliates.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially more than 5% of the outstanding Limited Partnership Interests of the Registrant.
(b) Neither BRI Partners-79 nor its officers or partners own any Limited Partnership Interests of the Registrant.
Relatives and affiliates of the officers and partners of the General Partner do not own any Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may result in a change of control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
(a & b) See Note 7 of Notes to Financial Statements for information relating to transactions with affiliates.
See Note 2 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership previously filed as Exhibit 2(a) to Amendment No. 5 to the Registrant's Registration Statement on Form S-11 dated July 16, 1980 (Registration No. 2-63821) is incorporated herein by reference.
(4) Certificate of Limited Partnership set forth as Exhibit 2(b) to Amendment No. 4 to the Registrant's Registration Statement on Form S-11 dated July 8, 1980 (Registration No. 2-63821) and Form of Confirmation regarding Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-9541) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PROPERTIES LTD.-VIII
By: /s/Allan Wood ----------------------------------- Allan Wood Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of BRI Partners-79, the General Partner
Date: March 28, 1995 --------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------------------- ------------------------------- ------------
President and Chief Executive Officer (Principal Executive Officer) of BRI Partners-79, /s/Thomas E. Meador the General Partner March 28, 1995 - -------------------- -------------- Thomas E. Meador
Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of BRI Partners-79, the /s/Allan Wood General Partner March 28, 1995 - -------------------- -------------- Allan Wood
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Deficit, for the years ended December 31, 1994, 1993 and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1994
Financial Statement Schedules, other than that listed, are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Balcor Equity Properties Ltd.-VIII:
We have audited the financial statements and the financial statement schedule of Balcor Equity Properties Ltd.-VIII (An Illinois Limited Partnership) as listed in the index on this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balcor Equity Properties Ltd.-VIII at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois March 13, 1995
BALCOR EQUITY PROPERTIES LTD.- VIII (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1994 and 1993
ASSETS
1994 1993 -------------- -------------- Cash and cash equivalents $ 2,988,843 $ 591,618 Accounts and accrued interest receivable 33,711 Escrow deposits 724,015 685,647 Escrow deposits - restricted 94,352 191,502 Wrap-around note receivable 1,792,575 Deferred gain on sale (286,462) Deferred expenses, net of accumulated amortization of $93,393 in 1994 and $39,557 in 1993 503,189 557,025 -------------- -------------- 4,344,110 3,531,905 -------------- -------------- Investment in real estate: Land 1,325,898 1,325,898 Buildings and improvements 20,518,019 20,457,885 -------------- -------------- 21,843,917 21,783,783 Less accumulated depreciation 10,800,711 10,145,304 -------------- -------------- Investment in real estate, net of accumulated depreciation 11,043,206 11,638,479 -------------- -------------- $ 15,387,316 $ 15,170,384 ============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 417,775 Accounts payable $ 77,177 54,703 Due to affiliates 49,347 37,411 Accrued liabilities, principally real estate taxes 548,122 534,542 Security deposits 100,592 116,151 Mortgage notes payable 15,320,720 15,419,064 -------------- -------------- Total liabilities 16,095,958 16,579,646
Partners' deficit (30,005 Limited Partnership Interests issued and outstanding) (708,642) (1,409,262) -------------- -------------- $ 15,387,316 $ 15,170,384 ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES LTD.- VIII (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT for the years ended December 31, 1994, 1993 and 1992
Partners' Deficit Accounts -------------------------------------------- General Limited Total Partner Partners -------------- -------------- --------------
Balance at December 31, 1991 $ (1,113,516) $ (229,448) $ (884,068)
Net income for the year ended December 31, 1992 31,753 318 31,435 -------------- -------------- --------------
Balance at December 31, 1992 (1,081,763) (229,130) (852,633)
Net loss for the year ended December 31, 1993 (327,499) (3,275) (324,224) -------------- -------------- --------------
Balance at December 31, 1993 (1,409,262) (232,405) (1,176,857)
Net income for the year ended December 31, 1994 700,620 7,006 693,614 -------------- -------------- -------------- Balance at December 31, 1994 $ (708,642) $ (225,399) $ (483,243) ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES LTD.- VIII (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992 -------------- -------------- -------------- Income: Rental and service $ 5,724,364 $ 5,271,564 $ 5,311,812 Interest on short-term investments 43,253 18,981 21,957 Interest on wrap-around note receivable 407,425 3,137 -------------- -------------- -------------- Total income 6,175,042 5,290,545 5,336,906 -------------- -------------- -------------- Expenses: Interest on mortgage notes payable 1,463,776 1,419,454 1,374,149 Interest on short-term loans from affiliate 5,773 38,845 84,578 Depreciation 655,407 648,503 738,300 Amortization of deferred expenses 53,836 32,860 3,494 Property operating 1,745,940 1,602,872 1,827,283 Maintenance and repairs 678,157 795,174 857,458 Real estate taxes 545,503 534,618 499,827 Property management fees 286,031 262,846 265,745 Administrative 326,461 282,872 253,520 -------------- -------------- -------------- Total expenses 5,760,884 5,618,044 5,904,354 -------------- -------------- -------------- Income (loss) before gain on sale of property and extra- ordinary item 414,158 (327,499) (567,448)
Gain on sale of property 286,462 -------------- -------------- -------------- Income (loss) before extraordinary item 700,620 (327,499) (567,448)
Extraordinary item: Gain on foreclosure of investment property 599,201 -------------- -------------- -------------- Net income (loss) $ 700,620 $ (327,499) $ 31,753 ============== ============== ==============
Income (loss) before extra- ordinary item allocated to General Partner $ 7,006 $ (3,275) $ (5,674) ============== ============== ============== Income (loss) before extra- ordinary item allocated to Limited Partners $ 693,614 $ (324,224) $ (561,774) ============== ============== ============== Income (loss) before extra- ordinary item per Limited Partnership Interest (30,005 issued and outstanding) $ 23.12 $ (10.81) $ (18.72) ============== ============== ============== Extraordinary item allocated
to General Partner None None $ 5,992 ============== ============== ============== Extraordinary item allocated to Limited Partners None None $ 593,209 ============== ============== ============== Extraordinary item per Limited Partnership Interest (30,005 issued and outstanding) None None $ 19.77 ============== ============== ============== Net income (loss) allocated to General Partner $ 7,006 $ (3,275) $ 318 ============== ============== ============== Net income (loss) allocated to Limited Partners $ 693,614 $ (324,224) $ 31,435 ============== ============== ============== Net income (loss) per Limited Partnership Interest (30,005 issued and outstanding) $ 23.12 $ (10.81) $ 1.05 ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES LTD.- VIII (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1994, 1993, and 1992
1994 1993 1992 -------------- -------------- -------------- Operating activities:
Net income (loss) $ 700,620 $ (327,499) $ 31,753 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of property (286,462) Gain on foreclosure of investment property (599,201) Depreciation of properties 655,407 648,503 738,300 Amortization of deferred expenses 53,836 32,860 3,494 Net change in: Escrow deposits unrestricted (138,271) (373,551) 341,219 Escrow deposits restricted (12,672) (30,839) (50,841) Accounts and accrued interest receivable (33,711) 7,762 Accounts payable 22,474 (11,679) (171,008) Due to affiliates 11,936 (8,996) (16,102) Accrued liabilities 13,580 393,159 (89,121) Security deposits (15,559) 16,680 13,931 -------------- -------------- -------------- Net cash provided by operating activities 971,178 338,638 210,186 -------------- -------------- --------------
Investing activities:
Additions to properties (60,134) (133,077) (20,568) Proceeds from wrap-around note receivable 1,792,575 -------------- -------------- -------------- Net cash provided by or used in investing activities 1,732,441 (133,077) (20,568) -------------- -------------- -------------- Financing activities:
Proceeds from issuance of mortgage note payable $ 12,350,000 Payments of mortgage notes payable (10,025,572) Repayment of loans payable - affiliate $ (417,775) (1,361,965) $ (320,618) Principal payments on mortgage notes payable (98,344) (132,236) (219,247) Funding of repair escrows (235,277) Releases from repair escrows 99,903 135,374 Releases from escrow
deposits - restricted 109,822 102,860 292,636 Payment of deferred expenses (474,277) -------------- -------------- -------------- Net cash used in or provided by financing activities (306,394) 358,907 (247,229) -------------- -------------- --------------
Net change in cash and cash equivalents 2,397,225 564,468 (57,611) Cash and cash equivalents at beginning of period 591,618 27,150 84,761 -------------- -------------- -------------- Cash and cash equivalents at end of period $ 2,988,843 $ 591,618 $ 27,150 ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Depreciation expense is computed using straight-line and accelerated methods. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 15 to 33 Furniture and fixtures 3 to 5
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account. The Partnership records its investments in real estate at cost, and periodically assesses possible impairment to the value of its properties. In the event that the General Partner determines that a permanent impairment in value has occurred, the carrying basis of the property is reduced to its estimated fair value.
When properties are sold, the related costs and accumulated depreciation are removed from the respective accounts. Any gain or loss on disposition is recognized in accordance with generally accepted accounting principles. Deferred gains on the sales of properties result from sales recorded under the installment method. Gains are recognized based on the gross profit percentage as future sales proceeds are collected.
(b) Once a wrap-around note receivable has been placed on non-accrual status, income is recorded only as cash payments are received from the purchaser until such time as the purchaser has demonstrated an ability to make payments under the terms of the original or renegotiated loan agreement.
(c) Deferred expenses consist of loan refinancing fees which are amortized over the term of the respective agreements.
(d) Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
(e) The Partnership is not liable for Federal income taxes and each partner recognizes his proportionate share of the Partnership loss or income in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(f) Several reclassifications have been made to the previously reported 1993 and 1992 statements in order to provide comparability with the 1994 statements. These reclassifications have not changed the 1993 and 1992 results.
2. Partnership Agreement:
The Partnership was organized in February 1979. The Partnership Agreement provides for BRI Partners-79 to be the General Partner and for the admission of Limited Partners through the sale of up to 30,005 Limited Partnership Interests at $1,000 per Interest, all of which were sold on or prior to October 31, 1980, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated 1% of the profits and losses. To the extent Net Cash Receipts are distributed, the General Partner will be entitled to 10% of the Net Cash Receipts (9% being its management fee and 1% being its distributive share), which payment is subordinated to certain levels of return to holders of Interests as specified by the Partnership Agreement. There have been no cash payments made to the General Partner under these provisions.
When and as the Partnership sells or refinances properties, the Net Cash Proceeds resulting therefrom which are available for distribution will be distributed only to holders of Interests until such time as holders of Interests have received an amount equal to their Original Capital plus certain levels of return, as specified by the Partnership Agreement. Only after such returns are made to the Limited Partners would the General Partner receive 15% of further distributed Net Cash Proceeds. There have been no cash payments made to the General Partner under these provisions.
3. Wrap-around Note Receivable:
In January 1988, the Partnership sold (subject to the underlying debt obligations) the wrap-around note receivable previously received by the Partnership as a portion of the selling price of the Sherwood Lake Apartments. At closing, the Partnership retained a 21.6% interest in the note pursuant to the terms of a participation agreement entered into by the Partnership and the purchaser of the note.
The purchaser of the property failed to make the balloon payment due in June 1991. As a result, foreclosure proceedings were commenced and shortly thereafter the purchaser of the property filed for protection under the U.S. Bankruptcy Code. In December 1993, a liquidation plan was confirmed by the bankruptcy court. In November 1994, the Partnership received $2,200,000 representing its participation in the wrap-around note. The repayment consisted of the Partnership's share of the principal balance of the note of $1,792,575 and interest income of $407,425. The Partnership also recognized a $286,462 deferred gain on sale.
4. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1994 and 1993 consisted of the following:
Carrying Carrying Current Final Property Amount of Amount of Inter- Matur- Current Estimated Pledged as Notes at Notes at est ity Monthly Balloon Collateral 12/31/94 12/31/93 Rate Date Payment Payment - -------------- -------------------------------- ---------------------------- Apartment Complexes: Cedar Creek Phase I (a) $2,350,562 $2,366,414 9.38% 2003 $19,763 $2,138,000 Cedar Creek Phase II (b) 2,795,931 2,814,787 9.38% 2003 23,507 2,543,000 Greentree Village 3,099,604 3,114,355 9.75% 2026 26,479 None Walnut Hills Phase I (c) 5,164,476 5,200,159 9.26% 2002 42,977 4,767,000 Walnut Hills Phase II (d) 1,910,147 1,923,349 9.26% 2002 15,896 1,763,000 ----------- -----------
Total $15,320,720 $15,419,064 =========== ===========
(a) In May 1993, this loan was refinanced. The interest rate increased from 9.25% to 9.38%, the maturity date was extended from August 1993 to June 2003 and the monthly payments increased from $18,510 to $19,763. A portion of the proceeds from the new $2,375,000 first mortgage loan were used to repay the existing first mortgage loan of $1,864,165.
(b) In May 1993, this loan was refinanced. The interest rate decreased from 9.75% to 9.38%, the maturity date was extended from September 1995 to June 2003 and the monthly payments decreased from $27,235 to $23,507. A portion of the proceeds from the new $2,825,000 first mortgage loan were used to repay the existing first mortgage loan of $2,729,330.
(c) In May 1993, this loan was refinanced. The interest rate increased from
9.25% to 9.26%, the maturity date was extended from March 1994 to June 2002 and the monthly payments increased from $21,845 to $42,977. A portion of the proceeds from the new $5,219,500 first mortgage loan were used to repay the existing first mortgage loan of $2,231,902.
(d) In May 1993, this loan was refinanced. The interest rate decreased from 10.25% to 9.26%, the maturity date was extended from October 1996 to June 2002 and the monthly payments decreased from $32,260 to $15,896. The proceeds from the new $1,930,500 first mortgage loan, along with Partnership cash reserves, were used to repay the existing first mortgage loan of $3,200,175.
All of the Partnership's loans described above require current monthly payments of principal and interest.
Five-year maturities of the above notes are summarized as follows:
1995 $ 108,000 1996 119,000 1997 130,000 1998 143,000 1999 157,000
During the years ended December 31, 1994, 1993 and 1992 the Partnership incurred interest expense on mortgage notes payable of $1,463,776, $1,419,454 and $1,374,149, respectively. The Partnership paid interest expense of $1,463,776, $1,419,454 and $1,355,940 in 1994, 1993 and 1992, respectively.
5. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are under management agreements with a third-party management company. These management agreements provide for annual fees of 5% of gross operating receipts.
6. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax return due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net income for 1994 in the financial statements is $714,221 higher than the tax loss of the Partnership for the same period.
7. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 -------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------ ------- ------ ------- ------ -------
Property management fees $283,313 None $263,313 $22,346 $266,223 $22,813 Reimbursement of expenses to the General Partner, at cost: Accounting 50,895 $18,653 47,708 3,941 47,083 3,606 Data processing 23,660 4,773 13,598 2,824 15,483 1,269 Investor communica- tions 17,584 4,864 17,915 1,480 7,916 606 Legal 6,703 3,202 6,139 507 8,944 685 Portfolio management 27,997 15,353 28,449 3,637 39,922 6,890 Other 18,156 2,502 7,851 648 6,018 457
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all of the Partnership's properties until the affiliate was sold to a third-party in November 1994.
As of December 31, 1993, the Partnership had loans outstanding from the General Partner of $417,775, which were repaid during 1994 with cash flow available from property operations. The Partnership incurred interest expense of $5,773, $38,845 and $84,578, and paid interest expense of $7,801, $46,898 and $84,382 in 1994, 1993 and 1992, respectively, on these loans. Interest expense was computed at the American Express Company cost of funds rate plus a spread to cover administrative costs.
The Partnership participates in an insurance deductible program with other affiliated partnerships in which the program pays claims up to the amount of the deductible under the master insurance policies for its properties. The program is administered by an affiliate of the General Partner who receives no fee for administering the program. The Partnership's premiums to the deductible insurance program were $49,714, $25,901 and $35,808 for 1994, 1993 and 1992, respectively.
8. Extraordinary Item:
During 1992, title to Barcelona Apartments was conveyed to an unaffiliated party. The Partnership wrote-off the underlying mortgage balance of $1,124,880 plus accrued and unpaid interest expense of $88,312, accrued and unpaid real estate taxes of $50,568, escrow deposits of $9,986, and the property basis of $654,573, net of accumulated depreciation of $1,719,217. The Partnership received no cash as a result of this transaction. An extraordinary gain on foreclosure of $599,201 was recognized for financial statement purposes.
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs and other related professional fees.
(b) Reconciliation of Real Estate -----------------------------
1994 1993 1992 ---------- ---------- ----------
Balance at beginning of year $21,783,783 $21,650,706 $24,003,928 Additions during year: Improvements 60,134 133,077 20,568 Deductions during year: Foreclosure of investment property None None (2,373,790) ----------- ----------- ----------- Balance at end of year $21,843,917 $21,783,783 $21,650,706 =========== =========== ===========
Reconciliation of Accumulated Depreciation -------------------------------------------
1994 1993 1992 ---------- ---------- ----------
Balance at beginning of year $10,145,304 $9,496,801 $10,477,718
Depreciation expense for the year 655,407 648,503 738,300 Accumulated depreciation of foreclosed investment property None None (1,719,217) ----------- ----------- ----------- Balance at end of year $10,800,711 $10,145,304 $ 9,496,801 =========== =========== ===========
(c) The aggregate cost of land for Federal income tax purposes is $1,627,607 and the aggregate cost of buildings and improvements for Federal income tax purposes is $10,133,137. The total of the above-mentioned is $11,760,744.
(d) See description of mortgage notes payable in Note 4 of Notes to Financial Statements.
(e) Depreciation expense is computed based upon the following estimated useful lives: Years -----
Buildings and improvements 15 to 33 Furniture and fixtures 3 to 5
(f) This apartment complex was completed in stages from 1971 to 1979.
(g) These properties were reacquired through foreclosure in November 1986.