Item 1. Business ----------------
Balcor Pension Investors-V (the "Registrant") is a limited partnership formed in 1983 under the laws of the State of Illinois. The Registrant raised $219,652,500 from sales of Limited Partnership Interests. The Registrant's operations currently consist of investment in wrap-around mortgage loans and first mortgage loans. The Registrant is also currently operating nine properties acquired through foreclosure. All information included in this report relates to this industry segment.
The Registrant originally funded thirty-four loans. A portion of the Mortgage Reductions generated by repayments was reinvested in five additional loans and a second funding on an existing loan, and a portion was distributed to Limited Partners. The remainder was added to working capital reserves. As a result of the repayments, foreclosures and write-offs of thirty loans, the Registrant currently has eight loans in its portfolio. Ten properties were acquired through foreclosure and two loans were reclassified to investment in joint ventures-affiliates. The Registrant sold one of the properties and currently has nine properties and two investments in joint ventures-affiliates in its portfolio. See Item 2.
Item 2. Properties ------------------
The Registrant acquired the nine properties and two minority joint venture interests described below:
Location Description of Property -------- -----------------------
Dallas, Texas Comerica Plaza: two four-story office buildings containing approximately 113,000 square feet.
Tampa, Florida Granada Apartments: a 110-unit apartment complex located on approximately 8 acres.
Arlington, Texas Huntington Meadows: a 250-unit apartment complex located on approximately 11.4 acres.
Alameda County, California Harbor Bay: a two-story office building containing approximately 120,000 square feet.
Temple Terrace, Florida Plantation Apartments: a 126-unit apartment complex located on approximately 7.9 acres.
Largo, Florida The Glades on Ulmerton: a 304-unit apartment complex located on approximately 18.3 acres.
Lakewood, Colorado Union Tower: a fourteen-story office building containing approximately 196,000 square feet.
Overland Park, Kansas Villa Medici: a 159-unit apartment complex located on approximately 16 acres.
Orlando, Florida Waldengreen Apartments: a 276-unit apartment complex located on approximately 15 acres.
The Registrant also holds minority joint venture interests in the Whispering Hills Apartments located in Overland Park, Kansas and the 45 West 45th Street Office Building located in New York, New York.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding these properties.
Item 3.
Item 3. Legal Proceedings --------------------------
(a) Springwells Park Apartments
In 1990, the Registrant received three promissory notes totaling $4,200,000 representing unpaid amounts upon the partial repayment of the first mortgage loan secured by the Springwells Park Apartments (the "Property"). In 1993, one of the notes, in the amount of $2,300,000, collateralized by a second mortgage on the Property, was placed in default and the Registrant commenced foreclosure proceedings in the Circuit Court of Wayne County, Michigan, Balcor Pension Investors-V vs. Springwells Properties Limited Partnership, et. al., Case No.: 93-313288CH, and filed a claim against the borrower and a principal of the borrower (the "Guarantor") to enforce a guarantee by the Guarantor. In May 1993, the borrower filed a counterclaim against the Registrant alleging lender liability claims. In June 1994, a judgment was entered in which the Circuit Court awarded the Registrant approximately $2,300,000 from the Guarantor and the counterclaims filed against the Registrant were dismissed with prejudice.
In October 1993, the first mortgage holder filed non-judicial foreclosure proceedings against the Property and in May 1994, was the successful bidder for the Property at a foreclosure sale. Upon expiration of the statutory redemption period, the Registrant's second mortgage was released.
The two remaining notes were collateralized by a second mortgage on other property owned by an affiliate of the borrower ("Affiliate") and were guaranteed by the Guarantor. Pursuant to a plan of reorganization in the bankruptcy of the Affiliate, the Registrant received $100,000 in 1994, which was applied against the $2,770,597 litigation judgment previously awarded the Registrant, and released its second mortgage lien on the Affiliate's property.
The Registrant is pursuing the Guarantor for collection of the balance of the
$2,770,597 judgment awarded the Registrant, as well as the aforementioned $2,300,000 judgment.
(b) Villa Medici Apartments
The Registrant previously funded a $10,850,000 loan to Wiston XXIV Limited Partnership, collateralized by a first mortgage on Villa Medici Apartments. In 1991, the loan was placed in default and the borrower filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Kansas, (In re Wiston XXIV Limited Partnership (Case No.: 91- 40410-11). The Bankruptcy Court granted the Registrant's motion to proceed with a foreclosure of the property and the Registrant commenced foreclosure proceedings in the District Court of Johnson County, Kansas, (Balcor Pension Investors-V vs. Wiston XXIV Limited Partnership, et al., Case No. 92-C-11570). The borrower filed several appeals, all of which were decided in the Registrant's favor, with the final appeal concluded in the U.S. Court of Appeals for the 10th Circuit Court on February 16, 1995 (Wiston XXIV Limited Partnership vs. Balcor Pension Investors-V, Case No.: 94-3281) The Registrant resumed its foreclosure proceedings, and on March 15, 1995 was the successful bidder for the property at a foreclosure sale. On March 27, 1995, the foreclosure sale was confirmed and the Registrant received title to the property.
(c) Williams class action
In February 1990, a proposed class-action complaint was filed, Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.: 90- C-0726 (U. S. District Court, Northern District of Illinois) against the Registrant, the General Partner, The Balcor Company, Shearson Lehman Hutton, Inc., American Express Company, other affiliates, and seven affiliated limited partnerships (the "Related Partnerships") as defendants. The complaint alleges that the defendants violated Federal securities laws as to the adequacy and accuracy of disclosure of information in the offering of limited partnership interests of the Registrant and the Related Partnerships and alleges breach of fiduciary duty, fraud, negligence and violations under the Racketeer Influenced and Corrupt Organizations Act. The complaint seeks compensatory and punitive damages. The defendants filed their answer, affirmative defenses and a counterclaim to the complaint. The defendants' counterclaim asserts claims of fraud and breach of warranty against certain plaintiffs, as well as a request for declaratory relief regarding the defendants' rights to be indemnified for their expenses incurred in defending the litigation. The defendants seek to recover damages to their reputations and business as well as costs and attorneys' fees in defending the claims.
In May 1993, the Court issued an order denying the plaintiffs' motion for class certification based principally on the inadequacy of the individual plaintiffs representing the proposed class. However, the Court gave plaintiffs leave to propose new individual class representatives. Further, the Court granted the defendants' motion for sanctions and ordered that plaintiffs' counsel pay certain of the defendants' attorneys' fees incurred with the class certification motion. In January 1995, the Court ordered the plaintiffs' counsel to pay $75,000 to the defendants and $25,000 to the Court.
The plaintiffs retained new co-counsel and proposed new class representatives. In July 1994, the Court granted plaintiffs' motion certifying a class relating to the Federal securities fraud claims. The class certified by the Court includes only the original investors in the Registrant and the Related Partnerships. The defendants filed a motion for reconsideration in opposition to the class certification which was denied on December 21, 1994. The Court has ordered the parties to meet to discuss notice to the class and a schedule for discovery.
A motion filed by the plaintiffs seeking to dismiss the defendants' counterclaim for fraud was denied by the Court in August 1994.
The defendants intend to continue vigorously contesting this action. Management
of each of the defendants believes they have meritorious defenses to contest the claims.
(d) 45 West 45th Street Office Building
In 1988 and 1989, Balcor Mortgage Advisors, Inc. ("BMA"), acting as nominee for the Registrant and three affiliates (together, the "Participants"), funded a $23,000,000 loan collateralized by a first priority lien on the 45 West 45th Street office building, New York City, New York. The Registrant's share of the loan was $5,000,000, for a participating percentage of approximately 22%.
In 1991, the loan was placed in default due to the failure of the borrower to make payments due under the loan. After modification negotiations were unsuccessful, the borrower agreed to an uncontested foreclosure (Balcor Mortgage Advisors, Inc. vs. 45 W. 45th Street Associates, Supreme Court of the State of New York, City of New York, Case No: 128631/94). On January 23, 1995, the Participants were the successful bidder at the foreclosure sale and, on February 2, 1995, a limited partnership in which each of the Participants holds an interest equal to its participating percentage in the loan obtained title to the property.
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. For information regarding previous distributions, see Financial Statements, Statements of Partner's Capital and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
As of December 31, 1994, the number of record holders of Limited Partnership Interests of the Registrant was 41,344.
Item 6.
Item 6. Selected Financial Data -------------------------------
Year ended December 31, ---------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ----------
Total income $12,279,448 $18,846,927 $13,794,232 $15,317,394 $16,525,767 Provision for losses on loans, real estate and accrued inter- est receivable None 6,755,000 4,000,000 5,749,082 5,500,000 Net income 10,835,098 10,335,746 7,982,124 8,022,644 9,921,710 Net income per Limited Partner- ship Interest 22.20 21.17 16.35 16.44 20.33 Total assets 117,976,309 120,700,542 144,257,526 158,402,349 167,064,706 Mortgage notes payable None 2,245,353 5,840,049 9,503,103 5,317,910 Distributions per Limited Partner- ship Interest 23.65 65.25 32.50 49.25 55.50
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and ----------------------------------------------------------------------- Results of Operations ---------------------
Summary of Operations ---------------------
Income from operations of real estate held for sale increased during 1994 as compared to 1993 due to Balcor Pension Investors-V (the "Partnership") acquiring four properties through foreclosure during the two years ended December 31, 1994. In addition, operations improved during 1994 at certain properties. In 1993, the borrower of the Valley West Shopping Center wrap-around mortgage prepaid the loan in full and in connection with this prepayment the Partnership received additional interest and participation income of approximately $7,900,000. This was partially offset by the Partnership recognizing a provision for potential losses on loans, real estate and accrued interest receivable during 1993 but not in 1994. The net effect of these items was increased net income during 1994 as compared to 1993 and 1993 as compared to 1992. Further discussion of the Partnership's operations is summarized below.
Operations ----------
1994 Compared to 1993 ---------------------
Interest income on loans receivable decreased during 1994 as compared to 1993 due to the Valley West loan prepayment in March 1993 and the Lake Worth loan prepayment in April 1993. In addition, the Partnership received significant participation income from the Valley West loan prepayment in 1993.
Interest expense on loans payable decreased during 1994 as compared to 1993 due to the Valley West loan prepayment and the purchase of the Seven Trails West Apartments underlying loan in 1994.
The Partnership currently has two non-accrual loans which are collateralized by Fairview Plaza I and II and Seven Trails West Apartments. For non-accrual loans, income is recorded only as cash payments are received from the borrowers. The funds advanced by the Partnership for these non-accrual loans total $15,080,000, representing approximately 8% of the original funds advanced. During 1994, the Partnership received cash payments totaling $1,826,000 of net interest income on these two loans. Under the terms of the original loan agreements, the Partnership would have received $2,906,000 of net interest income during 1994.
Income from operations of real estate held for sale represents net property operations generated by the properties the Partnership has acquired through foreclosure. Original funds advanced by the Partnership totaled approximately $78,795,000 for these nine real estate investments. The Partnership foreclosed on the Plantation, Granada and Waldengreen apartment complexes in April, June and September 1993, respectively and the Villa Medici Apartments in March 1995. In addition, the Partnership completed a major repair and renovation program at The Glades on Ulmerton Apartments in 1993 which resulted in improved operations in 1994. These increases in income from operations of real estate held for sale were partially offset by the expenses required for the lease-up of the Harbor Bay Office Building which has resulted in higher operating costs in 1994. As a result, income from operations of real estate held for sale increased during 1994 as compared to 1993. See Liquidity and Capital Resources for further information.
Due to the Valley West and Lake Worth loan prepayments in 1993 and the timing of the subsequent distributions to partners, the Partnership's cash balances were significantly higher during 1993 than in 1994, which resulted in a decrease in interest income on short-term investments for 1994 as compared to 1993.
Participation in income or loss of joint ventures - affiliates represents the Partnership's 25% share of the income of the Whispering Hills Apartments and 22% share of the income or loss of the 45 West 45th Street Office Building. The Partnership recognized its share of a decline in the fair value of the 45 West 45th Street Office Building during 1993 which resulted in a loss from joint ventures - affiliates during 1993 as compared to income in 1994.
Allowances are charged to income when the General Partner believes an impairment has occurred, either in a borrower's ability to repay the loan or in the value of the collateral property. Determinations of fair value are made periodically on the basis of performance under the terms of the loan agreement and assessments of property operations. Determinations of fair value represent estimations based on many variables which affect the value of real estate, including economic and demographic conditions. The Partnership recognized no provision in 1994 and a provision of $700,000 related to its loans in 1993. In addition, the Partnership recognized a provision of $6,055,000 in 1993 related to the Partnership's real estate held for sale to provide for declines in the fair value of certain properties in the Partnership's portfolio.
As a result of the prepayment of the underlying mortgage loan on The Glades on Ulmerton Apartments and the full amortization of the related deferred expenses, along with increased amortization of leasing commissions at Harbor Bay Office Building during 1994, amortization expense increased during 1994 as compared to 1993.
Due to the loan foreclosures and prepayments during 1993, the total amount of loans outstanding decreased, resulting in decreased mortgage servicing fees during 1994 as compared to 1993.
Decreased data processing costs and lower legal fees during 1994 were the primary reasons administrative expenses decreased during 1994 as compared to 1993.
1993 Compared to 1992 ---------------------
Interest income on loans receivable decreased during 1993 as compared to 1992 as a result of a decrease in the total amount of loans outstanding, due to the foreclosure on the Harbor Bay Office Building in October 1992, and the prepayment of the Imperial Gardens loan in December 1992, the Valley West loan in March 1993 and the Lake Worth loan in April 1993. This was partially offset by additional interest income received as a result of the Valley West and Lake Worth loan prepayments. The Partnership also received significant participation income from the Valley West loan prepayment in 1993. Interest expense on loans payable decreased during 1993 as compared to 1992 due to the prepayment of the Valley West loan and the concurrent repayment of the underlying mortgage loan.
The Partnership's three non-accrual loans at December 31, 1993 are Fairview Plaza I and II Office Building, Villa Medici Apartments, and Springwells Park Apartments. The funds advanced by the Partnership for these non-accrual loans totaled approximately $18,830,000, representing approximately 10% of the original funds advanced. During 1993, the Partnership received cash payments totaling approximately $1,377,000 of net interest income on these three loans. Under the terms of the original loan agreements, the Partnership would have received approximately $2,093,000 of net interest income during 1993.
Income from operations of real estate held for sale represents net property operations generated by the eight properties the Partnership has acquired through foreclosure. These eight properties comprise approximately 35% of the Partnership's portfolio based on original funds advanced. The increase in income generated in 1993 resulting from the foreclosures of the Harbor Bay Office Building in 1992 and the Plantation, Granada and Waldengreen apartment complexes in 1993, was substantially offset by higher property operating expenses due to the repair and renovation program at The Glades on Ulmerton
Apartments and by higher leasing activity at the Union Tower Office Building.
Participation in income or loss of joint ventures - affiliates represents the Partnership's 25% share of the income of the Whispering Hills Apartments and 22% share of the income or loss of the 45 West 45th Street Office Building. The Partnership recognized its share of a decline in the fair value of the 45 West 45th Street Office Building during 1993. this resulted in a loss from joint ventures - affiliate during 1993 as compared to income in 1992.
The Partnership recognized a provision for potential losses of $700,000 for its loans during 1993. In addition, in 1993 a provision of $6,055,000 was recognized related to the Partnership's real estate held for sale to provide for further declines in the fair value of certain properties in the Partnership's portfolio.
As a result of the sale of the Northland Park Industrial Building in January 1992, deferred expenses related to this property were fully amortized resulting in a decrease in amortization expense during 1993 as compared to 1992.
Due to the loan foreclosures and prepayments during 1992 and 1993, the total amount of loans outstanding decreased, resulting in decreased mortgage servicing fees during 1993 as compared to 1992.
Higher foreclosure related costs incurred during 1993 were the primary reason administrative expenses increased during 1993 as compared to 1992.
Liquidity and Capital Resources -------------------------------
The cash position of the Partnership decreased as of December 31, 1994 when compared to December 31, 1993. The Partnership's cash flow provided by operating activities during 1994 was generated by net interest income received from the Partnership's loans receivable and short-term investments, and cash flow from the operation of the Partnership's properties held for sale. This cash flow was partially offset by the payment of administrative expenses and mortgage servicing fees. The cash provided by operating activities, Partnership reserves and cash flow from investing activities were utilized for financing activities primarily consisting of distributions to Limited Partners and the General Partner, the prepayment of the underlying mortgage loan on The Glades on Ulmerton Apartments and the purchase of the underlying mortgage loan on Seven Trails West Apartments.
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 once 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. All eight properties owned by the Partnership at December 31, 1994, are generating positive cash flow, as compared to seven of the eight properties held by the Partnership at December 31, 1993. As of December 31, 1994, the occupancy rates of the Partnership's residential properties ranged from 90% to 97%, and the occupancy rates of the commercial properties ranged from 87% to 100%. The Glades on Ulmerton Apartments generated a significant cash flow deficit after debt service payments during 1993 as a result of extensive repairs completed at the property during 1993. In addition, the Partnership prepaid the underlying mortgage on this property in February 1994. The General Partner's goals are to maintain high occupancy levels, while increasing rents where possible, and to monitor and control operating expenses and capital improvement requirements at the properties.
Because of the weak real estate markets in certain cities and regions of the country, attributable to local and regional market conditions such as overbuilding and recessions in local economies and specific industry segments, certain borrowers have requested that the Partnership allow prepayment of
mortgage loans. The Partnership has allowed some of these borrowers to prepay such loans, in some cases without assessing prepayment premiums, under circumstances where the General Partner believed that refusing to allow such prepayment would ultimately prove detrimental to the Partnership in light of the probable inability of the properties to generate sufficient revenues to keep loan payments current. In other cases, borrowers have requested prepayment in order to take advantage of lower available interest rates. In these cases, the General Partner evaluates the request for prepayment along with the market conditions on a case by case basis, and in some cases the Partnership collects substantial prepayment premiums.
Certain borrowers have failed to make payments when due to the Partnership for more than ninety days and, accordingly, these loans have been placed on non- accrual status (income is recorded only as cash payments are received). The General Partner has negotiated with some of these borrowers regarding modifications of the loan terms and has instituted foreclosure proceedings under certain circumstances. Such foreclosure proceedings may be delayed by factors beyond the General Partner's control such as bankruptcy filings by borrowers and state law procedures regarding foreclosures. Further, certain loans made by the Partnership have been restructured to defer and/or reduce interest payments where the properties collateralizing the loans were generating insufficient cash flow to support property operations and debt service. In the case of most loan restructurings, the Partnership receives concessions, such as increased participations or additional interest accruals, in return for modifications, such as deferral or reduction of basic interest payments. There can be no assurance, however, that the Partnership will receive actual benefits from the concessions.
In March 1994, the Seven Trails West Apartments loan matured and was extended for two years on the same terms as the previously modified loan, except for an increase in the interest rate from 10% to 11%. In connection with this extension, the Partnership received a $147,000 extension fee. In addition, in March 1994 the $4,689,871 underlying first mortgage loan on the property was purchased by the Partnership at face value.
The borrower of the Cinnamon Square Apartments loan had previously repaid the loan except for certain interest income which was payable pursuant to the terms of a subsequent note executed by the borrower. In April 1994, the Partnership received $600,000 as a repayment of the note. In accordance with its accounting policies, the Partnership did not reflect this note in its financial statements; therefore, the repayment amount has been recognized as interest income during 1994.
In September 1994, the Partnership and an affiliate received $1,000,000 as settlement in full with the seller of the Whispering Hills Apartments and its insurance companies. The Partnership's share of this settlement was $250,000.
The Villa Medici Apartments loan was placed in default by the Partnership in 1991. This borrower subsequently filed for protection under the U.S. Bankruptcy Code. During March 1995, the Partnership was the successful bidder for the property at a foreclosure sale. On March 27, 1995, the foreclosure sale was confirmed and the Partnership received title to the property. See Item 3. Legal Proceedings for additional information.
The Springwells Park Apartments second mortgage loan was accelerated in April 1993. During December 1993 the borrower filed for protection under the U.S. Bankruptcy Code, and these proceedings were dismissed in September 1994. The Partnership received $100,000 in connection with this loan. See Item 3. Legal Proceedings for more information.
The Partnership and three affiliates (the "Participants") funded the $23,000,000 45 West 45th Street Office Building mortgage loan. The Partnership funded $5,000,000 of the total loan amount for a participating percentage of approximately 22%. In February 1995, the Participants received title to the property through foreclosure. The Partnership's investment in the loan was reclassified from loan in substantive foreclosure to an investment in joint
venture - affiliate effective January 1993. It is the General Partner's opinion that the borrower had effectively surrendered control of the property. See Item 3. Legal Proceedings for additional information.
The Noland Fashion Square Shopping Center loan is recorded by the Partnership as an investment in an acquisition loan. The Partnership has recorded its share of the property's operations as equity in loss from investment in acquisition loan. The Partnership's share of operations has no effect on the cash flow of the Partnership. Amounts representing contractually required debt service are recorded as interest income.
Distributions to Limited Partners can be expected to fluctuate for various reasons. Generally, distributions are made from Cash Flow generated by interest and other payments made by borrowers under the Partnership's mortgage loans and by the operations of the Partnership's properties. Loan prepayments and repayments can initially cause Cash Flow to increase as prepayment premiums and participations are paid; however, thereafter, prepayments and repayments will have the effect of reducing Cash Flow. These fluctuations can be partially offset if prepayment or repayment proceeds are reinvested in new mortgage loans. If such proceeds are distributed rather than reinvested, Limited Partners will receive a return of capital and the dollar amount of Cash Flow available for distribution thereafter can be expected to decrease. Distribution levels can also vary as loans are placed on non-accrual status, modified or restructured and, if the Partnership has taken title to properties through foreclosure or otherwise, as a result of property operations.
The Partnership made distributions totaling $23.65 per Interest during 1994 as compared to $65.25 per Interest during 1993 and $32.50 per Interest in 1992. See Statements of Partners' Capital (Deficit). Distributions were comprised of $21.00 of Cash Flow and $2.65 of Mortgage Reductions in 1994, $42.00 of Cash Flow and $23.25 of Mortgage Reductions in 1993 and $30.00 of Cash Flow and $2.50 of Mortgage Reductions in 1992. Cash Flow distributions decreased in 1994 as compared to 1993 and increased in 1993 as compared to 1992 due to two loan prepayments in 1993 and one loan prepayment and one property sale in 1992. Total distributions increased between 1993 and 1992 due to the distribution to Limited Partners of the Mortgage Reductions received from loan prepayments and the property sale. To date, including the distribution in January 1995, Limited Partners have received cumulative cash distributions of $457.25 per $500 Interest. Of this amount, $349.25 has been Cash Flow from operations and $108.00 represents a return of Original Capital.
In January 1995, the Partnership made a distribution of $1,757,220 ($4.00 per Interest) to the holders of Limited Partnership Interests which represented the quarterly distribution for the fourth quarter of 1994. The level of the regular quarterly distribution remained the same as the third quarter of 1994. In addition, during January 1995, the Partnership paid $146,435 to the General Partner as its distributive share of the Cash Flow distributed for the fourth quarter of 1994 and made a contribution of $48,812 to the Early Investment Incentive Fund.
During 1994, the General Partner used amounts placed in the Early Investment Incentive Fund to repurchase approximately 1,905 Interests from Limited Partners at a total cost of $595,346.
The General Partner presently expects to continue making cash distributions from the cash flow generated from property operations and by the receipt of mortgage payments, less payments on the underlying loans, fees to the General Partner and administrative expenses. The General Partner believes it has retained, on behalf of the Partnership, an appropriate amount of working capital to meet current cash or liquidity requirements which may occur.
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 in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
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 Balcor Mortgage Advisors-V, 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 a Partner 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 8 of Notes to Financial Statements for 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) Balcor Mortgage Advisors-V and its officers and partners own as a group through the Early Investment Incentive Fund and otherwise the following Limited Partnership Interests of the Registrant:
Amount Beneficially Title of Class Owned Percent of Class -------------- ---------------- ----------------
Limited Partnership Interests 17,208 4%
Relatives and affiliates of the officers and partners of the General Partner do not own any additional 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 8 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 Schedules and Reports on Form 8-K ------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and Restated Certificate of Limited Partnership of Balcor Pension Investors-V previously filed as Exhibit 3 and 4.1, respectively, to Amendment No. 1 dated January 16, 1984 to the Registrant's Registration Statement on Form S-11 (Registration No. 2-87662) are incorporated herein by reference.
(4) 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. 0-13233) is 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 Schedules: None.
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 PENSION INVESTORS-V
By: /s/Allan Wood ----------------------- Allan Wood Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of Balcor Mortgage Advisors-V, the General Partner
Date: March 30, 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 Balcor Mortgage /s/Thomas E. Meador Advisors-V, the General Partner March 30, 1995 -------------------- -------------- Thomas E. Meador Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of Balcor Mortgage /s/Allan Wood Advisors-V, the General Partner March 30, 1995 -------------------- -------------- Allan Wood
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Capital, 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
Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT AUDITORS
To the Partners of Balcor Pension Investors-V
We have audited the accompanying balance sheets of Balcor Pension Investors-V (An Illinois Limited Partnership) as of December 31, 1994 and 1993, and the related statements of partners' capital, income and expenses and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balcor Pension Investors-V 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.
Ernst & Young LLP
Chicago, Illinois March 27, 1995
BALCOR PENSION INVESTORS-V (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1994 and 1993
ASSETS
1994 1993 ------------- ------------- Cash and cash equivalents $ 16,045,584 $ 23,623,906 Escrow deposits - restricted 384,625 379,685 Accounts and accrued interest receivable 671,734 1,285,486 Deferred expenses, net of accumulated amortization of $302,661 in 1994 and $172,787 in 1993 349,054 257,003 ------------- ------------- 17,450,997 25,546,080 ------------- ------------- Investment in loans receivable: Loans receivable - wrap-around, first and junior mortgages 45,975,827 55,081,975 Investment in acquisition loan 8,517,335 8,587,042
Less: Loans payable - underlying mortgages 3,998,692 9,160,291 Allowance for potential loan losses 5,957,614 5,957,614 ------------- ------------- Net investment in loans receivable 44,536,856 48,551,112
Real estate held for sale (net of allowance of $6,055,000 in 1994 and 1993) 51,051,376 41,430,697 Investment in joint ventures - affiliates 4,937,080 5,172,653 ------------- ------------- 100,525,312 95,154,462 ------------- -------------
$117,976,309 $120,700,542 ============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued interest payable $ 229,664 $ 266,687 Due to affiliates 136,543 136,721 Other liabilities, principally escrow deposits and accrued real estate taxes 998,713 927,341 Security deposits 356,629 290,169 Mortgage notes payable 2,245,353 ------------- ------------- Total liabilities 1,721,549 3,866,271
Partners' capital (439,305 Limited Partnership Interests issued and outstanding) 116,254,760 116,834,271 ------------- ------------- $117,976,309 $120,700,542 ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-V (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL for the years ended December 31, 1994, 1993 and 1992
Partners' Capital (Deficit) Accounts ----------------------------------------- General Limited Total Partner Partners ------------- ------------- -------------
Balance at December 31, 1991 $144,972,905 $ (1,836,437) $146,809,342
Cash distributions (A) (15,741,762) (1,464,350) (14,277,412) Net income for the year ended December 31, 1992 7,982,124 798,212 7,183,912 ------------- ------------- ------------- Balance at December 31, 1992 137,213,267 (2,502,575) 139,715,842
Cash distributions (A) (30,714,742) (2,050,091) (28,664,651) Net income for the year ended December 31, 1993 10,335,746 1,033,575 9,302,171 ------------- ------------- ------------- Balance at December 31, 1993 116,834,271 (3,519,091) 120,353,362
Cash distributions (A) (11,414,609) (1,025,046) (10,389,563) Net income for the year ended December 31, 1994 10,835,098 1,083,510 9,751,588 ------------- ------------- ------------- Balance at December 31, 1994 $116,254,760 $ (3,460,627) $119,715,387 ============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1994 1993 1992 ------------- ------------- -------------
First quarter $ 9.00 $ 6.25 $ 6.25 Second quarter 6.65 46.00 11.25 Third quarter 4.00 9.00 8.75 Fourth quarter 4.00 4.00 6.25
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-V (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992 ------------- ------------- ------------- Income: Interest on loans receivable, and from investment in acquisition loan $ 8,035,744 $ 11,641,872 $ 13,990,146 Less interest on loans payable - underlying mortgages 472,303 1,299,005 3,364,273 ------------- ------------- ------------- Net interest income on loans receivable 7,563,441 10,342,867 10,625,873 Income from operations of real estate held for sale 3,503,374 1,845,385 1,815,619 Interest on short-term investments 714,328 928,837 935,793 Participation income 75,506 6,277,197 48,224 Participation in income (loss) of joint ventures - affiliates 422,799 (547,359) 368,723 ------------- ------------- ------------- Total income 12,279,448 18,846,927 13,794,232 ------------- ------------- -------------
Expenses: Provision for potential losses on loans, real estate and accrued interest receivable 6,755,000 4,000,000 Amortization of deferred expenses 129,874 35,734 95,646 Mortgage servicing fees 131,284 148,867 218,359 Administrative 1,113,485 1,494,536 1,351,578 ------------- ------------- ------------- Total expenses 1,374,643 8,434,137 5,665,583 ------------- ------------- ------------- Income before equity in loss from investment in acquisition loan 10,904,805 10,412,790 8,128,649
Equity in loss from investment in acquisition loan (69,707) (77,044) (146,525) ------------- ------------- ------------- Net income $ 10,835,098 $ 10,335,746 $ 7,982,124 ============= ============= ============= Net income allocated to General Partner $ 1,083,510 $ 1,033,575 $ 798,212 ============= ============= ============= Net income allocated to Limited Partners $ 9,751,588 $ 9,302,171 $ 7,183,912 ============= ============= ============= Net income per Limited Partnership Interest (439,305 issued and outstanding) $ 22.20 $ 21.17 $ 16.35 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-V (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 $ 10,835,098 $ 10,335,746 $ 7,982,124 Adjustments to reconcile net income to net cash provided by operating activities: Equity in loss from investment in acquisition loan 69,707 77,044 146,525 Participation in (income) loss of joint ventures - affiliates (422,799) 547,359 (368,723) Provision for potential losses on loans, real estate and accrued interest receivable 6,755,000 4,000,000 Amortization of deferred expenses 129,874 35,734 95,646 Accrued interest income due at maturity (906,566) (837,826) (737,769) Collection of interest income due at maturity 98,055 616,266 581,287 Net change in: Escrow deposits - restricted (4,940) (257,304) 411,475 Accounts and accrued interest receivable 613,752 1,438,226 (1,408,076) Accounts and accrued interest payable (37,023) 47,338 (2,145,149) Due to affiliates (178) 47,120 3,346 Other liabilities 326,774 268,408 (500,726) Security deposits 66,460 53,842 73,378 ------------- ------------- ------------- Net cash provided by operating activities 10,768,214 19,126,953 8,133,338 ------------- ------------- ------------- Investing activities:
Capital contributions to joint ventures - affiliates (5,625) (56,689) Distributions from joint ventures - affiliates 658,372 757,990 166,755 Collection of principal payments on loans receivable 415,659 37,341,491 6,213,222 Improvements to real estate (377,081) (733,315) (390,320) Payment of expenses on real estate acquired through foreclosure (344,577) (108,561) Proceeds from sale of real estate 15,075,828 ------------- ------------- ------------- Net cash provided by investing activities 696,950 37,015,964 20,900,235 ------------- ------------- ------------- Financing activities:
Distributions to Limited Partners (10,389,563) (28,664,651) (14,277,412) Distributions to General Partner (1,025,046) (2,050,091) (1,464,350) Principal payments on loans payable - underlying mortgages (471,728) (812,268) (2,731,218) Repayment of loans payable - underlying mortgages (4,689,871) (22,110,234) Principal payments on mortgage notes payable (4,004) (99,776) (123,664) Repayment of mortgage notes payable (2,241,349) (3,494,920) (5,088,361) Payment of deferred expenses (221,925) (146,591) (100,198) ------------- ------------- ------------- Net cash used in financing activities (19,043,486) (57,378,531) (23,785,203) ------------- ------------- -------------
Net change in cash and cash equivalents (7,578,322) (1,235,614) 5,248,370
Cash and cash equivalents at beginning of period 23,623,906 24,859,520 19,611,150 ------------- ------------- ------------- Cash and cash equivalents at end of period $ 16,045,584 $ 23,623,906 $ 24,859,520 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-V (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) The Partnership records wrap-around mortgage loans at the face amount of the mortgage instrument which includes the outstanding indebtedness of the borrower under the terms of the underlying mortgage obligation(s). The underlying mortgage obligation(s) are recorded as a reduction of the wrap-around mortgage loan and the resulting balance represents the Partnership's net advance to the borrower. The Partnership is responsible for making periodic payments to the underlying mortgage lender(s) only to the extent that payments as required by the wrap-around mortgage agreement are received by the Partnership from the borrower.
(b) Income on loans is recorded as earned in accordance with the terms of the related loan agreements. The accrual of interest is discontinued when a loan becomes ninety days contractually delinquent or sooner when, in the opinion of the General Partner, an impairment has occurred in the value of the collateral property securing the loan. Income on nonaccrual loans or loans which are otherwise not performing in accordance with their terms is recorded on a cash basis.
Various loan agreements provide for participation by the Partnership in increases in value of the collateral property when the loan is repaid or refinanced. In addition, certain loan agreements allow the Partnership to receive a percentage of rental income exceeding a base amount. Participation income is reflected in the accompanying Statements of Income and Expenses when received.
Income from operations of real estate owned is reflected in the accompanying Statements of Income and Expenses net of related direct operating expenses.
(c) Allowances are recorded through charges to income when the General Partner believes an impairment has occurred, either in a borrower's ability to repay the loan or in the value of the collateral property. Determinations of impairment are made periodically on the basis of performance under the terms of the loan agreement and assessments of property operations.
When the General Partner believes the likelihood of foreclosure is more than remote, a loss provision is recorded if the loan balance exceeds the estimated fair value of the collateral property less costs of disposal. Upon foreclosure, actual losses are charged to the allowance and the fair value of the property is transferred to real estate held for sale. Determinations of fair value represent estimations based on many variables which affect the value of real estate, including economic and demographic conditions. An allowance for loss is recorded when a decline in the value of a property owned is believed to be temporary. Impairment in value considered to be permanent results in the direct writedown of the property's carrying value to its estimated fair value.
(d) Under certain circumstances, the Partnership may accept promissory notes in satisfaction of a borrower's obligations for certain fees upon prepayment of a loan as required by the loan agreement. These fees include, among other things, prepayment penalties and participations in the borrower's appreciation in the collateral property. The Partnership's policy is to record such income on a cash basis as payments required under the terms of the promissory notes are received.
(e) Deferred expenses consist of mortgage brokerage fees which are amortized on a straight-line basis over the term of the loans to maturity and leasing commissions which are amortized on a straight-line basis over the average term of the leases to which they apply.
(f) Investment in acquisition loans represents first mortgage loans which,
because the loan agreements include certain specified terms, must be accounted for as an investment in a real estate venture. The investment is therefore reflected in the accompanying financial statements using the equity method of accounting. Under this method, the Partnership records its investment at cost (representing total loan fundings) and subsequently adjusts its investment for its share of property income or loss.
Amounts representing contractually required debt service are recorded in the accompanying statements of income and expenses as interest income and participation income. Equity from investment in acquisition loan represents the Partnership's share of the collateral properties' operations, including depreciation and interest expense. The Partnership's share of operations has no effect on cash flow of the Partnership.
(g) Investment in joint ventures - affiliates represents the Partnership's interest, under the equity method of accounting, in joint ventures with affiliated partnerships. Under the equity method of accounting, the Partnership records its initial investment at cost and adjusts its investment account for additional capital contributions, distributions and its share of joint venture income or loss.
(h) Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
(i) The Partnership is not liable for Federal income taxes and each partner recognizes his proportionate share of the Partnership income or loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(j) Several reclassifications have been made in the previously reported 1993 financial statements to conform with the classification used in 1994 including the reclassification of "loans in substantive foreclosure" to loans or real estate to conform with the provisions of Statement of Financial Accounting Standards No.114 which was adopted as of January 1, 1994. These reclassifications have not changed the 1993 results of operations.
2. Partnership Agreement:
The Partnership was organized in October 1983. The Partnership Agreement provides for Balcor Mortgage Advisors-V to be the General Partner and for the admission of Limited Partners through the sale of Limited Partnership Interests at $500 per Interest, 439,305 of which were sold on or prior to August 31, 1984, the termination date of the offering.
Pursuant to the Partnership Agreement, all income of the Partnership will be allocated 90% to the Limited Partners and 10% to the General Partner and all losses will be allocated 99% to the Limited Partners and 1% to the General Partner.
To the extent that Cash Flow is generated, distributions will be made as follows: (i) 90% of such Cash Flow will be distributed to the Limited Partners, (ii) 7.5% of such Cash Flow will be distributed to the General Partner, and (iii) an additional 2.5% of such Cash Flow will be distributed to the General Partner and shall constitute the Early Investment Incentive Fund (the "Fund"). Upon the liquidation of the Partnership, the General Partner will return to the Partnership for distribution to Early Investors an amount not to exceed the 2.5% share originally allocated, if necessary for Early Investors to receive a return of their Original Capital plus a specified Cumulative Return based on the date of investment.
At the sole discretion of the General Partner, subject to certain limitations, amounts placed in the Fund have become available to repurchase Interests from existing Limited Partners. During 1994, the Fund repurchased 1,905 Interests at a total cost of $595,346. Distributions of Cash Flow and Mortgage Reductions pertaining to such repurchased Interests will be paid to the Fund and will be available to repurchase additional Interests.
3. Investment in Loans Receivable:
Loans receivable and loans payable at December 31, 1994 consisted of the following:
Loans Receivable ---------------------------------------------------------- Current Current Original Final Mortgage Monthly Interest Funding Maturity Additional Property Balances(A) Payments Rate Date Date Interest -------------- ----------- -------- ------- ---------------- ---------- First and Wrap-around Mortgages: Apartments: Glen $5,195,185 $41,250 10.00% 1986 1997 (B,C) Meadow Run 5,606,725 43,063 13.25% 1984 1996 (B,C) Seven Trails West 15,152,768 122,500 11.00% 1984 1996 (B,D)
Office Building: Fairview Plaza I & II 7,073,685 55,496 9.5% 1984 1997
Mobile Home Parks: Club Wildwood 5,540,989 49,000 14.00% 1984 1996 (B,E) Four Seasons Estates 3,262,795 34,375 13.75% 1984 1996 (B,E) Pointe West 4,143,680 37,125 13.50% 1984 1996 (B,E) ----------- Subtotal 45,975,827
Acquisition Loan:
Noland Fashion Square Shopping Center (F) 8,517,335 74,061 9.75% 1989 1999 (C) -----------
Total $54,493,162 ===========
Loans Payable --------------------------------------- Underlying Current Current Due Mortgage Monthly Interest Date of Property Balances Payments Rate Loan -------------- ---------- -------- ------ ------ Apartments: Glen $2,578,570 $19,235 7.50% 1997 Fairview Plaza I & II 442,457 23,613 8.75% 1996
Mobile Home Parks: Four Seasons Estates 770,043 12,857 10.125% 1996 Pointe West 207,622 7,224 9.00% 1996 ---------- Total $3,998,692 ==========
(A) All loans are wrap-around mortgage loans except for Club Wildwood, Meadow Run and Seven Trails West which are first mortgage loans. The notes receivable balance of the wrap-around mortgage loans includes the underlying loan balances.
(B) An additional amount of interest accrues on a monthly basis and is payable to the Partnership upon maturity of the loan, prepayment or upon sale of the property. This interest is included in the loan balance.
(C) The Partnership may receive additional payments from the borrower representing participation in the operating results of the collateral property which exceed specified levels and a share in the appreciation of the collateral property upon repayment or refinancing.
(D) In March 1994, the Seven Trails West Apartments loan matured and was extended for two years on the same terms as the previously modified loan, except for an increase in the interest rate from 10% to 11%. In addition, in March 1994 the $4,689,871 underlying first mortgage loan on the property was purchased by the Partnership at face value.
(E) The three mobile home parks which collateralize these respective loans are located in the Tampa, Florida area.
(F) The Partnership and two affiliates entered into a participation agreement to fund a $23,300,000 first mortgage loan collateralized by the Noland Fashion Square Shopping Center. The Partnership participates ratably in approximately 41% of the original loan amount, interest income and participation income. The balance of the loan includes the Partnership's share of the cumulative net loss of the property after the loan was funded.
Loans which have been classified as non-accrual as a result of delinquency or other noncompliance with terms of loan agreements aggregated $22,226,452 and $16,988,345 at December 31, 1994 and 1993, respectively.
Under certain circumstances, management of the Partnership has entered into negotiations with borrowers which resulted in a reduction of interest rates, periodic payments or the modification of other loan terms. Loans whose monetary terms have been restructured amounted to $15,250,823 at December 31, 1993 and none at December 31, 1994, due to the Seven Trails West loan's classification as non-accrual during 1994. Non-accrual loans and loans which have been restructured are hereinafter referred to as impaired loans.
Net interest income relating to impaired loans would have been $2,906,000 in 1994, $3,703,000 in 1993 and $4,953,000 in 1992. Net interest income from impaired loans included in the accompanying Statements of Income and Expenses amounted to $1,826,000 (cash basis) in 1994, $2,204,000 in 1993 and $3,015,000 in 1992.
The average recorded investment in impaired loans during the year ended December 31, 1994 was approximately $27,233,000.
4. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held for sale during the three years ended December 31, 1994 is described in the table below.
1994 1993 1992 ----------- ----------- ------------
Loans: Balance at beginning of year $ 5,957,614 $ 6,391,000 $ 15,950,000 Provision charged to income None 700,000 1,182,000 Charge-off of losses None (1,133,386) (10,741,000) ----------- ----------- ------------ Balance at the end of the year $ 5,957,614 $ 5,957,614 $ 6,391,000 =========== =========== ============
Real Estate Held for Sale: Balance at beginning of year $ 6,055,000 None $ 19,050,000 Provision charged to income None $ 6,055,000 2,818,000 Charge-off of losses None None (21,868,000) ----------- ----------- ------------ Balance at the end of the year $ 6,055,000 $ 6,055,000 None =========== =========== ============
Included in the 1992 charge-off of losses are amounts reflecting the Partnership's adoption of Statement of Position 92-3, "Accounting for Foreclosed Assets" which required the Partnership to adjust the carrying amounts of its real estate held for sale and loans previously classified as in substantive foreclosure to the lower of fair value of the asset less estimated costs to sell, or the cost of the asset. This change had no effect on the results of operations of the Partnership in 1992 since the Partnership had previously recorded these allowances to reflect declines in the value of the real estate and loans.
5. Mortgage Notes Payable:
During February 1994 the Partnership prepaid the underlying first mortgage on The Glades on Ulmerton Apartments in the amount of $2,241,349. At December 31, 1993, the balance of the loan was $2,245,353. During the years ended December 31, 1994, 1993 and 1992, the Partnership incurred interest expense on mortgage notes payable for properties held during the year of $34,585, $275,882 and $226,726 and paid interest expense on the mortgage notes payable of $34,585, $275,882 and $249,357, respectively.
6. Real Estate Held for Sale:
The Partnership acquired the Villa Medici Apartments through foreclosure in March 1995 and classified it as real estate held for sale at December 31, 1994. The Waldengreen, Granada and Plantation Apartments were acquired through foreclosure in 1993 and Harbor Bay Office Building was acquired through foreclosure in 1992. The Partnership recorded the costs of the properties at $9,499,000, $12,994,863, and $14,313,055 in 1994, 1993 and 1992, respectively. These amounts represented the outstanding loan balances plus any accrued interest receivable. In addition, the Partnership increased the basis of the properties by $401,310 in 1993 and reduced the basis of the properties by $255,402, $56,706 and $96,274 in 1994, 1993 and 1992, respectively, for certain other receivables, liabilities, escrows and costs recognized or incurred in connection with the foreclosure. At the date of foreclosure, the properties were transferred to real estate held for sale at their fair value, net of any allowances previously recorded.
7. Investment in Joint Ventures - Affiliates:
The Partnership has classified the Whispering Hills Apartments first mortgage loan investment as an investment in joint venture - affiliate. This investment represents a joint venture between the Partnership and an affiliate. Profits and losses are allocated 25% to the Partnership and 75% to the affiliate.
The Partnership and three affiliates (together, the "Participants"), previously funded a $23,000,000 loan on the 45 West 45th Street Office Building. In February 1995, the Participants received title to the property through foreclosure, and the Partnership owns a 21.74% joint venture interest in the property. The Partnership's investment was reclassified from loan in substantive foreclosure to an investment in joint venture with an affiliate effective January 1993. It is the General Partner's opinion that the borrower had effectively surrendered control of the property. In 1993, the joint venture recognized a loss relating to the decline in the fair value of the property. The Partnership's participation in joint ventures with affiliates for 1993 includes the Partnership's share of the loss of $500,000.
8. 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 ------ ------- ------ ------- ------ -------
Mortgage servicing fees $131,305 $10,930 $153,658 $10,951 $222,651 $15,742 Property management fees 460,824 None 361,175 39,167 277,401 23,888 Reimbursement of expenses to the General Partner, at cost: Accounting 84,961 38,028 75,896 6,300 76,751 6,197 Data processing 87,782 20,653 150,141 41,698 158,957 12,800 Investor communica- tions 36,782 10,098 11,381 945 36,557 2,945 Legal 9,688 8,403 12,197 1,012 19,911 1,608 Portfolio management 100,599 42,147 104,608 33,724 89,851 25,716 Other 27,070 6,284 35,224 2,924 9,394 705
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.
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 $126,944, $60,977 and $23,146 for 1994, 1993 and 1992, respectively.
9. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are managed by a third-party management company. These management agreements provide for annual fees of 3% to 6% of gross operating receipts.
10. Property Sale:
In January 1992, the Partnership sold the Northland Park Industrial Building, for a sale price of $15,350,000. The carrying basis of the property at the date of sale was $15,063,040. A portion of the proceeds from the sale were used to prepay the three underlying mortgage loans totaling $5,088,361. The Partnership recognized a gain on the sale of the property of $12,788.
11. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and certain affiliates have been named as defendants alleging certain federal securities law violations with regard to the adequacy and accuracy of disclosures of information concerning the offering of the Limited Partnership Interests of the Partnership. The defendants continue to vigorously contest this action. While a plaintiff class has been certified, no determinations of the merits have been made. Although the outcome of these matters is not presently determinable, it is management's opinion that the ultimate outcome should not have a material adverse affect on the financial position of the Partnership. Management of the defendants believes they have meritorious defenses to contest the claims.
12. Subsequent Events:
(a) In January 1995, the Partnership made a distribution of $1,757,220 ($4.00 per Interest) to the holders of Limited Partnership Interests for the fourth quarter of 1994 from Cash Flow.
(b) In March 1995, the Partnership made a successful bid at the foreclosure sale for the Villa Medici Apartments and received title to the property on March 27, 1995.