Item 1. Business - ----------------
Balcor Realty Investors 85-Series I A Real Estate Limited Partnership (the "Registrant") is a limited partnership formed in 1983 under the laws of the State of Illinois. The Registrant raised $82,697,000 from sales of Limited Partnership Interests. The Registrant's operations 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 ten real property investments and minority joint venture interests in three additional properties. The Registrant has disposed of three of these properties in prior years and disposed of one of the properties in which it held a minority joint venture interest during 1995 and one during February 1996. The seven properties and two minority joint venture interests held at December 31, 1995 are described under Item 2.
Item 2. Properties - ------------------
As of December 31, 1995, the Registrant owned the seven properties described below:
Location Description of Property - -------- -----------------------
Chesterfield County, Boulder Springs Apartments: a 284-unit Virginia complex located on approximately 32 acres.
Arlington, Texas Forest Ridge Apartments (Phase I): a 332-unit complex located on approximately 14 acres.
East Baton Rouge Parish, Forestwood Apartments: a 272-unit complex Louisiana located on approximately 11 acres.
Oklahoma City, Oklahoma Heather Ridge Apartments: a 356-unit complex located on approximately 16 acres.
Colorado Springs, Colorado Templeton Park Apartments: a 496-unit complex located on approximately 21 acres.
Altamonte Springs, Florida Timberlake Apartments (Phase I): a 480-unit complex located on approximately 43 acres.
Town & Country, Missouri Willow Bend Apartments: a 208-unit complex located on approximately 21 acres.
Each of the above properties is held subject to various forms of financing.
The Registrant also held minority joint venture interests in North Hill Apartments, DeKalb County, Georgia; and Seabrook Apartments, Orange County, Florida. Seabrook Apartments was sold in February 1996. See Note 6 of Notes to Financial Statements for additional information.
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 real property investments.
Item 3.
Item 3. Legal Proceedings - --------------------------
Proposed class action - ---------------------
On February 29, 1996, a proposed class action complaint was filed, Raymond Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of the State of New York, County of New York). The Registrant, additional limited partnerships which were sponsored by The Balcor Company, three limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Registrant and the affiliated partnerships, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are defendants. The complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation and breach of fiduciary duty relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest accrued thereon; general damages for injuries arising from the defendants' actions; recovery from the defendants of all profits received by them as a result of their actions relating to the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. Management of each of the defendants believes they have meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
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 1995.
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. Management's Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 1995, the number of record holders of Limited Partnership Interests of the Registrant was 7,701.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ----------- ----------- ----------- -----------
Total income $16,503,016 $14,888,075 $15,484,410 $17,331,431 $16,137,937 Income (loss) before gains on sales of assets and extraordinary items 2,142,234 529,539 (465,069) (1,653,732) (2,904,684) Net income (loss) 2,142,234 663,204 7,210,490 (1,653,732) (2,904,684) Net income (loss) per Limited Partnership Interest 25.65 7.94 86.32 (19.80) (34.77) Total assets 54,596,297 59,911,923 58,158,518 75,012,096 76,644,481 Mortgage notes payable 56,466,198 57,381,930 55,919,126 79,230,302 79,520,953 Distributions per Limited Partner- ship Interest (A) 77.50 5.00 None None None
(A) These amounts include a distribution of original capital of $29 per Limited Partnership Interest for 1995.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Operations - ----------
Summary of Operations - ---------------------
The Pinebrook Apartments, which was owned by a joint venture consisting of Balcor Realty Investors 85 - Series I A Real Estate Limited Partnership (the "Partnership") and an affiliate, was sold in 1995. The Partnership recognized its share of the gain on sale which is the primary reason the Partnership generated higher net income in 1995 as compared to 1994. In addition, during 1995 certain of the Partnership's properties had improved operations. As a result of the foreclosure of Suncrest Village Apartments and sale of Sahara Palms Apartments in 1993, the Partnership recognized gains which resulted in significantly higher net income in 1993 as compared to 1994. Further discussion of the Partnership's operations is summarized below.
1995 Compared to 1994 - ---------------------
Increased rental rates during 1995 at most of the Partnership's properties resulted in increased rental and service income.
Interest income on short-term investments increased in 1995 as compared to 1994 due to an increase in interest rates earned on short-term investments.
Pinebrook Apartments, in which the Partnership held a minority joint venture interest, was sold during February 1995. As a result of the gain recognized in connection with the sale, the Partnership recognized income from participation in joint ventures with affiliates during 1995 as compared to a loss in 1994.
The Partnership incurred legal, consulting, printing and postage costs in connection with a tender offer during the fourth quarter of 1995. As a result, administrative expenses increased during 1995 as compared to 1994.
North Hill Apartments is owned by a joint venture consisting of the Partnership and an affiliate. In connection with the December 1994 North Hill Apartments refinancing, the joint venture received a refund relating to prior year payments made to Mutual Benefit Life Insurance Company representing its 1% guaranty fee on the original North Hills Apartments mortgage loan. As a result, the joint venture recognized a $534,659 extraordinary gain on forgiveness of debt in 1994, of which $133,665 represents the Partnership's share.
1994 Compared to 1993 - --------------------- As a result of the Suncrest Village Apartments foreclosure in May 1993 and the Sahara Palms Apartments sale in July 1993, rental and service income, interest expense, depreciation expense, property operating expense, real estate taxes and property management fees decreased during 1994 as compared to 1993.
Increased rental and/or occupancy rates during 1994 at all of the Partnership's seven remaining properties partially offset the decrease in rental and service income due to the 1993 property dispositions.
The increase in cash flow from the Partnership's properties, the proceeds from the July 1993 sale of Sahara Palms Apartments, and the net proceeds received in connection with the refinancing of the mortgage loan on Heather Ridge Apartments in July 1994 caused the Partnership's cash balances to increase. This, together with higher interest rates, resulted in an increase in interest income on short-term investments during 1994 as compared to 1993.
Participation in loss of joint ventures with affiliates increased in 1994 as compared to 1993 due to increased interest expense on the Pinebrook Apartments mortgage loan.
In addition to the decrease resulting from the 1993 property dispositions, interest expense decreased during 1994 as compared to 1993 due to the refinancing of the Timberlake - Phase I Apartments mortgage loan in October 1993, as well as the contractual decrease in the interest rate on the Templeton Park Apartments mortgage loan, effective December 1993. The decrease in interest expense was partially offset by increased interest expense for the Forest Ridge - Phase I and Heather Ridge loans due to higher principal balances resulting from the refinancings during 1994. In conjunction with the 1994 Forest Ridge - Phase I and Heather Ridge refinancings, the remaining deferred expenses were written-off and this combined with the amortization of expenses related to the 1993 Forestwood and Timberlake - Phase I mortgage refinancings caused amortization of deferred expenses to increase during 1994 as compared to 1993.
Property operating expense decreased during 1994 as compared to 1993 due to the 1993 property dispositions and maintenance and repairs expense incurred in 1993 at the Forestwood Apartments for which the Partnership received an insurance reimbursement in 1994. However, increases in carpet replacement at Forest Ridge - - Phase I, Forestwood, Timberlake - Phase I and Willowbend apartment complexes as well as higher insurance expense at all of the Partnership's properties partially offset the decrease for 1994 as compared to 1993.
As a result of the sale of Sahara Palms Apartments in July 1993 and the relinquishment of title through foreclosure of Suncrest Village Apartments in May 1993, the Partnership recognized a gain on sale of property of $4,194,237 in 1993 and extraordinary gain on foreclosure of property of $3,118,578 in 1993, respectively.
In October 1993, the Partnership completed the refinancing of the Timberlake - Phase I first mortgage loan, and obtained a new first mortgage loan from an unaffiliated lender. The Partnership received a $362,744 discount from the previous lender for prepayment of the mortgage note and consequently recognized an extraordinary gain on debt forgiveness in 1993.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership significantly decreased as of December 31, 1995 when compared to December 31, 1994, primarily due to special distributions paid to the Limited Partners in 1995. The Partnership's cash flow provided by operating activities was generated primarily from the Partnership's properties, and was partially offset by the payment of administrative expenses. The
Partnership's net cash provided by investing activities consisted of a net distribution from joint ventures with affiliates, comprised primarily of the net proceeds received from the sale of the Pinebrook Apartments in which the Partnership held a minority joint venture interest. Financing activities consisted of distributions to Limited Partners, net proceeds from the refinancing of the underlying mortgage loan on the Boulder Apartments, payment of deferred expenses and funding of improvement escrows in connection with the refinancing and principal payments on mortgage notes payable.
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 1995 and 1994, all seven of the Partnership's properties generated positive cash flow. Of the remaining two properties in which the Partnership holds minority joint venture interests, North Hill Apartments generated positive cash flow while Seabrook Apartments generated a marginal cash flow deficit during 1995 and 1994. Pinebrook Apartments, in which the Partnership held a minority joint venture interest, was sold in February 1995 and generated a marginal cash flow deficit in both 1995 and 1994. As of December 31, 1995, the occupancy rates of the Partnership's properties ranged from 92% to 99%.
While the cash flow of certain of the Partnership's properties has improved, the General Partner continues to pursue a number of actions aimed at improving the cash flow of the Partnership's properties including improving operating performance and seeking rent increases where market conditions allow.
The General Partner had previously advised the Limited Partners that its strategy was to sell the Partnership's remaining assets over the next three to four years. The General Partner also stated that the timing of the liquidation could be lengthened or shortened due to changes in market conditions, economic factors, interest rates and unforeseen events. Since November 1995, the General Partner believes that the market for multifamily housing properties has become increasingly favorable to sellers of these properties. This belief is based on the results of the sales and marketing activities of the Partnership as described below and based upon the similar results of such activities by various other partnerships affiliated with the Partnership. These favorable market conditions are in part attributable to the increasing strength of the capital markets and the re-entry of REITs into the acquisition market. Since November 1995, the Partnership has sold one of its properties in which it held a minority joint venture interest. Of its remaining properties, the General Partner (i) has entered into a contract to sell one of the properties; (ii) is actively marketing one of the properties in which it holds a minority joint venture interest for sale; and (iii) if the market remains favorable, intends to begin actively marketing more of the remaining properties for sale. If the current market conditions for sales remain favorable and the General Partner can obtain appropriate sales prices, the Partnership's liquidation strategy may be accelerated.
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 items related to each of these mortgage loans. No mortgage loan financing matures during 1996. During 1997, approximately $5,714,000 of mortgage loan financing collateralized by the Willow Bend Apartments matures. The Partnership has a contract to sell the Willow Bend Apartments with a scheduled closing date of March 29, 1996.
In May 1995, the Boulder Springs mortgage loan was refinanced. Proceeds from the new loan of $8,140,000 were used to repay the existing loan of $7,786,649. See Note 4 of Notes to the Financial Statements for additional information.
The Pinebrook Apartments was owned by a joint venture consisting of the Partnership and an affiliate ("Joint Venture") . In February 1995, the Joint Venture sold the property in an all cash sale for $6,140,000. From the proceeds, $5,058,226 was paid to the third party mortgage holders in satisfaction of the first, second and fourth mortgage loans. Additionally, $716,729 was paid in satisfaction of the third mortgage note payable to Pinebrook Limited Partnership, a separate joint venture consisting of the Partnership and the affiliate. Total proceeds received from this transaction were $871,599, of which $422,115 was the Partnership's share. See Note 4 of Notes to the Financial Statements for additional information.
The Seabrook Apartments was owned by a joint venture ("Joint Venture") consisting of the Partnership and two affiliates. In February 1996, the Joint Venture sold the Seabrook Apartments in an all cash sale for $5,915,000. From the proceeds, the Joint Venture paid the outstanding balance of the first mortgage loan collateralized by the property of $5,081,898. Total proceeds received from the sale were approximately $640,000, of which the Partnership's share was approximately $100,000. See Note 12 of Notes to Financial Statements and Item 1. Business for additional information.
In January 1996, the Partnership made a distribution of $620,228 ($7.50 per Interest) to the holders of Limited Partnership Interests representing the quarterly distribution for the fourth quarter of 1995. The Partnership commenced distributions in the fourth quarter of 1994 and made four distributions totaling $77.50 per Interest during 1995 and one distribution of $5.00 during 1994. Distributions were comprised of $48.50 and $5.00 of Net Cash Receipts during 1995 and 1994, respectively, and $29 of Net Cash Proceeds during 1995. Including the January 1996 distribution, Limited Partners have received cumulative cash distributions of $90.00 per $1,000 Interest as well as certain tax benefits. Of this amount, $61.00 has been from Net Cash Receipts and $29.00 has been from Net Cash Proceeds. The General Partner expects to continue quarterly distributions to Limited Partners. However, the level of future distributions, if available, will depend on cash flow from the Partnership's remaining properties and proceeds from future property sales, as to both of which there can be no assurances. 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.
In 1995, the Financial Accounting Standards Board issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement has been adopted by the Partnership as of January 1, 1995, and did not have a material impact on the financial position or results of operations of the Partnership.
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 Statement Schedule in this Form 10-K.
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 returns is summarized as follows:
December 31, 1995 December 31, 1994 ------------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ------------- --------- ----------- ------------ Total assets $54,596,297 $42,014,617 $59,911,923 $48,360,939 Partners' capital (deficit) accounts: General Partner (694,758) (1,502,386) (716,180) (1,589,662) Limited Partners (2,459,643)(16,080,496) 1,828,563 (11,454,275) Net income (loss): General Partner 21,422 87,276 6,632 (32,039) Limited Partners 2,120,812 1,782,797 656,572 (1,293,926) Per Limited Part- nership Interest 25.65 21.56 7.94 (15.65)
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 Partners-XVI, its General Partner, has either a Board of Directors or a Board of Advisors.
(b, c & e) The names, ages and business experiences 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 Senior Vice President Alexander J. Darragh Senior Vice President Josette V. Goldberg Senior Vice President Alan G. Lieberman Senior Vice President, Chief Brian D. Parker Financial Officer, Treasurer and Assistant Secretary Senior Vice President John K. Powell, Jr.
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. He is also Senior Vice President of American Express Company and is responsible for its real estate operations worldwide. 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.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is responsible for due diligence analysis and real estate advisory services for Balcor and American Express Company. He also has supervisory responsibility for Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban Geography from Queen's University and in Urban Planning from Northwestern University.
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 MIS functions. 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 Balcor's property sales and capital markets functions. Mr. Lieberman is a Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial Officer and Chief Accounting Officer, is responsible for Balcor's financial, legal and treasury functions. He is a Director of The Balcor Company. 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 portfolio and asset management matters relating to Balcor's partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk management and investor services functions. He received a Master of Planning degree from the University of Virginia. Mr. Powell 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.
(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 1995.
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 8 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) Balcor Partners-XVI and its officers and partners own as a group the following Limited Partnership Interests of the Registrant:
Amount Beneficially Title of Class Owned Percent of Class -------------- ------------- ---------------- Limited Partnership Interests 880 Interests 1.06%
Relatives and affiliates of the officers and partners of the General Partner own an additional fifteen 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 additional information relating to transactions with affiliates.
See Note 3 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 and Certificate of Limited Partnership is set forth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated November 29, 1984 (Registration No. 2-92777), and said Agreement and Certificate is incorporated herein by reference.
(4) The Subscription Agreement as set forth as Exhibit 4.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 dated November 29, 1984 (Registration No. 2-92777) and Form of Confirmation regarding Interests in the Partnership as 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. 0-14353) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the quarter ended December 31, 1995.
(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 REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Brian D. Parker -------------------------------- Brian D. Parker Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XVI, the General Partner
Date: March 28, 1996 --------------
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 Partners- /s/Thomas E. Meador XVI, the General Partner March 28, 1996 - -------------------- --------------- Thomas E. Meador
Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XVI, the General Partner /s/Brian D. Parker March 28, 1996 - -------------------- --------------- Brian D. Parker
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994 and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1995
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 Realty Investors 85-Series I A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule of Balcor Realty Investors 85 - Series I A Real Estate Limited Partnership (An Illinois Limited Partnership) as listed in the index of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and 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 Realty Investors 85-Series I A Real Estate Limited Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 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 23, 1996
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ----------- ----------- Cash and cash equivalents $ 2,369,231 $ 6,475,393 Accounts and accrued interest receivable 19,630 28,827 Escrow deposits 1,652,919 1,140,420 Prepaid expenses 158,090 Deferred expenses, net of accumulated amortization of $302,544 in 1995 and $213,273 in 1994 1,027,098 973,153 ------------- ------------- 5,226,968 8,617,793 ------------- ------------- Investment in real estate: Land 12,380,326 12,380,326 Buildings and improvements 65,940,832 65,940,832 ------------- ------------- 78,321,158 78,321,158 Less accumulated depreciation 28,951,829 27,027,028 ------------- ------------- Investment in real estate, net of accumulated depreciation 49,369,329 51,294,130 ------------- ------------- $ 54,596,297 $ 59,911,923 ============= =============
LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
Accounts payable $ 218,237 $ 133,743 Due to affiliates 24,501 75,413 Accrued liabilities, principally real estate taxes 330,103 366,628 Security deposits 262,183 288,084 Losses in excess of investments in joint ventures with affiliates 449,476 553,742 Mortgage notes payable 56,466,198 57,381,930 ------------- ------------- Total liabilities 57,750,698 58,799,540 ------------- ------------- Limited Partners' (deficit) capital (82,697 Interests issued and outstanding) (2,459,643) 1,828,563
General Partner's deficit (694,758) (716,180) ------------- ------------- Total partners' (deficit) capital (3,154,401) 1,112,383 ------------- ------------- $ 54,596,297 $ 59,911,923 ============= ============= The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' (DEFICIT) CAPITAL for the years ended December 31, 1995, 1994 and 1993
Partners' (Deficit) Capital Accounts -------------- ------------- ------------- General Limited Total Partner Partners -------------- ------------- -------------
Balance at December 31, 1992 $ (6,347,826) $ (794,917) $ (5,552,909)
Net income for the year ended December 31, 1993 7,210,490 72,105 7,138,385 -------------- ------------- ------------- Balance at December 31, 1993 862,664 (722,812) 1,585,476
Cash distributions (A) (413,485) (413,485)
Net income for the year ended December 31, 1994 663,204 6,632 656,572 -------------- ------------- ------------- Balance at December 31, 1994 1,112,383 (716,180) 1,828,563
Cash distributions (A) (6,409,018) (6,409,018)
Net income for the year ended December 31, 1995 2,142,234 21,422 2,120,812 -------------- ------------- ------------- Balance at December 31, 1995 $ (3,154,401) $ (694,758) $ (2,459,643) ============== ============= =============
(A) Summary of cash distributions per Interest:
1995 1994 1993 -------------- ------------- ------------- First Quarter $ 5.00 None None Second Quarter 5.00 None None Third Quarter 45.00 None None Fourth Quarter 22.50 $ 5.00 None
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 -------------- ------------ ------------ Income: Rental and service $ 15,525,153 $ 14,972,425 $ 15,565,175 Interest on short-term investments 325,145 233,282 113,266 Participation in income (losses) of joint ventures with affiliates before extraordinary item 652,718 (317,632) (194,031) -------------- ------------- ------------- Total income 16,503,016 14,888,075 15,484,410 -------------- ------------- ------------- Expenses: Interest on mortgage notes payable 4,768,731 4,969,653 5,853,947 Depreciation 1,924,801 1,925,074 2,216,451 Amortization of deferred expenses 156,022 154,912 96,490 Property operating 5,179,036 4,985,291 5,371,265 Real estate taxes 923,313 991,624 1,051,338 Property management fees 765,223 747,795 778,849 Administrative 643,656 584,187 581,139 -------------- ------------- ------------- Total expenses 14,360,782 14,358,536 15,949,479 -------------- ------------- ------------- Income (loss) before gain on sale of property and extraordinary items 2,142,234 529,539 (465,069) Gain on sale of property 4,194,237 -------------- ------------- ------------- Income before extraordinary items 2,142,234 529,539 3,729,168 -------------- ------------- ------------- Extraordinary items: Gain on forgiveness of debt 362,744 Gain on foreclosure of property 3,118,578 Participation in gain on forgiveness of debt from joint venture with an affiliate 133,665 ------------- ------------- Total extraordinary items 133,665 3,481,322 -------------- ------------- ------------- Net income $ 2,142,234 $ 663,204 $ 7,210,490 ============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1995, 1994 and 1993 (Continued)
1995 1994 1993 -------------- ------------- ------------- Income before extraordinary items allocated to General Partner $ 21,422 $ 5,295 $ 37,292 ============== ============= ============= Income before extraordinary items allocated to Limited Partners $ 2,120,812 $ 524,244 $ 3,691,876 ============== ============= ============= Income before extraordinary items per Limited Partnership Interest (82,697 issued and outstanding) $ 25.65 $ 6.34 $ 44.64 ============== ============= ============= Extraordinary items allocated to General Partner NONE $ 1,337 $ 34,813 ============== ============= ============= Extraordinary items allocated to Limited Partners NONE $ 132,328 $ 3,446,509 ============== ============= ============= Extraordinary items per Limited Partnership Interest (82,697 issued and outstanding) NONE $ 1.60 $ 41.68 ============== ============= ============= Net income allocated to General Partner $ 21,422 $ 6,632 $ 72,105 ============== ============= ============= Net income allocated to Limited Partners $ 2,120,812 $ 656,572 $ 7,138,385 ============== ============= ============= Net income per Limited Partnership Interest (82,697 issued and outstanding) $ 25.65 $ 7.94 $ 86.32 ============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 -------------- ------------- ------------- Operating activities: Net income $ 2,142,234 $ 663,204 $ 7,210,490 Adjustments to reconcile net income to net cash provided by operating activities: Gain on forgiveness of debt (362,744) Gain on foreclosure of property (3,118,578) Gain on sale of property (4,194,237) Participation in (income) losses of joint ventures with affiliates before extraordinary item (652,718) 317,632 194,031 Participation in gain on forgiveness of debt from joint venture with an affiliate (133,665) Depreciation of properties 1,924,801 1,925,074 2,216,451 Amortization of deferred expenses 156,022 154,912 96,490 Net change in: Accounts and accrued interest receivable 9,197 426,996 (203,405) Escrow deposits (233,177) 29,178 (360,225) Prepaid expenses (158,090) Accounts payable 84,494 29,230 (244,111) Due to affiliates (50,912) (4,149) (4,061) Accrued liabilities (36,525) (2,758) (494,386) Security deposits (25,901) (11,015) (78,091) -------------- ------------- ------------- Net cash provided by operating activities 3,159,425 3,394,639 657,624 -------------- ------------- ------------- Investing activities: Capital contributions to joint ventures with affiliates (42,706) (280,003) (49,751) Distributions from joint ventures with affiliates 591,158 125,610 91,904 Improvements to properties (118,767) Proceeds from sale of real estate 13,200,000 Payment of selling costs (99,559) -------------- ------------- ------------- Net cash provided by or used in investing activities 548,452 (154,393) 13,023,827 -------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993 (Continued)
1995 1994 1993 -------------- ------------- ------------- Financing activities: Distributions to Limited Partners (6,409,018) (413,485) Repayment of mortgage note payable (7,786,649) (10,563,000) (29,604,431) Proceeds from issuance of mortgage notes payable 8,140,000 12,890,000 17,600,000 Principal payments on mortgage notes payable (1,269,083) (864,196) (465,471) Disbursements from improvement escrows 89,678 Payment of deferred expenses (209,967) (396,203) (684,351) Funding of improvement escrows (369,000) (547,760) -------------- ------------- ------------- Net cash used in or provided by financing activities (7,814,039) 105,356 (13,154,253) -------------- ------------- ------------- Net change in cash and cash equivalents (4,106,162) 3,345,602 527,198 Cash and cash equivalents at beginning of period 6,475,393 3,129,791 2,602,593 -------------- ------------- ------------- Cash and cash equivalents at end of period $ 2,369,231 $ 6,475,393 $ 3,129,791 ============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 85-Series I A Real Estate Limited Partnership is engaged principally in the operation of residential real estate located in various markets within the United States.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
(b) Depreciation expense is computed using the straight-line method. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 30 Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
Interest incurred while properties were under construction was capitalized.
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.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the Partnership records its investments in real estate at the lower of cost or fair value, and periodically assesses, but not less than on an annual basis, possible impairment to the value of its properties. The General Partner estimates the fair value of its properties by dividing the property's expected net operating income by a risk adjusted rate of return which considers economic and demographic conditions in the market. In the event the General Partner determines an impairment in value has occurred, and the carrying amount of the real estate asset will not be recovered, a provision is recorded to reduce the carrying basis of the property to its estimated fair value. The General Partner considers the method referred to above to result in a reasonable measurement of a property's fair value, unless other factors affecting the property's value indicate otherwise.
(d) Investment in joint ventures with affiliates represents the Partnership's 25% and 15.4% interests in the North Hill Apartments and Seabrook Apartments, respectively at December 31, 1995 and also included a 48.4% interest in Pinebrook Apartments at December 31, 1994, all of which are recorded under the equity method of accounting. Under this method, 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. Depreciation recognized in connection with the ownership of real estate by the joint ventures has resulted in the Partnership's share of cumulative losses exceeding the net amounts invested in the joint ventures. This has resulted in the classification of the investment as "Losses in excess of investments in joint ventures with affiliates" in the accompanying financial statements.
(e) Deferred expenses consist of loan modification and financing fees which are amortized over the terms of the respective agreements.
(f) The Financial Accounting Standard Board's Statement No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. Since quoted market prices are not available for the Partnership's financial instruments, fair values have been based on estimates using present value techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. Statement No. 107 does not apply to all balance sheet items and excludes certain financial instruments and all non-financial instruments such as real estate and investment in joint ventures from its disclosure requirements.
(g) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
(h) Cash and cash equivalents include all unrestricted highly liquid investments with an original 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) A reclassification has been made to the previously reported 1994 and 1993 financial statements to conform with the classification used in 1995. This reclassification has not changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized on August 1, 1983. The Partnership Agreement provides for Balcor Partners-XVI to be the General Partner and for the admission of Limited Partners through the sale of up to 100,000 Limited Partnership Interests at $1,000 per Interest, 82,697 of which were sold through April 30, 1985, the termination date of the offering.
The Partnership Agreement generally provides that the General Partner will be allocated 1% of the profits and losses. One hundred percent of Net Cash Receipts available for distribution shall be distributed to the holders of
Interests in proportion to their participating percentages as of the record date for such distributions. However, there shall be accrued for the benefit of the General Partner as its distributive share from operations, an amount equivalent to approximately 1% of the total Net Cash Receipts being distributed, which will be paid only out of distributed Net Cash Proceeds in excess of total Adjusted Original Capital plus a 6% Cumulative Distribution. Under certain circumstances, the General Partner may participate in the Net Cash Proceeds of the sale or refinancing of Partnership properties. The General Partner's participation is limited to 15% of excess Net Cash Proceeds after the return of Original Capital plus a Cumulative Distribution of 6% to the holders of Interests, as defined in the Partnership Agreement.
4. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1995 and 1994 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 12/31/95 12/31/94 Rate Date Payment Payment - -------------- ---------- ---------- ------ ------ -------- ---------- Apartment Complexes: Boulder Springs(A) $8,097,672 $7,813,574 7.590% 2002 $57,419 $7,485,000 Forest Ridge Phase I (B) 7,613,575 7,668,517 8.963% 2001 61,671 7,206,000 Forestwood 5,790,811 5,836,145 9.130% 2001 48,026 5,465,000 Heather Ridge (C) 5,174,909 5,212,157 8.950% 2001 41,653 4,872,000 Templeton Park (D) 12,512,165 13,385,348 6.381% 2016 97,701 None Timberlake Phase I 11,467,036 11,579,411 7.750% 2003 83,820 10,210,000 Willow Bend 5,810,030 5,886,778 9.500% 1997 53,230 5,714,000 ---------- ----------
Total $56,466,198$57,381,930 =========== ==========
(A) In May 1995, this loan was refinanced. The interest rate decreased from 12.875% to 7.59%, the maturity date was extended from June 1995 to June 2002, and the monthly payment decreased from $90,457 to $57,419. A portion of the proceeds from the new $8,140,000 first mortgage loan was used to repay the existing first mortgage loan balance of $7,786,649.
(B) In July 1994, this loan was refinanced. The interest rate decreased from 9.025% to 8.963%, the maturity date was extended from November 1994 to August 2001 and the monthly payments increased from $50,698 to $61,671. A portion of the proceeds from the new $7,690,000 first mortgage loan was used to repay the existing first mortgage loan of $6,741,000.
(C) In July 1994, this loan was refinanced. The interest rate decreased from 9.025% to 8.95%, the maturity date was extended from November 1994 to August 2001 and the monthly payments increased from $28,745 to $41,653. A portion of the proceeds from the new $5,200,000 first mortgage loan was used to repay the existing first mortgage loan of $3,822,000.
(D) In accordance with the 1989 loan modification, the interest rate will be adjusted on certain "adjustment dates". The next adjustment date is June 1,
1998 with subsequent adjustments every five years thereafter. In addition, 50% of property cash flow must be paid annually and will be applied against the outstanding principal on the loan. Upon the sale or refinancing of the property, the lender will participate in a percentage of the proceeds in excess of the outstanding mortgage debt.
During 1995, 1994 and 1993, the Partnership incurred interest expense on mortgage notes payable to unaffiliated parties of $4,768,731, $4,969,653 and $5,853,947 and paid interest expense of $4,768,731, $4,969,653 and $6,213,241, respectively.
The Partnership's loans described above all require current monthly payments of principal and interest.
Real estate with an aggregate carrying value of $49,369,329 at December 31, 1995 was pledged as collateral for repayment of mortgage loans.
Five-year scheduled maturities of the mortgage notes payable are approximately as follows:
1996 $ 830,000 1997 6,503,000 1998 887,000 1999 875,000 2000 982,000
5. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are managed by a third-party management company. These management agreements provide for annual fees of 5% of gross operating receipts.
6. Investment in Joint Ventures with Affiliates:
The Partnership owned a 48.4% joint venture interest in Pinebrook Apartments which was sold in February 1995. As of December 31, 1995, the Partnership owns 25% and 15.4% joint venture interests in North Hill Apartments and Seabrook Apartments, respectively. The joint venturers are affiliates of the Partnership with investment objectives similar to those of the Partnership. During 1995 and 1993, the Partnership received net capital distributions of $548,452 and $42,153, respectively and during 1994, the Partnership made net capital contributions of $154,393.
Seabrook Apartments was acquired by a joint venture ("Joint Venture") consisting of the Partnership and two affiliates. In February 1996, the Joint Venture sold the property for a sale price of $5,915,000. See Note 12. for additional information.
Pinebrook Apartments was acquired by a joint venture ("Joint Venture") consisting of the Partnership and an affiliate. The Partnership and the affiliate held participating percentages in the Joint Venture of 48.43% and 51.57%, respectively. In February 1995, the Joint Venture sold the property for a sale price of $6,140,000. From the proceeds of the sale, the Joint
Venture paid $5,058,226 to the third party mortgage holders in full satisfaction of the outstanding amount of the first, second and fourth mortgage loans, as well as a brokerage commission and other closing costs. Additionally, the Joint Venture paid approximately $716,729 to Pinebrook Limited Partnership in full satisfaction of the outstanding amount of its loan. The Joint Venture recognized a gain of $1,814,970 in 1995 of which $780,279 is the Partnership's share. The Partnership's share of the gain is included in "Participation in income of joint ventures with affiliates" and is partially offset by the Partnership's share of operating losses through the sale date. The Joint Venture received total proceeds of $871,599 from this transaction of which $422,115 was the Partnership's share.
North Hill Apartments is owned by a joint venture ("Joint Venture") in which the Partnership and an affiliate have participating percentages of 25% and 75%, respectively. The $18,700,000 tax-exempt bond issue which funded the first mortgage financing collateralized by the property was in technical default due to the insolvency of the guarantor of the bonds. In April 1993, the Joint Venture and the trustee for the bondholders entered into an agreement in which the loan was modified and the trustee agreed to forebear from commencing foreclosure proceedings while the Joint Venture sought alternate financing. In December 1994, the bonds which funded the previous North Hill Apartments mortgage loan were refinanced. The interest rate increased from 6.75% to 8.09% and the maturity date was extended from December 1994 to December 2024. As a condition of the new agreement, on January 1, 2005, at the discretion of both the Joint Venture and the lender, the bonds will either be repaid or remarketed. Under the terms of the new loan, monthly payments increased from $105,188 to $124,920. The Joint Venture repaid the existing mortgage loan of $18,700,000 with proceeds from the new mortgage loan of $16,795,600, which was net of a discount of $84,400, proceeds of a $1,350,000 note to an unaffiliated party, and Joint Venture cash reserves, which included amounts previously held in escrow by the trustee which were refunded to the Joint Venture in conjunction with the refinancing. See Note 10 of Notes to Financial Statements.
The $1,350,000 note to an unaffiliated party is non-interest bearing, is not collateralized by the property, and will be repaid only to the extent net sales proceeds exceed a certain predetermined level.
7. 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 1995 in the financial statements is $272,161 more than the tax income of the Partnership for the same period.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/95 12/31/94 12/31/93 -------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------ ------- ------ ------- ------ -------
Property management fees None None $738,965 None $790,418 $59,512 Reimbursement of expenses to General Partner at cost: Accounting $43,360 $2,930 61,640 25,026 58,782 4,865 Data processing 30,442 3,365 53,294 10,763 32,212 6,338 Investor communications 6,695 None 20,271 8,230 18,986 1,571 Legal 21,029 2,121 12,118 4,920 9,444 782 Other 9,920 167 15,653 6,355 19,649 1,626 Portfolio management 118,040 15,918 49,554 20,119 59,473 4,868
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, however, the General Partner is reimbursed for expenses. The Partnership paid premiums to the deductible insurance program of $105,794, $146,555 and $98,035 in 1995, 1994 and 1993, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all seven of the Partnership's properties until the affiliate was sold to a third party in November 1994.
9. Property Sale:
During 1993, the Partnership sold the Sahara Palms Apartments for an all cash sale price of $13,200,000. From the proceeds of the sale, the Partnership paid $12,356,625 in full satisfaction of the property's mortgage loans. The basis of the property was $8,906,204, net of accumulated depreciation of $4,134,055, and the Partnership recognized a gain on the sale of the property of $4,194,237.
10. Extraordinary Items:
(a) North Hill Apartments is owned by a joint venture consisting of the Partnership and an affiliate. In connection with the December 1994 North Hill Apartments refinancing, the joint venture received a refund of the escrow account held by the trustee representing the amount which would have been paid to Mutual Benefit Life Insurance Company as its 1% guaranty fee on the original mortgage loan. As a result, the joint venture recognized a $534,659 extraordinary gain on forgiveness of debt in 1994, of which $133,665 represents the Partnership's share.
(b) During 1993, title to the Suncrest Village Apartments was relinquished through foreclosure. The Partnership wrote-off the mortgage loan balance of $10,478,532, accrued real estate taxes of $140,710, security deposit of $27,716, and the property basis of $7,528,380, net of accumulated depreciation of $3,495,674. The Partnership recognized an extraordinary gain of $3,118,578 during 1993 for financial statement purposes.
(c) During 1993, the Partnership completed the refinancing of the $12,091,471 Timberlake - Phase I first mortgage loan and obtained a new first mortgage loan from an unaffiliated lender in the amount of $11,700,000. The Partnership received a $362,744 discount from the previous lender for prepayment of the mortgage note which was recognized as an extraordinary gain on debt forgiveness.
11. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest receivable and accounts payable approximates fair value.
Based on borrowing rates available to the Partnership at the end of 1995 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes payable approximates the carrying value.
12. Subsequent Events:
(a) In January 1996, the Partnership made a distribution of $620,228 ($7.50 per Interest) to the holders of Limited Partnership Interests for the fourth quarter of 1995.
(b) In February 1996, the Partnership and an affiliate of the Partnership (together the "Joint Venture") sold the Seabrook Apartments for a sale price of $5,915,000. The Partnership and the affiliate held effective ownership interests of 15.43% and 84.57%, respectively from the proceeds of the sale, the Joint Venture paid $5,081,898 in full satisfaction of the property's mortgage loan. The basis of the property was $4,361,052, net of accumulated depreciation of $2,625,226, and the Joint Venture recognized a gain on the sale of the property of $1,363,431. The Partnership's share of the total proceeds was approximately $100,000.
(c) On February 29, 1996, a proposed class action complaint was filed, Raymond Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of the State of New York, County of New York). The Partnership, additional limited partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Partnership and the affiliated partnerships, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are defendants. The complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation and breach of fiduciary duty relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest accrued thereon; general damages for injuries arising from the defendants' actions; recovery from the defendants of all profits received by them as a result of their actions relating to the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. Management of each of the defendants believes they have meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership) as of December 31, 1995
See notes (a) through (g)
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership) as of December 31, 1995
See notes (a) through (g) *
BALCOR REALTY INVESTORS 85-SERIES I A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related professional fees and capitalized construction period interest.
(b) Guaranteed income earned on properties under the terms of certain management and guarantee agreements was recorded by the Partnership as a reduction of the basis of the property to which the guaranteed income related.
(c) The aggregate cost of land for Federal income tax purposes is $13,595,151 and the aggregate cost of buildings and improvements for Federal income tax purposes is $63,571,184. The total of these is $77,166,335.
(d) Reconciliation of Real Estate ----------------------------- 1995 1994 1993 ---------- ----------- ---------- Balance at beginning of year $78,321,158 $78,321,158 $102,266,703 Additions during year: Improvements None None 118,767 Deductions during year: Foreclosure of investment property None None (11,024,054) Cost of real estate sold None None (13,040,258) ----------- ------------ ------------ Balance at close of year $78,321,158 $78,321,158 $ 78,321,158 ============ ============ ============
Reconciliation of Accumulated Depreciation ------------------------------------------ 1995 1994 1993 ---------- ----------- ---------- Balance at beginning of year $27,027,028 25,101,954 $30,515,232 Depreciation expense for the year 1,924,801 1,925,074 2,216,451 Accumulated depreciation of foreclosed investment property None None (3,495,674) Accumulated depreciation of real estate sold None None (4,134,055) ------------ ------------ ------------ Balance at close of year $28,951,829 $27,027,028 $25,101,954 ============ ============ ============
(e) See descriptions of the mortgage notes payable in Note 4 of Notes to Financial Statements.
(f) Depreciation expense is computed based upon the estimated useful lives of 30 years for buildings and improvements and five years for furniture and fixtures.
(g) This amount consists primarily of a reduction of basis due to a provision for investment property write down during 1989.