ITEM 1. BUSINESS:
Real Estate Associates Limited II ("REAL II" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on December 4, 1979. On March 17, 1980, REAL II offered 3,000 units consisting of 6,000 Limited Partnership Interests and Warrants to purchase a maximum of 6,000 Additional Limited Partnership Interests through a public offering managed by E.F. Hutton Inc.
The general partners of REAL II are National Partnership Investments Corp. ("NAPICO"), a California Corporation (the "Corporate General Partner") and National Partnership Investments Associates ("NAPIA"). NAPIA is a California limited partnership and consists of Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner and Charles H. Boxenbaum as limited partner. The business of REAL II is conducted primarily by NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and certain other transaction documents with Apartment Investment and Management Company, a Maryland corporation ("AIMCO") and certain of its subsidiaries, pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and its subsidiaries, including NAPICO.
REAL II holds limited partnership interests in 14 local limited partnerships as of December 31, 2001, after selling its interest in 6 local limited partnerships, in December 1998, to the Operating Partnership. All of these local partnership, except for one, own low income housing projects which are subsidized and/or have mortgage notes payable to or insured by agencies of the federal or local government. The remaining partnership owns a limited partnership interest in Casden Properties Operating Partnership, L.P.
In order to stimulate private investment in low income housing, the federal government and certain state and local agencies have provided significant ownership incentives, including among others, interest subsidies, rent supplements, and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. There remain, however, significant risks. The long-term nature of investments in government assisted housing limits the ability of REAL II to vary its portfolio in response to changing economic, financial and investment conditions. Such investments are also subject to changes in local economic circumstances and housing patterns, as well as rising operating costs, vacancies, rent collection difficulties, energy shortages and other factors which have an impact on real estate values. These projects also require greater management expertise and may have higher operating expenses than conventional housing projects.
Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new
policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.
The partnerships in which REAL II has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL II became the principal limited partner in these local limited partnerships pursuant to arm's-length negotiations with these developers, or others, who act as general partners. As a limited partner, REAL II's liability for obligations of the local limited partnership is limited to its investment. The local general partner of the local limited partnership retains responsibility for developing, constructing, maintaining, operating and managing the Project. Under certain circumstances of default, REAL II has the right to replace the general partner of the local limited partnerships, but otherwise does not have control of sale or refinancing, etc.
Although each of the partnerships in which REAL II has invested owns a project which must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area.
During 2001, the projects in which REAL II had invested were substantially rented. The following is a schedule of the status as of December 31, 2001, of the projects owned by local limited partnerships in which REAL II is a limited partner.
SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL II HAS AN INVESTMENT DECEMBER 31, 2001
SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL II HAS AN INVESTMENT DECEMBER 31, 2001 (CONTINUED)
ITEM 2.
ITEM 2. PROPERTIES:
The local limited partnerships in which REAL II holds interests own various multi-family rental properties. See Item 1 for information pertaining to these properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS:
CLASS ACTION
On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (a partnership in which NAPICO is a general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another partnership in which Company is a general partner) commenced an action in the United States District Court for the Central District of California on behalf of themselves and all other similarly situated, against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of such Funds and made materially false and misleading statements in the consent solicitation statements that were disseminated to the limited partners of such Funds relating to approval of the transfer of partnership interests in limited partnerships to the Operating Partnership. The plaintiffs seek preliminary and permanent injunction relief and other equitable relief, as well as compensatory and punitive damages. However, plaintiffs made no effort to enjoin the transaction from taking place. On August 4, 1999, a holder of one unit of limited partnership interest in Housing Programs Limited (a partnership in which the Company is a general partner) filed a lawsuit similar to the one discussed above against added Housing Programs Limited. The second action has been subsumed in the first action, which has been certified as a class action.
After defendants moved for summary disposition of the action, plaintiffs filed a motion for leave to file an amended complaint. Although defendants opposed the filing of the complaint proposed by plaintiffs, the court issued an order on July 20, 2001 granting plaintiffs leave to amend but denying them leave to file the complaint they proposed. Plaintiffs filed a Second, Restated, Amended and Supplemental Complaint dated August 7, 2001 and on August 21, 2001 filed a Corrected Second, Restated, Amended and Supplemental Complaint (CSRASC). The CSRASC adds eight new defendants and six new counts which were not included in prior complaints. The new counts include; (i) violations of the anti-bundling rules of the Securities and Exchange Act of 1934, (ii) violation of the doctrine of inherent fairness, (iii) a declaratory judgment that the certain defendants are not entitled to indemnification under the partnership agreements, (iv) rescission of the business combination discussed in Note 1, (v) a constructive trust on any recovery from a separate lawsuit pending in the United States District Court of the Middle District of Pennsylvania which was brought on behalf of several limited partnerships which are not parties to this action; and (vi) an accounting. Defendants made a motion to dismiss the CSRASC, which was denied. The court found that the issues presented would be more appropriate resolved in a motion for summary judgment or summary adjudication. Defendants intend to make such a motion. The deadline to do so is April 1, 2002.
Defendants denied allegations in the CSRASC in their answer. The parties are in the process of conducting discovery. The discovery deadline is February 28, 2002 and the trial is scheduled for July 16, 2002. A motion is before the court to extend these deadlines and the hearing on that issue is scheduled for February 4, 2002. Once discovery is complete, defendants will move for summary judgement dismissing the complaint.
The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiffs' claims are without merit and intend to contest the actions vigorously.
NEW HAVEN PLAZA
On December 30, 1998, the Operating Partnership acquired, for value, title to New Haven Plaza Associates' property in Far Rockaway, New York. Thereafter, NAPICO commenced an action for a declaratory judgment that NAPICO had the authority to transfer the property and that the value paid by the Operating Partnership for the property was fair. Defendants have pled counterclaims alleging that inter alia, NAPICO was not authorized to transfer the property and breached its fiduciary duties to the limited partners. Defendants also seek an accounting and distributions of surplus cash. The parties are in the process of conducting discovery.
On June 11, 2001, the court found that the defendants had no vote or control in the Partnership. However, the court found the conveyance to be invalid because it was not consistent with New York partnership law. The court held that the transfer of the property in exchange for an interest in the Operating Partnership violated the purpose of Partnership. Notwithstanding the court's decision, defendants claim that NAPICO could not transfer the property to the Operating Partnership without their consent. Clarification is being sought from the court. Defendants have moved summary judgment, injunctive relieve and to amend their complaint. NAPICO cross-moved to dismiss defendant's claim to remove NAPICO as the general partner of the Partnership. The motions have been submitted to the court. Oral argument on these motions was held on February 11, 2002 and the motions are presently under consideration by the court.
Management of NAPICO believes that the defendant's claims are without merit and intend to contest the actions vigorously.
OTHER
Plaintiff, who is a limited partner in the Partnership, claims that NAPICO and other defendants (1) have refused to provide the plaintiff with access to the books and records of the Partnership, and (2) have breached their fiduciary duties and the partnership agreement by failing to provide such access and by failing to act in the best interest of the Partnership. The defendants have, however, provided their books and records to plaintiff pursuant to a protective order. Plaintiff has failed to quantify its purported damages. Trial is schedule for August 13, 2002. Management of NAPICO believes that the claims are without merit and intend to contest the actions vigorously.
The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named a defendant in other lawsuits arising from transactions in the ordinary course of business. None of these suits were related to REAL II.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests, held for investment by the Partnership, by the Operating Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests in 1998, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS:
The Limited Partnership Interests are not traded on a public exchange but were sold through a public offering managed by E.F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any Partnership interest. Limited Partnership Interests may be transferred only if certain requirements are satisfied. At December 31, 2001 there were 1,580 registered holders of units in REAL II. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investments in limited partnerships. In March 1999, the Partnership made distributions of $4,950,000 to the limited partners and $50,000 to the general partners, using proceeds from the sale of the partnership interests. No other distributions have been made since the inception of the Partnership.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
LIQUIDITY
The Partnership's primary sources of funds include interest income on money market investments and certificates of deposit and distributions from local partnerships in which the Partnership has invested. It is not expected that any of the local limited partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to the Partnership's limited partners in any material amount. The Partnership made a cash distribution to investors in March 1999, using proceeds from the disposition of its investments in certain limited partnerships.
CAPITAL RESOURCES
REAL II received $13,365,000 in subscriptions for units of Limited Partnership Interests (at $5,000 per unit) during the period March 17, 1979 to September 15, 1980, pursuant to a registration statement on Form S-11. As of December 31, 1981 REAL II had received an additional $13,365,000 in subscriptions pursuant to the exercise of warrants and the sale of Additional Limited Partnership Interests.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its partners as discussed in Item 1.
At December 31, 2001, the Partnership has investments in 14 limited partnerships, 13 of which own housing projects that were substantially all rented. The remaining partnership owns a limited partnership interest in Casden Operating Partnership, L.P. The Partnership sold its interests in 7 local partnerships in December 1998. The Partnership, as a limited partner, is entitled to 94% to 99% of the profits and losses of the local limited partnerships. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account are reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. Limited partners are not liable for losses beyond their contributed capital. At December 31, 2001 and 2000, the Partnership does not have any positive investment balance.
Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income.
The total income from the local limited partnerships that was allocated to the Partnership was $448,000, $450,000 and $535,000 for the years ended December 31, 2001, 2000 and 1999, respectively. However, because losses incurred after the investment account is reduced to a zero balance are not recognized and subsequent income is not recognized until the investment account becomes positive again, the Partnership recognized equity in loss of limited partnerships of $21,093 for the year ended December 31, 2001, which is equal to the cash contributed during the year, and recognized no equity in income (loss) of limited partnerships for the years ended December 31, 2000 and 1999. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $7,224,000 and $7,693,000 as of December 31, 2001 and 2000, respectively.
Distributions from the local limited partnerships in which the Partnership did not have a positive investment balance were $54,376, $101,059 and $96,547 for the years ended December 31, 2001, 2000 and 1999, respectively. These amounts were recognized as income on the accompanying statements of operations, in accordance with the equity method of accounting.
As of December 31, 2001, 2000 and 1999, the Partnership has cash and cash equivalents of $139,881, $343,527 and $468,311, respectively. Substantially all of these amounts are on deposit primarily with high credit quality financial institutions, earning interest. This resulted in the Partnership earning $24,423, $22,017 and $29,870 in interest income for the years ended December 31, 2001, 2000 and 1999, respectively. The amount of interest income varies with market rates available on deposits and with the amount of funds available for investment. Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise. The Partnership intends to continue investing available funds in this manner.
A recurring partnership expense is the annual management fee. The fee is payable to the Corporate General Partner of the Partnership and is calculated at .4 percent of the Partnership's original remaining invested assets. The management fee is paid to the Corporate General Partner for its continuing management of partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a local limited partnership. Management fees were $175,792 for 2001, 2000 and 1999.
Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure their mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.
As a result of the foregoing, the Partnership in 1997 commenced an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $72,627 for the year ended December 31, 1999, and are included in administrative expenses.
On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships, with a total carrying value of $1,007,181 to the Operating Partnership. The sale resulted in net cash proceeds to the Partnership of $5,250,000 and a net gain of $4,002,592, after deducting selling costs. The cash proceeds were held in escrow at December 31, 1998 and were collected in 1999. In March 1999, the Partnership made cash distributions of $4,950,000 to the limited partners and $50,000 to the general partners, using proceeds from the sale of the partnership interests.
The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership.
In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained.
Operating expenses, other than management fees, consist of legal and accounting fees for services rendered to the Partnership and administrative expenses. Legal and accounting fees were $126,311, $98,417 and $88,568 for the years ended December 31, 2001, 2000 and 1999, respectively. Administrative expenses were $89,695, $60,475 and $138,644 for the years ended December 31, 2001, 2000 and 1999, respectively. Included in administrative expenses are reimbursements to NAPICO for certain expenses, which totaled $19,368, $14,962 and $23,340 for the years ended December 31, 2001, 2000 and 1999, respectively. Also included in administrative expenses for 1999 is $72,627, related to the aforementioned third-party review of the properties owned by the local partnerships.
Total revenue for the local partnerships were $9,895,000, $9,880,000 and $9,793,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Total expenses for the local partnerships were $9,455,000, $9,411,000 and $9,236,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
The total net income for the local partnerships for 2001, 2000 and 1999 aggregated $440,000, $469,000, and $556,000, respectively. The net income allocated to the Partnership was $448,000, $450,000 and $535,000 for 2001, 2000 and 1999, respectively.
The Partnership, as a Limited Partner in the local limited partnerships in which it has invested, is subject to the risks incident to the construction, management, and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions, and, accordingly, the status of the national economy, including substantial unemployment, concurrent inflation and changing legislation which could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The Financial Statements and Supplementary Data are listed under Item 14.
ITEM 9.
ITEM 9. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
Not applicable.
REAL ESTATE ASSOCIATES LIMITED II (A California limited partnership)
FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT DECEMBER 31, 2001
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Real Estate Associates Limited II (A California limited partnership)
We have audited the accompanying balance sheets of Real Estate Associates Limited II (a California limited partnership) as of December 31, 2001 and 2000, and the related statements of operations, partners' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedules listed in the index in item 14. These financial statements and financial statement schedules are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of the limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. These limited partnerships represent the investee information in Note 2 and the financial statement schedules. The financial statements of these limited partnerships were audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Associates Limited II as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California March 22, 2002
REAL ESTATE ASSOCIATES LIMITED II (A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
The accompanying notes are integral part of these financial statements.
REAL ESTATE ASSOCIATES LIMITED II (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The accompanying notes are integral part of these financial statements.
REAL ESTATE ASSOCIATES LIMITED II (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The accompanying notes are integral part of these financial statements.
REAL ESTATE ASSOCIATES LIMITED II (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The accompanying notes are integral part of these financial statements.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Real Estate Associates Limited II (the Partnership) was formed under the California Limited Partnership Act on December 4, 1979. The Partnership was formed to invest in other limited partnerships which own and operate primarily federal, state or local government-assisted housing projects. The general partners are Coast Housing Investment Associates ("CHIA"), a limited partnership, and National Partnership Investments Corp. ("NAPICO"), the corporate general partner. The limited partner of CHIA is an officer of NAPICO. The business of the Partnership is conducted primarily by NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The remaining economic interest, including a majority of the voting common stock, continues to be owned by CIC.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and certain other transaction documents with Apartment Investment and Management Company, a Maryland corporation ("AIMCO") and certain of its subsidiaries, pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and its subsidiaries, including NAPICO.
The Partnership offered 3,000 units and issued 2,673 units of limited partner interests through a public offering. Each unit was comprised of two limited partner interests and a warrant granting an investor the right to purchase two additional limited partner interests. An additional 5,346 interests were issued from the exercise of the warrants and the sale of interests associated with warrants not exercised. The general partners have a 1 percent interest in the profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments.
The Partnership shall be dissolved only upon the expiration of 52 complete calendar years (December 31, 2031) from the date of the formation of the Partnership or the occurrence of various other events as specified in the terms of the Partnership agreement.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partners' liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number (SFAS No.) 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 was effective immediately and SFAS 142 will be effective January 2002. The new standards are not expected to have a significant impact on the Partnership's financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Method of Accounting for Investments in Limited Partnerships
The investments in limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects were capitalized as part of
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the investment account and are being amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years.
Net Loss Per Limited Partnership Interest
Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 10,693 for all years presented.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity date of three months or less. The Partnership has its cash and cash equivalents on deposit with high credit quality financial institutions. Such cash and cash equivalents are in excess of the FDIC insurance limit.
Impairment of Long-Lived Assets
The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss.
No impairment losses were recognized during the years ended December 31, 2001, 2000 and 1999.
2. INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 14 limited partnerships as of December 31, 2001 and 2000, after selling its interests in 6 limited partnerships in 1998. All of the limited partnerships, except for one, own residential low income rental projects consisting of 1,079 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The remaining partnership owns a limited partnership interest in Casden Operating Partnership, L.P.
The Partnership, as a limited partner, is entitled to between 94 percent and 99 percent of the profits and losses of the limited partnerships.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was in the aggregate approximately $7,224,000 and $7,693,000 as of December 31, 2001 and 2000, respectively.
Distributions from limited partnerships are accounted for as a return of capital until the investment balance is reduced to zero. Subsequent distributions received are recognized as income.
The Partnership has no carrying value in investments in limited partnerships as of December 31, 2001 and 2000.
The difference between the investment per the accompanying balance sheets at December 31, 2001 and 2000, and the deficiency per the limited partnerships' combined financial statements is due primarily to cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account, cumulative distributions recognized as income and recognition of impairment losses.
Selected financial information from combining the financial statements of the limited partnerships at December 31, 2001 and 2000 and for each of three years in the period ended December 31, 2001 is as follows:
Balance Sheets
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Statements of Operations
Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may not be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.
As a result of the foregoing, the Partnership in 1997 commenced an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $72,627 for the year ended December 31, 1999, and are included in administrative expenses.
On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships, with a total carrying value of $1,007,181, to the Operating Partnership. The sale resulted in cash proceeds to the Partnership of $5,250,000 and a net gain of $4,002,592 after deducting the selling costs. The cash proceeds were held in escrow at December 31, 1998 and were collected in 1999. In March 1999, the Partnership made a cash distribution of $4,950,000 to the limited partners and $50,000 to the general partners, using proceeds from the sale of the partnership interests.
The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained.
3. FEES AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited Partners, the Partnership is liable to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the remaining limited partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective partnerships.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $19,368, $14,962 and $23,340 in 2001, 2000 and 1999, respectively, and is included in administrative expenses.
4. CONTINGENCIES
CLASS ACTION
On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (a partnership in which NAPICO is a general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another partnership in which Company is a general partner) commenced an action in the United States District Court for the Central District of California on behalf of themselves and all other similarly situated, against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of such Funds and made materially false and misleading statements in the consent solicitation statements that were disseminated to the limited partners of such Funds relating to approval of the transfer of partnership interests in limited partnerships to the Operating Partnership. The plaintiffs seek preliminary and permanent injunction relief and other equitable relief, as well as compensatory and punitive damages. However, plaintiffs made no effort to enjoin the transaction from taking place.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
4. CONTINGENCIES (CONTINUED)
On August 4, 1999, a holder of one unit of limited partnership interest in Housing Programs Limited (a partnership in which the Company is a general partner) filed a lawsuit similar to the one discussed above against added Housing Programs Limited. The second action has been subsumed in the first action, which has been certified as a class action.
After defendants moved for summary disposition of the action, plaintiffs filed a motion for leave to file an amended complaint. Although defendants opposed the filing of the complaint proposed by plaintiffs, the court issued an order on July 20, 2001 granting plaintiffs leave to amend but denying them leave to file the complaint they proposed. Plaintiffs filed a Second, Restated, Amended and Supplemental Complaint dated August 7, 2001 and on August 21, 2001 filed a Corrected Second, Restated, Amended and Supplemental Complaint (CSRASC). The CSRASC adds eight new defendants and six new counts which were not included in prior complaints. The new counts include; (i) violations of the anti-bundling rules of the Securities and Exchange Act of 1934, (ii) violation of the doctrine of inherent fairness, (iii) a declaratory judgment that the certain defendants are not entitled to indemnification under the partnership agreements, (iv) rescission of the business combination discussed in Note 1, (v) a constructive trust on any recovery from a separate lawsuit pending in the United States District Court of the Middle District of Pennsylvania which was brought on behalf of several limited partnerships which are not parties to this action; and (vi) an accounting. Defendants made a motion to dismiss the CSRASC, which was denied. The court found that the issues presented would be more appropriate resolved in a motion for summary judgment or summary adjudication. Defendants intend to make such a motion. The deadline to do so is April 1, 2002.
Defendants denied allegations in the CSRASC in their answer. The parties are in the process of conducting discovery. The discovery deadline is February 28, 2002 and the trial is scheduled for July 16, 2002. A motion is before the court to extend these deadlines and the hearing on that issue is scheduled for February 4, 2002. Once discovery is complete, defendants will move for summary judgement dismissing the complaint.
The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiffs' claims are without merit and intend to contest the actions vigorously.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
4. CONTINGENCIES (CONTINUED)
NEW HAVEN PLAZA
On December 30, 1998, the Operating Partnership acquired, for value, title to New Haven Plaza Associates' property in Far Rockaway, New York. Thereafter, NAPICO commenced an action for a declaratory judgment that NAPICO had the authority to transfer the property and that the value paid by the Operating Partnership for the property was fair. Defendants have pled counterclaims alleging that inter alia, NAPICO was not authorized to transfer the property and breached its fiduciary duties to the limited partners. Defendants also seek an accounting and distributions of surplus cash. The parties are in the process of conducting discovery. Thereafter, plaintiff will move for partial judgment on the pleadings to dismiss all of defendants' affirmative defenses and counterclaims, other than for an accounting.
On June 11, 2001, the court found that the defendants had no vote or control in the Partnership. However, the court found the conveyance to be invalid because it was not consistent with New York partnership law. The court held that the transfer of the property in exchange for an interest in the Operating Partnership violated the purpose of Partnership. Notwithstanding the court's decision, defendants claim that NAPICO could not transfer the property to the Operating Partnership without their consent. Clarification is being sought from the court. Defendants have moved summary judgment, injunctive relieve and to amend their complaint. NAPICO cross-moved to dismiss defendant's claim to remove NAPICO as the general partner of the Partnership. The motions have been submitted to the court. Oral argument on these motions was held on February 11, 2002 and the motions are presently under consideration by the court.
Management of NAPICO believes that the defendant's claims are without merit and intend to contest the actions vigorously.
OTHER
Plaintiff, who is a limited partner in the Partnership, claims that NAPICO and other defendants (1) have refused to provide the plaintiff with access to the books and records of the Partnership, and (2) have breached their fiduciary duties and the partnership agreement by failing to provide such access and by failing to act in the best interest of the Partnership. The defendants have, however, provided their books and records to plaintiff pursuant to a protective order. Plaintiff has failed to quantify its purported damages. Trial is schedule for August 13, 2002. Management of NAPICO believes that the claims are without merit and intend to contest the actions vigorously.
REAL ESTATE ASSOCIATES LIMITED II (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001
4. CONTINGENCIES (CONTINUED)
The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named a defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the corporate general partner, the claims will not result in any material liability to the Partnership.
5. INCOME TAXES
No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for the properties held by the limited partnerships. Differences in tax and financial losses also arise as losses are not recognized for financial reporting purposes when the investment balance has been reduced to zero.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. The carrying amount of assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity.
7. FOURTH-QUARTER ADJUSTMENT
The Partnership's policy is to record its equity in loss of limited partnerships on a quarterly basis, using estimated financial information furnished by the various local operating general partners. The equity in loss of limited partnerships reflected in the accompanying annual financial statements is based primarily upon audited financial statements of the investee limited partnerships. The estimated nine-month equity in loss is equal to the actual total of $21,093 for 2001 equity in loss.
SCHEDULE
REAL ESTATE ASSOCIATES LIMITED II INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Note: Fund has no existing partnership investment balance
SCHEDULE (CONTINUED)
REAL ESTATE ASSOCIATES LIMITED II INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
SCHEDULE (CONTINUED)
REAL ESTATE ASSOCIATES LIMITED II INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
SCHEDULE (CONTINUED)
REAL ESTATE ASSOCIATES LIMITED II INVESTMENTS IN, EQUITY IN EARNINGS OF AND DIVIDENDS RECEIVED FROM AFFILIATES AND OTHER PERSONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
NOTES: 1. Equity in losses of the limited partnership represents the Partnership's allocable share of the net loss from the limited partnerships for the year. Equity in losses of the limited partnerships will be recognized until the investment balance is reduced to zero or a negative balance equal to further commitments by the Partnership.
2. Cash distributions from the limited partnerships are treated as a return on the investment and reduce the investment balance until such time as the investment is reduced to zero or a negative balance equal to further commitments by the Partnership. Distributions subsequently received will be recognized as income.
SCHEDULE III
REAL ESTATE ASSOCIATES LIMITED II REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL II HAS INVESTMENTS DECEMBER 31, 2001
SCHEDULE III (CONTINUED)
REAL ESTATE ASSOCIATES LIMITED II REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL II HAS INVESTMENTS DECEMBER 31, 2001
NOTES: 1. Each local limited partnership has developed, owns and operates the housing project. Substantially all project costs, including construction period interest expense, were capitalized by the limited partnerships.
2. Depreciation is provided for by various methods over the estimated useful lives of the projects. The estimated composite useful lives of the buildings are generally from 25 to 40 years.
3. Investments in property and equipment:
SCHEDULE III (Continued)
REAL ESTATE ASSOCIATES LIMITED II REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL II HAS INVESTMENTS DECEMBER 31, 2001
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
REAL ESTATE ASSOCIATES LIMITED II (the "Partnership") has no directors or executive officers of its own. Partner.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P., (the "Operating Partnership") a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. On March 11, 2002, NAPICO became a wholly owned subsidiary of Apartment Investment and Management Company. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs.
CHARLES H. BOXENBAUM, 72, Chairman of the Board of Directors and Chief Executive Officer of NAPICO.
Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a member of the Board of Directors of Casden Properties Inc. since 1998.
Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago.
BRUCE E. NELSON, 50, President, Chief Operating Officer and a director of NAPICO.
Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. Mr. Nelson is a member of the Board of Directors of Casden Properties Inc. and is a Director of the Affordable Housing Tax Credit Coalition.
From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas.
ALAN I. CASDEN, 56, Chairman of the Board of Directors and Chief Executive Officer of Casden Properties Inc., a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO.
Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums.
Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, the President's Council of the California Building Industry Association and the Urban Land Institute. He also serves on the Board of Trustees of the University of Southern California. He holds a Bachelor of Science degree and a Masters in Business Administration degree from the University of Southern California.
BRIAN H. SHUMAN, 39, Senior Vice President and Chief Financial Officer.
Mr. Shuman joined NAPICO in 2000, and is responsible for the financial affairs of NAPICO, as well as the limited partnerships sponsored by it. From 1996 until joining NAPICO in August 2000, Mr. Shuman was Vice President - Finance for Preferred Health Management Inc., the largest provider of worker compensation diagnostic imaging services in California formed in 1996, and was responsible for establishing and managing the accounting, billing, collection , treasury and financial reporting departments. From 1994 to 1996, he was the Controller for DVI Business Credit Corporation, which provides asset based lending to a wide range of health concerns. From 1985 to 1994, Mr. Shuman served in senior management positions, as a director or manager of finance, a portfolio tax analyst, and a senior accountant/tax consultant. He holds a Bachelor of Arts degree in economics and accounting from the University of Maryland. Mr. Shuman is a Certified Public Accountant and is a member of American Institute of Certified Public Accountants and the California Society of Public Accountants.
PATRICIA W. TOY, 72, Senior Vice President - Communications and Assistant Secretary.
Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska.
JEFFREY H. SUSSMAN, 35, Senior Vice President, General Counsel and Secretary.
Mr. Sussman joined NAPICO in 1998, and is responsible for the legal affairs of NAPICO and its affiliates. He is also the President of NPEI and a member of the preliminary investment committee. Prior to joining NAPICO in April 1998, Mr. Sussman was an associate with the law firm of Rus, Miliband, Williams & Smith in Irvine, California. His practice emphasized real estate finance and insolvency law and included the representation of borrowers, lenders, and court-appointed trustees in matters involving apartment complexes, retail centers and hotels. Mr. Sussman received a Bachelor of Arts degree from the University of California, Berkeley and Juris Doctor and Master in Business Administration degrees from the University of Southern California. He is a member of the State Bar of California, and holds Series 22, 39 and 63 licenses issued by the National Association of Securities Dealers, Inc.
NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS:
Real Estate Associates Limited II has no officers, employees, or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to pay the Corporate General Partner an annual management fee. The annual management fee is approximately equal to .4 percent of the invested assets, including the Partnership's allocable share of the mortgages related to real estate properties held by local limited partnerships. The fee is earned beginning in the month the Partnership makes its initial contribution to the limited partnership. In addition, the Partnership reimburses the Corporate General Partner for certain expenses.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners
The general partners own all of the outstanding general partnership interests of REAL II; no person is known to own beneficially in excess of 5% of the outstanding Limited Partnership Interests.
(b) At December 31, 2001, security ownership of management is as listed:
* Cumulative Limited Partnership Interest owned by corporate officers is less than 1% of outstanding Limited Partnership Interests.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Partnership has no officers, directors or employees of its own. All of its affairs are managed by the Corporate General Partner, National Partnership Investments Corp. The Partnership is obligated to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the remaining limited partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective partnerships. The management fee was $175,792 for the years ended December 31, 2001, 2000 and 1999.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $19,368, $14,962 and $23,340 in 2001, 2000 and 1999, respectively, and is included in operating expenses.
On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships to the Operating Partnership. The sale resulted in net cash proceeds to the Partnership of $5,250,000 and a net gain of $4,002,592. The cash proceeds were held in escrow at December 31, 1998 and were collected subsequent to year-end. In March 1999, the Partnership made cash distributions of $4,950,000 to the limited partners and $50,000 to the general partners, using proceeds from the sale of the partnership interests.
The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL II.
In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
FINANCIAL STATEMENTS
Reports of Independent Public Accountants.
Balance Sheets as of December 31, 2001 and 2000.
Statements of Operations for the years ended December 31, 2001, 2000 and 1999.
Statements of Partners' Equity (Deficiency) for the years ended December 31, 2001, 2000 and 1999.
Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.
Notes to Financial Statements.
FINANCIAL STATEMENT SCHEDULES APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED II AND TO THE LIMITED PARTNERSHIPS IN WHICH REAL ESTATE ASSOCIATES LIMITED II HAS INVESTMENTS:
Schedule - Investments in Limited Partnerships, December 31, 2001, 2000 and 1999.
Schedule III - Real Estate and Accumulated Depreciation, December 31, 2001, 2000 and 1999.
The remaining schedules are omitted because the required information is included in the financial statements and notes thereto, or they are not applicable or not required.
EXHIBITS
(3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #266171 incorporated herein by reference.
(10) Material contracts: The registrant is not party to any material contracts, other than the Restated Certificate and Agreement of Limited Partnership dated December 4, 1979, and the twenty-one contracts representing the Partnership investment in Local Limited Partnerships as previously filed at the Securities and Exchange Commission, File #266171, which is hereby incorporated by reference.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, State of California.
REAL ESTATE ASSOCIATES LIMITED II
By: NATIONAL PARTNERSHIP INVESTMENTS CORP. General Partner
/s/ - --------------------------------------- Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer
/s/ - --------------------------------------- Bruce E. Nelson Director and President
/s/ - --------------------------------------- Alan I. Casden Director
/s/ - --------------------------------------- Brian H. Shuman Chief Financial Officer