SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-11128
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BALCOR PENSION INVESTORS-III
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(Exact name of registrant as specified in its charter)
Illinois 36-3164211
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(UNAUDITED)
ASSETS
1994 1993
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Cash and cash equivalents $ 11,873,394 $ 10,156,355
Cash and cash equivalents - Early
Investment Incentive Fund 7,644 25,783
Escrow deposits 415,953 375,028
Escrow deposits - restricted 867,001 1,238,638
Accounts and accrued interest receivable 101,735 526,698
Deferred expenses, net of accumulated
amortization of $24,995 in 1994 and
$15,622 in 1993 37,493 46,866
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13,303,220 12,369,368
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Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 82,102,424 102,095,930
Less:
Loans payable - underlying mortgages 42,835,091 47,870,972
Allowance for potential loan losses 4,713,959 8,129,365
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Net investment in loans receivable 34,553,374 46,095,593
Real estate held for sale 23,544,797 17,369,132
Investment in joint ventures with affiliates 6,068,064 5,734,184
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64,166,235 69,198,909
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$ 77,469,455 $ 81,568,277
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 131,998 $ 222,483
Due to affiliates 131,572 62,601
Other liabilities, principally real estate
taxes and escrow deposits 1,530,048 1,823,666
Security deposits 130,182 73,750
Mortgage notes payable 7,220,250 8,436,279
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Total liabilities 9,144,050 10,618,779
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Partners' capital (237,476 Limited
Partnership Interests issued) 72,886,439 75,130,101
Less Interests held by Early Investment
Incentive Fund (10,043 at September 30,
1994 and 8,892 at December 31, 1993) (4,561,034) (4,180,603)
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68,325,405 70,949,498
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$ 77,469,455 $ 81,568,277
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Income:
Interest on loans receivable $ 7,732,045 $ 7,809,711
Less interest on loans payable -
underlying mortgages 3,258,431 3,685,790
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Net interest income on loans receivable 4,473,614 4,123,921
Income from operations of real estate
held for sale 615,746 689,782
Participation in income (loss) of joint
ventures with affiliates 374,327 (890,063)
Interest on short-term investments 344,459 184,707
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Total income 5,808,146 4,108,347
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Expenses:
Provision for potential losses on loans,
real estate and accrued interest
receivable 300,000 2,220,000
Mortgage servicing fees 67,943 78,543
Administrative 601,308 538,304
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Total expenses 969,251 2,836,847
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Net income before net gain on sales
of real estate 4,838,895 1,271,500
Net gain on sales of real estate 119,842 147,992
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Net income $ 4,958,737 $ 1,419,492
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Net income allocated to General Partner $ 371,905 $ 106,462
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Net income allocated to Limited Partners $ 4,586,832 $ 1,313,030
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Net income per average number of Limited
Partnership Interests outstanding
(228,870 in 1994 and 229,206 in 1993) $ 20.04 $ 5.73
============= =============
Distributions to General Partner $ 267,161 $ 296,844
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Distributions to Limited Partners $ 6,935,238 $ 3,440,532
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Distributions per Limited Partnership
Interest outstanding $ 30.35 $ 15.00
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Income:
Interest on loans receivable $ 2,182,554 $ 2,568,952
Less interest on loans payable -
underlying mortgages 1,028,447 1,221,852
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Net interest income on loans receivable 1,154,107 1,347,100
Income (loss) from operations of real estate
held for sale 67,279 (130,609)
Participation in income (loss) of joint
ventures with affiliates 122,542 (95,097)
Interest on short-term investments 148,262 74,646
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Total income 1,492,190 1,196,040
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Expenses:
Provision for potential losses on loans,
real estate and accrued interest
receivable 300,000 500,000
Mortgage servicing fees 18,745 26,125
Administrative 177,300 170,800
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Total expenses 496,045 696,925
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Net income before net gain on sales
of real estate 996,145 499,115
Net gain on sales of real estate 119,842 147,992
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Net income $ 1,115,987 $ 647,107
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Net income allocated to General Partner $ 83,699 $ 48,533
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Net income allocated to Limited Partners $ 1,032,288 $ 598,574
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Net income per average number of Limited
Partnership Interests outstanding
(228,506 in 1994 and 228,972 in 1993) $ 4.52 $ 2.61
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Distribution to General Partner $ 79,159 $ 98,948
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Distribution to Limited Partners $ 912,049 $ 1,145,765
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Distribution per Limited Partnership
Interest outstanding $ 4.00 $ 5.00
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Operating activities:
Net income $ 4,958,737 $ 1,419,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Net gain on sales of real estate (119,842) (147,992)
Participation in (income) loss of joint
ventures with affiliates (374,327) 890,063
Provision for potential losses on
loans, real estate and accrued
interest receivable 300,000 2,220,000
Amortization of deferred expenses 9,373 68,678
Accrued interest income due at maturity (50,875)
Net change in:
Escrow deposits (40,925) (200,725)
Escrow deposits - restricted 371,637 (148,522)
Accounts and accrued interest
receivable 388,888 183,928
Accounts payable (90,485) (591,597)
Due to affiliates 68,971 11,862
Other liabilities (189,570) 421,318
Security deposits 56,432 (1,509)
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Net cash provided by operating activities 5,338,889 4,074,121
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Investing activities:
Capital contributions to joint venture
partners - affiliates (78,147) (170,723)
Distributions from joint venture
partners - affiliates 118,594 4,294
Loan fundings (12,379)
Collection of principal payments on
loans receivable 4,900,471 730,992
Additions to real estate (107,172)
Proceeds from sales of real estate 1,200,000 2,600,000
Costs incurred in connection with sales
of real estate (49,586) (118,431)
Costs incurred in connection with real
estate acquired through foreclosure (40,471)
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Net cash provided by investing activities 6,050,861 2,926,581
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Financing activities:
Distributions to Limited Partners (6,935,238) (3,440,532)
Distributions to General Partner (267,161) (296,844)
Decrease in cash and cash equivalents -
Early Investment Incentive Fund 18,139 70,333
Payment of deferred expenses (172,580)
Repurchase of Limited Partnership Interests (380,431) (290,768)
Principal payments on underlying
loans payable (891,991) (923,503)
Repayment of mortgage note payable (2,236,117)
Proceeds from issuance of mortgage
note payable 4,298,400
Principal payments on mortgage notes payable (1,216,029) (261,702)
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Net cash used in financing activities (9,672,711) (3,253,313)
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Net change in cash and cash equivalents 1,717,039 3,747,389
Cash and cash equivalents at beginning of year 10,156,355 6,579,221
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Cash and cash equivalents at end of period $ 11,873,394 $ 10,326,610
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
Reclassifications have been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. These
reclassifications have not changed the 1993 results. In the opinion of
management, all adjustments necessary for a fair presentation have been made to
the accompanying statements for the nine months and quarter ended September 30,
1994 and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1994 and 1993, the Partnership
incurred and paid interest expense on mortgage notes payable of $610,968 and
$825,638, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1994 are:
Paid
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Nine Months Quarter Payable
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Mortgage servicing fees $ 63,951 $13,330 $12,428
Property management fees 183,782 72,697 24,281
Reimbursement of expenses to
the General Partner, at cost:
Accounting 64,757 45,413 21,259
Data processing 15,092 9,778 27,697
Investor communication 18,642 13,073 4,109
Legal 13,561 9,510 9,873
Portfolio management 72,656 43,404 30,497
Other 7,747 5,433 1,428
4. Real Estate Held for Sale:
In July 1994, the Partnership received title to The Woods Apartments. The
Partnership recorded the basis of the property at $7,198,171 which is equal to
the outstanding loan balance plus accrued interest receivable. In addition, the
Partnership decreased the basis of the property by $32,405 which represented
escrows, net of receivables and increased the basis by $40,471 which
represented costs incurred in connection with the foreclosure.
5. Loan Receivable Prepayment:
In June 1994, the borrower of the $12,767,949 wrap-around loan collateralized
by the Continental Park Office Building located in El Segundo, California
prepaid the loan at a discount. The Partnership received proceeds of
approximately $4,873,085 and the borrower repaid the $4,143,890 underlying
mortgage loan. Allowances for potential loan losses of $3,715,406 were written
off in connection with the prepayment of the loan. The amount written off
consisted of the remaining wrap-around loan receivable balance, net of the
underlying mortgage payable balance and escrow liabilities of $35,568.
6. Sale of Real Estate:
In September 1994, the Partnership sold the Orchards Office Building located in
Loveland, Colorado in an all cash sale for $1,200,000. The carrying value of
the property was $1,030,572 and the Partnership incurred selling expenses of
$49,586. For financial statement purposes, the Partnership recognized a gain of
$119,842 on the sale during the third quarter of 1994. The Partnership
continues to own the Orchards Shopping Center.
7. Subsequent Event:
In October 1994, the Partnership paid $949,904 to Limited Partners representing
the regular quarterly distribution of available Cash Flow of $4.00 per Interest
for the third quarter of 1994.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors - III (the "Partnership") is a limited partnership
formed in 1982 to invest in wrap-around mortgage loans and, to a lesser extent,
other junior mortgage loans and first mortgage loans. The Partnership raised
$118,738,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-two loans. As of September 30, 1994, eight loans
remain outstanding in the Partnership's portfolio. In addition, the Partnership
was operating four properties held for sale and holds minority joint venture
interests in two properties.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1993 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The Partnership's provision for potential losses on loans, real estate and
accrued interest receivable decreased during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993. The Partnership
recognized a gain on the sale of the Orchards Office Building during the third
quarter of 1994 and a net gain on the sales of the Riverview Office Building
and the vacant land adjacent to the Orchards Shopping Center during the third
quarter of 1993. In addition, during the second quarter of 1993, the
Partnership recognized its share of a loss provision related to a decline in
the fair value of the Brookhollow/Stemmons Office Building (in which it holds a
minority joint venture interest). The combined effect of these events resulted
in an increase in net income for the nine months and quarter ended September
30, 1994 as compared to the same periods in 1993. Further discussion of the
Partnership's operations is summarized below.
1994 Compared to 1993
- - ---------------------
Increased interest income was received from the borrowers of the loans
collateralized by the Bannockburn Executive Plaza and Carmel on Providence and
The Woods apartment complexes during the nine months ended September 30, 1994.
In addition, the Partnership purchased the underlying loan collateralized by
The Woods Apartments in December 1993 which reduced interest expense on loans
payable. As a result, net interest income on loans receivable increased during
the nine months ended September 30, 1994 as compared to the same period in
1993. The prepayment of the Airport III Industrial Park and the Continental
Park Office Building loans in November 1993 and June 1994, respectively,
partially offset the above increase and resulted in a decrease in net interest
income on loans receivable during the quarter ended September 30, 1994 as
compared to the same period in 1993.
The Partnership has two non-accrual loans at September 30, 1994 which are
collateralized by Carmel on Providence Apartments, located in Charlotte, North
Carolina and Bannockburn Executive Plaza, located in Bannockburn, Illinois. The
funds advanced by the Partnership for these two loans total approximately
$6,200,000, representing approximately 6% of original funds advanced. For
non-accrual loans, income is recorded only as cash payments are received from
the borrower. During the nine months ended September 30, 1994, the Partnership
received cash payments of net interest income totaling approximately $171,000
on the Carmel on Providence loan. The Partnership would have received
approximately $215,000 of net interest income under the terms of the original
loan agreement. The loan receivable and underlying first mortgage loan
collateralized by the Bannockburn Executive Plaza matured in January 1994.
However, the borrower filed for protection under the U.S. Bankruptcy Code in
November 1993 and did not pay either amount due. The Partnership has received
cash payments of net interest income totaling approximately $458,000 during
1994 while the Partnership, the holder of the underlying loan and the borrower
negotiate an acceptable plan of reorganization.
An allowance for potential losses provides for potential losses on loans and is
based upon past loan loss experience for similar loans and prevailing economic
conditions in the market in which the collateral properties are located and the
General Partner's analysis of specific loans in the Partnership's portfolio.
The allowance has been increased by $300,000 during the third quarter of 1994.
While actual losses may vary from time to time because of changes in
circumstances (such as occupancy rates, rental rates, and other economic
factors), the General Partner believes that adequate recognition has been given
to loss exposure in the portfolio at September 30, 1994. During the second
quarter of 1994, allowances of $3,715,406 related to the Continental Park
Office Building loan were written off in connection with the prepayment of the
loan at a discount.
Operations of real estate held for sale represent the net property operations
of those properties acquired by the Partnership through foreclosure. At
September 30, 1994, the Partnership was operating the Candlewyck and The Woods
apartment complexes and the Crossings and Orchards shopping centers which
represent approximately 14% of original funds advanced. The Riverview Office
Building and the Villa Verde Apartments, which were generating income, were
sold in September and November 1993, respectively. In connection with the sale
of the Riverview Office Building, the Partnership wrote-off accruals for
previous effective rental income adjustments which resulted in a loss from
operations for the third quarter of 1993. Operations at the Crossings Shopping
Center improved during 1994 due to increased rental income and decreased
operating expenses. Operating expenses decreased at the Orchards Shopping
Center due to the completion of roof repairs during the third quarter of 1993.
In addition, the Partnership acquired The Woods Apartments in July 1994, which
generated income. The combined effect of these events resulted in a decrease in
income from real estate held for sale during the nine months ended September
30, 1994 as compared to the same period in 1993 and the recognition of income
during the quarter ended September 30, 1994 as compared to a loss during the
same period in 1993.
Participation in joint venture with affiliates represents the Partnership's
27.5% and 12.68% shares of income (loss) from the Brookhollow/Stemmons and
Perimeter 400 Center office buildings, respectively. During the second quarter
of 1993, the Partnership recognized its share of a loss provision related to a
decline in the fair value of the Brookhollow/Stemmons Office Building. This,
combined with decreased leasing costs and increased average occupancy levels
and rental rates at the Perimeter 400 Center Office Building during 1994, were
the primary reasons for the recognition of income for the nine months and
quarter ended September 30, 1994 as compared to a loss for the same periods in
1993.
Proceeds were received in 1993 in connection with the settlement of the
Kensington Mobile Home Park loan, the refinancing of the loan collateralized by
the Villa Verde Apartments and the sales of the Riverview Office Building,
Villa Verde Apartments and vacant land adjacent to the Orchards Shopping
Center. A portion of these proceeds were distributed in April 1994. The
remainder of these proceeds, along with the proceeds received in 1994 from the
prepayment of the Continental Park Office Building, are invested in short-term
interest-bearing instruments. This, along with higher interest rates earned on
short-term investments, resulted in an increase in interest income on short-
term investments during the nine months and quarter ended September 30, 1994 as
compared to the same periods in 1993.
The prepayment of the Airport III Industrial Park and the Continental Park
Office Building loans and the foreclosure of The Woods Apartments resulted in a
decrease in mortgage servicing fees during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993.
An increase in accounting and portfolio management fees resulted in an increase
in administrative expense during the nine months and quarter ended September
30, 1994 as compared to the same periods in 1993.
During the nine months ended September 30, 1994, the Partnership recognized a
gain of $119,842 on the sale of the Orchards Office Building located in
Loveland, Colorado. See Note 6 of Notes to Financial Statements for additional
information. During the nine months ended September 30, 1993, the Partnership
recognized a net gain of $147,992 on the sales of the vacant land adjacent to
the Orchards Shopping Center and the Riverview Office Building located in
Nashville, Tennessee.
Liquidity and Capital Resources
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The cash or near cash position of the Partnership increased as of September 30,
1994 when compared to December 31, 1993. The Partnership generated cash flow
from its operating activities primarily as a result of the net interest income
earned on its loans receivable, the operations of its properties, and the
interest received on its short-term investments. The payment of administrative
costs partially offset this cash flow. The Partnership also generated cash from
its investing activities primarily as a result of the discounted prepayment of
the Continental Park Office Building loan and the sale of the Orchards Office
Building. The Partnership used cash to fund its financing activities relating
primarily to the payment of distributions to the General Partner and Limited
Partners and the payment of principal on underlying loans and mortgage notes
payable. The Partnership's cash or near cash position fluctuates during each
quarter, initially decreasing with the payment of Partnership distributions for
the previous quarter, and then gradually increasing each month in the quarter
as mortgage payments and cash from property operations are received.
The Partnership classifies the cash flow performance of its properties as
either positive, marginal 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. During the nine months ended September 30, 1994 and 1993, the
Candlewyck Apartments and Orchards Shopping Center generated positive cash flow
while the Crossings Shopping Center generated positive cash flow during 1994
and marginal cash flow deficit during 1993. The Crossings Shopping Center's
operations improved primarily due to slightly lower operating expenses and
decreased real estate taxes resulting from a lower property assessment. The
Woods Apartments, which was acquired through foreclosure in July 1994,
generated positive cash flow during 1994. The Brookhollow/Stemmons and
Perimeter 400 Center office complexes, properties in which the Partnership
holds minority joint venture interests, generated positive cash flow during the
nine months ended September 30, 1994 and 1993. Significant leasing costs were
incurred at the Brookhollow/Stemmons Office Building during both 1994 and 1993
and at the Perimeter 400 Center Office Building during 1993 to lease vacant
space and renew existing tenant leases which were scheduled to expire. These
costs were not included in classifying the cash flow performance of the
properties since they are non-recurring expenditures. Had these costs been
included, the Brookhollow/Stemmons Office Building would have operated at a
marginal cash flow deficit during the nine months ended September 30, 1994 and
both properties would have operated at significant deficits during the nine
months ended September 30, 1993. The General Partner is continuing its efforts
to maintain high occupancy levels, while increasing rents where possible, and
to monitor and control operating expenses and capital improvement requirements
at the properties. The General Partner will also examine the terms of any
mortgage loans collateralized by its properties, and may refinance or, in
certain instances, use Partnership reserves to repay such loans.
In addition, certain borrowers have failed to make payments when due to the
Partnership for more than ninety days and, accordingly, these loans have been
placed on non-accrual status (income is recorded only as cash payments are
received). The General Partner has negotiated with some of these borrowers
regarding modifications of the loan terms and has instituted foreclosure
proceedings under certain circumstances. Such foreclosure proceedings may be
delayed by factors beyond the General Partner's control such as bankruptcy
filings by borrowers and state law procedures regarding foreclosures. Further,
certain loans made by the Partnership have been restructured to defer and/or
reduce interest payments where the properties collateralizing the loans were
generating insufficient cash flow to support property operations and debt
service. In the case of most loan restructurings, the Partnership receives
concessions, such as increased participations or additional interest accruals,
in return for modifications, such as deferral or reduction of basic interest
payments. There can be no assurance, however, that the Partnership will receive
actual benefits from the concessions.
Because of the current weak real estate markets in certain cities and regions
of the country, attributable to local and regional market conditions such as
overbuilding and recessions in local economies and specific industry segments,
certain borrowers have requested that the Partnership allow prepayment of
mortgage loans. The Partnership has allowed some of these borrowers to prepay
such loans, in some cases without assessing prepayment premiums, under
circumstances where the General Partner believed that refusing to allow such
prepayment would ultimately prove detrimental to the Partnership because of the
likelihood that the properties would not generate sufficient revenues to keep
loan payments current. In other cases, borrowers have requested prepayment in
order to take advantage of lower available interest rates. In these cases, the
Partnership has collected substantial prepayment premiums.
In June 1994, the borrower of the $12,767,949 wrap-around loan collateralized
by the Continental Park Office Building located in El Segundo, California
prepaid the loan at a discount due to the diminished value of the property
collateralizing the loan. The Partnership received proceeds of approximately
$4,873,085 which represents a portion of the funds advanced on the loan and the
borrower repaid the $4,143,890 underlying mortgage loan. An allowance for
potential losses of $3,715,406 was written off in connection with the
prepayment of the loan. See Note 5 of Notes to Financial Statements for
additional information.
The borrower on The Woods Apartments loan filed a plan of reorganization in
March 1994 and the Bankruptcy Court permitted the borrower until May 19, 1994
to obtain confirmation of the plan. The borrower failed to obtain plan
confirmation and, in July 1994, the Partnership obtained title to the property
through a non-judicial foreclosure. See Note 4 of Notes to Financial Statements
for additional information.
In September 1994, the Partnership sold the Orchards Office Building located in
Loveland, Colorado in an all cash sale for $1,200,000 and incurred selling
costs of $49,586. The Partnership continues to own the Orchards Shopping
Center. See Note 6 of Notes to Financial Statements and Item 5. Other Events
for additional information.
Distributions to Limited Partners can be expected to fluctuate for various
reasons. Generally, distributions are made from Cash Flow generated by interest
and other payments made by borrowers under the Partnership's mortgage loans.
Loan prepayments and repayments can initially cause Cash Flow to increase as
prepayment premiums and participations are paid; however, thereafter
prepayments and repayments will have the effect of reducing Cash Flow. If such
proceeds are distributed, Limited Partners will have received a return of
capital and the dollar amount of Cash Flow available for distribution
thereafter can be expected to decrease. Distribution levels can also vary as
loans are placed on non-accrual status, modified or restructured and, if the
Partnership has taken title to properties through foreclosure or otherwise, as
a result of property operations.
In October 1994, the Partnership paid $949,904 to Limited Partners,
representing the regular quarterly distribution of available Cash Flow of $4.00
per Interest for the third quarter of 1994. The level of the quarterly
distribution is consistent with the amount distributed for the second quarter
of 1994. The Partnership also paid $79,159 to the General Partner as its
distributive share of the Cash Flow distributed for the third quarter of 1994
and $26,386 as its contribution to the Early Investment Incentive Fund.
The Partnership expects to continue making cash distributions from the Cash
Flow generated by the receipt of mortgage payments and Cash Flow from property
operations, less payments on the underlying loans, fees to the General Partner
and administrative expenses. The General Partner believes it has retained, on
behalf of the Partnership, an appropriate amount of working capital to meet
cash or liquidity requirements which may occur.
During the nine months ended September 30, 1994, the General Partner on behalf
of the Partnership used amounts placed in the Early Investment Incentive Fund
to repurchase 1,151 Interests from Limited Partners at a total cost of
$380,431.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by 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. The Partnership's use of
participations for loans receivable is intended to provide a hedge against the
impact of inflation; sharing in cash flow or rental income and/or the capital
appreciation of the properties collateralizing the loans should result in
increases in the total yields on the loans as inflation rates rise.
Part II - Other Information
Item 1. Legal Proceedings
- - --------------------------
Williams proposed class action
- - ------------------------------
With respect to the proposed class action lawsuit filed in the U. S. District
Court, Northern District of Illinois (Paul Williams and Beverly Kennedy, et al.
vs. Balcor Pension Investors, et al., Case No. 90-C-0726), against the
Partnership and certain affiliated entities, in May 1993, the Court issued an
opinion and order denying the plaintiffs' motion for class certification based
in part on the inadequacy of the individual plaintiffs representing the
proposed class. Further, the Court granted the defendants' motion for certain
sanctions against plaintiffs' counsel and ordered the plaintiffs' counsel to
pay the defendants' attorneys' fees incurred with the class certification
motion. The defendants filed a petition for reimbursement of their fees and
costs from plaintiffs' counsel which remains pending. A motion previously filed
by the plaintiffs seeking to dismiss the defendants' counterclaim for fraud was
denied on August 18, 1994.
In July 1993, the Court gave plaintiffs leave to retain new counsel and to
propose new individual class representatives. The plaintiffs retained new
counsel and proposed three new individual class representatives. The
defendants conducted discovery regarding the proposed new class representatives
and, in February 1994, filed a response to the plaintiffs' latest motion for
class certification. On July 29, 1994, the Court indicated an intent to certify
a class relating to the plaintiffs' securities fraud claims, but gave leave for
the defendants to file a further motion opposing class certification. On
August 26, 1994, the defendants filed a motion which has been briefed. The
motion remains pending.
Item 5. Other Events
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Orchards Office Building
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In 1983, the Partnership funded a $3,709,772 loan collateralized by a wrap-
around mortgage on the Orchards Office Building and Shopping Center, Loveland,
Colorado (the "Property"). The Partnership obtained title to the Property
through foreclosure in 1987 and sold a 1.1-acre outparcel in 1989 for $355,000.
In 1991, the Partnership acquired approximately 83,333 square feet of vacant
land adjacent to the Property for $210,000 and sold the land in 1993 for
$500,000. In 1992, the Partnership refinanced the first mortgage loan with a
new $2,850,000 loan (the "Loan") from an unaffiliated lender (the "Lender"),
providing the Partnership with $1,900,000 in excess proceeds.
On September 29, 1994 ("Closing"), the Partnership sold the office building
portion of the Property (the "Building") for a sale price of $1,200,000 to an
unaffiliated entity, Matador-Orchards, L.L.C., a Colorado limited liability
company ("Purchaser"). From the sale proceeds, the Partnership paid the Lender
a $1,000,000 principal payment and a $50,000 prepayment premium and the Lender
released its first mortgage lien from the Building. The Partnership also paid
$48,000 to an unaffiliated party as a brokerage commission, $1,586 in closing
and other costs and received the remaining $150,414 of sale proceeds. Neither
the General Partner nor its affiliates received a commission in connection with
the sale of the Property.
The Partnership continues to own the shopping center portion of the Property,
which collateralized the remaining principal balance of the Loan.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement, previously filed as Exhibit 4(a) to
Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated
May 20, 1982 (Registration Statement No. 2-75938) and as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-11 dated November 2, 1982
(Registration No. 2-80123); and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-11128) are incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(99) Agreement of Sale relating to the sale of the Orchards Office Building,
Loveland, Colorado.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-III
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-II, the General Partner
By: /s/Allan Wood
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Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Mortgage Advisors-II, the General Partner
Date: November 14, 1994
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