FORM 10-K - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[No Fee Required]
For the transition period from _________to _________
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number
(864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (Amended by Exch.
Act Rel No. 28869, eff. 5/1/91). Yes ___ No X
State the aggregate market value of the Limited Partnership Units ("Units") held
by non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 2001. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
General
Consolidated Capital Institutional Properties/2 (the "Partnership" or
"Registrant") was organized on April 12, 1983, as a limited partnership under
the California Uniform Limited Partnership Act. On July 22, 1983, the
Partnership registered with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (File No. 2-83540) and commenced a public offering
for the sale of Units. The Units represent equity interests in the Partnership
and entitle the holders thereof to participate in certain allocations and
distributions of the Partnership. The sale of Units terminated on July 21, 1985,
with 912,182 Units sold at $250 each, or gross proceeds of approximately $227.8
million to the Partnership. As permitted under its Partnership Agreement (the
original partnership agreement of the Partnership with all amendments shall be
referred to as the "Partnership Agreement"), the Partnership has repurchased and
retired a total of 3,048 Units for a total of $611,000. During 1999, 10.4 units
were abandoned and accordingly retired by the Partnership. The Partnership may,
at its absolute discretion, repurchase Units, but is under no obligation to do
so. Since its initial offering, the Registrant has not received, nor are limited
partners required to make, additional capital contributions.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In 1988, through a series of transactions, Southmark
Corporation ("Southmark") acquired controlling interest in CCEC. In December
1988, CCEC filed for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan,
ConCap Equities, Inc. ("CEI" or the "General Partner") acquired CCEC's general
partner interests in the Partnership and in 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the general
partner was approved by a majority of the limited partners in the Partnership
and in each of the Affiliated Partnerships pursuant to a solicitation of the
Limited Partners dated August 10, 1990. As part of this solicitation, the
Limited Partners also approved an amendment to the Partnership Agreement to
limit changes of control of the Partnership. The General Partner is a subsidiary
of Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust. The Partnership Agreement provides that the Partnership
is to terminate on December 31, 2013 unless terminated prior to such date.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 430,935.30 limited partnership units
in the Partnership representing 47.40% of the outstanding units at December 31,
2001. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 47.40% of the outstanding units, AIMCO is in a position to
influence all such voting decisions with respect to the Registrant. When voting
on matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of its affiliation with
the General Partner.
The Partnership's primary business and only industry segment is real estate
related operations. See "Item 8. Financial Statements - Note A" for detailed
disclosure of the Partnership's segment reporting. The Partnership was formed,
for the benefit of its Limited Partners (herein so called and together with the
General Partner shall be called the "Partners"), to lend funds to Equity
Partners/Two ("EP/2"), a California general partnership in which certain of the
partners were former shareholders and former management of CCEC, the former
corporate general partner of the Partnership. See "Status of Master Loan" for a
description of the loan and settlement of EP/2's bankruptcy. Through December
31, 2001, the Partnership had advanced a total of approximately $183,470,000 to
EP/2 and its successor under the Master Loan (as defined in "Status of Master
Loan"). As of December 31, 2001, the balance of the Master Loan, net of the
allowance for possible losses, was approximately $11,294,000. EP/2 used the
proceeds from these loans to acquire eleven (11) apartment buildings and ten
(10) office complexes, which collateralized the Master Loan. EP/2's successor in
bankruptcy (as more fully described in "Status of Master Loan") currently owns
three (3) apartment buildings and is currently rebuilding a fourth apartment
building which secure the Master Loan.
The Registrant has no employees. Management and administrative services are
performed by the General Partner and by agents of the General Partner.
Status of Master Loan
Prior to 1989, the Partnership had loaned funds totaling approximately
$176,000,000 to EP/2 subject to a nonrecourse note (the "Master Loan"), pursuant
to the Master Loan Agreement dated July 22, 1983, between the Partnership and
EP/2. The Partnership secured the Master Loan with deeds of trust or mortgages
on real property purchased with the funds advanced as well as by the assignment
and pledge of promissory notes from the partners of EP/2.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's consensual
plan of reorganization (the "Plan"). In November 1990, EP/2 and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP/2 executed an amended and restated loan agreement (the "New
Master Loan Agreement"), EP/2 was converted from a California general
partnership to a California limited partnership, Consolidated Capital Equity
Partners/Two, L.P., ("CCEP/2") and CCEP/2 renewed the deeds of trust and
mortgages on all the properties collaterally securing the New Master Loan
Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned
subsidiary of CEI, is the sole general partner of CCEP/2 and an affiliate of the
Partnership. The general partners of EP/2 became limited partners in CCEP/2. CHI
has full discretion with respect to conducting CCEP/2's business, including
managing CCEP/2's properties and initiating and approving capital expenditures
and asset dispositions and refinancings. Under the new partnership agreement,
CCEP/2 is managed by CHI primarily for the benefit of the Partnership. CCEP/2's
primary objective is to conduct its business to maximize the Partnership's
recovery under the New Master Loan Agreement.
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations after
third-party debt service and capital improvements. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
current accrued interest, the excess amount is applied to the principal balance
of the loan. Any net proceeds from sale or refinancing of any of CCEP/2's
properties are paid to the Partnership under the terms of the New Master Loan
Agreement. The Master Loan matured in November 2000. The General Partner has
been negotiating with CCEP/2 with respect to its options which included
foreclosing on the properties that collateralize the Master Loan or extending
the terms of the Master Loan. The General Partner has decided to foreclose on
the properties that collaterize the Master Loan. Subsequent to December 31,
2001, the Partnership Agreement was amended to allow the Partnership to directly
or indirectly own investment properties. The General Partner will begin the
process of executing deeds in lieu of foreclosure during the first quarter of
2002 on the three active properties of CCEP/2. The deed in lieu of foreclosure
on the fourth property, which is currently being rebuilt, will be executed at a
later date. As the deeds are executed, title in the properties currently owned
by CCEP/2 will be vested in the Partnership, subject to the existing liens on
such properties including the first mortgage loans. As a result, the Partnership
will become responsible for the operations of such properties.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in the
definition of Excess Cash Flow has the effect of reducing the Partnership's
interest income from the Master Loan by the amount of CCEP/2's capital
expenditures since such amounts were previously excluded from Excess Cash Flow.
Segments
Segment data for the years ended December 31, 2001, 2000, and 1999 is included
in "Item 8. Financial Statements - Note A" and is an integral part of the Form
10-K.
Item 2. Property
As of December 31, 2001 and 2000, the Partnership has no real estate assets.
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Corporate General Partner and
several of their affiliated partnerships and corporate entities. The action
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain General Partner entities by
Insignia Financial Group, Inc. ("Insignia") and entities which were, at one
time, affiliates of Insignia; past tender offers by the Insignia affiliates to
acquire limited partnership units; management of the partnerships by the
Insignia affiliates; and the series of transactions which closed on October 1,
1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust,
respectively, were merged into AIMCO. The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Corporate General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs filed an amended
complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion and a hearing has
been scheduled for April 29, 2002. The Court has set the matter for trial in
January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
On October 18, 2001, the Partnership sought the vote of the limited partners to
amend the Partnership Agreement to authorize the Partnership to acquire, own,
operate, improve, manage, lease, finance, refinance, sell and exchange any real
property acquired as a result of any transaction under the Master Loan with
CCEP/2 or any transaction involving property acquired from CCEP/2 that is
intended to qualify as a like-kind exchange under the Internal Revenue Code. As
of February 5, 2002, the requiste percent of limited partnership units voted in
favor of the Partnership Agreement Amendment. As of February 5, 2002, a total
number of 486,543.90 units had voted, including the 431,331.70 units owned by
affiliates of the General Partner, of which 458,978.50 units had voted in favor
of the amendment, 22,200.20 units voted against the amendment and 5,365.20 units
abstained.
PART II
Item 5. Market for Registrant's Units of Limited Partnership and Related
Security Holder Matters
The Partnership, a publicly-held limited partnership, offered and sold 912,182
limited partnership units aggregating $227,800,000. The Partnership currently
has 23,692 holders of record owning an aggregate of 909,123.60 Units. Affiliates
of the General Partner owned 430,935.30 units or approximately 47.40% at
December 31, 2001. No public trading market has developed for the Units, and it
is not anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1999, 2000 and 2001.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/99 - 12/31/99 $37,995,000 (1) $41.73
01/01/00 - 12/31/00 13,383,000 (2) 14.70
01/01/01 - 12/31/01 2,428,000 (3) 2.67
(1) Consists of $323,000 from surplus funds and $32,000,000 from sale proceeds
of CCEP/2 commercial properties distributed 100% to the limited partners
and $5,672,000 from operations (approximately $5,616,000 to the limited
partners or $6.18 per limited partnership unit) distributed to all
partners.
(2) Consists of $2,000,000 (approximately $1,980,000 to the limited partners
or $2.18 per limited partnership unit) from operations which was
distributed to all partners and $4,200,000 all to the limited partners
(approximately $4.62 per limited partnership unit) from refinancing
proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2 and
$7,183,000 (approximately $7.90 per limited partnership unit) from surplus
funds distributed all to the limited partners.
(3) Consists of approximately $1,299,000 (approximately $1.43 per limited
partnership unit) from the refinancing proceeds of Canyon Crest Apartments
in CCEP/2 and $1,129,000 (approximately $1.24 per limited partnership
unit) from surplus cash due to the receipt of interest income on the
master loan. Both distributions were distributed 100% to the limited
partners.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Until the deeds in lieu of foreclosure are executed, future cash
distributions will depend on CCEP/2's ability to make payments on the account of
the Master Loan and the availability of cash reserves. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations to permit any additional distributions to its partners in 2002 or
subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 430,935.30 limited partnership units
in the Partnership representing 47.40% of the outstanding units at December 31,
2001. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 47.40% of the outstanding units, AIMCO is in a position to
influence all such voting decisions with respect to the Registrant. When voting
on matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of its affiliation with
the General Partner.
Item 6. Selected Financial Data
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8. Financial
Statements and Supplementary Data".
FOR THE YEARS ENDED DECEMBER 31,
2001 2000 1999 1998 1997
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Total Revenues $ 1,934 $ 1,520 $ 1,328 $ 15,367 $ 6,755
Total Expenses (513) (644) (520) (820) (480)
Net income $ 1,421 $ 876 $ 808 $ 14,547 $ 6,275
Net income per Limited
Partnership Unit $ 1.55 $ 0.95 $ 0.88 $ 15.84 $ 6.83
Distributions per Limited
Partnership Unit $ 2.67 $ 14.70 $ 41.73 $ 3.28 $ 10.98
Limited Partnership Units
outstanding 909,124 909,124 909,124 909,134 909,134
AS OF DECEMBER 31,
BALANCE SHEETS 2001 2000 1999 1998 1997
(in thousands)
Total assets $ 11,796 $ 12,804 $ 25,323 $ 62,466 $ 50,906
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operations. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership's net income for the years ended December 31, 2001 and 2000 was
approximately $1,421,000 and $876,000, respectively. The increase in net income
is due primarily to the increase in total revenues and a decrease in total
expenses. Total revenues increased due to the increase in the reduction of
impairment loss on the investment in the Master Loan, offset by a decrease in
interest income. Interest income decreased due to a decrease in interest
payments received on the Master Loan and due to lower cash balances maintained
in interest bearing accounts. The interest payments on the Master Loan decreased
as a result of a decrease in excess cash flow payments received from CCEP/2.
The decrease in total expenses is due to a decrease in general and
administrative expenses. General and administrative expenses decreased due to a
decrease in reimbursements to the General Partner.
2000 Compared with 1999
The Partnership's net income for the years ended December 31, 2000 and 1999 was
approximately $876,000 and $808,000, respectively. The increase in net income is
due primarily to an increase in interest income on the net investment in the
Master Loan partially offset by an increase in total expenses. Interest income
on the investment in the Master Loan increased as a result of an increase in
excess cash flow payments received from CCEP/2. The increase in total expenses
is due to an increase in general and administrative expenses.
General and administrative expenses increased for the year ended December 31,
2000, primarily due to an increase in the costs of services included in the
management reimbursements to the General Partner as allowed under the
Partnership Agreement which were partially offset by a decrease in legal
expenses related to previous litigation and to a decrease in the costs of
communications with the investors.
Liquidity and Capital Resources
At December 31, 2001, the Registrant had cash and cash equivalents of
approximately $381,000 as compared to approximately $2,143,000 at December 31,
2000. The net decrease of approximately $1,762,000 is due to approximately
$2,428,000 of cash used in financing activities, which was partially offset by
approximately $310,000 of cash provided by operating activities and
approximately $356,000 of cash provided by investing activities. Cash provided
by investing activities consisted of principal receipts on the Master Loan. Cash
used in financing activities consisted of distributions to partners.
At December 31, 2000, the Partnership had cash and cash equivalents of
approximately $2,143,000 as compared to approximately $6,846,000 at December 31,
1999. The decrease in cash and cash equivalents of approximately $4,703,000 is
due to approximately $13,383,000 of cash used in financing activities, which was
partially offset by approximately $7,724,000 of cash provided by investing
activities and approximately $956,000 of cash provided by operating activities.
Cash provided by investing activities consisted of principal receipts on the
Master Loan. Cash used in financing activities consisted of distributions to
partners. The Partnership invests its working capital reserves in interest
bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required to meet the ongoing operating needs of the Partnership and
to comply with Federal, state and local legal and regulatory requirements. Such
assets are currently thought to be sufficient for any near-term needs of the
Partnership. See "CCEP/2 Property Operations" for discussion on CCEP/2's ability
to provide future cash flow as Master Loan debt service.
The Partnership made distributions totaling approximately $2,428,000 during the
twelve months ended December 31, 2001. Of this, approximately $1,299,000
(approximately $1.43 per limited partnership unit) was paid from the refinancing
proceeds of Canyon Crest Apartments in CCEP/2. The remaining $1,129,000
(approximately $1.24 per limited partnership unit) consisted of surplus cash due
to the receipt of interest income on the Master Loan. Both distributions were
distributed 100% to the limited partners.
The Partnership distributed approximately $2,000,000 from operations
(approximately $1,980,000 to the limited partners, or approximately $2.18 per
limited partnership unit) and $4,200,000 all to the limited partners from the
refinancing proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2
(approximately $4.62 per limited partnership unit) and $7,183,000 all to the
limited partners from surplus cash (approximately $7.90 per limited partnership
unit) during the twelve months ended December 31, 2000.
Until the deeds in lieu of foreclosure are executed, future cash distributions
will depend on CCEP/2's ability to make payments on account of the Master Loan
and the availability of cash reserves. The Partnership's cash available for
distribution is reviewed on a monthly basis. There can be no assurance, however,
that the Partnership will have sufficient funds from operations to permit any
additional distributions to its partners in 2002 or subsequent periods.
During the year ended December 31, 2001, the Partnership received approximately
$356,000 as principal payments on the Master Loan consisting of cash received on
certain investments held by CCEP/2 which are required to be transferred to the
Partnership per the Master Loan Agreement.
CCEP/2 Property Operations
CCEP/2 had a net loss of approximately $26,218,000 for the year ended December
31, 2001 on revenues of approximately $5,557,000 versus a net loss of
$24,620,000 on revenues of approximately $5,858,000 for the year ended December
31, 2000. CCEP/2 recognizes interest expense on the New Master Loan Agreement
obligation according to the note terms, although payments to the Partnership are
required only to the extent of Excess Cash Flow, as defined therein. During
2001, CCEP/2's consolidated statement of operations includes total interest
expense attributable to the Master Loan of approximately $26,651,000, of which
$25,747,000 represents interest accrued in excess of required payments. CCEP/2
is expected to continue to generate operating losses as a result of such
interest accruals and noncash charges for depreciation.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $584,000, $172,000, and
$237,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Included in these amounts are fees related to construction management services
provided by an affiliate of the General Partner of approximately $395,000,
$70,000 and $29,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. The construction management service fees are calculated based on a
percentage of current and certain prior year additions to the investment
properties and are being depreciated over 15 years.
For services provided in connection with the refinancings of three of the
Partnership's residential properties during 2000, the General Partner was paid a
commissions related to the refinancings of approximately $165,000 during the
year ended December 31, 2000.
For acting as real estate broker in connection with the sales of six of the
Partnership's commercial properties during 1999, the General Partner was paid a
real estate commission of approximately $1,134,000 during the year ended
December 31, 1999. A commission of $447,000 was paid during the year ended
December 31, 1999 relating to the sale of Richmond Plaza which was accrued at
December 31, 1999.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP/2 pursuant to the
Master Loan Agreement. Such interest payments totaled approximately $904,000,
$1,198,000, and $998,000 for the years ended December 31, 2001, 2000, and 1999,
respectively. These payments were based upon the results of operations for the
Partnership's properties. CCEP/2 made principal payments on the Master Loan of
approximately $356,000, $7,724,000, and $33,111,000, for the years ended
December 31, 2001, 2000, and 1999, respectively. These funds were received from
distributions from three affiliated partnerships, excess cash from the
Partnership's investment properties, proceeds received from the sale of
commercial properties, and proceeds received from the refinancing of three of
the Partnership's residential properties. These funds are required to be
transferred to the Partnership under the terms of the Master Loan.
During the year ended December 31, 2000, the General Partner of CCEP/2
determined that it was in the best interest of CCEP/2 to repay the mortgage note
on Village Brooke. Accordingly, funds which had previously been restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. The reconstruction of Village Brook
began in September 2001. An extraordinary loss on early extinguishment of debt
of approximately $35,000 was recognized as a result of unamortized loan costs
associated with this mortgage.
On October 3, 2000, CCEP/2 refinanced the mortgage note payable on Windmere
Apartments. The refinancing replaced mortgage indebtedness of $3,000,000 with a
new mortgage of $6,075,000. The mortgage was refinanced at a rate of 7.83%
compared to the prior rate of 7.33%. Payments of approximately $50,000 are due
on the first day of each month until the loan matures on November 1, 2010. A
balloon payment of approximately $3,905,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $155,000 at December 31,
2000. Additional loan costs of approximately $7,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $95,000 and
the write-off of unamortized loan costs of approximately $50,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $145,000.
On October 31, 2000, CCEP/2 refinanced the mortgage note payable on Highcrest
Townhomes. The refinancing replaced mortgage indebtedness of $4,000,000 with a
new mortgage of $6,760,000. The mortgage was refinanced at a rate of 7.72%
compared to the prior rate of 7.33%. Payments of approximately $55,000 are due
on the first day of each month until the loan matures on February 1, 2010. A
balloon payment of approximately $4,868,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $141,000 at December 31,
2000. Additional loan costs of approximately $10,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $142,000 and
the write-off of unamortized loan costs of approximately $52,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $194,000.
On December 21, 2000, CCEP/2 refinanced the mortgage note payable on Canyon
Crest Apartments. The refinancing replaced mortgage indebtedness of $2,000,000
with a new mortgage of $3,640,000. The mortgage was refinanced at a rate of
7.10% compared to the prior rate of 7.33%. Payments of approximately $28,000 are
due on the first day of each month until the loan matures on January 1, 2011. A
balloon payment of approximately $2,613,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $100,000 at December 31,
2000. Additional loan costs of approximately $12,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $98,000 and
the write-off of unamortized loan costs of approximately $38,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $136,000.
Lahser One, Lahser Two, Crescent Centre, Central Park Place, Central Park Plaza,
Town Center Plaza and Richmond Plaza were the only commercial properties owned
by CCEP/2 and represented one segment of CCEP/2's operations. All of these
properties were sold during 1999 and accordingly the results of the commercial
segment have been shown as gain on sale of and income from discontinued
operations as of December 31, 1999. Revenues of these properties were
approximately $9,005,000 for the year ended December 31, 1999. No revenues from
the properties were recorded during the years ended December 31, 2001 and 2000.
Income from and gain on sale of discontinued operations was approximately
$20,756,000 for the year ended December 31, 1999.
On September 10, 1999, the five commercial properties located in Michigan
(Lahser One, Lahser Two, Crescent Centre, Central Park Place, and Central Park
Plaza) were sold to an unaffiliated third party for $26,125,000. After closing
expenses of approximately $1,727,000 the net proceeds received by the
Partnership were approximately $24,398,000. The sale of the properties resulted
in a gain on sale of investment property of approximately $10,392,000.
On September 22, 1999, Town Center Plaza, located in Santa Ana, California, was
sold to an unaffiliated third party for $11,650,000. After closing expenses of
approximately $1,004,000, the net proceeds received by the Partnership were
approximately $10,646,000. The Partnership used some of the proceeds from the
sale of the property to pay off the debt encumbering the property of
approximately $2,316,000. The sale of the property resulted in a gain on sale of
investment property of approximately $4,862,000 and a loss on early
extinguishment of debt of approximately $7,000.
On December 23, 1999, Richmond Plaza, located in Richmond, Virginia, was sold to
an unaffiliated third party for $14,900,000. Closing expenses were approximately
$784,000. The debt encumbering the property of approximately $14,500,000 was
assumed by the buyer. The sale of the property resulted in a loss on early
extinguishment of debt of approximately $24,000 and a gain on sale of investment
property of approximately $5,499,000 at December 31, 1999.
In April 1999, one of CCEP/2's residential properties, Village Brooke, was
completely destroyed by a tornado. It is estimated that the property sustained
approximately $16,000,000 in damages. As of December 31, 2001, approximately
$11,302,000 in insurance proceeds have been received, with additional proceeds
expected in the near future. All of the property's fixed assets and related
accumulated depreciation were written off as a result of this casualty. Lost
rents of approximately $417,000 and $750,000 have been recorded as of December
31, 2000 and 1999, respectively. A casualty gain of approximately $250,000 was
recognized at December 31, 2000 as a result of receiving additional insurance
proceeds which were previously not recognized net of approximately $577,000 of
additional clean up and demolition costs incurred. A casualty gain of
approximately $5,473,000 was recognized at December 31, 1999.
In April 1999, an electrical fire occurred at Town Center. The property
sustained approximately $181,000 in damages and realized a casualty loss of
approximately $33,000. This property was subsequently sold in September 1999
(see above) and the purchaser of the property assumed the remaining obligation
related to the fire.
Item 7a. Market Risk Factors
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the loans.
Based upon the fact that the loan is considered impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditor for Impairment
of a Loan", interest rate fluctuations do not affect the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not affect the Partnership's results of operations as it relates to
the Loan. See "Item 8 - Financial Statements and Supplementary Data - Note C"
for further information.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, L.P.
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of December 31, 2001 and 2000
Statements of Operations for the Years ended December 31, 2001, 2000
and 1999
Statements of Changes in Partners' (Deficit) Capital 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
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties/2
We have audited the accompanying balance sheets of Consolidated Capital
Institutional Properties/2 as of December 31, 2001 and 2000, and the related
statements of operations, changes in partners' (deficit) capital, and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital
Institutional Properties/2 at 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.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 15, 2002
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
December 31,
2001 2000
Assets
Cash and cash equivalents $ 381 $ 2,143
Accounts receivable 100 --
Other assets 21 11
Investment in Master Loan to affiliate 39,423 39,779
Less: Allowance for impairment loss (28,129) (29,129)
11,294 10,650
$ 11,796 $ 12,804
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts Payable $ -- $ 1
Other liabilities 45 45
Distributions payable 141 141
186 187
Partners' (Deficit) Capital
General partner (407) (421)
Limited partners (909,123.60 units outstanding) 12,017 13,038
11,610 12,617
$ 11,796 $ 12,804
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
2001 2000 1999
Revenues:
Interest income on net investment
in Master Loan to affiliate $ 904 $ 1,198 $ 998
Reduction of provision for impairment loss 1,000 -- --
Interest income on investments 30 322 330
Total revenues 1,934 1,520 1,328
Expenses:
General and administrative 513 644 520
Total expenses 513 644 520
Net income (Note I) $ 1,421 $ 876 $ 808
Net income allocated to general partner (1%) $ 14 $ 9 $ 8
Net income allocated to limited partners (99%) 1,407 867 800
$ 1,421 $ 876 $ 808
Net income per Limited Partnership Unit $ 1.55 $ 0.95 $ 0.88
Distribution per Limited Partnership Unit $ 2.67 $ 14.70 $ 41.73
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
Total
Limited Partners
Partnership General Limited Capital
Units Partner Partners (Deficit)
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' (deficit) capital at
December 31, 1998 909,134 $ (362) $ 62,673 $ 62,311
Abandonment of units (10) -- -- --
Distributions to partners -- (56) (37,939) (37,995)
Net income for the year ended
December 31, 1999 -- 8 800 808
Partners' (deficit) capital
at December 31, 1999 909,124 (410) 25,534 25,124
Distributions to partners -- (20) (13,363) (13,383)
Net income for the year ended
December 31, 2000 -- 9 867 876
Partners' (deficit) capital at
December 31, 2000 909,124 (421) 13,038 12,617
Distributions to partners -- -- (2,428) (2,428)
Net income for the year ended
December 31, 2001 -- 14 1,407 1,421
Partners' (deficit) capital at
December 31, 2001 909,124 $ (407) $ 12,017 $ 11,610
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2001 2000 1999
Cash flows from operating activities:
Net income $ 1,421 $ 876 $ 808
Adjustments to reconcile net income to
net cash provided by operating activities:
Reduction of provision for impairment loss (1,000) -- --
Change in accounts:
Accounts receivable (100)
Interest receivable on Master Loan -- 92 (92)
Other assets (10) -- 1
Accounts payable (1) 1 --
Other liabilities -- (13) 44
Net cash provided by operating
activities 310 956 761
Cash flows provided by investing activities:
Principal receipts on Master Loan 356 7,724 33,111
Cash flows used in financing activities:
Distributions to partners (2,428) (13,383) (37,995)
Net decrease in cash and cash equivalents (1,762) (4,703) (4,123)
Cash and cash equivalents at beginning
of period 2,143 6,846 10,969
Cash and cash equivalents at end of period $ 381 $ 2,143 $ 6,846
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Institutional Properties/2 (the "Partnership"
or "Registrant"), a California Limited Partnership, was formed on April 12,
1983, to lend funds through non-recourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by, Equity Partners/Two ("EP/2"), a
California general partnership in which certain of the partners were former
shareholders and former management of Consolidated Capital Equities Corporation
("CCEC"), the former corporate general partner of the Partnership. Through
December 31, 2001, the Partnership had advanced approximately $183,470,000 under
the Master Loan.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). On October 18, 1990, the bankruptcy court
approved EP/2's consensual plan of reorganization (the "Plan"). In November
1990, EP/2 and the Partnership consummated a closing under the Plan pursuant to
which, among other things, the Partnership and EP/2 executed an amended and
restated loan agreement (the "New Master Loan Agreement"). EP/2 was converted
from a California general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed
the deeds of trust and mortgages on all the properties collaterally securing the
New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation
and wholly-owned subsidiary of CEI, is the sole general partner of CCEP/2 and an
affiliate of the Partnership. The general partners of EP/2 became limited
partners in CCEP/2. CHI has full discretion with respect to conducting CCEP/2's
business, including managing CCEP/2's properties and initiating and approving
capital expenditures and asset dispositions and refinancings. See "Note C" for
further discussion of EP/2's bankruptcy settlement.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In December 1988, CCEC filed for reorganization under
Chapter 11. In 1990, as part of CCEC's reorganization plan, ConCap Equities,
Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's
general partner interests in the Partnership and in 15 other affiliated public
limited partnerships and replaced CCEC as managing general partner in all 16
partnerships. The General Partner is a subsidiary of Apartment Investment and
Management Company ("AIMCO"). See "Note B - Transfer of Control." The directors
and officers of the General Partner also serve as executive officers of AIMCO.
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2013 unless terminated prior to such date. The Partnership
commenced operations on July 22, 1983. The Partnership was formed for the
benefit of its Limited Partners to lend funds to EP/2.
The Partnership is the holder of a note receivable which is collateralized by
three existing apartment properties and one apartment property which is
currently being rebuilt located throughout the United States. See "Note C" for
further discussion of the status of the note receivable.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances included approximately $381,000 at
December 31, 2001 that are maintained by the affiliated management company on
behalf of affiliated entities in cash concentration accounts.
Investment in Master Loan: The Partnership has adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan"("Statement 114"). Under the standard, the allowance for credit losses
related to loans that are identified for evaluation in accordance with Statement
114 is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans.
Income Taxes: No provision has been made in the financial statements for Federal
income taxes because, under current law, no Federal income taxes are paid
directly by the Partnership. The Unit holders are responsible for their
respective shares of Partnership net income or loss. The Partnership reports
certain transactions differently for tax than for financial statement purposes.
Partners' (Deficit) Capital: The Partnership Agreement provides for net income
and net losses for both financial and tax reporting purposes to be allocated 99%
to the Limited Partners and 1% to the General Partner. "Distributable Cash from
Operations", as defined in the Partnership Agreement, is to be allocated 99% to
the Limited Partners and 1% to the General Partner. Distributions of surplus
funds are to be allocated 100% to the Limited Partners.
Net Income Per Limited Partnership Unit: Net income per Limited Partnership Unit
("Unit") is computed by dividing net income allocated to the Limited Partners by
the number of Units outstanding. Per Unit information has been computed based on
909,123.60 Units outstanding in 2001, 2000, and 1999.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments approximates their fair value due to the short term
maturity of these instruments. The carrying amount of the Partnership's net
investment in the Master Loan approximates fair value due to the fact that it
has been valued based on the fair value of the underlying collateral.
Allowance for Impairment Loss: Allowances to reduce the carrying cost of the
Master Loan are provided when it is probable that reasonably estimable net
realizable values are less than the recorded carrying cost of such investment.
Gains or losses that result from the ongoing periodic evaluation of the net
realizable value of the Master Loan are credited or charged, as appropriate, to
operations in the period in which they are identified. If a collateral party is
sold, CCEP/2 remains liable for any outstanding debt under the Master Loan
Agreement, however, the value of the net investment in Master Loan on the
Partnership's books would be written down to the appropriate level.
Segment Reporting: Statement of Financial Standards ("SFAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("Statement
131") established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also established standards for related disclosures
about products and services, geographic areas, and major customers. As defined
in SFAS No. 131, the Partnership has only one reportable segment. Moreover, due
to the very nature of the Partnership's operations, the General Partner believes
that segment-based disclosures will not result in a more meaningful presentation
than the financial statements as presently presented.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the General Partner. The General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Note C - Net Investment in Master Loan
At December 31, 2001, the recorded investment in the Master Loan is considered
to be impaired under SFAS No. 114. The Partnership measures the impairment of
the loan based upon the fair value of the collateral due to the fact that
repayment of the loan is expected to be provided solely by the collateral. For
the year ended December 31, 2001, the Partnership recorded approximately
$1,000,000 in income based upon an increase in the fair value of the collateral.
No such income was recorded in 2000 and 1999 as the recorded value of the Master
Loan approximated the fair value of the collateral at December 31, 2000 and
1999.
The principal balance of the Master Loan due to the Partnership totaled
approximately $39,423,000 and $39,779,000 at December 31, 2001 and 2000,
respectively. Interest due to the Partnership pursuant to the terms of the
Master Loan Agreement, but not recognized in the income statements, totaled
approximately $25,747,000, $23,722,000, and $23,964,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
At December 31, 2001 and 2000, such cumulative unrecognized interest totaling
approximately $249,719,000 and $223,972,000 was not included in the balance of
the investment in Master Loan as it is not expected to be collected. The
allowance for possible losses totaled approximately $28,129,000 and $29,129,000
at December 31, 2001 and 2000, respectively.
No advances were made to CCEP/2 during the years ended December 31, 2001, 2000
or 1999 as an advance on the Master Loan. The properties owned by CCEP/2 have
approximately $16,096,000 in liens on the collateral that are superior to the
Master Loan.
The investment in Master Loan consists of the following:
As of December 31,
2001 2000
(in thousands)
Master Loan funds advanced, at
beginning of year $39,779 $47,503
Principal receipts on Master Loan (356) (7,724)
Master Loan funds advanced, at
end of year $39,423 $39,779
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
As of December 31,
2001 2000 1999
(in thousands)
Allowance for impairment loss on Master
Loan to affiliate, beginning of year $29,129 $29,129 $29,129
Reduction of provision for impairment loss (1,000) -- --
Allowance for impairment loss on Master
Loan to affiliate, end of year $28,129 $29,129 $29,129
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, physical
condition of the property and other factors, or by obtaining an appraisal by an
independent third party. This methodology has not changed from that used in
prior calculations performed by the General Partner in determining the fair
value of the collateral properties. The $1,000,000 net reduction in the
provision for impairment loss that was recognized during the year ended December
31, 2001 is attributed to an increase in the net realizable value of the
collateral properties. The General Partner evaluates the net realizable value on
a semi-annual basis. The increase was deemed to be attributable to major capital
improvement projects and the strong effort to complete deferred maintenance
items that have been ongoing over the past few years at the various properties.
This enabled the properties to increase their respective occupancy levels or in
some cases to maintain the properties' high occupancy levels. The vast majority
of this work was funded by cash flow from the collateral properties themselves.
Based upon the consistent increase in net realizable value of the collateral
properties, the General Partner determined the increase to be permanent in
nature and accordingly reduced the allowance for impairment loss on the master
loan during the year ended December 31, 2001. There had not been any change in
the net realizable value of the remaining collateral properties for the years
ended December 31, 2000 and 1999 and accordingly, there was no change in the
allowance for impairment loss during the years ended December 31, 2000 or 1999.
Approximately $904,000, $1,198,000 and $998,000 for the years ended December 31,
2001, 2000, and 1999, respectively was recorded as interest income on investment
in the Master Loan to an affiliate based upon cash generated as a result of
improved operations of the properties which secure the loan. A cash payment of
$904,000 was received from CCEP/2 during the first quarter of 2001. Of the
$1,198,000 received during 2000, $853,000 was received from Village Brooke as a
result of its receipt of a portion of the insurance proceeds due from the
destruction of the property (see the Financial Statements of CCEP/2 "Note C -
Casualty Event", included in these financial statements). In addition, a cash
payment of $345,000 was received from CCEP/2 as an excess cash payment during
2000. Excess cash payments of $575,000 and $423,000 were received from CCEP/2
during the second and fourth quarters, respectively of 1999.
During the years ended December 31, 2001, 2000, and 1999, the Partnership
received approximately $356,000, $7,724,000, and $33,111,000 respectively, in
principal payments on the Master Loan. Of these amounts, approximately $356,000,
$134,000, and $1,077,000 represent cash received on certain investments held by
CCEP/2 which are required to be transferred to the Partnership per the Master
Loan agreement and excess cash payments from CCEP/2 for the years ended December
31, 2001, 2000, and 1999, respectively. Of the remaining amounts, the
Partnership received during 2000 approximately $5,500,000 of net proceeds from
the refinanacing of three of CCEP/2's properties and approximately $2,090,000 of
funds previously reserved associated with the destruction of Village Brook which
were released during 2000 and during 1999 approximately $32,034,000 of net
proceeds from the sale of seven of CCEP/2's properties.
Terms of the New Master Loan Agreement
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow after third party debt
service and capital improvements. If such Excess Cash Flow payments are less
than the current accrued interest during the quarterly period, the unpaid
interest is added to principal, compounded annually, and is payable at maturity.
If such Excess Cash Flow payments are greater than the current accrued interest,
the excess amount is applied to the principal balance of the loan. Any net
proceeds from the sale or refinancing of any of CCEP/2's properties are paid to
the Partnership under the terms of the New Master Loan Agreement. The New Master
Loan Agreement matured in November 2000. The General Partner had been
negotiating with CCEP/2 with respect to its options which included foreclosing
on the properties that collateralize the Master Loan or extending the terms of
the Master Loan. The General Partner has decided to foreclose on the properties
that collaterize the Master Loan. Subsequent to December 31, 2001, the
Partnership Agreement was amended to allow the Partnership to directly or
indirectly own investment properties. The General Partner will begin the process
of executing deeds in lieu of foreclosure during the first quarter of 2002 on
the three active properties of CCEP/2. The deed in lieu of foreclosure on the
fourth property, which is currently being rebuilt, will be executed at a later
date. As the deeds are executed, title in the properties currently owned by
CCEP/2 will be vested in the Partnership, subject to the existing liens on such
properties including the first mortgage loans. As a result, the Partnership will
become responsible for the operations of such properties.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in the
definition of Excess Cash Flow has the effect of reducing income on the
investment in Master Loan by the amount of CCEP/2's capital expenditures, since
such amounts were previously excluded from Excess Cash Flow.
EP/2's Bankruptcy Settlement: In November 1990, pursuant to EP/2's
reorganization plan described in "Note A", the Partnership and EP/2 consummated
a closing pursuant to which: (1) the Partnership and EP/2 executed the New
Master Loan Agreement more fully described above; (2) CCEP/2 renewed the deeds
of trust on all the collateral securing the Master Loan; (3) the Partnership
received cash of approximately $2,500,000, including $1,800,000 from the general
partners of EP/2 related to their promissory notes; (4) the Partnership accepted
assignment of certain partnership interests in affiliated partnerships (the
"Affiliated Partnership Interests"), which were valued by management of the
Partnership at approximately $2,500,000, as additional collateral securing the
Master Loan; and (5) all claims between the Partnership and EP/2's general
partners were released.
EP/2 was the holder of a note receivable secured by North Park Plaza which had
not been performing according to the note terms since 1989. In the process of
negotiating the final bankruptcy settlement discussed above, EP/2 assigned its
interest in the note receivable to the Partnership. While the Partnership
foreclosed upon and acquired North Park Plaza in July 1990, CCEP/2 is still
obligated for $6,600,000 under the Master Loan attributable to North Park Plaza
not extinguished in the foreclosure proceeding.
Note D - Transaction with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement (the "Agreement") provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The following payments were made to
the General Partner and affiliates during the years ended December 31, 2001,
2000, and 1999:
For the years ended December 31,
2001 2000 1999
(in thousands)
Reimbursements for services of affiliates
(included in general and administrative
expenses) $ 349 $ 444 $ 217
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $349,000, $444,000 and
$217,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 430,935.30 limited partnership units
in the Partnership representing 47.40% of the outstanding units at December 31,
2001. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 47.40% of the outstanding units, AIMCO is in a position to
influence all such voting decisions with respect to the Registrant. When voting
on matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of its affiliation with
the General Partner.
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Corporate General Partner and
several of their affiliated partnerships and corporate entities. The action
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain General Partner entities by
Insignia Financial Group, Inc. ("Insignia") and entities which were, at one
time, affiliates of Insignia; past tender offers by the Insignia affiliates to
acquire limited partnership units; management of the partnerships by the
Insignia affiliates; and the series of transactions which closed on October 1,
1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust,
respectively, were merged into AIMCO. The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Corporate General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs filed an amended
complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion and a hearing has
been scheduled for April 29, 2002. The Court has set the matter for trial in
January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note F - Distributions
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1999, 2000 and 2001.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/99 - 12/31/99 $37,995,000 (1) $41.73
01/01/00 - 12/31/00 13,383,000 (2) 14.70
01/01/01 - 12/31/01 2,428,000 (3) 2.67
(1) Consists of $323,000 from surplus funds and $32,000,000 from sale proceeds
of CCEP/2 commercial properties distributed 100% to the limited partners
and $5,672,000 from operations (approximately $5,616,000 to the limited
partners or $6.18 per limited partnership unit) distributed to all
partners.
(2) Consists of $2,000,000 (approximately $1,980,000 to the limited partners
or $2.18 per limited partnership unit) from operations which was
distributed to all partners and $4,200,000 all to the limited partners
(approximately $4.62 per limited partnership unit) from refinancing
proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2 and
$7,183,000 (approximately $7.90 per limited partnership unit) from surplus
funds distributed all to the limited partners.
(3) Consists of approximately $1,299,000 (approximately $1.43 per limited
partnership unit) from the refinancing proceeds of Canyon Crest Apartments
in CCEP/2 and $1,129,000 (approximately $1.24 per limited partnership
unit) from surplus cash due to the receipt of interest income on the
master loan. Both distributions were distributed 100% to the limited
partners.
Note G - Abandonment of Units
In 1999, the number of limited partnership units decreased by 10 due to limited
partners abandoning their units. In abandoning his or her Limited Partnership
Units, a limited partner relinquished all right, title and interest in the
Partnership as of the date of abandonment. However, during the year of
abandonment, the limited partner is allocated his or her share of the income or
loss for that year. The net income (loss) per limited partnership unit is
calculated based on the number of units outstanding at the beginning of the
year.
Note H - Partner Tax Information
The following is a reconciliation between net income as reported in the
financial statements and federal taxable loss allocated to the partners in the
Partnership's information return for the years ended December 31, 2001, 2000 and
1999 (in thousands, except per unit data):
2001 2000 1999
Net income as reported $ 1,421 $ 876 $ 808
Add (deduct):
Accrued expenses 2 11 44
Interest income (904) (1,198) (1,129)
Valuation allowances (1,000) -- --
Other (100) -- (35)
Federal taxable loss $ (581) $ (311) $ (312)
Federal taxable loss per limited
partnership unit $ (0.63) $ (0.34) $ (0.34)
The tax basis of the Partnership's assets and liabilities is approximately
$75,701,000 and $77,703,000 greater than the assets and liabilities as reported
in the financial statements at December 31, 2001 and 2000, respectively.
Note I - Selected Quarterly Financial Data (unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
Year Ended December 31, 2001
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Total revenues $ 923 $ 6 $ 1,002 $ 3 $ 1,934
Total expenses 192 151 132 38 513
Net income (loss) $ 731 $ (145) $ 870 $ (35) $ 1,421
Net income (loss) per
Limited Partnership Unit $ 0.80 $ (0.16) $ 0.95 $ (0.04) $ 1.55
Distributions per Limited
Partnership Unit $ 1.43 $ 1.24 $ -- $ -- $ 2.67
Year Ended December 31, 2000
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Total revenues $ 75 $ 1,283 $ 82 $ 80 $ 1,520
Total expenses 87 179 242 136 644
Net (loss) income $ (12) $ 1,104 $ (160) $ (56) $ 876
Net (loss) income per
Limited Partnership Unit $ (0.01) $ 1.20 $ (0.17) $ (0.07) $ 0.95
Distributions per Limited
Partnership Unit $ -- $ 2.18 $ 0.64 $ 11.88 $ 14.70
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
AS OF DECEMBER 31, 2001
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended December 31,
2001, 2000 and 1999
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners/Two, L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two, L.P. as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in partners' deficit, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Equity Partners/Two, L.P. at December 31, 2001 and 2000, and the
consolidated 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.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note A to
the consolidated financial statements, the Partnership has incurred operating
losses, suffers from inadequate liquidity, has an accumulated deficit and is
unable to repay the Master Loan balance, which matured in 2000. These conditions
raise substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 15, 2002
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
2001 2000
Assets
Cash and cash equivalents $ 1,307 $ 2,972
Receivables and deposits (net of allowance of $4 and
$259, respectively) 210 433
Restricted escrows 104 406
Other assets 416 426
Investment properties (Notes E, F and H)
Land 2,731 2,731
Buildings and related personal property 20,617 18,296
23,348 21,027
Less accumulated depreciation (13,615) (12,434)
9,733 8,593
$ 11,770 $ 12,830
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 328 $ 143
Tenant security deposit liabilities 109 115
Accrued property taxes 535 533
Other liabilities 194 250
Mortgage notes payable (Note F) 16,094 16,452
Master loan and interest payable (in default) (Note E) 289,142 263,751
306,402 281,244
Partners' Deficit
General Partner (2,932) (2,670)
Limited Partners (291,700) (265,744)
(294,632) (268,414)
$ 11,770 $ 12,830
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For the Years Ended December 31,
2001 2000 1999
Revenues:
Rental income $ 4,540 $ 4,788 $ 5,597
Other income 1,017 820 610
Casualty gain -- 250 5,473
Total revenues 5,557 5,858 11,680
Expenses:
Operating 1,902 1,976 2,173
General and administrative 323 430 510
Depreciation 1,181 1,117 1,145
Interest 27,927 25,912 26,210
Property taxes 442 533 570
Total expenses 31,775 29,968 30,608
Loss before discontinued operations and
extraordinary item (26,218) (24,110) (18,928)
Income from discontinued operations -- -- 3
Gain on sale of discontinued operations -- -- 20,753
(Loss) income before extraordinary item (26,218) (24,110) 1,828
Extraordinary loss on early extinguishment
of debt (Note F) -- (510) (31)
Net (loss) income $(26,218) $(24,620) $ 1,797
Net (loss) income allocated to general
partner (1%) $ (262) $ (246) $ 18
Net (loss) income allocated to limited
partners (99%) (25,956) (24,374) 1,779
$(26,218) $(24,620) $ 1,797
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at
December 31, 1998 $ (2,442) $(243,149) $(245,591)
Net income for the year ended
December 31, 1999 18 1,779 1,797
Partners' deficit at
December 31, 1999 (2,424) (241,370) (243,794)
Net loss for the year ended
December 31, 2000 (246) (24,374) (24,620)
Partners' deficit at
December 31, 2000 (2,670) (265,744) (268,414)
Net loss for the year ended
December 31, 2001 (262) (25,956) (26,218)
Partners' deficit at
December 31, 2001 $ (2,932) $(291,700) $(294,632)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years Ended December 31,
2001 2000 1999
Cash flows from operating activities:
Net (loss) income $(26,218) $(24,620) $ 1,797
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 1,181 1,117 3,843
Amortization of loan costs and lease commissions 33 52 60
Gain on sale of discontinued operations -- -- (20,753)
Extraordinary loss on early extinguishment of debt -- 510 31
Casualty gain -- (250) (5,473)
Change in accounts:
Restricted cash -- 7,750 (7,750)
Receivables and deposits 223 420 1,218
Other assets (166) 3 337
Accounts payable (245) (180) 56
Tenant security deposit liabilities (6) (79) (387)
Accrued property taxes 2 (13) (199)
Other liabilities (56) (562) (123)
Interest on Master Loan 25,747 23,722 23,963
Net cash provided by (used in) operating
activities 495 7,870 (3,380)
Cash flows from investing activities:
Insurance proceeds received 172 308 8,406
Property improvements and replacements (1,891) (1,126) (2,431)
Proceeds from sale of discontinued operations -- -- 35,180
Net withdrawals from (deposits to) restricted escrows 302 (267) (550)
Net cash (used in) provided by investing
activities (1,417) (1,085) 40,605
Cash flows from financing activities:
Prepayment penalty -- (335) (4)
Loan costs paid (29) (396) --
Principal payments on mortgage notes payable (358) (63) (247)
Principal payments on Master Loan (356) (7,724) (33,111)
Proceeds from mortgage notes payable -- 16,475 --
Repayment of mortgage notes payable -- (15,517) (2,315)
Net cash used in financing activities (743) (7,560) (35,677)
Net (decrease) increase in cash and cash
equivalents (1,665) (775) 1,548
Cash and cash equivalents at beginning of period 2,972 3,747 2,199
Cash and cash equivalents at end of period $ 1,307 $ 2,972 $ 3,747
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,125 $ 2,155 $ 3,630
Supplemental disclosure of non-cash information:
Fixed assets in accounts payable $ 430 $ -- $ --
Assumption of mortgage note payable by purchaser of
Richmond Plaza $ -- $ -- $ 14,500
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
The financial statements of Consolidated Capital Equity Partners/Two, L.P. (the
"Partnership" or "CCEP/2") have been prepared assuming that the Partnership will
continue as a going concern. The Partnership continues to incur operating
losses, suffers from inadequate liquidity, has an accumulated deficit, and is
unable to repay the Master Loan balance which matured in 2000. The Partnership
realized a net loss of approximately $26,218,000 for the year ended December 31,
2001. The General Partner expects the Partnership to continue to incur such
losses from operations.
The Partnership's indebtedness to Consolidated Capital Institutional
Properties/2 ("CCIP/2") under the Master Loan of approximately $289,142,000,
including accrued interest, matured in November 2000. Concap Holdings, Inc.
("CHI" or the "General Partner") had been in negotiations with CCIP/2 with
respect to its options which included CCIP/2 foreclosing on the properties in
CCEP/2 which collateralized the Master Loan or extending the terms of the Master
Loan. The Partnership does not have the means with which to satisfy this
obligation. No other sources of additional financing have been identified by the
Partnership, nor does the General Partner have any other plans to remedy the
liquidity problems the Partnership is currently experiencing. At December 31,
2001, partners' deficit was approximately $294,632,000. CCIP/2 has decided to
foreclose on the properties that collaterize the Master Loan. Subsequent to
December 31, 2001, the Partnership Agreement of CCIP/2 was amended to allow
CCIP/2 to directly or indirectly own investment properties. CCIP/2 will begin
the process of executing deeds in lieu of foreclosure during the first quarter
of 2002 on the three active properties of the Partnership. The deed in lieu of
foreclosure on the fourth property, which is currently being rebuilt (see "Note
C"), will be executed at a later date. As the deeds are executed, title in the
properties currently owned by the Partnership will be vested in CCIP/2, subject
to the existing liens on the properties including the first mortgage loans. When
the Partnership no longer has title to the properties, it will be dissolved.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Organization: Equity Partners/Two ("EP/2"), a California Corporate General
Partnership, was formed on April 28, 1983, to engage in the business of
acquiring, operating and holding equity investments in income-producing real
estate properties. Certain of the general partners of EP/2 were former
shareholders and former management of Consolidated Capital Equities Corporation
("CCEC"), the former corporate general partner of CCIP/2. On November 16, 1990,
pursuant to the bankruptcy settlement discussed below, EP/2's general partners
executed a new partnership agreement (the "New Partnership Agreement") whereby
EP/2 converted from a general partnership to a California limited partnership,
CCEP/2. The general partners of EP/2 became limited partners of CCEP/2. ConCap
Holdings, Inc. ("CHI"), a Texas corporation, is CCEP/2's General Partner.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from CCIP/2, a California
limited partnership. These notes are secured by the real properties owned by and
notes receivable on sold properties owed to CCEP/2. The Partnership Agreement
provides that the Partnership is to terminate on June 24, 2011 unless terminated
prior to such date. The Partnership commenced operations on April 28, 1983. The
Partnership currently owns three apartment properties one each located in
Colorado, Illinois, and Texas and is currently rebuilding a fourth apartment
building which is located in Ohio. Six commercial properties were sold in
September, 1999 and one commercial property was sold in December 1999.
Principles of Consolidation: The financial statements include all the amounts
of the Partnership and its 99.00% owned partnership. The General Partner of
the consolidated partnerships is ConCap Holdings, Inc. ConCap Holdings Inc.
may be removed as the general partner of the consolidated partnership by the
Registrant; therefore, the consolidated partnerships are controlled and
consolidated by the Registrant. All significant interpartnership balances
have been eliminated.
EP/2 Bankruptcy and Reorganization: During 1989, EP/2 defaulted on certain
interest payments that were due to CCIP/2 under the Master Loan and, before
CCIP/2 was able to exercise its remedies for such default, EP/2 filed for
bankruptcy protection in a Chapter 11 reorganization proceeding ("Chapter 11").
On October 18, 1990, the bankruptcy court approved EP/2's consensual plan of
reorganization (the "Plan"). On November 16, 1990, CCIP/2 consummated a closing
under the Plan pursuant to which: (1) CCIP/2 and EP/2 executed an amended and
restated loan agreement ("New Master Loan Agreement"); (2) CCEP/2 renewed the
deeds of trust on all collateral securing the Master Loan; (3) EP/2 paid CCIP/2
cash of approximately $2.5 million, including $1.8 million contributed by the
Corporate General Partners of EP/2 related to their promissory notes; (4) the
general partners of EP/2 contributed certain partnership interests in affiliated
partnerships ("General Partnership Interests"), which were valued by management
of CCIP/2 at approximately $2.5 million, that were assigned to CCIP/2 as
additional collateral securing the Master Loan and (5) all liabilities and
claims between EP/2's general partners and CCIP/2 were released. See "Note E"
for a description of the terms of the New Master Loan Agreement.
The Corporate Managing General Partner of EP/2 was Consolidated Capital
Enterprises, Inc. ("CCEI"), a Georgia corporation. In December 1988, CCEC filed
for Chapter 11 protection. In October 1990, as part of CCEC's reorganization
plan, CCEC sold its general partner interest in CCIP/2 to ConCap Equities, Inc.
("CEI"), a Delaware corporation. Pursuant to the New Partnership Agreement as
discussed above, CHI, a wholly-owned subsidiary of CEI, became the sole general
partner of CCEP/2, replacing CCEI, and the former general partners of EP/2
became limited partners of CCEP/2. Pursuant to the New Partnership Agreement,
CCEP/2 is managed by CHI and CHI has full discretion with respect to conducting
CCEP/2's business. CHI and the limited partners are hereinafter referred to
collectively as the "Partners." All of CEI's outstanding stock is owned by
Insignia Properties Trust, an affiliate of Apartment Investment and Management
Company ("AIMCO"). (See "Note B - Transfer of Control").
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances include approximately $1,289,000 at
December 31, 2001 that are maintained by the affiliated management company on
behalf of affiliated entities in cash concentration accounts.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and are included in receivables and
deposits. Deposits are refunded when the tenant vacates, provided the tenant has
not damaged the space and is current on rental payments.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used 18
years for additions after March 15, 1984, and before May 9, 1985, and 19 years
for additions after May 8, 1985, and before January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 years.
Loan Costs: Loan costs of approximately $425,000 and approximately $397,000 at
December 31, 2001 and 2000, respectively, less accumulated amortization of
approximately $41,000 and $7,000, at December 31, 2001 and 2000, respectively,
are included in other assets and are being amortized on a straight-line basis
over the life of the loans. The amortization expense is included in interest
expense. As a result of the refinance of three of the Partnership's residential
properties, Windmere Apartments, Highcrest Townhomes Apartments, and Canyon
Crest Apartments, and the repayment of the mortgage notes which had encumbered
the Partnership's other residential property, Village Brooke, loan costs of
approximately $175,000, net of accumulated amortization, were written off in
2000.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $93,000, $116,000, and $159,000 for the years
ended December 31, 2001, 2000, and 1999, respectively, were charged to expense
as incurred.
Investment Properties: Investment properties consist of four apartment complexes
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of properties that have been permanently impaired have been written down
to appraised value. No adjustments for impairment of value were recorded in the
years ended December 31, 2001, 2000, and 1999. See "Recent Accounting
Pronouncements" below.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In addition,
the General Partner's policy is to offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged against rental income as incurred.
The Partnership leased certain commercial space to tenants under various lease
terms. The leases were accounted for as operating leases in accordance with
"Financial Accounting Standards Board Statement No. 13". Some of the leases
contained stated rental increases during their term. For leases with fixed
rental increases, rents were recognized on a straight-line basis over the terms
of the lease. For all other leases, minimum rents were recognized over the terms
of the leases. The Partnership sold its last commercial properties during 1999.
Restricted Escrows:
Reserve Account: A general Reserve Account was established in 1996 with the
refinancing proceeds for each mortgaged property. These funds were established
to cover necessary repairs and replacements of existing improvements, debt
service, out of pocket expenses incurred for ordinary and necessary
administrative tasks, and payment of real property taxes and insurance premiums.
The Partnership was required to make quarterly deposits of net operating income
(as defined in the mortgage note) from each refinanced property to the
respective reserve account. The balance at December 31, 1999, was approximately
$139,000 which includes interest. As a result of the refinancings of three of
the residential properties in 2000, the reserve accounts were no longer required
and the balances in each property's account was refunded during 2000.
Completion/Repair Escrow: A completion/repair escrow account was established in
2000 with the refinancing proceeds for Windmere Apartments, Highcrest Townhomes,
and Canyon Crest Apartments. The funds were established to cover necessary
repairs and complete various capital projects as noted for each property. The
balance at December 31, 2001 and 2000 was approximately $104,000 and $406,000,
respectively, which includes interest.
Lease Commissions: Lease commissions were capitalized and amortized using the
straight-line method over the life of the applicable lease. The seven commercial
properties for which lease commissions were applicable were sold during 1999,
and the corresponding balance in lease commissions was written off.
Allocation of Net Income and Cash Distributions: Pursuant to the Partnership
Agreement, net income and net losses for both financial and tax reporting
purposes are allocated 99% to the Limited Partners and 1% to CHI. Distributions
to the Partners are not allowed until CCEP/2 has fully paid and performed under
the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for Federal
income taxes because under current law, no Federal income taxes are paid
directly by CCEP/2. The Partners are responsible for their respective shares of
CCEP/2's net income or loss. CCEP/2 reports certain transactions differently for
tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$238,559,000 and $212,361,000 greater than the assets and liabilities as
reported in the financial statements for the years ended December 31, 2001 and
2000, respectively.
Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
The General Partner does not anticipate that its adoption will have a
material effect on the financial position or results of operations of the
Partnership.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the General Partner. The General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Note C - Casualty Event
In April 1999, one of the Partnership's residential properties, Village Brooke,
was completely destroyed by a tornado. It is estimated that the property
sustained approximately $16,000,000 in damages. As of December 31, 2001,
approximately $11,302,000 in insurance proceeds have been received, with
additional insurance proceeds expected in the near future. All of the property's
fixed assets and related accumulated depreciation were written off as a result
of this casualty. Lost rents of approximately $417,000 and $750,000 have been
recorded as of December 31, 2000 and 1999, respectively. A casualty gain of
approximately $250,000 was recognized at December 31, 2000 as a result of
receiving additional insurance proceeds which were previously not recognized net
of approximately $577,000 of additional clean up and demolition costs incurred.
A casualty gain of approximately $5,473,000 was recognized at December 31, 1999.
The reconstruction of the property began in September 2001. The Partnership is
negotiating with several insurance companies as to the final settlement amount.
The Partnership expects to receive additional funds; however, the final
settlement amount cannot be reasonably estimated.
In April 1999, an electrical fire occurred at Town Center. The property
sustained approximately $181,000 in damages and realized a casualty loss of
approximately $33,000 which is included in operating expense. The property was
sold in September 1999 (see "Note D"). The purchaser of the property assumed the
remaining obligations related to the fire.
Note D - Sale of Investment Property-Discontinued Operations
Lahser One, Lahser Two, Crescent Centre, Central Park Place, Central Park Plaza,
Town Center Plaza and Richmond Plaza were the only commercial properties owned
by the Partnership and represented one segment of the Partnership's operations.
All of these properties were sold during 1999 and accordingly the results of the
commercial segment have been shown as gain on sale of and income from
discontinued operations for the year ended December 31, 1999. Revenues of these
properties were approximately $9,005,000 for the year ended December 31, 1999.
No revenues from the properties were recorded during the years ended December
31, 2001 and 2000. Income from and gain on sale of discontinued operations was
approximately $20,756,000 for the year ended December 31, 1999.
On September 10, 1999, the five commercial properties located in Michigan
(Lahser One, Lahser Two, Crescent Centre, Central Park Place, and Central Park
Plaza) were sold to an unaffiliated third party for $26,125,000. After closing
expenses of approximately $1,727,000 the net proceeds received by the
Partnership were approximately $24,398,000. The sale of the properties resulted
in a gain on sale of investment property of approximately $10,392,000.
On September 22, 1999, Town Center Plaza, located in Santa Ana, California, was
sold to an unaffiliated third party for $11,650,000. After closing expenses of
approximately $1,004,000, the net proceeds received by the Partnership were
approximately $10,646,000. The Partnership used some of the proceeds from the
sale of the property to pay off the debt encumbering the property of
approximately $2,316,000. The sale of the property resulted in a gain on sale of
investment property of approximately $4,862,000 and a loss on early
extinguishment of debt of approximately $7,000.
On December 23, 1999, Richmond Plaza, located in Richmond, Virginia, was sold to
an unaffiliated third party for $14,900,000. Closing expenses were approximately
$784,000. The debt encumbering the property of approximately $14,500,000 was
assumed by the buyer. The sale of the property resulted in a gain on sale of
investment property of approximately $5,499,000 and a loss on early
extinguishment of debt of approximately $24,000 at December 31, 1999.
Note E - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
2001 and 2000, are approximately $289,142,000 and approximately $263,751,000,
respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan, interest accrues at 10% per annum and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the Master Loan Agreement as net cash flow from operations after
capital improvements and third-party debt service. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
currently payable interest, the excess amount is applied to the principal
balance of the loan. The net proceeds from the refinancing of three of the
residential properties during the year ended December 31, 2000 and the net
proceeds from the sale of the commercial properties during the year ended
December 31, 1999 were paid to CCIP/2 as required under the terms of the Master
Loan Agreement.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from CCIP/2 to CCEP/2. This amendment and change in the definition of
Excess Cash Flow has the effect of reducing Master Loan payments to CCIP/2 by
the amount of CCEP/2's capital expenditures since such amounts were previously
excluded from Excess Cash Flow. The amendment will have no effect on the
computation of interest expense on the Master Loan.
No advances were received from CCIP/2 during the years ended December 31, 2001
and 2000 as an advance on the Master Loan. The Master Loan matured in November
2000. The General Partner has determined that the Master Loan and related
interest payable has no determinable fair value since payments are limited to
net cash flows, as defined, but is not believed to be in excess of the fair
values of the underlying collateral.
The General Partner has been in negotiations with CCIP/2 with respect to its
options which included CCIP/2 foreclosing on the properties in CCEP/2 which
collateralize the Master Loan or extending the terms of the Master Loan. CCIP/2
has decided to foreclose on the properties that collaterize the Master Loan.
Subsequent to December 31, 2001, the Partnership Agreement of CCIP/2 was amended
to allow CCIP/2 to directly or indirectly own investment properties. CCIP/2 will
begin the process of executing deeds in lieu of foreclosure during the first
quarter of 2002 on the three active properties of the Partnership. The deed in
lieu of foreclosure on the fourth property, which is currently being rebuilt
(see "Note C"), will be executed at a later date. As the deeds are executed,
title in the properties currently owned by the Partnership will be vested in
CCIP/2, subject to the existing liens on the properties including the first
mortgage loans. When the Partnership no longer has title to the properties, it
will be dissolved.
During 2001, CCEP/2 paid down the Master Loan by $356,000. These payments were
made from distributions received from three affiliated partnerships. During
2000, CCEP/2 paid down the Master Loan by $7,724,000. These principal payments
were made from distributions received from three affiliated partnerships and
from proceeds received from the refinance of three of the Partnership's
residential properties. During 1999, CCEP/2 paid down the Master Loan by
$33,111,000. These principal payments were made from distributions received from
three affiliated partnerships, excess cash from the Partnership's investment
properties and from proceeds received from the sale of the Partnership's
commercial properties.
Note F - Mortgage Notes Payable
Principal Principal Monthly Principal
Balance At Balance At Payment Stated Balance
December 31, December 31, Including Interest Maturity Due At
Property 2001 2000 Interest Rate Date Maturity
(in thousands) (in thousands)
Canyon Crest
1st Mortgage $ 3,562 $ 3,640 $ 28 7.10% 01/01/11 $ 2,613
Highcrest Townhomes
1st Mortgage 6,599 6,748 55 7.72% 02/01/10 4,868
Windemere
1st Mortgage 5,933 6,064 50 7.83% 11/01/10 3,905
Totals $16,094 $16,452 $133 $11,386
On October 3, 2000, CCEP/2 refinanced the mortgage note payable on Windmere
Apartments. The refinancing replaced mortgage indebtedness of $3,000,000 with a
new mortgage of $6,075,000. The mortgage was refinanced at a rate of 7.83%
compared to the prior rate of 7.33%. Payments of approximately $50,000 are due
on the first day of each month until the loan matures on November 1, 2010. A
balloon payment of approximately $3,905,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $155,000 at December 31,
2000. Additional loan costs of approximately $7,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $95,000 and
the write-off of unamortized loan costs of approximately $50,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $145,000.
On October 31, 2000, CCEP/2 refinanced the mortgage note payable on Highcrest
Townhomes. The refinancing replaced mortgage indebtedness of $4,000,000 with a
new mortgage of $6,760,000. The mortgage was refinanced at a rate of 7.72%
compared to the prior rate of 7.33%. Payments of approximately $55,000 are due
on the first day of each month until the loan matures on February 1, 2010. A
balloon payment of approximately $4,868,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $141,000 at December 31,
2000. Additional loan costs of approximately $10,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $142,000 and
the write-off of unamortized loan costs of approximately $52,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $194,000.
On December 21, 2000, CCEP/2 refinanced the mortgage note payable on Canyon
Crest Apartments. The refinancing replaced mortgage indebtedness of $2,000,000
with a new mortgage of $3,640,000. The mortgage was refinanced at a rate of
7.10% compared to the prior rate of 7.33%. Payments of approximately $28,000 are
due on the first day of each month until the loan matures on January 1, 2011. A
balloon payment of approximately $2,613,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $100,000 at December 31,
2000. Additional loan costs of approximately $12,000 were incurred during the
year ended December 31, 2001. Prepayment penalties of approximately $98,000 and
the write-off of unamortized loan costs of approximately $38,000 resulted in an
extraordinary loss on early extinguishment of debt of approximately $136,000.
During the year ended December 31, 2000, the General Partner determined that it
was in the best interest of the Partnership to repay the mortgage note on
Village Brooke. Accordingly, funds which had previously been restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. An extraordinary loss on early
extinguishment of debt of approximately $35,000 was recognized as a result of
unamortized loan costs associated with this mortgage.
The mortgage notes payable are nonrecourse and are collateralized by deeds of
trust on the real property. The mortgage notes require prepayment penalties if
repaid prior to maturity. All of these notes are superior to the Master Loan.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 2001, are as follows (in thousands):
Years Ending December 31,
2002 $ 394
2003 426
2004 459
2005 495
2006 535
Thereafter 13,785
Total $ 16,094
Note G - Related Party Transactions
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. CCEP/2 paid property management fees
based upon collected gross rental revenues for property management services in
each of the years ended December 31, 2001, 2000, and 1999. The Partnership
Agreement (the "Agreement") also provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of CCEP/2's activities.
Also, CCEP/2 is subject to an Investment Advisory Agreement between CCEP/2 and
an affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP/2's properties. The General Partner
and its affiliates received reimbursements and fees for the years ended December
31, 2001, 2000, and 1999 as follows:
2001 2000 1999
(in thousands)
Property management fees (included in
operating expenses) $ 346 $ 257 $ 304
Investment advisory fees (included in general
and administrative expense) 59 178 178
Reimbursement for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 584 172 237
Real estate brokerage commissions (included in
gain on sale of discontinued operations) -- -- 1,581
Refinancing fees (included in capitalized loan
costs) -- 165 --
During the years ended December 31, 2001, 2000, and 1999, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $346,000, $257,000, and
$304,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $59,000, $178,000, and $178,000 for the years ended December
31, 2001, 2000, and 1999, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $584,000, $172,000, and
$237,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Included in these amounts are fees related to construction management services
provided by an affiliate of the General Partner of approximately $395,000,
$70,000 and $29,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. The construction management service fees are calculated based on a
percentage of current and certain prior year additions to the investment
properties and are being depreciated over 15 years.
For services provided in connection with the refinancings of three of the
Partnership's residential properties, the General Partner was paid total
commissions related to the refinancings of approximately $165,000 during the
year ended December 31, 2000.
For acting as real estate broker in connection with the sales of seven of the
Partnership's commercial properties, the General Partner was paid a real estate
commission of approximately $1,134,000 during the year ended December 31, 1999.
A commission of $447,000 was paid during the year ended December 31, 1999
relating to the sale of Richmond Plaza which was accrued at December 31, 1999.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the year ended December 31, 2001,
the Partnership paid AIMCO and its affiliates approximately $95,000 for
insurance coverage and fees associated with policy claims administration.
In addition to the compensation and reimbursements described above, interest
payments are made to CCIP/2 pursuant to the Master Loan Agreement. Such interest
payments totaled approximately $904,000, $1,198,000, and $998,000 for the years
ended December 31, 2001, 2000, and 1999, respectively. No advances were made
under the Master Loan Agreement during the years ended December 31, 2001, 2000,
and 1999. Additionally, CCEP/2 made principal payments on the Master Loan of
approximately $356,000, $7,724,000 and $33,111,000, for the years ended December
31, 2001, 2000 and 1999, respectively. These funds were received from
distributions from three affiliated partnerships, excess cash from the
Partnership's investment properties, proceeds received from the sale of
commercial properties and from proceeds received from the refinancing of three
of the Partnership's residential properties.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following at
December 31, 2001 (in thousands):
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
Canyon Crest $ 145 $ 3,997 $ 4,142 $ 2,774 3-20
Highcrest Townhomes 707 8,364 9,071 5,969 3-20
Village Brooke 1,099 1,684 2,783 -- 3-20
Windmere 780 6,572 7,352 4,872 3-20
Total $ 2,731 $20,617 $23,348 $13,615
Note I - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion and a hearing has
been scheduled for April 29, 2002. The Court has set the matter for trial in
January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note J - Selected Quarterly Financial Data (unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands):
Year Ended December 31, 2001
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Revenues $ 1,259 $ 1,315 $ 1,701 $ 1,282 $ 5,557
Expenses 7,971 7,850 7,916 8,038 31,775
Net loss $(6,712) $(6,535) $(6,215) $(6,756) $(26,218)
Year Ended December 31, 2000
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Revenues $ 1,665 $ 2,447 $ 1,266 $ 480 $ 5,858
Expenses 7,670 7,488 7,431 7,379 29,968
Loss before extraordinary item (6,005) (5,041) (6,165) (6,899) (24,110)
Extraordinary loss on early
extinguishment of debt -- (35) -- (475) (510)
Net loss $(6,005) $(5,076) $(6,165) $(7,374) $(24,620)
PART III
Item 10. Directors and Executive Officers of the General Partner of the
Partnership
The Registrant has no officers or directors. The General Partner is ConCap
Equities, Inc. ("CEI"). The names and ages of, as well as the position and
offices held by the present executive officers and directors of the General
Partner are set forth below. There are no family relationships between or
among any officers or directors.
Name Age Position
Patrick J. Foye 44 Executive Vice President and Director
Martha L. Long 42 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989
to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D.
from Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner since October 1998 as a result of the acquisition of Insignia Financial
Group, Inc. As of February 2001, Ms. Long was also appointed head of the service
business for AIMCO. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The executive officers and director of the General Partner fulfill the
obligations of the Audit Committee and oversee the Partnership's financial
reporting process on behalf of the General Partner. Management has the primary
responsibility for the financial statements and the reporting process including
the systems of internal controls. In fulfilling its oversight responsibilities,
the executive officers and director of the General Partner reviewed the audited
financial statements with management including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The executive officers and director of the General Partner reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States, their judgments as to the quality, not
just the acceptability, of the Partnership's accounting principles and such
other matters as are required to be discussed with the Audit Committee or its
equivalent under auditing standards generally accepted in the United States. In
addition, the Partnership has discussed with the independent auditors the
auditors' independence from management and the Partnership including the matters
in the written disclosures required by the Independence Standards Board and
considered the compatibility of non-audit services with the auditors'
independence.
The executive officers and director of the General Partner discussed with the
Partnership's independent auditors the overall scope and plans for their audit.
In reliance on the reviews and discussions referred to above, the executive
officers and director of the General Partner has approved the inclusion of the
audited financial statements in the Form 10-K for the year ended December 31,
2001 for filing with the Securities and Exchange Commission.
The General Partner has reappointed Ernst & Young LLP as independent auditors to
audit the financial statements of the Partnership for the current fiscal year.
Fees for the last fiscal year were audit services of approximately $24,000 and
non-audit services (principally tax-related) of approximately $13,000.
Item 11. Executive Compensation
None of the directors and officers of the General Partner received any
remuneration from the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 2001:
Entity Number of Units Percentage
Reedy River Properties
(an affiliate of AIMCO) 168,736.5 18.56%
Insignia Properties, LP
(an affiliate of AIMCO) 17,240.6 1.90%
AIMCO Properties, LP
(an affiliate of AIMCO) 177,439.5 19.51%
Cooper River Properties, LLC
(an affiliate of AIMCO) 67,518.7 7.43%
Reedy River Properties, Insignia Properties, LP, and Cooper River Properties,
LLC are indirectly ultimately owned by AIMCO. Their business address is 55
Beattie Place, Greenville, SC 29602.
AIMCO Properties, LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No directors or officers of the General Partner owns any Units of the
Partnership of record or beneficially.
Item 13. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement (the "Agreement") provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The following payments were made to
the General Partner and affiliates during the years ended December 31, 2001,
2000, and 1999:
For the years ended December 31,
2001 2000 1999
(in thousands)
Reimbursements for services of affiliates $ 349 $ 444 $ 217
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $349,000, $444,000 and
$217,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the year ended December 31, 2001,
the Partnership paid AIMCO and its affiliates approximately $95,000 for
insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 430,935.30 limited partnership units
in the Partnership representing 47.40% of the outstanding units at December 31,
2001. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 47.40% of the outstanding units, AIMCO is in a position to
influence all such voting decisions with respect to the Registrant. When voting
on matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of its affiliation with
the General Partner.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit 3.2, Fourth Amendment to the amended and restated limited
partnership agreement of CCIP/2 dated January 8, 2002.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year
2001:
None.
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.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES/2
By: ConCap Equities, Inc.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the date indicated.
/s/Patrick J. Foye Date:
Patrick J. Foye
Executive Vice President and Director
/s/Martha L. Long Date:
Martha L. Long
Senior Vice President and Controller
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.1 Agreement and Plan of Merger, dated as of October 1, 1998
between AIMCO and IPT.
3.1 Certificates of Limited Partnership, as amended to date.
3.2 Fourth Amendment to the amended and restated limited
partnership agreement of CCIP/2 dated January 8, 2002
(Incorporated by reference to the annual report on Form 10-K
for the year ended December 31, 2001).
10.1 Amended Loan Agreement dated November 15, 1990 (the "Effective
Date"), by and between the Partnership and EP/2 (Incorporated
by reference to the Annual Report on Form 10-K for the year
ended December 31, 1990 ("1990 Annual Report")).
10.2 Assumption Agreement as of the Effective Date, by and between
EP/2 and CCEP/2 (Incorporated by reference to the 1990 Annual
Report).
10.3 Assignment of Claims as of the Effective Date, by and
between the Partnership and EP/2. (Incorporated by
reference to the 1990 Annual Report).
10.4 Assignment of Partnership Interests in CC Office Associates
and Broad and Locust Associates dated November 16, 1990 (the
effective date), by and between EP/2 and CCEP/2 (Incorporated
by reference to the 1990 Annual Report).
10.5 Property Management Agreement No. 113 dated October 23,
1990, by and between the Partnership and CCEC (Incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.6 Bill of Sale and Assignment dated October 23, 1990, by and
between CCEC and ConCap Services Company (Incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.7 Assignment and Assumption dated October 23, 1990, by and
between CCEC and ConCap Management Limited Partnership
("CCMLP") (Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990).
10.8 Assignment and Agreement as to Certain Property Management
Services dated October 23, 1990, by and between CCMLP and
ConCap Capital Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.9 Assignment and Agreement dated October 23, 1990, by and
between CCMLP and The Hayman Company (100 Series of Property
Management Contracts)(Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.10 Construction Management Cost Reimbursement Agreement dated
January 1, 1991, by and between the Partnership and The Hayman
Company. (Incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1991).
10.11 Investor Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990).
10.12 Assignment and Assumption Agreement (Investor Services
Agreement) dated October 23, 1990 by and between CCEC and
ConCap Services Company.
10.13 Letter of Notice dated December 20, 1991, from Partnership
Services, Inc. ("PSI") to the Partnership regarding the change
in ownership and dissolution of ConCap Services Company
whereby PSI assumed the Investor Services Agreement.
(Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1991).
10.14 Financial Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990) (Incorporated by reference to the 1990
Annual Report).
10.15 Assignment and Assumption Agreement (Financial Services
Agreement) dated October 23, 1990, by and between CCEC and
ConCap Capital Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.16 Letter of Notice dated December 20, 1991, from PSI to the
Partnership regarding the change in ownership and dissolution
of ConCap Capital Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference to the Annual
Report on Form 10-K for the year ended December 31, 1991).
10.17 Property Management Agreement No. 501 dated February 16,
1993, by and between the Partnership and Coventry
Properties, Inc. (Incorporated by reference to the Annual
Report on Form 10-K for the year ended December 31, 1992).
10.18 Property Management Agreement No. 412 dated May 13, 1993,
by and between Consolidated Capital Equity Partners/Two
L.P. and Coventry Properties, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.19 Assignment and Assumption Agreement (Property Management
Agreement No. 412) dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment Management Company
Inc. and Partnership Services, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.20 Assignment and Agreement as to Certain Property Management
Services dated May 13, 1993, by and between Coventry
Properties, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
10.21 Property Management Agreement No. 413 dated May 13, 1993,
by and between Consolidated Capital Equity Partners/Two
L.P. and Coventry Properties, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.22 Assignment and Assumption Agreement (Property Management
Agreement No. 413) dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment Management
Company, Inc. and Partnership Services, Inc. (Incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.23 Assignment and Agreement as to Certain Property Management
Services dated May 13, 1993, by and between Coventry
Properties, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
10.24 Contract for sale of real estate for North Park Plaza dated
September 12, 1996, between Consolidated Capital Institutional
Properties/2, a California limited partnership and North Park
Southfield, L.L.C., a Michigan limited liability company.
10.25 Contract for sale of real estate for Lahser One, Lahser Two,
Crescent Centre, Central Park Place, and Central Park Plaza
dated September 10, 1999 between Consolidated Capital
Institutional Properties/2, a California limited partnership
and Southfield Office Properties, LLC. (Filed with Form 8-K
dated September 10, 1999).
10.26 Second amendment to purchase and sale contract between
Consolidated Capital Institutional Properties/2, a
California limited partnership and Southfield Office
Properties, LLC for sale of real estate for Lahser One,
Lahser Two, Crescent Centre, Central Park Place, and
Central Park Plaza (Filed with Form 8-K dated September 10,
1999).
10.27 Reinstatement of and Third amendment to purchase and sale
contract between Consolidated Capital Institutional
Properties/2, a California limited partnership and Southfield
Office Properties, LLC for sale of real estate for Lahser One,
Lahser Two, Crescent Centre, Central Park Place, and Central
Park Plaza (Filed with Form 8-K dated September 10, 1999).
10.28 Contract for sale of real estate for Towne Center Plaza dated
September 22, 1999 between Consolidated Capital Institutional
Properties/2 , a California limited partnership and Colton
Real Estate Group, d/b/a The Colton Company (Filed with Form
8-K/A dated September 22, 1999).
10.29 Contract for sale for real estate for Richmond Plaza dated
December 23, 1999 between Consolidated Capital Institutional
Properties/2, a California limited partnership and The
Bernstein Companies (Filed with Form 8-K dated December 23,
1999).
10.30 Multifamily Note dated October 2, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Windmere Apartments (Filed with Form 8-K on
November 27, 2000).
10.31 Multifamily Note dated October 31, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Highcrest Townhomes Apartments (Filed with Form
8-K on November 27, 2000).
10.32 Multifamily Note dated December 22, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Canyon Crest Apartments (filed with Form 8-K on
January 22, 2001).
11 Statement regarding computation of Net Income per Limited
Partnership Unit (Incorporated by reference to Note 1 of
Item 8 - Financial Statements of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young to the
Securities and Exchange Commission regarding change in
certifying accountant. (Incorporated by reference to Form 8-K
dated August 6, 1992).
28.1 Fee Owner's Limited Partnership Agreement dated November 14,
1990 (Incorporated by reference to the 1990 Annual Report).
FOURTH AMENDMENT
TO THE AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
THIS FOURTH AMENDMENT TO THE AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2 (this
"Amendment") is entered into as of the 8th day of January, 2002, by and among
ConCap Equities, Inc., a Delaware corporation (the "General Partner"), and each
of the Limited Partners. All capitalized terms used herein but not otherwise
defined shall have the meanings ascribed thereto in the "Partnership Agreement"
(as defined below).
WHEREAS, Consolidated Capital Institutional Properties/2, a
California limited partnership (the "Partnership"), exists pursuant to that
certain Limited Partnership Agreement of Consolidated Capital Institutional
Properties/2, dated as of April 12, 1983, as amended and restated by an Amended
and Restated Limited Partnership Agreement of Consolidated Capital Institutional
Properties/2, dated June 24, 1983, as further amended by that certain First
Amendment to the Consolidated Capital Institutional Properties/2 Amended and
Restated Limited Partnership Agreement, dated as of July 15, 1985, as further
amended by that certain Second Amendment to the Amended and Restated Limited
Partnership Agreement of Consolidated Capital Institutional Properties/2, dated
as of October 23, 1990 and as further amended by that certain Third Amendment to
the Amended and Restated Limited Partnership Agreement of Consolidated Capital
Agreement of Consolidated Capital Institutional Properties/2, dated as of
October 17, 2000 (as so amended, the "Partnership Agreement"); and
WHEREAS, the General Partner has obtained consents of the requisite
percentage-in-interest of the Limited Partners (i.e., Limited Partners holding
greater than fifty percent (50%) of the Units) necessary to amend the
Partnership Agreement as provided in this Amendment.
NOW, THEREFORE, in consideration of the premises, the agreement of
the parties herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged and confessed, the
parties hereby agree as follows:
1. Definitions. Section 1.04 of the Partnership Agreement is hereby amended
to add the following definitions and current subsections 1.04(a) through (v) are
hereby renumbered accordingly:
"(a) 'Adjusted Capital Account Deficit' shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of the relevant Partnership Year, after giving effect to the
following adjustments:
(i) Credit to such Capital Account any amounts which such
Partner is obligated to restore or is deemed to be obligated to restore pursuant
to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)."
"(g) 'Capital Account' shall have the meaning specified in Section
3.05."
"(i) 'Code' shall mean the Internal Revenue Code of 1986, as amended."
"(s) 'Nonrecourse Deductions' shall have the meaning set forth in
Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c)."
"(t) 'Nonrecourse Liability' shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(3) of the Treasury
Regulations."
"(v) 'Partners' shall mean the General Partners and the Limited
Partners."
"(w) 'Partner Nonrecourse Debt' shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(4)."
"(x) 'Partner Nonrecourse Debt Minimum Gain' shall mean an amount,
with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner Nonrecourse
Debt were treated as a Nonrecourse Liability, determined in accordance
with Treasury Regulations Section 1.704-2(i)(3)."
"(y) 'Partner Nonrecourse Deductions' shall have the meaning set forth
in Treasury Regulations Section 1.704-2(i)."
"(aa) 'Partnership Minimum Gain' shall have the meaning set forth in
Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d)(1)."
"(bb) 'Partnership Year' shall mean the taxable year of the
Partnership, which shall be the fiscal year ending December 31."
"(gg) 'Treasury Regulations' shall mean the income tax regulations,
including temporary regulations, as may be amended hereafter from time
to time (including corresponding provisions of succeeding income tax
regulations), promulgated under the Code."
2. Net Profits and Net Losses. The definition of "Net Profits and Net
Losses" contained in Section 1.04(o) of the Partnership Agreement is hereby
amended to read as follows:
"(o) 'Net Profits and Net Losses' shall mean, with respect to any
period, the taxable income or loss, as the case may be, of the
Partnership for such period, determined in accordance with Section
703(a) of the Code (for this purpose, all items of income, gain, loss,
deduction or credit required to be separately stated pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or
loss); provided, however, that: (i) any income of the Partnership that
is exempt from federal income tax, and not otherwise taken into
account in computing Net Profits or Net Losses pursuant to this
definition shall be added to such income or loss, and (ii) any
expenditures of the Partnership during such period which are
described, or treated under Treasury Regulations Section
1.704-1(b)(2)(iv)(i) as described, in Section 705(a)(2)(B) of the Code
and not otherwise taken into account in computing Net Profits or Net
Losses shall be subtracted from such taxable income or loss.
Notwithstanding anything to the contrary contained in this definition,
income, gain or loss resulting from the disposition of, distribution
to a Partner of, or depreciation, amortization or other cost recovery
deductions with respect to, any Partnership asset shall be computed by
reference to the book value of the asset disposed of, distributed or
depreciated, amortized or otherwise recovered, notwithstanding that
the adjusted tax basis of such asset differs from its book value.
3. Surplus Funds. The definition of "Surplus Funds" contained in Section
1.04(u) of the Partnership Agreement is hereby amended to read as follows:
"(u) 'Surplus Funds' shall mean the Partnership's share of the net
cash funds or proceeds resulting from the Partnership's receipt of (a)
principal and additional interest from the Participating Note issued
by the Borrower or (b) any funds from the sale, financing or
refinancing of any of the Partnership's properties, and in each case,
(i) after deduction of all expenses incurred in connection therewith
and (ii) less such amounts for working capital reserves as the General
Partner deems reasonably necessary for future Partnership operations."
4. Purpose of Partnership and Investment Objectives. The first paragraph of
Section 1.05 of the Partnership Agreement is hereby amended to read as follows:
"Purpose of Partnership and Investment Objectives. The principal
purpose of the Partnership is to lend funds in return for the
Participating Note secured by deeds of trust on real properties
(including apartment buildings, shopping centers, industrial
projects, office buildings and other similar properties) as shall
from time to time be acquired by the Borrower or such other entity
or entities of which the general partner or managing general partner
is the Borrower. The Participating Notes offer the potential for (i)
preserving and protecting the Limited Partners' original Invested
Capital; (ii) providing quarterly distributions from interest
received from the Borrower or other sources; and (iii) providing
special payments to the extent of additional interest received from
such Participating Note; and to engage in any and all general
business activities related to and incidental to those purposes,
including, without limitation, the acquisition, ownership,
improvement, management, operation, leasing, financing, refinancing,
sale or exchange of any real or personal property obtained (x) in
connection with the exercise of any remedy available to it under the
Participating Note or the Master Loan Agreement or (y) in a
transaction (a "1031 Transaction") that is intended to a like-kind
exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended, or any successor statute, at law or in equity; provided,
however, that the Partnership shall not own or lease property
jointly or in partnership with others but it may transfer any such
property to a single-purpose wholly-owned subsidiary."
5. Powers and Duties of the General Partner.
(a) The fourth sentence of the first paragraph of Section 2.01 of
the Partnership Agreement is hereby amended to read as follows:
"The General Partner shall have the right, power and authority
granted to General Partner hereunder or by law, or both, to obligate
and bind the Partnership and, on behalf and in the name of the
Partnership, to take such action as the General Partner deems
necessary or advisable, including, without limitation: making,
executing and delivering loan and other agreements, such as leases,
assignments and transfers and agreements to purchase, sell,
exchange, lease or otherwise deal with real or personal property,
escrow instructions, advances under the Participating Note, pledges,
deeds of trust, mortgages and other security agreements, promissory
notes, checks, drafts and other negotiable instruments, and all
other documents and agreements which the General Partner deems
reasonable or necessary in connection with the lending and
investment of the Partnership's net proceeds resulting from the
Capital Contributions received; managing such assets and borrowings
against the assets of the Partnership, including notes and contracts
receivables from the sale of the Partnership assets; and the
acquisition, ownership, improvement, management, operation, leasing,
financing, refinancing, sale or exchange of any real or personal
property (including the transfer of such property to a
single-purpose wholly-owned subsidiary of the Partnership) obtained
(i) in connection with the exercise of any remedy available to it
under the Participating Note or the Master Loan Agreement or (ii) in
a 1031 Transaction, at law or in equity."
(b) The penultimate sentence of the second paragraph of Section 2.01
of the Partnership Agreement is amended to read as follows:
"The Partnership shall not be permitted to purchase real
property, directly or indirectly, but it may acquire real property
upon exercising any remedy under the Participating Note and the
Master Note Loan Agreement or in a 1031 Transaction."
6. Capital Accounts. Article III of the Partnership Agreement is hereby
amended to add Section 3.05 and the current Section 3.05 is hereby renumbered
Section 3.06 and the Sections of Article III thereafter are hereby renumbered
accordingly:
"3.05 Capital Accounts. A capital account ("Capital Account")
shall be established and maintained on the Partnership's books
with respect to each Partner, in accordance with Treasury
Regulations Section 1.704-1(b)."
7. Special Allocations. Article III of the Partnership Agreement is hereby
amended to add Section 3.09 and the Sections of Article III thereafter are
hereby renumbered accordingly.
"3.09 Special Allocations. Notwithstanding the foregoing
provisions of this Article III, the following special allocations
("Special Allocations") shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Treasury Regulations Section 1.704-2(f), if there is a net decrease in
Partnership Minimum Gain during a Partnership Year, then each Partner shall be
allocated items of Partnership income and gain for such Partnership Year (and,
if necessary, for subsequent years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, determined in accordance with
Treasury Regulations Section 1.704-2(g)(2). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Treasury Regulations Section 1.704-2. This
Section 3.09(a) is intended to comply with the minimum gain chargeback
requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in
Treasury Regulations Section 1.704-2(i), if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to Partner Nonrecourse Debt during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such Partnership Year (and, if necessary, for
subsequent Partnership Years) in an amount equal to such Partner's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain, determined in accordance
with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 3.09(b) is intended to comply with
the minimum gain chargeback requirements in Treasury Regulations 1.704-2(i) and
shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event that any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) with respect
to such Partner's Capital Account, items of Partnership income and gain shall be
specially allocated to each such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the Adjusted
Capital Account Deficit of such member as quickly as possible; provided,
however, that an allocation pursuant to this Section 3.09(c) shall be made only
if and to the extent that such Partner would have an Adjusted Capital Account
Deficit after all other allocations provided for herein have been tentatively
made as if this Section 3.09(c) were not in this Agreement.
(d) Nonrecourse Deductions. Any Nonrecourse Deductions for any
Partnership Year shall be specially allocated ninety-nine percent
(99%) to the Limited Partners and one percent (1%) to the General
Partners.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership Year shall be allocated to the
Partner who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i).
(f) Limitations on Loss Allocation. No allocation of Net Loss (or
items thereof) shall be made to any Partner to the extent that
such allocation would create or increase an Adjusted Capital
Account Deficit with respect to such Partner.
(g) Curative Allocation. The allocations set forth in this
Section 3.09 (the "Regulatory Allocations") are intended to
comply with certain regulatory requirements, including the
requirements of Treasury Regulations Sections 1.704-1(b) and
1.704-2. Notwithstanding the provisions of Section 3.09(a) and
(b) hereof, the Regulatory Allocations shall be taken into
account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent possible
without violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items
and Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if
the Regulatory Allocations had not occurred."
8. Distributions of Distributable Cash from Operations. Section 3.07(c) of
the Partnership Agreement is hereby renumbered as new Section 3.10 and retitled
as set forth below. The Sections of Article III thereafter are hereby renumbered
accordingly.
"3.10 Distributions of Distributable cash from Operations.
Distributable Cash From Operations to the extent deemed available
by the General Partners for distribution, shall be distributed
quarterly, as follows: ninety-nine percent (99%) to the Limited
Partners and one percent (1%) to the General Partners; provided,
however, that the General Partners, in the exercise of reasonable
business judgment, may determine to retain in the Partnership all
or any part of such amount to meet the working capital needs of
the Partnership. Distributions, if any, which exceed
Distributable Cash From Operations shall be allocated one hundred
percent (100%) to the Limited Partners. Distributable Cash From
Operations and Distributions which are distributed to the Limited
Partners may, pursuant to generally accepted accounting
principles or on a cash basis, be deemed to be a return of
capital to the extent they exceed the Partnership's net income or
cash flow, respectively. To the extent original Capital
Contributions (including Partnership working capital reserves)
are used for Distributions of Distributable Cash From Operations
or Distributions it would reduce the amount of capital available
for loans to the Borrower and the amount available for
Partnership working capital reserves and would be considered a
return of original Capital Contributions but would not reduce the
Limited Partners' Invested Capital."
9. Liquidation Proceeds. Section 9.02(c) of the Partnership Agreement will
be amended to read as follows:
"(c) The proceeds of such liquidation shall be applied and distributed to
the Partners in proportion to and to the extent of positive balances in
their respective Capital Accounts."
10. Miscellaneous.
a. Effect of Amendment. In the event of any inconsistency between the terms of
the Partnership Agreement and the terms of this Amendment, the terms of
this Amendment shall prevail. In the event any conflict or apparent
conflict between any of the provisions of the Partnership Agreement as
amended by this Amendment, such conflicting provisions shall be reconciled
and construed to give effect to the terms and intent of this Amendment.
b. Ratification. Except as otherwise expressly modified hereby, the
Partnership Agreement shall remain in full force and effect, and all of the
terms and provisions of the Partnership Agreement, as herein modified, are
hereby ratified and reaffirmed. Except as amended hereby, the Partnership
Agreement shall continue, unmodified, and in full force and effect.
c. Counterparts. This Amendment may be executed in as many counterparts as may
be deemed necessary and convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument.
d. Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of California, without
regard to its principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first set forth above.
THE GENERAL PARTNER:
CONCAP EQUITIES, INC.,
a Delaware corporation
By:
Patrick J. Foye
Executive Vice President
THE LIMITED PARTNERS:
AIMCO PROPERTIES, L.P.
a Delaware limited partnership
By: AIMCO-GP, INC.
its General Partner
By:
Patrick J. Foye
Executive Vice President
COOPER RIVER PROPERTIES, L.L.C.
a Delaware limited liability company
By:
Patrick J. Foye
Executive Vice President
AIMCO IPLP, L.P.
a Delaware limited partnership
By: AIMCO/IPT, INC.
its General Partner
By:
Patrick J. Foye
Executive Vice President
REEDY RIVER PROPERTIES, L.L.C.
a Delaware limited liability company
By:
Patrick J. Foye
Executive Vice President
By:
Patrick J. Foye
Executive Vice President of ConCap
Equities, Inc., agent and attorney-in
-fact for each of the remaining
Limited Partners of the Partnership