Consolidated Capital Institutional Properties
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
May 25, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0409
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Jorge Bonilla
Re: Consolidated Capital Institutional Properties
Form 10-K for the year ended December 31, 2004
File No. 0-10831
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to Consolidated Capital Institutional
Properties ("CCIP"), a California limited partnership, in a letter dated April
27, 2005. The Partnership appreciates the Staff's willingness to provide an
extension of time for this response. The Partnership's responses to the Staff's
comments are set forth below and are numbered to correspond to the numbering of
the Staff's comments in the Staff's letter.
As is discussed below following the Partnership's responses to the Staff's
comments, in connection with its consideration of the Staff's comments, the
Partnership determined that its accounting did not properly reflect certain
provisions of the partnership agreements for two of its investee partnerships in
which the Partnership acquired an interest during 2002. As a result, the
Partnership has determined that there are errors in its financial statements for
the years ended December 31, 2002, 2003 and 2004. These errors and the
Partnership's resulting plans to restate its financial statements are described
below following the Partnership's responses to the Staff's comments.
* * * * *
Form 10-K for the year ended December 31, 2004
Note I - Investment in Affiliated Partnerships
1. Comment: We note that the excess of the Partnership's investment over
the historical cost of the underlying net assets of the investee is
being depreciated over the useful lives of the investees underlying
properties. Explain to us how you considered footnote 9 of APB 18 in
determining how to account for these investments.
Response: As disclosed in Note I to the financial statements, the
Partnership assumed ownership of these special limited partner
interests ("SLPs") during a foreclosure process in 2002. At the time
the Partnership assumed ownership of these investments, such
investments were recorded at their estimated fair values, based on
the fair values of the underlying assets and liabilities of the
respective investee partnerships and the SLP ownership percentages
stated in the related partnership agreements. Footnote 9 to paragraph
19(b) of APB 18, as amended by FAS 142, paragraph D2(a), states that
"Investors shall not amortize goodwill associated with equity method
investments after the date FASB Statement 142, Goodwill and Other
Intangible Assets, is initially applied by the entity in its
entirety." In Note I, the Partnership disclosed that the difference
between the carrying value of its investments and the underlying
historical basis of the net assets of the investee partnerships was
attributable to the investees' properties (generally, depreciable
real estate). The Partnership believes that paragraph 19(b) of APB
18, as amended, requires differences attributable to depreciable real
estate to be depreciated over the useful lives of the related assets.
There was no goodwill associated with the acquisition through
foreclosure of these partnership interests. Accordingly, the guidance
in footnote 9 of APB 18 does not apply to the Partnership's
investments in the investee partnerships.
2. Comment: We note that the aggregate market value of the Partnership's
investments is lower than the carrying value. Explain to us how you
considered paragraph 19h of APB 18 in your impairment test relating
to these investments.
Response: No market exists for the partnership interests of each of
the investee partnerships. The market value as disclosed in Note I
was based on what was then the most recent tender offer made by the
general partner of each of the investee partnerships to acquire
limited partnership interests in the investee partnerships. The
pricing of such tender offers was based on the current operations of
each of the respective investee partnerships and the fair value of
the properties owned by the investee partnerships at the time each
tender offer was made. Although the disclosed aggregate market value
of the Partnership's investments was less than the carrying value of
the investments, the Partnership did not consider the apparent
decline in value to be other than temporary and therefore did not
require recognition under paragraph 19(h) of APB 18. Based on its
intent to hold these investments for the long term, the Partnership
evaluated the anticipated cash flow to be generated by the investee
partnerships and concluded that the carrying amounts of its
investments were recoverable.
Upon further review of the disclosure in Note I, the Partnership has
determined that the market value disclosure is not appropriate given
that there is no market available for the trading of the
partnerships' limited partnership interests. In future filings, the
Partnership will revise this disclosure to delete the last sentence
of Note I as it appeared in the 2004 Form 10-K.
Detection of Errors and Planned Restatement
As noted above, the Partnership recorded the SLPs received in connection with
the 2002 foreclosure at their estimated fair values, based on the fair values of
the underlying assets and liabilities of the respective investee partnerships
and the SLP ownership percentages stated in the related partnership agreements.
When this valuation was performed, the Partnership did not note that the
partnership agreement for two of the investees, Consolidated Capital Properties
III ("CCP III") and Consolidated Capital Properties IV ("CCP IV"), contain
provisions that require all partnership distributions resulting from a property
sale or refinancing to be paid to the limited partners until such time as the
limited partners have received a return of their initial invested capital. At
the time of the foreclosure, the limited partners of CCP III and CCP IV had not
received a return of their initial invested capital and, based on the estimated
fair values of the properties and outstanding debt balances at that time, there
would be insufficient net asset value to return all invested capital to the
limited partners in an assumed liquidation of either of the investee
partnerships. Based on the substantial deficiency in net asset values that would
be required to return invested capital to the limited partners of CCP III and
CCP IV, it was unlikely that the Partnership, as the holder of the SLPs in CCP
III and CCP IV, would participate in sale and refinancing distributions of CCP
III and CCP IV in the foreseeable future. Accordingly, the initial values
assigned to the SLP interests in CCP III and CCP IV should have been based
primarily on the estimated discounted cash flows from operations that were
expected to be distributed to the Partnership. CCP III and CCP IV have
historically distributed cash flow from operations and, based on projected free
cash flow after debt service and capital expenditures, it was reasonably
anticipated at the foreclosure date that distributions of operating cash flow
would continue. No significant value should have been assigned to the SLPs in
CCP III and CCP IV based on any anticipated distributions from sales or
refinancings of the underlying properties.
In 2002, the Partnership initially recorded its SLP in CCP III at $27,000. Since
that time the Partnership has recorded equity in losses of $6,000 and operating
distributions of $4,000, resulting in a carrying value of the Partnership's
investment in CCP III of $17,000 at December 31, 2004. In 2002, the Partnership
initially recorded its SLP in CCP IV at $843,000. Since that time the
Partnership has recorded equity in earnings of $73,000, equity in gain on sale
of properties owned by CCP IV of $657,000 and operating distributions of
$53,000, resulting in a carrying value of the Partnership's investment in CCP IV
of $1,520,000 at December 31, 2004. Under paragraph 25 of Statement of Position
78-9, Accounting for Investments in Real Estate Ventures, the Partnership should
not have recognized any equity in earnings attributed to the gains on property
sales in CCP IV during 2003 and 2004 because none of the related sales proceeds
will be distributed to the Partnership.
Based on the foregoing facts and analysis, the Partnership has determined that
its initial recording of the SLPs in CCP III and CCP IV and subsequent recording
of related equity in gains on sale of properties in CCP IV were in error. The
Partnership will restate its financial statements to reflect that the initial
value assigned to the SLPs in CCP III and CCP IV in 2002 are based on the
discounted value of operating cash flows that were reasonably expected at the
date of foreclosure. In addition, the Partnership will adjust its equity in
earnings of CCP IV subsequent to the foreclosure date to exclude any earnings
that were derived from the gains on sale of properties owned by CCP IV. The
Partnership will include the restated financial statements in an amended report
on Form 10-K for the year ended December 31, 2004.
* * * * *
As requested by the Staff, the Partnership acknowledges that: (a) the
Partnership is responsible for the adequacy and accuracy of the disclosure in
its filings; (b) Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with respect to
the filings; and (c) the Partnership may not assert Staff comments as a defense
in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have further questions regarding the information provided regarding the
responses to the Staff's comments or the Partnership's subsequent determination
to restate certain of its prior period financial statements, please contact me
directly at (864) 239-1554 or by fax at (864) 239-5824.
Sincerely,
/s/Stephen B. Waters
Stephen B. Waters
Vice President
ConCap Equities, Inc., as the general partner
of Consolidated Capital Institutional Properties
cc: Daniel L. Jablonsky
Martha L. Long