FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1995
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Commission file number 0-11973
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CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
- - --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1321492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive officer) (Zip Code)
(301) 468-9200
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(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
- - ---------------------------------- ----------------------------------
(Not applicable) (Not applicable)
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PAGE
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . 1
Statements of Operations - for the three months
ended March 31, 1995 and 1994 . . . . . . . 2
Statements of Cash Flows - for the three
months ended March 31, 1995 and 1994 . . . 3
Notes to Financial Statements . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . 13
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
Investments in and advances to
partnerships $ 8,057,236 $ 7,990,026
Cash and cash equivalents 2,743,351 2,812,577
Acquisition fees, principally paid to
related parties, net of accumulated
amortization of $382,495 and $374,162,
respectively 617,505 625,838
Property purchase costs, net of
accumulated amortization of $241,911
and $236,432, respectively 415,401 420,880
Other assets 7,693 5,306
------------ ------------
Total assets $ 11,841,186 $ 11,854,627
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships,
net of unamortized discount on
purchase money notes of $10,729,536
and $11,433,655, respectively $ 11,691,142 $ 10,987,023
Accrued interest payable 27,567,084 26,951,287
Accounts payable and accrued expenses 63,106 70,389
------------ ------------
Total liabilities 39,321,332 38,008,699
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000
Less:
Accumulated distributions to
partners (1,254,612) (1,254,612)
Offering costs (5,278,980) (5,278,980)
Accumulated losses (70,963,554) (69,637,480)
------------ ------------
Total partners' deficit (27,480,146) (26,154,072)
------------ ------------
The accompanying notes are an integral part
of these financial statements.
-1-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
Total liabilities and partners'
deficit $ 11,841,186 $ 11,854,627
============ ============
The accompanying notes are an integral part
of these financial statements.
-2-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31,
--------------------------
1995 1994
------------ ------------
Share of income from partnerships $ 126,830 $ 91,333
------------ ------------
Other revenue and expenses:
Revenue:
Interest income 40,948 25,302
------------ ------------
Expenses:
Interest 1,364,771 1,115,180
Management fee 62,499 62,499
General and administrative 33,413 31,756
Professional fees 19,357 20,662
Amortization 13,812 13,812
------------ ------------
1,493,852 1,243,909
------------ ------------
Total other revenue and
expenses (1,452,904) (1,218,607)
------------ ------------
Net loss (1,326,074) (1,127,274)
Accumulated losses, beginning of
period (69,637,480) (64,036,196)
------------ ------------
Accumulated losses, end of
period $(70,963,554) (65,163,470)
============ ============
Loss allocated to General Partners
(1.51%) $ (20,024) $ (17,022)
============ ============
Loss allocated to Initial and Special
Limited Partners (1.49%) $ (19,759) $ (16,796)
============ ============
Loss allocated to Additional Limited
Partners (97%) $ (1,286,291) $ (1,093,456)
============ ============
Loss per unit of Additional Limited
Partnership Interest based on 50,000
units outstanding $ (25.73) $ (21.87)
The accompanying notes are an integral part
of these financial statements.
-3-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
============ ============
The accompanying notes are an integral part
of these financial statements.
-4-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31,
--------------------------
1995 1994
------------ ------------
Cash flows from operating activities:
Net loss $ (1,326,074) $ (1,127,274)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Share of income from partnerships (126,830) (91,333)
Amortization of deferred costs 13,812 13,812
Amortization of discount of
purchase money notes 704,119 415,008
Payment of purchase money note
interest (44,855) (22,275)
Changes in assets and liabilities:
Increase in other assets (2,387) (2,032)
Increase in accrued interest
payable 660,652 700,172
Decrease in accounts payable and
accrued expenses (7,283) (6,900)
------------ ------------
Net cash used in operating
activities (128,846) (120,822)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from
partnerships 59,620 22,275
------------ ------------
Net decrease in cash and cash
equivalents (69,226) (98,547)
Cash and cash equivalents, beginning
of period 2,812,577 3,068,063
------------ ------------
Cash and cash equivalents, end of
period $ 2,743,351 $ 2,969,516
============ ============
The accompanying notes are an integral part
of these financial statements.
-5-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements contain all adjustments of a normal
recurring nature necessary to present fairly the financial position of Capital
Realty Investors-II Limited Partnership (the Partnership) as of March 31, 1995
and December 31, 1994, and the results of its operations for the three months
ended March 31, 1995 and 1994 and its cash flows for the three months ended
March 31, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the Managing General Partner believes that the dis-
closures presented are adequate to make the information not misleading, it is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1994.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
As of March 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$22,420,678 (exclusive of unamortized discount on purchase money notes of
$10,729,536) plus accrued interest of $27,567,084, are payable upon the earlier
of (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$4,660,000 are scheduled to mature in August 1995, as discussed below.
Purchase money notes in an aggregate principal amount of $2,100,000 are
scheduled to mature in 1996. The remaining purchase money notes mature in 1998
and 1999. The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnership. There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due. If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership. The Managing General
Partner is continuing to investigate possible alternatives to reduce the
Partnership's long-term debt obligations. These alternatives include, among
others, retaining the cash available for distribution to meet the purchase money
note requirements, buying-out certain purchase money notes at a discounted
price, extending the due dates of certain purchase money notes, or refinancing
the respective properties' underlying debt and using the proceeds to pay-off or
buy-down certain purchase money note obligations.
Interest expense on the Partnership's purchase money notes for the three
months ended March 31, 1995 and 1994 was $1,364,771 and $1,115,180,
respectively. Amortization of the imputed interest on purchase money notes
increased interest expense during the three months ended March 31, 1995 and 1994
by $704,119 and $415,008, respectively.
As of March 31, 1995 and December 31, 1994, the Partnership had advanced
funds totalling $324,410 to Local Partnerships. There were no advances funded
to the Local Partnerships during the three months ended March 31, 1995.
-6-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
The local general partner of Frenchman's Wharf Apartments Associates II
(Frenchman's Wharf II), in conjunction with the Managing General Partner,
applied to the Department of Housing and Urban Development (HUD), holder of the
mortgage on the property, for a three-year extension of the previous workout
arrangement, which expired in December 1990. The local HUD office verbally
agreed to an extension expiring December 31, 1993 and recommended approval of
the extension to the HUD central office in Washington, D.C. In December 1993,
the local HUD office requested that a new workout proposal be submitted, and in
January 1994, the local general partner met with HUD to discuss the long-term
capital needs of the property in connection with a workout proposal. On March
1, 1994, the local general partner submitted a nine-year workout proposal to
HUD. As of April 24, 1995, no response had been received from the local HUD
office. There is no assurance that approval will be received. If that workout
proposal is not accepted and another alternative is not found, then HUD could
foreclose on the property. The uncertainty about the Local Partnership's
continued ownership of the property does not impact the Partnership's financial
condition because the related purchase money note is nonrecourse and
collateralized solely by the Partnership's interest in the Local Partnership.
Therefore, should the investment in Frenchman's Wharf II not produce sufficient
value to satisfy the purchase money note related to Frenchman's Wharf II, the
Partnership's exposure to loss is limited since the amount of the nonrecourse
indebtedness exceeds the carrying amount of the investment in and advances to
the Local Partnership. Thus, even a complete loss of this investment would not
have a material impact on the operations of the Partnership. Currently, debt
service payments are being made from available cash flow in accordance with the
proposed workout. To cover operating deficits incurred in prior years for
Frenchman's Wharf II, the Partnership advanced funds totalling $324,410 as of
both March 31, 1995 and December 31, 1994. The last advance was made to
Frenchman's Wharf II in March 1987. The Partnership does not expect to advance
any additional funds in connection with Frenchman's Wharf II's loan workout with
HUD. These loans, together with accrued interest of $187,372 as of both March
31, 1995 and December 31, 1994, are payable from cash flow of Frenchman's Wharf
II after payment of first mortgage debt service and after satisfaction by the
Partnership of certain other interest obligations on the purchase money notes
due from the Local Partnership. There is no assurance that the Local
Partnership, upon expiration of any workout, will be able to repay any loans in
accordance with the terms.
Posada Vallarta Apartments is currently operating under a three-year
workout agreement with HUD, the holder of the mortgage. The workout provides
for, among other things, a minimum monthly debt service payment, with excess
cash, if any, being applied to delinquent interest. Currently, debt service
payments are being made in accordance with the workout. The three-year workout
expires on October 1, 1995. The local general partner intends to submit a
proposal to HUD for a one-year extension on the three-year workout.
The Wexford Ridge Associates Local Partnership (located in Madison,
Wisconsin), the local general partner, and its management agent have been named
in eight sexual harassment and discrimination complaints filed with HUD. The
Managing General Partner and the Partnership have also been named in four of the
complaints. The Managing General Partner is monitoring the situation and is
investigating its rights with regard to the local general partner and/or the
management agent if the situation is not dealt with to the satisfaction of the
Managing General Partner. The Managing General Partner believes the claims will
have no aggregate material effect on the financial statements of the Partnership
-7-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
and that legal costs associated with the claims will be borne by the management
agent.
Many of the rental properties owned by the Local Partnerships have
mortgages which were federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low- to moderate-income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of April 24,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to redesigning the program.
Substantial doubt exists as to whether any properties which have already filed
the notice of intent to participate under LIHPRHA will qualify under a
redesigned program, or whether the program will continue at all.
Many of the rental properties owned by the Local Partnerships are
dependent on the receipt of housing assistance payments guaranteed by contract
under the HUD Section 8 program. The level of funding for the Section 8
program, and HUD insured multifamily housing in general, is dependent upon the
continuation of appropriations approved by Congress for subsidy payments. In
the event that the rental subsidy programs are reduced or phased out, there is
no assurance that the rental properties will be able to maintain the occupancy
levels necessary to pay debt service and operating costs or that the rents
necessary to pay debt service and operating costs will be competitive with rents
for comparable units in the rental properties' market areas. While the Managing
General Partner has no reason to believe that HUD will not honor its obligations
under the contracts, some uncertainty exists in light of the recent
Congressional scrutiny of appropriations for HUD programs.
Purchase money notes relating to Beech Hill I and Beech Hill II totaling
$2,380,000 plus accrued interest mature in August 1995. The Managing General
Partner is currently negotiating with the noteholders to extend the purchase
money note due dates to coincide with the potential completion of LIHPHRA
processing. There is no assurance that an offer to extend the maturity date
will be accepted.
Purchase money notes relating to Rock Glen totaling $2,280,000 plus accrued
interest mature in August 1995. The Managing General Partner has made an offer
to the noteholder to extend the purchase money note due date to August 2000.
There is no assurance that an offer to extend the maturity date will be
accepted.
The following are combined statements of operations for the Local
Partnerships in which the Partnership has invested. The statements are compiled
from information supplied by the management agents of the projects and are
unaudited.
-8-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31,
------------------------------
1995 1994
------------ ------------
Revenue:
Rental revenue $ 7,082,315 $ 6,866,363
Other 388,321 413,040
------------ ------------
7,470,636 7,279,403
------------ ------------
Expenses:
Operating 4,785,723 4,694,855
Interest 2,097,330 2,066,395
Depreciation and amortization 1,351,821 1,348,276
------------ ------------
8,234,874 8,109,526
------------ ------------
Net loss $ (764,238) $ (830,123)
============ ============
As of March 31, 1995 and December 31, 1994, the Partnership's share of
cumulative losses to date for ten and nine, respectively, of the twenty-two
Local Partnerships exceeds the amount of the Partnership's investments in and
advances to those Local Partnerships by $22,049,857 and $21,176,551,
respectively. As the Partnership has no further obligation to advance funds or
provide financing to these Local Partnerships, the excess losses have not been
reflected in the accompanying financial statements.
3. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee (the
Management Fee) after all other expenses of the Partnership are paid. The
Partnership paid $21,605 and $15,889 for the three months ended March 31, 1995
and 1994, respectively, as direct reimbursement of expenses incurred on behalf
of the Partnership. Additionally, the Partnership paid the Managing General
Partner a Management Fee of $62,499 for each of the three-month periods ended
March 31, 1995 and 1994.
From July 1990 through January 1994, CRICO Management Corporation (CRICO),
an affiliate of the Managing General Partner, provided consulting, accounting
and other services to Country Place I and II. From August 1990 through January
1994, CRICO provided these services to Rock Glen. Fees paid or accrued to CRICO
for these services amounted to $6,704, $4,231 and $5,580, respectively, for the
month ended January 31, 1994. On February 1, 1994, CRICO contributed its
consulting contracts and personnel to CAPREIT Residential Corporation
-9-
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. RELATED PARTY TRANSACTIONS - Continued
(CAPREIT). CAPREIT was formed by CRI but is not currently owned or controlled
by CRI and/or its affiliates. On April 12, 1995, HUD approved CAPREIT as the
new management agent.
-10-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Financial Condition/Liquidity
-----------------------------
Capital Realty Investors-II Limited Partnership's (the Partnership)
liquidity, with unrestricted cash resources of $2,743,351 and $2,812,577 as
of March 31, 1995 and December 31, 1994, respectively, along with anticipated
future cash distributions from the Local Partnerships, is expected to meet its
current and anticipated operating cash needs. As of April 24, 1995, there
are no material commitments for capital expenditures.
As of March 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$22,420,678 (exclusive of unamortized discount on purchase money notes of
$10,729,536) plus accrued interest of $27,567,084, are payable upon the earlier
of (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$4,660,000 are scheduled to mature in August 1995, as discussed below.
Purchase money notes in an aggregate principal amount of $2,100,000 are
scheduled to mature in 1996. The remaining purchase money notes mature in 1998
and 1999. The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnership. There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due. If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership. The Managing General
Partner is continuing to investigate possible alternatives to reduce the
Partnership's long-term debt obligations. These alternatives include, among
others, retaining the cash available for distribution to meet the purchase money
note requirements, buying-out certain purchase money notes at a discounted
price, extending the due dates of certain purchase money notes, or refinancing
the respective properties' underlying debt and using the proceeds to pay-off or
buy-down certain purchase money note obligations.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the three months ended March 31, 1995, the receipt of distributions from
Local Partnerships was supplemented by existing cash and cash equivalents to
support operating cash requirements.
-11-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
Results of Operations
---------------------
The Partnership's net loss increased for the three months ended March 31,
1995 from the comparable period in 1994 primarily due to an increase in interest
expense as a result of the amortization of imputed interest. Partially
offsetting the increase in net loss was an increase in income from Local
Partnerships primarily due to a decrease in operating expenses at one property.
Also partially offsetting the increase in the Partnership's net loss was an
increase in interest income resulting from an increase in investment yields as
compared to the same period in 1994.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's recognized losses for the three months ended March
31, 1995 did not include losses of $873,306 compared to excluded losses of
$901,324 for the three months ended March 31, 1994.
The local general partner of Frenchman's Wharf Apartments Associates II
(Frenchman's Wharf II), in conjunction with the Managing General Partner,
applied to the Department of Housing and Urban Development (HUD), holder of the
mortgage on the property, for a three-year extension of the previous workout
arrangement, which expired in December 1990. The local HUD office verbally
agreed to an extension expiring December 31, 1993 and recommended approval of
the extension to the HUD central office in Washington, D.C. In December 1993,
the local HUD office requested that a new workout proposal be submitted, and in
January 1994, the local general partner met with HUD to discuss the long-term
capital needs of the property in connection with a workout proposal. On March
1, 1994, the local general partner submitted a nine-year workout proposal to
HUD. As of April 24, 1995, no response had been received from the local HUD
office. There is no assurance that approval will be received. If that workout
proposal is not accepted and another alternative is not found, then HUD could
foreclose on the property. The uncertainty about the Local Partnership's
continued ownership of the property does not impact the Partnership's financial
condition because the related purchase money note is nonrecourse and
collateralized solely by the Partnership's interest in the Local Partnership.
Therefore, should the investment in Frenchman's Wharf II not produce sufficient
value to satisfy the purchase money note related to Frenchman's Wharf II, the
Partnership's exposure to loss is limited since the amount of the nonrecourse
indebtedness exceeds the carrying amount of the investment in and advances to
the Local Partnership. Thus, even a complete loss of this investment would not
have a material impact on the operations of the Partnership. Currently, debt
service payments are being made from available cash flow in accordance with the
proposed workout. To cover operating deficits incurred in prior years for
Frenchman's Wharf II, the Partnership advanced funds totalling $324,410 as of
both March 31, 1995 and December 31, 1994. The last advance was made to
Frenchman's Wharf II in March 1987. The Partnership does not expect to advance
any additional funds in connection with Frenchman's Wharf II's loan workout with
HUD. These loans, together with accrued interest of $187,372 as of both March
31, 1995 and December 31, 1994, are payable from cash flow of Frenchman's Wharf
II after payment of first mortgage debt service and after satisfaction by the
Partnership of certain other interest obligations on the purchase money notes
due from the Local Partnership. There is no assurance that the Local
-12-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
Partnership, upon expiration of any workout, will be able to repay any loans in
accordance with the terms.
Posada Vallarta Apartments is currently operating under a three-year
workout agreement with HUD, the holder of the mortgage. The workout provides
for, among other things, a minimum monthly debt service payment, with excess
cash, if any, being applied to delinquent interest. Currently, debt service
payments are being made in accordance with the workout. The three-year workout
expires on October 1, 1995. The local general partner intends to submit a
proposal to HUD for a one-year extension on the three-year workout.
Many of the rental properties owned by the Local Partnerships have
mortgages which were federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low- to moderate-income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of April 24,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to redesigning the program.
Substantial doubt exists as to whether any properties which have already filed
the notice of intent to participate under LIHPRHA will qualify under a
redesigned program, or whether the program will continue at all.
Many of the rental properties owned by the Local Partnerships are
dependent on the receipt of housing assistance payments guaranteed by contract
under the HUD Section 8 program. The level of funding for the Section 8
program, and HUD insured multifamily housing in general, is dependent upon the
continuation of appropriations approved by Congress for subsidy payments. In
the event that the rental subsidy programs are reduced or phased out, there is
no assurance that the rental properties will be able to maintain the occupancy
levels necessary to pay debt service and operating costs or that the rents
necessary to pay debt service and operating costs will be competitive with rents
for comparable units in the rental properties' market areas. While the Managing
General Partner has no reason to believe that HUD will not honor its obligations
under the contracts, some uncertainty exists in light of the recent
Congressional scrutiny of appropriations for HUD programs.
Purchase money notes relating to Beech Hill I and Beech Hill II totaling
$2,380,000 plus accrued interest mature in August 1995. The Managing General
Partner is currently negotiating with the noteholders to extend the purchase
money note due dates to coincide with the potential completion of LIHPHRA
processing. There is no assurance that an offer to extend the maturity date
will be accepted.
Purchase money notes relating to Rock Glen totaling $2,280,000 plus accrued
interest mature in August 1995. The Managing General Partner has made an offer
to the noteholder to extend the purchase money note due date to August 2000.
There is no assurance that an offer to extend the maturity date will be
accepted.
No other significant changes in the Partnership's operations have taken
place during this period.
-13-
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No Reports on Form 8-K were filed with the Commission during the quarter
ended March 31, 1995.
All other items are not applicable.
-14-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP
(Registrant)
By: C.R.I., Inc.
Managing General Partner
May 1, 1995 /s/ Richard J. Palmer
- - -------------------------- ------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
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