EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 and 1993
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
TABLE OF CONTENTS
December 31, 1994
PAGE
NUMBER
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 3
CONSOLIDATED BALANCE SHEETS as of December 31, 1994 and 1993 4
CONSOLIDATED STATEMENTS OF OPERATIONS for the Years Ended December 31,
1994, 1993 and 1992 5
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT for the Years Ended
December 31, 1994, 1993 and 1992 6
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended December 31,
1994, 1993 and 1992 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Equity Partners/Two, L.P.:
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two, L.P. (a California limited partnership) as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, partners' deficit and cash flows for each of the three years in the
period ended December 31, 1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 4, approximately $21.4 million of nonrecourse mortgage debt
secured by certain of the Partnership's properties matures in 1995. The General
Partner intends to refinance this debt prior to its maturity. If the
refinancings are not completed, the General Partner intends to request
extensions of the maturities. Management's plans in regard to this matter are
discussed in Note 4. The financial statements do not contain any adjustments
that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital Equity
Partners/Two, L.P. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 23, 1995
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31,
ASSETS 1994 1993
Real estate, at cost:
Land and improvements $ 13,418 $ 14,149
Buildings 78,052 82,769
Building improvements 14,515 13,489
Furniture and fixtures 2,604 2,770
108,589 113,177
Less: Accumulated depreciation (48,364) (45,543)
60,225 67,634
Cash and cash equivalents 1,936 1,506
Securities available for sale 390 --
Investments in limited partnerships 2,508 2,508
Other assets 3,121 2,383
Due from affiliates 10 --
$ 68,190 $ 74,031
LIABILITIES AND PARTNERS' DEFICIT
Master Loan and interest payable $ 185,442 $ 170,364
Notes and interest payable 24,441 26,354
Due to affiliates 1,318 302
Other liabilities 1,781 1,881
212,982 198,901
Partners' deficit:
Limited Partners (143,358) (123,635)
General Partner (1,434) (1,235)
(144,792) (124,870)
$ 68,190 $ 74,031
<FN>
The accompanying notes are an integral part of the financial statements.
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
Revenues:
Rental $ 17,923 $ 17,671 $ 17,703
Investment income 55 38 13
Other -- 650 --
Total revenues 17,978 18,359 17,716
Costs and expenses:
Interest (a) 20,076 18,363 17,351
Property operations 10,685 10,480 10,849
Depreciation 5,789 5,880 5,890
Provision for possible losses -- 224 --
Administrative 636 561 641
Loss on disposition of real estate 714 -- --
Total costs and expenses (b) 37,900 35,508 34,731
Net loss $(19,922) $(17,149) $(17,015)
<FN>
(a) Interest expense includes approximately $17.3 million, $15.8 million, and
$14.7 million, to related parties for the years ended December 31, 1994, 1993
and 1992, respectively.
(b) Costs and expenses include approximately $1.5 million, $1.1 million, and
$853,000 to related parties for the years ended December 31, 1994, 1993 and
1992, respectively.
See supplemental information with respect to related party transaction in Note 2
to the consolidated financial statements.
The accompanying notes are an integral party of the financial statements.
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1994, 1993 and 1992
(in thousands)
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS (DEFICIT)
Balance at December 31, 1991 $ (894) $ (89,812) $(90,706)
Net loss (170) (16,845) (17,015)
Balance at December 31, 1992 (1,064) (106,657) (107,721)
Net loss (171) (16,978) (17,149)
Balance at December 31, 1993 (1,235) (123,635) (124,870)
Net loss (199) (19,723) (19,922)
Balance at December 31, 1994 $(1,434) $(143,358) $(144,792)
<FN>
The accompanying notes are an integral part of the financial statements.
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
Cash flows from operating activities:
Cash received from tenants $ 18,014 $18,204 $ 17,621
Cash paid to suppliers (a) (10,568) (9,295) (9,560)
Interest received 49 38 13
Interest paid (b) (3,287) (4,663) (5,865)
Property taxes paid (1,430) (1,639) (1,660)
Net cash provided by operating activities 2,778 2,645 549
Cash flows from investing activities:
Additions to real estate (1,835) (1,358) (1,659)
Purchase of Securities available for sale (390) -- --
Proceeds from property disposition 862 -- --
Tenant improvements note receivable (195) -- --
Net cash used in investing activities (1,558) (1,358) (1,659)
Cash flows from financing activities:
Advances on Master Loan -- 662 2,353
Principal payments on Master Loan (315) (1,075) (476)
Principal payments on note payable (475) (517) (467)
Net cash provided by (used in) financing
activities (790) (930) 1,410
Net increase in cash and cash equivalents 430 357 300
Cash and cash equivalents, at beginning of year 1,506 1,149 849
Cash and cash equivalents, at end of year $ 1,936 $ 1,506 $ 1,149
<FN>
(a) Payments to related parties totaling approximately $2.0 million, $1.1 million and $853,000 for the years
ended December 31, 1994, 1993 and 1992, respectively, are included in cash paid to suppliers. See
supplemental information with respect to related party transactions in Note 2 to the consolidated financial
statements.
(b) Payments to related parties totaling approximately $812,000, $1.9 million, and $2.7 million for the years
ended December 31, 1994, 1993 and 1992, respectively, are included in interest paid.
See supplemental information with respect to this consolidated statement of cash
flows in Notes 4 and 6 to the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
Net loss $(19,922) $(17,149) $(17,015)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 5,789 5,880 5,890
Provision for possible losses -- 224 --
Loss on disposition of real estate 714 -- --
Participation interest paid at property 313 -- --
Prorated rents paid at property 42 -- --
Changes in assets and liabilities:
Other assets (566) (16) 38
Interest payable 16,429 13,644 11,424
Other liabilities 10 15 257
Due to (from) affiliates (31) 47 (45)
22,700 19,794 17,564
Net cash provided by operating activities $ 2,778 $ 2,645 $ 549
<FN>
See supplemental information with respect to this consolidated statement of cash
flows in Notes 4 and 6 to the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Equity Partners/Two ("EP/2"), a California general partnership, was formed on
April 28, 1983, to engage in the business of acquiring, operating and holding
equity investments in income-producing real 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 (as defined below). 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, Consolidated Capital
Equity Partners/Two, L.P. ("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. See "History of CHI" below.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from Consolidated Capital
Institutional Properties/2 ("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.
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
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 3
for a description of the terms of the New Master Loan Agreement.
History of CHI
The 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 GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or
in part from time to time) to purchase all of the stock of GII Realty, Inc. and,
pursuant to a partial exercise of such option, acquired 50.5% of that stock. As
a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all of the
outstanding stock of Partnership Services, Inc., an asset manager and Insignia
acquired all of the outstanding stock of Coventry Properties, Inc., a property
manager. In addition, confidentiality, non-competition, and standstill
arrangements were entered into between certain of the parties. Those
arrangements, among other things, prohibit GII Realty's former sole shareholder
from purchasing Partnership Units for a period of three years.
The principal place of business for CCEP/2, CEI and CHI is One Insignia
Financial Plaza, Greenville, South Carolina, 29602.
Consolidation of Investment in Majority-Owned Limited Partnership
In 1985, EP/2 together with Anderson CC 2, a Georgia limited partnership,
entered into a general partnership agreement ("CC Office Associates") to
acquire Cosmopolitan Center, an office building located in Atlanta, Georgia.
Pursuant to such general partnership agreement, the property ownership is split
90%/10% between CCEP/2, as successor to EP/2, and Anderson CC 2, respectively.
CCEP/2's investment in CC Office Associates is consolidated in CCEP/2's
financial statements. No minority interest liability has been reflected for
Anderson CC 2's minority 10% interest because the Master Loan balance, which is
secured by a deed of trust held by CCIP/2 on Cosmopolitan Center, exceeds the
value of the property. As a result, CC Office Associates has a net capital
deficit and no minority liability exists with respect to CCEP/2.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, demand deposits, money market funds and investments in commercial paper
with original maturities of three months or less.
Restricted Cash
The Partnership maintained the following restricted cash balances in Other
Assets at December 31:
1994 1993
Tax and Insurance Escrows $ 397,400 $ 266,800
Investments in Real Estate
Investments in real estate are stated at lower of cost or net realizable value.
Net realizable value is determined using net operating income of the property
capitalized at a rate deemed reasonable for the type of property, adjusted for
market conditions, physical condition of the property and other factors to
assess whether any permanent impairment in value has occurred. However, in
certain cases, when real estate has been purchased subject to existing
mortgages, the basis of the investment has been reduced to reflect a discount
recorded to reflect interest on the mortgage at the then prevailing market
rates. Losses that result from the ongoing periodic evaluation of the net
realizable value of the real estate investments are charged against the fixed
assets and expensed in the period in which they are identified.
Investments in Limited Partnerships
Approximately $2.5 million of the investments in limited partnerships represents
certain general partner interests in seven affiliated limited partnerships that
were contributed by EP/2's general partners to CCEP/2 pursuant to the bankruptcy
settlement previously discussed. These investments are recorded at their fair
value as estimated by CCIP/2's management.
Securities Available For Sale
In 1994, the Partnership adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." as the
fair values of securities available for sale ("Securities") approximate their
cost, any unrealized gains or losses are immaterial and therefore have not been
recorded in the accompanying financial statements. Any such adjustment would be
recorded directly to Partners' Equity (Deficit) and would not be reflected in
the Statement of Operations. The cost of securities sold is determined using
the specific identification method.
The Securities mature as follows:
DESCRIPTION COST MATURITY
Treasury Bill $ 389,600 March, 1995
Deferred Loan Fees
Deferred loan fees are amortized using the effective interest method over the
lives of the related mortgage notes. Unamortized deferred loan fees are
included in other assets.
Rental Income
CCEP/2 leases its residential properties under short-term operating leases.
Lease terms are generally one year or less in duration. CCEP/2 expects that in
the normal course of business these leases will be renewed or replaced by other
leases. Commercial office leases vary from 1 to 15 years. Rental income is
recognized on a straight-line basis over the life of the applicable leases.
Minimum future rental income for the commercial property as of December 31,
1994, subject to noncancellable operating leases is as follows (in thousands):
YEAR ENDING
DECEMBER 31,
1995 $ 8,296
1996 6,708
1997 5,595
1998 4,348
1999 3,804
Thereafter 9,837
$ 38,588
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Other Revenue
During 1992, CCEP/2 initiated litigation to collect reimbursable utility charges
from one of the tenants of the Richmond Plaza Office Building. In 1993 the
litigation was dismissed. In July 1993, CCEP/2 collected $650,000 from the
tenant which was recognized as other income.
Depreciation
Building, improvements, and furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
3 to 20 years.
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 $84.4
million greater than the assets and liabilities as reported in the financial
statements.
Due to affiliates
Due to affiliates primarily represents cash flow payments owned by CCEP/2 to
CCIP/2 under the terms of the New Master Loan Agreement.
NOTE 2 - RELATED PARTY TRANSACTIONS
CCEP/2 has paid property management fees equal to 5% of collected gross rental
revenues ("Rental Revenues") for property management services in each of the
three years in the period ended December 31, 1994. A portion of such property
management fees equal to 4% of Rental Revenues has been paid to the property
management companies performing day-to-day property management services and the
portion equal to 1% of Rental Revenues has been paid to Partnership Services,
Inc. ("PSI") an affiliate of the General Partner, for advisory services related
to day-to-day property operations. Prior to July 1992, day to day property
management services were provided to CCEP/2 properties by unaffiliated
management companies. In July 1992, Coventry Properties, Inc. ("Coventry"),
an affiliate of CHI assumed day-to-day property management responsibilities
for one of CCEP/2 properties under the same management fee arrangement as the
unaffiliated management companies. Coventry assumed day-to-day property
management responsibilities for three additional CCEP/2 properties in January
1994, and an affiliate of Insignia assumed day-to-day property management
responsibilities for all of the rest of CCEP/2 properties in late December
1994. The management fee arrangement with Coventry, the affiliated management
company, and the unaffiliated management companies also provided for payment
of leasing their services in connection with obtaining new or renewed leases
with tenants of the commercial office buildings. Fees paid to PSI and Coventry
have been reflected in the following table as compensation to related
parties.
FOR THE YEARS ENDED DECEMBER 31,
COMPENSATION 1994 1993 1992
(in thousands)
Charged to other assets:
Lease commissions $ 493 $ -- $ --
Charged to property operations expenses:
Property management fees 511 388 289
Charged to administrative expenses:
Investment advisory fees 182 191 218
$ 1,186 $ 579 $ 507
In addition to the compensation paid in connection with property operations and
lease commissions described above, the Partnership Agreement provides for
reimbursement to the property management companies for their expenses related to
property operations (primarily salaries and related costs for on-site property
personnel). The Partnership Agreement also provides for reimbursement to CHI
and its affiliates for costs incurred in connection with administration of
CCEP/2 activities. CHI and its affiliates (including Coventry) received
reimbursements as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
REIMBURSEMENTS 1994 1993 1992
(in thousands)
Charged to property operations:
Reimbursement to direct property expense $ 542 $ 254 $ 126
Charged to administrative expenses:
(including computer and payroll 293 260 220
$ 835 $ 514 $ 346
Beginning in 1991, CCEP/2 is subject to an Investment Advisory Agreement between
CCEP/2 and an affiliate of CHI. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of CHI for advising and
consulting services for CCEP/2's properties. The fee is computed as a .24%
annual charge on the fair market value of CCEP/2's assets, excluding cash and
cash equivalents. The agreement automatically renews for successive renewal
terms of 90 days each, unless either party terminates the agreement.
NOTE 3 - MASTER LOAN AND ACCRUED INTEREST PAYABLE
Under the terms of the Master Loan Agreement, 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
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.
Any net proceeds from sale or refinancing of any of CCEP/2's properties are
paid to CCIP/2 under the terms of the Master Loan Agreement. The Master Loan
matures in November 2000.
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 will have 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.
Property and Note Receivable Dispositions through Foreclosure in 1990
EP/2's note receivable secured by North Park Plaza had not been performing
according to the note terms since 1989. In the process of negotiating the
bankruptcy reorganization discussed in Note 1, EP/2 assigned its interest in the
North Park Plaza note receivable to CCIP/2 and in July 1990, CCIP/2 foreclosed
on North Park Plaza. Approximately $10 million of Master Loan debt, which
amount was equal to the appraised value of the property foreclosed, was
extinguished by CCIP/2 in connection therewith. During the first quarter
1991, CCIP/2 adjusted the amount of the Master Loan extinguished through the
foreclosure by $4 million, representing the difference between the amount bid
at the foreclosure sale and the appraised value of the property. All of such
extinguished amount, both in 1991 and 1990, was applied toward the outstanding
Master Loan principal balance. CEP/2 recognized a net gain on extinguishment of
debt of $4.2 million in 1991. The remaining principal and accrued interest on
the portion of the Master Loan originally secured by North Park Plaza of
approximately $6.6 million was not extinguished at the time of foreclosure and
CCEP/2 is still obligated under the Master Loan for this amount.
NOTE 4 - NOTES PAYABLE
Balances at December 31, 1994 and 1993
AS OF DECEMBER 31,
1994 1993
NOTES AND INTEREST NOTES AND INTEREST
PAYABLE PAYABLE
(in thousands) (in thousands)
Notes on real estate owned $ 24,441 $ 26,354
General
CCEP/2's notes payable are nonrecourse and collateralized by deeds of trust on
real property. The notes payable bear interest at rates ranging from 8.75% to
9.875% per annum and mature between 1995 and 2003.
Summary of Maturities
NOTE PAYABLE
YEAR ENDING SPECIAL
DECEMBER 31, REGULAR OR BALLOON TOTAL
(in thousands)
1995 $ 195 $ 21,309 $ 21,504
1996 150 -- 150
1997 164 -- 164
1998 179 -- 179
1999 196 -- 196
Thereafter 393 1,855 2,248
$ 1,277 $ 23,164 $ 24,441
Regular principal payments on notes payable are those monthly or annual payments
required to amortize the notes, exclusive of special or balloon payments.
Balloon principal payments include payments required to repay notes at
maturity.
The Village Brooke Apartments, located in Cincinnati, Ohio, secures
approximately $6.8 million of first mortgage debt (the "first lien note")
which is superior to CCEP/2's related obligation under the Master Loan of
approximately $2 million.
In May 1994, management negotiated a one-year extension with the lender which
extends the maturity of the first lien note, which matured in June 1994, to June
1995. Management is negotiating with the lender to extend the maturity of the
mortgage debt. No assurance can be given that the General Partner will be
successful in its negotiations with the lender.
The Richmond Plaza Office Building, located in Richmond, Virginia, secures
approximately $14.6 million in mortgage debt (the "first lien note") which is
superior to CCEP/2's related obligation under the Master Loan of approximately
$2.3 million. In May 1994, management negotiated a one-year extension with the
lender which extends the maturity of the first lien note, which matured in March
1994, to March 1995. Management is pursuing a modification or refinance of the
mortgage debt. No assurance can be given that the General Partner will be
successful in its negotiations with the lender.
Note Receivable Disposition in 1993
CCEP/2 held a note receivable received in connection with the November 18, 1988,
sale of Scotts Level Apartments, a 234-unit complex located in Pikesville,
Maryland. The property had been purchased with funds loaned by the Partnership
pursuant to the Master Loan and which have subsequently been repaid. The note
receivable had an outstanding balance including accrued interest at December 31,
1992 of $326,000 which had previously been fully reserved. No payments had been
received on the note receivable since 1990, and the owner of the property
subsequently filed for protection under the U.S. Bankruptcy Code. The
Bankruptcy Court determined that CCEP/2's note receivable had no value, and in
December 1993, CCEP/2 received $10,000 as full settlement of the note
receivable. The remaining unpaid note and interest receivable was charged to
the previously established allowance account.
Interest which was due under the payment terms of the note but not recognized in
the Statement of Operations due to the note's delinquent status totaled $52,000
and $47,000 for the years ended December 31, 1993 and 1992, respectively.
Note Receivable Disposition in 1992
At December 31, 1991, CCEP/2 held a note receivable with an outstanding
principal balance of $675,000 pursuant to the October 1988 sale of the Kendale
Gardens Apartments located in Miami, Florida. The note receivable was secured
by a deed of trust on the property, and was subordinate to a first lien deed
held by an underlying lender. As the borrower had not made scheduled interest
payments since June 1990, the note was classified noncurrent and nonaccruing
for accounting purposes at December 31, 1991. Interest which was due under the
payment terms of the note but not recognized in the Statements of Operations
due to the note's delinquent status totaled approximately $30,000 for the year
ended December 31, 1992. In addition, the aggregate note and interest
receivable balance of approximately $687,000 was fully reserved for possible
loss at December 31, 1991.
The underlying lender foreclosed on the property in May 1992, and at the time of
foreclosure, there was no residual equity available to CCEP/2. Accordingly, the
note and interest receivable were charged to the related allowance for possible
loss in May 1992. There was no effect on net income for the year ended December
31, 1992. This noncash transaction is not reflected in the accompanying
statement of cash flows for the year ended December 31, 1992. This foreclosure
did not release CCEP/2 from its obligation of $2.4 million under the Master Loan
attributable to Kendale Gardens Apartments.
NOTE 5 - PARTNERS' DEFICIT
Pursuant to the New Partnership Agreement, the original general partner
contributions to CCEP/2 and net income or losses from ongoing operations for
both financial and tax reporting purposes are allocated 99% to the limited
partners and 1% to CHI.
NOTE 6 - REAL ESTATE SALE
In December 1994, EP/2 sold the Chagrin Richmond Office Complex for net sales
proceeds of approximately $862,000 after closing costs and repayment of
approximately $1.7 million of related mortgage debt, including approximately
$312,000 of participation interest. The disposition of the property does not
release CCEP/2 from its $4.4 million obligation under the Master Loan. The
Partnership recognized a loss of approximately $714,000 on the sale.
The sale transaction is summarized as follows:
FOR THE YEAR
ENDED DECEMBER 31, 1994
Sales Value:
Cash proceeds received $ 862
Debt discharged 1,749
Total sales value 2,611
Cost of Sales:
Net real estate (a) (3,455)
Other liabilities, net of other assets 130
Total costs of sales (3,325)
Loss on sale of real estate $ (714)
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(a) Real estate at cost, $6.4 million