UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2006
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-13402
Brauvin Real Estate Fund L.P. 4
(Name of small business issuer as specified in its charter)
Delaware 36-3304339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North LaSalle Street, Chicago, Illinois 60602
(Address of principal executive offices) (Zip Code)
(312)759-7660
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the issuer 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 whether the registrant is a shell company
(as defined by Rule 12b-2 of the Exchange Act). Yes No X.
INDEX
PART I
Page
Item 1. Financial Statements 3
Consolidated Statement of Net Assets in Liquidation
as of June 30, 2006(Liquidation Basis) 4
Consolidated Statement of Changes in Net Assets
in Liquidation for the period January 1, 2006 to
June 30, 2006 (Liquidation Basis) 5
Consolidated Statement of Changes in Net Assets
in Liquidation for the period January 1, 2005 to
June 30, 2005 (Liquidation Basis) 6
Consolidated Statements of Operations for the
six months ended June 30, 2006 and 2005
(Liquidation Basis) 7
Consolidated Statements of Operations for the
three months ended June 30, 2006 and 2005
(Liquidation Basis) 8
Notes to Financial Consolidated Statements 9
Item 2. Management's Discussion and Analysis or Plan
of Operation 20
Item 3. Controls and Procedures 25
PART II
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security
Holders 26
Item 5. Other Information 26
Item 6. Exhibits, and Reports on Form 8-K 26
Signatures 27
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following Consolidated Statement of Net Assets in
Liquidation as of June 30, 2006 (Liquidation Basis), Consolidated
Statement of Changes in Net Assets in Liquidation for the period
January 1, 2006 to June 30, 2006 (Liquidation Basis),
Consolidated Statement of Changes in Net Assets in Liquidation
for the period January 1, 2005 to June 30, 2005 (Liquidation
Basis), Consolidated Statements of Operations for the six months
ended June 30, 2006 and 2005 (Liquidation Basis) and Consolidated
Statements of Operations for the three months ended June 30, 2006
and 2005 (Liquidation Basis) for Brauvin Real Estate Fund L.P. 4
(the "Partnership") are unaudited but reflect, in the opinion of
the management, all adjustments necessary to present fairly the
information required. All such adjustments are of a normal
recurring nature.
These financial statements should be read in conjunction with
the financial statements and notes thereto included in the
Partnership's 2005 Annual Report on Form 10-KSB.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF
JUNE 30, 2006 (LIQUIDATION BASIS)
(Unaudited)
ASSETS
Real estate held for sale $6,026,500
Cash and cash equivalents 727,547
Tenant receivables 22,369
Escrow deposits 424,988
Other assets 12,412
----------
Total Assets 7,213,816
----------
LIABILITIES
Mortgage notes payable (Note 4) 4,400,000
Accounts payable and accrued expenses 443,557
Deferred gain on sale of real estate (Note 2) 464,312
Reserve for estimated costs during
the period of liquidation 217,875
Tenant security deposits 13,090
Due to affiliates 3,412
----------
Total Liabilities 5,542,246
----------
Net Assets in Liquidation $1,671,570
==========
See accompanying notes to consolidated financial statements.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR
THE PERIOD JANUARY 1, 2006 TO JUNE 30, 2006
(LIQUIDATION BASIS)
(Unaudited)
Net assets in liquidation at January 1, 2006 $2,092,903
Loss from operations (421,333)
----------
Net assets in liquidation at June 30, 2006 $1,671,570
==========
See accompanying notes to consolidated financial statements.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR
THE PERIOD JANUARY 1, 2005 TO JUNE 30, 2005
(LIQUIDATION BASIS)
(Unaudited)
Net assets in liquidation at January 1, 2005 $1,824,095
Loss from operations (184,760)
----------
Net assets in liquidation at June 30, 2005 $1,639,335
==========
See accompanying notes to consolidated financial statements.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 and 2005
(LIQUIDATION BASIS)
(Unaudited)
2006 2005
--------- ---------
INCOME
Rental $ 358,340 $ 365,117
Interest 10,257 773
Other, primarily tenant
expense reimbursements 88,237 69,905
--------- ---------
Total income 456,834 435,795
--------- ---------
EXPENSES
Interest 156,112 200,281
Real estate taxes 57,383 59,824
Repairs and maintenance 7,966 6,201
Management fees (Note 5) 26,465 26,031
Other property operating 21,099 22,469
General and administrative 597,817 270,063
--------- ---------
Total expenses 866,842 584,869
--------- ---------
Loss before
equity interests (410,008) (149,074)
Equity interest in Sabal
Palm Joint Venture's
net loss (11,325) (35,686)
--------- ---------
Net loss $(421,333) $(184,760)
========= =========
Net loss allocated
to the General Partners $ (4,213) $ (1,848)
========= =========
Net loss allocated
to the Limited Partners $(417,120) $(182,912)
========= =========
Net loss per
Limited Partnership
Interest (9,550 units
outstanding) $ (43.68) $ (19.15)
========= =========
See accompanying notes to consolidated financial statements.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 and 2005
(LIQUIDATION BASIS)
(Unaudited)
2006 2005
--------- --------
INCOME
Rental $ 179,512 $177,875
Interest 4,669 61
Other, primarily tenant
expense reimbursements 47,890 32,592
--------- --------
Total income 232,071 210,528
--------- --------
EXPENSES
Interest 81,449 99,567
Real estate taxes 26,183 30,884
Repairs and maintenance 2,457 3,451
Management fees (Note 5) 12,547 11,816
Other property operating 9,171 14,104
General and administrative 417,005 92,809
--------- --------
Total expenses 548,812 252,631
--------- --------
Loss before
equity interests (316,741) (42,103)
Equity interest in Sabal
Palm Joint Venture's
net (loss) income (2,388) 6,901
--------- --------
Net loss $(319,129) $(35,202)
========= ========
Net loss allocated
to the General Partners $ (3,191) $ (352)
========= ========
Net loss allocated
to the Limited Partners $(315,938) $(34,850)
========= ========
Net loss per
Limited Partnership
Interest (9,550 units
outstanding) $ (33.08) $ (3.65)
========= ========
See accompanying notes to consolidated financial statements.
BRAUVIN REAL ESTATE FUND L.P. 4
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements consolidate the accounts of Brauvin
Real Estate Fund L.P. 4 (the "Partnership") and a 47% interest in
another joint venture, which is accounted for using the equity
method of accounting.
The Partnership is a Delaware limited partnership organized
for the purpose of acquiring, operating, holding for investment
and disposing of existing office buildings, medical office
centers, shopping centers and industrial and retail commercial
buildings of a general purpose nature, all in metropolitan areas.
The General Partners of the Partnership are Brauvin Ventures,
Inc. and Jerome J. Brault. Mr. Cezar M. Froelich resigned as a
director of the corporate general partner in December 1994, and
resigned as an Individual General Partner effective 90 days from
August 14, 1997. Brauvin Ventures, Inc. is owned by A.G.E. Realty
Corporation Inc.(50%), and by Messrs. Brault (beneficially) (25%)
and Froelich (25%). A. G. Edwards & Sons, Inc. and Brauvin
Securities, Inc., affiliates of the General Partners, were the
selling agents of the Partnership. The Partnership is managed by
an affiliate of the General Partners.
The General Partners of the Partnership filed a Registration
Statement on Form S-11 with the Securities and Exchange
Commission which became effective on February 16, 1984. The sale
of the minimum of $1,200,000 of limited partnership interests of
the Partnership (the "Units") necessary for the Partnership to
commence operations was achieved on April 30, 1984 and the
Partnership was formed. The Partnership's offering closed on
December 31, 1984. A total of $9,550,000 of Units were
subscribed and issued between February 16, 1984 and December 31,
1984 pursuant to the Partnership's public offering.
Properties acquired by the Partnership either directly or
indirectly through affiliated joint ventures were: (a) Fortune
Professional Building (which was sold February 2003); (b) Raleigh
Springs Marketplace; (c) Strawberry Fields Shopping Center(which
was sold in July 2001) and (d) Sabal Palm Shopping Center(which
was sold in December 2005).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Basis of Presentation
As a result of the July 12, 1999 authorization by a majority
of the Limited Partners to sell the Partnership's properties, the
Partnership has begun the liquidation process and, in accordance
with generally accepted accounting principles, the Partnership's
financial statements for periods subsequent to July 12, 1999 have
been prepared on the liquidation basis of accounting.
Accordingly, the carrying values of assets are presented at their
net realizable amounts and liabilities are presented at estimated
settlement amounts, including estimated costs associated with
carrying out the liquidation. Preparation of the financial
statements on a liquidation basis requires significant
assumptions by management, including the estimate of liquidation
costs and the resolution of any contingent liabilities. There
may be differences between the assumptions and the actual results
because events and circumstances frequently do not occur as
expected. Those differences, if any, could result in a change in
the net assets recorded in the statement of net assets in
liquidation as of June 30, 2006.
Accounting Method
The accompanying consolidated financial statements have been
prepared using the accrual method of accounting.
Tenant Receivables
Tenant receivables are comprised of (a) billed but
uncollected amounts due for monthly rents and other charges and
(b) estimated unbilled amounts due for tenant reimbursement of
common area maintenance charges and property taxes. Receivables
are recorded at management's estimate of the amounts that will
ultimately be collected. An allowance for doubtful accounts of
$20,347 is based on specific identification of uncollectible
accounts and the Partnership's historical collection experience.
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision
is made for Federal income taxes in the financial statements.
Principles of Consolidation
The Partnership has one affiliate, Brauvin Raleigh, L.L.C.
which is owned 100% by the Partnership. The accounts of the
Partnership have been consolidated with its wholly owned
subsidiary in the accompanying financial statements. All
significant intercompany balances and transactions have been
eliminated upon consolidation.
Investment in Joint Venture Partnership
The Partnership owned a 47% equity interest in Sabal Palm
Joint Venture (see Note 6). Sabal Palm was reported as an
investment in an affiliated joint venture. The accompanying
financial statements include the investment in Sabal Palm Joint
Venture at estimated net realizable value using the equity method
of accounting.
On December 7, 2005 the joint venture sold the Sabal Palm
property for a gross sales price of $4,350,000. The joint
venture received net sales proceeds, after repayment of the first
mortgage, of approximately $1,601,000 and recognized a gain on
the sale of $1,189,925.
Investment in Real Estate
Prior to the preparation of the financial statements on the
liquidation basis of accounting, the operating properties
acquired by the Partnership were stated at cost including
acquisition costs, leasing commissions, tenant improvements and
net of impairment. Depreciation and amortization expense were
computed on a straight-line basis over approximately 31.5 years
and the term of the applicable leases, respectively. The
Partnership's remaining property is subject to a lien under a
first mortgage (see Note 4).
Subsequent to the adoption of the liquidation basis of
accounting (see Note 2), the Partnership adjusted its investment
in real estate to estimated net realizable value, which is
recorded as real estate held for sale. Additionally, the
Partnership suspended recording any further depreciation expense.
The Partnership has adopted Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS
141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. In July 2001, the FASB issued
Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), which is effective
January 1, 2002. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain
existing intangibles, reassessment of the useful lives of
existing intangibles, reclassification of certain intangibles out
of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future
impairments of goodwill.
The Partnership has adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 retains the
recognition and measurement requirements of its predecessor, but
resolves significant implementation issues. In addition, it
applies to a segment of a business accounted for as a
discontinued operation.
SFAS 144 has not had a significant impact on the
Partnership's financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from
date of purchase.
The Partnership maintains its cash in bank deposit accounts,
which, at times, may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts.
Management believes the Partnership is not exposed to any
significant credit risk related to cash or cash equivalents.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by using available market
information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting
market data to develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of June 30, 2006, but may
not necessarily be indicative of the amounts that the Partnership
could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
In connection with the adoption of the liquidation basis of
accounting, which approximates fair value at June 30, 2006,
assets were adjusted to net realizable value, and liabilities
were adjusted to estimated settlement amounts.
Derivatives and Hedging Instruments
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that all derivatives be
recognized as assets and liabilities in the balance sheet and be
measured at fair value. SFAS 133 also requires changes in fair
value of derivatives to be recorded each period in current
earnings or comprehensive income depending on the intended use of
the derivatives. In June, 2000, the FASB issued SFAS 138, which
amends the accounting and reporting standards of SFAS 133 for
certain derivatives and certain hedging activities. SFAS 133 and
SFAS 138 were adopted by the Partnership effective January 1,
2001.
Variable Interest Entities
In January 2003, FASB issued interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). FIN 46
addresses consolidation by business enterprises of certain
variable interest entities in which the equity investors do not
have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support
from other parties. This interpretation was revised in December
2003 and for calendar year end entities, is effective as of
December 31, 2003. The Partnership does not own any "special
purpose entities" (as defined). The adoption of FIN 46 has not
had a significant impact on the Partnership's financial
statements.
Liabilities and Equity Characteristics
In May 2003, FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments
with the Characteristics of both Liabilities and Equity" ("SFAS
150"), which is effective for all financial instruments entered
into or modified after May 31, 2003, and is otherwise effective
beginning July 1, 2003. SFAS 150 establishes standards for how
an entity classifies and measures certain financial instruments
with characteristics of both liabilities and equity. The
adoption of SFAS 150 has not had a significant impact on the
Partnership's financial statements.
Recent Accounting Pronouncements
During 2005, FASB issued Interpretation No. 47, "Accounting
for Conditional Asset Retirement Obligations" ("FIN 47") which is
effective for the Partnership's year ended December 31, 2005.
FIN 47 is an interpretation of FASB Statement No. 143 "Asset
Retirement Obligations." Under this standard, a company must
record a liability for a conditional asset retirement obligation
if the fair value of the obligation can be reasonably estimated.
The adoption of FIN 47 did not have a material effect on the
Partnership's consolidated financial statements.
SFAS No. 153, "Exchanges of Nonmonetary Assets-an amendment
of APB Opinion 29" issued by FASB in December 2004, generally
requires exchanges of productive assets to be accounted for at
fair value rather than carryover basis unless the transactions
lack commercial substance. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of this statement did not have
a material impact on the Partnership's financial position or
results of operations.
In May 2005, SFAS No. 154, "Accounting Changes and Error
Corrections" was issued by FASB. SFAS No. 154 replaces APB
Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements." This
statement requires voluntary changes in accounting policies to be
accounted for retrospectively with prior periods to be restated
as if the newly adopted policy had always been used. The
provisions of SFAS No. 154 could have an impact on prior year
financial statements if the Partnership has a change in
accounting policy.
In June 2005, FASB ratified its consensus in EITF Issue 04-
05, "Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights" (Issue 04-
05). Issue 04-05 was effective for all new or modified
partnerships after June 29, 2005 and for all new partnerships
after December 31, 2005. The adoption of Issue 04-05 did not
have an impact on the Partnership's financial statements.
(2) ADJUSTMENT TO LIQUIDATION BASIS
On July 12, 1999, in accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable
value and liabilities were adjusted to estimated settlement
amounts, including estimated costs associated with carrying out
the liquidation.
Additionally, a deferred gain was recorded in 2003, and a
deferred gain will be recognized in income on the completion of
the property sale.
(3) PARTNERSHIP AGREEMENT
The Partnership Agreement (the "Agreement") provides that 99%
of the net profits and losses from operations of the Partnership
for each fiscal year shall be allocated to the Limited Partners
and 1% of net profits and losses from operations shall be
allocated to the General Partners. The net profit of the
Partnership from the sale or other disposition of a Partnership
property shall be allocated as follows: first, there shall be
allocated to the General Partners the greater of: (i) 1% of such
net profits; or (ii) the amount distributable to the General
Partners as Net Sale Proceeds from such sale or other disposition
in accordance with paragraph 2, section K of the Agreement; and
second, all remaining profits shall be allocated to the Limited
Partners. The net loss of the Partnership from any sale or other
disposition of a Partnership property shall be allocated as
follows: 99% of such net loss shall be allocated to the Limited
Partners and 1% of such net loss shall be allocated to the
General Partners.
The Agreement provides that distributions of Operating Cash
Flow, as defined in the Agreement, shall be distributed 99% to
the Limited Partners and 1% to the General Partners. The receipt
by the General Partners of such 1% of Operating Cash Flow shall
be subordinated to the receipt by the Limited Partners of
Operating Cash Flow equal to a 10% per annum, cumulative,
non-compounded return on their Adjusted Investment (the
"Preferential Distribution"), as such term is defined in the
Agreement. In the event the full Preferential Distribution is
not made in any year (herein referred to as a "Preferential
Distribution Deficiency") and Operating Cash Flow is available in
following years in excess of the Preferential Distribution for
said year, then the Limited Partners shall be paid such excess
Operating Cash Flow until they have been paid any unpaid
Preferential Distribution Deficiency from prior years. Net Sale
Proceeds, as defined in the Agreement, received by the
Partnership shall be distributed as follows: (a) first, to the
Limited Partners until such time as the Limited Partners have
been paid an amount equal to the amount of their Adjusted
Investment; (b) second, to the Limited Partners until such time
as the Limited Partners have been paid an amount equal to any
unpaid Preferential Distribution Deficiency; and (c) third, 85%
of any remaining Net Sale Proceeds to the Limited Partners, and
the remaining 15% of the Net Sale Proceeds to the General
Partners.
At June 30, 2006, the Preferential Distribution Deficiency
exceeded the potential liquidity value of the remaining
Partnerhsip assets.
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable at June 30, 2006 consist of the
following:
Interest Date
Balance Rate Due
Raleigh Springs
Marketplace $ 4,400,000 LIBOR+ 2.25% 12/06
Raleigh Springs Marketplace serves as collateral under the
respective nonrecourse debt obligation.
On March 11, 2002, the Partnership accepted a proposal to
modify the Raleigh Springs Marketplace mortgage loan. Under the
terms of the proposal, the maturity date was extended to April 1,
2007. The loan, which continued to bear interest at 10% per
annum, required monthly installments of principal and interest of
$46,839 (based upon a 25 year amortization schedule) with a final
payment of unpaid interest and principal on April 1, 2007.
On November 17, 2005, the Partnership paid off the prior loan
(in the amount of $3,910,423) from the proceeds from a new first
mortgage loan ("First Mortgage") in the amount of $4,400,000.
This loan requires payments of interest only and has a twelve-
month maturity. In addition, the Partnership has the ability to
extend this loan for an additional twelve-month period (with the
payment of an additional fee of $11,000). Interest is payable
based on the LIBOR rate plus 2.25%. On June 30, 2006 the interest
rate was approximately 7.45%.
The Partnership was also required to purchase an interest
rate cap agreement with a maturity of December 15, 2006 in order
to fix the underlying base rates of the mortgage (LIBOR) at
6.45%. The notational amount of the interest rate cap is
identical to the notational amount of the mortgage loan. The
total cost related to the cap was $2,500.
The First Mortgage also required the establishment of a
$300,000 escrow that can be used for the payment of tenant
improvements and leasing commissions.
The First Mortgage lender also required the Partnership to
create a special purpose entity, Brauvin Raleigh LLC, which is
fully owned by the Partnership. The Partnership transferred its
ownership interest in the Raleigh Springs Marketplace to the
special purpose entity. The Partnership was also required to
enter into a limited guaranty agreement. Primarily, under the
terms of the guaranty agreement the Partnership will not be
personally liable unless the Partnership or Brauvin Raleigh LLC
commit fraud by misapplication or misappropriation of cash
receipts.
(5) TRANSACTIONS WITH AFFILIATES
Fees and other expenses incurred or payable to the General
Partners or their affiliates for the six months ended June 30,
2006 and 2005 were as follows:
2006 2005
------- -------
Management fees $26,465 $26,031
Reimbursable office expenses 41,575 38,100
As of June 30, 2006, the Partnership had made all payments to
affiliates except for $3,412 for management fees.
(6) EQUITY INVESTMENT
The Partnership owns a 47% interest in Sabal Palm Joint
Venture ("Sabal Palm") and accounts for its investment under the
equity method.
On December 7, 2005, the joint venture sold the Sabal Palm
property for a gross sales price of $4,350,000. The joint
venture received net sales proceeds, after repayment of the first
mortgage, of approximately $1,601,000 and recognized a gain on
the sale of $1,189,925. Under the terms of the transaction, the
joint venture was able to bill and retain the 2005 common area
maintenance reimbursements. Accordingly, in late December 2005,
the joint venture billed the Sabal Palm tenants approximately
$75,000 for its common area reimbursement. The joint venture
made every effort to collect the remaining receivables from the
Sabal Palm tenants.
The following are condensed financial statements for Sabal
Palm:
Liquidation Basis
For the six months ended June 30,
2006 2005
------- ---------
Rental income $ -- $ 238,603
Other income 4,182 73,754
-------- ---------
4,182 312,357
-------- ---------
Mortgage and
other interest -- 81,509
Operating and
administrative expenses 31,950 306,775
-------- ---------
31,950 388,284
-------- ---------
Net loss $(27,768) $ (75,927)
======== =========
(7) COMMITMENTS AND CONTINGENCIES
In late February 2006, the Internal Revenue Service informed
the Partnership that it was being assessed penalties in the
amount of $181,900 for late filing and failure to electronically
file its 2004 partnership tax return. The Partnership out-
sourced these activities to a third party vendor. This vendor
had successfully completed the Partnership's 2003 tax filings
and, prior to the notice from the Internal Revenue Service, the
Partnership believed that the vendor had also successfully filed
its 2004 tax returns. The Partnership appealed these penalties.
The Partnership did not record any provision for this item in
2005 or 2006.
On May 1, 2006 the Partnership received a notice from the
Internal Revenue Service that all the penalties related to the
2004 late filings have been waived.
ITEM 2. Management's Discussion and Analysis or Plan of
Operation.
General
Certain statements in this Quarterly Report that are not
historical fact constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Without limiting the foregoing, words such as
"anticipates," "expects," "intends," "plans" and similar
expressions are intended to identify forward-looking statements.
These statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those
projected in the forward-looking statements. The Partnership
undertakes no obligation to update these forward-looking
statements to reflect future events or circumstances.
Liquidity and Capital Resources
The Partnership intends to satisfy its short-term liquidity
needs through cash flow from its remaining property. Mortgage
notes payable are expected to be satisfied through a property
sale.
The General Partners determined to pursue the disposition of
the Partnership's assets. In 1999, the Partnership solicited and
received the votes of the Limited Partners to approve a sale of
all the Partnership's properties, either on an individual or
group basis, and to subsequently liquidate the Partnership. The
solicitation, which was approved by the Limited Partners in the
third quarter of 1999, stated that the Partnership's properties
may be sold individually or in any combination provided that the
total sales price for the properties included in the transaction
equals or exceeds 70% of the aggregate appraised value for such
properties, which valuation was conducted by an independent third
party appraisal firm.
Once the occupancy of Raleigh Springs Marketplace has been
stabilized, the Partnership intends to sell this property under a
closed bid process which will include identification of target
buyers with proven financing ability and performance of certain
evaluations of the properties, such as environmental testing.
Potential buyers will be requested to sign confidentiality
agreements to safeguard the Partnership's confidential
proprietary information. The General Partners have determined
that each bid must be all cash, completely unconditional and
accompanied by a substantial deposit.
Property Status
Raleigh Springs Marketplace
In the fourth quarter of 2001, the Partnership leased
13,400 square feet of space to Sav A Lot, a national grocery
chain. In the third quarter of 2004, Sav A Lot exercised its
first option and extended the lease maturity through 2008. In
the first quarter of 2004, the Partnership reached an agreement
in principle with AJ Wright, a national clothing retailer to take
approximately 25,000 square feet of part of the space then leased
to Toys "R" Us. The Partnership negotiated a lease with the
tenant, that required substantial reconfiguration to the existing
space and tenant improvements. This lease was subject to a
successful termination and buyout of the existing Toys "R" Us
lease. The Partnership reached an agreement with Toys "R" Us for
the termination and a substantial buyout payment of Toys "R" Us
to the Partnership (such payment in the amount of $1,400,000
having been received in September 2004). The Partnership
anticipates the payment will cover all of the conversion and
tenant build out costs required by the new tenant. The buyout of
the lease was subject to the approval of the property's lender
and the lender agreed to the transaction. In addition in 2004,
the Partnership leased approximately 10,000 square feet to the
Veterans Administration (the "VA"). The VA lease also required a
significant build out. The Partnership has incurred the cost of
the build out and funded the expense through a portion of the
Toys "R" Us lease buyout. In addition, the VA will make
additional lease payments to the Partnership in an amount that
will amortize the cost of the improvements over a five-year
period. AJ Wright and the VA took occupancy in the fourth quarter
of 2004.
In the first quarter of 2006, the Partnership received an
expression of interest in leasing the remaining space that was
the former Toys "R" Us (approximately 11,000 square feet). In
the second quarter of 2006 the Partnership and Marty's, LLC (a
regional supplier of mens fashion clothing) executed a lease
agreement. The tenant is requiring significant improvements be
made to the space prior to its occupancy. The Partnership
intends to pay for these improvements through the use of the
escrow funds held by the First Mortgage lender (as detailed
below).
The Partnership anticipates it will be making a number of
cosmetic repairs and improvements to the center to improve its
marketability for sale. These improvements will include painting
and repair of the sign band as well as minor parking lot repairs.
In the second quarter of 2005, the Partnership executed a
letter of intent with a national lender to refinance the existing
debt and to provide for additional tenant improvements.
On November 17, 2005, the Partnership paid off the Modified
Loan (in the amount of $3,910,423) from the proceeds from a new
first mortgage loan ("First Mortgage") in the amount of
$4,400,000. This loan requires payments of interest only and has
a twelve-month maturity. In addition, the Partnership has the
ability to extend this loan for an additional twelve-month period
(with the payment of an additional fee of $11,000). Interest is
payable based on the LIBOR rate plus 2.25%. On June 30, 2006 the
total interest rate was approximately 7.45%. The Partnership was
also required to purchase a interest rate cap at a cost of
$2,500, which caps the LIBOR rate at 6.45% for a one year period.
The First Mortgage also required the establishment of a
$300,000 escrow that can be used for the payment of tenant
improvements and leasing commissions.
The First Mortgage lender also required the Partnership to
create a special purpose entity, Brauvin Raleigh LLC, which is
fully owned by the Partnership. The Partnership transferred its
ownership interest in the Raleigh Springs Marketplace to the
special purpose entity. The Partnership was also required to
enter into a limited guaranty agreement. Primarily, under the
terms of the guaranty agreement the Partnership will not be
personally liable unless the Partnership or Brauvin Raleigh LLC
commit fraud by misapplication or misappropriation of cash
receipts.
Sabal Palm Shopping Center
On December 7, 2005, the joint venture sold the Sabal Palm
property for a gross sales price of $4,350,000. The joint
venture received net sales proceeds, after repayment of the first
mortgage, of approximately $1,601,000 and recognized a gain on
the sale of $1,189,925. Under the terms of the transaction, the
joint venture was able to bill and retain the 2005 common area
maintenance reimbursements. Accordingly, in late December 2005,
the joint venture billed the Sabal Palm tenants approximately
$75,000 for its common area reimbursement. The joint venture
made every effort to collect the remaining receivables from the
Sabal Palm tenants.
Results of Operations
The Partnership's revenue and expenses are affected primarily
by the operations of the properties. Property operations, and in
particular the components of income, demand for space and rental
rates are, to a large extent, determined by local and national
market conditions.
These conditions have generally adversely impacted the
Partnership's property economics.
The General Partners conduct an in-depth assessment of each
property's physical condition as well as a demographic analysis
to assess opportunities for increasing occupancy and rental rates
and decreasing operating costs. In all instances, decisions
concerning restructuring of loan terms, reversions and subsequent
operation of the property are made with the intent of maximizing
the potential proceeds to the Partnership and, therefore, return
of investment and income to Limited Partners.
In certain instances and under limited circumstances,
management of the Partnership entered into negotiations with
lenders for the purpose of restructuring the terms of loans to
provide for debt service levels that could be supported by
operations of the properties. When negotiations are
unsuccessful, management of the Partnership considers the
possibility of reverting the properties to the first mortgage
lender. Foreclosure proceedings may require 6 to 24 months to
conclude.
Results of Operations - Six months ended June 30, 2006 and 2005
(Liquidation Basis)
As a result of the Partnership's adoption of the liquidation
basis of accounting, and in accordance with generally accepted
accounting principles, the Partnership's financial statements for
periods subsequent to July 12, 1999 have been prepared on a
liquidation basis.
The Partnership generated net loss of $421,000 for the period
ended June 30, 2006 as compared to a net loss of $185,000 for the
same period in 2005. The $236,000 increase in net loss is
primarily a result of an increase in general and administrative
expenses of $328,000, partially offset by an increase in total
income of $21,000. The Partnership's share of Sabal Palms net
loss decreased $24,000.
Total income for the period ended June 30, 2006 was $457,000
as compared to $436,000 for the same period in 2005. . The
$21,000 increase in total income was primarily a result of a
$18,000 increase in other income and a $9,000 increase in
interest income. Other income increased as a result of a
reimbursement from one of the tenants for certain improvements
completed in the tenants space.
Total expenses for the period ended June 30, 2006 were
$867,000 as compared to $585,000 for the same period in 2005.
The $282,000 increase in total expense was due to an increase in
general and administrative expense. General and administrative
expenses increased as a result of the buildout costs associated
with the Marty's lease. Partially offsetting the increase in
general and administrative expense was a decrease in interest
expense of $44,000 as a result of the November 17, 2005 Raleigh
Springs loan refinancing.
Results of Operations - Three months ended June 30, 2006 and 2005
(Liquidation Basis)
The Partnership generated net loss of $319,000 for the three
month period ended June 30, 2006 as compared to a net loss of
$35,000 for the same period in 2005. The $284,000 increase in
net loss is primarily a result of an increase in general and
administrative expenses of $324,000 partially offset by an
increase in total income of $22,000. The Partnership's share of
Sabal Palms net loss increased $9,000.
Total income for the three month period ended June 30, 2006
was $232,000 as compared to $211,000 for the same period in 2005.
The $21,000 increase in total income was primarily a result of a
$15,000 increase in other income, a $5,000 increase in interest
income, and a $1,000 increase in rental income. Other income
increased as a result of a reimbursement from one of the tenants
for certain improvements completed in the tenants space.
Total expenses for the three month period ended June 30, 2006
were $549,000 as compared to $253,000 for the same period in
2005. The $296,000 increase in total expense was due to an
increase in general and administration expense of $324,000.
General and administration expense increased as a result of the
buildout costs associated with the Marty's lease. Although the
Marty's lease was signed, actual construction of the space did
not occur until after June 30, 2006.
ITEM 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, of
the corporate general partner, have reviewed and evaluated the
effectiveness of the Partnership's disclosure controls and
procedures (as defined in Exchange Act Rules 240.13a-14(c) and
15d-14(c)) as of a date within 90 days before the filing date of
this Annual Report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that
the Partnership's current disclosure controls and procedures are
effective and timely, providing all material information relating
to the Partnership required to be disclosed in reports filed or
submitted under the Exchange Act.
Changes in Internal Controls
There have not been any significant changes in the
Partnership's internal controls or in other factors that could
significantly affect these controls subsequent to the date of
their evaluation. We are not aware of any significant
deficiencies or material weaknesses, therefore no corrective
actions were taken.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security
Holders.
None.
ITEM 5. Other Information.
In late February 2006, the Internal Revenue Service informed
the Partnership that it was being assessed penalties in the
amount of $181,900 for late filing and failure to electronically
file its 2004 partnership tax return. The Partnership out-
sourced these activities to a third party vendor. This vendor
had successfully completed the Partnership's 2003 tax filings
and, prior to the notice from the Internal Revenue Service, the
Partnership believed that the vendor had also successfully filed
its 2004 tax returns. The Partnership appealed these penalties.
The Partnership did not record any provision for this item in
2005 or 2006.
On May 1, 2006 the Partnership received a notice from the
Internal Revenue Service that all the penalties related to the
2004 late filings have been waived.
ITEM 6. Exhibits and Reports On Form 8-K.
Exhibit 99. Certification of Officers
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BY: Brauvin Ventures, Inc.
Corporate General Partner of
Brauvin Real Estate Fund L.P. 4
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
DATE: August 14, 2006
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
DATE: August 14, 2006
CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A)
CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER
OF
BRAUVIN VENTURES, INC.
CORPORATE GENERAL PARTNER
OF
BRAUVIN REAL ESTATE FUND L.P. 4
I, Jerome J. Brault, Chief Executive Officer of the Company,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Brauvin Real Estate Fund L.P. 4;
2. Based on my knowledge, this report does not contain any
untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the consolidated financial
condition, results of operations and statement of changes in
net assets in liquidation of the small business issuer as
of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)for the small business issue and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this quarterly report is
being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles
c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the small
business issuer's internal control over financial
reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business
issuer's fourth quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of small
business issuer's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
aversely affect the small business issuer's ability to
record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the small business issuer's internal controls
over financial reporting.
BY: Brauvin Ventures, Inc.
Corporate General Partner of
Brauvin Real Estate Fund L.P. 4
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
DATE: August 14, 2006
CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A)
CERTIFICATE OF THE CHIEF FINANCIAL OFFICER
OF
BRAUVIN VENTURES, INC.
CORPORATE GENERAL PARTNER
OF
BRAUVIN REAL ESTATE FUND L.P. 4
I, Thomas E. Murphy, Chief Financial Officer of the Company,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Brauvin Real Estate Fund L.P 4.;
2. Based on my knowledge, this report does not contain any
untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the consolidated financial
condition, results of operations and statement of changes in
net assets in liquidation of the small business issuer as
of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)for the small business issue and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the small business issuer,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly
during the period in which this quarterly report is
being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over
financial reporting to be designed under our
supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for external
purposes in accordance with generally accepted
accounting principles
c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and
presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the small
business issuer's internal control over financial
reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business
issuer's fourth quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of small
business issuer's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
aversely affect the small business issuer's ability to
record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the small business issuer's internal controls
over financial reporting.
BY: Brauvin Ventures, Inc.
Corporate General Partner of
Brauvin Real Estate Fund L.P. 4
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
DATE: August 14, 2006
Exhibit 99
SECTION 906 CERTIFICATION
The following statement is provided by the undersigned to
accompany the Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2006, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 and shall not be deemed filed pursuant to any
provisions of the Securities Exchange Act of 1934 or any other
securities law:
Each of the undersigned certifies that the foregoing Report on
Form 10-QSB fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that
the information contained in the Form 10-QSB fairly presents, in
all material respects, the financial condition and results of
operations of Brauvin Real Estate Fund L.P. 4.
BY: Brauvin Ventures, Inc.
Corporate General Partner of
Brauvin Real Estate Fund L.P. 4
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
DATE: August 14, 2006
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
DATE: August 14, 2006