UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14351
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
PART I
Item 1. Business
----------------
Balcor Realty Investors 85-Series II A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $83,936,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of real property, and all financial information
included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire thirteen real
property investments and a minority joint venture interest in one additional
property. The Registrant has since disposed of five of these properties. As of
December 31, 1994, the Registrant owned the eight properties and the minority
joint venture interest described under Item 2. Properties. The Partnership
Agreement generally provides that the proceeds of any sale or refinancing will
not be reinvested in new acquisitions.
During 1994, institutionally owned and managed multi-family residential
properties in many markets continued to experience favorable operating
conditions combined with relatively low levels of new construction. These
favorable operating conditions were supported by the strong pattern of national
economic growth which contributed to job growth and rising income levels in
most local economies. However, some rental markets continue to remain extremely
competitive; therefore, the General Partner's goals are to maintain high
occupancy levels, while increasing rents where possible, and to monitor and
control operating expenses and capital improvement requirements at the
properties. Of the Registrant's eight remaining properties, during 1994, six
generated positive cash flow while two generated marginal cash flow deficits.
In addition, the property in which the Registrant holds a minority joint
venture interest generated positive cash flow during 1994. See Item 7.
Liquidity and Capital Resources for additional information.
Historically, real estate investments have experienced the same cyclical
characteristics affecting most other types of long-term investments. While real
estate values have generally risen over time, the cyclical character of real
estate investments, together with local, regional and national market
conditions, has resulted in periodic devaluations of real estate in particular
markets, as has been experienced in the last few years. As a result of these
factors, it has become necessary for the Registrant to retain ownership of many
of its properties for longer than the holding period for the assets originally
described in the prospectus. The General Partner examines the operations of
each property and each local market in conjunction with the Registrant's long-
term dissolution strategy when determining the optimal time to sell each of the
Registrant's properties.
During 1994, the Registrant completed the refinancings of two mortgage notes
payable. See Item 7. Liquidity and Capital Resources for additional
information.
The Registrant, by virtue of its ownership of real estate is subject to federal
and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware
of any potential liability due to environmental issues or conditions that would
be material to the Registrant.
The officers and employees of Balcor Partners-XVII, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
------------------
As of December 31, 1994 the Registrant owns the eight properties described
below:
Location Description of Property
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Fort Worth, Texas Chestnut Ridge Apartments - Phase I (formerly
Cottonwood Apartments - Phase I): a 192-unit
apartment complex located on approximately 7
acres.
Memphis, Tennessee Country Oaks Apartments: a 200-unit apartment
complex located on approximately 10 acres.
Arlington, Texas Forest Ridge Apartments - Phase II: a 328-unit
apartment complex located on approximately 15
acres.
St. Louis County, Missouri Hunter's Glen Apartments: a 192-unit apartment
complex located on approximately 10 acres.
Hillsborough County, Florida Marbrisa Apartments: a 224-unit apartment
complex located on approximately 37 acres.
Gwinnett County, Georgia Park Crossing Apartments: a 280-unit apartment
complex located on approximately 21 acres.
Lexington-Fayette, Kentucky Steeplechase Apartments: a 296-unit apartment
complex located on approximately 16 acres.
East Baton Rouge Parish, Willow Bend Lake Apartments: a 360-unit
Louisiana apartment complex located on approximately 22
acres.
Each of the above properties is held subject to various forms of financing.
The Registrant also holds a 38.38% minority joint venture interest in Rosehill
Pointe Apartments located in Lenexa, Kansas.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
-------------------------
The Registrant is not subject to any material pending legal proceedings, nor
were any such proceedings terminated during the fourth quarter of 1994.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------------------
Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop; therefore, the
market value of the Limited Partnership Interests cannot reasonably be
determined. The Registrant has not made distributions to date to investors. For
additional information, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources, below.
As of December 31, 1994, the number of record holders of Limited Partnership
Interests of the Registrant was 7,393.
Item 6. Selected Financial Data
-------------------------------
Year ended December 31,
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1994 1993 1992 1991 1990
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Total income $12,889,004 $13,196,684 $14,216,484 $13,083,391 $14,198,997
Loss before gain
on sale of
property (2,019,363) (2,299,675) (2,647,166) (3,666,743) (4,885,957)
Net (loss) income (2,019,363) 1,348,884 (2,647,166) (3,666,743) (1,615,755)
Net (loss) income
per Limited
Partnership
Interest (23.82) 15.91 (31.22) (43.25) (19.06)
Total assets 52,186,795 54,690,993 65,783,386 70,528,914 73,611,604
Mortgage notes
payable 53,346,903 57,225,506 65,457,125 66,975,920 67,140,599
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
---------------------
Summary of Operations
---------------------
During 1993, Balcor Realty Investors 85-Series II (the "Partnership")
recognized a gain in connection with the sale of the Playa Palms Apartments.
This caused the Partnership to recognize net income during 1993 as compared to
a net loss during 1994 and 1992. In addition, aggregate property operations for
the remaining properties improved from 1992 to 1993 and 1993 to 1994.
Operations
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1994 Compared to 1993
---------------------
The July 1993 sale of Playa Palms Apartments caused decreases in rental and
service income, interest expense on mortgage notes payable, depreciation
expense, amortization expense, property operating expense, maintenance and
repairs, real estate taxes and property management fees during 1994 as compared
to 1993. These decreases were offset by, or were in addition to, other activity
as described below.
The Partnership was able to achieve higher occupancy levels and/or rental rates
at all of the Partnership's eight remaining properties. As a result, rental
and service income, as well as the related property management fees, increased
at these properties during 1994, which partially offset the decreases due to
the sale of Playa Palms Apartments.
During the latter half of 1993, restricted investments of $1,995,000 were
released and the proceeds were used to repay the respective loans from the
General Partner relating to these cash collateral pledges. As a result of these
funds no longer being available for short-term investments, interest income on
short-term investments decreased during 1994 as compared to 1993.
During 1993, the Partnership reached a settlement with one of the defendants in
the litigation related to the Park Crossing Apartments and recognized
settlement income of $113,870 in connection with this transaction. The
Partnership reached a settlement with the remaining defendants during 1994 and
received $300,000 in settlement of all claims due to the Partnership.
In connection with the 1994 refinancings of the properties' mortgage loans, the
Partnership retired and replaced $4,215,546 of affiliated mortgage notes
payable related to the Chestnut Ridge - Phase I and Forest Ridge - Phase II
apartment complexes with General Partner loans. As a result, interest expense
on mortgage notes payable decreased and interest expense on short-term loans
from affiliates increased during 1994 as compared to 1993. Also contributing to
the decrease in interest expense on mortgage notes payable were lower interest
rates due to the Chestnut Ridge - Phase I refinancing in 1994 and the Hunter's
Glen, Marbrisa, Park Crossing and Steeplechase refinancings in 1993.
Due to the 1994 refinancings of the Chestnut Ridge - Phase I and Forest Ridge -
Phase II mortgage loans, deferred expenses related to the previous loans were
fully amortized. As a result, amortization of deferred expenses increased
during 1994 as compared to 1993.
Increased insurance premiums at all of the Partnership's properties during 1994
offset the decrease in property operating expense due to the sale of Playa
Palms Apartments.
During 1994, the Partnership incurred significantly higher maintenance and
repairs expenses at the Marbrisa Apartments in connection with exterior
painting and wood replacement as required by the 1993 mortgage refinancing.
These expenses were partially offset by the Playa Palms sale and exterior
painting and parking lot repairs during 1993 at the Hunter's Glen Apartments.
Real estate tax rates increased during 1994 at Park Crossing and Willow Bend
Lake apartment complexes and the assessed value of Park Crossing Apartments
also increased during 1994. This resulted in an increase in real estate tax
expense at these properties, during 1994 as compared to 1993, which partially
offset the decrease in real estate tax expense due to the Playa Palms sale.
Higher legal fees incurred due to the Park Crossing Apartments settlement along
with higher accounting, data processing and portfolio management expenses
during 1994 resulted in an increase in administrative expenses during 1994 as
compared to 1993.
The Partnership holds a minority joint venture interest in the Rosehill Pointe
Apartments, which realized a decrease in interest expense during 1994 due to a
reduction of the interest rate on the property's first mortgage loan during the
third quarter of 1993. This decrease was partially offset by increased
expenditures for insurance, utilities, payroll and advertising during 1994 as
compared to 1993. As a result of the combined effect of these events,
participation in loss of joint venture with an affiliate decreased during 1994
as compared to 1993.
The Partnership recognized a gain on sale of property of $3,648,559 during 1993
in connection with the sale of Playa Palms Apartments.
1993 Compared to 1992
---------------------
The July 1993 sale of Playa Palms Apartments caused decreases in rental and
service income, interest expense on mortgage notes payable, depreciation
expense, amortization expense, property operating expense, real estate taxes
and property management fees during 1993 as compared to 1992. These decreases
were offset by, or were in addition to, other activity as described below. The
Partnership also recognized a gain on sale of property during 1993.
The Partnership was able to achieve higher occupancy levels and/or rental rates
at seven of the Partnership's eight remaining properties, most significantly at
the Marbrisa and Park Crossing apartment complexes. As a result, rental and
service income increased at these properties for 1993 and partially offset the
decreases in rental and service income discussed above.
As a result of the payoff of restricted investments described above and due to
interest rates being lower in 1993 than in 1992, interest income on short-term
investments decreased during 1993 as compared to 1992.
During 1992, the Partnership reached a settlement with the seller of the Forest
Ridge - Phase II and Highpoint - Phase I apartment complexes and recognized
settlement income of $486,000 in connection with this transaction.
Lower interest rates on short-term loans, as well as a reduction in the amount
of debt outstanding during 1993 as compared to 1992, resulted in a decrease in
interest expense on short-term loans from the General Partner during 1993 as
compared to 1992.
As a result of the refinancing of the Hunter's Glen, Marbrisa, Park Crossing,
Steeplechase and Willow Bend Lake apartment complexes mortgage loans during
1993, deferred expenses related to the previous loans were fully amortized. In
addition, the Partnership recognized amortization expense during 1993 on the
new mortgage loans. As a result, amortization of deferred expenses increased
during 1993 as compared to 1992, fully offsetting the decrease discussed above.
The Partnership incurred increased parking lot repairs and exterior painting
costs at the Hunter's Glen Apartments and increased roof repairs and parking
lot repairs at the Steeplechase Apartments. As a result, maintenance and repair
expenses increased during 1993 as compared to 1992. These increases were
partially offset by the sale of the Playa Palms Apartments and the absence of
exterior painting costs at the Chestnut Ridge - Phase I Apartments in 1993.
During 1992, the Partnership reached a settlement with the seller of the
Pleasant Lake Village and Playa Palms apartment complexes. The Partnership
recognized a loss of $221,827 as a result of the write-off of the remaining
portion of the receivable from the seller which was forgiven as part of the
settlement.
The Partnership holds a minority joint venture interest in the Rosehill Pointe
Apartments, which realized increased rental and service income at the property
due to increases in rental rates and/or occupancy levels during 1993 and a
decrease in interest expense due to a reduction of the interest rate on the
property's first mortgage loan. Additionally, the property also incurred
increased payroll expenditures during 1993. As a result of these events, the
Partnership recognized a decrease in its participation in the loss from the
joint venture with an affiliate during 1993 as compared to 1992.
Liquidity and Capital Resources
-------------------------------
The cash position of the Partnership decreased as of December 31, 1994 when
compared to December 31, 1993. The Partnership's operating activities consisted
primarily of cash flow generated from property operations, which was partially
offset by the payment of administrative expenses, short-term interest expense
and deferred interest expense upon the refinancing of the Chestnut Ridge -
Phase I and Forest Ridge - Phase II mortgage loans. The Partnership's financing
activities included the refinancing of these mortgage loans. From the proceeds
of the new first mortgage loans, the Partnership repaid the previous first
mortgage loans and a portion of the loans payable from affiliates relating to
each property. The Partnership also funded required repair escrows and paid
related financing costs. Additional financing activities included payment of
principal on mortgage notes payable.
The Partnership owes approximately $12,296,000 to the General Partner at
December 31, 1994 in connection with the funding of operating deficits and
other working capital requirements. These loans are expected to be repaid from
available cash flow from future property operations, or from proceeds received
from the disposition of the Partnership's real estate investments prior to any
distributions to Limited Partners.
Although affiliates of the General Partner have, in certain circumstances,
provided mortgage loans for certain properties of the Partnership, there can be
no assurance that loans of this type will be available from either affiliates
or the General Partner in the future. The General Partner may continue to
provide additional short-term loans to the Partnership to fund working capital
needs or property operating deficits, although there is no assurance that such
loans will be available. Should such short-term loans from the General Partner
not be available, the General Partner will seek alternative third party sources
of financing working capital. However, the current economic environment and its
impact on the real estate industry make it unlikely that the Partnership would
be able to secure financing from third parties to fund working capital needs or
operating deficits. Should additional borrowings be needed and not be available
through the General Partner, its affiliates or third parties, the Partnership
may be required to dispose of some of its properties in order to satisfy
Partnership obligations.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments. During 1994, six of the Partnership's eight remaining properties
generated positive cash flow compared to five properties for the same period in
1993. In addition, the property in which the Partnership holds a minority joint
venture interest generated positive cash flow during 1994 and 1993. The
Hunter's Glen and Forest Ridge - Phase II apartment complexes generated
positive cash flow during 1994 as compared to a marginal deficit during 1993
due to decreased expenditures for parking lot repairs, and the absence of
expenditures for exterior painting and
higher rental income, respectively. The Chestnut Ridge - Phase I Apartments
operated at a marginal cash flow deficit during 1994 and 1993. The Marbrisa
Apartments, which generated positive cash flow during 1993, operated at a
marginal deficit during 1994 primarily due to higher repairs and maintenance
costs.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties including refinancing of mortgage
loans, improving property operating performance, and seeking rent increases
where market conditions allow. As of December 31, 1994, the occupancy rates of
the Partnership's properties ranged from 90% to 97%. Despite improvements
during 1993 and 1994 in the local economies and rental markets where certain of
the Partnership's properties are located, the General Partner believes that
continued ownership of many of the properties is in the best interests of the
Partnership in order to maximize potential returns to Limited Partners. As a
result, the Partnership will continue to own these properties for longer than
the holding period for the assets originally described in the prospectus.
During 1994, the Chestnut Ridge - Phase I and Forest Ridge - Phase II mortgage
loans were refinanced. See Note 3 of Notes to Financial Statements for
additional information.
In October 1994, the Partnership reached a settlement with the remaining
defendants in litigation on the Park Crossing Apartments and received $300,000
in settlement of all claims due to the Partnership. See Note 4 of Notes to
Financial Statements for additional information.
The Partnership's properties are owned through the use of third-party and
affiliate mortgage loan financings and therefore, the Partnership is subject to
the financial obligations required by such loans. See Note 3 of Notes to
Financial Statements for information concerning outstanding balances, maturity
dates, interest rates, and other terms related to each of these mortgage loans.
During 1995, the Country Oaks Apartments mortgage loan of approximately
$5,462,000 matures. The General Partner expects to refinance this loan prior to
maturity. No mortgage loans mature during 1996. In certain instances it may be
difficult for the Partnership to refinance a property in an amount sufficient
to retire in full the current third-party mortgage financing with respect to
the property. In the event negotiations with the existing lender for a loan
modification or with new lenders for a refinancing are unsuccessful, the
Partnership may sell the collateral property or other properties to satisfy an
obligation or may relinquish title to the collateral property in satisfaction
of the outstanding mortgage loan balance.
The General Partner has recently completed the outsourcing of the financial
reporting and accounting services, transfer agent and investor records
services, and computer operations and systems development functions that
provided services to the Partnership. All of these functions are now being
provided by independent third parties. Additionally, Allegiance Realty Group,
Inc., which has provided property management services to the Partnership's
property, was sold to a third party. Each of these transactions occurred after
extensive due diligence and competitive bidding processes. The General Partner
does not believe that the cost of providing these services to the Partnership,
in the aggregate, will be materially different to the Partnership during 1995
when compared to 1994.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions to investors will depend on
improved cash flow from the Partnership's remaining properties and proceeds
from future property sales, as to both of which there can be no assurances. In
light of results to date and current market conditions, the General Partner
does not anticipate that investors will recover a substantial portion of their
original investment.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1994 December 31, 1993
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $52,186,795 $41,006,290 $54,690,993 $44,800,981
Partners' deficit:
General Partner (906,714) (14,549,350) (886,520) (13,969,240)
Limited Partners (14,763,734) (14,363,891) (12,764,565) (11,271,553)
Net (loss) income:
General Partner (20,194) (580,110) 13,489 535,554
Limited Partners (1,999,169) (3,092,338) 1,335,395 3,429,757
Per Limited Part-
nership Interest (23.82) (36.84) 15.91 40.86
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
--------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XVII, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Executive Vice President, Allan Wood
Chief Financial Officer and
Chief Accounting Officer
Senior Vice President Alexander J. Darragh
First Vice President Daniel A. Duhig
First Vice President Josette V. Goldberg
First Vice President Alan G. Lieberman
First Vice President Brian D. Parker
and Assistant Secretary
First Vice President John K. Powell, Jr.
First Vice President Reid A. Reynolds
First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company.
Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and
Savings Bank in the commercial real estate division where he was involved in
various lending activities. Mr. Meador received his M.B.A. degree from the
Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief
Financial Officer and Chief Accounting Officer, is responsible for the
financial and administrative functions. He is also a Director of The Balcor
Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor,
he was employed by Price Waterhouse where he was involved in auditing public
and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has
primary responsibility for the Portfolio Advisory Group. He is responsible for
due diligence analysis and real estate advisory services in support of asset
management, institutional advisory and capital markets functions. Mr. Darragh
has supervisory responsibility of Balcor's Investor Services, Investment
Administration, Fund Management and Land Management departments. Mr. Darragh
received masters' degrees in Urban Geography from Queens's University and in
Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is
responsible for the Asset Management Department relating to real estate
investments made by Balcor and its affiliated partnerships, including
negotiations for modifications or refinancings of real estate mortgage
investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's administrative and MIS departments.
Ms. Goldberg has been designated as a Senior Human Resources Professional
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified
Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for
Balcor's corporate and property accounting, treasury and budget activities.
Mr. Parker is a Certified Public Accountant and holds an M.S. degree in
Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is
responsible for the administration of the investment portfolios of Balcor's
partnerships and for Balcor's risk management functions. Mr. Powell received a
Master of Planning degree from the University of Virginia. He has been
designated a Certified Real Estate Financier by the National Society for Real
Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with
the asset management of residential properties for Balcor. Mr. Reynolds is a
licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has
responsibility for various Asset Management functions, including oversight of
the residential portfolio. From January 1986 through September 1994, Mr. Selby
was Regional Vice President and then Senior Vice President of Allegiance Realty
Group, Inc., an affiliate of Balcor providing property management services.
Mr. Selby was responsible for supervising the management of residential
properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1994.
Item 11. Executive Compensation
-------------------------------
The Registrant has not paid and does not propose to pay any
remuneration to the executive officers and directors of the General Partner.
Certain of these officers receive compensation from The Balcor Company (but not
from the Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the General
Partner believes that any such compensation attributable to services performed
for the Registrant is immaterial to the Registrant. See Note 11 of Notes to
Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Partners-XVII and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 1,235 1.47%
Relatives and affiliates of the partners and officers and partners of the
General Partner own 21 Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
(a & b) See Note 11 of Notes to Financial Statements for information relating
to transactions with affiliates.
See Note 2 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
set forth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-11 dated March 12, 1985 (Registration No. 2-95000) is
incorporated herein by reference.
(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-14351) are incorporated
herein by reference.
(10) Agreement of Sale and attachments thereto relating to the sale of Playa
Palms Apartments, previously filed as Exhibit (2) to the Registrant's Report on
Form 8-K dated June 2, 1993, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Allan Wood
--------------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Partners-XVII, the
General Partner
Date: March 29, 1995
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
---------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XVII,
/s/Thomas E. Meador the General Partner March 29, 1995
-------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and
Financial Officer) of Balcor
/s/Allan Wood Partners XVII, the General Partner March 29, 1995
-------------------- --------------
Allan Wood
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Deficit, for the years ended December 31, 1994, 1993
and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993
and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1994
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 85-Series II
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Realty Investors 85-Series II A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedule 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Realty Investors
85-Series II A Real Estate Limited Partnership at 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. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 10, 1995
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 600,949 $ 1,192,138
Restricted investments 480,000 480,000
Escrow deposits 1,041,462 937,213
Accounts and accrued interest receivable 183,575 349,385
Deferred expenses, principally loan
financing fees, net of accumulated
amortization of $323,605 in 1994 and
$283,373 in 1993 1,070,071 1,035,536
------------- -------------
3,376,057 3,994,272
------------- -------------
Investment in real estate, at cost:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
------------- -------------
73,062,736 73,062,736
Less accumulated depreciation 24,251,998 22,366,015
------------- -------------
Investment in real estate, net of
accumulated depreciation 48,810,738 50,696,721
------------- -------------
$ 52,186,795 $ 54,690,993
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 12,295,605 $ 8,752,085
Accounts payable 243,758 93,233
Due to affiliates 216,455 108,865
Accrued liabilities, principally interest
and real estate taxes 423,967 919,487
Security deposits 228,573 245,973
Loss in excess of investment in joint
venture with an affiliate 1,101,982 996,929
Mortgage notes payable - affiliates 1,673,215 7,481,299
Mortgage notes payable 51,673,688 49,744,207
------------- -------------
Total liabilities 67,857,243 68,342,078
Partners' deficit (83,936 Limited Partnership
Interests issued and outstanding) (15,670,448) (13,651,085)
------------- -------------
$ 52,186,795 $ 54,690,993
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT
for the years ended December 31, 1994, 1993 and 1992
Partners' Deficit Accounts
------------------------------------------
General Limited
Total Partner Partners
-------------- ------------- -------------
Balance at December 31, 1991 $ (12,352,803) $ (873,537) $(11,479,266)
Net loss for the year
ended December 31, 1992 (2,647,166) (26,472) (2,620,694)
-------------- ------------- -------------
Balance at December 31, 1992 (14,999,969) (900,009) (14,099,960)
Net income for the year
ended December 31, 1993 1,348,884 13,489 1,335,395
-------------- ------------- -------------
Balance at December 31, 1993 (13,651,085) (886,520) (12,764,565)
Net loss for the year
ended December 31, 1994 (2,019,363) (20,194) (1,999,169)
-------------- ------------- -------------
Balance at December 31, 1994 $ (15,670,448) $ (906,714) $(14,763,734)
============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
-------------- ------------- -------------
Income:
Rental and service $ 12,521,580 $ 12,994,337 $ 13,541,677
Interest on short-term
investments 67,424 88,477 188,807
Settlement income 300,000 113,870 486,000
-------------- ------------- -------------
Total income 12,889,004 13,196,684 14,216,484
-------------- ------------- -------------
Expenses:
Interest on mortgage notes
payable 5,138,352 6,142,371 6,920,675
Interest on short-term loans
from affiliate 572,915 370,180 511,571
Depreciation 1,885,983 2,051,056 2,263,897
Amortization of deferred
expenses 274,282 187,999 146,738
Property operating 3,203,292 3,180,653 3,185,322
Maintenance and repairs 1,513,263 1,319,906 1,250,681
Real estate taxes 1,039,756 1,061,532 1,101,842
Property management fees 626,989 657,359 675,541
Administrative 641,949 471,856 505,340
Write-off of receivables from
seller 221,827
Participation in loss of joint
venture with an affiliate 11,586 53,447 80,216
-------------- ------------- -------------
Total expenses 14,908,367 15,496,359 16,863,650
-------------- ------------- -------------
Loss before gain on sale of
property (2,019,363) (2,299,675) (2,647,166)
Gain on sale of property 3,648,559
-------------- ------------- -------------
Net (loss) income $ (2,019,363) $ 1,348,884 $ (2,647,166)
============== ============= =============
Net (loss) income allocated
to General Partner $ (20,194) $ 13,489 $ (26,472)
============== ============= =============
Net (loss) income allocated
to Limited Partners $ (1,999,169) $ 1,335,395 $ (2,620,694)
============== ============= =============
Net (loss) income per Limited
Partnership Interest (83,936
issued and outstanding) $ (23.82) $ 15.91 $ (31.22)
============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
-------------- ------------- -------------
Operating activities:
Net (loss) income $ (2,019,363) $ 1,348,884 $ (2,647,166)
Adjustments to reconcile net
(loss) income to net cash
provided by or used in
operating activities:
Gain on sale of property (3,648,559)
Participation in loss of
joint venture with
an affiliate 11,586 53,447 80,216
Depreciation of properties 1,885,983 2,051,056 2,263,897
Amortization of deferred
expenses 274,282 187,999 146,738
Deferred interest expense 196,599 306,255 522,677
Payment of deferred
interest expense (681,731) (1,392,348)
Write-off of receivables
from seller 221,827
Collection of proceeds
from settlement 569,477
Net change in:
Escrow deposits 178,438 (246,022) (160,281)
Accounts and accrued
interest receivable 165,810 (27,516) (217,357)
Accounts payable 150,525 (76,283) (320,879)
Due to affiliates 107,590 3,613 (33,974)
Accrued liabilities (10,388) (83,557) (4,744)
Security deposits (17,400) (61,414) 7,998
-------------- ------------- -------------
Net cash provided by or used
in operating activities 241,931 (1,584,445) 428,429
-------------- ------------- -------------
Investing activities:
Redemption of restricted
investments 1,995,000 2,038,000
Distributions from joint
venture with an affiliate 93,467 30,848 70,967
Proceeds from sale of property 13,200,000
Payment of selling costs (109,559)
Additions to properties (140,468)
-------------- ------------- -------------
Net cash provided by
investing activities 93,467 14,975,821 2,108,967
-------------- ------------- -------------
Financing activities:
Proceeds from issuance of $ 11,664,000 $ 34,916,121 $ 3,053,400
mortgage notes payable
Repayment of loans payable -
affiliate (1,499,140) (4,505,372) (2,875,532)
Proceeds from loans payable -
affiliate 827,114 1,515,153 2,641,461
Repayment of mortgage notes
payable - affiliates (1,592,538) (1,027,935) (3,053,400)
Repayment of mortgage notes
payable (9,389,731) (41,842,846)
Principal payments on
mortgage notes payable (344,788) (255,910) (2,186,552)
Funding of repair escrows (287,150) (549,045)
Releases from repair escrows 4,463 348,833
Payment of deferred expenses (308,817) (981,606) (77,491)
-------------- ------------- -------------
Net cash used in financing
activities (926,587) (12,382,607) (2,498,114)
-------------- ------------- -------------
Net change in cash and cash
equivalents (591,189) 1,008,769 39,282
Cash and cash equivalents at
beginning of year 1,192,138 183,369 144,087
-------------- ------------- -------------
Cash and cash equivalents at
end of year $ 600,949 $ 1,192,138 $ 183,369
============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
When properties are sold, the related costs and accumulated depreciation are
removed from the respective accounts. Any gain or loss on disposition will be
recognized in accordance with generally accepted accounting principles.
The Partnership records its investments in real estate at cost, and
periodically assesses possible impairment to the value of its properties. In
the event that the General Partner determines that a permanent impairment in
value has occurred, the carrying basis of the property is reduced to its
estimated fair value.
(b) Deferred expenses consist principally of loan financing fees which are
being amortized over the terms of the respective agreements.
(c) Investment in joint venture with an affiliate represents the recording of
the Partnership's 38.38% interest, under the equity method of accounting, in a
joint venture with an affiliated partnership. Under the equity method of
accounting, the Partnership records its initial investment at cost and adjusts
its investment account for additional capital contributions, distributions and
its share of joint venture income or loss. Depreciation recognized in
connection with the ownership of real estate by the joint venture has resulted
in the Partnership's share of cumulative losses exceeding the net amounts
invested in the joint venture. This has resulted in the classification of the
investment as "Loss in excess of investment in joint venture with an affiliate"
in the accompanying financial statements.
(d) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(e) The Partnership is not liable for Federal income taxes, and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
2. Partnership Agreement:
The Partnership was organized in October 1984. The Partnership Agreement
provides for Balcor Partners-XVII to be the General Partner and for the
admission of Limited Partners through the sale of up to 84,000 Limited
Partnership Interests at $1,000 per Interest, 83,936 of which were sold through
August 22, 1985, the termination date of the offering.
The Partnership Agreement generally provides that the General Partner will be
allocated 1% and the Limited Partners will be allocated 99% of the profits and
losses from operations. One hundred percent of Net Cash Receipts available for
distribution shall be distributed to the holders of Interests in proportion to
their participating percentages as of the record date for such distributions.
In addition, there shall be accrued for the benefit of the General Partner as
its distributive share from operations, an amount equivalent to approximately
1% of the total Net Cash Receipts being distributed, which will be paid only as
a part of the General Partner's share of Net Cash Proceeds. Under certain
circumstances, the General Partner may participate in the Net Cash Proceeds
from the sale or refinancing of Partnership properties. The General Partner's
participation is equal to 15% of further Net Cash Proceeds distributed after
holders of Interests have received a return of Original Capital plus any
deficiency in a Cumulative Distribution of 6% on Adjusted Original Capital, as
defined in the Partnership Agreement.
3. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1994 and 1993 consisted of the
following:
Carrying Carrying Current Final
Property Amount of Amount of Inter- Matur- Current Estimated
Pledged as Notes at Notes at est ity Monthly Balloon
Collateral 12/31/94 12/31/93 Rate Date Payment Payment
-------------- ---------- ---------- ------ ------ ------- ----------
Mortgage Notes Payable - Nonaffiliates
Apartment Complexes
Chestnut Ridge I(a)$3,675,362 $3,031,806 9.02% 2001 $29,776 $3,460,000
Country Oaks(b) 5,502,374 5,551,286 10.00% 1995 50,153 5,462,000
Forest Ridge II(c) 7,948,748 6,360,000 9.188% 2001 65,209 7,479,000
Hunter's Glen(d) 4,602,507 4,634,883 9.13% 2001 37,851 4,302,000
Marbrisa(e) 5,452,288 5,496,454 8.23% 2000 41,242 5,102,000
Park Crossing(f) 7,251,725 7,309,578 8.54% 1998 56,655 7,012,000
Steeplechase(g) 7,369,371 7,421,637 9.13% 2001 60,643 6,893,000
Willow Bend Lake(h) 9,871,313 9,938,563 9.33% 2001 82,641 9,253,000
----------- -----------
Subtotal 51,673,688 49,744,207
----------- -----------
Mortgage Notes Payable - Affiliates
Apartment Complexes
Chestnut Ridge I(a) 1,673,215 3,533,299 10.50% 2002 (a) 1,673,000
Forest Ridge II(c) 3,948,000
----------- -----------
Subtotal 1,673,215 7,481,299
----------- -----------
Total $53,346,903 $57,225,506
========== ===========
(a) In March 1994, the Partnership completed the refinancing of these mortgage
loans. The original loans consisted of a $3,029,731 first mortgage loan from an
unaffiliated lender and a junior mortgage loan and an unsecured loan from
affiliates of the Partnership totaling $3,983,484, including deferred interest
of $450,185. The proceeds from the new first mortgage loan of $3,694,000 from
an unaffiliated lender were used to repay the previous first mortgage loan, the
deferred interest on the affiliated loans and a portion of the outstanding
loans from affiliates. The new first mortgage loan interest rate decreased from
9.75% to 9.02%, the maturity date was changed from February 2002 to April 2001
and the monthly payments increased from $25,667 to $29,776. As required by the
unaffiliated lender, $1,646,000 of the remaining balance of the affiliate loans
was retired and replaced with a General Partner loan and the remainder was
recharacterized as a subordinate non-recourse loan of $1,473,215 and a
preferred limited partnership interest of $200,000 in the subsidiary
partnership which holds title to the property, both of which are included in
mortgage notes payable - affiliates in the balance sheet. The contract interest
rate on the subordinate non-recourse loan remains unchanged at 10.50%, which is
the rate of return earned on the preferred limited partnership interest as
well. The interest pay rate on the subordinate non-recourse loan is the lower
of the contract rate or the net cash from the property after payment of debt
service on the first mortgage. The Limited Partners' position is unaffected by
this conversion of a portion of the affiliated loan to an equity position, as
Limited Partners' equity is subordinate to the preferred interest just as it
was subordinated to the affiliate loans prior to the recharacterization.
The affiliate loan and preferred equity interest are subordinate to the
Partnership's receipt of sale or refinancing proceeds in the amount of
$1,646,000.
(b) The General Partner expects to be able to refinance this loan prior to
maturity.
(c) In July 1994, the Partnership completed the refinancing of these mortgage
loans. The original loans consisted of a $6,360,000 first mortgage loan from an
unaffiliated lender and an unsecured loan from an affiliate of the Partnership
totaling $4,179,546, including deferred interest of $231,546. The proceeds from
the new first mortgage loan of $7,970,000 from an unaffiliated lender were used
to repay the previous first mortgage loan, the deferred interest on the
affiliate loan and a portion of the outstanding affiliate loan. The interest
rate on the new first mortgage loan increased from 9.025% to 9.188%, the
maturity date was extended from December 1994 to August 2001 and the monthly
payments increased from $47,833 to $65,209. As required by the unaffiliated
lender, the remaining $2,569,546 balance of the affiliate loan was retired and
replaced with a General Partner loan.
(d) In June 1993, this loan was refinanced. The interest rate decreased from
9.875% to 9.13%, the maturity date was extended from October 1993 to July 2001
and the monthly payments decreased from $37,882 to $37,851. A portion of the
proceeds from the new $4,650,000 first mortgage loan were used to repay the
existing first mortgage loan of $4,255,145.
(e) In November 1993, this loan was refinanced. The interest rate decreased
from 9.75% to 8.23%, the maturity date was extended from October 1993 to
December 2000 and the monthly payments decreased from $46,769 to $41,242. A
portion of the proceeds from the new $5,500,000 first mortgage loan were used
to repay the existing first mortgage loan of $5,291,523.
(f) In May 1993, this loan was refinanced. The interest rate decreased from
10.0% to 8.54%, the maturity date was extended from October 1993 to June 1998
and the monthly payments decreased from $61,977 to $56,655. A portion of the
proceeds from the new $7,341,121 first mortgage loan were used to repay the
existing first mortgage loan of $6,897,113.
(g) In May 1993, this loan was refinanced. The interest rate decreased from
11.0% to 9.13%, the maturity date was extended from August 1993 to June 2001
and the monthly payments increased from $60,235 to $60,643. A portion of the
proceeds from the new $7,450,000 first mortgage loan were used to repay the
existing first mortgage loan of $5,996,274.
(h) In May 1993, this loan was refinanced. The interest rate decreased from
10.5% to 9.33%, the maturity date was extended from November 1994 to June 2001
and the monthly payments increased from an average of $69,259 to $82,641. A
portion of the proceeds from the new $9,975,000 first mortgage loan were used
to repay the existing first mortgage loan of $7,807,308.
The Partnership's loans described above require current monthly payments of
principal and interest except for the Chestnut Ridge - Phase I mortgage note
payable-affiliate which requires payments based on the cash flow of the
property.
See Note 7 of Notes to Financial Statements for additional information on cash
collateral pledges and letters of credit.
Approximate principal maturities of the above mortgage notes payable during
each of the next five years are as follows:
1995 $ 5,861,000
1996 382,000
1997 439,000
1998 7,433,000
1999 424,000
During the year ended December 31, 1994, 1993 and 1992, the Partnership
incurred interest expense on non-affiliated mortgage notes payable of
$4,680,137, $5,281,113 and $5,960,181 and paid interest expense of $4,680,137,
$6,239,776 and $5,734,467, respectively.
4. Settlement Income:
(a) The Partnership had ongoing litigation with the seller and certain of its
principals and affiliates on claims under terms of the original management and
guarantee agreement on the Park Crossing Apartments. During July 1993, the
Partnership settled with one minor defendant and received $113,870, and during
1994 the Partnership accepted $300,000 as settlement in full on all remaining
amounts owed to the Partnership. In addition, $139,946 which had been held in
an escrow, was released to the Partnership.
(b) In June 1992, the Partnership reached a settlement with the seller of the
Forest Ridge - Phase II and Highpoint - Phase I apartment complexes. Prorations
due from the seller pursuant to the original management and guarantee
agreements on these properties were previously written off due to uncertain
collectibility. Under the terms of the settlement, the Partnership received
cash of $486,000, which was recorded as settlement income, and the Partnership
and seller released all claims and causes of action against one another.
5. Write-off of Receivables from Seller:
In May 1992, the Partnership reached a settlement with the seller of the
Pleasant Lake Village and Playa Palms apartment complexes for proration amounts
the seller owed the Partnership pursuant to the original management and
guarantee agreements. The Partnership received $130,603 from the seller during
1992 and also received a payment of $438,874 in August 1992 from the General
Partner, who voluntarily agreed to reimburse the Partnership for a portion of
the seller's obligations. The Partnership wrote off receivables from the seller
of $221,827 in connection with this transaction.
6. Property Sale:
During 1993, the Partnership sold the Playa Palms Apartments in an all cash
sale for $13,200,000. From the proceeds of the sale the Partnership paid
$12,701,189 in full satisfaction of the property's first mortgage loan, which
included $1,117,006 of accrued interest, and a second mortgage loan of $32,349
was repaid at a discount of $21,049. The basis of the property was $9,462,931,
net of accumulated depreciation of $4,353,876. For financial statement
purposes, the Partnership recognized a gain of $3,648,559 during 1993. The
remaining proceeds from the sale were used to repay a portion of the loans from
the General Partner.
7. Restricted Investments:
As of January 1, 1993, the Partnership had outstanding cash pledges totaling
$2,475,000 as collateral for letters of credit relating to the mortgage loans
on the Country Oaks and Marbrisa apartment complexes. In 1993 cash collateral
pledges totaling $1,995,000 were released and used to reduce the principal
balance of the Partnership's loans outstanding with the General Partner. As of
December 31, 1994, a restricted investment of $480,000, partially
collateralizing the Country Oaks mortgage loan, remained outstanding. This
investment is recorded at cost which approximates market value. The amount
pledged as collateral is invested in short-term instruments pursuant to the
terms of the pledge agreement with the lending institution. Interest earned on
the investment accumulates to the benefit of the Partnership and is payable
upon expiration or termination of the letter of credit or earlier at the sole
discretion of the lending institution.
8. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership,
including the property in which the Partnership holds a minority joint venture
interest, are under management agreements with a third-party management
company. These management agreements provide for annual fees of 5% of gross
operating receipts.
9. Investment in Joint Venture with an Affiliate:
The Partnership owns a 38.38% joint venture interest in the Rosehill Pointe
Apartments. The joint venturer is an affiliate of the General Partner. During
1994, the Partnership received distributions totaling $93,467.
10. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net loss for 1994 in the financial statements is $1,653,085 less than the
tax loss of the Partnership for the same period.
11. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/94 12/31/93 12/31/92
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees $572,620 None $663,957 $50,530 $672,841 $57,128
Reimbursement of expenses
to the General Partner
at cost:
Accounting 70,337 25,737 66,172 5,468 64,199 4,750
Data processing 54,271 15,312 31,524 5,786 34,889 2,890
Investor communica-
tions 19,725 5,681 18,544 1,532 10,559 781
Legal 14,649 8,055 11,713 968 15,900 1,177
Portfolio management 40,873 25,281 47,486 4,314 27,153 2,009
Other 17,062 4,912 14,582 1,205 18,088 1,339
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties, including the property in which the
Partnership holds a minority joint venture interest, until the affiliate was
sold to a third party in November 1994.
In July 1993 and July 1994, the Partnership repaid loans to Balcor Real Estate
Holding, Inc. ("BREHI"), an affiliate of the General Partner, on the Hunter's
Glen and Forest Ridge - Phase II apartment complexes, respectively. In March
1994, the Partnership partially repaid and refinanced the balance of the
Chestnut Ridge - Phase I Apartments affiliated mortgage loans. See Note 3 of
Notes to Financial Statements for additional information on these loans.
During 1994, 1993 and 1992, the Partnership incurred interest expense on the
BREHI loans of $458,215, $861,258 and $960,494 and paid interest expense of
$943,347, $991,101 and $663,532, respectively. As of December 31, 1994 and
1993, interest expense of $30,498 and $515,630, respectively, was payable and
is included in accrued liabilities on the balance sheet.
As of December 31, 1994, the Partnership owes $12,295,605 to the General
Partner in connection with the funding of additional working capital and other
Partnership obligations. This amount included $480,000 which was borrowed to
pledge as collateral relating to the Country Oaks mortgage loan. During 1994,
the Partnership retired and replaced $1,646,000 and $2,569,546 of BREHI loans
related to the Chestnut Ridge - Phase I and Forest Ridge - Phase II apartment
complexes, respectively, with General Partner loans in connection with the 1994
refinancings of the properties' mortgage loans. The Partnership also made a net
paydown of $672,026 during this period on the General Partner loans. In
connection with the loans from the General Partner, the Partnership incurred
interest expense of $572,915, $370,180 and $511,571 and paid interest expense
of $480,500, $366,296 and $533,620 during 1994, 1993 and 1992, respectively. As
of December 31, 1994 and 1993, interest expense of $131,477 and $39,062,
respectively, was payable. Interest expense is computed at the American Express
Company cost of funds rate plus a spread to cover administrative costs. As of
December 31, 1994 this rate was 6.562%.
The General Partner may continue to make arrangements with an affiliate to
provide additional short-term loans to the Partnership to fund future working
capital needs or operating deficits, although there is no assurance that such
loans will be available. Should such short-term loans from affiliates not be
available, the General Partner will seek alternative third party sources of
financing working capital. However, the current economic environment and its
impact on the real estate industry make it unlikely that the Partnership would
be able to secure financing from third parties to fund working capital needs or
operating deficits. Should additional borrowings be needed and not be available
either through affiliates of the General Partner or third parties, the
Partnership may be required to dispose of some of its properties earlier than
intended in order to satisfy Partnership obligations.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program. The Partnership's premiums to the deductible
insurance program were $120,176, $80,248 and $73,683 for 1994, 1993 and 1992,
respectively.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
Col. A Col. B Col. C Col. D
--------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
-------------------- ---------------------------------
Buildings Carrying Reduction
Encum- and Im- Improve- Costs of Basis
Description brances Land provements ments (a) (b)
--------------------- ------- -------- ------------ --------- --------- ---------
Chestnut Ridge - Phase I,
192-unit apt complex
in Fort Worth, TX (e) $1,242,000 $4,983,000 None $733,224 None
Country Oaks, 200-unit
apartment complex in
Memphis, TN (e) 413,000 6,690,000 $15,000 11,540 None
Forest Ridge - Phase II,
328-unit apt. complex
in Arlington, TX (e) 2,579,000 8,303,000 $49,061 1,812,065 $(565,960)
Hunter's Glen, 192-unit
apt. complex in
St. Louis County, MO (e) 1,141,750 5,277,250 None 404,756 (264,011)
Marbrisa, 224-unit apt.
complex in Hills-
borough County, FL (e) 890,000 6,300,000 None 87,699 (5,685)
Park Crossing, 280-unit
apt. complex in
Gwinnett County, GA (e) 1,260,000 9,623,000 None 727,943 None
Steeplechase, 296-unit
apt. complex in
Lexington-Fayette, KY (e) 1,493,779 7,106,221 None 447,095 (333,696)
Willow Bend Lake,
360-unit apt.
complex in East Baton
Rouge Parish, LA (e) 1,799,200 9,437,800 125,468 1,829,522 (550,285)
----------- ----------- -------- ---------- -----------
Total $10,818,729 $57,720,271 $189,529 $6,053,844 $(1,719,637)
=========== =========== ======== ========== ===========
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
(Continued)
Col. A Col. E Col. F Col. G Col. H Col. I
------------------ -------------------------------- -------- -------- ------ --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre
---------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (c)(d) tion(d) struction uired is Computed
------------------- -------- ---------- ---------- --------- --------- ----- --------------
Chestnut Ridge - Phase I,
192-unit apt. complex
in Fort Worth, TX $1,244,215 $5,714,009 $6,958,224 $2,318,455 1985 8/83 (f)
Country Oaks, 200-unit
apartment complex in
Memphis, TN 413,489 6,716,051 7,129,540 2,588,532 1985 9/85 (f)
Forest Ridge - Phase II,
328-unit apt. complex
in Arlington, TX 2,464,557 9,712,609 12,177,166 3,841,906 1985 10/83 (f)
Hunter's Glen, 192-unit
apt. complex in
St. Louis County, MO 1,096,602 5,463,143 6,559,745 2,116,734 1985 1/85 (f)
Marbrisa, 224-unit apt.
complex in Hills-
borough County, FL 890,630 6,381,384 7,272,014 2,347,700 1985 1/85 (f)
Park Crossing, 280-unit
apt. complex in
Gwinnett County, GA 1,261,598 10,349,345 11,610,943 3,714,337 1985 4/85 (f)
Steeplechase, 296-unit
apt. complex in
Lexington-Fayette, KY 1,436,769 7,276,630 8,713,399 3,020,090 1985 1/85 (f)
Willow Bend Lake,
360-unit apt.
complex in East Baton
Rouge Parish, LA 1,717,327 10,924,378 12,641,705 4,304,244 1985 6/84 (f)
----------- ----------- ----------- -----------
Total $10,525,187 $62,537,549 $73,062,736 $24,251,998
=========== =========== =========== ===========
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction-period interest.
(b) Guaranteed income earned on properties under the terms of certain
management and guarantee agreements was recorded by the Partnership as a
reduction of the basis of the property to which the guaranteed income relates.
(c) The aggregate cost of land for Federal income tax purposes is $10,794,040
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $25,119,265. The total of the above-mentioned is $35,913,305.
(d) Reconciliation of Real Estate
-----------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $73,062,736 $86,739,075 $86,739,075
Additions during year:
Improvements None 140,468 None
Cost of real estate sold None (13,816,807) None
----------- ----------- -----------
Balance at end of year $73,062,736 $73,062,736 $86,739,075
=========== =========== ===========
Reconciliation of Accumulated Depreciation
------------------------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $22,366,015 $24,668,835 $22,404,938
Depreciation expense for
the year 1,885,983 2,051,056 2,263,897
Accumulated depreciation of
real estate sold None (4,353,876) None
---------- ---------- ----------
Balance at end of year $24,251,998 $22,366,015 $24,668,835
=========== =========== ===========
(e) See description of Mortgage Notes Payable in Note 3 of Notes to Financial
Statements.
(f) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5