10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 1997 2-96042
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 77-0049671
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4700 Roseville Road, Suite 206, North Highlands, California 95660
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (916) 331-8080
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Units
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 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. X Yes No
As of December 31, 1997 the aggregate Limited Partnership Units held
by nonaffiliates of the registrant was 13,787. There is no market
for the units.
Documents Incorporated by Reference
Limited Partnership Agreement dated May 1, 1985, filed as Exhibit
3.3, and the Amendment to the Limited Partnership Agreement dated
November 20, 1985 filed as Exhibit 3.4 to Registration Statement No.
2-96042 of Capital Builders Development Properties, A California
Limited Partnership, are hereby incorporated by reference into Part
IV of this Form 10K.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Capital Builders Development Properties (the "Partnership") is a
publicly held limited partnership organized under the provisions of
the California Revised Limited Partnership Act pursuant to the
Limited Partnership Agreement dated December 13, 1984, as amended and
restated as of May 1, 1985 (the "Agreement"). The Partnership
commenced on January 10, 1985, and shall continue in full force and
effect until December 31, 2020 unless dissolved sooner by certain
events as described in the Agreement. The Managing General Partner
is Capital Builders, Inc., a California Corporation (CB). The
Associate General Partners are the sole shareholder, President and
Director of CB, and four founders of CB.
On September 19, 1985 the Partnership sold 2,468 Limited Partnership
Units for a total of $1,234,000. From September 19, 1985, through
May 1, 1986, the Partnership sold an additional 11,319 units for a
total of 13,787 Units. On May 1, 1986, the Partnership was closed to
capital raising activity with a total of $6,893,500 proceeds raised
from the offering. The General Partners have contributed capital in
the amount of $1,000 to the Partnership for a 1% interest in the
profits, losses, tax credits and distributions of the Partnership.
(b) Financial Information about Industry Segments
The Partnership is in the business of real estate development and is
not a significant factor in its industry. The Partnership's
remaining investment property is located near a major urban area and,
accordingly, competes not only with similar properties in its
immediate area but with hundreds of properties throughout the urban
areas. Such competition is primarily on the basis of locations,
rents, services and amenities. In addition, the Partnership competes
with significant numbers of individuals and organizations (including
similar Partnerships, real estate investment trusts and financial
institutions) with respect to the purchase and sale of land,
primarily on the basis of the prices and terms of such transactions.
(c) Narrative Description of the Business
The Partnership's business objective is to complete the development
of its existing land with light industrial, commercial retail, or an
office building for lease and eventual sale. The primary investment
objective of the Partnership is to realize capital appreciation from
the sale of the Properties developed by it some three to five years
after such Properties have been placed in service. A secondary
investment objective is to generate cash from the leasing of
Partnership Properties pending their sale for distribution to the
Limited Partners, although it is not presently anticipated that the
amount of such cash available for distribution to the Limited
Partners will be significant. Since the Partnership has not sold its
investment properties, it has not achieved its investment goals as
yet. Although investor returns cannot be accurately determined until
the investment properties are sold, due to the additional time
required to lease up the investment properties, and due to the
decline in real estate values during the California real estate
recession, it is anticipated that ultimate returns will be less than
initially projected. Funds obtained by the Partnership from the sale
of Limited Partnership Units have been used to acquire an equity
interest in one piece of land for development and a 60% equity
interest in another for development in accordance with its investment
objective.
On April 10, 1987, the Partnership entered into a joint venture
called Capital Builders Roseville Venture ("JV") with Capital
Builders Development Properties II ("CBDP II"), a California Limited
Partnership. The Partnership and CBDP II are affiliated as they have
the same General Partner. The Limited Partners of the Partnership
have the ability to replace the General Partner through a majority
vote. The Partnership contributed $1,350,000 resulting in a 60%
interest in the profits, losses and cash distributions of the JV.
CB, the Managing General Partner of the Partnership, had the same
rights and obligations with respect to the JV's operations and
management as it could exercise as Managing General Partner of the
Partnership. The JV was dissolved on May 1, 1997 when CBDP II
purchased CBDP's remaining 60% interest in the JV.
The acquisition of the real estate is consistent with the Partnership
objectives which are to acquire, develop, hold, maintain, lease,
sell, or otherwise dispose of real property within the Western United
States (including the states of California, Oregon, Washington,
Arizona, Nevada, New Mexico, Utah, Colorado, Hawaii, and Alaska),
including without limitation, the acquisition of undeveloped land for
development and construction of research and development, light
industrial, commercial/retail, or office buildings thereon, and the
acquisition of partially completed commercial real property
developments for completion of development.
Although the Associate General Partners, Officers, and Directors of
the Managing General Partners are experienced in real property
operation and management, they also may utilize independent advisors,
agents, and workers, in addition to the Partnership employees, to
assist them in the operation, leasing, maintenance and improvement of
the Partnership's properties.
The Partnership has no full time employees but is managed by CB, the
Managing General Partner.
ITEM 2. PROPERTIES
The Partnership owns 100% equity interest in a property called Plaza
de Oro ("PDO"). PDO is a two phase development. Phase I is a 71,600
square foot mixed-use project consisting of two multi-tenant
buildings. Phase II consists of 42,500 square foot corner pad which
is planned for a 9,860 square foot building. Construction will begin
once funding is obtained from either a construction loan or a joint
venture partner. PDO maintains adequate property and general
liability insurance.
Additional information about the Partnership's property follows:
Ownership Percentage: 100%
Acquisition Date: December 19, 1985
Location: Rancho Cordova, CA
Present Monthly
Effective Average
Base Rent Per Square Foot: $0.85
Square Footage Mix:
Office 28,820
Industrial 33,825
Retail 8,940
Leased Occupancy at
December 31: 1997 81%
1996 98%
1995 92%
1994 87%
1993 64%
Current Year Depreciation: $189,973
Method of Depreciation: Straight Line
Depreciation Life: 40 Years
Bldg Improvements
Life of Lease
Tenant Improvements
Total cost: $5,174,921
Encumbrances: $3,503,398
Tenant occupying more than
10% of square footage and nature
of business: FPA Medical Management
The Partnership's property is held subject to encumbrances which are
fully described under Note 7 of the Partnership's Financial
Statements included under Item 8 which is incorporated herein by
reference.
Plaza de Oro is being leased to a wide variety of tenants in a
diversity of industries. Leases are typically three to five years in
term and provide for free rent periods, at inception, equal to
approximately one month per year of a lease term. Some leases
contain options to extend the term of the lease.
The Partnership's investment property is located in a major urban
area and, therefore, must compete with properties of greater and
lesser quality. Such competition is based primarily on rent,
location, services and amenities. The properties are suitable for
their current and anticipated use.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
There is no public trading market for the Partnership's Limited
Partnership Units and it is not anticipated that a public trading
market will develop. Furthermore, the Partnership Agreement
prohibits Limited Partners from transferring Limited Partnership
Interests if such transfers would result in the dissolution of the
Partnership for tax purposes under Section 708 of the Internal
Revenue Code.
As of December 31, 1997, there were 1,154 holders and 13,787 Limited
Partnership units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected consolidated
financial data for the following periods (000's omitted except net
loss per Limited Partnership unit):
1997 1996 1995 1994 1993
Revenues $992 $1,341 $1,262 $1,231 $1,075
Net Income/(Loss) $879 ($394) ($594) ($668) ($1,036)
Net Income/(Loss) per
Limited Partnership
Unit $63 ($28) ($43) ($48) ($74)
Total Assets $4,219 $8,326 $8,386 $8,619 $8,829
Notes and Loans Payable $3,503 $8,354 $8,102 $7,710 $7,291
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on September 19, 1985 upon the
sale of the minimum number of Limited Partnership Units. The
Partnership's initial source of cash was from the sale of Limited
Partnership Units. Through the offering of Units, the Partnership
has raised $6,893,500 (represented by 13,787 Limited Partnership
Units). Cash generated from the sale of Limited Partnership Units
has been used to acquire land and for the development of a mixed use
commercial project and a 60% interest in a commercial office project.
During the twelve months ended December 31, 1997, the Partnership
sold its 60% joint venture interest in Capital Builders Roseville
Venture. The Partnership was also successful in refinancing Plaza de
Oro's Note Payable, which became due April 1, 1997.
The Partnership's sale of its joint venture interest resulted in a
$1,127,913 non-cash gain and net cash proceeds of $14,380. The
refinancing of the Partnership's Note Payable also provided initial
cash proceeds amounting to $141,583 and subsequent draws of $25,373
for site planning performed on the Plaza de Oro pad. The cash
provided by the sale of the joint venture and the initial funding for
the refinancing was primarily used to reduce its accounts payable by
$46,835, fund tenant and building improvements costs of $48,622, and
pay loan fees of $83,275 for the Partnership's new financing.
It is anticipated that approximately $28,000 in additional tenant
improvements and leasing commissions will be incurred during 1998 in
order to re-achieve Plaza de Oro's stabilized occupancy. Management
also anticipates it will begin development of the 9,860 square foot
Phase II building during 1998. The additional tenant improvements
and building development costs will be funded by a combination of
cash flow from operations, operating funds to be provided by a third-
party who would enter into a joint venture with the Partnership for
Phase II, and additional borrowings.
The Partnership's ability to meet current year obligations has
improved during 1997 as a result of the refinancing its current Note
Payable as of April 1, 1997, and extending its land loan until March
24, 1998. The Partnership appears to be able to meet current year
obligations, provided it is able to refinance its Phase II land loan
and obtain additional lease-up of approximately 7,000 square feet.
It is Management's plan to actively market and attempt to locate a
potential tenant for the undeveloped 9,860 square foot building on
Plaza de Oro's Phase II land. Management is also in current
negotiations with a potential lender and joint venture equity partner
to paydown the existing land loan and finance the additional
construction costs.
Results of Operations
1997 vs 1996
The Partnership's total revenues decreased by $348,619 (26%) in fiscal
year 1997, as compared to fiscal year 1996, while expenses decreased
by $554,369 (30.5%) for the same respective period. In addition, the
minority interest in net loss has decreased by $59,839 (72.4%) in 1997
compared to 1996, and in 1997 a gain from the disposition of the joint
venture of $1,127,913 was incurred, all resulting in a net income of
$879,714 for the fiscal year ended December 31, 1997 as compared to a
loss of $394,110 for the fiscal year ended December 31, 1996.
The decrease in revenues is primarily due to the sale of the
Partnership's joint venture interest on May 1,1997. The sale
decreased reported revenues by $428,895 since only four months of the
joint venture's operations were included in the 1997 Consolidated
Statement of Operations, where as the December 31, 1996 Statement
included twelve months of the joint venture's operations. The
Partnership's remaining property, Plaza de Oro, experienced an
increase in revenues of $80,275 for the twelve months ended December
31, 1997, compared to December 31 1996, due to an increase in average
occupancy.
Total expenses decreased by $554,369 for the twelve months ended
December 31, 1997, as compared to December 31, 1996, due to the sale
on May 1, 1997 of its 60% interest of Capital Builders Roseville
Venture. As of December 31, 1997, the Statement of Operations
included expenses of $299,645 from its joint venture, where as of
December 31, 1996, expenses of $878,135 from its joint venture were
included. The Partnership's remaining property, Plaza de Oro,
recognized an increase in operating expenses of $24,127 from fiscal
year 1997 compared to 1996, primarily due to the recarpeting and
painting of the office building's lobby and other common areas.
1996 vs 1995
The Partnership's total revenues increased by $79,074 (6.3%) in
fiscal year 1996 compared to 1995, while expenses decreased by
$199,855 (9.9%) for the same respective period. In addition, the
minority interest in net loss has decreased by $78,610 (48.8%) in
1996 compared to 1995, all resulting in a decrease in net loss of
$200,319 (33.7%) from fiscal year 1996 to 1995.
The increase in revenues is due to an increase in occupancy at Plaza
de Oro. Throughout fiscal year 1996, management was successful in
obtaining leases for the project's office building, and by the fourth
quarter, had successfully leased the entire building. This brought
the project up to a 98% occupancy. The Sacramento market in which
the property is located is continuing to improve. Vacancy factors
are beginning to decline, while market rents have started to
increase.
Total expenses, including depreciation, decreased by $199,855 for the
fiscal year 1996 compared to 1995 due primarily to the net effect of:
a) $13,649 (5.5%) increase in operating expenses mainly due to an
increase in utilities and marketing costs, which were a direct result
of new leasing activity at Plaza de Oro,
b) $7,322 (8.1%) increase in property taxes due to a tax refund
received during 1995,
c) $73,379 (9.0%) decrease in interest due to the reduction of the
interest rate resulting from the refinancing of Capital Professional
Center,
d) $12,836 (13.6%) increase in general and administrative costs due
to an increase in legal and investor service costs, and
e) $160,028 (25.6%) decrease in depreciation due to tenant
improvement costs that were amortized during 1995 and became fully
amortized by the end of 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
INDEPENDENT AUDITORS' REPORT 9
FINANCIAL STATEMENTS
BALANCE SHEETS 10
AS OF DECEMBER 31, 1997 AND 1996
STATEMENTS OF OPERATIONS 11
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996, and 1995
STATEMENTS OF PARTNERS' 12
EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996, and 1995
STATEMENTS OF CASH FLOWS 13
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996, and 1995
NOTES TO FINANCIAL STATEMENTS 14-21
SUPPLEMENTAL SCHEDULES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION 25
Financial schedules not included have been omitted because of the
absence of conditions under which they are required or because the
information is included elsewhere in this report.
Independent Auditors' Report
The Partners
Capital Builders Development Properties:
We have audited the accompanying balance sheets of Capital Builders
Development Properties, a California Limited Partnership, as of
December 31, 1997 and 1996, and the related statements of operations,
partners' equity (deficit) and cash flows for each of the years in
the three-year period ended December 31. 1997. In connection with
our audits of the financial statements, we also have audited the
financial statement schedule as listed in the accompanying index.
These financial statements and financial statement schedule are the
responsibility of the partnership's management. Our responsibility is
to express an opinion on these financial statements and 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 Capital
Builders Development Properties as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity
with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming
that the partnership will continue as a going concern. As discussed
in Note 3 to the financial statements, the partnership's negative
cash flow position and significant debt service raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The
financial statements and financial statement schedule do not include
any adjustments that might result from the outcome of this
uncertainty.
Sacramento, California KPMG Peat Marwick LLP
February 4, 1998
PART 2 - FINANCIAL INFORMATION
Capital Builders Development Properties
(a California Limited Partnership)
BALANCE SHEETS
December December 31
31
1997 1996
ASSETS
Cash and Cash Equivalents $ 2,310 $ 49,335
Accounts receivable, net 120,152 135,406
Investment property, net of
accumulated depreciation and
amortization of $1,227,226 and
$2,107,769 at December 31, 1997
and 1996, respectively 3,947,695 7,252,601
Lease Commissions, net of accumulated
amortization of $58,098 and $99,983 at
December 31, 1997 and 1996, respectively 80,188 126,701
Other assets, net of accumulated
'amortization of $17,382 and
$91,673 at December 31, 1997 and
1996, respectively 68,984 66,404
Minority Interest - - - - 695,094
Total Assets $4,219,329 $8,325,541
LIABILITIES AND PARTNERS' EQUITY/(DEFICIT)
Notes payable $ 3,503,398 $ 6,838,732
Loan payable to affiliate - - 1,514,788
- -
Accounts payable and accrued liabilities 88,257 160,718
Tenant deposits 51,989 115,332
Total Liabilities 3,643,644 8,629,570
Commitments and contingencies
Partners' Equity/(Deficit):
General Partners
(52,067) (60,864)
Limited Partners 627,752
(243,165)
Total Partners' Equity/(Deficit) 575,685 (304,029)
Total Liabilities and Partners' $4,219,329 $8,325,541
Equity/(Deficit)
See accompanying notes to the financial
statements.
Capital Builders Development
Properties
(a California Limited
Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
1997 1996 1995
Revenues
Rental and other income $ 991,210 $ 1,339,355 $ 1,259,763
Interest Income 912 1,386 1,904
Total revenues 992,122 1,340,741 1,261,667
Expenses
Operating expenses 202,125 262,885 249,236
Repairs & maintenance 130,654 140,846 141,104
Property taxes 71,632 97,548 90,226
Interest 472,622 744,438 817,817
General and administrative 89,335 107,306 94,467
Depreciation and amortization 296,759 464,473 624,501
Total expenses 1,263,127 1,817,496 2,017,351
Loss before minority interest (271,005) (476,755) (755,684)
Minority interest in net loss
of Joint Venture 22,806 82,645 161,255
Gain from disposition of Joint
Venture 1,127,913 - - - - - - - -
Net income/(loss) 879,714 (394,110) (594,429)
Allocated to General Partners 8,797 (3,941) (5,944)
Allocated to Limited Partners $ 870,917 $ (390,169) $ (588,485)
Net income/(loss) per Limited
Partnership unit $ 63.17 $ (28.30) $ (42.68)
Average units outstanding 13,787 13,787 13,787
See accompanying notes to the
financial statements.
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Total
General Limited Partners'
Partners Partners Equity
(Deficit)
Balance at December 31, 1994 ($50,979) $735,489 $684,510
Net Loss (5,944) (588,485) (594,429)
Balance at December 31, 1995 (56,923) 147,004 90,081
Net loss (3,941) (390,169) (394,110)
Balance at December 31, 1996 (60,864) (243,165) (304,029)
Net income 8,797 870,917 879,714
Balance at December 31, 1997 $(52,067) $627,752 $575,685
See accompanying notes to the financial statements.
Capital Builders Development
Properties
(a California Limited
Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1997 1996 1995
Cash flows from operating
activities:
Net income/(loss) $879,714 ($394,110) ($594,429)
Adjustments to reconcile net
income (loss) to cash flow
flow (used in) provided by
operating activities:
Depreciation and amortization 296,759 464,473 624,501
Minority interest in joint
venture (22,806) (82,645) (161,255)
Gain from disposition of joint
venture investment (1,127,913) - - - - - - - -
Unpaid interest expense on
loan payable 55,347 58,702 115,684
Changes in assets and
liabilities:
(Increase)/ Decrease in
accounts receivable (19,494) 3,015 57,552
Increase in leasing
commissions (36,346) (79,663) (18,378)
Increase in other assets (757) (3,409) (72,650)
(Decrease)/ Increase in
accounts payable and
accrued liabilities (12,259) 41,876 (33,264)
(Decrease )/Increase in
tenant deposits (11,801) 6,487 2,536
Net cash (used in)/provided by
operating activities 444 14,726 (79,703)
Cash flows from investing
activities:
Improvements to investment
properties (83,197) (123,815) (74,760)
Proceeds from sale of
partnership investment 14,380 - - - - - - - -
Net cash used in investing
activities (68,817) (123,815) (74,760)
Cash flows from financing
activities:
Proceeds on notes payable 3,530,000 39,954 204,831
Payments on notes payable (3,425,377) (72,449) (33,468)
Payment of loan fees (83,275) - - - - - - - -
Proceeds on loans payable
to affiliate - - - - 225,000 105,000
Distribution to minority
interest - - - - (124,480) (36,400)
Net cash provided by financing
activites 21,348 68,025 239,963
Net (decrease)/increase in cash (47,025) (41,064) 85,500
Cash, beginning of period 49,335 90,399 4,899
Cash, end of period $2,310 $49,335 $90,399
Supplemental disclosure:
Cash paid for interest $391,634 $685,739 $703,741
Non cash investing and financing
activity:
Capital improvements financed
through accounts payable and
accrued liabilities - - - - $34,576 - - - -
See accompanying notes to the
financial statements.
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996, AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows:
Basis of Accounting
The financial statements of Capital Builders Development Properties
(The "Partnership") are prepared on the accrual basis and therefore
revenue is recorded as earned and costs and expenses are recorded as
incurred. Certain prior year amounts have been reclassified to
conform to current year classifications.
Principles of Presentation
The 1996 and 1995 financial statements include the accounts of the
company and its majority-owned subsidiary (60%), Capital Builders
Roseville Venture. In May 1997 the Partnership sold its 60% interest
in Capital Builders Roseville Venture to its affiliate, Capital
Builders Development Properties II. Capital Builders Development
Properties II, a California Limited Partnership, is an affiliate of
the Partnership as they have the same General Partner, Capital
Builders, Inc. The financial statements represent financial activity
on a consolidated basis until the time of the disposition of the
majority-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated. The General Partner of Capital
Builders Development Properties, Capital Builders, Inc., has no
direct ownership interest in the joint venture, and did not receive
any compensation for the sale of the subsidiary (See Note 2 for
further discussion).
Organization
Capital Builders Development Properties, a California Limited
Partnership, is owned under the laws of the State of California. The
Managing General Partner is Capital Builders, Inc., a California
corporation (CB).
The Partnership is in the business of real estate development and is
not a significant factor in its industry. The Partnership's
investment properties are located near major urban areas and,
accordingly, compete not only with similar properties in their
immediate areas but with hundreds of properties throughout the urban
areas. Such competition is primarily on the basis of locations,
rents, services and amenities. In addition, the Partnership competes
with significant numbers of individuals or organizations (including
similar companies, real estate investment trusts and financial
institutions) with respect to the purchase and sale of land,
primarily on the basis of the prices and terms of such transactions.
Investment Properties
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
The Partnership's investment property consists of commercial land,
buildings and leasehold improvements that are carried net of
accumulated depreciation. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations
over their estimated service lives of three to forty years. The
straight-line method of depreciation is followed for financial
reporting purposes.
Lease Commissions
Lease commissions are being amortized over the related lease terms.
Income Taxes
The Partnership does not provide for income taxes since all income or
losses are reported separately on the individual partners' tax
returns.
Revenue Recognition
Rental income is recognized on a straight-line basis over the life of
the lease, which may differ from the scheduled rental payments.
Net Income/(Loss) per Limited Partnership Unit
The net income/(loss) per Limited Partnership unit is computed based
on the weighted average number of units outstanding during the year
of 13,787 in 1997, 1996, and 1995.
Statement of Cash Flows
For purposes of statement of cash flows, the Partnership considers
all short-term investments with a maturity, at date of purchase, of
three months or less to be cash equivalents.
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.
NOTE 2 - CHANGES IN OPERATIONS AND UNUSUAL ITEMS
In May 1997, the Partnership sold its 60% interest in Capital
Builders Roseville Venture to its affiliate, Capital Builders
Development Properties II. The sale was completed after an
independent property valuation of the joint venture property, Capital
Professional Center. The sale resulted in a net gain of $1,127,913
($81.81 per limited partnership unit) and net cash proceeds of
$14,380. As of December 31, 1997, the Partnership's Statement of
Operations included a net loss of $57,015 from Capital Builders
Roseville Venture, of which $22,806 was allocated to its minority
partner. The transaction did not generate any sales commissions,
transaction fees, changes in management compensation or any other
direct or indirect benefit to the General Partner.
NOTE 3 - LIQUIDITY
During the second quarter of 1997, Management was successful in its
plan to refinance Plaza de Oro's current Note Payable. The new
financing consists of a $3,350,000, five year, mini-permanent, 9.25%
fixed interest rate loan, secured by Phase I (existing building and
improvements), and a $200,000, six month, prime +1.5% variable land
loan secured by Phase II (undeveloped pad). The land loan was
reduced to $180,000 and granted an additional six-month extension,
extending its maturity date to March 24, 1998.
The new lower interest rate loans will improve the Partnership's
ability to generate future cash flow, but future cash flow still
remains dependent upon its ability to maintain and improve the
occupancy of its investment properties. Additionally, it will be
necessary for the Partnership's Management to either extend its
current land loan, and/or obtain a joint venture partner to develop
the Phase II pad. Management is currently negotiating with various
joint venture partners, and hopes to reach an agreement by May, 1998
and begin Phase II development.
NOTE 4 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT
The Managing General Partner (Capital Builders, Inc.) and the
Associate General Partners are entitled to reimbursement of expenses
incurred on behalf of the Partnership and certain fees from the
Partnership. These fees include: a property management fee up to 6%
of gross revenues realized by the Partnership with respect to its
properties; a subordinated real estate commission of up to 3% of the
gross sales price of the properties; and a subordinated 25% share of
the Partnership's distributions of cash from sales or refinancing.
The property management fee currently being charged is 5% of gross
rental revenues collected.
All acquisition fees and expenses, all underwriting commissions, and
all offering and organizational expenses which can be paid are
limited to 20% of the gross proceeds from sales of Partnership units
provided the Partnership incurs no borrowing to develop its
properties. However, these fees may increase to a maximum of 33% of
the gross offering proceeds based upon the total acquisition and
development costs, including borrowing. Since the formation of the
Partnership, 27.5% of these fees were paid to the Partnership's
related parties, leaving a remaining maximum of 5.5% ($379,143) of
the gross offering proceeds. The ultimate amount of these costs will
be determined once the properties are fully developed and leveraged.
The total management fees paid to the Managing General Partner were
$47,380, $62,154 and $60,897 for the years ended December 31, 1997,
1996, and 1995, respectively, while total reimbursement of expenses
was $97,416, $114,512 and $102,669, respectively.
NOTE 5 - INVESTMENT PROPERTIES
The components of the investment property account at December 31, are
as follows:
1997 1996
Land $1,353,177 $2,423,706
Building and Improvements 3,287,832 5,802,208
Tenant Improvements 533,912 1,134,456
Investment properties, at cost 5,174,921 9,360,370
Less: accumulated depreciation
and amortization (1,227,226) (2,107,769)
Investment property, net $3,947,695 $7,252,601
NOTE 6 - LOAN PAYABLE TO AFFILIATE
The loan payable represents funds advanced to the Roseville Joint
Venture from Capital Builders Development Properties II, a related
Partnership which has the same General Partner. The loan was settled
in conjunction with the sale of the 60% interest of the Roseville
joint venture. The loan bore interest at approximately the same rate
charged to it by a bank for other borrowings, which was 8.95% at the
time of sale of the joint venture, May 1, 1997 and December 31, 1996.
Interest expense incurred on the loan was $55,347, $111,362 and
$115,683 in 1997, 1996, and 1995, respectively.
NOTE 7 - NOTES PAYABLE
Notes Payable consist of the following at December 31,:
1997 1996
Construction loan with a variable interest
rate based on the bank commercial lending
rate (7.5% as of April 1, 1997) plus 2.5%
was refinanced in 1997 with a mini-
permanent loan with a fixed interest rate
of 9.25%, requiring monthly principal and
interest payments of $28,689, which is
sufficient to amortize the loan over 25
years. The loan is due April 1, 2002.
The note is collateralized by a First Deed
of Trust on the land, buildings and
improvements, and is guaranteed by the
General Partner. $3,323,398 $3,383,141
Mini-permanent loan on joint venture
property with a fixed interest rate of
8.24% and requiring monthly principal and
interest payments of $27,541, which is
sufficient to amortize the loan over 25
years. The loan is due January 1, 2001.
The note is collateralized by a first deed
of trust on the land, buildings and
improvements (See Note 2). - - - - - 3,455,591
Land/Construction loan of $180,000 due
March, 24, 1998. The note bears interest
at bank prime rate plus 1.5% (10.0% at
December 31, 1997 with a 9% floor). The
note is secured by Plaza de Oro's
separately parceled Phase II land and is
guaranteed by the General Partner. 180,000 - - - - -
Total Notes Payable $3,503,398 $6,838,732
Scheduled principal payments during 1998, 1999, 2000, 2001, and 2002
are $218,454, $42,166, $46,236, $50,699, and $3,145,843,
respectively.
NOTE 8 - LEASES
The Partnership leases its properties under long-term noncancelable
operating leases to various tenants. The facilities are leased
through agreements for rents based on the square footage leased.
Minimum annual base rental payments under these leases for the years
ending December 31 are as follows:
1998 $582,094
1999 518,136
2000 475,095
2001 259,794
2002 104,178
Total $1,939,297
NOTE 9 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the financial statement method of accounting to
the Federal income tax method of accounting for the years ended
December 31 are as follows:
1997 1996 1995
Net income/(loss) - financial $879,714 ($394,110) ($594,429)
Adjustments
resulting from:
Book to tax difference in
depreciation and amortization (413,552) 114,923 265,630
Net income/(loss) - tax method 466,162 (279,187) (328,799)
Partners' equity - financial $575,685 ($304,029) $90,081
Increases
resulting from:
Book to tax difference in
depreciation and amortization
and valuation allowance 1,767,731 2,181,286 2,066,363
Selling expenses for
Partnership units 1,012,108 1,012,108 1,012,108
Partners' equity - tax $3,355,524 $2,889,365 $3,168,552
Taxable income/(loss) per Limited
Partnership unit after
giving effect to the
taxable loss allocated to
the General Partner $33.47 ($20.05) ($23.61)
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnership in
estimating it's fair value disclosures for financial instruments.
Cash and cash equivalents
The carrying amount approximates fair value because of the
liquid nature of the instrument.
Note payable
The fair value of the Partnership's note payable is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the Partnership for debt of
the same remaining maturities.
The estimated fair values of the Partnership's financial instruments
as of December 31, are as follows:
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets
Cash and cash equivalents $2,310 $2,310 $49,335 $49,335
Liabilities
Loan payable to affiliate - - - - - - $1,514,788 (A)
Note payable $3,323,398 $3,323,398 $3,383,141 $3,383,141
Note payable $180,000 $180,000 $3,455,591 $3,455,591
(A) It is not practicable to determine the fair value of the loan
payable to affiliate due to the related party nature of the
arrangement.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation primarily arising in the
normal course of its business. In the opinion of management, the
Partnership's recovery or liability, if any, under any pending
litigation would not materially affect its financial condition or
operations.
NOTE 12 - PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. SFAS No. 130 is effective for interim and
annual periods beginning after December 15, 1997 and is to be applied
retroactively to all periods presented. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. It
does not, however, specify when to recognize or how to measure items
that make up comprehensive income. SFAS No. 130 was issued to address
concerns over the practice of reporting elements of comprehensive
income directly in equity. This Statement requires all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed in equal prominence with the other financial statements. It
does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
Enterprises are required to classify items of "other comprehensive
income" by their nature in the financial statement and display the
balance of other comprehensive income separately in the equity section
of a statement of financial position. It does not require per share
amounts of comprehensive income to be disclosed. Management does not
expect that adoption of SFAS No. 130 will have a material impact on
the Partnership's financial statements.
Financial Reporting for Segments of a Business Enterprise
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 is effective for
interim and annual periods beginning after December 15, 1997 and is to
be applied retroactively to all periods presented. SFAS No. 131
establishes standards for the way public business enterprises are to
report information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise, but retains the requirement to
report information about major customers. Management does not expect
that adoption of SFAS No. 131 will have a material impact on the
Partnership's financial statements.
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
NONE
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors. The Partnership is managed by
Capital Builders, Inc. ("CB"), the Managing General Partner. The
following are the names and other information relating to the
Managing General Partner. No expiration date has been set for the
term during which the Managing General Partner is to serve.
MANAGING GENERAL PARTNER
The Partnership is being managed by CB, the Managing General Partner.
CB is a California corporation organized in May 1978, with its
executive offices at 4700 Roseville Road, Suite 206, North Highlands,
California 95660 [telephone number (916) 331-8080]. To date, CB has
organized ten Partnerships to engage in commercial real estate
development. As the General Partner, CB may be responsible for
certain liabilities that a Partnership it manages is unable to pay.
In addition, CB, in the normal course of business, has guaranteed
certain debt obligations of the Partnerships it sponsored aggregating
$3,323,398.
The officers, directors, and key personnel of CB are as follows:
Name Office
Michael J. Metzger President and Director
Mark Leggio Director
Ellen Wilcox Director
Michael J. Metzger: Mr. Metzger is responsible for the general
management of CB. Mr. Metzger assumed responsibility for the
management of CB in December 1986. He was formerly the Executive
Vice-President of The Elder-Nelson Company (EN) and its subsidiary,
the Elder-Nelson Equities Corporation - affiliated companies which
provided underwriting and administrative services to CB. Prior to
joining EN in 1977, Mr. Metzger was Partner/General Manager for two
years in his family's real estate contracting, development and
syndication business. Mr. Metzger has also had five years of
experience in manufacturing management, and served as an Army Officer
for four years. Mr. Metzger holds a B.S. degree in Business and
Industrial Management as well as licenses in Real Estate, Securities
and Insurance.
Ellen Wilcox: Ellen Wilcox is the Owner/Manager of Wilcox Financial
Services, a Registered Investment Advisor in San Carlos CA. She is
licensed in General Securities and Insurance through Linsco/Private
Ledger, an NASD Registered Broker/Dealer. As an Investment Advisor
and Broker, Ms. Wilcox provides a full range of investment products
and services to individuals and small business owners. She has been
actively providing such services since 1986. Ms. Wilcox teaches
classes on retirement planning, investment strategies, and basic money
management. She is a popular speaker and lecturer on financial topics
and has authored many published articles and has appeared on several
radio shows.
Mark J. Leggio: Mark Leggio is the Owner of Mark J. Leggio, CPA. He
provides tax accounting and business consultation services to a wide
variety of small and mid-size businesses. In addition, he is the
founding shareholder and chief financial officer of Green Planet
Juicery, Inc., located in the Sacramento area. From 1978 to 1995 he
worked for KPMG Peat Marwick and was a partner when he left. Mr.
Leggio holds a Bachelor of Science degree in Accounting from the
University of Southern California, where he graduated cum laude.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any officers or employees and,
therefore, does not pay compensation to such persons. The
Partnership's business is conducted by the Managing General Partner
which is entitled under Article IV of the Partnership Agreement to
receive underwriting commission, acquisition fees, property
management fees, subordinated real estate commission, share of
distribution and an interest in the Partnership. The Managing
General Partner's fees totaled $47,380 in 1997, consisting entirely
of property management fees which are calculated as 5% of gross
rental revenues collected.
In addition to the fees described above, the General Partner is
entitled to reimbursement for out of pocket expenses incurred on
behalf of the Partnership. Such expenses aggregated $97,416 in 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Managing General Partner contributed $1,000 to the Partnership
Capital accounts, however, no securities were issued in respect
thereof. No person is known to the Partnership to own beneficially
more than 5% of the units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership agreement (see Part IV, Item 14(a)(4) Exhibits) which
was executed in 1985, authorized the compensation set forth below to
be paid to the Managing General Partner and to affiliates of the
Managing General Partner.
During the year ended December 31, 1997 the Managing General Partner
and/or its affiliate received $97,416 for reimbursement of
administrative services and $47,380 for property management and
administrative fees.
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
EXHIBIT NUMBER EXHIBIT
(a) 1,2 See Item 8 of this Form 10-K for the Financial
Statements of the Partnership, Notes thereto, and
Supplementary Schedules. An Index to Financial
Statements and Schedules is included and incorporated
herein by reference.
4 Limited Partnership Agreement dated May 1, 1985
filed as exhibit 3.3 and the Amendment to the Limited
Partnership Agreement dated November 20, 1986 filed
as exhibit 3.4 to Registration Statement No. 2-96042
of Capital Builders Development Properties, A
California Limited Partnership are hereby
incorporated by reference.
11 Statement regarding computation of per unit
earnings is not included because the computation can
be clearly determined from the material contained in
this report.
(b) Reports on Form 8-K
The Partnership filed an 8-K dated November 11, 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Capital Builders Development Properties and Subsidiary
A California Limited Partnership
By CAPITAL BUILDERS, INC.,
The Managing General Partner,
For and On Behalf of the
Capital Builders Development Properties
A California Limited Partnership
Michael J. Metzger, President Date
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 date indicated.
Signature Title Date
____________________ Associate General
Michael J. Metzger Partner; President and
Director of Capital
Builders, Inc. ("CB")
____________________ Chief Financial
Kenneth L. Buckler Officer of CB
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Partnership has not sent an annual report or proxy statements to
the Limited Partners and does not intend to send a proxy statement to
the Limited Partners. The Partnership will send the Limited Partners
an annual report and will furnish the Commission with copies of the
annual report on or before April 30, 1998.
Capital
Builders
Development
Properties
A California
Limited
Partnership
and
Subsidiary
SCHEDULE III
- REAL
ESTATE AND
ACCUMULATED
DEPRECIATION
12/31/97
Column A Column B Column C Column D Column E
Cost
Captialize
d
Description Encumbranc Initial Subsequent Gross Carrying Amount
es Cost to at End of Period
Acquistion
Carrying Buildings
&
Land (1) Improvemen Costs Land Improvemen Total(1)
ts(1) ts
Commercial
Office Bldg.
Rancho $3,503,398 $1,143,165 $4,012,274 $19,482 $1,353,177 $3,821,744 $5,174,921
Cordova
Column E
Total
1995 1996 1997
Balance at $9,974,524 $9,582,274 $9,360,370
beginning of
period
Additions
74,760 158,391 48,621
Sale of
Capital - - (4,172,587
Professional )
Center
Deletions
(2) (467,010) (380,295) (61,483)
Balance at $9,582,274 $9,360,370 $5,174,921
end of
period
Column A Column F Column G Column H Column I
Accumulate Date of Date Depreciati
d on
Description Depreciati Constructi Acquired Life
on on
Commercial 40 Years
Office Bldg. (Bldg)
Rancho $1,227,226 1987 1985 Life of
Cordova Lease
(Tenant
Imp.)
Column F
Total
1995 1996 1997
Balance at $2,029,925 $2,097,079 $2,107,769
beginning of
period
Additions
534,164 390,985 189,977
Sale of
Capital - - (1,009,122
Professional )
Center
Deletions
(2) (467,010) (380,295) (61,483)
Balance at $2,097,079 $2,107,769 $1,227,141
end of
period
1) Valuation
allowance
for possible
investment
loss of
$742,000 at
December 31,
1995
was
charged
against the
cost basis
of the land
and building
and
improvements
on a pro
rata basis
in
accordance
with the
provisions
of SFAS No.
121 which
was adopted
on January
1, 1996.
2) Deletions
represent
the write-
off of fully
amortized
tenant
improvement
costs.