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 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327914
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
- ---------------------------------------- -------------------
(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
-----------------------------
(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 86-Series I 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 $59,791,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income-producing real property, and all
financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
property. Three properties have since been disposed of, including the property
in which the Registrant held a minority joint venture interest. The six
properties remaining at December 31, 1994 are described under "Properties"
(Item 2). The Partnership Agreement generally provides that the proceeds of any
sale or refinancing of the Registrant's properties 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 six properties, during 1994, four generated
positive cash flow while two generated marginal cash flow deficits. 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.
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-XIX, 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 six real property investments
described below:
Location Description of Property
- -------- -----------------------
Washington County, Oregon Brighton Townhomes: a 232-unit apartment complex
located on approximately 15 acres.
Overland Park, Kansas * Cedar Crest Apartments: a 466-unit apartment
complex located on approximately 40 acres.
Jacksonville, Florida Lakeside Apartments: a 416-unit apartment complex
located on approximately 28 acres.
Petaluma, California * Lakeville Resort Apartments: a 492-unit apartment
complex located on approximately 33 acres.
Fresno, California Lake Ridge Apartments: a 200-unit apartment
complex located on approximately 11 acres.
Pittsfield Township, The Pines of Cloverlane Phases I and II: a
Michigan 592-unit apartment complex located on
approximately 62 acres.
*Owned by Registrant through a joint venture with an affiliated partnership.
Each of the above properties is held subject to various mortgages and other
forms of financing.
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
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Proposed class action suit
- --------------------------
On July 31, 1991, a proposed class-action complaint was filed, Gerald C. &
Nancy W. Weir vs. IDS Financial Services, Inc. ("IDS"), Shearson Lehman
Brothers Inc. ("Shearson"), American Express Company ("AMEX"), Balcor
Securities Company, Balcor Partners XIX, The Balcor Company and Balcor
Partners-86, Case No. 91 CH 07035 (Circuit Court of Cook County, Illinois,
Chancery Division). The complaint alleges that the defendants violated the
Illinois Consumer Fraud and Deceptive Trade Practices Act and the Illinois
Securities Law with regard to the adequacy and accuracy of disclosure of
information in respect of the offering of limited partnership interests in the
Registrant. The complaint also alleges breach of fiduciary duty and seeks
unspecified compensatory damages and rescission.
In January 1993, the Circuit Court dismissed IDS, Shearson and AMEX as
defendants for two of the three counts in the complaint. In July 1993, the
defendants filed motions for summary judgment on all remaining counts on the
grounds that the claims against them were barred by the statute of limitations.
In April 1994, the Circuit Court granted the motions for summary judgment,
thereby disposing of all claims in the complaint. In May 1994, the plaintiffs
filed a notice of appeal with the Illinois Appellate Court, Appeal No. 94-1610,
appealing the January 1993 and April 1994 Circuit Court orders. On February 8,
1995, the Appellate Court dismissed the case for want of prosecution.
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
- -------
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. To date, the Registrant has not made any distributions to
investors. For additional information, see 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 approximately 5,404.
Item 6. Selected Financial Data
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Year ended December 31,
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1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Total income $16,104,170 $15,556,850 $14,850,044 $14,568,343 $15,395,616
Loss before gains
on disposition
of assets and
extraordinary
items (1,284,604) (1,466,532) (2,805,340) (2,681,046) (4,138,280)
Net loss (1,284,604) (185,093) (2,805,340) (2,681,046) (2,869,008)
Net loss per
Limited Partner-
ship Interest (21.27) (3.06) (46.45) (44.39) (47.50)
Total assets 64,717,186 67,387,602 70,842,488 74,143,639 77,400,673
Mortgage notes
payable 73,208,295 74,429,557 77,183,221 77,840,780 78,560,938
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
- ---------------------
Summary of Operations
- ---------------------
An extraordinary gain on forgiveness of debt was recognized during 1993 in
connection with the refinancing of the Lake Ridge Apartments mortgage note. In
addition, improved property operations and lower interest expense as a result
of several mortgage note refinancings and modifications contributed to a
reduction in the loss before extraordinary items in 1994 and 1993 as compared
to 1992. Further discussion of Balcor Realty Investors 86 - Series I's (the
"Partnership") operations is summarized below.
Operations
- ----------
1994 Compared to 1993
- ---------------------
Higher rental rates at the Lakeside, Brighton Townhomes, Pines of Cloverlane
and Cedar Crest apartment complexes resulted in an increase in rental and
service income during 1994 as compared to 1993.
Higher average cash balances and an increase in interest rates resulted in an
increase in interest income on short-term investments during 1994 as compared
to 1993.
The refinancings of the Lake Ridge and Lakeville Resort apartment complexes in
April 1993 reduced the interest expense incurred on mortgage notes payable.
Additionally, the interest rate on the Cedar Crest Apartments mortgage note was
adjusted from 9.75 percent to 7.875 percent effective July 1993 in accordance
with the loan agreement. The combination of these transactions caused interest
expense on mortgage notes payable to decrease during 1994 as compared to 1993.
The Lake Ridge Apartments refinancing also resulted in a gain on forgiveness of
debt during 1993 due to a discounted prepayment of the original mortgage note.
Increases in insurance expense at all properties and increases in landscaping
and utility costs at the Cedar Crest Apartments and increases in leasing costs
at the Pines of Cloverlane Apartments resulted in an increase in property
operating expense during 1994 as compared to 1993.
Higher expenditures for exterior painting and carpeting at the Lakeville Resort
Apartments resulted in an increase in maintenance and repairs expense during
1994 as compared to 1993.
Higher insurance and maintenance and repairs expense in 1994 at the Lakeville
Resort Apartments resulted in affiliates' participation in losses from joint
ventures during 1994 as compared to income during 1993.
1993 Compared to 1992
- ---------------------
Due to increased occupancy levels at the Lakeside, Lakeville Resort and Pines
of Cloverlane apartment complexes and increased rental rates at the Cedar Crest
and Brighton Townhomes apartment complexes, rental and service income and
property management fees increased during 1993 as compared to 1992.
Cash available for investment in short-term interest-bearing instruments
decreased primarily due to the cash required for the Lake Ridge and Lakeville
Resort apartment complexes' mortgage note refinancings. In addition, interest
rates earned on investments were lower in 1993 than in 1992. As a result,
interest income on short-term investments decreased during 1993 as compared to
1992.
The April 1993 refinancings of the Lake Ridge and Lakeville Resort mortgage
notes and the Brighton Townhomes mortgage note modification in September 1992
have lowered interest expense on mortgage notes payable. Additionally, the
interest rate on the Cedar Crest Apartments mortgage was adjusted from 9.75
percent to 7.875 percent effective July 1993 in accordance with the mortgage
agreement. The combination of these transactions caused interest expense on
mortgage notes payable to decrease for 1993 as compared to 1992.
The remaining deferred expense related to the original mortgage note on the
Lake Ridge Apartments was fully amortized during the second quarter of 1993
when the note was refinanced. The refinancing of the Lake Ridge and Lakeville
Resort apartment complexes also resulted in the payment of new deferred
expenses which are now being amortized over the terms of the mortgage notes
payable. As a result of these transactions, amortization expense increased for
1993 as compared to 1992.
Higher expenditures for parking lot repairs, landscaping and painting at the
Brighton Townhomes and Cedar Crest apartment complexes, along with higher
expenditures for carpet replacement and roof repairs at the Pines of Cloverlane
and Cedar Crest apartment complexes resulted in an increase in maintenance and
repairs expense during 1993 as compared to 1992.
During 1992, the Partnership incurred legal fees in connection with the Lake
Ridge bankruptcy proceedings which resulted in a decrease in administrative
expenses during 1993 as compared to 1992.
In 1992, the Partnership reached settlements with the seller of the Cedar
Crest, Quail Cove and Sunset Place apartment complexes for proration amounts
the seller owed the Partnership pursuant to the terms of the original
management and guarantee agreements. The Partnership recognized a loss of
$252,949 in 1992 as a result of the write-off of the remaining portion of the
receivable from the seller which was forgiven as part of the settlements.
Increased rental revenues and lower interest expense at the Lakeville Resort
Apartments resulted in affiliates' participation in income from joint ventures
during 1993 as compared to losses during 1992.
Liquidity and Capital Resources
- -------------------------------
The Partnership's cash flow provided by operating activities during 1994 was
generated primarily from the operation of the Partnership's properties which
was partially offset by the payment of administrative expenses. The
Partnership's financing activities consisted of the payment of principal on the
properties' mortgage notes and a net distribution to a joint venture partner-
affiliate.
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 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 and
1993, the Brighton Townhomes, Cedar Crest and Pines of Cloverlane apartment
complexes generated positive cash flow. The Lake Ridge Apartments generated
positive cash flow during 1994 as compared to a marginal deficit during 1993
due to the refinancing of the mortgage note payable. The Lakeside Apartments
generated a marginal deficit during 1994 as compared to positive cash flow
during 1993 due to an increase in the monthly debt service payment in early
1994 in accordance with the loan agreement. The Lakeville Resort Apartments
generated a marginal deficit during 1994 as compared to positive cash flow
during 1993 due to a decrease in rental revenue as a result of lower average
occupancy and an increase in insurance and maintenance and repair 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 94 to 98%. Despite improvements 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 returns to Limited Partners and, therefore, the Partnership will
continue to own these properties for longer than the holding period for the
assets originally described in the prospectus.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing 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, etc., related to each of these mortgage loans. As a result of
the General Partner's successful efforts to obtain loan modifications as well
as refinancings of many existing loans with new lenders, the Partnership has no
third-party financing which matures prior to 1996. The General Partner is
currently evaluating options for refinancing the Lakeville Resort Apartments
mortgage note which carries an interest rate based on a market index.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions will depend on the level of cash
flow from the Partnership's remaining properties, the retention of adequate
cash reserves for financing and operating needs, and proceeds from future
property sales and mortgage loan refinancings, as to all of which there can be
no assurances. In light of the results to date and current market conditions,
the General Partner does not anticipate that the investors will recover all of
their original investment.
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 all of the
Partnership's properties, 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.
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 $64,717,186 $52,445,528 $67,387,602 $55,841,115
Partners' deficit
accounts:
General Partner (603,600) (949,298) (590,754) (927,684)
Limited Partners (7,469,882) (15,636,631) (6,198,124) (13,706,060)
Net (loss) income:
General Partner (12,846) (21,614) (1,851) 10,109
Limited Partners (1,271,758) (1,930,571) (183,242) (1,024,284)
Per Limited Part-
nership Interest (21.27) (32.29) (3.06) (17.13)
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Partners-XIX, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experience 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 of Balcor Partners - XIX, 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 7 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(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-XIX 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 248 Interests Less than 1%
Relatives and affiliates of the officers and partners of the General Partner
own an additional 10 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 7 of Notes to Financial Statements for additional 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
- ------------------------------------------------------------------------
(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
is set forth as Exhibit 3 to Amendment No. 1 to Registrant's Registration
Statement on Form S-11 dated December 16, 1985 (Registration No. 33-361), and
said Agreement and Certificate is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), and Form of Confirmation regarding Interests in the
Partnership 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. 0-15649) are
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 86-SERIES I
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-XIX, the
General Partner
Date: March 23, 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-XIX,
/s/Thomas E. Meador the General Partner March 23, 1995
- -------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Partners-XIX,
/s/Allan Wood the General Partner March 23, 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 86-Series I
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Realty Investors 86-Series I 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
86-Series I 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 2, 1995
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
-------------- --------------
Cash and cash equivalents $ 1,058,935 $ 556,725
Escrow deposits 379,730 506,759
Accounts and accrued interest receivable 67,036 170,773
Deferred expenses, net of accumulated
amortization of $671,472 in 1994 and
$521,266 in 1993 382,247 532,453
-------------- --------------
1,887,948 1,766,710
-------------- --------------
Investment in real estate:
Land 11,137,023 11,137,023
Buildings and improvements 83,187,367 83,187,367
-------------- --------------
94,324,390 94,324,390
Less accumulated depreciation 31,495,152 28,703,498
-------------- --------------
Investment in real estate, net of
accumulated depreciation 62,829,238 65,620,892
-------------- --------------
$ 64,717,186 $ 67,387,602
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 169,360 $ 202,883
Due to affiliates 74,467 80,141
Accrued liabilities, principally real
estate taxes 169,874 126,652
Security deposits 440,214 419,489
Mortgage notes payable 73,208,295 74,429,557
-------------- --------------
Total liabilities 74,062,210 75,258,722
Affiliates' participation in joint ventures (1,271,542) (1,082,242)
Partners' deficit (59,791 Limited
Partnership Interests issued and
outstanding) (8,073,482) (6,788,878)
-------------- --------------
$ 64,717,186 $ 67,387,602
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ (3,798,445) $ (560,850) $ (3,237,595)
Net loss for the year
ended December 31, 1992 (2,805,340) (28,053) (2,777,287)
-------------- -------------- -------------
Balance at December 31, 1992 (6,603,785) (588,903) (6,014,882)
Net loss for the year
ended December 31, 1993 (185,093) (1,851) (183,242)
-------------- -------------- -------------
Balance at December 31, 1993 (6,788,878) (590,754) (6,198,124)
Net loss for the year
ended December 31, 1994 (1,284,604) (12,846) (1,271,758)
-------------- -------------- --------------
Balance at December 31, 1994 $ (8,073,482) $ (603,600) $ (7,469,882)
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ 16,036,758 $ 15,518,993 $ 14,775,970
Interest on short-term
investments 67,412 37,857 74,074
-------------- -------------- --------------
Total income 16,104,170 15,556,850 14,850,044
-------------- -------------- --------------
Expenses:
Interest on mortgage
notes payable 6,287,058 6,739,733 7,623,495
Depreciation 2,791,654 2,791,654 2,789,737
Amortization of deferred
expenses 150,206 156,921 71,761
Property operating 4,129,446 3,524,295 3,583,892
Maintenance and repairs 1,569,408 1,306,984 980,223
Real estate taxes 1,391,861 1,350,610 1,407,420
Property management fees 800,216 777,519 737,350
Administrative 373,708 366,880 415,191
Write-off of receivables
from seller 252,949
-------------- -------------- --------------
Total expenses 17,493,557 17,014,596 17,862,018
-------------- -------------- --------------
Loss before participation
in joint ventures and
extraordinary item (1,389,387) (1,457,746) (3,011,974)
Affiliates' participation in
losses (income) from joint
ventures 104,783 (8,786) 206,634
-------------- -------------- --------------
Loss before extraordinary item (1,284,604) (1,466,532) (2,805,340)
-------------- -------------- --------------
Extraordinary item:
Gain on forgiveness of debt 1,281,439
-------------- -------------- --------------
Net loss $ (1,284,604) $ (185,093) $ (2,805,340)
============== ============== ==============
Loss before extraordinary item
allocated to General Partner $ (12,846) $ (14,665) $ (28,053)
============== ============== ==============
Loss before extraordinary item
allocated to Limited Partners $ (1,271,758) $ (1,451,867) $ (2,777,287)
============== ============== ==============
Loss before extraordinary item
per Limited Partnership
Interest (59,791 issued
and outstanding) $ (21.27) $ (24.28) $ (46.45)
============== ============== ==============
Extraordinary item allocated
to General Partner NONE $ 12,814 NONE
============== ============== ==============
Extraordinary item allocated
to Limited Partners NONE $ 1,268,625 NONE
============== ============== ==============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) NONE $ 21.22 NONE
============== ============== ==============
Net loss allocated to General
Partner $ (12,846) $ (1,851) $ (28,053)
============== ============== ==============
Net loss allocated to Limited
Partners $ (1,271,758) $ (183,242) $ (2,777,287)
============== ============== ==============
Net loss per Limited
Partnership Interest (59,791
issued and outstanding) $ (21.27) $ (3.06) $ (46.45)
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ (1,284,604) $ (185,093) $ (2,805,340)
Adjustments to reconcile net
loss to net cash provided
by or used in operating
activities:
Extraordinary gain on
forgiveness of debt (1,281,439)
Affiliates' participation
in (losses) income from
joint ventures (104,783) 8,786 (206,634)
Depreciation of properties 2,791,654 2,791,654 2,789,737
Amortization of deferred
expenses 150,206 156,921 71,761
Payment of insurance claim
expenditures (94,425) (529,874)
Collection of insurance
proceeds 94,425 529,874
Write-off of receivables from
seller 252,949
Collection of proceeds from
settlement 265,763
Net change in:
Escrow deposits 127,029 (230,901) (264,433)
Accounts and accrued
interest receivable 9,312 85,867 (47,512)
Accounts payable (33,523) 3,068 (29,809)
Due to affiliates (5,674) (9,167) (30,408)
Accrued liabilities 43,222 (239,468) 445,024
Security deposits 20,725 26,569 (43,598)
-------------- -------------- --------------
Net cash provided by or used
in operating activities 1,807,989 1,562,246 (132,374)
-------------- -------------- --------------
Financing activities:
Capital contributions by joint
venture partner - affiliate 47,039 123,638 45,902
Distributions to joint venture
partner - affiliate (131,556) (18,729)
Issuance of mortgage notes
payable 24,010,000
Repayment of mortgage notes
payable (24,950,147)
Principal payments on mortgage
notes payable (1,221,262) (888,913) (657,559)
Payment of deferred expenses (392,399)
-------------- -------------- --------------
Net cash used in financing
activities (1,305,779) (2,097,821) (630,386)
-------------- -------------- --------------
Net change in cash and cash
equivalents 502,210 (535,575) (762,760)
Cash and cash equivalents at
beginning of year 556,725 1,092,300 1,855,060
-------------- -------------- --------------
Cash and cash equivalents at
end of year $ 1,058,935 $ 556,725 $ 1,092,300
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 and accelerated
methods. Rates used in the determination of depreciation are based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
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 of financing fees which are amortized over the
terms of the respective loan agreements.
(c) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(d) 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.
(e) Reclassifications were made to the 1993 and 1992 Financial Statements in
order to provide comparability to the 1994 Financial Statements. These
reclassifications have not changed the 1993 and 1992 results.
2. Partnership Agreement:
The Partnership was organized on October 1, 1984. The Partnership Agreement
provides for Balcor Partners-XIX to be the General Partner and for the
admission of Limited Partners through the sale of up to 250,000 Limited
Partnership Interests at $1,000 per Interest, 59,791 of which were sold on or
prior to July 31, 1986, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
1% of all profits and losses. One hundred percent of Net Cash Receipts
available for distribution will be distributed to the holders of Interests in
proportion to their Participating Percentages as of the record date for such
distributions. There will, however, 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. The accrued
amount will be paid as a part of the General Partner's share of distributed Net
Cash Proceeds. Under certain circumstances, the General Partner may participate
in the Net Cash Proceeds of the sale or refinancing of Partnership properties.
The General Partner's participation is limited to 15% of remaining Net Cash
Proceeds after the return of Original Capital plus any deficiency in the
Cumulative Distribution of 6% on Adjusted Original Capital to the holders of
Interests.
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 In- Matur- Current Estimated
Pledged as Notes at Notes at terest ity Monthly Balloon
Collateral 12/31/94 12/31/93 Rate Date Payment Payment
- -------------- ---------- ---------- -------- ------ ------- ----------
Apartment Complexes:
Brighton
Townhomes $ 7,217,998 $7,296,849 7.50 1996 $45,112 $7,218,000
(A)
Cedar Crest 15,579,305 15,842,539 7.875 1998 123,717 14,293,000
Lakeside 12,550,009 12,654,011 8.50 1996 97,298 12,341,000
(B)
Lakeville Resort 18,991,478 19,439,597 10.41 1997 208,759 17,840,000
(C) (C)
Lake Ridge 4,269,113 4,294,459 10.05 2000 37,983 3,999,000
(D)
Pines of
Cloverlane 14,600,392 14,902,102 10.00 1996 148,195 14,178,000
----------- -----------
Total $73,208,295 $74,429,557
=========== ===========
(A) The lender also receives 70% of all net cash flow annually (as defined in
the loan agreement) to reduce the principal balance of the loan with the
Partnership retaining the remaining 30%. Additional interest, calculated as 35%
of the sales price, or the appraised value upon prepayment or refinancing, in
excess of the outstanding principal balance of the loan plus unpaid accrued
interest, commissions and closing costs, will also be payable to the lender
upon the maturity of the loan, sale or refinancing of the property.
(B) The lender also receives as additional interest an amount equal to 75% of
all net cash flow annually (as defined in the loan agreement) with the
Partnership retaining the remaining 25%. Additional interest calculated as 50%
to 60% of the sales price of the property, or the fair market value upon
prepayment or refinancing, in excess of amounts specified in the modification
agreement, will also be payable to the lender upon maturity of the loan, sale
or refinancing of the property.
(C) This mortgage note was refinanced in 1993. The monthly payment varies due
to an adjustable interest rate through maturity in April 1997. The former
mortgage notes provided for interest rates of 10.16% and 12.75% and monthly
payments of $151,214 and $43,263. Proceeds from the new $19,700,000 first
mortgage note were used to repay the existing first and second mortgage notes
with balances of $16,115,716 and $3,849,222, respectively. Also, the property
is required to maintain a minimum "Debt Service Coverage Ratio", as defined by
a covenant in the mortgage note documents. Since the minimum has not been
maintained, the Partnership is required to deposit funds into an escrow account
which may later be applied towards the principal balance of the mortgage note
or returned to the Partnership upon improvement in property operations.
(D) These mortgage loans were refinanced in 1993. The original loan, which had
an outstanding balance of $6,339,368, including accrued interest of $429,555,
was repaid at a cost of $4,985,209 which, after netting the real estate tax
escrow balance of $72,720, represents a discount to the Partnership of
$1,281,439, which has been recognized as an extraordinary gain. The Partnership
used proceeds from the new loans of $4,310,000, and made a principal payment of
$675,209 to repay the original loan. The new loans consisted of a first
mortgage loan of $4,223,800 and a second mortgage loan of $86,200, bear
interest at 10.05% and require monthly payments of $37,983 through maturity in
May 2000. The former mortgage note provided for an interest rate of 11.74% and
monthly payments of $43,263.
The Partnership's loans described above require current monthly payments of
principal and interest, except for the Brighton Townhomes mortgage loan which
requires interest only payments.
Approximate principal maturities of the above mortgage notes payable during
each of the next five years are as follows:
1995 $ 1,358,000
1996 34,674,000
1997 18,348,000
1998 14,477,000
1999 42,000
During 1994, 1993 and 1992, the Partnership incurred interest expense on
mortgage notes payable of $6,287,058, $6,739,733 and $7,623,495 and paid
interest expense of $6,287,058, $6,899,920 and $7,033,754, respectively.
4. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are
under management agreements with a third-party management company. These
management agreements provide for annual fees of 5% of gross operating
receipts.
5. Affiliates' Participations in Joint Ventures:
The Partnership holds 96.36% and 59.75% joint venture interests, respectively,
in the Cedar Crest and Lakeville Resort apartment complexes with the remaining
interests held by affiliated partnerships. All assets, liabilities, income and
expenses of the joint ventures are included in the financial statements of the
Partnership with the appropriate adjustment of profit or loss for the
affiliates' participation in the joint ventures.
6. 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 $667,581 less than the tax
loss of the Partnership for the same period.
7. 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 $734,296 None $789,204 $65,796 $757,345 $77,481
Reimbursement of expenses
to General Partner,
at cost:
Accounting 60,490 $29,580 46,332 3,833 43,670 3,266
Data processing 44,397 10,161 28,828 4,601 39,963 3,112
Investor communica-
tions 12,506 6,116 10,558 873 9,158 685
Legal 12,847 6,283 15,602 1,291 11,197 838
Portfolio mgmt. 28,114 13,749 35,244 2,915 34,139 2,553
Other 17,542 8,578 12,453 832 18,351 1,373
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
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 $149,324, $97,447 and $89,640 for 1994, 1993 and 1992,
respectively.
8. Write-off of Receivables From Seller:
In May 1992, the partnership reached a settlement with the seller of the Cedar
Crest, Quail Cove and Sunset Place apartment complexes for proration amounts
the seller owed the Partnership pursuant to the terms of the original
management and guarantee agreements. The Partnership received $88,579 in June
1992 and a final payment of $177,184 in December 1992 pursuant to the terms of
the settlement. The Partnership wrote-off receivables from the seller of
$252,949 in connection with this transaction.
BALCOR REALTY INVESTORS 86-SERIES I
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 CostAdjustments
to Partnership SubsequenttoAcquisition
-------------------- ---------------------------------
Buildings Carrying
Encum- and Im- Improve- Costs Reduction
Description brances Land provements ments (a) ofBasis
- --------------------- ------- -------- ------------ --------- --------- ----------
Brighton Townhomes,
232-unit complex in
Washington County, OR (d) $ 1,096,000 $ 7,916,500 $ 38,116 $(148,970 )(e)
Cedar Crest Apts.,
466-unit complex in
Overland Park, KS (d) 2,875,000 14,825,000 $429,206 500,986 (449,392)(e)
Lakeside Apts.,
416-unit complex in
Jacksonville, FL (d) 2,086,922 11,981,203 124,115
Lakeville Resort Apts.,
492-unit complex in
Petaluma, CA (d) 2,900,000 20,471,320 31,925
Lake Ridge Apts.,
200-unit complex in
Fresno, CA (d) 1,177,569 6,518,958 17,995 (879,380)(g)
The Pines of Clover-
lane-Phases I and
II, 592-unit
complex in Pitts-
field Township, MI (d) 1,195,665 21,554,362 19,772 41,518
----------- ----------- -------- -------- -----------
Total $11,331,156 $83,267,343 $448,978 $754,655 $(1,477,742)
=========== =========== ======== ======== ===========
BALCOR REALTY INVESTORS 86-SERIES I
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 (b) tion(c) struction uired is Computed
- ------------------- -------- ---------- ---------- --------- --------- ----- -------------
Brighton Townhomes,
232-unit complex in
Washington County, OR $1,082,501 $ 7,819,145 $ 8,901,646 $2,964,731 1986 11/86 (f)
Cedar Crest Apts.,
466-unit complex in
Overland Park, KS 2,817,501 15,363,299 18,180,800 5,452,433 1986 10/85 (f)
Lakeside Apts.,
416-unit complex in
Jacksonville, FL 2,089,440 12,102,800 14,192,240 4,452,073 1986 1/86 (f)
Lakeville Resort Apts.,
492-unit complex in
Petaluma, CA 2,903,958 20,499,287 23,403,245 7,153,542 1985 1/86 (f)
Lake Ridge Apts.,
200-unit complex in
Fresno, CA 1,045,776 5,789,366 6,835,142 2,099,819 1986 2/86 (f)
The Pines of Clover-
lane-Phases I and
II, 592-unit
complex in Pitts-
field Township, MI 1,197,847 21,613,470 22,811,317 9,372,554 (h) 4/86 (f)
----------- ----------- ----------- -----------
Total $11,137,023 $83,187,367 $94,324,390 $31,495,152
=========== =========== =========== ===========
BALCOR REALTY INVESTORS 86-SERIES I
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) The aggregate cost of land for Federal income tax purposes is $11,361,137
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $83,918,777. The total of the above-mentioned is $95,279,914.
(c) Reconciliation of Accumulated Depreciation
------------------------------------------
1994 1993 1992
----------- ----------- -----------
Balance at beginning of year $28,703,498 $25,911,844 $23,122,107
Depreciation expense for
the year 2,791,654 2,791,654 2,789,737
----------- ----------- -----------
Balance at end of year $31,495,152 $28,703,498 $25,911,844
============ ============ ============
(d) See description of Mortgage Notes Payable in Note 3 of Notes to Financial
Statements.
(e) 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.
(f) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
(g) Lake Ridge Apartments had a reduction of basis due to an impairment of the
asset value in 1988.
(h) This property was constructed in two phases. Phase I was completed in 1975
and Phase II was completed in 1979.