EXHIBIT 9(a)
FJS PROPERTIES FUND I, L.P.
264 ROUTE 537 EAST
COLTS NECK, NJ 07722
(732)542-9209
December 10,
1997
Re: FJS Properties Fund I, L.P. - Tender Offer - Revised
Response
Dear Limited Partner:
We are aware that you have received a tender offer for your Units of
Limited Partnership Interests in FJS Properties Fund I, L.P. As the company
affected by such offer, we are required by Securities and Exchange Commission
rules and regulations to review this offer and to provide you with our
recommendation as to your acceptance or rejection of such offer.
Supplementing our previous letter of December 1,1997, we continue to
recommend that you reject this offer because this offer is substantially less
than our reasonable estimate of the current value of the Units. The following
describes the items considered by the Partnership in arriving at its reasonable
value for the Units.
Partnership Assets:
The assets of the Partnership consist solely of real estate and liquid
cash on hand. These are considered separately below.
REAL ESTATE ASSETS: The only real estate owned by the Partnership is a 312
unit garden apartment project located at 401 Executive Center Drive, West Palm
Beach, Florida (the "Pavilion"). The Pavilion constitutes substantially all of
the Partnership's assets, excluding only cash on hand. Fee title to the Pavilion
is owned subject to an existing first mortgage presently held of record by
Greenwich Capital Financial Products, Inc., and serviced by Bank United of Texas
FSB, Houston, Texas. This mortgage is a real estate mortgage and constitutes a
lien solely on the real estate and associated personal property (on site
equipment) comprising the Pavilion. In valuing the Pavilion the Partnership
considered two items. One was an appraisal prepared in 1994, and the other was
an offer to purchase received by the Partnership.
The 1994 Appraisal:
The appraisal estimated the value of the Pavilion on three different
basis, replacement cost, comparable sales and income approach. The replacement
cost method computes the current cost to build a project equivalent to the
Pavilion. The comparable sales approach evaluates the actual selling prices of
comparable properties in the local area. The income approach actually takes two
different approaches to the valuation. One approach, the Income Capitalization
Approach is computed by estimating the net income from the property's
improvements and then capitalizes this income stream at an appropriate rate
which is an expression of the ratio between net operating income and value. The
appraiser utilized a rate between 10.5% and 11% concluding that "an overall rate
abstracted from comparable sales is given the most weight in arriving at an
appropriate capitalization rate." The other income approach use by the appraiser
was to utilize the Discounted Cash Flow method. This technique is simply a
method of reducing projected annual cash flows to a current dollar amount. "The
net operating income is projected less debt service (if applicable), to arrive
at a first year's cash flow. The same procedures are followed for each
subsequent year of the holding period. Finally in the last year of the holding
period, the property is resold for a projected resale price, and the resulting
total cash flow over the entire holding period is discounted back to the
beginning of the investment at an appropriate rate of return." Cash flows were
based on assumed increases in market rate rents of 3% per year and expense
increases of 4% per year. The final sales price was computed by applying an
overall rate of 11% to the projected net operating income in that year. The
discount rate utilized by the appraiser was assumed to be in the 12.5% to 13.5%
range as being that rate "which would be required by most investors for this
type of property".
The Appraiser, was selected by the Long Beach Bank, is unaffiliated with
the Partnership, and the Appraiser has had no other relationship with the
Partnership and/or its affiliates. The qualifications of Michael R. Slade
include the following as set forth in the attachments to the appraisal: licensed
by Real Estate Commission State of Florida since 1974, Registered Real Estate
Broker and State-Certified General Appraiser; Member Appraisal Institute,
Society of Real Estate Appraisers, American Society of Real Estate Counselors,
MBA from Florida Atlantic University; Appraisal experience: principal, Callaway
& Price, from 1981, Staff Appraiser, Callaway & Price 1975 to 1981; Expert
Witness in Circuit Courts of Broward, Palm Beach and Martin Counties as well as
in Federal Bankruptcy Court; Special Master, Tax Appeal Hearings, Palm Beach
County.
The value of $7,500,000 set forth in the appraisal is approximately
$2,695,000 in excess of the current unpaid principal balance of the existing
first mortgage, which is approximately $4,805,000.
Although this appraisal is over three years old, there have been no
material changes in the Pavilion since such appraisal which would substantially
limit the usefulness of such appraisal or otherwise affect the validity and
accuracy of such appraisal.
The Appraisal is available for inspection and copying at the principal
executive offices of the Partnership during its regular business hours by any
Limited Partner of the Partnership, or such Limited Partner's representative who
has been so designated in writing.
The Purchase Offer:
Subsequent to the receipt of the tender offer, the Partnership has
discussed a potential sale of, and has received a written offer for the purchase
of the Pavilion. This offer is solely for the real estate owned by the
Partnership, exclusive of any liquid assets the Partnership might have. This is
a firm offer, which was received from the existing unaffiliated on site managing
agent which owns and operates other residential real estate projects in Florida,
subject to the execution and delivery of a fully negotiated contract of sale,
and requiring the consent of the first mortgage holder. The first mortgage
requires the consent of the holder to any transfer of title to the Pavilion. A
transfer without such consent, provides the holder of the mortgage with the
option to declare the unpaid principal balance of the mortgage immediately due
and payable. The offer provides for a purchase price of $2,000,000 cash in
excess of the unpaid balance of the first mortgage (approximately $4,805,000) at
closing, with other adjustments and conditions as are customarily provided for
in real estate contracts for garden apartment projects.
The Partnership has no present intention to sell the Pavilion, and has
neither negotiated nor accepted this offer. There is no assurance, or present
intent, that a sale of the Pavilion, constituting substantially all of the
Partnership's assets, and resulting in a liquidating distribution to Unitholders
will take place at this time. In addition there is no assurance that the holder
of the first mortgage would consent to the transfer of the Pavilion subject to
the lien of their mortgage as contemplated by the offer.
Under the partnership agreement of the Partnership, the sale of
substantially all of the company's assets requires the approval of the holders
of a majority of the Units of Limited Partnership Interests. There is no
assurance that a majority of the holders of Limited Partnership Units would
approve the sale of the Pavilion in the event such a proposal is submitted to
them for consideration and vote.
Real Estate Valuation:
In light of the above, the Partnership has concluded that the current
value of the Pavilion is not less than $2,000,000 in excess of the unpaid
balance of the existing first mortgage.
Liquid Non-Real Estate Assets:
In addition to the real estate assets, the Partnership has working capital
and short term liquid assets in the amount of approximately $550,000 as
reflected in the Partnership's 10Q for the quarter ending September 30, 1997.
There has been no substantial change in the amount or nature of such assets
since such filing. The Partnership has concluded that the value of the liquid
non-real estate assets is $550,000.
Aggregate Partnership Liquidation Valuation:
In as much as the Partnership has no significant liabilities other than
the first mortgage on the Pavilion, and which is taken into account in the above
valuation, the liquidation value of the Partnership is the aggregate of the
valuations of the Real Estate Assets ($2,000,000) and the Liquid-Non-Real Estate
Assets ($550,000). This yields a valuation of $2,550,000.
Liquidation Distribution Calculation:
Were the Partnership to realize liquidation proceeds of $2,550,000, such
funds would, pursuant to the Partnership Agreement, be distributed 99%
($2,524,500) to the Limited Partners and 1% ($2,524,500)to the General Partner.
The Limited Partners would therefore receive $150.38 per Unit ($2,524,500 /
16,788 Units).
Other investment considerations:
Current Cash Flow Distributions:
During the first three quarters of 1997 the Partnership has distributed
$5.53 per Unit of cash flow. Annualized this equates to an annual cash
distribution of $7.37 per Unit, which on $75 (the amount being offered) is a
9.8% cash on cash return. Thus a Limited Partner who elects not to sell his
units for $75 per Unit could receive in the future, based on an annualization of
the first three quarters of 1997, amounts equal to a 9.8% return on the $75 that
was offered, while still retaining the ability to share in a larger liquidating
distribution when the Pavilion Apartments are sold. This calculation is based on
the $75 offer, since that is the amount a limited partner could currently
receive for his Units. This cash flow would be equivalent to an annual cash on
cash return of 4.9% based on the calculated liquidation distribution set forth
above. This assumes that cash flow distributions substantially equivalent to
those made during the first three quarters of 1997 continue to be made in the
future. Limited Partners have already received the distributions for the first
three quarters of 1997, and this prior receipt will naturally be unaffected by
their acceptance or rejection of the tender offer.
There is no assurance that such cash flow distributions will continue to
be made in the future, as such distributions are affected by occupancy rates,
rent levels and expenses of the Partnership which may change in the future.
No Other Valuations:
The Partnership has not obtained any other third party appraisals or
valuations in connection with its review of this tender offer. The Partnership
is of the opinion that it has sufficient information available to it to evaluate
this offer without incurring the additional expense involved in obtaining
further appraisals or valuations.
No Present Intent to Sell or Liquidate:
Although the tender offer is being evaluated by the Partnership against a
liquidation value for the Units, there is no present commitment or intent to
sell the Pavilion Apartments, and there can be no assurance that a sale of all
or substantially all of the Partnership's assets with a corresponding
liquidating distribution to Unitholders will occur.
Mortgage Lender's Consent Required for Transfer of Limited
Partnership Units or Sale of Pavilion Apartments:
The first mortgage affecting the Pavilion Apartments provides that the
holder of the mortgage accelerate and declare the unpaid principal balance of
the mortgage due and payable on the sale or transfer of ownership of the
Pavilion Apartments, on the transfer of more than 49% of the Units of Limited
Partnership Interests or on the transfer to any one party of more than 10% of
the Units of Limited Partnership Interests. In the event the Purchasers under
the tender offer acquire more than 10% of the Units of Limited Partnership
Interests the holder of the mortgage may, but is not required to, accelerate the
unpaid balance of the mortgage. The Partnership is unable to express an opinion
as to whether the mortgagee would exercise this right.
Conclusion:
Based on the above considerations, the Partnership has concluded that the
tender offer does not provide sufficient consideration for the Unit holders, and
such offer should be rejected.
Should you have any questions regarding this matter please feel free to
call me at (732)542-9209.
Very truly yours,
FJS Properties Fund I, L.P.
by: FJS Properties, Inc., General
Partner
By: Andrew C. Alson
Andrew C. Alson, President
ACA/kb
- --------
* Pursuant to the hardship exemption provided for in Item 202 of Regulation ST,
in lieu of filing such document via EDGAR, the Appraisal has been filed in
hardcopy with the Securities and Exchange Commission Filing Desk.