SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 30, 1996
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23954 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Page No.
Item 2. Acquisition or Disposition of Assets 5
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report
(Longmeadow Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Longmeadow Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Longmeadow Apartments)*
b. Independent Auditors' Report
(Trophy Chase (Westfield) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Trophy Chase (Westfield) Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Trophy Chase (Westfield)
Apartments)*
c. Independent Auditors' Report
(Beacon Hill Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Beacon Hill Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Beacon Hill Apartments)*
d. Independent Auditors' Report
(Meadow Creek Apartments)*
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* To be filed by amendment.
Historical Statement of Income and
Direct Operating Expenses
(Meadow Creek Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Meadow Creek Apartments)*
e. Independent Auditors' Report
(Summer Walk (Lakewood) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Summer Walk (Lakewood) Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Summer Walk (Lakewood) Apartments)*
f. Independent Auditors' Report
(Willow Creek Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Willow Creek Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Willow Creek Apartments)*
g. Pro Forma Statement of Operations for
the Three Months ended March 31, 1996
(unaudited)*
Pro Forma Balance Sheet as of
March 31, 1996 (unaudited)*
Pro Forma Statement of Operations
for the Year ended December 31, 1995
(unaudited)*
h. Exhibits
10.1 Purchase Contract for Longmeadow
Apartments
10.2 Property Management Agreement for
Longmeadow Apartments
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* To be filed by amendment.
10.3 Purchase Contract for Trophy Chase
(Westfield) Apartments
10.4 Property Management Agreement for Trophy
Chase (Westfield) Apartments
10.5 Purchase Contract for Beacon Hill
Apartments
10.6 Property Management Agreement for Beacon
Hill Apartments
10.7 Purchase Contract for Meadow Creek
Apartments
10.8 Property Management Agreement for Meadow
Creek Apartments
10.9 Purchase Agreement for Summer Walk
(Lakewood) Apartments
10.10 Property Management Agreement for Summer
Walk (Lakewood) Apartments
10.11 Purchase Agreement for Willow Creek
Apartments
10.12 Property Management Agreement for Willow
Creek Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
23.3 Consent of Independent Auditors*
23.4 Consent of Independent Auditors*
23.5 Consent of Independent Auditors*
23.6 Consent of Independent Auditors*
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* To be filed by amendment.
Item 2. Acquisition or Disposition of Assets
LONGMEADOW APARTMENTS
Charlotte, North Carolina
On April 30, 1996, effective April 1, 1996, the Company purchased the
Longmeadow Apartments, a 120-unit apartment complex having an address of 6017
Williams Road in Charlotte, North Carolina (the "Property"). The Company
purchased the Property from a seller which is unaffiliated with the Company, the
Advisor and their Affiliates. The purchase price was $5,025,000. At closing, the
Company paid the entire purchase price in cash with the proceeds of the
Offering. Title to the Property was conveyed to the Company by limited warranty
deed.
Location. The following information was obtained from the Mecklenburg
County Chamber of Commerce. Charlotte is the most populous city in North
Carolina and the county seat of Mecklenburg County. It is located 225 miles
northeast of Atlanta, Georgia and 350 miles southwest of Washington, D.C. As of
1995, Charlotte and Mecklenburg County had an aggregate population in excess of
442,750, and the greater Charlotte trading area, known as Metrolina, had a
population in excess of 1.3 million.
The area holds the largest supply of business capital between
Philadelphia and Dallas, with $43 billion in assets held by banks headquartered
in Charlotte. Charlotte is the third largest financial center in the U.S.
(behind New York and San Francisco) with two of the nation's 10 largest banks.
First Union and NationsBank have their executive headquarters in Charlotte. One
reason for Charlotte's high employment rate is the continued attraction of new
business to Charlotte. Although distribution and finance are the primary areas
of activity and growth, there are more than 950 manufacturing firms in
Mecklenburg County.
Charlotte's geographic location and diversified economic base have
accounted for its growth as a distribution and transportation hub. The
Charlotte area is served by Interstate Highways I-85 and I-77 and U.S. Highways
21, 29 and 74. Additionally, plans are underway for construction of I-285 and
the Independence Expressway, which will connect the major expressways. There
are 10 major commercial airlines serving the area, with 184 flights to and from
Charlotte daily. The
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Charlotte/Douglas International Airport is the nation's 23rd largest airport in
terms of passenger boardings, and provides direct and non-stop service to over
100 cities daily.
The Charlotte area is home to an extensive higher education system.
Charlotte is the location of one branch of the University of North Carolina and
there are 25 other colleges and universities within the Metrolina area. They
collectively represent an enrollment of over 90,000 persons.
The Property is located on Williams Road off of Harris Boulevard in the
City of Charlotte. The immediate area consists of other multi-family housing,
commercial and retail development and single-family housing. The Property is
convenient to area shopping centers. The Property is readily accessible from
Interstates 85 and 77. The downtown area and Charlotte/Douglass International
Airport are easily accessible from the Property via Interstate 77.
Description of the Property. The Property consists of 120 garden style
apartments located in 13 buildings on approximately seven acres of land. The
Property was constructed in 1986.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$60,000 for repairs and improvements, including painting and exterior
renovations.
The unit mix and rents currently being charged new tenants are as
follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
3 studio 568 $465
3 studio-deluxe 596 485
12 1 bedroom, 1 bath 624 490
6 1 bedroom, 1 bath 648 510
18 1 bedroom, 1 bath 672-690 505-525
72 2 bedrooms, 2 baths 958-995 605-635
6 3 bedrooms, 2 baths 1,115 750
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The apartments provide a combined total of 104,000 square feet of net
rentable area.
Leases at the Property are for the terms of one year or less. Average
rental rates for the past five years have generally remained constant, with some
recent increase. As an example, a two bedroom, two bath apartment rented for
$520 in 1991, $520 in 1992, $520 in 1993, $520 in 1994, and $570 in 1995. The
average effective annual rental per square foot at the Property for 1991, 1992,
1993, 1994, and 1995, was $7.44, $7.44, $7.44, $7.44, and $8.16, respectively.
The buildings are wood frame construction on concrete slabs. Roofs are
pitched and covered with composition shingles. Windows are aluminum with dual
panes.
The amenities at the Property include an outdoor swimming pool,
playground, laundry facilities and a combined clubhouse and rental office. There
is an ample paved parking.
All apartments units have wall-to-wall carpeting in living areas and
vinyl floors in the kitchen and bath. Each unit has a cable television hook-up,
washer and dryer connection, miniblinds and an individually controlled heating
and air-conditioning unit. Most of the apartment units include fireplaces,
vaulted ceilings, bay windows and room-sized decks. Each kitchen is equipped
with a refrigerator/freezer, electric range and oven, dishwasher and garbage
disposal. The owner of the Property supplies cold water, sewer service and trash
removal. The tenants pay for their own electricity usage, which covers heat,
air-conditioning, cooking, hot water and lights.
There are at least five apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey. Cornerstone Management Group, Inc., estimates that occupancy in nearby
competing projects now averages approximately 95%.
The seller is a limited partnership which originally built the Property
in 1986. Approximately two years ago, the seller filed for protection under
Chapter 11 of the Bankruptcy Code. In the opinion of the Company and Cornerstone
Management Group, Inc., the operating difficulties encountered by the seller are
attributable to excessive mortgage debt and the absence of needed partnership
capital. Since the Company expects to own the Property on a debt-free basis and
plans to improve management and marketing activities, the Company and
Cornerstone Management
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Group, Inc. believe that the difficulties encountered by the seller will not be
similarly encountered by the Company.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 95% in 1991, 95% in 1992, 96% in 1993, 96%
in 1994, and 97% in 1995. On May 21, 1996, the Property was 97% occupied. The
tenants are a mix of white-color and blue-collar workers and students. Major
employers of tenants include IBM and the University of North Carolina at
Charlotte.
In 1995 real estate tax rate applicable to the Property was
approximately $1.233 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $47,315. The assessed value was $3,600,510. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $4,230,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
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Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$100,500. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
TROPHY CHASE APARTMENTS
Charlottesville, Virginia
On April 30, 1996, effective April 1, 1996, the Company purchased the
Westfield Apartments, a 185-unit apartment complex having an address of 2704
Peyton Drive outside of Charlottesville, Virginia (the "Property"). The Company
has renamed the Property the "Trophy Chase Apartments." The purchase price was
$3,710,000. At closing, the entire purchase price was paid in cash using the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
The Company purchased the Property from a limited partnership in which
Glade M. Knight, an Affiliate of the Advisor, served as a co-general partner.
The other general partner is an affiliate of a major investment banking firm. A
company owned and controlled by Mr. Knight also managed the Property since 1983.
All of the distributable cash received from the Company as a result of the
purchase will be distributed to the limited partners of the seller as a partial
return of their equity. Mr. Knight, in his capacity as a general partner of the
seller, will not receive any cash from the proceeds of the sale. The other
general partner, which effectively represents the interests of the limited
partners of the seller, had reached a business decision to terminate its
activities in the real estate industry. In addition, the other general partner
had determined that, as a result of the Tax Reform Act of 1986, the limited
partners of the seller had maximized the value of their investment in the
Property.
Pursuant to the Bylaws of the Company, the purchase from an Affiliate
must be approved by a majority of the Company's Independent Directors. The
purchase was approved by unanimous vote of such Independent Directors. The
Company also obtained an independent appraisal and engineering report in
accordance with its standard practice and Bylaws. The appraised value was in
excess of the purchase price of the Property.
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Location. The following information is based in part upon information
provided by the Charlottesville Chamber of Commerce. The Property is located in
Virginia, within Albemarle County, in close proximity to the City of
Charlottesville. The greater Charlottesville metropolitan area has a population
of approximately 130,000. Growth has been steady since the 1970's, and steady
growth is expected to continue throughout the 1990's. Charlottesville is located
approximately 70 miles northwest of Richmond, Virginia and approximately 95
miles southwest of Washington, D.C.
The Charlottesville area has a diverse economy. However, the largest
employer in the area is the University of Virginia, which has approximately
10,500 employees. The University of Virginia was designed by Thomas Jefferson in
1815 and has grown into one of the largest colleges in Virginia, with an
undergraduate program as well as graduate schools in law, business, medicine,
engineering, commerce and education. There are over 20,000 students at the
school. The University of Virginia was responsible for bringing close to 480,000
visitors to the area during 1992, whose spending totaled almost $44 million.
The Property is located in the northern portion of the metropolitan
area. The immediate area consists of extensive commercial and retail
development. The Property is readily accessible from U.S. Route 29, which
provides access to Interstate 64, the major interstate highway in the area.
Description of the Property. The Property consists of 185 garden-style
apartments in nine buildings on approximately 7.5 acres of land. The Property
was constructed in two phases in 1969 and 1970.
Management believes that the Property has been well maintained and is in
generally good condition. However, the Company has budgeted approximately
$522,000 for repairs and improvements, including office renovation, siding
replacement and interior renovations.
The Property offers numerous unit types. The unit mix and rents
currently being charged new tenants are as follows:
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Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
35 1 bedroom, 1 bath 659 $420
(breakfast bar)
24 1 bedroom, 1 bath 843 455
(den)
31 1 bedroom, 1 bath 659 420
22 1 bedroom, 1 bath 659 435
(tudor)
16 2 bedrooms, 1 bath 799 460
16 2 bedrooms, 1 bath 1,064 510
(den)
19 2 bedrooms, 1 bath 922 480
(tudor)
12 2 bedrooms, 2 baths 922 485
10 3 bedrooms, 2 baths 1,197 560
The apartments provide a combined total of 148,500 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the last five years have generally been constant. As an example, a one
bedroom, one bath apartment rented for $420 in 1991, $420 in 1992, $420 in 1993,
$420 in 1994, and $420 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, and 1995, was $6.84, $6.84,
$6.84, $6.84, and $6.84, respectively.
The buildings are of wood frame construction, with a combination of
brick veneer and white aluminum siding on either concrete slabs or concrete and
block foundations. In one phase, roofs are pitched and covered with fiberglass
shingles, and, in the other phase are flat with rubber membrane surfacing.
Windows are single pane with aluminum frames.
The amenities at the Property include two outdoors swimming pools, a
sunbathing area, a clubhouse and laundry facilities.
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All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each unit has a cable television hook-up and an
individually controlled heating and air-conditioning unit. All kitchens are
equipped with a refrigerator/freezer, electric range and oven, and garbage
disposal. Some, but not all, units have dishwashers. The owner of the Property
supplies cold water, sewer service and trash removal. The tenants pay for their
own electricity usage, which covers heat, air-conditioning, cooking, hot water
and lights.
There are at least seven apartment properties which compete with the
Property. All offer similar amenities and have rents that are generally higher
when compared with those of the Property. Based on a recent telephone survey,
Cornerstone Management Group, estimates that occupancy at nearby competing
projects now averages approximately 94%.
Physical occupancy at the Property averaged approximately 90% in 1991,
90% in 1992, 90% in 1993, 90% in 1994, and 90% in 1995. On May 21, 1996, the
Property was 90% occupied. Most of the tenants are blue-collar workers.
Approximately 25% are white-collar workers and 5% of the tenants are graduate
students.
The 1995 real estate tax rate applicable to the Property was
approximately $0.72 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $36,226. The assessed value was $5,031,500. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $2,770,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the
Charlottesville, Virginia area will enjoy continued economic development and
steady population increase, and that such development and increase, together
with the presence of the
-12-
University of Virginia, will support stable occupancy rates and reasonable
increases in rents at the Property.
2. Based upon an engineering report and its own inspections,
the Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to
major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$74,200. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
BEACON HILL APARTMENTS
Charlotte, North Carolina
On May 30, 1996, effective May 1, 1996, the Company purchased the Beacon
Hill Apartments, a 349-unit apartment complex having an address of 5625 South
Boulevard, Charlotte, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor and their Affiliates. The purchase price was
$13,300,000. At closing, the entire purchase price was paid in cash from the
proceeds of the Offering. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. A description of Charlotte, North Carolina appears under
"Longmeadow Apartments" in this report. The Property is located on South
Boulevard at Tyvola Road in Charlotte, North Carolina. The immediate area
consists of other multi-family housing, commercial and retail development and
single-family housing. The Property is located close to major shopping, dining
and entertainment. The Property has convenient access to Interstate 77 and
Interstate 85, the Charlotte-area
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interstates. The downtown area and Charlotte/Douglas International Airport are
readily accessible from the Property via Interstate 77.
Description of the Property. The Property consists of 349 garden-style
apartments in 14 buildings located on approximately 14.2 acres of land. The
Property was constructed in 1985.
The Company believes that the Property is generally in good condition.
However, the Company has budgeted approximately $60,000 for repairs and
improvements, to include clubhouse renovation and parking lot repair.
The Property offers a number of unit types. The unit mix and rents
currently being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- --------
69 1 bedroom, 1 bath 530 $460
112 1 bedroom, 1 bath 652 480-500
31 1 bedroom, 1 bath 745 520-540
w/sun room
39 1 bedroom, 1 bath 748 545-570
28 2 bedrooms, 1.5 baths 826 605-640
16 2 bedrooms, 2 baths 892 660-680
12 2 bedrooms, 2 baths 958 685-690
w/sun room
42 2 bedrooms, 2 baths 1,079 705-725
The apartments provide a combined total of 256,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally remained constant or increased. As
an example, a one bedroom apartment rented for $395 in 1991, $395 in 1992, $395
in 1993, $405 in 1994, and $430 in 1995. The average effective annual rental per
square foot at the Property for 1991, 1992, and 1993, 1994, and 1995 was $7.79,
$7.79, $7.79, $7.92, and $8.47, respectively.
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The buildings are wood frame construction on concrete slab. Roofs are
pitched and covered with composition shingles. Exteriors are brick veneer and
hardboard siding. The windows are aluminum with dual panes. All of the siding
was repainted by the former owner in April 1996 at a cost of approximately
$50,000.
The Property has two outdoor swimming pools, two hot tubs, two laundry
facilities, a car wash area and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as cable television hook-ups, and
individually controlled heating and air conditioning units. Most apartment units
include such amenities as a fireplace, ceiling fans, an over-sized patio or
balcony and washer/dryer connections. All kitchens have a refrigerator/freezer,
electric range and oven, dishwasher and garbage disposal. The owner of the
Property supplies cold and hot water, sewer service and trash removal. The
tenants pay for their own electricity usage which covers heat, air conditioning,
cooking, and lights.
There are at least seven apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 92% in 1991, 92% in 1992, 96% in 1993, 94%
in 1994, and 93% in 1995. On June 7, 1996, the Property was 90% occupied. Most
of the tenants are employed as professionals or white-collar workers and only a
small percentage of the residents are employed in blue-collar jobs. According to
information and tenant files, at the time of the Company's acquisition of the
Property, approximately one quarter of the tenants had household incomes in
excess of $35,000. The major employers of the tenants include USAir, Microsoft
and Carolina Medical.
The 1995 real estate tax rate applicable to the Property was
approximately $1.233 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $145,319. The assessed value was $11,134,740. The
basis of the depreciable residential real property portion of the Property
(currently estimated at about $8,738,000) will be depreciated over 27.5 years on
a straight line basis. The basis of the personal property portion will be
depreciated in accordance with the
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modified accelerated cost recovery system of the Code. Amounts to be spent by
the Company on repairs and improvements will be treated for tax purposes as
permitted by the Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company paid Cornerstone Realty Group, Inc. a
property acquisition fee of 2% of the purchase price of the Property, or
$266,000. Cornerstone Management Group, Inc. will serve as property manager for
the Property and for its services will be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the Property.
-16-
MEADOW CREEK APARTMENTS
Pineville, North Carolina
On May 31, 1996, effective June 1, 1996, the Company purchased the
Meadow Creek Apartments, a 250-unit apartment complex having an address of 12821
Meadow Creek Lane in Pineville, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor, and their Affiliates. The purchase price was
$11,100,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Pineville is a suburb located southeast of Charlotte, North
Carolina. For a description of the greater Charlotte, North Carolina area, see
"Longmeadow Apartments" in this report.
Southeast Charlotte is one of the more popular residential locations in
the Charlotte area. Historically, most growth in the Charlotte area has been to
the south of the city. At one time, Highway 51 represented a southern boundary
for growth. However, in the last ten years, growth has continued beyond Highway
51. Such growth has been encouraged by substantial major road improvements in
the area, including widening of Highway 51 to a four-lane highway, and the
partial completion of Interstate 485, the Charlotte Beltway.
One of the more significant economic elements in the growth in the
southern area of Charlotte was the construction of Carolina Place Mall, which
comprises 1,200,000 square feet. This mall, completed in 1991, has Belk's,
JCPenney, Dillard's and Hecht's as its anchors. The mall is located
approximately five miles from the Property.
Residential growth in the area has also been vigorous. The area
southeast of Charlotte has the largest number of new apartments under
construction, as well as some of the more affluent neighborhoods in the region,
including Piper Glen, Providence Country Club and Ballantyne. Ballantyne is an
approximately 2,000-acre mixed used development including high- end
single-family housing, a country club, and retail and corporate office sites.
There is an entrance to Ballantyne approximately 1.5 miles from the Property.
The immediate area surrounding the Property consists of other
multi-family housing, commercial and retail development and
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single-family housing. The Property is located near major shopping, dining and
entertainment. The Property is approximately one mile from Interstate 485.
Description of the Property. The Property consists of 250 garden-style
apartments in twelve two-story and three-story buildings on approximately 21.8
acres of land. The Property was constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$150,000 for repairs and improvements, including roof replacement and clubhouse
renovation.
The Property offers three unit types. The unit mix and rents currently
being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
110 1 bedroom, 1 bath 696 $520
120 2 bedrooms, 2 baths 958 625
20 3 bedrooms, 2 baths 1,170 740
The apartments provide a combined total of 215,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $490 in 1991, $495 in 1992, $515 in 1993, $555 in
1994, and $575 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $7.12, $7.12, $7.41, $7.98,
and $8.27, respectively.
The buildings are wood frame construction with pitched roofs covered
with asphalt shingles. There are mostly poured concrete foundations, but some
buildings are constructed on a crawl space. The exteriors are a combination of
hardboard and brick siding. The windows are double-paned and insulated. Over the
past 18 months, 230 of the 250 apartments have had the individual heating and
air conditioning units replaced. In addition, the Property was repainted less
than two years ago and the pool area was recently reconditioned. Also, over the
last 18 months, the
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former owner expended approximately $98,000 in exterior improvements including
roof replacement. About half of the roofs are new or in otherwise excellent
condition.
The Property features an outdoor swimming pool with jacuzzi, two lighted
tennis courts, a children's playground, a sauna and weight room, and a
designated car wash area. There is also a clubhouse with a rental office. There
is ample paved parking for residents and, at the back of the Property, a
designated parking area for recreational vehicles.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen, bath and utility closets. Each unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each unit has a fireplace and washer/dryer connections, and some apartment
units feature a bay window, full size pantry and large walk-in closets. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property provides cold water,
sewer service and trash removal. The tenants pay for their own electricity usage
which covers heat, air conditioning, cooking, hot water, and lights. The prior
owner states that it spent approximately $79,000 in carpet replacement and
$10,000 in appliance replacement over the last 18 months.
There are at least six apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 94%. There are a number of
competing projects now under construction, and additional construction of
competing projects in the future is likely.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 86% in 1991, 88% in 1992, 94% in 1993, 94%
in 1994, and 94% in 1995. On June 7, 1996, the Property was 97% occupied. The
tenants are employed in a mix of white-collar and blue-collar jobs. According to
tenant files, approximately one quarter of the residents had household incomes
in excess of $40,000 as of the date of the Company's purchase of the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $0.995 per $100 of assessed value, the real estate taxes for 1995
were calculated to be $79,324. The assessed value was $7,392,080. The basis of
the depreciable residential real
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property portion of the Property (currently estimated at about $6,631,350) will
be depreciated over 27.5 years on a straight line basis. The basis of the
personal property portion will be depreciated in accordance with the modified
accelerated cost recovery system of the Code. Amounts to be spent by the Company
on repairs and improvements will be treated for tax purposes as permitted by the
Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the Charlotte, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property.
2. Based upon an engineering report and its own inspections,
the Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
4. The Property is located in a particularly attractive,
"up-scale" suburban area of Charlotte, in close proximity to a number of
affluent neighborhoods. Thus, the Property may be deemed a particularly
attractive residence by prospective tenants.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$222,000, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will
serve as property manager for the Property and for its
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services will be paid by the Company a monthly management fee equal to 5% of the
gross revenues of the Property.
SUMMER WALK APARTMENTS
Concord, North Carolina
On May 31, 1996, effective May 1, 1996, the Company purchased the
Lakewood Apartments, a 160-unit apartment complex having an address of 500
Summerlake Drive, in Concord, North Carolina (the "Property"). The Company has
changed the name of the Property to "Summer Walk."
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor, and their Affiliates. The purchase price was
$5,660,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Concord is a suburb of Charlotte, North Carolina. For a
description of the greater Charlotte, North Carolina area, see "Longmeadow
Apartments" in this report.
Concord is approximately 20 miles east of Charlotte, and is located
within Cabarras County. The population of Cabarras County is approximately
157,000.
Concord is the home of Charlotte Motor Speedway, as well as many
manufacturing plants for companies such as Philip Morris, Fieldcrest Cannon,
Perdue Farms, S&D Coffee and Willis Hosiery Mills. The area is served by
Interstate Highways I-85 and I-77, and U.S. Highways 21, 29 and 74.
The immediate neighborhood surrounding the Property are characterized by
various retail centers, restaurants and businesses.
Description of the Property. The Property consists of 160 garden-style
apartments in 14 buildings located on approximately 27 acres of land. The
Property was constructed in 1983.
The Company believes that the Property has been well maintained and is
generally in good condition. However, the Company has budgeted approximately
$320,000 for repairs and improvements including roof and siding replacement and
clubhouse renovation.
The Property offers a variety of unit types. The unit mix and rents
currently being charged new tenants are as follows:
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Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
10 1 bedroom, 1 bath 700 $445
12 1 bedroom, 1 bath w/FP 700 450
10 1 bedroom, 1 bath, FP, 700 450
cathedral ceiling
6 1 bedroom, 1 bath, 700 445
handicapped
2 1 bedroom, 1 bath, 700 450
handicapped w/FP
20 2 bedrooms, 1 bath 1,000 530
14 2 bedrooms, 1 bath 1,000 540
w/FP
6 2 bedrooms, 1 bath, 1,000 550
FP, cathedral ceiling
16 2 bedrooms, 2 baths 1,000 550
30 2 bedrooms, 2 baths 1,000 560
w/FP
14 2 bedrooms, 2 baths, 1,000 570
FP, cathedral ceiling
8 3 bedrooms, 2 baths 1,300 640
12 3 bedrooms, 2 baths 1,300 650
w/FP
The apartments provide a combined total of 154,000 square feet of net
rentable area.
The Property is subject to a Housing Assistance Payments (HAP) Contract
with HUD, under which the owner receives rent subsidies in exchange for
maintaining certain rent-restricted apartment units. Under the HAP Contract, the
Property must make available 32 apartment units. These currently consist of 12
one-bedroom, one-bath units (current rent of $427), and 20 two-bedroom, one-bath
units (current rent of $497). The current rents are $23 and $33, respectively,
below market rents for
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similar units. The HAP Contract expires on January 31, 1998, and the Company
does not plan to seek its renewal.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. However, rental rates
decreased in 1995. The Company and Cornerstone Management Group, Inc. believe
that such decrease was attributable to inadequate attention by the former
management company and the lack of capital, while the Property was in
bankruptcy, properly to maintain the Property. As an example, a one bedroom
apartment (with fireplace) rented for $383 in 1991, $393 in 1992, $425 in 1993,
$467 in 1994, and $413 in 1995. The average effective annual rental per square
foot at the Property for 1991, 1992, 1993, 1994, 1995 was $6.20, $6.36, $6.88,
$7.56, and $6.63, respectively.
The buildings are wood frame construction on concrete slab or crawl
space. Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding.
The Property has an outdoor swimming pool, two tennis courts, a fishing
lake, hiking trails, a laundry room and a clubhouse with a rental office. There
is ample paved parking for residents.
All apartments have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and are individually controlled heating and air conditioning unit. Each
apartment unit has a washer/dryer connection and 150 apartment units include
microwaves. Each kitchen has a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. The owner of the Property supplies cold water,
sewer service and trash removal. The tenants pay for their own electricity
usage, which includes heat, air conditioning, cooking, hot water and lights.
There are at least four apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
higher when compared with those of the Property. Based on a recent telephone
survey, Cornerstone Management Group, Inc. estimates that occupancy in nearby
competing projects now averages approximately 93%.
According to information provided by the seller, physical occupancy at
the Property averaged approximately 88% in 1991, 86% in 1992, 91% in 1993, 85%
in 1994, and 90% in 1995. On June 7, 1996, the Property was 90% occupied. The
tenants are a mix of
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white-collar and blue-collar workers and students. According to tenant files, at
the time of the Company's acquisition of the Property, over 40% of the tenants'
household incomes were in excess of $35,000. The major employers of the tenants
include Philip Morris, UNC Charlotte and Cabarras Memorial Hospital.
The seller was a North Carolina limited partnership which originally
built the Property. The seller filed for protection under Chapter 11 of the
Bankruptcy Code approximately two years ago. During the bankruptcy period, the
Property was managed by at least three different management companies. In the
opinion of Cornerstone Management Group, Inc., the management by these companies
was substandard. However, Cornerstone Management Group, Inc. does not believe
that any problems associated with the operation of the Property cannot be
remedied by new management. In addition, the Company and Cornerstone Management
Group, Inc. believe that the prior bankruptcy was largely a result of excessive
debt encumbering the Property and the lack of partnership capital of the seller.
Since the Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $1.005 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $34,307. The assessed value was $3,413,680. The basis
of the depreciable residential real property portion of the Property (currently
estimated at about $2,480,000) will be depreciated over 27.5 years on a straight
line basis. The basis of the personal property portion will be depreciated in
accordance with the modified accelerated cost recovery system of the Code.
Amounts to be spent by the Company on repairs and improvements will be treated
for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Advisor and the Company believe that the eastern areas of
Charlotte, North Carolina will enjoy continued economic development and steady
population increase, and that
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such development and increase will support stable occupancy rates and reasonable
increases in rents at the Property.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to a large
number of major employers and shopping.
4. The Property has a wide variety of unit types, which can
appeal to a wide variety of prospective tenants.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$113,200, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will serve
as property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property.
WILLOW CREEK APARTMENTS
Durham, North Carolina
On May 31, 1996, effective May 1, 1996, the Company purchased the Willow
Creek Apartments, a 200-unit apartment complex having an address of 18 Weather
Hill Circle, Durham, North Carolina (the "Property").
The Company purchased the Property from a seller which is unaffiliated
with the Company, the Advisor and their Affiliates. The purchase price was
$8,345,000. At closing, the entire purchase price was borrowed on an interim
basis under the Unsecured Line of Credit. Title to the Property was conveyed to
the Company by limited warranty deed.
Location. Durham, North Carolina is located in the North Central portion
of North Carolina, approximately equidistant between Atlanta and New York. The
Blue Ridge Mountains are approximately 150 miles to the west and the Atlantic
Coast is approximately 150 miles to the east. As of 1992, Durham was the fifth
largest city in the state of North Carolina, with a
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population of 144,000. Durham County had a population of 189,000 in 1992.
Durham is home to Duke University, and its nationally known medical
center, which are located within 10 miles of the Property. Research Triangle
Park is approximately 20 miles from the Property. Both the Durham Regional
Hospital and Northgate Mall are in the same general area as the Property.
The immediate neighborhood surrounding the Property is characterized by
various retail centers, restaurants, and businesses. The Property is within
walking distance of a strip shopping center which has two grocery stores, a
state employees' credit union, Willow Dale Spa and Willow Dale Cinemas. The
movie theater houses ten theaters and the spa is frequently used by residents of
the Property. The Raleigh/Durham International Airport is accessible from
Interstate 85, which is within three miles of the Property.
Description of the Property. The Property consists of 200 garden-style
apartments in 12 buildings on approximately 21 acres of land. The Property was
constructed in 1984.
The Company believes that the Property has been well maintained and is
generally in good condition. However the Company has budgeted approximately
$400,000 for repairs and improvements, including siding replacement and
clubhouse renovation.
The Property offers seven unit types. The unit mix and rents currently
being charged new tenants are as follows:
Approximate
Interior Square Monthly
Quantity Type Footage Rental
- -------- ---- --------- ------
26 1 bedroom, 1 bath 750 $550-560
32 1 bedroom, 1 bath w/FP 750 550-560
10 1 bedroom, 1 bath, 750 550-560
handicapped
24 2 bedrooms, 2 baths 1,000 630-640
16 2 bedroom, 2 baths, 1,000 630-640
w/FP
48 2 bedrooms, 2 baths 1,100 645-655
(split)
44 2 bedrooms, 2 baths 1,100 645-655
(split) w/FP
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The apartments provide a combined total of 192,000 square feet of net
rentable area.
Leases at the Property are for terms of one year or less. Average rental
rates for the past five years have generally increased. As an example, a two
bedroom apartment rented for $487 in 1991, $510 in 1992, $565 in 1993, $640 in
1994, and $655 in 1995. The average effective annual rental per square foot at
the Property for 1991, 1992, 1993, 1994, 1995 was $6.39, $6.69, $7.41, $8.40,
and $8.59, respectively.
The buildings are wood frame construction on concrete slab or crawl
space. Roofs are pitched and covered with composition shingles. The windows are
aluminum with dual panes. The exteriors are a combination of brick and masonite
siding. The Property has an outdoor swimming pool, two tennis courts, a
playground, a laundry room and a clubhouse with a rental office. There is ample
paved parking for residents.
All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each unit has a fire extinguisher, cable
television hook-up, and an individually controlling heating and air conditioning
unit. All top-floor units have a fireplace. All apartment units have
washer-dryer connections, mini blinds, vertical blinds, and a patio or balcony.
Each kitchen is equipped with a microwave, refrigerator/freezer, electric range
and oven, dishwasher and garbage disposal. The owner of the Property supplies
cold water, sewer service and trash removal. The tenants pay for their own
electricity usage, which includes, heat, air conditioning, cooking, hot water
and lights.
There are at least four apartment properties in the area which compete
with the Property. All offer similar amenities and have rents that are generally
slightly higher when compared with those of the Property. Based on a recent
telephone survey,
-27-
Cornerstone Management Group, Inc. estimates that occupancy in nearby competing
projects now averages approximately 94%.
According to information provided by the Seller, physical occupancy at
the Property averaged approximately 96% in 1991, 95% 1992, 94% 1993, 98% 1994,
and 93% in 1995. On June 7, 1996, the Property was 89% occupied. The tenants are
a mix of white collar and blue collar workers and students. According to tenant
files, at the time of the Company's acquisition of the Property, over half of
the tenants' household incomes were in excess $40,000.
The seller was a North Carolina limited partnership which originally
built the Property. The seller filed for protection under Chapter 11 of the
Bankruptcy Code approximately two years ago. During the bankruptcy period, the
Property was managed by at least three different management companies. In the
opinion of Cornerstone Management Group, Inc., the management by these companies
was substandard. However, Cornerstone Management Group, Inc. does not believe
that any problems associated with the operation of the Property cannot be
remedied by new management. In addition, the Company and Cornerstone Management
Group, Inc. believe that the prior bankruptcy was largely a result of excessive
debt encumbering the Property and the lack of partnership capital of the seller.
Since the Company intends to own and operate the Property on a debt-free basis,
Cornerstone Management Group, Inc. and the Company do not believe that these
factors will be relevant to the Company's proposed ownership and operation of
the Property.
The 1995 real estate tax rate applicable to the Property was
approximately $1.6227 per $100 of assessed value, and the real estate taxes for
1995 were calculated to be $108,883. The assessed value was $6,818,200. The
basis of the depreciable residential real property portion of the Property
(currently estimated at about $5,982,000) will be depreciated over 27.5 years on
a straight line basis. The basis of the personal property portion will be
depreciated in accordance with the modified accelerated cost recovery system of
the Code. Amounts to be spent by the Company on repairs and improvements will be
treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
-28-
1. The Advisor and the Company believe that the Durham, North
Carolina area will enjoy continued economic development and steady population
increase, and that such development and increase will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Advisor and the Company believe that the presence of Duke University and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
2. Based upon an engineering report and its own inspections, the
Company believes that the Property is generally in sound condition.
3. The Property is conveniently located and proximate to major
employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
Acquisition and Management Services and Fees. In consideration of
services rendered to the Company in connection with the selection and
acquisition of the Property, the Company will pay Cornerstone Realty Group, Inc.
a property acquisition fee of 2% of the purchase price of the Property, or
$166,900, as and when proceeds of the Offering are applied to repay the debt
incurred to purchase the Property. Cornerstone Management Group, Inc. will serve
as property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property.
-29-
ITEM 7.a.*
ITEM 7.b.*
ITEM 7.c.*
ITEM 7.d.*
ITEM 7.e.*
ITEM 7.f.*
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the due date for filing this report.
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ITEM 7.g.*
* To be filed by amendment. It is impracticable to include herein the required
pro forma financial information. The required pro forma financial information
will be filed as an amendment to this report as soon as possible, but in no
event more than 60 days after the due date for filing this report.
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
Date: June 14, 1996 By: /s/ STANLEY J. OLANDER, JR.
Stanley J. Olander, Jr.,
Vice President of
Cornerstone Realty
Income Trust, Inc.
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EXHIBIT INDEX
Cornerstone Realty Income Trust
Form 8-K dated April 30, 1996
Exhibit Number Exhibit Page Number
10.1 Purchase Contract for
Longmeadow Apartments
10.2 Property Management Agreement
for Longmeadow Apartments
10.3 Purchase Contract for Trophy
Chase (Westfield) Apartments
10.4 Property Management Agreement
for Trophy Chase (Westfield)
Apartments
10.5 Purchase Contract for Beacon
Hill Apartments
10.6 Property Management Agreement
for Beacon Hill Apartments
10.7 Purchase Contract for Meadow
Creek Apartments
10.8 Property Management Agreement
for Meadow Creek Apartments
10.9 Purchase Agreement for Summer
Walk (Lakewood) Apartments
10.10 Property Management Agreement
for Summer Walk (Lakewood)
Apartments
10.11 Purchase Agreement for Willow
Creek Apartments
10.12 Property Management Agreement
for Willow Creek Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
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23.3 Consent of Independent Auditors*
23.4 Consent of Independent Auditors*
23.5 Consent of Independent Auditors*
23.6 Consent of Independent Auditors*
* To be filed by amendment.
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