Exhibit 99(a)(3)
February 15, 2002
RE: Offer to Purchase Limited Partnership Interests
Dear Fellow Investor:
Madison Liquidity Investors 117, LLC is seeking to buy your Limited Partnership
Units in Marriott Residence Inn II Limited Partnership for $300 per Unit in
cash. Our Offer Price will be reduced by any distributions made on or after
February 15, 2002, and will include interest as provided in the Offer to
Purchase.
The Purchaser is owned by MRI Partners, LLC, a joint venture between
subsidiaries of Madison Capital Management, LLC and Haberhill LLC. Madison is a
privately-held investment firm which purchases units in hundreds of
under-performing limited partnerships. To date, over 65,000 limited partners
nationwide in over 320 limited partnerships have chosen to sell their units to
Madison, making it a leading and reliable choice for limited partnership
investors seeking a timely, cost-effective liquidity option. Haberhill is a
privately-held real estate investment advisory firm. None of the Purchaser,
Madison nor Haberhill is affiliated with the Partnership or its general partner.
We are principals seeking to acquire Units for our investment portfolio only (we
are not a matching service or professional broker who regularly resells units).
Please consider the following in evaluating our Offer:
o SUSPENSION OF DISCUSSIONS WITH POTENTIAL BIDDER. In the Partnerships
previous quarterly reports and letters to investors it has been announced that
the General Partner had engaged Merrill Lynch as its financial advisor to
solicit bids from interested parties that would acquire either the Partnership
properties or the Partnership interests. Those efforts appear to have stalled as
in the Partnership's most recent quarterly report the following statement is
made, "As previously disclosed to the limited partners, as a result of [Merrill
Lynch's marketing of the Partnership's properties] the Partnership had begun
exclusive discussions with one potential acquirer. Currently, these discussions
have been suspended until both parties are better able to determine the effect
of the terrorist attacks of September 11, 2001 and the current economic
condition of the Partnership's Inns." The Partnership does not give any
assurance that a transaction to sell the Inns will occur in the near future.
o HIGHER PRICE THAN RECENT OFFER. We are aware of a tender offer made by
Sutter Opportunity Fund 2, LLC at $250 per Unit during the third quarter 2001.
Our offer price of $300 per unit is 20% higher than this offer. Unitholders
should note, unlike our Offer, Sutter's tender did not offer withdrawal rights,
proration or interest.
o HIGHER PRICE THAN RECENT SALES. Our Offer Price of $300 per Unit is 20%
higher than the recent secondary market prices as reported in the most recent
edition of The Partnership Spectrum. The weighted average of secondary market
prices for Units sold during the period from October 2001 - November 2001was
$277.40 per Unit (before netting out typical fees and commissions of 10%),
according to the November/December 2001 issue of The Partnership Spectrum. When
adjusted for typical fee and commission charges of 10%, the net weighted average
trading price would be $249.66 per Unit.
o DISTRIBUTIONS ARE SUSPENDED. The Partnership has not paid any
distributions from operations since February 1998. It is required to make debt
service payments, payments to capital expenditure reserve accounts and payments
to the property manager before distributions to limited partners can be
reinstated. In its 2000 annual report, the Partnership states that "It appears
unlikely that cash distributions will be possible for the next several years."
o THE PARTNERSHIP HAS SIGNIFICANT INDEBTEDNESS. The Partnership's
indebtedness consists of a single mortgage note totaling approximately $133
million, which bears interest at a rate of approximately 8.55%, and matures on
March 10, 2006 and are secured by the Partnership's properties. Except in
limited circumstances, this loan cannot be prepaid without significant penalty.
o CAPITAL EXPENDITURES. Under its property management agreement, the
Partnership is required to maintain a property improvement fund to finance
necessary capital improvements. The fund has contained insufficient capital to
meet current
needs since the beginning of 1998. The Partnership has said in its 2000 annual
report, "[t]he shortfall is primarily due to the need for suite refurbishments
at a majority of the Inns as part of ongoing, routine, capital maintenance. To
address the shortfall, [the Partnership] provided additional cash of $1.6
million and $2.5 million to the property improvement fund in the first quarter
of 2000 and 1999." In the Partnership's most recent Quarterly Report on Form
10-Q, it reports that the property manager estimated that approximately $59
million may be required over the next five years to finance capital
improvements.
o ILLIQUID UNITS. Since the Units are not regularly traded in a formal
market, they are difficult to sell. The Partnership has not announced any
alternative source of liquidity for Unitholders.
o YOU WILL FOREGO FUTURE BENEFITS OF OWNING UNITS. Tendering Unitholders
will give up the opportunity to participate in any future benefits of ownership,
including potential future distributions by the Partnership. The Offer Price may
be less than the total amount which you might otherwise receive with respect to
your Units over the remaining term of the Partnership.
o WE SEEK TO MAKE A PROFIT ON THE PURCHASE OF UNITS. We are making the
Offer for investment purposes and with the intention of making a profit from
ownership of the Units. In establishing the Offer Price, we are motivated to
establish the lowest price that might be acceptable to Unitholders consistent
with our objectives, which may conflict with your interest in receiving the
highest price for your Units
o CONDITIONS OF SALE. Our obligation to purchase Units is subject to our
right to prorate among tendering Unitholders the number of Units we will
purchase, as well as other conditions set forth in the Offer to Purchase.
o YOU MAY ATTEMPT TO SELL IN THE SECONDARY MARKET. The Offer Price is
greater than prices recently quoted by secondary market matching services. We
also believe that transactions through these secondary market services are
costly and time consuming, and that quoted prices often differ from the price a
seller actually receives.
We will purchase a maximum of approximately 12% of the outstanding Units in our
Offer. If Unitholders offer us more, we will prorate our purchase ratably to all
sellers. You will be paid promptly following (i) receipt of a valid, properly
executed Agreement of Assignment and Transfer (see the enclosed document) and
(ii) transfer of the Units to us, subject to Section 4 - "Proration" of the
Offer to Purchase and the other terms and conditions of the Offer. All sales of
Units will be irrevocable by you, subject to Section 5 - "Withdrawal Rights" of
the Offer to Purchase. The Offer to Purchase, Exhibit (a)(1) to the Schedule TO,
contains a full discussion of the terms of the Offer.
The General Partner does not disclose a net asset value for the Units. The
General Partner is expected to announce a recommendation with regards to our
offer within 10 business days after the mail date of the offer or as soon as
possible upon becoming aware of the offer. You may wish to consult with the
General Partner before deciding whether or not to tender your units.
If you wish to accept our Offer:
1. Please complete the Medallion Signature Guarantee on the enclosed Agreement
of Assignment and Transfer (this can be done by your broker or a bank where you
have an account).
2. Return it in the enclosed envelope, along with your Limited Partnership
Certificate (if one was issued to you and is available).
3. Send your Agreement to 6143 South Willow Drive, Suite 200, Greenwood Village,
Colorado 80111.
Our offer will expire at 5:00 pm New York time on March 19, 2002, subject to any
extension. We encourage you to act promptly. We will automatically extend our
Offer by ten business days if any distributions are made by the Partnership
within ten business days of the expiration of the Offer. By accepting the offer,
you will agree that we are entitled to all distributions made by the Partnership
on or after February 15, 2002. Unless the General Partner pays the distribution
directly to us or you remit the amount of the distribution to us, we will reduce
the Offer Price you receive by the amount of the distribution. If the Offer is
extended or a distribution occurs within the Offer period, we will issue a press
release. Those who wish to obtain additional information on press releases,
possible extensions or how distributions paid by the Partnership may affect the
payment process (including the final payment amount) may call our customer
service line at the number below. We reserve the right to extend, amend or
terminate the Offer.
Please call us at (800) 269-7313 (toll-free), or send a fax to (303) 957-2098,
if you have any questions. If you miss the Expiration Date and still wish to
sell, please call us to learn if we are able to accept your Units. Thank you for
your consideration of our offer.
Very truly yours,
Madison Liquidity Investors117, LLC
Questions and Answers
Why would I want to sell my Units to you?
Have your original objectives for this investment been met? Are you pleased with
the way this investment has performed to date? We have found many investors have
been in such investments far longer than they expected with disappointing
returns. In addition, limited partnership tax reporting can often be burdensome
and costly, especially if you have an accountant prepare your taxes. Many states
require limited partners to file state returns, and potentially pay taxes, if
the partnership owns properties there, regardless of the partnership's overall
profitability. Many investors come to realize their original projections may
never be met and, therefore, a purchase offer for an under-performing investment
with an uncertain termination date may be an opportunity worthy of
consideration.
Who are you and why do you want to buy my Units?
The Purchaser is owned by MRI Partners, LLC, a joint venture between Madison and
Haberhill. Madison purchases units in hundreds of underperforming limited
partnerships for its own investment portfolio, not for the purpose of reselling
units or matching buyers and sellers, as is the case with secondary market
matching services. Unlike other firms that purchase limited partnership units,
we are generally not interested in acquiring controlling interests. Buying a
broad portfolio of limited partnerships allows us to diversify and therefore
mitigate our risk.
By agreeing to sell to us, you are assuring yourself an exit, subject to
proration and other conditions being met. A secondary market firm cannot assure
a sale unless it locates an interested buyer. Most individual investors are not
interested in purchasing limited partnership units for their investment
portfolios, so we are providing you with a liquidity option that is generally
not otherwise readily available.
Throughout its history, Madison and its affiliates have invested in excess of
$130 million to acquire illiquid financial assets. We have more than adequate
resources to fund the acquisition of all Units subject to our Offer and
associated costs.
What are the tax consequences of selling?
We cannot accurately predict the tax consequences of a sale. The following is a
brief list of some federal income tax consequences of a sale in our Offer. It
does not include any aspect of state, local, foreign or other tax laws. WE
STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO YOUR OWN SITUATION.
1. In general, a selling Unitholder will recognize gain or loss on a sale in the
Offer equal to the difference between (i) the amount realized on the sale and
(ii) the holder's adjusted tax basis in the Units sold. Capital gain or loss on
a sale will be treated as long-term capital gain or loss if the holding period
exceeds one year. Under Code Section 469, a non-corporate taxpayer or personal
service corporation can deduct passive activity losses in any year only to the
extent of such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income.
2. A selling Unitholder will be allocated a pro rata share of the Partnership's
taxable income or loss with respect to Units sold through the effective date of
the sale.
3. A selling Unitholder may be subject to 31% backup withholding unless he or
she provides a taxpayer identification number ("TIN") and certifies that the TIN
is correct or properly certifies that he or she is awaiting a TIN.
We do not expect that a Unitholder who does not tender will realize any material
tax consequences as a result of not tendering. To the extent the Partnership
holds debt-financed property or inventory or other assets as a dealer, and if
you are a tax-exempt seller (including an IRA), you could realize "unrelated
business taxable income" on the sale of a Unit.
How do I subscribe and when will I be paid?
The purchase process involves several steps. By carefully following the
instructions on the enclosed checklist, you are ensuring the fastest possible
turnaround time. We forward properly completed Agreements of Assignment and
Transfer to the General Partner or transfer agent on a weekly basis.
Article Seven of the Partnership's Limited Partnership Agreement provides that
assignments and transfers of Units are effective only on the first day of a
Fiscal Quarter and that no assignment will be recognized unless an application
for assignment and admission as Substituted Limited Partner has been filed with
the Partnership at least 15 days prior to the first day of the next Fiscal
Quarter. Because the first Fiscal Quarter ends on approximately March 23, 2002,
we expect that in all likelihood payment for accepted Units will be delayed
until at least the first day of the Partnership's first fiscal quarter
(approximately March 23, 2002).
How Did You Get My Name?
The rules of the Securities and Exchange Commission provide that public issuers
are required under certain circumstances to either provide bidders such as the
Purchaser with a list of its security holders, or to contact security holders on
our behalf.
To Sell Your Units, Complete the Agreement of Assignment and Transfer:
Follow the instructions below, corresponding to the type of ownership of your
Units
Upon our receipt of your properly completed Agreement of Assignment and Transfer
(the tan document with the green border included in this package), we will
determine if it is complete by the standards described below. If it is not, you
will receive a letter from us indicating the information or documents that we
need. Please respond promptly, as your failure to do so can add weeks to the
processing time.
Individual owner/joint owners of record
Sign Agreement (ALL owners must sign if joint account)
Have every signature Medallion Signature Guaranteed*.
Enclose your original limited partnership certificate if one was issued to you.
If no certificate is available, please check the appropriate box on the
Agreement of Assignment and Transfer.
Return the Agreement to us in the pre-paid/pre-addressed envelope provided.
If the individual owner or both joint owners are deceased, please include a
certified death certificate and certified Letters of Testamentary, or letters of
appointment, showing you as the legal owner of the Units (we cannot accept a
photo copy). If one of the joint owners is deceased please provide a certified
death certificate (we cannot accept a photocopy).
IRA and Keogh investors
Beneficial owner should sign Agreement and have the signature Medallion
Signature Guaranteed*.
For a speedier turnaround and quicker payment you may send the Agreement of
Assignment and Transfer directly to your custodian for their signature and
corresponding Medallion Signature Guarantee*. Also please instruct your
custodian to forward the documents directly to us after they have been
completed.
If more convenient, we can work directly with your custodian to get the
necessary custodial signature and then forward your check to your IRA account.
Please be sure to provide us with your custodian's name and address, in addition
to your IRA account number so that we can expedite the sale. This method of
completing the documentation can add weeks to the processing time and would
therefore significantly delay payment.
Trust, profit sharing and pension plans
Authorized signatory should sign Agreement (All trustees must sign with every
signature Medallion Signature Guaranteed*). Enclose first, last (title and
signature pages) and other applicable pages of Trust or Plan Agreement showing
signor(s) as authorized. If any of the original trustees are deceased, all
successor trustees must sign with every signature Medallion Signature
Guaranteed*. Also include a certified copy of the death certificate and a copy
of the entire trust.
The plan or trust must be current and in full force and effect.
Corporations
All authorized signatories should sign the Agreement with every signature
Medallion Signature Guaranteed*. Include Corporate Resolution (with raised
Corporate Seal) showing that signor(s) as authorized.
* Please note: Your bank or brokerage house can provide a Medallion Signature
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Guarantee.
If you have additional questions or own Units in other partnerships you would
consider selling, please call us at (800) 269-7313 (toll-free). We would be
happy to talk with you about individual purchases.