GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
January 19, 1995
Dear Springhill Lake Investors Limited Partner:
We are enclosing disclosure materials and a Green Consent Card to
solicit your consent to dissolve the Springhill Lake Investors Limited
Partnership. Please fill out, sign and date the Green Consent Card and return
it in the envelope provided.
We urge you to review these materials carefully, and promptly mail your
response.
Sincerely,
/s/ Theodore N. Lerner
Theodore N. Lerner
11501 Huff Court, North Bethesda, Maryland 20895-1094 301/984-1500
Fax 301/770-0144
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
January 19, 1995
Dear Springhill Lake Investors Limited Partner:
You and I share an interest in a real estate project known as the
Springhill Lake Apartments in Greenbelt, Maryland (the "Project"). Since your
investment 10 years ago, the Project has been under the control of Three
Winthrop Properties, Inc. ("Three Winthrop") as managing general partner of
Springhill Lake Investors Limited Partnership (the "Investor Partnership").
Through a family-owned limited partnership, Greenbelt Residential
Limited Partnership ("Greenbelt Residential"), I submitted, on December 2, 1994,
an offer to Three Winthrop to buy all of the interests of the Investor
Partnership in the partnerships that own and operate the Project. Acceptance of
this offer by Three Winthrop would provide a cash payment to you of
approximately $30,200 per unit of limited partnership interest (a "Unit").
Greenbelt Residential's offer contemplates its assumption of the
existing Project mortgages, and therefore, the Project's lender, AEW #207 Trust,
a Massachusetts Nominee Trust (the "Lender"), also must consent to this offer.
While the Lender has indicated that it would be happy to consider such an
assumption, the assumption request must be made by the Investor Partnership
(which would be the case if Greenbelt Residential's offer is accepted by Three
Winthrop).
As you may be aware, I am the single largest equity owner of the
Project, having a significant limited partnership interest in the partnerships
that own and operate the Project. I have been involved with the Project for
over 30 years, and, in my view, the performance of the Project over the last 10
years under the control of Three Winthrop has been disappointing. The Project
has not even come close to meeting the original forecasts made by Three Winthrop
and its affiliates. I have received no partnership distributions from my
substantial equity ownership. (Lerner Corporation, a management company of
which I am a majority shareholder, has, however, received management fees for
the past ten years pursuant to a property management contract.) You have
received only very small distributions over the past ten years and no
distributions at all since 1992.
I have decided that I can no longer sit by and allow this situation to
continue. Greenbelt Residential has submitted its offer to purchase the Project
for a cash payment of more than $20 million, plus the assumption of the existing
mortgages. I have taken this action, notwithstanding my view that I must invest
substantial cash in addition to the purchase price and that I must hold the
Property indefinitely in order to have at least the chance to get a return on my
investment. If Greenbelt Residential purchases the Project, you would receive
what I view
11501 Huff Court, North Bethesda, Maryland 20895-1094 301/984-1500
Fax 301-770-0144
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as a significant cash distribution in relation to your original cash investment,
and you would then have the opportunity to put your money to work for a current
return.
While I believe this offer is attractive to you as an investor limited
partner, I am concerned that Three Winthrop -- which I believe has a conflict of
interest in considering this offer or any other offer -- will neither accept the
offer nor otherwise cooperate with me. I believe this to be the case because
Three Winthrop and its affiliates (hereinafter "Winthrop") would receive little
of the proceeds from a sale of the Project. Instead, Winthrop has received
economic benefits from the Project in the form of fees. Representatives of
Greenbelt Residential and Three Winthrop met regarding this offer. Three
Winthrop indicated that it would consider the offer.
Over the last ten years, Winthrop has received total fees in excess of
$15,700,000. Upon the initial syndication of the Investor Partnership, Winthrop
received direct fees in excess of $13,000 per Unit, for a total of over
$8,500,000. During the first three years after the syndication of Units,
Winthrop received an additional $2,783,485 as an interest guarantee fee plus
$1,344,036 in interest on fees payable to Winthrop. Winthrop's syndication-
related fees during the first three years after the syndication of Units totaled
over $12,600,000 -- or more than $19,400 per Unit. For each of the past ten
years, Winthrop also has collected substantial ongoing fees for management
oversight. Those oversight fees alone have been at least $300,000 in each of
the last three years and a total in excess of $3,000,000 over the last ten
years. Winthrop now proposes to add to its total collected fees of over
$15,700,000 by taking over the day-to-day management of the Project from Lerner
Corporation. Although Winthrop is restricted to receiving "reasonable
compensation for services reasonably and actually rendered," Winthrop has not
disclosed the amount of its additional day-to-day management fees and does not
appear to have sought competitive bids for its services. Consequently, to
Winthrop, a sale of the Project is invariably not in its financial interest.
I believe that now is the time for the Project or the Investor
Partnership's interests in the Project to be sold. If you agree with me and
want the Project to be sold now, I ask that you sign, date, and return the
enclosed Green consent card, approving a dissolution of the Investor
Partnership, thereby requiring its "winding up" and sale of the Project, subject
to resolving the matters discussed below with the Lender.
I am confident that Greenbelt Residential's offer is fair and believe
that no third party is likely to make an offer which would be as advantageous to
you as this offer. While I do not believe it is necessary, if you approve a
dissolution of the Investor Partnership, I would not object to Three Winthrop's
soliciting other bona fide proposals for the purchase of the Project. As part
of that process, Greenbelt Residential's offer would be considered promptly,
along with other bona fide offers, if any, received in the liquidation and
winding-up process. You should also know that I have a right of first refusal
with respect to a direct or indirect sale of the Project, and, in what I believe
to be the unlikely event that a bona fide offer, which is more advantageous to
you, is submitted by a third party, I would consider exercising that right of
first refusal. See "The Consent Solicitation -- Right of First Refusal" in the
Consent Solicitation Statement.
-3-
As described in detail below, I believe it is in the equity owners'
interests for the Project to be sold now. Because Winthrop does not have a
significant economic incentive to improve the operating performance of the
Project, it is my judgment that the Project's performance will not be reversed
under Winthrop's management. When Winthrop initially sold interests in the
Investor Partnership, it provided hypothetical sale scenarios for a sale of the
Project at the end of ten years derived, in part, from its forecasts of rental
income and operating expenses. While Winthrop did not promise to sell the
Project after ten years, I believe you should now be given the opportunity to
get back the value of your remaining investment in the Investor Partnership.
These matters are discussed more fully below, as are the terms of Greenbelt
Residential's offer. Further details concerning the solicitation to dissolve
the Investor Partnership are described in the attached materials.
Although the solicitation of your consent to a dissolution of the
Investor Partnership is intended to enhance the likelihood that Greenbelt
Residential's offer ultimately will be accepted by Three Winthrop, you are not
being asked to approve the offer at this time. Three Winthrop will control,
consistent with its fiduciary duties to you, any sale of the Investor
Partnership's assets or the project and the subsequent liquidation and
dissolution of the Investor Partnership.
PLEASE READ THE ATTACHED CONSENT SOLICITATION STATEMENT CAREFULLY WHEN
YOU FINISH READING THIS LETTER, AND RETURN THE ENCLOSED GREEN CARD IN THE
POSTAGE-PREPAID, RETURN ENVELOPE PROMPTLY.
-4-
IF THE OFFER IS ACCEPTED, EACH INVESTOR LIMITED PARTNER
WOULD RECEIVE AN IMMEDIATE AND SIGNIFICANT CASH PAYMENT
Greenbelt Residential's offer includes the following elements:
A purchase price for the Investor Partnership's entire interest in the
Project consisting of cash of approximately $20,417,000 and Greenbelt
Residential's assumption of all obligations of the Investor
Partnership under the existing mortgages, having an outstanding
principal balance of approximately $62,000,000 as of November 1, 1994.
Assumption of the mortgage obligations would require the consent of
the Lender. Assumption of the mortgage obligations also would require
payment of a fee to the Lender of approximately $620,000, which is
included in the purchase price. See Consent Solicitation Statement at
"The Offer -- Certain Terms of the Existing Mortgages."
Net cash proceeds from the offer (after payment of the assumption fee
to the Lender and a one percent distribution to Three Winthrop) in the
total amount of approximately $19,599,800 would therefore be available
for payment by the partnership to the investor limited partners --
approximately $30,200 per Unit. See Consent Solicitation Statement at
"The Offer -- Terms of the Offer."
Because of my familiarity with the Project, Greenbelt Residential is
not placing material conditions on closing, nor is its offer
conditioned upon obtaining financing. A closing would therefore be
possible almost immediately after both parties' signing of the
purchase agreement and the obtaining of the limited partners' and the
Lender's consent.
POSSIBLE ADVERSE CONSEQUENCES
OF WINTHROP'S FAILURE TO COOPERATE
In addition to the net proceeds available for distribution from
this offer, I assume that the Investor Partnership will also
distribute to you, either in due course or as part of a liquidating
distribution your share of any cash from 1994 operations, estimated by
Winthrop to be approximately $2,000 per Unit. If Three Winthrop does
not accept Greenbelt Residential's offer or otherwise cooperate, the
process of soliciting limited partner consents will delay the ultimate
sale and might reduce cash distributions from 1994 operations to the
limited partners. For example, if Winthrop spends all or part of the
cash from 1994 operations to oppose a vote to dissolve the partnership
(assuming it is permitted to do so), the amount available for payment
to limited partners would be correspondingly reduced. See "The
Consent Solicitation" in the Consent Solicitation Statement. Your
consent on the enclosed Green card in favor of a dissolution will tell
Winthrop that you want to sell now and that you want Winthrop to
cooperate.
-5-
WHY I BELIEVE THE OFFER IS FAIR -- COMPARISON TO THIRD PARTY OFFER
I ask you to compare Greenbelt Residential's offer with the
amount for which the Project would have to be sold to a third party in
order for you to receive the same net payment that would be available
to you if Greenbelt Residential's offer were accepted. The Investor
Partnership would have to sell the Project for approximately
$88,505,500 in order for you to receive, after payment of my share,
the same cash payment that you would receive if Greenbelt
Residential's offer is accepted. Here is how such a purchase price
would be allocated, if such an offer could be obtained:
Illustration of Third Party Offer
$88,505,500 Assumed purchase price
(62,000,000) Existing debt 1
(620,000) Loan Transfer Fee 2
(2,159,534) Assumed transfer and recordation taxes 3
(885,055) Assumed commission 4
(150,000) assumed additional costs to the Investor
Partnership 5
22,690,911 Proceeds available for distribution
(2,893,091) Share to Lerner as limited partner of operating
partnerships 6
19,797,820 Proceeds available to Investor Partnership
(197,978) One percent distribution to Three Winthrop 7
$19,599,841 Balance available for distribution to limited
partners
$30,200 Balance per Unit
1 Assuming that the Lender permits another buyer to assume the current
mortgage. If not, as of the date hereof, a prepayment penalty of
approximately $5,000,000 would be imposed, reducing the proceeds to
limited partners by that amount. The amount of the prepayment penalty
will fluctuate.
2 Fee payable to Lender if assumption is allowed.
3 Assumed to be 2.44% of gross purchase price. While this cost may be
avoided by a purchase of interests in operating partnerships, a third-
party purchaser, not already familiar with the Project, would be less
likely for legal reasons to take this approach.
4 Assumed to be one percent (1%) of the gross purchase price, a market
rate commission.
5 Assumed costs to Investor Partnership of buyer due diligence because
of unfamiliarity with Project.
6 Assuming a 12.75% share under the partnership agreements for each of
the operating partnerships. My interest is based on the relative
initial capital investments of the Investor Partnership and me
($48,652,285 and $7,108,500, respectively). Such initial investments,
along with a 6% return thereon, are paid to the Investor Partnership
and me prior to any distributions of net sales proceeds.
7 Distribution contemplated under partnership agreement for tax
compliance purposes.
-6-
In order to make a fair market value offer for the Investor
Partnership's interests, prior to submitting Greenbelt Residential's
offer, I sought the assistance of two independent appraisal firms --
Lipman, Frizzell & Mitchell ("LF&M") and Price Waterhouse LLP ("PW").
I asked LF&M and PW to estimate the market value of the Project as a
whole, including both my interest and the interest of the Investor
Partnership. Both firms deducted the deferred maintenance and
refurbishment that I believe needs to be undertaken. The two firms
first provided their estimates of value without taking into account
the effect of the current mortgages or the current management
agreements. On such a basis LF&M valued the Project at $85,430,000
and PW valued the Project at $88,500,000. The two firms then provided
their estimates of value taking into account the current mortgages and
management agreements. On such a basis LF&M valued the Project at
$78,410,000 and PW valued the Project at $84,600,000. 8 The market
value of the Project may increase or decrease from the dates of the
appraisals, as a result of, among other factors, changes in prevailing
interest rates, vacancy rates, and the Project's cash flow.
I BELIEVE IT IS IN THE INTEREST
OF ALL INVESTOR LIMITED PARTNERS
FOR THE PROJECT TO BE SOLD
As a result of the disappointing performance of the Project, you
and I have seen each of our investments in the Project significantly
decline in value. If this offer is accepted, however, the Investor
Partnership would be in a position to return to you now, in cash, what
I believe to be a significant portion of your original cash
investment.
I believe that the value of the Project can be enhanced only
with time, additional cash, and proper direction from a substantial
owner. If its offer is accepted, Greenbelt Residential is willing to
take these steps. As you may know, I have been involved in the
management and operation of the Project for over 30 years. While
Lerner Corporation also serves as the day-to-day manager of the
Project, Winthrop makes all of the significant decisions concerning
the management and operation of the Project. For the reasons
described below, I do not have confidence that Winthrop will bring
about improved results. Moreover, Three Winthrop has filed a lawsuit
seeking to terminate Lerner Corporation's management agreement at the
end of January 1995 and take over the day-to-day management
responsibilities for the Project for an undisclosed fee. Accordingly,
I am concerned that my ability to protect and potentially enhance my
investment in the Project will be reduced to an even greater extent
when Lerner Corporation's role is terminated.
From our mutual perspective, I believe that Greenbelt
Residental's offer makes a great deal of sense. For the following
reasons, however, I am concerned that Winthrop will not accept it.
8 These appraisals are subject to a number of conditions and
assumptions and do not represent (and are not based on) any actual
offer for the Project. See Consent Solicitation Statement at "The
Offer -- Description of Appraisals."
-7-
WINTHROP'S CONFLICT OF INTEREST
IN CONSIDERING ANY SALE
For the following reasons, I believe Winthrop faces an inherent conflict
of interest in considering any offer:
WINTHROP HAS NO SIGNIFICANT ECONOMIC INTEREST IN SEEKING A SALE. Winthrop
would receive no more than a one-time one percent distribution for tax
compliance purposes from the net proceeds of a sale of the Project. Based
on this offer, that Winthrop distribution would be less than $200,000. The
Project would have to be sold today at a total price in excess of
approximately $150,000,000 in order for Winthrop to have a significant
share in any net sales proceeds, far in excess of the appraisals described
above.
WINTHROP, IN MY VIEW, HAS NO DIRECT ECONOMIC INCENTIVE TO DEVOTE THE EFFORT
AND RESOURCES REQUIRED TO IMPROVE THE CURRENT PERFORMANCE OF THE PROJECT.
For Winthrop to receive any incentive management fees, Project net cash
flow would need to exceed by more than 20% the levels established in
Winthrop's initial forecasts. That result has never has been achieved.
For 1993, distributable cash flow would have had to exceed approximately
$8,000,000. Actual 1993 cash flow was approximately $460,000.
WINTHROP DOES, HOWEVER, HAVE A STRONG ECONOMIC INCENTIVE TO PRESERVE ITS
CONTINUING OVERSIGHT MANAGEMENT FEE AND OTHER FEES. Winthrop currently
receives each year $100,000 plus 1% of the gross rentals and other income
from the Project. Fees to Winthrop have totalled $330,463, $330,845 and
$323,382 in each of 1991, 1992 and 1993, respectively, and likely will
increase in the future if the Project is not sold.
WINTHROP IS NOW SEEKING TO ADD TO ITS ANNUAL FEES BY TAKING OVER THE DAY-
TO-DAY MANAGEMENT OF THE PROJECT FROM LERNER CORPORATION. Although
Winthrop can only take reasonable fees for its services, it has not told
you how much its additional fees will be nor apparently has it sought
competitive bids for those services.
WINTHROP CONTINUES TO RECEIVE FEES REGARDLESS OF WHETHER THERE IS ANY NET
INCOME FROM THE OPERATION OF THE PROJECT, and regardless of the amount of
your and my distributions or whether you and I, in fact, receive any
distributions.
WINTHROP'S FORECASTS VERSUS
SPRINGHILL LAKE'S PERFORMANCE
In early 1985, when Winthrop sold limited partnership interests in the
Investor Partnership, it provided hypothetical scenarios for a sale of the
Project at the end of ten years, namely year-end 1994. While Winthrop did not
promise to sell the Project at that time, Greenbelt Residential's proposal is
consistent with those sale scenarios and would not let Winthrop continue to hold
onto your money indefinitely. Winthrop might assert that now is not
-8-
the time to sell the Project but, in considering any assertions by Winthrop that
the Project will be more valuable in the future, please consider Winthrop's
original forecasts regarding the Project. Here is a comparison between
Winthrop's forecasts, as set forth in the original offering circular,9 and the
actual results of the Investor Partnership:10
FORECAST -- annual distributions to all limited partners increasing from
$16,225 in 1986 to $7,305,793 by 1994, a total of $50,394 per Unit over
this period.
RESULTS -- actual annual distributions to all limited partners amounting to
only $1,993,664 since 1986, a total of $3,072 per Unit over the entire 10-
year period.
FORECAST -- Net operating income before debt service of approximately
$16,500,000 by the end of 1993.
RESULTS -- Net operating income before debt service of only approximately
$8,700,000 in 1993.
Greenbelt Residential's offer, rather than trying to predict the future,
calls for an immediate and significant payment to you of cash now, not a promise
for a rosy future. Its offer would allow you to recoup what I believe to be a
significant portion of your original cash investment now.
WHY I AM SOLICITING YOUR SUPPORT
TO DISSOLVE THE INVESTOR PARTNERSHIP
Greenbelt Residential's offer is, I believe, fair and reasonable to the
Investor Partnership, and I sincerely hope that Three Winthrop accepts that
offer. However, to date Three Winthrop has not accepted this offer. I do not
believe that Winthrop will give serious consideration to Greenbelt Residential's
offer unless you tell Winthrop that the Project should be sold now.
Accordingly, I am seeking your approval of the dissolution of the Partnership.
To consent to a dissolution, you must sign and date the enclosed Green consent
card and return it in the enclosed envelope. The intent of such an action would
be to force a sale of the Project now by Three Winthrop.
_________________
9 See Financial Forecast included as Exhibit A to Confidential Offering
Memorandum dated January 16, 1985.
10 Based on Annual Reports on Form 10-K filed with the Securities and
Exchange Commission for Springhill Lake Investors Limited Partnership.
-9-
Because a "dissolution" of the Investor Partnership constitutes a
default under the current mortgages, Greenbelt Residential will not formally
deliver consents to Three Winthrop without written confirmation from the Lender
that delivery of such consents will not be treated as a default. The Lender has
indicated that it is not prepared to consider this issue at this time, and there
can be no assurance that the Lender will provide such written confirmation. The
consequences of such a dissolution are more fully described in the enclosed
Consent Solicitation Statement at "The Offer -- Certain Terms of the Existing
Mortgages."
IF YOU HAVE ANY QUESTIONS ABOUT THE MATTERS DESCRIBED IN ANY OF THESE
MATERIALS, PLEASE CALL ME OR ED COHEN OR BOB TANENBAUM AT (301) 984-1500 OR
TOLL-FREE AT 1-800-953-7637.
Very truly yours,
Theodore N. Lerner
[THIS PAGE INTENTIONALLY LEFT BLANK]
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
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CONSENT SOLICITATION STATEMENT TO THE UNITHOLDERS OF
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
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To the Holders of Units Representing Limited Partnership Interests
of Springhill Lake Investors Limited Partnership:
This Consent Solicitation Statement is being furnished to holders of
units of limited partnership interest ("Unitholders") of Springhill Lake
Investors Limited Partnership (the "Investor Partnership") in connection with
the solicitation (the "Consent Solicitation") by Greenbelt Residential Limited
Partnership ("Greenbelt Residential") of consents to a resolution approving the
liquidation and dissolution of the Investor Partnership (the "Resolution") and
calling for a prompt and orderly sale and disposition of its assets.
This Consent Solicitation Statement and the enclosed Green Consent Card
are being furnished to Unitholders on or about January 19, 1995. The Resolution
will become effective at the earliest time at which unrevoked consents of
Unitholders holding at least a majority of the interests in the Investor
Partnership are delivered by Greenbelt Residential to Three Winthrop Properties,
Inc. ("Three Winthrop"), the managing general partner of the Investor
Partnership. Greenbelt Residential will not formally deliver such consents,
thereby arguably triggering a "dissolution" of the Investor Partnership, without
written confirmation from the Project's lender. AEW #207 Trust, a Massachusetts
Nominee Trust (the "Lender"), that delivery of such consents will not be treated
as a default under the loan documents. The Lender has indicated as of December
12, 1994 that it is not prepared to consider whether such an action would be
deemed an event of default. This Consent Solicitation will expire, unless
extended by Greenbelt Residential in its sole discretion, on March 7, 1995.
Greenbelt Residential is a newly formed Maryland limited partnership
organized for the purposes of conducting the Consent Solicitation and making the
Offer (as defined below). The sole general partner of Greenbelt Residential is
Planden Corporation, a Maryland corporation. The sole limited partner of
Greenbelt Residential is Lerner Enterprises Limited Partnership, a Maryland
limited partnership comprised of Mr. Theodore N. Lerner and members of his
family ("Lerner Enterprises"). Members of Mr. Lerner's family are the sole
stockholders of Planden Corporation and partners of Lerner Enterprises. See
"Certain Information Concerning Greenbelt Residential."
Prior to the mailing of this Consent Solicitation Statement, Greenbelt
Residential submitted an offer (the "Offer") to Three Winthrop, to acquire the
entire interest of the Investor Partnership in each of the ten Operating
Partnerships (as defined herein) of which the Investor Partnership is the
general partner. The Operating Partnerships collectively own and operate the
2,899-unit apartment complex and related amenities known as Springhill Lake
Apartments (the "Project"). The remaining interest in each of the ten Operating
Partnerships is owned, as a limited partner, by Mr. Lerner. As described more
fully under the caption "The Project and the Partnerships," Mr. Lerner's
percentage interest in distributions from the Operating Partnerships ranges
between 10% and 15%, with distributions from a sale of the Project being made
12.75% to Mr. Lerner and 87.25% to the Investor Partnership.
The terms of the Offer, as described herein, contemplate a purchase
price for the Investor Partnership's entire interest in all of the Operating
Partnerships consisting of $20,417,778 in cash and Greenbelt Residential's
assumption of all obligations of the Investor Partnership under the existing
mortgages, having an outstanding principal balance of approximately $62,000,000
as of November 1, 1994. Any such assumption of the existing mortgages will
require the consent of the Lender. See "The Offer -- Certain Terms of Existing
Mortgages." While the Lender has indicated that it would be happy to consider
such an assumption, any such request must be made by the Investor Partnership
(which would be the case if the Offer is accepted). Greenbelt Residential
believes that the Offer is the economic equivalent of a sale of the entire
Project to a third party at a purchase price of $88,505,500 -- in excess of the
market value of the Project as estimated by two independent appraisal firms as
of July 18, 1994 and September 12, 1994, respectively. See "The Offer --
Description of Appraisals." Greenbelt Residential believes that the Offer
affords Unitholders an attractive opportunity to receive a cash payment which
represents, in Greenbelt Residential's view, a significant part of their
original cash investment in the Investor Partnership. The Offer, if accepted
and if the Lender's consent is obtained, would result in net cash proceeds in
the total amount of approximately $19,599,800 being available for payment to the
limited partners, representing cash in the amount of approximately $30,200 per
Unit. See "Terms of the Offer."
In addition, the Investor Partnership has announced that it expects to
make cash distributions from 1994 operations in 1995. Greenbelt Residential
assumes that the Investor Partnership will make such cash distributions in due
course -- estimated by Three Winthrop to be $2,000 per Unit for 1994. Such cash
may be reduced, however, if Three Winthrop expends this cash in an effort to
oppose this Consent Solicitation (assuming it is permitted to use those funds
for that purpose).
The Consent Solicitation is intended to enhance the likelihood that the
Project will be sold by demonstrating Unitholders' support for a sale of the
Project now. Greenbelt Residential believes that the Offer is fair and that no
third party is likely to make an offer which would be as advantageous to
Unitholders. Unitholders are being asked only to approve the Resolution (which
is intended to instruct Three Winthrop to consider offers and sell the Project
as part of the liquidation and dissolution process) and are not being asked to
approve the terms of the Offer. If the Resolution is approved, the Offer,
together with other bona fide offers, if any, received by the Investor
Partnership will be given consideration by Three Winthrop in the liquidation
process. Three Winthrop will control, consistent with its fiduciary duties to
Unitholders, any sale of the assets or the Project and the subsequent
liquidation and dissolution of the Investor Partnership. Mr. Lerner has,
however, a right of first refusal under the terms of the partnership agreements
for the Operating Partnerships to match, on identical terms, any such offer
received by Three Winthrop and subsequently approved by Unitholders. See "The
Offer -- Right of First Refusal."
If you have any questions or need assistance in voting your interests,
please call Georgeson & Company, Inc. ("Georgeson"), which is assisting in this
Consent Solicitation, toll free at 1-800-223-2064 or collect at the telephone
numbers listed on the back cover page of this Consent Solicitation Statement.
- 2 -
THE PROJECT AND THE PARTNERSHIPS
The Project consists of a 96-building, 2,899-unit garden apartment
complex located on 154.1 acres of land in Greenbelt, Maryland. In addition to
apartment buildings and land, the Project contains an eight-store shopping
center, a day care center, two olympic-sized swimming pools, six tennis courts
and a clubhouse. The Project is located just inside the Capital Beltway, the
major circumferential expressway serving the Washington, D.C. metropolitan area.
The Investor Partnership was organized as a Maryland limited partnership
under the Maryland Revised Uniform Limited Partnership Act on December 28, 1984
for the purpose of investing as a general partner in ten limited partnerships
(collectively, the "Operating Partnerships"), each of which is a Maryland
limited partnership owning a section of the Project. The Investor Partnership
is the sole general partner and Mr. Lerner is the sole limited partner of each
of the Operating Partnerships.
Based solely on the Investor Partnership's annual report on Form 10-K
for the year ended December 31, 1993, the general partners of the Investor
Partnership are Three Winthrop and Linnaeus-Lexington Associates Limited
Partnership ("Linnaeus-Lexington"). Three Winthrop is a Massachusetts
corporation which is a wholly-owned subsidiary of First Winthrop Corporation, a
Delaware corporation which is wholly-owned by Winthrop Financial Associates, a
Maryland public limited partnership ("WFA"). Linnaeus-Lexington is a
Massachusetts limited partnership whose general partners are Arthur J. Halleran,
Jr. and Jonathan W. Wexler. Mr. Halleran is the managing general partner of
Linnaeus-Lexington. The other partners of Linnaeus-Lexington are present and
former officers of WFA and First Winthrop Corporation. Messrs. Halleran and
Wexler are directors of First Winthrop Corporation and Three Winthrop, and Mr.
Halleran is the sole general partner of the general partner of WFA. Three
Winthrop is the managing general partner of the Investor Partnership.
(Collectively, Three Winthrop and its affiliates are referred to herein as
"Winthrop").
In a recent filing on Form 8-K dated December 16, 1994 relating to a
change in control of the Investor Partnership, the Investor Partnership
announced that Linnaeus Associates Limited Partnership, a Maryland limited
partnership ("Linnaeus"), Mr. Halleran, the sole general partner of Linnaeus,
and certain other individuals who comprise the senior management of WFA, entered
into an investment agreement with Nomura Asset Capital Corporation, a Delaware
corporation. Linnaeus is the sole general partner of WFA, which in turn is the
sole shareholder of Three Winthrop.
One of the original investors in the Project, Mr. Lerner, has been
actively involved in its management and operation for over 30 years. In 1983,
when the other original investors sold their interests in the Project, Mr.
Lerner retained his own interest and contracted with the other investors to
acquire the remaining interests in the Project for a purchase price of
approximately $73,316,500. Mr. Lerner then assigned this purchase contract to
Winthrop. Pursuant to the Offering Memorandum, as defined below, Winthrop
syndicated interests in the Investor Partnership, a portion of the proceeds of
which were used to acquire the interests in the Operating Partnerships. Mr.
Lerner retained, as sole limited partner, the balance of the interest in each of
the Operating Partnerships.
As set forth in its confidential offering memorandum dated January 16,
1985 (the "Offering Memorandum"), Winthrop capitalized the Investor Partnership
through the syndication of 649 Units (or fractions thereof) at a price of
$62,500 per Unit -- a total investment of $40,562,500. In connection with that
syndication and the acquisition of the Project, Winthrop received fees in excess
of $8,500,000 -- more than $13,000 per Unit -- consisting of $5,297,111 as fees
for various services in connection with the acquisition, monitoring, and
financing of the Investor Partnership's interest in the Operating Partnerships
and $3,212,500
- 3 -
as commissions for selling Units. Mr. Lerner received a $300,000 brokerage fee
in connection with his services in arranging the Investor Partnership's
acquisition of the interests in the Operating Partnership and a $500,000
consultation fee, paid $200,000 upon the admission of Unitholders, $200,000 in
1986, and $100,000 in 1987. A portion of Mr. Lerner's fees was used to defray
third party expenses. Winthrop applied only $15,316,500 of the total
contribution of Unitholders toward the purchase price of the Project
(approximately $23,600 per Unit), with the balance of the contribution used or
set aside for capital improvements, investor "reserves," real estate tax escrow,
interest expense and related fees, and various other fees and expenses.
During the first three years after the syndication of Units, Winthrop
received an additional $2,783,485 as an interest guarantee fee plus $1,344,036
in interest on fees payable to Winthrop. For each of the last 10 years,
Winthrop also has collected substantial ongoing fees for management oversight.
See "Certain Information Concerning the Investor Partnership."
The partnership agreements for each of the Operating Partnerships
provide that each year the Investor Partnership receives 90% and Mr. Lerner
receives 10% of all partnership cash flow distributions after each of the
Investor Partnership and Mr. Lerner have received an amount equal to 6% of the
average daily balance of their capital investment (or deemed capital investment
in the case of Mr. Lerner). The same agreements provide that proceeds of
capital transactions (such as a sale of the Project) are to be distributed pro
rata to the Investor Partnership and Mr. Lerner in accordance with their
respective capital investments until they have each received a full return of
their capital investment (in Mr. Lerner's case, his deemed investment) plus a 6%
annual return thereon. After the Investor Partnership and Mr. Lerner each has
received a full return of its or his capital investment (in Mr. Lerner's case,
his deemed investment), partnership cash flow and capital proceeds distributions
are divided 85% to the Investor Partnership and 15% to Mr. Lerner. Furthermore,
since the Investor Partnership was given capital account credit of $48,652,285
(based upon its cash contribution, including certain deferred interest) and Mr.
Lerner was given capital account credit of $7,108,500 (based on the agreed upon
value of his interest), payments of the 6% return on capital and returns of
capital are made in a ratio that represents an approximate allocation of 87.25%
to the Investor Partnership and 12.75% to Mr. Lerner.
Lerner Corporation, of which Mr. Lerner is president and majority
stockholder, acts as day-to-day manager of the Project pursuant to a management
agreement which, after January 1995, may, by its terms, be terminated by Three
Winthrop upon 90 days written notice. Winthrop is disputing the date on which
it can terminate the management agreement, arguing that notice of termination
may be given prior to and effective on January 31, 1995, and has filed a
complaint in a Maryland state court seeking a declaratory judgment on this
matter. See "Certain Information Concerning Greenbelt Residential." Winthrop
Management, an affiliate of Three Winthrop, has primary responsibility for
oversight management of the Project, including the duty and power to establish
leasing policies, set rents, and implement capital improvements. As between
Winthrop and Lerner Corporation, the Management agreement provides ultimate
decision-making responsibility to Winthrop. Indeed, in the event of disputes
between Lerner Corporation and Winthrop's representative, the decision of
Winthrop's representative is final and binding.
- 4 -
THE OFFER
General
Greenbelt Residential has presented the Offer to Three Winthrop and
intends to resubmit the Offer if the Resolution is approved. The terms of the
Offer, as summarized below, are set forth in a Partnership Interest Purchase
Agreement (the "Purchase Agreement") which has been delivered to Three Winthrop.
Unitholders are not being asked to approve the Offer at this time. If the Offer
is accepted by Three Winthrop, Three Winthrop will seek approval of the specific
terms of the Offer by Unitholders. If the Offer is not accepted by Three
Winthrop, but the Resolution is adopted, Three Winthrop will control, consistent
with its fiduciary duties to Unitholders, any sale of the assets of the Investor
Partnership or Project and subsequent liquidation and dissolution of the
Investor Partnership. Mr. Lerner has, however, a right of first refusal to
match, on identical terms, any such bona fide offer recommended by Three
Winthrop and approved by the Unitholders. See "The Consent Solicitation --
Right of First Refusal."
Terms of the Offer
The acquisition of the Investor Partnership's entire interest in the
Operating Partnerships is contemplated by the terms of the Purchase Agreement.
The Purchase Agreement contains two elements to the purchase price: a cash
portion equal to $20,417,778 and an assumption by Greenbelt Residential of all
obligations of the Investor Partnership under the existing first and second
mortgages, having an outstanding principal balance of approximately $63,000,000
as of November 1, 1994. An assumption of the first and second mortgages will
require the consent of the Lender. For the reasons set forth in the letter
accompanying this Consent Solicitation Statement and because Mr. Lerner will not
receive any of the sale proceeds from the Offer for his interest in the
Operating Partnerships (which would not be the case if the Project, rather than
Investor Partnership's interest in the Project, were being sold), Greenbelt
Residential believes that the Offer is the economic equivalent in terms of the
cash available for distribution to Unitholders of a sale of the entire Project
to a third party pursuant to a contract having a purchase price of $88,505,500
- -- in excess of the market value of the Project as determined by two independent
appraisal firms as of July 18, 1994 and September 12, 1994, respectively. See
"The Offer -- Description of Appraisals." Greenbelt Residential believes that
the Offer affords Unitholders an attractive opportunity to recoup a significant
part of their original investment in the Investor Partnership. The market value
of the Project may increase or decrease prior to the consummation of any sale as
a result of, among other factors, changes in prevailing interest rates, vacancy
rates, and the Project's cash flow.
If the Offer is accepted and the consent of the Lender is received (see
"The Offer -- Certain Terms of Existing Mortgages"), the Unitholders will be
allocated an aggregate cash amount equal to approximately $19,599,800. Based on
the 649 Units outstanding, Greenbelt Residential believes that aggregate net
cash available for payment to Unitholders would be approximately $30,200 per
Unit. Greenbelt Residential also assumes that the Investor Partnership likely
would distribute to Unitholders in due course cash from 1994 operations,
estimated by Three Winthrop to be approximately $2,000 per Unit. Such cash may
be reduced if Three Winthrop expends this cash in an effort to oppose this
Consent Solicitation (assuming it is permitted to use those funds for that
purpose).
The Purchase Agreement contemplates that, subject to receiving the
requisite consent of the Lender and Unitholders, and the Operating and Investor
Partnerships being in a position to deliver good title to the Project and the
interests in the Project, respectively, Greenbelt Residential will close
immediately on the
-5-
proposed acquisition of the Partnership assets, without any contingency for
Greenbelt Residential to perform additional due diligence and testing of the
Project.
Greenbelt Residential has reserved the right to withdraw or modify the
Offer at any time prior to its acceptance by Three Winthrop.
Certain Terms of Existing Mortgages
The Offer contemplates that Greenbelt Residential will assume the
responsibilities under the existing mortgages. Thus, the Lender's consent to
keep its loans in place is required for any sale, conveyance or transfer of the
Project by the Operating Partnerships or if the Investor Partnership transfers
all of its interests in the Operating Partnerships. The Lender may not withhold
or unreasonably delay its consent, however, if all of the following conditions
are met: (i) the ratio of net cash flow to debt service is at least 1.325; (ii)
the outstanding principal balance of the loan shall be no more than 70% of the
fair market value of property; (iii) the proposed transferee is a single purpose
entity whose sole asset shall be its interest in the property; (iv) a substitute
indemnitor, who meets the Lender's requirements of minimum net worth, assumes
the indemnification obligations under the loan; (v) the Investor Partnership
pays a transfer fee equal to 1% of the outstanding principal balance of the loan
to the Lender; and (vi) no more than one such transfer occurs during the term of
the loan. If the Offer is accepted by Three Winthrop, Greenbelt Residential
believes that the Investor Partnership will cooperate in requesting the consent
of the Lender to the assumption.
If Three Winthrop accepts the Offer, but the Lender determines that any
of the above conditions are not met, Greenbelt Residential would seek to cause
the Investor Partnership, under the terms of the loan documents, to prepay
partially the principal amount of the loans. Any partial paydown of principal
could result in a prepayment penalty and a corresponding reduction in the net
proceeds available for distribution to the Unitholders unless Greenbelt
Residential elects to modify its offer at that time to fund any such potential
prepayment penalty. Three Winthrop would be required, however, to submit the
terms of any such revised offer to Unitholders for approval.
The loan agreements also provide that the "dissolution" of the Investor
Partnership would constitute a default thereunder and would provide the Lender
with numerous remedies, including the right to accelerate the loan. Greenbelt
Residential intends to seek the consent of the Lender prior to taking any action
which could arguably constitute such a "dissolution." Specifically, Greenbelt
Residential will not deliver consents obtained pursuant to this Consent
Solicitation to Three Winthrop, thereby arguably triggering a "dissolution" of
the Investor Partnership, without written confirmation from the Lender that
delivery of such consents will not be treated as a default.
Financing of the Offer
Greenbelt Residential will obtain all of the funds necessary to finance
the cash portion of the Offer from Lerner Enterprises and/or its affiliates.
Such funds will be provided from cash-on-hand and through borrowings under bank
and/or other credit facilities. The Offer is not subject to a financing
contingency.
Description of Appraisals
In connection with preparing the Offer, Price Waterhouse LLP ("PW") and
Lipman Frizzell & Mitchell LLC ("LF&M"), each independent appraisal firms, were
retained to appraise the value of the entire Project as of the dates set forth
in their respective appraisal reports. The following description of the
appraisal
-6-
reports does not purport to be complete but contains a summary of certain
statements in the full appraisal reports.
Price Waterhouse LLP Appraisal Report. The PW appraisal sought to
ascertain the market value as of September 12, 1994 of the Project, defined as
"the most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently and knowledgeably, and assuming the price is not affected by
undue stimulus." In valuing the Project, PW relied primarily on the income
capitalization and sales comparison approaches. Under the income capitalization
approach, PW considered the Project's capacity to generate income. Value then
was derived by converting future benefits (i.e., cash flow and future sales
proceeds) into value through the use of a capitalization rate or a discount
factor. Under the sales comparison approach, PW determined the value based upon
an analysis of sales of comparable properties and a comparison of such sales
data to the Project.
PW used two methods of analysis under the income capitalization approach
to value, direct capitalization and discounted cash flow. In the direct
capitalization approach, assumptions with respect to the market's view of growth
in income and property value are inherent in the capitalization rate selected
for the property. To arrive at an indication of value by direct capitalization,
PW calculated net operating income and divided such net operating income by an
overall capitalization rate of 10.25%. PW then deducted from that result
refurbishment expenses and near term capital expenditures, estimated by Lerner
Corporation to be approximately $4,236,500 as of the date of the PW appraisal.
In the discounted cash flow analysis, growth factors are addressed in the cash
flow assumptions. Capital expenditures, including $4,236,500 for short-term
capital expenditures, were deducted in the first year of this analysis. PW
estimated indications of market value by direct capitalization analysis and
discounted cash flow analysis as described above to be $90,300,000 and
$88,000,000, respectively.
Using the sales comparison approach, PW analyzed comparable apartment
complex sales in terms of price per unit, price per square foot, and on an
effective gross income multiplier ("EGIM") basis. The EGIM basis measures the
relationship between the effective gross income of the comparable property and
its total sales price. With this data, PW used a linear regression model,
comparing the net income per unit and per square foot to the price per unit and
per square foot of each comparable property, as well as the operating expense
ratio to the EGIM. Value indications for the Proejct then were derived by
inputing its stabilized net income per unit, net income per square foot, and
operating expense ratio into the regression model.
Under the sales comparison approach described above, PW estimated the
market value of the Project to be $91,000,000, prior to deducting the
refurbishment expenses and near term capital expenditures of approximately
$4,236,500. Taking such items into account, PW estimated the market value of
the Project under the sales comparison approach to be $87,000,000.
The three approaches to value considered by PW produced values ranging
from $90,300,000 to $87,000,000. Each approach took into account Lerner
Corporation's estimate of refurbishment expenses and near-term capital
expenditures which were deducted under each approach to derive an indication of
value. Based on its investigations and analysis, PW estimated the value of the
Project as of September 12, 1994 (as is) to be $88,500,000, prior to considering
the existing financing arrangements and in-place management agreement. For the
purposes of its analysis, PW assumed an in-place management agreement with fees
equal to 3% of collected revenues (4% of collected revenues through December
1995), with an asset management fee of 1% of collected revenues, plus $100,000.
PW found the financing arrangements and in-place management agreement to have a
negative impact on value of approximately $3,900,000, resulting in a market
value for the Project as of September 12, 1994 (as is) of $84,600,000, subject
to the existing financing arrangements and in-place management agreement.
-7-
Lipman Appraisal Report. LF&M estimated the current market value of the
Project, as is, as of July 18, 1994. The LF&M appraisal defines market value as
"the most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and assuming the price is not affected by undue stimulus." In
estimating the market value of the Project, LF&M used the income and sales
comparison approaches to value, with the greatest emphasis placed on the income
approach. Under the income approach, LF&M estimated value through an analysis
of the income-producing capability of the Project and by applying a direct
capitalization rate to estimated net operating income to estimate market value.
Under the sales comparison approach, LF&M estimated market value based upon an
analysis of sales of comparable properties and a comparison of such sales data
to the Project.
Under the sales comparison approach, LF&M used data from sales of
comparable properties to ascertain per unit and per room sales prices. LF&M
then adjusted those sales prices in relation to the Project to reflect
conditions of sale, location, age and condition of improvements, utilities,
size, and other factors. As a result of those adjustments and its
investigations, LF&M derived a sales price per unit for the Project and
estimated the value of the Project to be $88,420,000, prior to any deduction for
deferred maintenance. Under the income approach, applying an overall
capitalization rate of 10% to stabilized net operating income, LF&M estimated
the market value of the Project to be $89,720,000, prior to deducting deferred
maintenance. Lerner Corporation estimated deferred maintenance at the time of
LF&M's appraisal to be approximately $4,288,750, which was considered by LF&M to
be within reason.
The sales comparison and income approaches produced values of
$89,420,000 and $89,720,000, respectively, prior to any deduction for deferred
maintenance. Because the Project would be purchased based on its income stream,
LF&M relied primarily on the income approach supported by the analysis developed
in the sales comparison approach to estimate the market value of the Project.
On the bases of its analyses, LF&M estimated the market value of the Project to
be $89,720,000, before any deduction for deferred maintenance of approximately
$4,288,750. Taking into account such deferred maintenance, LF&M estimated the
market value of the Project as of July 18, 1994 (as is) to be $85,430,000.
As part of its analysis, LF&M next considered the impact on value of the
Project's current financing and above-market management contract. LF&M
concluded that the existing loans bear an interest rate which was considered to
be slightly above market at the time of its appraisal. LF&M estimated the
negative impact of the above-market financing to be approximately $3,700,000
resulting in a market value for the Project of $81,640,000, subject to that
financing. Finally, LF&M estimated the negative impact of Winthrop's management
and oversight fees to be approximately $3,230,000, resulting in a market value
for the Project as of July 18, 1994 (as is) of $78,410,000, subject to the
existing financing arrangement and Winthrop management agreements.
LF&M's analysis assumes that the existing financing is assumable by a
third party buyer. The appraisal report points out, however, that if the Lender
prohibits an assumption of the loans, a pre-payment penalty of approximately
$7,993,000 as of the date of its report would be assessed and would result in a
further diminution of value of the Project of approximately $4,138,000. As of
the date hereof, Greenbelt Residential estimates that this prepayment penalty
would be approximately $5,000,000, and LF&M has not been asked to evaluate the
impact of such a prepayment penalty on the market value of the Project.
All financial statements, operating statements, legal descriptions,
lease documents, and other information provided to the independent appraisal
firms was assumed by such firms to be accurate and correct, and no audit or
verification was undertaken. Neither independent appraisal firm assumes
responsibility for
-8-
matters of title. Neither PW nor LF&M prepared the appraisal reports for use in
connection with the Consent Solicitation and, as such, did not consider any
unique conditions which may affect the value to any particular buyer.
Lerner Corporation furnished each appraiser with its estimate of
necessary refurbishment expenses and near term capital expenditures as of the
dates of the respective appraisals. Such expenses and expenditures were taken
from the nonrecurring capital expenditure budget for the Project. The
difference between the estimate furnished by Lerner Corporation to PW and LF&M
reflects actual expenditures in connection with apartment unit refurbishments
between the date of each of the appraisal reports.
Unitholders are urged to exercise care in evaluating the results of the
appraisal reports described above. An appraisal is only an estimate of value
and should not be relied upon as a measure of realizable value. As with any
appraisal, the methods and assumptions used by PW and LF&M in preparing the
appraisal reports were those, in their professional judgment, that they
concluded were appropriate. There can be no assurance, however, that such
assumptions will materialize or that other or different methods or assumptions
might not be appropriate. Moreover, the current appraised value of the Project
is not a prediction of the value that the Project may have at any time in the
future. Future values of the Project will depend on a variety of factors,
including the economic success of the Project, the impact of inflation on
property values, local competitive circumstances, and general economic
conditions.
Both PW and LF&M have consented to the use of their reports and being
named herein. Greenbelt Residential and the Lerner Corporation have agreed to
indemnify PW and LF&M for certain liabilities arising from the use of their
appraisal reports in connection with this Consent Solicitation.
-9-
THE CONSENT SOLICITATION
Greenbelt Residential is soliciting the consents of Unitholders to
approve the Resolution. The purpose of this Consent Solicitation is to direct
Three Winthrop to dissolve the Investor Partnership, assuming the consent of the
Lender is obtained, and to enhance the likelihood that the Offer will be
accepted.
While the Partnership Agreement does not expressly authorize action by
the written consent of the Unitholders in this context, the Partnership
Agreement does give Unitholders the right to dissolve the Investor Partnership
and does not require that such right be exercised in any particular way.
Accordingly, Greenbelt Residential is taking the position that the Resolution
can be approved by the written consent of Unitholders holding at least a
majority of the interests in the Investor Partnership as described below.
Greenbelt Residential's views are not, however, binding on Three Winthrop, and
Three Winthrop may seek to challenge the validity of the consents solicited
hereby.
As more fully described under "The Offer--Certain Terms of Existing
Mortgages," Greenbelt Residential will not formally deliver the consents
solicited hereby to Three Winthrop, thereby arguably triggering a default under
the loan documents, without written confirmation from the Lender that delivery
of consents will not be treated as such a default. There can be no assurance
that the Lender will furnish such written confirmation.
THE RESOLUTION
Greenbelt Residential is soliciting consents from Unitholders to
approve the Resolution which directs Three Winthrop to liquidate and dissolve
the Investor Partnership through a sale of its assets. The text of the
Resolution is set forth below:
WHEREAS, Greenbelt Residential Limited Partnership ("Greenbelt
Residential") has submitted an offer to Three Winthrop, Inc. ("Three
Winthrop") to acquire the assets of Springhill Lake Investors Limited
Partnership (the "Investor Partnership"), and a majority in interest of the
limited partners believes that such offer or a similar or better offer
should be promptly accepted;
RESOLVED, that upon consideration of the offer presented to the
Investor Partnership by Greenbelt Residential and the prospect that the
Investor Partnership may succeed in soliciting additional offers to
purchase the Investor Partnership's interest in the Project or the Project,
it is in the best interest of the Investor Partnership to take the
following action and the same hereby is adopted in all respects:
"Pursuant to Section 5.6(iii) of the Partnership Agreement, the
Investor Partnership is hereby dissolved, and, in accordance with Section
2.5 of the Partnership Agreement, the Investor Partnership shall be
liquidated by the sale of all of its assets as soon as practicable, the
affairs of the Investor Partnership being wound up as promptly as
practicable thereafter."
Under the terms of Section 5.6(iii) of the Partnership Agreement, a
majority in interest of Unitholders may agree to dissolve the Investor
Partnership. In accordance with the terms of the partnership agreement for the
Investor Partnership and Maryland law, upon a dissolution of the partnership,
the Investor Partnership's assets are to be liquidated under the control of
Three Winthrop, and the proceeds of the liquidation will first be applied to the
payment of all obligations of the Investor Partnership, costs of the
- 10 -
liquidation, and the establishing of any reserves deemed necessary. Proceeds
remaining thereafter will be distributed to the Unitholders. Such net proceeds
may be more or less than the net proceeds available for distribution if the
Offer is accepted depending on, among other factors, the purchase price for the
Project, the payment obligations of the Investor Partnership, the costs of
liquidation, and the reserves deemed necessary to Three Winthrop. Once the
Investor Partnership has completed the distribution of all of the proceeds of
the liquidation, the Investor Partnership shall file a certificate with the
State of Maryland terminating the existence of the Investor Partnership.
Thus, even if Unitholders consent to the dissolution of the Investor
Partnership, Three Winthrop should control the timing and process by which the
assets of Investor Partnership are liquidated. If the dissolution is approved,
however, Greenbelt Residential will resubmit the Offer to Three Winthrop for
consideration, along with any other offers received as part of the liquidation
process, if any, and keep such offer open for a period of at least 30 days
following delivery of the requisite consents of Unitholders approving the
Resolution. During the pendency of this Consent Solicitation and that 30-day
period, in Greenbelt Residential's view, Three Winthrop should solicit other
proposals and otherwise test the market value of the Project and the
competitiveness of the Offer. Greenbelt Residential believes that no bona fide
offer more advantageous to Unitholders will be forthcoming.
Under the terms of the Partnership Agreement, Three Winthrop will be
required to solicit the approval of Unitholders of the Offer or to any sale of
the Investor Partnership's interest in the Operating Partnerships a sale of the
Project. Because Three Winthrop will control the timing and process by which
the assets of the Investor Partnership are sold, Greenbelt Residential is unable
to predict when such approval will be solicited or when this process will be
completed. The market value of the Project may increase or decrease from the
time the Resolution is approved until the dissolution and liquidation process is
completed as a result of, among other factors, changes in prevailing interest
rates, vacancy rates, and the Project's cash flow.
RIGHT OF FIRST REFUSAL
Under the terms of the partnership agreement of each of the Operating
Partnerships, Mr. Lerner has a right of first refusal to match, on identical
terms, any offer for a sale of the assets of the Investor Partnership or the
Project recommended by Three Winthrop and approved by Unitholders. As described
in the Offering Memorandum:
In consideration for Lerner's agreement to permit sales and
refinancings . . ., Lerner has been given a right of first refusal in the
event of any sale of the assets of an Operating Partnership, or any sale by
the Investor Partnership of part or all of its interest in any Operating
Partnership.
thus, if Three Winthrop accepts another bona fide proposal, and the proposal is
recommended to and approved by Unitholders, Mr. Lerner may choose, in his sole
discretion and in light of the circumstances existing at that time, to exercise
his right of first refusal and match the terms of that proposal.
DISSENTERS' RIGHTS
Unitholders have no right under the terms of the Partnership Agreement
or Maryland law to dissent in the liquidation and dissolution of the Investor
Partnership or seek an independent appraisal of the Investor Partnership's
assets. Accordingly, if Unitholders owning a majority in interest approve the
dissolution, Unitholders who do not so consent will be bound by the consent of a
majority in interest of the Unitholders.
- 11 -
CONSENT REQUIRED
One Unit represents a 0.1464% interest in the Investor Partnership;
fractions of a Unit represent a corresponding interest in the Investor
Partnership (i.e., 1/2 Unit equals a 0.0732% interest in the Investor
Partnership). The adoption of the proposed resolutions requires the affirmative
consent of Unitholders owning of record at least a majority in interest of the
Investor Partnership. A signed, but unmarked, Green Consent Card will be deemed
to appoint the persons named therein as proxies for the purpose of consenting to
the Resolution. Greenbelt Residential is not aware of any applicable law or
provision of the Partnership Agreement that establishes a time period after
which the consents solicited hereby would no longer be effective or valid.
UNITHOLDERS OF RECORD
The terms of the Partnership Agreement do not require the setting of a
record date for Unitholders entitled to notice of and to consent to the
Resolution. However, only Unitholders who are admitted as limited partners to
the Investor Partnership may consent to the Resolution. If your Units are held
of record by another person or entity, only that person or entity can consent
with respect to your Units. Accordingly, if your Units are so held, please
contact such person or entity and give instructions for a consent to be signed
with respect to your Units. As of December 31, 1993, the most recent date for
which the Investor Partnership has reported such information, there were 674
holders of Units.
REVOCATION OF CONSENTS
For purposes of Greenbelt Residential delivering consents to Three
Winthrop, Unitholders may revoke executed consent at any time before the time
the action authorized by the executed consent becomes effective by dating,
signing, and delivering a written notice, which clearly expresses the revocation
of consent, to Greenbelt Residential at 11501 Huff Court, North Bethesda,
Maryland 20895-1094, or by delivering a properly executed, subsequently dated
consent card.
If Units are transferred after delivering an executed consent and before
the time the action authorized by such executed consent is effective, and the
holders of the transferred Units are admitted to the Investor Partnership as
limited partners, such substitution will terminate the right of the prior
Unitholder to consent to the Proposals, and any consents as to the transferred
Units must be executed by the new substitute limited partner.
SOLICITATION OF CONSENTS
Consents will be solicited by mail, advertisement, telephone, and in
person. Solicitations will be made by certain employees of entities affiliated
with Greenbelt Residential, none of whom will receive additional compensation
for such solicitations. Greenbelt Residential is requesting brokers,
custodians, nominees, and fiduciaries to forward all soliciting materials to the
beneficial owners of Units. Greenbelt Residential will, if appropriate,
reimburse such brokers, custodians, nominees, and fiduciaries for their
reasonable expenses for sending solicitation materials to the beneficial owners
of Units.
The Resolution will become effective at the earliest time at which
unrevoked consents of Unitholders holding at least a majority of the interests
in the Investor Partnership are formally delivered by Greenbelt Residential to
Three Winthrop. Greenbelt Residential will not formally deliver such consents,
thereby arguably triggering a "dissolution" of the Investor Partnership, without
written confirmation from the Lender
- 12 -
that delivery of such consents will not be treated as a default under the loan
documents. This Consent Solicitation will expire, unless extended by Greenbelt
Residential in its sole discretion, on March 7, 1995.
The expense of this Consent Solicitation is being borne by Greenbelt
Residential or its affiliates. Greenbelt Residential will not seek
reimbursement for such expenses from the Investor Partnership.
Greenbelt Residential also has retained Georgeson for solicitation and
advisory services in connection with the Consent Solicitation, for which
Georgeson will receive a fee of $15,000 together with reimbursement for
reasonable out-of-pocket expenses.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS OF DISSOLUTION
INTRODUCTION
It is not feasible to comment on all aspects of federal, state and local
tax laws that may affect a Unitholder as a result of acceptance of the Offer by
Three Winthrop, the sale of the Investor Partnership's assets, and the resulting
liquidation of the Investor Partnership. The following discussion is a summary
of the material federal income tax consequences under present interpretations of
federal income tax laws to Unitholders which are United States individual
taxpayers or domestic corporate taxpayers. However, the actual tax consequences
to a particular Unitholder will depend, in part, on the Unitholder's own tax
circumstances. This summary does not address the state, local, or foreign tax
consequences of the transactions described herein, nor does it discuss all
aspects of federal income taxation that may be relevant to Unitholders in light
of their particular circumstances. Except where indicated, the discussion below
describes general federal income tax considerations applicable to individuals
who are citizens or residents of the United States, and therefore has limited
application to domestic corporations and persons subject to special federal
income tax treatment, such as foreign persons, tax-exempt entities, regulated
investment companies and insurance companies. Accordingly, Unitholders are
urged to consult with their own tax advisor with respect to the tax consequences
of the acceptance of the Offer, sale of the Investor Partnership's assets and
resulting liquidation as they affect such Unitholder individually.
SALE OF ASSETS
Upon the sale of the Investor Partnership's assets, the Investor
Partnership will realize gain equal to the excess of the amount realized on the
sale of the Investor Partnership assets over the adjusted tax basis of the
Investor Partnership in those assets. In determining his income tax liability,
each Unitholder is required to take into account separately his distributive
share of the Investor Partnership's gains and losses from the sale or exchange
of property described in Section 1231 of the Internal Revenue Code of 1986, as
amended (the "Code"), relating to certain property used in a trade or business.
Since interests in real property and depreciable property used in a trade or
business and held for more than six months result in classification of property
as Section 1231 property, except in the case of dealers of such property, it is
anticipated that any gain from the sale of the Partnership assets will be
treated as Section 1231 gain. The activities of the Investor Partnership are
such that they should not be considered dealers in real property. The aggregate
net gain or loss recognized on all transactions in any taxable year on the
disposition of property described in Section 1231 is taxed as long-term capital
gain or as ordinary loss, as the case may be, except that any net gain will be
treated as ordinary income to the extent of net losses from the sale or exchange
of Section 1231 assets in the previous five (5) years. Greenbelt Residential is
unable at this time to determine the exact amount and character of gain or loss
that will be allocated to and recognized by any Unitholder as a result of the
sale of the Investor Partnership's assets in accordance with the offer.
Income from Partnership Operations
Any item of income, gain, loss, deduction or credit incurred by the
Investor Partnership during the period of liquidation in addition to the income,
gain or loss resulting from the sale of Partnership assets in accordance with
the Offer will continue to be allocated among the Unitholders as provided in the
partnership agreements of the Investor Partnership. Each Unitholder will
continue to receive Investor Partnership income tax information to enable him to
report his distributive share of all such Investor Partnership items allocated
during the period of liquidation.
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Receipt of Liquidating Distributions
The recognition of gain or loss by a Unitholder as a result of the
receipt of distributions in liquidation of his interest in the Investor
Partnership is governed by Section 731 of the Code. That Section provides for
nonrecognition of gain, except to the extent an amount of money is distributed
in excess of the Unitholder's basis in his Units, and the nonrecognition of
loss, unless a distribution in complete liquidation consists solely of money,
unrealized receivables (as defined in Section 751(c) of the Code) and inventory
(as defined in Section 751(d)(2) of the Code). If a loss is recognized, it is
equal to the amount by which the Unitholder's predistribution basis in his Units
exceeds the amount of money and the adjusted basis of the unrealized receivables
and inventory items distributed to him. A Unitholder's adjusted basis in his
Units will equal the price originally paid for such units (or the adjusted basis
of the property exchanged for such Units) increased by his distributive share of
Investor Partnership income and gain and decreased by his distributive share of
Investor Partnership losses and the amount of cash distributed to him. Any gain
or loss recognized by the Unitholder upon liquidation of the Investor
Partnership is treated as gain or loss from the sale or exchange of a capital
asset, except in the case of Units held for sale to customers in the ordinary
course of a trade or business. Greenbelt Residential is unable at this time to
determine the amount of gain or loss that will be recognized by any Unitholder
as a result of the receipt of distributions in liquidation of his interest in
the Investor Partnership.
Passive Activity Loss Provisions
The passive loss limitations generally provide that individuals,
estates, trusts and certain closely held corporations and personal service
corporations can only deduct losses from passive activities that are not in
excess of the taxpayer's income from such passive activities or investments.
Passive activities are, in general, activities in which a taxpayer does not
materially participate, such as those of the Investor Partnership. As a result
of these rules, net passive losses from the Investor Partnership cannot be used
to offset passive income from other sources and are separately carried forward.
However, all losses previously disallowed to a Unitholder under the passive
activity loss rules and not offset against income from the sale of Investor
Partnership assets in accordance with the Offer may be deducted by such
Unitholder in the year in which the liquidation is completed, or if earlier,
upon a taxable sale or other disposition of the Unitholder's entire interest in
the Investor Partnership to an unrelated party. In addition, deductions
previously disallowed to a Unitholder by the at risk limitations will be allowed
to the extent of income and gain recognized in the sale of Partnership assets in
accordance with the Offer and liquidation or recognized upon the disposition of
the Unitholder's interest in the Investor Partnership.
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CERTAIN INFORMATION CONCERNING GREENBELT RESIDENTIAL
Greenbelt Residential is a newly formed Maryland limited partnership
organized for the purposes of conducting the Consent Solicitation and making the
Offer.
The general partner of Greenbelt Residential is Planden Corporation, a
Maryland corporation. Planden Corporation serves as general partner of several
Lerner-related limited partnerships. The sole stockholders of Planden
Corporation, each owning approximately 1/3 of the common stock, are Edward L.
Cohen, Judy L. Lerner, and Robert K. Tanenbaum, each a member of Mr. Lerner's
family. As general partner of Greenbelt Residential, Planden Corporation has a
1% interest in Greenbelt Residential.
Lerner Enterprises is the sole limited partner of Greenbelt Residential.
Lerner Enterprises is a Maryland limited partnership comprised of Mr. Lerner and
members of his family. The general partners of Lerner Enterprises are Mr.
Lerner, Annette M. Lerner, Mark D. Lerner, Debra Lerner Cohen, and Marla Lerner
Tanenbaum. The limited partners of Lerner Enterprises are two Lerner family
trusts. As the sole limited partner of Greenbelt Residential, Lerner
Enterprises has a 99% interest in Greenbelt Residential.
Lerner Corporation is a real estate management company of which Mr.
Lerner is president and majority stockholder. Lerner Corporation serves as the
day-to-day manager of the Project under a management agreement which, after
January 1995, may be terminated by Three Winthrop upon 90 days written notice.
Winthrop is disputing the date on which it can terminate the management
agreement and take over the management of the Project, arguing that notice of
termination may be given prior to and effective on January 31, 1995, and has
filed a complaint in a Maryland state court seeking a declaratory judgment on
this matter. Lerner Corporation believes Winthrop's complaint is without merit
and intends to contest the action.
Under the terms of a management agreement, Lerner Corporation receives a
fee equal to 4% of gross rents actually collected, payable monthly. The fee
charged to operations during 1993, 1992, and 1991 amounted to $893,529,
$923,381, and $921,853, respectively. In addition, leasing fees for the
commercial space at the Project during 1993, 1992, and 1991 amounted to $638,
$810, and $1,145, respectively.
Lerner Corporation presently leases and manages over 6,000 apartment
units and approximately 3.8 million square feet of office and retail space in
the Washington, D.C. area. Lerner Corporation employs approximately 470 people.
On December 27, 1994, Mr. Lerner filed a lawsuit against Three Winthrop
seeking an accounting, money damages, and other relief. The complaint alleges
that Three Winthrop, acting as general partner of the Investor Partnership,
breached its fiduciary duty to Mr. Lerner in various ways, including by failing
to make proper distributions of the proceeds of the Operating Partnerships and
by denying Mr. Lerner access to the books and records of the Operating
Partnerships. Three Winthrop has not yet filed an answer to this complaint.
The principal business address for each of Greenbelt Residential, Lerner
Enterprises, and Lerner Corporation is 11501 Huff Court, North Bethesda,
Maryland 20895-1094; telephone 301/984-1500; fax 301/770-0144.
Theodore N. Lerner, Mark D. Lerner, Robert K. Tanenbaum, and Edward L.
Cohen each may be deemed a participant in the Consent Solicitation. Unless
otherwise indicated, the current business address of each such person is as set
forth above.
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Under the Partnership Agreement, Mr. Lerner, and any "Related Parties"
(as defined in the Partnership Agreement) are prohibited from acquiring or
owning Units. As of the date hereof, none of the persons identified above or
any of their associates beneficially owned any Units.
CERTAIN INFORMATION CONCERNING THE INVESTOR PARTNERSHIP
The Investor Partnership is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and as
required thereunder files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials also can be obtained from the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
The following information regarding the Investor Partnership is
qualified in its entirety by reference to, and is derived exclusively from,
publicly-available reports filed by the Investor Partnership under the Exchange
Act with the Commission. Greenbelt Residential assumes no responsibility for
the accuracy or the adequacy of the information included in such reports.
Copies of the Investor Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993 and quarterly reports on Form 10-Q for the quarters
ended March 31, 1994, June 30, 1994, and September 30, 1994 will be furnished to
Unitholders upon request at the address set forth herein.
The only business of the Investor Partnership is investing as a general
partner in the Operating Partnerships, and as such, to cause the Operating
Partnerships to own and operate the Project, until such time as a sale, if any,
of all or a portion of the Project appears to be advantageous and is permitted
under the terms of the Operating Partnerships' partnership agreements. The
executive officers of the Investor Partnership are located at One International
Place, Boston, Massachusetts 02110, telephone (617) 330-8600.
The Investor Partnership does not have any employees. Services are
performed for the Investor Partnership by the general partners and agents
retained by them. The Operating Partnerships have retained Winthrop Management,
a Massachusetts general partnership whose general partners are affiliated with
WFA, to be primarily responsible for the management of the Project, including
the establishment of leasing policies, the setting of rental rates, the
implementation of capital improvements and the supervision of the Project's
property manager. Prior to January 1, 1990, another affiliate of WFA performed
these services. Winthrop Management is entitled to a fee equal to 1% of gross
rents actually collected, payable monthly, and it may also receive a contingent
incentive management fee. The management fee for its services amounted to
$223,382, $230,845, and $230,463 in 1993, 1992, and 1991, respectively.
Winthrop Financial also receives an annual asset management fee of $100,000, and
Winthrop Management is entitled to receive an annual administration fee of
$10,000.
There is no established public trading market for the Units. Trading in
the Units is sporadic and occurs solely through private transactions. In
addition, transfers of Units are subject to limitations set forth in the
Partnership Agreement which require the prior written consent of Three Winthrop
to any such transfer.
The Partnership Agreement requires that Cash Flow (as defined therein)
be distributed to the partners in specified proportions (discussed below) at
reasonable intervals during the fiscal year and, in any event, no later than 60
days after the close of each fiscal year. The Investor Partnership's ability to
make distributions
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of Cash Flow is limited by the extent to which the Operating Partnerships earn
more than sufficient rental and investment income to (a) pay all expenses of the
Project, and (b) distribute sufficient Cash Flow to the Investor Partnership to
meet the debt service requirements of the mortgage loans and other expenses and
current obligations. Cash distributions of $237,502 and $237,502 were paid to
the Unitholders in 1992 and 1991, respectively, representing the Cash Flow
available for distribution from the preceding year's operations. None of the
cash that was distributed represented a return of Unitholders' capital. No
distribution was made in 1993 from 1992 operations because the property operated
at a deficit in 1992, which was funded from the Investor Partnership's reserves.
As of the date hereof, Three Winthrop has announced its intention to resume
making cash distributions to Unitholders in early 1995.
The Partnership Agreement for the Investor Partnership provides that
distributions of cash flow shall be made 95% to the Unitholders, .01% to Three
Winthrop and 4.99% to Linnaeus-Lexington. After satisfaction of creditors and
establishing reserves, distributions of net proceeds from a capital transaction
are distributed as follows: (i) first, to Unitholders an amount equal to a
cumulative annual 6% return on their unreturned capital investment, (ii) second,
to Unitholders to repay their unreturned capital investment; and (iii) third,
70.6% to the Unitholders, 1.0% to Three Winthrop and 28.4% to Linnaeus-
Lexington.
Three Winthrop and Linnaeus-Lexington own all the outstanding general
partnership interests in the Investor Partnership. No other person or group was
known by the Investor Partnership to be the beneficial owner of more than 5% of
the outstanding partnership interests as of March 31, 1994.
As of December 31, 1993, four limited partners of Linnaeus-Lexington,
who are no longer employed by WFA or its affiliates, beneficially owned Units in
the Investor Partnership. One person owns a one-half Unit and the other three
own one Unit each (less than .01%). No other officer or director or partner of
the general partners owns any Units.
PLEASE INDICATE YOUR SUPPORT OF A SALE OF THE PROJECT BY COMPLETING,
SIGNING, AND DATING THE ENCLOSED GREEN CONSENT CARD AND RETURNING IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED
IN THE UNITED STATES.
Greenbelt Residential Limited Partnership
January 19, 1995
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Questions and requests for assistance may be directed to Georgeson &
Company Inc. at the address and telephone numbers listed below. Additional
copies of this Consent Solicitation Statement and the GREEN Consent Card may be
obtained as set forth below:
GEORGESON
& COMPANY INC.
Wall Street Plaza
New York, New York 10005
(212) 509-6240 (collect)
Call Toll Free 1-800-223-2064