SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-11128
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BALCOR PENSION INVESTORS-III
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(Exact name of registrant as specified in its charter)
Illinois 36-3164211
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR PENSION INVESTORS-III
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
June 30, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
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Cash and cash equivalents $ 6,714,525 $ 11,344,948
Cash and cash equivalents - Early
Investment Incentive Fund 696,051 302,437
Escrow deposits 57,693 127,004
Accounts and accrued interest receivable 131,011 222,417
Prepaid expenses 80,133 31,897
Deferred expenses, net of accumulated
amortization of $46,866 in 1996 and
$40,618 in 1995 15,622 21,870
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7,695,035 12,050,573
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Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 49,683,696 53,030,966
Less:
Loans payable - underlying mortgages 31,486,243 33,761,548
Allowance for potential loan losses 3,943,630 3,943,630
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Net investment in loans receivable 14,253,823 15,325,788
Real estate held for sale 14,214,705 14,214,705
Investment in joint ventures with affiliates 6,595,404 6,483,760
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35,063,932 36,024,253
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$ 42,758,967 $ 48,074,826
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 94,625 $ 101,455
Due to affiliates 45,975 36,011
Other liablilities, principally real
estate taxes and escrow deposits 414,345 534,113
Security deposits 89,854 89,848
Mortgage notes payable 1,644,945 1,666,291
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Total liabilities 2,289,744 2,427,718
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Limited Partners' capital (237,476
Interests issued) 47,915,094 52,908,205
Less Interests held by Early Investment
Incentive Fund (16,984 at June 30, 1996
and 16,090 at December 31, 1995) (6,218,194) (6,040,849)
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41,696,900 46,867,356
General Partner's deficit (1,227,677) (1,220,248)
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Total partners' capital 40,469,223 45,647,108
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$ 42,758,967 $ 48,074,826
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans receivable $ 2,783,314 $ 3,940,242
Less interest on loans
payable - underlying mortgages 1,604,819 2,023,459
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Net interest income on loans receivable 1,178,495 1,916,783
Income from operations of
real estate held for sale 787,327 1,050,667
Participation in income
of joint ventures with affiliates 264,908 347,217
Interest on short-term investments 181,179 516,000
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Total income 2,411,909 3,830,667
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Expenses:
Administrative 400,051 373,091
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Total expenses 400,051 373,091
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Income before gain on sale of real estate 2,011,858 3,457,576
Gain on sale of real estate 717,900
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Net income $ 2,011,858 $ 4,175,476
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Net income allocated to General Partner $ 150,889 $ 313,161
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Net income allocated to Limited Partners $ 1,860,969 $ 3,862,315
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Net income per average number of Limited
Partnership Interests outstanding
(221,381 in 1996 and 227,258 in 1995) $ 8.41 $ 17.00
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Distributions to General Partner $ 158,318 $ 158,318
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Distributions to Limited Partners $ 6,854,080 $ 7,499,820
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Distributions per Limited Partnership
Interest outstanding $ 30.96 $ 33.00
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans receivable $ 1,415,883 $ 1,968,217
Less interest on loans
payable - underlying mortgages 785,638 1,006,294
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Net interest income on loans receivable 630,245 961,923
Income from operations of
real estate held for sale 406,593 440,771
Participation in income
of joint ventures with affiliates 128,260 218,693
Interest on short-term investments 80,529 221,745
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Total income 1,245,627 1,843,132
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Expenses:
Administrative 310,493 180,030
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Total expenses 310,493 180,030
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Net income $ 935,134 $ 1,663,102
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Net income allocated to General Partner $ 70,135 $ 124,733
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Net income allocated to Limited Partners $ 864,999 $ 1,538,369
============= =============
Net income per average number of Limited
Partnership Interests outstanding
(221,377 in 1996 and 227,248 in 1995) $ 3.91 $ 6.77
============= =============
Distribution to General Partner $ 79,159 $ 79,159
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Distribution to Limited Partners $ 885,540 $ 6,590,751
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Distribution per Limited Partnership
Interest outstanding $ 4.00 $ 29.00
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The accompanying notes are an integral part of the financial statements.
Balcor Pension Investors-III
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Operating activities:
Net income $ 2,011,858 $ 4,175,476
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of real estate (717,900)
Participation in income of
joint ventures with affiliates (264,908) (347,217)
Amortization of deferred expenses 6,248 6,249
Net change in:
Escrow deposits 69,311 205,829
Escrow deposits - restricted 899,929
Accounts and accrued
interest receivable 91,406 69,158
Prepaid expenses (48,236) (157,264)
Accounts payable (6,830) (36,084)
Due to affiliates 9,964 (100,271)
Other liabilities (119,768) (998,047)
Security deposits 6 (2,563)
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Net cash provided by operating activities 1,749,051 2,997,295
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Investing activities:
Distributions from joint
venture partners - affiliates 153,264 90,730
Collection of principal payments
on loans receivable 1,507,535 22,316
Additions to real estate (56,633)
Proceeds from sale of real estate 856,240
Costs incurred in connection
with sale of real estate (79,750)
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Net cash provided by investing activities 1,660,799 832,903
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Financing activities:
Distributions to Limited Partners (6,854,080) (7,499,820)
Distributions to General Partner (158,318) (158,318)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (393,614) (119,879)
Repurchase of Limited Partnership
Interests (177,345) (273,257)
Principal payments on underlying
loans payable (435,570) (568,584)
Principal payments on mortgage
notes payable (21,346) (111,192)
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Net cash used in financing activities (8,040,273) (8,731,050)
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Net change in cash and cash equivalents (4,630,423) (4,900,852)
Cash and cash equivalents at beginning
of period 11,344,948 18,445,509
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Cash and cash equivalents at end of period $ 6,714,525 $ 13,544,657
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the six months and quarter
ended June 30, 1996 and all such adjustments are of a normal and recurring
nature.
2. Interest Expense:
During the six months ended June 30, 1996 and 1995, the Partnership incurred
and paid interest expense on mortgage notes payable on properties owned by the
Partnership of $76,658 and $262,913, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1996 are:
Paid
-----------------------
Six Months Quarter Payable
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Mortgage servicing fees $ 14,169 $ 7,066 $ 2,355
Reimbursement of expenses to
the General Partner, at cost 58,256 46,138 43,620
4. Investments in Joint Ventures with Affiliates:
The Partnership owns a 27.5% joint venture interest in the Brookhollow/Stemmons
Office Center and a 12.68% joint venture interest in the Perimeter 400 Center
Office Building.
The following information has been summarized from the financial statements of
the joint ventures:
1996
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Net investment in real estate as of June 30 $36,015,862
Total liabilities as of June 30 590,390
Total income 3,919,144
Net income 1,667,854
5. Contingency:
A proposed settlement has been reached with respect to the class action
complaint, Paul Williams and Beverly Kennedy, et al, v. Balcor Pension
Investors, et al. between counsel for the Class and counsel for the defendants.
A final hearing on the proposed settlement is expected to be held in November
1996. The General Partner does not believe that the proposed settlement will
have a material adverse impact on the Partnership.
6. Subsequent Event:
In July 1996, the Partnership paid $2,465,001 to the holders of Limited
Partnership Interests representing the regular quarterly distribution of
available Cash Flow of $4.00 per Interest for the second quarter of 1996 and
special distributions from proceeds received from the Pepper Square loan
repayment of $2.50 per Interest from Cash Flow and $3.88 per Interest from
Mortgage Reductions.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-III (the "Partnership") is a limited partnership
formed in 1982 to invest in wrap-around mortgage loans and, to a lesser extent,
other junior mortgage loans and first mortgage loans. The Partnership raised
$118,738,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-two loans. In addition, proceeds from prior loan
repayments were used to fund five additional loans. As of June 30, 1996, four
loans remain outstanding in the Partnership's portfolio. In addition, the
Partnership owns two properties held for sale and holds minority joint venture
interests in an additional two properties.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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During 1995, the Partnership sold two properties and received repayments on two
loans. The combined effect of these events resulted in a decrease in net income
during the six months and quarter ended June 30, 1996 as compared to the same
periods in 1995. The recognition of the gain on the sale of the Crossings
Shopping Center during the first quarter of 1995 also contributed to the
decrease in net income for the six months ended June 30, 1996. Further
discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
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Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the six months and quarters ended June 30, 1996 and 1995.
The repayments of the Colony Apartments loan in August 1995 and the Rivergate
Apartments loan in December 1995 resulted in a decrease in net interest income
on loans receivable during 1996 as compared to 1995.
The Partnership has two loans on non-accrual status at June 30, 1996 which are
collateralized by Carmel on Providence Apartments and Bannockburn Executive
Plaza. For non-accrual loans, income is recorded only as cash payments are
received from the borrower. The funds advanced by the Partnership for these two
loans total approximately $6,200,000, representing approximately 6% of original
funds advanced. During 1996, the Partnership received cash payments of net
interest income totaling approximately $212,000 on the Carmel on Providence
loan. The Partnership would have received approximately $148,000 of net
interest income under the terms of the original loan agreement. Of the net
interest income received, $26,000 relates to costs incurred by the Partnership
prior to the borrower's bankruptcy filing, which have been added to the
principal of the loan and which accrue interest, payable by the borrower on a
quarterly basis. In addition, approximately $301,000 was received on the
Bannockburn Executive Plaza loan. This loan originally matured in January 1994
and was subsequently extended to December 1997.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At June 30, 1996,
the Partnership was operating The Woods Apartments and the Orchards Shopping
Center. Original funds advanced by the Partnership total approximately
$6,678,000 for these properties, representing approximately 6% of original
funds advanced. The Partnership sold the Crossings Shopping Center and the
Candlewyck Apartments in 1995, both of which had been generating income. In
addition, rental and service income decreased at the Orchards Shopping Center
during 1996 due to decreased occupancy levels. The combined effect of these
events resulted in a decrease in income from real estate held for sale during
1996 as compared to 1995. Improved operations at The Woods Apartments resulting
from increased rental rates and decreased repair and maintenance expense due to
the completion of structural repairs and clubhouse renovation during 1995
partially offset this decrease.
Participation in income of joint ventures with affiliates represents the
Partnership's 27.5% and 12.68% shares of income from the Brookhollow/Stemmons
and Perimeter 400 Center office buildings, respectively. Decreased rental and
service income at the Brookhollow/Stemmons Office Building due to lower
occupancy resulted in a decrease in income during 1996 as compared to 1995.
Proceeds received in connection with the 1994 loan repayments and property
sales were invested in short-term investments and subsequently distributed to
investors in 1995, which resulted in a decrease in interest income on
short-term investments during 1996 as compared to 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred, either in a borrower's ability to repay the loan or in
the value of the collateral property. Determinations of fair value are made
periodically on the basis of performance under the terms of the loan agreement
and assessments of property operations. Determinations of fair value represent
estimations based on many variables which affect the value of real estate,
including economic and demographic conditions. The Partnership did not
recognize any provisions for potential losses related to its loans or real
estate held for sale during the six months ended June 30, 1996 and 1995.
The Partnership incurred higher consulting, printing and postage costs in
connection with its response to a tender offer during the second quarter of
1996. As a result, administrative expenses increased during 1996 as compared to
1995.
During 1995, the Partnership recognized a gain of $717,900 in connection with
the sale of the Crossings Shopping Center.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $4,630,000 as
of June 30, 1996 when compared to December 31, 1995 primarily due to a special
distribution made to Limited Partners in January 1996. The Partnership
generated cash flow totaling approximately $1,749,000 from its operating
activities primarily as a result of the net interest income earned on its loans
receivable, the operations of its properties, and the interest received on its
short-term investments, net of the payment of administrative expenses. The
Partnership received funds from investing activities primarily due to the
receipt of proceeds of approximately $1,508,000 related to the repayment of the
Pepper Square loan. The Partnership's financing activities consisted primarily
of the payment of distributions totaling approximately $7,012,000 to the
Partners and principal payments on underlying loans and mortgage notes payable
totaling approximately $457,000. The Partnership also made a special
distribution to Limited Partners from Cash Flow and Mortgage Reductions in July
1996 as described below.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures,
which include debt service payments if applicable. The Orchards Shopping Center
is the only property that has underlying debt. During the six months ended June
30, 1996 and 1995, the Orchards Shopping Center and The Woods Apartments
generated positive cash flow. The Crossings Shopping Center, which was sold in
January 1995, generated positive cash flow prior to its sale in 1995 and the
Candlewyck Apartments, which was sold in August 1995, generated positive cash
flow during the six months ended June 30, 1995. The Brookhollow/Stemmons and
Perimeter 400 Center office complexes, properties in which the Partnership
holds minority joint venture interests, also generated positive cash flow
during the six months ended June 30, 1996 and 1995.
As of June 30, 1996, The Woods Apartments and the Orchards Shopping Center have
occupancy rates of 93% and 83%, respectively. Many rental markets continue to
remain extremely competitive; therefore, the General Partner's goals are to
maintain high occupancy levels, while increasing rents where possible, and to
monitor and control operating expenses and capital improvement requirements at
the properties. The General Partner will also examine the terms of the mortgage
loan collateralized by the Orchards Shopping Center, which matures in 1997 and
may refinance or use Partnership reserves to repay the loan.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties. Currently, the Partnership is
marketing the remaining residential property in its portfolio. Additionally,
the General Partner is exploring the sale of its commercial properties. The
General Partner examines each property individually by property type and market
in determining the optimal time to sell each property.
In June 1996, Heitman/JMB Advisory Corporation, an unaffiliated third party,
initiated discussions with the General Partner for a potential sale of all of
the remaining properties and the remaining loans of the Partnership. These
discussions did not result in any agreement of terms between the parties, and
it is unlikely at this time that a sale of the Partnership's assets to them
will be consummated. This will not affect the Partnership's strategy as
described in the preceding paragraph.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate. Lower interest rates
may increase the probability that borrowers may seek prepayment of the
Partnership's loans whereas rising interest rates decrease the yields on the
loans and make prepayment less likely.
Certain borrowers have failed to make payments when due to the Partnership for
more than ninety days and, accordingly, these loans have been placed on
non-accrual status (income is recorded only as cash payments are received). The
General Partner has negotiated with some of these borrowers regarding
modifications of the loan terms and has instituted foreclosure proceedings
under certain circumstances. Such foreclosure proceedings may be delayed by
factors beyond the General Partner's control such as bankruptcy filings by
borrowers and state law procedures regarding foreclosures. Further, certain
loans made by the Partnership have been restructured to defer and/or reduce
interest payments where the properties collateralizing the loans were
generating insufficient cash flow to support property operations and debt
service.
During February 1995, a plan of reorganization related to the Bannockburn
Executive Plaza loan was confirmed by the Bankruptcy Court effective March
1995. Pursuant to the plan, the borrower is required to remit all excess cash
flow from property operations on a monthly basis directly to the holder of the
underlying loan to further reduce the principal balance of the loan. Excess
cash flow of $47,270 was remitted to the holder of the underlying loan during
the six months ended June 30, 1996. The Partnership contracted to sell this
loan, along with the Seafirst Financial Center loan in August 1996. See Item 5.
Other Information for additional information.
In June 1996, the borrower of the $3,300,000 Pepper Square Apartments
wrap-around loan repaid the loan in full. The Partnership received proceeds of
$1,507,535, which consisted of the original funds advanced on the loan of
$913,765 and equity build-up related to principal payments of $593,770 made by
the Partnership on the underlying loan. The funds advanced by the Partnership
represents the difference between the original loan receivable balance of
$3,300,000 and the original balance of the underlying loan of $2,386,235.
Distributions to Limited Partners can be expected to fluctuate for various
reasons. Generally, distributions are made from Cash Flow generated by interest
and other payments made by borrowers under the Partnership's mortgage loans.
Loan prepayments and repayments can initially cause Cash Flow to increase as
prepayment premiums and participations are paid; however, thereafter
prepayments and repayments will have the effect of reducing Cash Flow. If such
proceeds are distributed, Limited Partners will have received a return of
capital and the dollar amount of Cash Flow available for distribution
thereafter can be expected to decrease. Distribution levels can also vary as
loans are placed on nonaccrual status, modified or restructured and, if the
Partnership has taken title to properties through foreclosure or otherwise, as
a result of property operations.
In July 1996, the Partnership paid $2,465,001 to the holders of Limited
Partnership Interests representing the quarterly distribution for the second
quarter of 1996 of $4.00 of Cash Flow per Interest and special distributions
from proceeds received from the Pepper Square loan repayment of $2.50 per
Interest from Cash Flow and $3.88 per Interest from Mortgage Reductions. The
level of the regular quarterly distribution is consistent with the amount
distributed for the first quarter of 1996. The Partnership also paid $128,633
to the General Partner as its distributive share of the Cash Flow distributed
for the second quarter of 1996 and $42,878 as its contribution to the Early
Investment Incentive Fund. Including the July 1996 distribution, the
Partnership has distributed $682.26 per $500 Interest, of which $461.30
represents Cash Flow from operations and $220.96 represents a return of
Original Capital.
The Partnership expects to continue making cash distributions from the Cash
Flow generated by the receipt of mortgage payments and from property
operations, less payments on the underlying loans and administrative expenses.
The General Partner believes the Partnership has retained an appropriate amount
of working capital to meet cash or liquidity requirements which may occur.
During the six months ended June 30, 1996, the General Partner on behalf of the
Partnership used amounts placed in the Early Investment Incentive Fund to
repurchase 894 Interests from Limited Partners at a total cost of $177,345.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sale prices
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
BALCOR PENSION INVESTORS - III
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Williams class action
- ---------------------
With respect to the class action complaint, Paul Williams and Beverly Kennedy,
et al. vs. Balcor Pension Investors, et al. (U.S. District Court, Northern
District of Illinois, Case No.: 90 C 0726), the ongoing settlement discussions
among the parties have resulted in a proposed settlement between counsel for
the Class and counsel for defendants. A draft notice including a description of
the terms of the proposed settlement is attached as Exhibit 99. A final hearing
to determine the fairness, reasonableness and adequacy of the proposed
settlement will be held on November 20, 1996 at 11:00 a.m. Copies of the
proposed settlement agreement may be inspected at the office of the Clerk of
the Court of the United States District Court for the Northern District of
Illinois located at 219 South Dearborn, Chicago, Illinois 60604.
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On May 22, 1996, a proposed class and derivative action complaint was filed,
Chipain vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 05299) (the "Chipain Case"), naming the General Partner and the
general partners (together, the "Balcor Defendants") of nine other limited
partnerships sponsored by The Balcor Company (together, with the Partnership,
the "Affiliated Partnerships") as defendants. Additional defendants were
Insignia Management Group ("Insignia") and Walton Street Capital Acquisition
II, LLC ("Walton") and certain of their affiliates and principals
(collectively, the "Walton and Insignia Defendants"). The complaint alleged,
among other things, that the tender offers for the purchase of limited
partnership interests in the Affiliated Partnerships made by a joint venture
consisting of affiliates of Insignia and Walton were coercive and unfair.
The Walton and Insignia Defendants filed motions to dismiss the complaint,
which were granted on June 5, 1996. The plaintiffs filed an amended complaint,
which all defendants then moved to dismiss. On June 18, 1996, the court
dismissed the complaint in its entirety as to the Walton and Insignia
Defendants and as to the Balcor Defendants on all counts on which dismissal was
sought.
On June 14, 1996, a second proposed class and derivative action complaint was
filed in Chancery Court, Dee vs. Walton Street Capital Acquisition II, LLC
(Case No. 96 CH 06283) (the "Dee Case"). On July 1, 1996, a proposed class
action complaint was filed in the same court, Anderson vs. Balcor Mortgage
Advisors (Case No. 96 CH 06884) (the "Anderson Case"). An amended complaint
consolidating the Dee and Anderson Cases (the "Dee/Anderson Case") was filed on
July 25, 1996. The same day, the plaintiffs in the Chipain Case withdrew their
complaint. The Dee/Anderson Case names the Balcor Defendants, the Affiliated
Partnerships, and the Walton and Insignia Defendants, as defendants. The
complaint seeks to assert class and derivative claims against the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the General Partner's and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. Management of each of the Balcor Defendants
believes they have meritorious defenses to contest the claims. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the Partnership.
Item 5. Other Information
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Bannockburn Executive Plaza Loan
- --------------------------------
In 1982, the Partnership funded a $5,027,736 loan collateralized by a
wrap-around mortgage on the Bannockburn Executive Plaza Office Building,
Bannockburn, Illinois, and evidenced by a wrap-around mortgage note in the
principal amount of $10,100,000 (the "Loan"). The principal amount of the Loan
included the principal amount of an underlying first mortgage loan (the
"Underlying Loan") of $5,072,264. Pursuant to the terms of the Loan, the
borrower is required to make interest only payments on the Loan through
maturity in December 1997, at which time the amount of the Loan, less the
outstanding amount of the Underlying Loan, would be due to the Partnership. As
of August 1, 1996, the outstanding principal balances of the Loan and the
Underlying Loan were approximately $9,583,415 and $3,293,044, respectively.
On August 8, 1996, the Partnership contracted to sell its interest in the Loan
to CS First Boston Mortgage Capital Corp. for a sale price equal to 88.63% of
the difference between (i) outstanding principal balance of the Loan and (ii)
the outstanding principal balance of the Underlying Loan at closing, scheduled
for August 22, 1996 ("Closing Date"), which sale price is estimated to be
$5,575,000. The purchaser has deposited $266,250 into an escrow account as
earnest money with the remainder of the sale price payable in cash at closing.
From the proceeds of the sale, the Partnership will pay closing costs and
approximately $111,500 to an unaffiliated party as a commission. Neither the
General Partner nor any affiliate will receive a brokerage commission in
connection with the sale of the Loan. The General Partner will be reimbursed by
the Partnership for actual expenses incurred in connection with the sale.
The Partnership has simultaneously contracted to sell to the purchaser its
interest in the loan collateralized by Seafirst Financial Center, as described
below, and affiliates of the General Partner have simultaneously contracted to
sell their interests in two other loans (together with the Seafirst loan, the
"Other Loans") to the purchaser. In the event that the closing of the sale of
any of the Other Loans does not occur on the Closing Date or the purchaser
terminates the contract for any Other Loan, the sale price of the Loan will be
reduced by $250,000. Further, in the event the closing of the sale of the
Partnership's interest in the Seafirst loan does not occur for any reason, the
agreement for the sale of the Partnership's interest in the Loan will be
terminated.
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the Loan may not occur.
Seafirst Financial Center Loan
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In 1982, the Partnership funded a $5,017,310 loan collateralized by a
wrap-around mortgage on the Seafirst Financial Center, Spokane, Washington, and
evidenced by a wrap-around mortgage note in the principal amount of $32,425,000
(the "Loan"). The principal amount of the Loan included the principal amount of
an underlying first mortgage loan (the "Underlying Loan") of $27,407,690.
Pursuant to the terms of the Loan, the borrower is required to make interest
only payments on the Loan through maturity in November 1997, at which time the
amount of the Loan, less the outstanding amount of the Underlying Loan, would
be due to the Partnership. As of August 1, 1996, the outstanding principal
balances of the Loan and the Underlying Loan were approximately $32,425,000 and
$24,376,891, respectively. The amount of deferred interest due under the Loan
is approximately $1,976,978.
On August 8, 1996, the Partnership contracted to sell its interest in the Loan
to CS First Boston Mortgage Capital Corp. for a sale price equal to 87.21% of
the difference between (i) the sum of the outstanding principal balance of the
Loan and any deferred interest due under the Loan and (ii) the outstanding
principal balance of the Underlying Loan at closing, scheduled for August 22,
1996 ("Closing Date"), which sale price is estimated to be approximately
$8,700,000. The purchaser has deposited $420,000 into an escrow account as
earnest money with the remainder of the sale price payable in cash at closing.
From the proceeds of the sale, the Partnership will pay closing costs and
approximately $246,500 to an unaffiliated party as a commission. Neither the
General Partner nor any affiliate will receive a brokerage commission in
connection with the sale of the Loan. The General Partner will be reimbursed by
the Partnership for actual expenses incurred in connection with the sale.
The Partnership has simultaneously contracted to sell to the purchaser its
interest in the loan collateralized by the Bannockburn Executive Center, as
described above, and affiliates of the General Partner have simultaneously
contracted to sell their interests in two other loans (together with the
Bannockburn loan, the "Other Loans") to the purchaser. In the event that the
closing of the sale of any of the Other Loans does not occur on the Closing
Date or the purchaser terminates the contract for any Other Loan, the sale
price of the Loan will be reduced by $300,000. Further, in the event the
closing of the sale of the Partnership's interest in the Bannockburn loan does
not occur for any reason, the agreement for the sale of the Partnership's
interest in the Loan will be terminated.
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the Loan may not occur.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement, previously filed as Exhibit 4(a) to
Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated
May 20, 1982 (Registration Statement No. 2-75938) and as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-11 dated November 2, 1982
(Registration No. 2-80123); and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-11128) are incorporated
herein by reference.
(10) (i) Purchase and Sale Agreement regarding the sale of the Partnership's
interest in the Bannockburn Executive Plaza loan is attached hereto.
(ii) Purchase and Sale Agreement regarding the sale of the Partnership's
interest in the Seafirst Financial Center loan is attached hereto.
(27) Financial Data Schedule of the Registrant for the six month period ended
June 30, 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-III
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-II, the General Partner
By: /s/Brian D. Parker
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Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors-II, the
General Partner
Date: August 14, 1996
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