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 September 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
September 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
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Cash and cash equivalents $ 16,103,461 $ 11,344,948
Cash and cash equivalents - Early
Investment Incentive Fund 257,480 302,437
Escrow deposits 92,100 127,004
Escrow deposits - restricted 250,000
Accounts and accrued interest receivable 166,189 222,417
Prepaid expenses 57,401 31,897
Deferred expenses, net of accumulated
amortization of $49,991 in 1996 and
$40,618 in 1995 12,497 21,870
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16,939,128 12,050,573
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Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 11,403,262 53,030,966
Less:
Loans payable - underlying mortgages 4,435,048 33,761,548
Allowance for potential loan losses 688,000 3,943,630
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Net investment in loans receivable 6,280,214 15,325,788
Real estate held for sale 14,214,705 14,214,705
Investment in joint ventures with
affiliates 6,639,903 6,483,760
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27,134,822 36,024,253
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$ 44,073,950 $ 48,074,826
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 157,074 $ 101,455
Due to affiliates 64,005 36,011
Other liabilities, principally real
estate taxes and escrow deposits 314,335 534,113
Security deposits 88,384 89,848
Mortgage notes payable 1,633,898 1,666,291
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Total liabilities 2,257,696 2,427,718
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Limited Partners' capital (237,436 Limited
Partnership Interests issued) 49,726,984 52,908,205
Less Interests held by Early Investment
Incentive Fund (20,400 at September 30,
1996 and 16,090 at December 31, 1995) (6,886,900) (6,040,849)
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42,840,084 46,867,356
General Partner's deficit (1,023,830) (1,220,248)
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Total partners' capital 41,816,254 45,647,108
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$ 44,073,950 $ 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 nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans receivable $ 4,407,482 $ 5,646,324
Less interest on loans
payable - underlying mortgages 2,137,926 2,885,429
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Net interest income on loans receivable 2,269,556 2,760,895
Income from operations of
real estate held for sale 1,191,597 1,172,276
Participation in income
of joint ventures with affiliates 434,971 463,530
Interest on short-term investments 324,075 745,036
Recovery of losses on loans 2,787,817
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Total income 7,008,016 5,141,737
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Expenses:
Administrative 563,093 549,476
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Total expenses 563,093 549,476
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Income before gain on sales of real estate 6,444,923 4,592,261
Gain on sales of real estate 2,540,646
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Net income $ 6,444,923 $ 7,132,907
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Net income allocated to General Partner $ 483,369 $ 534,968
============== ==============
Net income allocated to Limited Partners $ 5,961,554 $ 6,597,939
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(221,088 in 1996 and 226,941 in 1995) $ 26.96 $ 29.07
============== ==============
Distributions to General Partner $ 286,951 $ 237,477
============== ==============
Distributions to Limited Partners $ 9,142,775 $ 15,634,933
============== ==============
Distributions per Limited Partnership
Interest outstanding $ 41.34 $ 68.94
============== ==============
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 September 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans receivable $ 1,624,168 $ 1,706,082
Less interest on loans
payable - underlying mortgages 533,107 861,970
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Net interest income on loans receivable 1,091,061 844,112
Income from operations of
real estate held for sale 404,270 121,609
Participation in income
of joint ventures with affiliates 170,063 116,313
Interest on short-term investments 142,896 229,036
Recovery of losses on loans 2,787,817
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Total income 4,596,107 1,311,070
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Expenses:
Administrative 163,042 176,385
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Total expenses 163,042 176,385
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Income before gain on sales of real estate 4,433,065 1,134,685
Gain on sales of real estate 1,822,746
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Net income $ 4,433,065 $ 2,957,431
============== ==============
Net income allocated to General Partner $ 332,480 $ 221,807
============== ==============
Net income allocated to Limited Partners $ 4,100,585 $ 2,735,624
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(220,508 in 1996 and 226,319 in 1995) $ 18.60 $ 12.07
============== ==============
Distributions to General Partner $ 128,633 $ 79,159
============== ==============
Distributions to Limited Partners $ 2,288,695 $ 8,135,113
============== ==============
Distributions per Limited Partnership
Interest outstanding $ 10.38 $ 35.94
============== ==============
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 nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Operating activities:
Net income $ 6,444,923 $ 7,132,907
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sales of real estate (2,540,646)
Participation in income of
joint ventures with affiliates (434,971) (463,530)
Recovery of losses on loans (2,787,817)
Amortization of deferred expenses 9,373 9,373
Net change in:
Escrow deposits 34,904 335,057
Escrow deposits - restricted (250,000) 899,929
Accounts and accrued
interest receivable 56,228 (56,998)
Prepaid expenses (25,504) (54,064)
Accounts payable 55,619 (27,595)
Due to affiliates 27,994 (79,535)
Other liabilities (219,778) (1,188,137)
Security deposits (1,464) (33,115)
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Net cash provided by operating activities 2,909,507 3,933,646
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Investing activities:
Distributions from joint
venture partners - affiliates 278,828 263,268
Collection of principal payments
on loans receivable 4,362,969 8,335,413
Additions to real estate (60,698)
Proceeds from sale of note receivable 8,344,608
Costs incurred in connection
with sale of note receivable (296,500)
Proceeds from sales of real estate 10,856,240
Costs incurred in connection
with sales of real estate (461,794)
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Net cash provided by investing activities 12,689,905 18,932,429
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Financing activities:
Distributions to Limited Partners (9,142,775) (15,634,933)
Distributions to General Partner (286,951) (237,477)
Decrease (increase) in cash and cash
equivalents - Early Investment
Incentive Fund 44,957 (100,837)
Repurchase of Limited Partnership
Interests (846,051) (697,714)
Principal payments on underlying
loans payable (577,686) (772,597)
Repayment of mortgage notes payable (3,545,699)
Principal payments on mortgage
notes payable (32,393) (137,014)
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Net cash used in financing activities (10,840,899) (21,126,271)
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Net change in cash and cash equivalents 4,758,513 1,739,804
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 $ 16,103,461 $ 20,185,313
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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 nine months and quarter
ended September 30, 1996 and all such adjustments are of a normal and recurring
nature.
2. Interest Expense:
During the nine months ended September 30, 1996 and 1995, the Partnership
incurred and paid interest expense on mortgage notes payable on properties
owned by the Partnership of $114,613 and $425,124, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1996 are:
Paid
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Nine Months Quarter Payable
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Mortgage servicing fees $20,931 $ 6,762 $ 2,336
Reimbursement of expenses to
the General Partner, at cost 71,239 12,983 61,669
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 September 30 $36,015,862
Total liabilities as of September 30 711,242
Total income 5,915,666
Net income 2,633,656
5. Discounted Prepayment of Loan Receivable:
In August 1996, the borrower of the $5,800,000 Corporate Campus I Office
Building wrap-around loan repaid the loan. The Partnership received proceeds
of approximately $2,800,000 and the borrower repaid the $2,532,187 underlying
mortgage loan. The remaining wrap-around loan receivable balance of $467,813
was written off against the previously established allowance for losses in
connection with the prepayment of the loan.
6. Sale of Loan Receivable:
In August 1996, the Partnership sold its interest in the Seafirst Financial
Center loan for $8,344,608. The purchaser acquired the loan receivable subject
to the existing underlying mortgage loan in the amount of $24,376,892. From the
proceeds of the sale, the Partnership paid $296,500 in selling costs. In
addition, the Partnership received $406,426 of previously deferred interest
income. For financial statement purposes, the Partnership did not recognize a
gain or loss related to the sale of its interest in this loan.
7. 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.
Notice of the proposed settlement terms was sent to class members in September
1996. 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.
8. Subsequent Events:
(a) In October 1996, the Partnership paid $10,923,898 to the holders of Limited
Partnership Interests representing the regular quarterly distribution of
available Cash Flow of $4.00 per Interest for the third quarter of 1996 and a
special distribution from proceeds received from the Corporate Campus I Office
Building loan prepayment and the sale of the Partnership's interest in the
Seafirst Financial Center loan of $10.00 per Interest from Cash Flow and $32.00
per Interest from Mortgage Reductions.
(b) In October 1996, the Partnership sold its interest in the Bannockburn
Executive Plaza loan for $5,504,780. The purchaser of the loan receivable also
acquired the existing underlying mortgage loan in the amount of $3,252,936.
From the proceeds of the sale, the Partnership paid $161,500 in selling costs.
For financial statement purposes, the Partnership will recognize a gain of
$392,954 from the sale of its interest in this loan in the fourth quarter of
1996.
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. The Partnership received
repayments on the Pepper Square Apartments and the Corporate Campus I Office
Building loans in June and August 1996, respectively, and sold its interests in
the Seafirst Financial Center and Bannockburn Executive Plaza loans in August
and October 1996, respectively. Currently, one loan remains 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 recognized gains related to the sales of the
Crossings Shopping Center and Candlewyck Apartments. In addition, during 1995
and 1996, the Partnership received repayments on four loans and sold its
interest in an additional loan. The combined effect of these events resulted in
a decrease in net income during the nine months ended September 30, 1996 as
compared to the same period in 1995. The recognition of recoveries of losses
related to certain of the Partnership's loans during the quarter ended
September 30, 1996 partially offset the above decrease and resulted in an
increase in net income during the quarter ended September 30, 1996 as compared
to the same period in 1995. 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 the nine months and quarters ended September 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 the nine months ended September 30, 1996 as compared
to the same period in 1995. Deferred interest income received in connection
with the August 1996 sale of the Partnership's interest in the Seafirst
Financial Center loan was recognized as interest income during the third
quarter of 1996. This partially offset the decrease for the nine months and
resulted in an increase in net interest income on loans receivable for the
quarter ended September 30, 1996 as compared to the same period in 1995.
The Partnership has two loans on non-accrual status at September 30, 1996 which
are collateralized by Carmel on Providence Apartments and Bannockburn Executive
Plaza. The Bannockburn Executive Plaza loan was subsequently sold in October
1996. 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 $266,000 on the Carmel on Providence
loan. The Partnership would have received approximately $227,000 of net
interest income under the terms of the original loan agreement. Of the net
interest income received, $44,000 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 $409,000 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 September 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. Operations improved at The Woods Apartments resulting from
increased rental rates and decreased repair and maintenance expense due to the
completion of structural repairs and exterior painting during 1995. In
addition, costs were incurred to repair the parking lot at the Candlewyck
Apartments during the third quarter of 1995 in an effort to prepare the
property for sale. These events resulted in an increase in income from real
estate held for sale during 1996 as compared to 1995. The sale of the Crossings
Shopping Center and the Candlewyck Apartments in 1995, both of which had been
generating income for the year, and decreased rental and service income at the
Orchards Shopping Center during 1996 due to decreased occupancy levels
partially offset this increase.
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 average
occupancy resulted in a decrease in income during the nine months ended
September 30, 1996 as compared to the same period in 1995. However, occupancy
improved during the third quarter of 1996 at both the Brookhollow/Stemmons and
Perimeter 400 office buildings and resulted in an increase in income during the
quarter ended September 30, 1996 as compared to the same period in 1995.
Proceeds received in connection with the 1995 and 1994 loan repayments and
property sales were invested in short-term investments and subsequently
distributed to Limited Partners in 1995. This, along with lower average
interest rates on short-term interest bearing instruments in 1996, 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. During the nine months ended
September 30, 1996, the Partnership recognized recoveries of $2,787,817 related
to the Corporate Campus I Office Building and Seafirst Financial Center loans
to provide for changes in the estimate of their fair value. The Partnership did
not recognize any provisions for potential losses related to its loans or real
estate held for sale during the nine months ended September 30, 1995. During
the third quarter of 1996, allowances of $467,813 related to the Corporate
Campus I Office Building loan were written off in connection with the
prepayment of the loan.
During 1995, the Partnership recognized gains of $717,900 and $1,822,746 in
connection with the sales of the Crossings Shopping Center and the Candlewyck
Apartments, respectively.
Liquidity and Capital Resources
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The cash position of the Partnership increased by approximately $4,759,000 as
of September 30, 1996 when compared to December 31, 1995 primarily due to the
proceeds received in connection with the sale of the Partnership's interest in
the Seafirst Financial Center loan and the repayment of the Corporate Campus I
Office Building loan. The Partnership generated cash flow totaling
approximately $2,910,000 from its operating activities primarily as a result of
the net interest income earned on its loans receivable, which includes
approximately $406,000 of deferred interest income received in connection with
the sale of the Partnership's interest in the Seafirst Financial Center loan,
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 due primarily to the receipt of
proceeds totaling approximately $4,308,000 from the repayment of the Pepper
Square Apartments and Corporate Campus I Office Building loans and
approximately $8,345,000 from the sale of the Partnership's interest in the
Seafirst Financial Center loan. The Partnership's financing activities
consisted primarily of the payment of distributions totaling approximately
$9,430,000 to the Partners, repurchases of Limited Partnership Interests
totaling approximately $846,000 and principal payments on underlying loans and
mortgage notes payable totaling approximately $610,000. The Partnership also
made a special distribution to Limited Partners from Cash Flow and Mortgage
Reductions in October 1996 as described below.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit
is considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. 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 nine months ended September 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 a marginal cash flow deficit prior to
its sale in 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 nine months ended
September 30, 1996 and 1995.
As of September 30, 1996, The Woods Apartments and the Orchards Shopping Center
have occupancy rates of 94% and 81%, 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
refinance the loan, sell the property prior to the maturity of the loan or use
Partnership reserves to repay the loan.
The General Partner believes that the market for multifamily housing and office
properties is favorable to sellers of these properties. The Partnership is
actively marketing The Woods Apartments for sale. Additionally, the General
Partner is marketing the Perimeter 400 Center Office Building for sale, a
property in which the Partnership holds a minority joint venture interest. The
General Partner examines each property individually by property type and market
in determining the optimal time to sell each property. In addition, the General
Partner believes the market for the sale of real estate loans has become
favorable to the holders of these loans.
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.
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 was 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. During
October 1996, the Partnership sold its interest in this $8,203,262 loan for
$5,504,780. Prior to the sale, excess cash flow of $47,270 was remitted to the
holder of the underlying loan during 1996. The purchaser of the loan receivable
also acquired the existing underlying mortgage loan in the amount of
$3,252,936. From the proceeds of the sale, the Partnership paid $161,500 in
selling costs. Pursuant to the terms of the sale, $250,000 of the proceeds is
being held in escrow until December 1996. See Note 8 of the Notes to Financial
Statements and 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 buildup related to principal payments of $593,770 made 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.
In August 1996, the borrower of the Corporate Campus I Office Building
wrap-around loan repaid the loan at a discount due to the diminished value of
the property. The Partnership received proceeds of $2,800,000 and the borrower
repaid the $2,532,187 underlying mortgage loan. See Note 5 of Notes to
Financial Statements for additional information
In August 1996, the Partnership sold its interest in the Seafirst Financial
Center loan for $8,344,608. The purchaser acquired the loan receivable subject
to the existing underlying mortgage loan in the amount of $24,376,892. From the
proceeds of the sale, the Partnership paid $296,500 in selling costs. In
addition, the Partnership received $406,426 of previously deferred interest
income. Pursuant to the terms of the sale, $250,000 of the proceeds is being
held in escrow until November 1996. The remainder of the proceeds were
distributed to the Partners in October 1996. See Note 6 of Notes to Financial
Statements and Item 5. Other Information for additional information.
In October 1996, the Partnership paid $10,923,898 to the holders of Limited
Partnership Interests representing the regular quarterly distribution for the
third quarter of 1996 of $4.00 of Cash Flow per Interest and special
distributions from proceeds received from the Corporate Campus I Office
Building loan repayment and the sale of the Partnership's interest in the
Seafirst Financial Center loan of $10.00 per Interest from Cash Flow and $32.00
per Interest from Mortgage Reductions. The level of the regular quarterly
distribution is consistent with the amount distributed for the second quarter
of 1996. The Partnership also paid $277,055 to the General Partner as its
distributive share of the Cash Flow distributed for the third quarter of 1996
and $92,352 as its contribution to the Early Investment Incentive Fund.
Including the October 1996 distribution, the Partnership has distributed
$728.26 per $500 Interest, of which $475.30 represents Cash Flow from
operations and $252.96 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 nine months ended September 30, 1996, the General Partner, on behalf
of the Partnership, used amounts placed in the Early Investment Incentive Fund
to repurchase 4,310 Interests from Limited Partners at a total cost of
$846,051.
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
- --------------------------
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Partnership, the "Affiliated
Partnerships"), as well as 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.
On July 1, 1996, another 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 complaint seeks to assert class and derivative claims again the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the Balcor Defendants' 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 amended their complaint on October 8, 1996,
adding additional claims. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers. Each of the defendants have filed motions to dismiss the
complaint. The court has not yet ruled on these motions.
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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Seafirst Financial Center Loan
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In 1982, the Partnership funded a $5,017,310 loan evidenced by a promissory
note in the amount of $32,425,000 and collateralized by a wrap-around mortgage
on the Seafirst Financial Center, Spokane, Washington. The principal amount of
the loan included the principal amount of an underlying first mortgage loan.
As previously reported, the Partnership contracted to sell the loan to an
unaffiliated party, CS First Boston Mortgage Capital Corp., for a sale price
equal to 87.21% of the outstanding principal balance of the loan less the
outstanding principal balance of the underlying loan as of the closing date.
The sale of the loan closed on August 22, 1996. The final sale price was
$8,451,034 which includes $406,426 of deferred interest income. The Partnership
additionally received a $300,000 premium from the purchaser.
From the proceeds of the sale, the Partnership paid closing costs of $50,000
and $246,500 to an unaffiliated party as a commission. The remaining proceeds
were approximately $8,455,000, of which $250,000 is being held in escrow and
will be released to the Partnership on November 21, 1996.
Bannockburn Executive Plaza Loan
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In 1982, the Partnership funded a $5,027,736 loan evidenced by a promissory
note in the amount of $10,100,000 and collateralized by a wrap-around mortgage
on the Bannockburn Executive Plaza, Bannockburn, Illinois. The principal amount
of the loan included the principal amount of an underlying first mortgage loan.
As previously reported, the Partnership contracted to sell the loan to an
unaffiliated party, CS First Boston Mortgage Capital Corp., for a sale price
equal to 88.63% of the outstanding principal balance of the loan less the
outstanding principal balance of the underlying loan as of the closing date.
The sale of the loan closed on October 1, 1996. The final sale price was
$5,352,368. The Partnership also received a $250,000 premium from the
purchaser. In addition, the purchaser received a credit against the sale price
equal to 3% of the outstanding principal balance of the underlying loan, or
$97,588.
From the proceeds of the sale, the Partnership paid closing costs of $50,000
and $111,500 to an unaffiliated party as a commission. The remaining proceeds
were approximately $5,343,000, of which $250,000 is being held in escrow and
will be released to the Partnership on December 31, 1996.
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)(a) Purchase and Sale Agreement regarding the sale of the Partnership's
interest in the Bannockburn Executive Plaza loan, previously filed as Exhibit
(10)(i) to the Registrant's Report on Form 10-Q for the quarter ended June 30,
1996, is incorporated herein by reference.
(b) First Amendment to 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, previously filed as Exhibit
(10)(ii) to the Registrant's Report on Form 10-Q for the quarter ended June 30,
1996, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ended
September 30, 1996 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended September 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/Jayne A. Kosik
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Jayne A. Kosik
Vice President, and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Mortgage Advisors-II, the General Partner
Date: November 13, 1996
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