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 0-14351
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3327917
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
---------------
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 REALTY INVESTORS - 85 SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
--------------- --------------
Cash and cash equivalents $ 6,329,097 $ 1,125,457
Escrow deposits 841,804 1,693,209
Accounts and accrued interest receivable 148,216 143,573
Prepaid expenses 150,819 137,929
Deferred expenses, net of accumulated
amortization of $392,363 in 1996 and
$429,418 in 1995 426,088 1,013,846
Investment in joint venture with
affiliate 191,900
--------------- --------------
8,087,924 4,114,014
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Investment in real estate:
Land 5,306,324 10,525,187
Buildings and improvements 34,931,737 62,537,549
--------------- --------------
40,238,061 73,062,736
Less accumulated depreciation 15,228,873 26,137,982
--------------- --------------
Investment in real estate, net of
accumulated depreciation 25,009,188 46,924,754
--------------- --------------
$ 33,097,112 $ 51,038,768
=============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 4,036,605 $ 11,900,605
Accounts payable 220,585 142,159
Due to affiliates 103,200 756,004
Accrued liabilities, principally interest
and real estate taxes 312,335 480,390
Security deposits 126,312 233,034
Loss in excess of investment in
joint venture with an affiliate 1,207,069
Mortgage notes payable - affiliate 1,673,215
Mortgage notes payable 29,511,061 51,796,170
--------------- --------------
Total liabilities 34,310,098 68,188,646
Limited Partners' deficit (83,936
Interests issued and outstanding) (450,847) (16,228,370)
General Partner's deficit (762,139) (921,508)
--------------- --------------
Total partners' deficit (1,212,986) (17,149,878)
--------------- --------------
$ 33,097,112 $ 51,038,768
=============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS - 85 SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
--------------- --------------
Income:
Rental and service $ 9,369,736 $ 9,659,722
Interest on short-term investments 51,587 52,113
Participation in income of joint venture
with an affiliate 3,028,395 16,574
--------------- --------------
Total income 12,449,718 9,728,409
--------------- --------------
Expenses:
Interest on mortgage notes payable 3,285,979 3,710,260
Interest on short-term loans from
affiliate 474,632 611,146
Depreciation 1,320,657 1,414,489
Amortization of deferred expenses 146,018 156,489
Property operating 3,437,782 3,386,151
Real estate taxes 678,901 785,764
Property management fees 460,817 478,700
Administrative 498,120 413,913
--------------- --------------
Total expenses 10,302,906 10,956,912
Income (loss) before gain on sales of
properties and extraordinary items 2,146,812 (1,228,503)
Gain on sales of properties 12,625,131
--------------- --------------
Income (loss) before extraordinary items 14,771,943 (1,228,503)
--------------- --------------
Extraordinary items:
Debt extinguishment expenses (714,030)
Gain on forgiveness of debt 1,858,027
Participation in gain on forgiveness
of debt from joint venture with an
affiliate 41,897
Participation in debt extinguishment
expense from joint venture with an
affiliate (20,945)
---------------
Total extraordinary items 1,164,949
--------------- --------------
Net income (loss) $ 15,936,892 $ (1,228,503)
=============== ==============
Income (loss) before extraordinary items
allocated to General Partner $ 147,720 $ (12,285)
=============== ==============
Income (loss) before extraordinary items
allocated to Limited Partners $ 14,624,223 $ (1,216,218)
=============== ==============
Income (loss) before extraordinary items
per Limited Partnership Interest (83,936
Interest issued and outstanding) $ 174.23 (14.49)
=============== ==============
Extraordinary items allocated
to General Partner $ 11,649 None
=============== ==============
Extraordinary items allocated
to Limited Partners $ 1,153,300 None
=============== ==============
Extraordinary items per Limited Partnership
Interest (83,936 issued and outstanding) $ 13.74 None
=============== ==============
Net income (loss) allocated to General
Partner $ 159,369 $ (12,285)
=============== ==============
Net income (loss) allocated to Limited
Partners $ 15,777,523 $ (1,216,218)
=============== ==============
Net income (loss) per Limited Partnership
Interest (83,936 issued and outstanding) $ 187.97 $ (14.49)
=============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS - 85 SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1996 and 1995
(Unaudited)
1996 1995
--------------- --------------
Income:
Rental and service $ 2,736,641 $ 3,299,743
Interest on short-term investments 22,174 19,062
--------------- --------------
Total income 2,758,815 3,318,805
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Expenses:
Interest on mortgage notes payable 975,041 1,184,641
Interest on short-term loans from
affiliate 111,114 202,137
Depreciation 397,526 471,496
Amortization of deferred expenses 44,393 52,578
Property operating 1,149,474 1,282,306
Real estate taxes 217,904 262,277
Property management fees 133,068 163,640
Administrative 143,574 145,462
Participation in loss of joint venture
with an affiliate 16,672
--------------- --------------
Total expenses 3,172,094 3,781,209
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Loss before gain on sales of properties and
extraordinary items (413,279)
Gain on sales of properties 9,562,435
---------------
Income before extraordinary items 9,149,156
---------------
Extraordinary items:
Debt extinguishment expenses (552,783)
Gain on forgiveness of debt 1,858,027
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Total extraordinary items 1,305,244
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Net income (loss) $ 10,454,400 $ (462,404)
=============== ==============
Income (loss) before extraordinary items
allocated to General Partner $ 91,491 $ (4,624)
=============== ==============
Income (loss) before extraordinary items
allocated to Limited Partners $ 9,057,665 $ (457,780)
=============== ==============
Income (loss) before extraordinary items
per Limited Partnership Interest (83,936
Interest issued and outstanding) $ 107.91 $ (5.46)
=============== ==============
Extraordinary items allocated
to General Partner $ 13,052 None
=============== ==============
Extraordinary items allocated
to Limited Partners $ 1,292,192 None
=============== ==============
Extraordinary items per Limited Partnership
Interest (83,936 issued and outstanding) $ 15.40 None
=============== ==============
Net income (loss) allocated to General
Partner $ 104,544 $ (4,624)
=============== ==============
Net income (loss) allocated to Limited
Partners $ 10,349,856 $ (457,780)
=============== ==============
Net income (loss) per Limited Partnership
Interest (83,936 issued and outstanding) $ 123.31 $ (5.46)
=============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS - 85 SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
--------------- --------------
Operating activities:
Net income (loss) $ 15,936,892 $ (1,228,503)
Adjustments to reconcile net income (loss)
to net cash provided by or (used in)
operating activities:
Gain on sales of properties (12,625,131)
Debt extinguishment expenses 714,030
Gain on forgiveness of debt (1,858,027)
Participation in gain on forgiveness
of debt from joint venture with an
affiliate (41,897)
Participation in debt extinguishment
expense from joint venture with an
affiliate 20,945
Participation in income of joint
venture with an affiliate (3,028,395) (16,574)
Depreciation of properties 1,320,657 1,414,489
Amortization of deferred expenses 146,018 156,489
Net change in:
Escrow deposits 8,462 (522,193)
Accounts and accrued interest
receivable (4,643) 183,575
Prepaid expenses (12,890) (227,243)
Accounts payable 78,426 (137,244)
Due to affiliates (652,804) 539,618
Accrued liabilities (119,171) 337,731
Security deposits (106,722) 9,460
--------------- --------------
Net cash (used in) or provided by
operating activities (224,250) 509,605
--------------- --------------
Investing activities:
Proceeds from sales of properties 28,016,507
Payment of selling costs (743,360)
Distributions from joint venture with
an affiliate 1,805,678 56,269
Contribution to joint venture with
an affiliate (155,300)
Redemption of restricted investments 480,000
--------------- --------------
Net cash provided by investing activities 28,923,525 536,269
--------------- --------------
Financing activities:
Repayment of loans payable - affiliate (7,864,000) (480,000)
Proceeds from loans payable - affiliate 85,000
Proceeds from issuance of mortage
note payable - affiliate 135,928
Proceeds from issuance of mortgage
notes payable 6,010,000
Repayment of mortgage notes payable (16,040,829) (5,480,512)
Principal payments on mortgage notes
payable (297,387) (300,983)
Funding of escrows (157,500)
Releases from escrows 842,943
Payment of deferred expenses (162,841)
Payment of prepayment penalties (272,290)
--------------- --------------
Net cash used in financing activities (23,495,635) (486,836)
--------------- --------------
Net change in cash and cash equivalents 5,203,640 559,038
Cash and cash equivalents at beginning
of period 1,125,457 600,949
--------------- --------------
Cash and cash equivalents at end of period $ 6,329,097 $ 1,159,987
=============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1995 statements in
order to provide comparability with the 1996 statements. This reclassification
has not changed the 1995 results. 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 non-affiliated mortgage notes payable of
$3,156,874 and $3,560,056, 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
-----------------------
Nine Months Quarter Payable
------------- --------- ----------
Reimbursement of expenses to
the General Partner, at cost $ 84,173 $ 16,449 $ 72,619
The Partnership had a junior loan outstanding from The Balcor Company ("TBC"),
an affiliate of the General Partner, relating to the Chestnut Ridge - Phase I
Apartments. In September 1996, the junior loan was increased by $135,928 in
order to provide the minimum net proceeds required from the sale of this
property. Subsequently, this $1,809,143 loan, along with accrued interest of
$48,884 was forgiven in connection with the sale. See Notes 5 and 6 of Notes to
Financial Statements for additional information. During the nine months ended
September 30, 1996 and 1995, the Partnership incurred interest expense on this
affiliate loan of $129,105 and $150,204 and paid interest expense of $141,197
and $134,265, respectively.
As of September 30, 1996, the Partnership owes approximately $4,037,000 to the
General Partner in connection with the funding of additional working capital
and other Partnership obligations. The Partnership repaid $7,864,000 to the
General Partner during the nine months ended September 30, 1996, primarily with
the proceeds received from the sales of Forest Ridge - Phase II, Rosehill
Pointe and Chestnut Ridge - Phase I apartment complexes. The Partnership
incurred interest expense of $474,632 and $611,146, and paid interest expense
of $1,178,632 and $14,764 on this loan during the nine months ended September
30, 1996 and 1995, respectively. As of September 30, 1996, interest expense of
$30,581 was payable. Interest expense was computed at the American Express
Company cost of funds rate plus a spread to cover administrative costs. As of
September 30, 1996, this rate was 5.931%. During October 1996, the General
Partner loan was repaid in full with proceeds from the sale of the Country
Oaks, Chestnut Ridge - Phase I and Hunters Glen apartment complexes.
4. Investment in Joint Venture with an Affiliate:
The Rosehill Pointe Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The Partnership and the affiliate held
participating percentages in the joint venture of 38.38% and 61.62%,
respectively. In June 1996, the joint venture sold the property in an all cash
sale for $20,700,000. From the proceeds of the sale, the joint venture paid
$15,537,677 to the third party mortgage holders in full satisfaction of the
first and second mortgage loans, and paid $170,250 in selling costs. The joint
venture recognized a gain of $7,920,199 from the sale of this property, of
which $3,055,484 was the Partnership's share.
5. Property Sales:
(a) In June 1996, the Partnership sold the Forest Ridge - Phase II Apartments
in an all cash sale for $11,100,000. From the proceeds of the sale, the
Partnership paid $7,870,116 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $126,000 in selling costs.
The basis of the property was $7,911,304, which is net of accumulated
depreciation of $4,265,862. For financial statement purposes, the Partnership
recognized a gain of $3,062,696 from the sale of this property.
(b) In September 1996, the Partnership sold the Country Oaks Apartments in an
all cash sale for $8,250,000. The purchaser of the Country Oaks Apartments
took title subject to the existing first mortgage loan in the amount of
$5,946,893. From the proceeds of the sale, the Partnership paid $154,436 in
selling costs. The basis of the property was $4,191,573, which is net of
accumulated depreciation of $2,937,967. For financial statement purposes, the
Partnership recognized a gain of $3,903,991 from the sale of this property.
(c) In September 1996, the Partnership sold the Chestnut Ridge - Phase I
Apartments in an all cash sale for $5,513,400. From the proceeds of the sale,
the Partnership paid $3,629,161 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $192,709 in selling costs and
$181,458 in prepayment penalties. The Partnership received net proceeds of
$1,510,072 from the sale. However, the terms of the 1994 refinancing of this
property provided that minimum net proceeds of $1,646,000 were to be received
from the sale of this property. As a result, $135,928 was contributed to the
Partnership through an increase to the balance of the junior loan outstanding
from TBC. The basis of the property was $4,336,015, which is net of accumulated
depreciation of $2,622,209. For financial statement purposes, the Partnership
recognized a gain of $984,676 from the sale of this property.
(d) In September 1996, the Partnership sold the Hunters Glen Apartments in an
all cash sale for $9,100,000. From the proceeds of the sale, the Partnership
paid $4,541,552 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $270,215 in selling costs and $90,832 in prepayment
penalties. The basis of the property was $4,156,017, which is net of
accumulated depreciation of $2,403,728. For financial statement purposes, the
Partnership recognized a gain of $4,673,768 from the sale of this property.
6. Extraordinary Items:
(a) In connection with the sales of properties during 1996, the Partnership
fully amortized the remaining deferred expenses in the amount of $441,740. In
addition, in connection with the sales of the Chestnut Ridge - Phase I and
Hunters Glen apartment complexes, the Partnership paid $272,290 in prepayment
penalties. These amounts were recognized as an extraordinary item and
classified as debt extinguishment expense.
(b) In June 1996, the joint venture consisting of the Partnership and an
affiliate sold the Rosehill Pointe Apartments. In connection with the sale, the
joint venture fully amortized the remaining deferred expenses and recognized a
gain related to the forgiveness of debt. The Partnership's share of these
amounts of $20,945 and $41,897 were recognized as extraordinary items and
classified as debt extinguishment expense and gain on the forgiveness of debt,
respectively.
(c) In connection with the sale of the Chestnut Ridge - Phase I Apartments, the
junior loan due to TBC, which had an outstanding balance of $1,858,027,
including accrued interest of $48,884, was forgiven which resulted in an
extraordinary gain on forgiveness of debt.
7. Subsequent Events:
(a) In October 1996, the Partnership sold the Marbrisa Apartments in an all
cash sale for $7,800,000. From the proceeds of the sale, the Partnership paid
$5,361,230 to the third party mortgage holder in full satisfaction of the first
mortgage loan and paid $325,361 in selling costs. For financial statements
purposes, the Partnership will recognize a gain of approximately $2,900,000
from the sale of this property during the fourth quarter of 1996.
(b) In October 1996, the Partnership sold the Willow Bend Lake Apartments in
an all cash sale for $14,350,000. From the proceeds of the sale, the
Partnership paid $9,737,486 to the third party mortgage holder in full
satisfaction of the first mortgage loan and paid $366,660 in selling costs.
For financial statements purposes, the Partnership will recognize a gain of
approximately $6,200,000 from the sale of this property during the fourth
quarter of 1996.
(c) In November 1996, the Partnership sold the Park Crossing Apartments in an
all cash sale for $11,350,000. From the proceeds of the sale, the Partnership
paid $7,131,987 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $411,552 in selling costs and $142,639 in prepayment
penalties. For financial statements purposes, the Partnership will recognize a
gain of approximately $3,700,000 from the sale of this property during the
fourth quarter of 1996.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property. Prior to 1996, the Partnership
disposed of five of these properties. During 1996, the Partnership sold seven
properties and the property in which it held a minority joint venture interest.
The Partnership continues to own and operate the Steeplechase Apartments;
however, the property is actively being marketed for sale.
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
- ----------
Summary of Operations
- ---------------------
The Partnership sold four properties during the nine months ended September 30,
1996 and recognized significant gains. The Partnership also recognized its
share of the gain from the June 1996 sale of the Rosehill Pointe Apartments,
which was owned by a joint venture consisting of the Partnership and an
affiliate. In addition, the Partnership recognized an extraordinary gain on
forgiveness of debt in connection with the sale of the Chestnut Ridge - Phase I
Apartments. These events resulted in the recognition of net income during the
nine months and quarters ended September 30, 1996 as compared to a net loss
during the same periods in 1995. Further discussion of the Partnership's
operations is summarized below.
1996 Compared to 1995
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to the nine months and quarters ended September 30, 1996 and 1995.
The Partnership sold Forest Ridge - Phase II, Country Oaks, Chestnut Ridge -
Phase I and Hunters Glen apartment complexes during the first nine months of
1996. As a result, the Partnership recognized gains totaling $12,625,131
during 1996. These sales also resulted in decreases in rental and service
income, interest expense on mortgage notes payable, depreciation, amortization,
property operating expenses, real estate taxes and property management fees
during 1996 as compared to 1995.
Rosehill Pointe Apartments, in which the Partnership held a minority joint
venture interest, was sold during June 1996. As a result of the Partnership's
share of the gain recognized during 1996 in connection with the sale, income
from participation in joint venture with an affiliate increased during the nine
months ended September 30, 1996 when compared to the same period in 1995. In
connection with the sale, the Partnership also recognized its share of a gain
on forgiveness of debt of $41,897 and debt extinguishment expense of $20,945,
both of which are classified as extraordinary items.
The repayment of a portion of the General Partner loans during 1996 along with
lower interest rates resulted in a decrease in interest expense on short-term
loans from affiliate during 1996 as compared to 1995.
Higher repair and maintenance expenditures in 1996 at the Hunters Glen,
Steeplechase, and Willow Bend Lake apartment complexes resulted in increased
property operating expense at these properties and partially offset the
decrease from the property sales. As a result, property operating expense
increased for the nine months ended September 30, 1996 as compared to the same
period in 1995.
Higher professional fees caused an increase in administrative expenses during
the nine months ended September 30, 1996 when compared to the same period in
1995.
In connection with the sale of Chestnut Ridge - Phase I Apartments, the
Partnership recognized an extraordinary gain on forgiveness of debt of
$1,858,027 in 1996.
As a result of the 1996 property sales, the Partnership fully amortized
remaining deferred expenses in the amount of $441,740. In addition, in
connection with the sales of Chestnut Ridge - Phase I and Hunters Glen
apartment complexes, the Partnership paid $272,290 in prepayment penalties.
These amounts were recognized as an extraordinary item and classified as debt
extinguishment expense during 1996.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $5,204,000 as
of September 30, 1996 when compared to December 31, 1995 primarily as a result
of the proceeds received in connection with the property sales in 1996. The
Partnership used cash of approximately $224,000 in its operating activities
which primarily represented the cash flow from the operations of its
properties, which was offset by administrative expenses and the payment of
accrued interest on short-term loans from an affiliate. Cash provided by
investing activities of approximately $28,924,000 consisted of proceeds
received in connection with the sales of the Forest Ridge - Phase II, Country
Oaks, Chestnut Ridge - Phase I and Hunters Glen apartment complexes, net of
selling costs, and net distributions received from the joint venture with an
affiliate, which primarily represent the Partnership's share of the proceeds
from the sale of Rosehill Pointe Apartments. Cash used in financing activities
of approximately $23,496,000 consisted primarily of the repayment of $7,864,000
of loans payable to an affiliate and the repayment of mortgage note payables of
approximately $16,041,000 on Forest Ridge - Phase II, Chestnut Ridge - Phase I
and Hunters Glen apartment complexes. In addition, the Partnership received
proceeds in connection with the sales of the Marbrisa and Willowbend Lake
apartment complexes in October 1996 and Park Crossing Apartments in November
1996.
The Partnership owed approximately $4,037,000 to the General Partner at
September 30, 1996 in connection with the funding of operating deficits and
other working capital requirements. These loans were repaid in October 1996
from proceeds received from the sales of the Country Oaks, Chestnut Ridge -
Phase I and Hunters Glen apartment complexes.
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 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. During the nine
months ended September 30, 1996 and 1995, each of the Partnership's four
properties owned at September 30, 1996 generated positive cash flow. As of
September 30, 1996, the occupancy rates at the Partnership's remaining
properties ranged from 93% to 98%.
The Forest Ridge - Phase II Apartments, which was sold in June 1996, generated
positive cash flow prior to its sale in 1996 and generated a marginal deficit
during 1995. The Chestnut Ridge - Phase I Apartments, which was sold in
September 1996, generated positive cash flow prior to its sale in 1996 and
generated a marginal deficit during 1995. The Hunters Glen and Country Oaks
apartment complexes, which were sold in September 1996, both generated positive
cash flow prior to their sales in 1996 and during 1995. The Rosehill Pointe
Apartments, in which the Partnership held a minority joint venture interest,
was sold in June 1996 and generated positive cash flow prior to its sale in
1996 and during 1995.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties and has accelerated the
Partnership's liquidation strategy. During 1996, the Partnership sold the
Forest Ridge - Phase II, Country Oaks, Chestnut Ridge - Phase I, Hunters Glen,
Marbrisa, Willow Bend Lake and Park Crossing apartment complexes. During 1996,
the General Partner also sold the Rosehill Pointe Apartments, in which the
Partnership held a minority joint venture interest. The Partnership is
actively marketing the remaining property in its portfolio.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. Such contingencies may include legal and other fees
stemming from litigation involving the Partnership. In the absence of any such
contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency arises, reserves may be held
by the Partnership for a longer period of time.
The Rosehill Pointe Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In June 1996, the joint venture sold the property
in an all cash sale for $20,700,000. From the proceeds of the sale, the joint
venture paid $15,537,677 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $170,250 in selling costs.
The net proceeds of the sale were $4,992,073, of which $1,915,958 was the
Partnership's share. Pursuant to the terms of the sale, the joint venture was
required to holdback $500,000 of the proceeds until October 1996. The full
amount of the holdback was released in October 1996. The Partnership's share of
the remaining proceeds were used to repay a portion of the General Partner
loan. See Note 4 of Notes to Financial Statements for additional information.
In June 1996, the Partnership sold the Forest Ridge - Phase II Apartments
complex in an all cash sale for $11,100,000. From the proceeds of the sale,
the Partnership paid $7,870,116 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $126,000 in selling costs.
Pursuant to the terms of the sale the Partnership was required to holdback
$500,000 of the proceeds until October 1996. The full amount of the holdback
was released in October 1996. The remaining proceeds were used to repay a
portion of the General Partner loan. See Note 5 of Notes to Financial
Statements for additional information.
In September 1996, the Partnership sold the Country Oaks Apartments in an all
cash sale for $8,250,000. The purchaser of the Country Oaks Apartments took
title subject to the existing first mortgage in the amount of $5,946,893. From
the proceeds of the sale, the Partnership paid $154,436 in selling costs. The
remaining proceeds were used to repay a portion of the General Partner loan in
October 1996. See Note 5 of Notes to Financial Statements for additional
information.
In September 1996, the Partnership sold the Chestnut Ridge - Phase I Apartments
in an all cash sale for $5,513,400. From the proceeds of the sale, the
Partnership paid $3,629,161 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $192,709 in selling costs and
$181,458 in prepayment penalties, resulting in the Partnership receiving net
proceeds of $1,510,072 from the sale. However, the terms of the 1994
refinancing of this property provided that minimum net proceeds of $1,646,000
were to be received from the sale of this property. As a result, $135,928 was
contributed to the Partnership through an increase to the balance of the junior
loan outstanding from TBC. Pursuant to the terms of the sale, $250,000 of the
proceeds will be retained by the Partnership until December 1996. The
remaining proceeds were used to repay a portion of the General Partner loan in
October 1996. See Notes 5 and 6 of Notes to Financial Statements for
additional information.
In September 1996, the Partnership sold the Hunters Glen Apartments in an all
cash sale for $9,100,000. From the proceeds of the sale, the Partnership paid
$4,541,552 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $270,215 in selling costs and $90,832 in prepayment
penalties. Pursuant to the terms of the sale, $500,000 of the proceeds will be
retained by the Partnership until January 1997. A portion of the remaining
proceeds was used to repay a portion of the General Partner loan in October
1996 and the remainder will be distributed to the Limited Partners in January
1997. See Note 5 of Notes to Financial Statements for additional information.
In October 1996, the Partnership sold the Marbrisa Apartments in an all cash
sale for $7,800,000. From the proceeds of the sale, the Partnership paid
$5,361,230 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $325,361 in selling costs. Pursuant to the terms of
the sale, $500,000 of the proceeds will be retained by the Partnership until
February 1997. The remainder of the proceeds will be distributed to the
Limited Partners in January 1997. See Note 7 of Notes to Financial Statements
for additional information.
In October 1996, the Partnership sold the Willow Bend Lake Apartments in an all
cash sale for $14,350,000. From the proceeds of the sale, the Partnership paid
$9,737,486 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $366,660 in selling costs. Pursuant to the terms of the
sale, $250,000 of the proceeds will be retained by the Partnership until
February 1997. The remainder of the proceeds will be distributed to the
Limited Partners in January 1997. See Note 7 of Notes to Financial Statements
for additional information.
In November 1996, the Partnership sold the Park Crossing Apartments in an all
cash sale for $11,350,000. From the proceeds of the sale, the Partnership paid
$7,131,987 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $411,552 in selling costs and $142,639 in prepayment
penalties. The remainder of the proceeds will be distributed to the Limited
Partners in January 1997. See Note 7 of Notes to Financial Statements for
additional information.
The Partnership's remaining property is owned through the use of a third-party
mortgage loan and therefore, the Partnership is subject to the financial
obligations required by this loan. This loan matures in 2001.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. The Partnership used proceeds from the September 1996
property sales to repay the General Partner loan in full in October 1996. The
General Partner intends to distribute the remaining proceeds from the September
property sales, together with the proceeds received from the sales of the
Marbrisa, Willow Bend Lake and Park Crossing apartment complexes to the Limited
Partners in January 1997. In light of results to date and current market
conditions, the General Partner does not anticipate that investors will recover
a substantial portion of their original investment.
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 sales 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 REALTY INVESTORS 85 - SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Proposed class action
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Partnership, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Partnership and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended complaint
seeks judgment for compensatory damages equal to the amount invested in the
Defendant Partnerships by the proposed class plus interest accrued thereon;
general damages for injuries arising from the defendants' actions; equitable
relief, including rescission, on certain counts; treble damages on certain
counts; punitive damages; recovery from the defendants of all profits received
by them as a result of their actions relating to the Defendant Partnerships;
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the 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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Willow Bend Lake Apartments
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As previously reported, on October 14, 1996, the Partnership contracted to sell
Willow Bend Lake Apartments, East Baton Rouge, Louisiana, to an unaffiliated
party, New Plan Realty Trust, a Massachusetts business trust, for a sale price
of $14,350,000. The purchaser assigned its rights under the agreement of sale
to an affiliate, New Plan Realty of Louisiana, L.P., a Delaware limited
partnership, and the sale closed on October 31, 1996. From the proceeds of the
sale, the Partnership repaid the outstanding balance of the first mortgage loan
of $9,737,486 and paid $212,250 to an unaffiliated party as a brokerage
commission, $107,625 to an affiliate of the third party providing property
management services for the property as a fee for services rendered in
connection with the sale of the property and $46,785 in closing costs. The
Partnership received the remaining $4,245,854 of sale proceeds. Of such
proceeds, $250,000 will be retained by the Partnership and will not be
available for use or distribution by the Partnership until 120 days after
closing.
Park Crossing Apartments
- ------------------------
As previously reported, the Partnership contracted to sell Park Crossing
Apartments, Georgia, to an unaffiliated party, EEA Development, Inc., a
Delaware corporation, for a sale price of $11,350,000. EEA Development, Inc.
assigned its rights under the contract to an affiliate, EEA-Park Crossing, LLC,
and the sale closed on November 12, 1996. From the proceeds of the sale, the
Partnership repaid the outstanding principal balance of the first mortgage loan
of $7,131,987 and paid $170,250 to an unaffiliated party as a brokerage
commission, $241,302 in closing costs and $142,639 in prepayment penalties. The
Partnership received the remaining $3,663,822 of sale proceeds.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) 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. 0-14351) are incorporated
herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
Forest Ridge - Phase II apartment complex, Arlington, Texas previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated April 23, 1996 is
incorporated herein by reference.
(ii) Master Amendment and Agreement relating to the sales of the Forest Ridge -
Phase II, apartment complex, Arlington, Texas and Rosehill Pointe apartment
complex, Lenexa, Kansas previously filed as Exhibit 2(b)(i) to the Registrant's
Report on Form 8-K dated May 31, 1996 is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the
sales of the Forest Ridge - Phase II, apartment complex, Arlington, Texas and
Rosehill Pointe apartment complex, Lenexa, Kansas previously filed as Exhibit
2(b)(ii) to the Registrant's Report on Form 8-K dated May 31, 1996 is
incorporated herein by reference.
(b)(i) Agreement of Sale relating to the sale of the Hunter's Glen Apartments,
St. Louis County, Missouri previously filed as Exhibit 2(a) to the Registrant's
Report on Form 8-K dated June 28, 1996 is incorporated herein by reference.
(ii) Letter Agreement dated June 28, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri, previously filed as Exhibit
99 to the Registrant's Report on Form 8-K dated July 15, 1996 is incorporated
herein by reference.
(iii) Letter Agreement dated August 2, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri previously filed as Exhibit
10(b)(iii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iv) Letter Agreement dated August 16, 1996 relating to the sale of Hunter's
Glen Apartments previously filed as Exhibit (99)(d) to the Registrant's Report
on Form 8-K dated August 16, 1996 is incorporated herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Willow
Bend Lake Apartments, East Baton Rouge Parish, Louisiana previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated September 30, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana, is
attached hereto.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana, is
attached hereto.
(d)(i) Agreement of Sale and letter agreements thereto relating to the sale of
Marbrisa apartment complex, Hillsborough County, Florida previously filed as
Exhibit 2(a) to the Registrant's Report on Form 8-K dated July 15, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale dated August 16, 1996 relating to the
sale of Marbrisa Apartments, Hillsborough County, Florida, previously filed as
Exhibit (99)(a)(i) to the Registrant's Report on Form 8-K dated August 16, 1996
is incorporated herein by reference.
(iii) Letter Agreement dated August 20, 1996 relating to the sale of Marbrisa
Apartments, Hillsborough County, Florida, previously filed as Exhibit
(99)(a)(ii) to the Registrant's Report on Form 8-K dated August 16, 1996 is
incorporated herein by reference.
(iv) Letter Agreements relating to the sale of Marbrisa Apartments,
Hillsborough County, Florida, previously filed as Exhibit (99)(b) to the
Registrant's Report on Form 8-K dated September 30, 1996 is incorporated herein
by reference.
(e)(i) Agreement of Sale dated September 3, 1996 relating to the sale of
Chestnut Ridge - Phase I Apartments, Fort Worth, Texas previously filed as
Exhibit 2 to the Registrant's Report on Form 8-K dated August 16, 1996 is
incorporated herein by reference.
(ii) Letter Agreement relating to the sale of Chestnut Ridge - Phase I
Apartments, Fort Worth, Texas, previously filed as Exhibit (99)(a) to the
Registrant's Report on Form 8-K dated September 30, 1996 is incorporated herein
by reference.
(f)(i) Agreement of Sale and attachment thereto relating to the sale of Park
Crossing Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(a)
to the Registrant's Report on Form 8-K dated September 16, 1996 is incorporated
herein by reference.
(ii) First Amendment to Agreement of Sale relating to the Sale of Park Crossing
Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(b) to the
Registrant's Report on Form 8-K dated September 16, 1996 is incorporated herein
by reference.
(iii) Letter relating to the sale of Park Crossing Apartments, Gwinnett County,
Georgia previously filed as Exhibit 2(c) to the Registrant's Report on Form 8-K
dated September 16, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1996 is attached hereto.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K dated August 16, 1996 was filed reporting
a contract to sell Chestnut Ridge Apartments, Phase I located in Fort Worth,
Texas and the extension of the closing dates for the sales of Marbrisa
Apartments located in Hillsborough County, Florida, and Hunters Glen Apartments
located in St. Louis County, Missouri. Also, reported the closing of the sale
of Country Oaks Apartments located in Memphis, Tennessee and the termination of
the contracts to sell Willow Bend Lake Apartments located in East Baton Rouge,
Louisiana, and Steeplechase Apartments located in Lexington-Fayette, Kentucky.
(ii) A Current Report on Form 8-K dated September 16, 1996 was filed reporting
the contract to sell the Park Crossing Apartments located in Gwinnett County,
Georgia.
(iii) A Current Report on Form 8-K dated September 30, 1996 was filed reporting
contracts to sell Willow Bend Lake Apartments located in East Baton Rouge
Parish, Louisiana. Also, reported were the closings of the sales of Chestnut
Ridge Apartments, Phase I located in Fort Worth, Texas, and Hunters Glen
Apartments located in St. Louis County, Missouri, and Marbrisa Apartments
located in Hillsborough County, Florida.
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 REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVII, the
General Partner
By: /s/ Jayne A. Kosik
----------------------------------
Jayne A. Kosik
Vice President, and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Partners-XVII, the General Partner
Date: November 14, 1996
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