UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327914
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, IL 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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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
PART I
Item 1. Business
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Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $59,791,000 from sales of Limited
Partnership Interests. The Registrant's operations consisted exclusively of
investment in and operation of income-producing real property, and all
financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
real property. As of December 31, 1996, the Registrant had disposed of seven
properties and the property in which it held a minority joint venture interest.
The Registrant's one remaining property described under "Item 2. Properties"
was sold in January 1997. The Partnership Agreement generally provides that the
proceeds of any sale or refinancing of the Registrant's properties will not be
reinvested in new acquisitions. See "Item 7. Liquidity and Capital Resources"
for additional information.
Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction. While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997. However, values could
begin to level off as they approach replacement cost triggering new
construction and an increase in capitalization rates.
The investment market for apartments was excellent during 1996 due to a number
of factors. Investor interest was strong, driven primarily by institutions, as
Real Estate Investment Trusts aggressively expanded their portfolios and
pension funds viewed apartments as an attractive asset class due to their
perceived low volatility and the emergence of large professional property
management companies. Operationally, existing apartment properties registered
on a national basis occupancy in the mid 90's and rental rate increases of 3-4%
in 1996. While above the rate of inflation, the rate of rental growth in 1996
was below that of the previous two years suggesting that the apartment cycle
may have plateaued, especially as the impact of new construction in many areas
is being felt. While 1997 is projected to be another solid year, values should
begin to level off as capitalization rates move upward continuing a trend which
began during the second half of 1996.
The Registrant's remaining property at December 31, 1996, Lake Ridge
Apartments, was subject to certain competitive conditions in the market in
which it was located. See "Item 7. Liquidity and Capital Resources" for
additional information.
During 1996, the Registrant sold the Pines of Cloverlane, Lakeside, Brighton
Townhomes, Lakeville and Cedar Crest apartment complexes. During January 1997,
the Registrant sold its remaining property, the Lake Ridge Apartments. A
majority of the proceeds from the sales was distributed to Limited Partners
during 1996 and the first quarter of 1997. The Registrant has retained a
portion of the cash to satisfy obligations of the Registrant as well as
establish a reserve for contingencies. The timing of the termination of the
Registrant 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 Registrant including, but not limited to, the lawsuits discussed
in "Item 3. Legal Proceedings." In the absence of any contingency, the reserves
will be paid within twelve months of the last property sale. In the event a
contingency continues to exist or arises, reserves may be held by the
Registrant for a longer period of time.
During March 1996, the Registrant sold the Pines of Cloverlane and Lakeside
apartment complexes for $18,974,000 and $14,100,000, respectively. During
August, October and November 1996, the Registrant sold the Brighton Townhomes,
Lakeville and Cedar Crest apartment complexes, respectively, for $11,150,000,
$27,200,000 and $21,550,000, respectively. See "Item 7. Liquidity and Capital
Resources" for additional information.
During January 1997, the Registrant sold the Lake Ridge Apartments in an all
cash sale for $5,400,000. See "Item 1. Other Information" and "Item 7.
Liquidity and Capital Resources" for additional information.
The Registrant, by virtue of its ownership of real estate, is subject to
federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware
of any potential liability due to environmental issues or conditions that would
be material to the Registrant.
The officers and employees of Balcor Partners-XIX, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Other Information
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Lake Ridge Apartments
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As previously reported, on October 1, 1996, the Registrant contracted to sell
Lake Ridge Apartments, Fresno, California, to an unaffiliated party,
Fowlershore & Flanagan, a California general partnership, for a sale price of
$5,400,000. The purchaser and the Registrant agreed to extend the closing date
from December 1, 1996 and the sale closed on January 9, 1997. The purchaser
assigned its rights under the agreement of sale to an affiliate, FSF Lake Ridge
Associates, LLC, a California limited liability company. From the proceeds of
the sale, the Registrant repaid the outstanding balances of the first and
second mortgage loans of $4,123,938 and $86,200, respectively, and paid a
prepayment penalty of $126,222, $108,000 to an unaffiliated party as a
brokerage commission, $67,500 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 $21,156 in closing costs. The
Registrant received the remaining proceeds of approximately $867,000.
Item 2. Properties
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As of December 31, 1996, the Registrant owned in fee simple the Lake Ridge
Apartments located in Fresno, California. This property, a 200-unit apartment
complex located on approximately 11 acres, was sold during January 1997. See
Note 14 of Notes to Financial Statements for additional information.
The average occupancy rate and effective average rent per unit for each of the
last five years for the remaining property owned by the Registrant at December
31, 1996, is described below.
1996 1995 1994 1993 1992
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Lake Ridge Apartments*
Occupancy Rate 91% 90% 93% 97% 96%
Effective Rate $494 $484 $484 $484 $474
*This property was sold during 1997. See Note 14 of Notes to Financial
Statements for additional information.
Apartment units in the above property are rented with leases of one year or
less, with no tenant occupying greater than ten percent of the property.
The above property was held subject to two mortgages as described in more
detail in Note 5 of Notes to the Financial Statements.
Real estate taxes incurred in 1996 for the above property totaled $76,212.
The Federal tax basis of the Registrant's property totaled $7,714,522 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the property are depreciated over a useful life of 19 years, using the ACRS
method. Other minor assets are depreciated over their applicable recovery
periods.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment property.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Proposed class action
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On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The 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' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has 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
Registrant.
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 Registrant, 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 Registrant 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; general damages for
injuries arising from the defendants' alleged actions; equitable relief,
including rescission, on certain counts; punitive damages; treble damages on
certain counts; recovery from the defendants of all profits received by them as
a result of their alleged 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. The Registrant believes it has 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
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see "Item 7. Liquidity and Capital Resources -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was approximately 5,037.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
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Total income $9,793,385 $16,504,017 $16,104,170 $15,556,850 $14,850,044
Loss before gain
on sale of
assets and
extraordinary
items (925,551) (1,270,329) (1,284,604) (1,466,532) (2,805,340)
Net income (loss)29,092,474 (1,357,201) (1,284,604) (185,093) (2,805,340)
Net income (loss)
per Limited
Partnership
Interest 481.70 (22.47) (21.27) (3.06) (46.45)
Total assets 17,991,055 64,231,391 64,717,186 67,387,602 70,842,488
Mortgage notes
payable 4,210,138 74,196,579 73,208,295 74,429,557 77,183,221
Distributions per
per Limited
Partnership
Interest (A) 119.00 2.50 None None None
(A) These amounts include distributions of Original Capital of $114.00 per
Limited Partnership Interest in 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Realty Investors 86 - Series I (the "Partnership") sold five properties
during 1996 and recognized significant gains on these sales. These events
resulted in the recognition of net income during 1996 as compared to a net loss
during 1995. No material events occurred during 1995 or 1994 which
significantly impacted the net loss of the Partnership. Further discussion of
the Partnership's operations is summarized below.
1996 Compared to 1995
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Rental and service income decreased in 1996 as compared to 1995 primarily due
to the 1996 sales of the Pines of Cloverlane, Lakeside, Brighton Townhomes,
Lakeville Resort and Cedar Crest apartment complexes.
Higher average cash balances due to the investment of the proceeds from the
property sales prior to distribution to Limited Partners in April and October
1996, resulted in an increase in interest income on short-term investments
during 1996 as compared to 1995.
Interest expense on mortgage notes payable decreased in 1996 as compared to
1995, primarily due to the repayment of mortgage loans with proceeds from the
1996 property sales.
The Partnership paid lenders' participations of $1,844,713 in connection with
the sales of the Lakeside and Brighton Townhomes apartment complexes during
1996.
Depreciation expense decreased in 1996 as compared to 1995 due to the 1996
property sales.
Amortization of deferred expenses decreased in 1996 as compared to 1995 due to
the 1996 property sales.
Property operating expenses decreased during 1996 as compared to 1995 due to
the 1996 property sales.
Real estate tax expense decreased in 1996 as compared to 1995 due to the 1996
property sales.
Property management fees decreased in 1996 as compared to 1995 due to the 1996
property sales.
The Partnership incurred higher legal and consulting costs in connection with a
response to a tender offer during the fourth quarter of 1995. During 1995 the
Partnership also reimbursed the General Partner for legal fees previously
advanced by the General Partner with respect to a lawsuit which was dismissed.
As a result, administrative expenses decreased during 1996 as compared to 1995.
The Partnership sold the Pines of Cloverlane, Lakeside, Brighton Townhomes,
Lakeville Resort and Cedar Crest apartment complexes during 1996 and recognized
gains totaling $37,198,777.
The Lakeville Resort and Cedar Crest apartment complexes were owned through
joint ventures with affiliates. As a result of the affiliates' share of the
gain recognized from the property sales during 1996, affiliates' participation
in income from joint ventures increased during 1996 as compared to 1995.
As a result of the 1996 property sales, the Partnership wrote off the remaining
unamortized deferred expenses in the amount of $531,135. This amount has been
classified as debt extinguishment expense, with $195,204 representing the
affiliates' share. As a result of the 1995 Lakeville Resort Apartments
refinancing, the Partnership recognized an extraordinary debt extinguishment
expense of $145,393 relating to the write off of the remaining unamortized
deferred expenses on the former mortgage note, of which $58,521 represented the
affiliate's share.
1995 Compared to 1994
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Higher rental and occupancy rates at the Cedar Crest, Lakeville Resort and
Brighton Townhomes apartment complexes resulted in an increase in rental and
service income during 1995 as compared to 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments during 1995 as compared to 1994.
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In June 1995, the mortgage note was refinanced
with a new lender. The former mortgage note carried an interest rate based on a
market index and increases in this index had caused an increase in interest
expense during 1995 as compared to 1994. In connection with this transaction,
the Partnership also recognized an extraordinary debt extinguishment expense of
$145,393 relating to the write off of the remaining unamortized deferred loan
fees on the former mortgage note, of which $58,521 represented the affiliate's
share.
The amortization of deferred loan fees on the new Lakeville mortgage note was
less than the amortization related to the former mortgage note, resulting in a
decrease in amortization expense for 1995 as compared to 1994.
Higher expenditures in 1994 at the Lakeville Resort apartment complex relating
to exterior painting and carpeting expenses, resulted in a decrease in property
operating expense during 1995 as compared to 1994.
The Partnership incurred legal, consulting, printing and postage costs in
connection with a tender offer during the fourth quarter of 1995. The
Partnership also reimbursed the General Partner for legal fees previously
advanced by the General Partner with respect to a lawsuit which was dismissed.
These events resulted in an increase in administrative expenses during 1995 as
compared to 1994.
Improved operations of approximately $561,000 at the Lakeville Resort
Apartments, which were partially offset by higher interest expense on the
mortgage note of approximately $195,000, resulted in affiliates' participation
in income from joint ventures during 1995 as compared to affiliates
participation in losses during 1994.
Liquidity and Capital Resources
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The Partnership's cash position increased by approximately $11,765,000 as of
December 31, 1996 when compared to December 31, 1995 primarily as a result of
the proceeds received in connection with the sales of the Lakeville Resort and
Cedar Crest apartment complexes in 1996. In January 1997, the Partnership made
a special distribution of $9,566,560 from sales proceeds to Limited Partners.
The Partnership's cash flow used in operating activities of approximately
$591,000 was generated from the operations of its properties and interest
income on short-term investments, which were offset by the payment of
administrative expenses and lender participations. Cash provided by investing
activities of approximately $70,268,000 consisted primarily of proceeds
received from the five property sales, net of closing costs, of approximately
$70,602,000. Cash used in financing activities of approximately $57,912,000
consisted primarily of the repayment of mortgage notes payable of approximately
$48,345,000, distributions to Limited Partners of approximately $7,115,000, and
distributions to the joint venture partner - affiliate of approximately
$2,671,000.
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 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. During 1996 and
1995, the Partnership's remaining property, the Lake Ridge Apartments,
generated positive cash flow and had an occupancy rate of 92% as of December
31, 1996.
The Lakeside Apartments was sold in March 1996 and generated a marginal cash
flow deficit prior to its sale in 1996 as compared to positive cash flow in
1995. The Pines of Cloverlane Apartments was sold in March 1996 and generated a
significant cash flow deficit prior to its sale in 1996 as compared to positive
cash flow in 1995. The Brighton Townhomes Apartments was sold in August 1996,
the Lakeville Apartments was sold in October 1996 and the Cedar Crest
Apartments was sold in November 1996. Each of these properties generated
positive cash flow prior to its sale in 1996 and during 1995.
Lake Ridge Apartments is located in northeast Fresno, California and, because
of its proximity to major thoroughfares and the airport, it is considered to be
one of the better properties in the market. The Fresno/Clovis multi-family
market, which consists of approximately 35,000 units, has been either flat or
declining through much of the 1990's and averaged 90 percent occupancy in 1996.
Average occupancy at the property in 1996 was 91 percent, while the sub-market
occupancy for similar product type averaged 92 percent. Fresno is an
agricultural based city with a migratory population. Although much of
California appears to be pulling out of the recession it has been in for much
of the last several years, Fresno continues to maintain a stagnant economy with
few prospects for significant growth in the near term.
During 1996, the Partnership sold the Pines of Cloverlane, Lakeside, Brighton
Townhomes, Lakeville Resort and Cedar Crest apartment complexes. During January
1997, the Partnership sold the Lake Ridge Apartments. A majority of the
proceeds from the sales was distributed to Limited Partners during 1996 and
January 1997. The Partnership has retained a portion of the cash to satisfy
obligations of the Partnership as well as establish a reserve for
contingencies. 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 including,
but not limited to, the lawsuits discussed in "Item 3. Legal Proceedings." In
the absence of any contingency, the reserves will be paid within twelve months
of the last property sale. In the event a contingency continues to exist or
arises, reserves may be held by the Partnership for a longer period of time.
In March 1996, the Partnership sold the Pines of Cloverlane Apartments in an
all cash sale for $18,974,000. From the proceeds of the sale, the Partnership
paid $14,208,240 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $288,460 in selling costs and also funded an escrow
of $335,000 required in connection with the sale. The remaining proceeds were
distributed as a special distribution to the Limited Partners in April 1996.
See Note 10 of Notes to Financial Statements for additional information.
In March 1996, the Partnership sold the Lakeside Apartments in an all cash sale
for $14,100,000. From the proceeds of the sale, the Partnership paid
$12,426,799 to the third party mortgage holder in full satisfaction of the
first mortgage loan and paid $299,150 in selling costs and $467,557 in lender
participation. Lender participation represents additional interest paid to the
lender calculated as a percentage of the sales price in excess of amounts
specified in the loan agreement. The remaining proceeds were distributed as a
special distribution to the Limited Partners in April 1996. See Note 10 of
Notes to Financial Statements for additional information.
In August 1996, the Partnership sold the Brighton Townhomes Apartments in an
all cash sale for $11,150,000. From the proceeds of the sale, the Partnership
paid $6,858,644 to the third party mortgage holder in full satisfaction of the
first mortgage loan and paid $221,925 in selling costs and $1,377,156 in lender
participation. Lender participation represents additional interest paid to the
lender calculated as a percentage of the sales price in excess of amounts
specified in the loan agreement. The remaining proceeds were distributed as a
special distribution to the Limited Partners in October 1996. See Note 10 of
Notes to Financial Statements for additional information.
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In October 1996, the joint venture sold the
property in an all cash sale for $27,200,000. The purchaser took title subject
to the existing first mortgage loan in the amount of $20,795,872. From the
proceeds of the sale, the joint venture paid $355,000 in selling costs. The net
proceeds of the sale were $6,049,128 of which $3,614,354 was the Partnership's
share. Pursuant to the terms of the sale, $500,000 of the proceeds were
retained by the joint venture until February 1997. The full amount of the
holdback was released in February 1997. The Partnership's share of the
remaining proceeds received by the joint venture were distributed to the
Limited Partners in January 1997. See Note 10 of Notes to Financial Statements
for additional information.
The Cedar Crest Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In November 1996, the joint venture sold the
property in an all cash sale for $21,550,000. From the proceeds of the sale,
the joint venture paid $14,851,661 to the third party mortgage holder in full
satisfaction of the first mortgage loan and paid $411,239 in selling costs. The
net proceeds of the sale were $6,287,100, of which $6,058,250 was the
Partnership's share. Pursuant to the terms of the sale, $500,000 of the
proceeds were retained by the joint venture until March 1997. The full amount
of the holdback was released in March 1997. The Partnership's share of the
remaining proceeds received by the joint venture were distributed to the
Limited Partners in January 1997. See Note 10 of Notes to Financial Statements
for additional information.
In January 1997, the Partnership sold the Lake Ridge Apartments in an all cash
sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first mortgage and second mortgage loans, respectively, and paid
$196,656 in selling costs and $126,222 in prepayment penalties. The remaining
available proceeds are expected to be distributed to the Limited Partners in
1997. See Note 14 of Notes to Financial Statements for additional information.
The Partnership commenced distributions in October 1995 and made distributions
totaling $119.00 and $2.50 per interest in 1996 and 1995, respectively. See
Statement of Partners' Capital for additional information. Distributions were
comprised of $5.00 of Net Cash Receipts and $114.00 of Net Cash Proceeds
consisting of Net Cash Proceeds from the sales of the Lakeside, Pines of
Cloverlane, and Brighton Townhomes apartment complexes in 1996 and $2.50 of Net
Cash Receipts in 1995.
In January 1997, the Partnership paid a distribution of $9,865,515 ($165.00 per
Interest) to holders of Limited Partnership Interests. This distribution
represents a distribution of Net Cash Receipts for the fourth quarter of 1996
of $5.00 per Interest, and a special distribution of Net Cash Proceeds of
$160.00 per Interest, of Net Cash Proceeds received in connection with the
sales of the Lakeville Resort and Cedar Crest apartment complexes. Including
the January 1997 distribution, Limited Partners have received cumulative
distributions of Net Cash Receipts of $12.50 per $1,000 Interest and Net Cash
Proceeds of $274.00 per $1,000 Interest, totaling $286.50 per $1,000 Interest,
as well as certain tax benefits. Future distributions will be made from
available Net Cash Proceeds, as to which there can be no assurances. In light
of results to date, investors will not 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
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
plans relating to property of the Partnership, as well as assumptions relating
to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
Item 8. Financial Statements and Supplementary Data
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See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1996 December 31, 1995
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $17,991,055 $25,183,206 $64,231,391 $51,295,140
Partners' capital
(deficit) accounts:
General Partner (326,247) (54,002) (617,172) (966,767)
Limited Partners 12,723,428 19,418,332 (8,962,989) (17,708,648)
Net income (loss):
General Partner 290,925 912,765 (13,572) (17,469)
Limited Partners 28,801,549 44,242,112 (1,343,629) (1,922,539)
Per Limited Part-
nership Interest 481.70 739.95 (22.47) (32.15)
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XIX, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
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Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman, President
and Chief Executive Officer and has responsibility for all ongoing day-to-day
activities at Balcor. He is a Director of The Balcor Company. He is also Senior
Vice President of American Express Company and is responsible for its real
estate operations worldwide. Prior to joining Balcor, Mr. Meador was employed
at the Harris Trust and Savings Bank in the commercial real estate division
where he was involved in various lending activities. Mr. Meador received his
M.B.A. degree from the Indiana University Graduate School of Business.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for
Balcor's property sales activities. He also has supervisory responsibility for
Balcor's accounting, financial, treasury, investor services and investment
administrative functions. From 1989 to 1995, Mr. Mendelson was Vice
President - Transaction Management and Vice President - Senior Transaction
Manager and had responsibility for various asset management matters
relating to real estate investments made by Balcor, including negotiations
for the restructuring of mortgage loan investments. Mr. Mendelson received
his M.B.A. degree from the University of Chicago.
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He received a Master of Planning degree from the University of
Virginia. Mr. Powell has been designated a Certified Real Estate Financier by
the National Society for Real Estate Finance and is a full member of the Urban
Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Managing Director of The Balcor
Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $2,119 in 1996 with respect to one of the executive
officers and directors of Balcor Partners - XIX, the General Partner. The
Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. Certain of
these remaining officers receive compensation from The Balcor Company (but not
from the Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the General
Partner believes that any such compensation attributable to services performed
for the Registrant is immaterial to the Registrant. See Note 9 of Notes to
Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ---------------- ---------------- ----------------
Limited WIG 86-I 1,996 3.30%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 1,526 2.53%
Partnership Acquisition VII, L.L.C. Limited
Interests Greenville, Partnership
South Carolina Interests
While WIG 86-I Partners and Metropolitan Acquisition VII, L.L.C. individually
own less than 5% of the Interests, for purposes of this Item 12, WIG 86-I
Partners is an affiliate of Metropolitan Acquisition VII, L.L.C. and,
collectively, they own 5.83% of the Interests.
(b) Balcor Partners-XIX and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 230 Interests Less than 1%
Relatives and affiliates of the officers and partners of the General Partner
own an additional 5 Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
is set forth as Exhibit 3 to Amendment No. 1 to Registrant's Registration
Statement on Form S-11 dated December 16, 1985 (Registration No. 33-361), and
said Agreement and Certificate is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), and Form of Confirmation regarding Interests in the
Partnership set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1992 are incorporated herein by reference.
(10) Material Contracts:
(a)(i) The Agreement of Sale and attachment thereto relating to the sale of
Pines of Cloverlane Apartments previously filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K dated January 25, 1996 is incorporated
herein by reference.
(ii) First, Second and Third Amendments to Agreement of Sale relating to the
sale of Pines of Cloverlane Apartments previously filed as Exhibits (10)(ii),
(10)(iii) and (10)(iv), respectively, to the Registrant's Report on Form 10-K
for the year ended December 31, 1995 is incorporated herein by reference.
(b)(i) The Agreement of Sale and attachment thereto relating to the sale of the
Lakeside Apartments previously filed as Exhibit 2 to the Registrant's Current
Report on Form 8-K dated February 21, 1996 is incorporated herein by reference.
(c)(i) The Agreement of Sale and attachment thereto relating to the sale of the
Lakeville Resort Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated April 23, 1996 is incorporated herein by
reference.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Lakeville Resort Apartments, Petaluma, California, previously filed as Exhibit
(10)(c)(ii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iii) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated herein by reference.
(iv) Letter Agreements dated May 22, 1996 and July 8, 1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iv) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated herein by reference.
(v) Letter Agreements dated August 20, 1996, September 19, 1996 and September
30, 1996 relating to the sale of Lakeville Resort Apartments, Petaluma,
California, previously filed as Exhibit (99)(a) to the Registrant's Report on
Form 8-K dated August 16, 1996 are incorporated herein by reference.
(d)(i) The Agreement of Sale relating to the sale of Brighton Townhomes
Apartments previously filed as Exhibit (10)(v) to the Registrant's Report on
Form 10-Q for the quarter ended March 31, 1996 is incorporated herein by
reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement dated May 31,
1996 relating to the sale of Brighton Townhomes, Washington County, Oregon,
previously filed as Exhibit (10)(d)(ii) to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996 is incorporated herein by reference.
(iii) Letter of Termination dated June 12, 1996 relating to the sale of
Brighton Townhomes, Washington County, Oregon, previously filed as Exhibit
(10)(d)(iii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iv) Reinstatement and Second Amendment to Agreement of Sale and Escrow
Agreement June 13, 1996 relating to the sale of Brighton Townhomes, Washington
County, Oregon, previously filed as Exhibit (10)(d)(iv) to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996 is incorporated herein
by reference.
(v) Letter of Extension dated July 8, 1996 relating to the sale of Brighton
Townhomes, Washington County, Oregon, previously filed as Exhibit (10)(d)(v) to
the Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated herein by reference.
(e) Agreement of Sale and attachment thereto relating to the sale of Cedar
Crest Apartments, Overland Park, Kansas, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated August 16, 1996 incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated August 16, 1996 was
filed reporting the contract to sell the Cedar Crest Apartments, Overland Park,
Kansas and Lake Ridge Apartments, Fresno, California, the closing of the sale
of Brighton Townhomes, Washington County, Oregon and the extension of the
closing of the sale of Lakeville Resort Apartments, Petaluma, California.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: See Index to Financial Statements and
Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Jayne A. Kosik
-------------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting Officer)
of Balcor Partners-XIX, the
General Partner
Date: March 27, 1997
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------- --------------------------------- --------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XIX,
/s/Thomas E. Meador the General Partner March 27, 1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of
Balcor Partners-XIX,
/s/Jayne A. Kosik the General Partner March 27, 1997
- -------------------- --------------
Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital (Deficit), for the years ended December 31,
1996, 1995 and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1996
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 86-Series I
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Realty Investors
86-Series I A Real Estate Limited Partnership at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon disposition of all its
interests in real estate. In January 1997, the Partnership disposed of its
remaining real estate assets. Upon resolution of the litigation described in
Note 12 to the financial statements, the Partnership intends to cease
operations and dissolve.
/s/Coopers & Lybrand, LLP
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26,1997
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 12,857,731 $ 1,093,098
Escrow deposits 533,283 2,246,696
Accounts and accrued interest receivable 171,078 5,857
Prepaid expenses 14,178 229,129
Deferred expenses, net of accumulated
amortization of $39,380 in 1996 and
$378,475 in 1995 35,799 619,028
------------- -------------
13,612,069 4,193,808
------------- -------------
Investment in real estate:
Land 1,045,776 11,137,023
Buildings and improvements 5,789,366 83,187,367
------------- -------------
6,835,142 94,324,390
Less accumulated depreciation 2,456,156 34,286,807
------------- -------------
Investment in real estate, net of
accumulated depreciation 4,378,986 60,037,583
------------- -------------
$ 17,991,055 $ 64,231,391
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 133,372 $ 119,006
Due to affiliates 117,361 28,823
Accrued liabilities, principally
real estate taxes 35,921 330,070
Security deposits 32,222 420,724
Mortgage notes payable 4,210,138 74,196,579
------------- -------------
Total liabilities 4,529,014 75,095,202
------------- -------------
Affiliates' participation in
joint ventures 1,064,860 (1,283,650)
------------- -------------
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
(Continued)
Commitments and contingencies
Limited Partners' capital (deficit)
(59,791 Interests issued and outstanding) 12,723,428 (8,962,989)
General Partner's capital (326,247) (617,172)
------------- -------------
Total partners' capital (deficit) 12,397,181 (9,580,161)
------------- -------------
$ 17,991,055 $ 64,231,391
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1996, 1995 and 1994
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners
-------------- ------------- ------------
Balance at December 31, 1993 $ (6,788,878)$ (590,754)$ (6,198,124)
Net loss for the year
ended December 31, 1994 (1,284,604) (12,846) (1,271,758)
-------------- ------------- ------------
Balance at December 31, 1994 (8,073,482) (603,600) (7,469,882)
Cash distribution to Limited
Partners (A) (149,478) (149,478)
Net loss for the year
ended December 31, 1995 (1,357,201) (13,572) (1,343,629)
-------------- ------------- ------------
Balance at December 31, 1995 (9,580,161) (617,172) (8,962,989)
Cash distributions to Limited
Partners (A) (7,115,132) (7,115,132)
Net income for the year
ended December 31, 1996 29,092,474 290,925 28,801,549
-------------- ------------- ------------
Balance at December 31, 1996 $ 12,397,181 $ (326,247)$ 12,723,428
============== ============= ============
(A) Summary of distributions per Limited Partnership Interest:
1996 1995 1994
-------------- ------------- ------------
First Quarter $ 2.50 None None
Second Quarter 74.00 None None
Third Quarter 2.50 None None
Fourth Quarter 40.00 $ 2.50 None
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- ------------- ------------
Income:
Rental and service $ 9,578,314 $ 16,418,264 $ 16,036,758
Interest on short-term
investments 215,071 85,753 67,412
-------------- ------------- ------------
Total income 9,793,385 16,504,017 16,104,170
-------------- ------------- ------------
Expenses:
Interest on mortgage
notes payable 3,512,383 6,558,223 6,287,058
Lender participations 1,844,713
Depreciation 1,459,148 2,791,655 2,791,654
Amortization of deferred
expenses 52,094 117,694 150,206
Property operating 3,698,151 5,350,302 5,698,854
Real estate taxes 683,574 1,422,161 1,391,861
Property management fees 501,502 816,124 800,216
Administrative 597,871 718,055 373,708
-------------- ------------- ------------
Total expenses 12,349,436 17,774,214 17,493,557
-------------- ------------- ------------
Loss before gain on sales of
properties, affiliates'
participation in joint ventures
and extraordinary item (2,556,051) (1,270,197) (1,389,387)
Gain on sales of properties 37,198,777
Affiliates' participation in
(income) loss from joint
ventures (5,214,321) (132) 104,783
-------------- ------------- ------------
Income (loss) before
extraordinary item 29,428,405 (1,270,329) (1,284,604)
-------------- ------------- ------------
Extraordinary item:
Debt extinguishment expense (531,135) (145,393)
Affiliates' participation in
debt extinguishment expense 195,204 58,521
-------------- ------------
Total extraordinary item (335,931) (86,872)
-------------- ------------- ------------
Net income (loss) $ 29,092,474 $ (1,357,201)$ (1,284,604)
============== ============= ============
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995 and 1994
(Continued)
1996 1995 1994
-------------- ------------- ------------
Income (loss) before
extraordinary item allocated
to the General Parnter $ 294,284 $ (12,703)$ (12,846)
============== ============= ============
Income (loss) before
extraordinary item allocated
to the Limited Partners $ 29,134,121 $ (1,257,626)$ (1,271,758)
============== ============= ============
Income (loss) before
extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) $ 487.26 $ (21.03)$ (21.27)
============== ============= ============
Extraordinary item allocated
to General Partner $ (3,359)$ (869) None
============== ============= ============
Extraordinary item allocated
to Limited Partners $ (332,572)$ (86,003) None
============== ============= ============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) $ (5.56)$ (1.44) None
============== ============= ============
Net income (loss) allocated to
General Partner $ 290,925 $ (13,572)$ (12,846)
============== ============= ============
Net income (loss) allocated to
Limited Partners $ 28,801,549 $ (1,343,629)$ (1,271,758)
============== ============= ============
Net income (loss) per Limited
Partnership Interest (59,791
issued and outstanding) $ 481.70 $ (22.47)$ (21.27)
============== ============= ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- ------------- ------------
Operating activities:
Net income (loss) $ 29,092,474 $ (1,357,201)$ (1,284,604)
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Gain on sales of properties (37,198,777)
Debt extinguishment expense 531,135 145,393
Affiliates' participation
in debt extinguishment
expense (195,204) (58,521)
Affiliates' participation
in income (losses) from
joint ventures 5,214,321 132 (104,783)
Depreciation of properties 1,459,148 2,791,655 2,791,654
Amortization of deferred
expenses 52,094 117,694 150,206
Collection of insurance
proceeds 94,425
Net change in:
Escrow deposits 983,862 (262,415) 127,029
Accounts and accrued
interest receivable (165,221) 61,179 9,312
Prepaid expenses 214,951 (229,129)
Accounts payable 14,366 (50,354) (33,523)
Due to affiliates 88,538 (45,644) (5,674)
Accrued liabilities (294,149) 160,196 43,222
Security deposits (388,502) (19,490) 20,725
-------------- ------------- ------------
Net cash (used in) provided by
operating activities (590,964) 1,253,495 1,807,989
-------------- ------------- ------------
Investing activities:
Proceeds from sales of
properties 72,178,128
Payment of selling costs (1,575,774)
Funding of escrow in connection
with sale of property (335,000)
-------------
Net cash provided by investing
activities 70,267,354
-------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(Continued)
1996 1995 1994
-------------- ------------- ------------
Financing activities:
Distributions to Limited
Partners $ (7,115,132)$ (149,478)
Capital contributions by joint
venture partner - affiliate 374,657 $ 47,039
Distributions to joint venture
partners - affiliates (2,670,607) (328,376) (131,556)
Issuance of mortgage notes
payable 20,932,600
Repayment of mortgage notes
payable (48,345,344) (18,728,280)
Principal payments on
mortgage notes payable (845,225) (1,216,036) (1,221,262)
Payment of deferred expenses (499,868)
Funding of improvement escrows (1,604,551)
Release of improvement escrows 1,064,551
-------------- ------------- ------------
Net cash used in financing
activities (57,911,757) (1,219,332) (1,305,779)
-------------- ------------- ------------
Net change in cash and cash
equivalents 11,764,633 34,163 502,210
Cash and cash equivalents at
beginning of year 1,093,098 1,058,935 556,725
-------------- ------------- ------------
Cash and cash equivalents at
end of year $ 12,857,731 $ 1,093,098 $ 1,058,935
============== ============= ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") was engaged principally in the operation of residential real
estate investments located in various markets within the United States. The
Partnership sold its remaining property in January 1997.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold the Pines of Cloverlane,
Lakeside, Brighton Townhomes, Lakeville Resort and Cedar Crest apartment
complexes. During January 1997, the Partnership sold the Lake Ridge Apartments.
A majority of the proceeds from the sales were distributed to Limited Partners
during 1996 and January 1997. The Partnership has retained a portion of the
cash to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. 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 including,
but not limited to, the lawsuits discussed in Note 12 of Notes to Financial
Statements. In the absence of any contingency, the reserves will be paid within
twelve months of the last property sale. In the event a contingency continues
to exist or arises, reserves may be held by the Partnership for a longer period
of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
As properties are sold, the related costs and accumulated depreciation are
removed from the repective accounts. Any gain or loss on dispostion is
recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership records its investments in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties based on the current sale price less
estimated closing costs. In the event the General Partner determines an
impairment in value has occurred, and the carrying amount of the real estate
asset will not be recovered, a provision is recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considers the method referred to above to result in a reasonable measurement of
a property's fair value, unless other factors affecting the property's value
indicate otherwise.
(d) Deferred expenses consist of financing fees which are amortized over the
terms of the respective loan agreements. Upon sale, any remaining balance is
recognized as debt extinguishment expense and classified as an extraordinary
item.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(f) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is invested
or held primarily in one financial institution.
(g) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(h) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
4. Partnership Agreement:
The Partnership was organized on October 1, 1984. The Partnership Agreement
provides for Balcor Partners-XIX to be the General Partner and for the
admission of Limited Partners through the sale of up to 250,000 Limited
Partnership Interests at $1,000 per Interest, 59,791 of which were sold on or
prior to July 31, 1986, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
1% of all profits and losses. One hundred percent of Net Cash Receipts
available for distribution will be distributed to the holders of Interests in
proportion to their Participating Percentages as of the record date for such
distributions. There will, however, be accrued for the benefit of the General
Partner as its distributive share from operations, an amount equivalent to
approximately 1% of the total Net Cash Receipts being distributed. The accrued
amount will be paid as a part of the General Partner's share of distributed Net
Cash Proceeds. Under certain circumstances, the General Partner may participate
in the Net Cash Proceeds of the sale or refinancing of Partnership properties.
The General Partner's participation is limited to 15% of remaining Net Cash
Proceeds after the return of Original Capital plus any deficiency in the
Cumulative Distribution of 6% on Adjusted Original Capital to the holders of
Interests. Based on the amount of Net Cash Proceeds received by the Partnership
from the sales of its properties and the amount of Net Cash Receipts received
by the Partnership, the General Partner will not receive any distributions of
Net Cash Receipts or Net Cash Proceeds.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1996 and 1995 consisted of the
following:
Carrying Carrying Current Final
Property Amount of Amount of In- Matur- Current Estimated
Pledged as Notes at Notes at terest ity Monthly Balloon
Collateral 12/31/96 12/31/95 Rate % Date Payment Payment
- -------------- ---------- ---------- -------- ------ ------- ----------
Apartment Complexes:
Brighton
Townhomes(A) None $ 7,069,078
Cedar Crest(A) None 15,294,576
Lakeside (A) None 12,445,156
Lakeville
Resort(A)(B) None 20,879,579
Lake Ridge(C) $ 4,210,138 4,241,100 10.05% 2000 $37,983 $3,999,000
Pines of
Cloverlane (A) None 14,267,090
----------- -----------
Total $ 4,210,138 $74,196,579
=========== ===========
(A) This property was sold in 1996. See Note 10 of Notes to Financial
Statements for additional information.
(B) In June 1995, the mortgage note was refinanced with a new lender. The
interest rate decreased from a variable rate of approximately 10.4% to a fixed
rate of 8.2%. The maturity date was extended from April 1997 to July 2030 and
the monthly payment of principal and interest decreased from a variable payment
(of approximately $209,000) to a fixed payment of $151,727. A portion of the
proceeds from the new $20,932,600 first mortgage loan was used to repay the
existing mortgage note of $18,728,280 as well as to pay deferred loan fees of
$499,868 and fund an improvement escrow of $1,604,551.
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In connection with this refinancing, the
Partnership recognized an extraordinary debt extinguishment expense of $145,393
relating to the write off of the remaining unamortized deferred loan fees on
the former mortgage note, of which $58,521 represents the affiliate's share.
(C) In January 1997, this property was sold. See Note 14 of Notes to Financial
Statements for additional information.
The Lake Ridge Apartments first and second mortgage loans described above
required current monthly payments of principal and interest.
Real estate with an aggregate carrying value of $4,378,986 at December 31, 1996
was pledged as collateral for repayment of the remaining mortgage loan.
During 1996, 1995 and 1994, the Partnership incurred and paid interest expense
on mortgage notes payable of $3,726,596, $6,558,223 and $6,287,058,
respectively.
6. Management Agreements:
As of December 31, 1996, the Partnership's remaining property was under a
management agreement with a third-party management company. The management
agreement provides for annual fees of 5% of gross operating receipts.
7. Affiliates' Participations in Joint Ventures:
The Cedar Crest and Lakeville Resort apartment complexes were each owned by the
Partnership and an affiliate. Both properties were sold in 1996. Profits and
losses were allocated 96.36% to the Partnership and 3.64% to the affiliate for
Cedar Crest Apartments, and 59.75% to the Partnership and 40.25% to the
affiliate for Lakeville Resort Apartments. All assets, liabilities, income and
expenses of the joint ventures are included in the financial statements of the
Partnership with the appropriate adjustment to profit or loss for each
affiliate's participation. Net contributions (distributions) of $(2,670,607),
$46,281 and $(84,517) were made to joint venture partners during 1996, 1995 and
1994, respectively. In addition, joint venture partners were allocated their
pro rata share of the gain on the sales of the Lakeville and Cedar Crest
apartment complexes of $4,877,854 and $334,258, respectively, in 1996.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder, and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified
in the Internal Revenue Code. The net effect of these accounting
differences is that the net income for 1996 in the financial statements is
$16,062,403 less than the tax income of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees None None None None $734,296 None
Reimbursement of expenses
to General Partner,
at cost:
Accounting $13,192 $18,021 $42,252 $2,280 60,490 $29,580
Data processing 5,403 3,195 28,190 2,113 44,397 10,161
Investor communica-
tions None None 5,112 None 12,506 6,116
Legal 12,364 16,499 27,962 2,944 12,847 6,283
Portfolio management 52,663 71,103 105,436 12,199 28,114 13,749
Property sales admin-
istration 28,393 8,543 11,838 9,169 None None
Other 118 None 10,960 118 17,542 8,578
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $12,750, $97,161 and $149,324 for 1996, 1995 and 1994, respectively.
10. Property Sales:
(a) In March 1996, the Partnership sold the Pines of Cloverlane Apartments in
an all cash sale for $18,974,000. From the proceeds of the sale, the
Partnership paid $14,208,240 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $288,460 in selling costs.
The Partnership also funded an escrow of $335,000 required in connection with
the sale. The basis of the property was $12,369,952, which is net of
accumulated depreciation of $10,441,365. For financial statement purposes, the
Partnership recognized a gain of $6,315,588 from the sale of this property.
(b) In March 1996, the Partnership sold the Lakeside Apartments in an all cash
sale for $14,100,000. From the proceeds of the sale, the Partnership paid
$12,426,799 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $299,150 in selling costs and $467,557 in lender
participation. Lender participation represents additional interest paid to the
lender calculated as a percentage of the sales price in excess of amounts
specified in the loan agreement. The basis of the property was $9,316,152,
which is net of accumulated depreciation of $4,876,088. For financial statement
purposes, the Partnership recognized a gain of $4,484,698 from the sale of this
property.
(c) In August 1996, the Partnership sold the Brighton Townhomes Apartments in
an all cash sale for $11,150,000. From the proceeds of the sale, the
Partnership paid $6,858,644 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $221,925 in selling costs and
$1,377,156 in lender participation. Lender participation represents additional
interest paid to the lender calculated as a percentage of the sales price in
excess of amounts specified in the loan agreement. The basis of the property
was $5,575,515, which is net of accumulated depreciation of $3,326,131. For
financial statement purposes, the Partnership recognized a gain of $5,352,560
from the sale of this property.
(d) The Lakeville Resort Apartments was owned by a joint venture consisting of
the Partnership and an affiliate. The Partnership and the affiliate hold
participating percentages in the joint venture of 59.75% and 40.25%,
respectively. In October 1996, the joint venture sold the property in an all
cash sale for $27,200,000. The purchaser took title subject to the existing
first mortgage loan in the amount of $20,795,872. From the proceeds of the
sale, the joint venture paid $355,000 in selling costs. The basis of the
property was $15,083,209, which is net of accumulated depreciation of
$8,320,036. For financial statement purposes, the Partnership recognized a gain
of $11,761,791 from the sale of this property, of which $4,877,854 is the
minority joint venture partner's share.
(e) The Cedar Crest Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The Partnership and the affiliate hold
participating percentages in the joint venture of 96.36% and 3.64%,
respectively. In November 1996, the joint venture sold the property in an all
cash sale for $21,550,000. From the proceeds of the sale, the joint venture
paid $14,851,661 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $411,239 in selling costs. The basis of the
property was $11,854,621 which is net of accumulated depreciation of
$6,326,179. For financial statement purposes, the Partnership recognized a gain
of $9,284,140 from the sale of this property, of which $334,258 is the minority
joint venture partner's share.
11. Extraordinary Item:
The Partnership wrote off the remaining unamortized deferred financing fees in
the amount of $531,135 as a result of the sales of the Pines of Cloverlane,
Cedar Crest and Lakeville Resort apartment complexes during 1996. This amount
was recognized as an extraordinary item and classified as debt extinguishment
expense, of which $195,204 represents the affiliates' share.
12. Contingency:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain federal securities law violations with regard
to the adequacy and accuracy of disclosures of information concerning, as well
as marketing efforts related to, the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
these actions. A plaintiff class has not been certified in either action and,
no determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
13. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
Mortgage Notes Payable: Based on borrowing rates available to the Partnership
at the end of 1996 and 1995 for mortgage loans with similar terms and
maturities, the fair value of the mortgage notes payable approximates the
carrying value.
14. Subsequent Events:
(a) In January 1997, the Partnership paid a distribution of $9,865,515 ($165.00
per Interest) to the holders of Limited Partnership Interests. This
distribution represents a distribution of Net Cash Receipts for the fourth
quarter of 1996 of $5.00 per Interest and a special distribution of $160.00 per
Interest of Net Cash Proceeds received in connection with the sales of the
Cedar Crest and Lakeville Resort apartment complexes.
(b) In January 1997, the Partnership sold the Lake Ridge Apartments in an all
cash sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first and second mortgage loans, respectively, and paid $196,656 in
selling costs and $126,222 in prepayment penalties. For financial statement
purposes, the Partnership will recognize a gain during the first quarter of
1997 of approximately $829,000 from the sale of this property.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1996
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ----------------------------
Cost Adjustments
Initial Cost Subsequent
to Partnership to Acquisition
------------------- -----------------------------
Buildings Carrying
Encum- and Im- Costs Reduction
Description brances Land provements (a) of Basis
- --------------------- ------- -------- ------------ ---------- ----------
Lake Ridge Apts.,
200-unit complex in
Fresno, CA (d) $1,177,569 $6,518,958 $17,995 $(879,380)(e)
----------- ----------- --------- ------------
Total $1,177,569 $6,518,958 $17,995 $(879,380)
=========== =========== ========= ============
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1996
(Continued)
Col. A Col. E Col. F Col. G Col. H Col. I
- ------------------- --------------------------------- -------- --------- -------- --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
--------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (b) tion(c) struction uired is Computed
------------------- -------- ---------- ---------- --------- --------- ------ -------------
Lake Ridge Apts.,
200-unit complex in
Fresno, CA (f) $ 1,045,776 $ 5,789,366 $ 6,835,142 $ 2,456,156 1986 2/86 (g)
----------- ----------- ----------- -----------
Total $ 1,045,776 $ 5,789,366 $ 6,835,142 $ 2,456,156
=========== =========== =========== ===========
BALCOR REALTY INVESTORS 86-SERIES I
A Real Estate Limited Partnership
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction period interest.
(b) The aggregate cost of land for Federal income tax purposes is $1,180,321
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $6,534,201. The total of these is $7,714,522.
(c) Reconciliation of Accumulated Depreciation
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance at beginning of year $ 34,286,807 $31,495,152 $28,703,498
Accumulated depreciation of
properties sold (33,289,799)
Depreciation expense for
the year 1,459,148 2,791,655 2,791,654
----------- ----------- -----------
Balance at end of year $2,456,156 $34,286,807 $31,495,152
=========== =========== ===========
(d) See description of Mortgage Notes Payable in Note 5 of Notes to Financial
Statements.
(e) Lake Ridge Apartments had a reduction of basis due to an impairment of the
asset value in 1988.
(f) In January 1997, this property was sold. See Note 14 of Notes to the
Financial Statements for additional information.
(g) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5